Credit Cards: The Hidden Costs

Washington, DCCredit cards: They're convenient to use and easy to get. They also have the power to land you in financial ruin and your spending habits aren't entirely to blame. The problem is that card issuers have been ramping up fees and charges - in many cases without even telling you.

The end result is that table lamp you bought with plastic suddenly costs you many, many times the original price - and you're left with a credit card balance that is virtually impossible to get out from under. Just paying the monthly interest and carrying charge could lead the average consumer straight into bankruptcy.

You can expect charges when you go over your limit, or miss a payment. But how about spending up to fifty percent of your limit? That happened to one woman, who saw her interest rate jump from 7.9 per cent to 29.9 per cent just because she exceeded, by a hair, fifty per cent of her credit limit. She managed to pay off her balance and told the bank what they could do with their card.

She was lucky. There are others who wind up drowning in debt they didn't even bring on themselves. One man went over his limit by $200. The sponsoring bank lost no time in charging late payment and over limit fees that amounted to well over $10,000 on a balance just over $3,000.

However, there is a change in the wind, and the credit environment is slowly improving. In the meantime, credit card companies remain firmly in the driver's seat as they continue to have a field day with your money.

Some have raised interest rates on outstanding balances to unheard-of levels - 39 per cent, in one case. As if that's not enough to satisfy the shareholders and keep the banks rolling in profits - new, creative and destructive fees are gouging Americans in the pocketbook at an alarming rate.

Universal Default is a little-known practice that sees the bank keeping a constant eye on your credit history. You may have a stellar payment record on your credit card, but might have been a bit late with your phone bill. That's enough for the bank to raise your rate, based on their opinion that suddenly, you are a bad credit risk.

The gravy train for the banks appears to have no end: foreign currency conversion fees, annual membership fees, and late payment charges.

The practice of two-cycle billing operates under the premise that the credit card issuer will charge interest across two payment cycles, or months. You may have paid the largest portion of your balance, leaving a minimal amount that you would expect to pay interest on. With two-cycle billing, you are charged interest on the outstanding balance, as well as the previous balance - which you have already paid.

Even so, such fees and practices pale in comparison to the interest rate hikes which occur when you miss a payment by one day - even a couple of hours. You may have had the card for years, with a perfect payment history. Then you miss it by one day, or you make the payment so late on the due date that it doesn't go through until the next business day. Sorry, but you're late - and your interest goes up by 30 per cent, in some cases.

Recently, the Senate Subcommittee on Investigations began looking into the credit card industry, in an effort to put a stop to some of the most outrageous and unfair practices.

However, it's hard to call the banks to the carpet for simple greed. Legally, they're in the right. So long as a charge, fee or practice is written in the fine print of your credit card contract, they can do what they want. Most people have no clue as to what's in their contract. Few read the fine print; fewer still take the time to understand it. Meantime, credit card companies fall all over themselves enticing the consumer with low introductory fees and attractive loan transfer rates.

It's when there's a problem - even a minor one - that consumers are stuck with the painful reality of super-charged fees. And the credit card company is laughing all the way to the bank.

What You Can Do
It's wise to read your contract, and understand fully what it says. If in doubt, take it to your bank and have someone explain it to you, in plain language. Know what can trigger a rate hike, and avoid it at all costs. Instead of making your payments on time, make them early. That gives you some contingency.