Using credit or charge cards to pay for purchases is a fact of life in today’s economy. Credit cards are convenient and easy to use – so much so that, according to a 2015 Federal Reserve report, the average American household owes more than $9000 in credit card debt.
But when something is too easy, people sometimes abuse it. Knowing when you’re over your head in credit card debt and when to seek help are key steps in your quest for financial freedom.
Credit card solicitations appear in your mailbox, and they look tempting. But then you are charged unexpected fees or discover that your interest rate is not what you anticipated.
First is the legal reality: When you signed up for the card, you were warned in advance. While the letters may have been small or the details buried in pages of disclosures, the credit card company did inform you that it could raise the interest rate, shorten the grace period or unilaterally change the relationship.
How To Review A Credit Card Offer
Investigate these details before obtaining a credit card:
Variable Rate or APR: The initial rate offered may increase after an introductory period or when the card company increases the “base rate.”
Grace periods: The original disclosure, or periodic updated disclosure, defines the number of days before interest is charged on a new purchase. This helps you know when to pay your bill to avoid extra interest and fees.
Late payments: Beyond basic fees such as those for late or returned payments, the card company can automatically raise your interest rate if you miss or are late on two payments. There is also “universal default” when a late payment on one account leads to an increased interest rate on another account.
Credit limit: If your credit limit is $2,000 and you charge enough during a permanent change of station to raise the total balance to $2,020, you can expect a fee of $10, $20 or more.