This page has tips to avoid debt, what to do
if you think you are being unfairly treated by your credit card company, how to
check your credit report, and how to stop mail solicitations.
Here are our six tips to avoid getting stuck
with deep credit card debt:
1) Shop
around before getting a card. Deceptive terms and conditions abound throughout
the industry. Look for:
- An APR of 15% or lower;
- No annual fees;
- No universal default clause (where a credit card
company claims the right to impose penalty rates if you are allegedly late
paying to a different creditor or utility company). This is also called "risk-based re-pricing."
- No "we can change the terms at any time for any reason including no reason" clause.
Also, read
the fine lines on teaser rates - make sure that you don't agree to a low rate
that then can rocket above 15-20% after the 90-day teaser expires.
2) Use credit
cards sparingly. Ideally, if you can't pay off the balance each month, then don't use them for day-to-day purchases. Companies try to lure you with "rewards programs"
and incentives so you will use your credit card to pay for everything from
pizza to rent to gasoline expenses. The debt you'll incur outpaces any
additional value of what you gain in rewards. A 1% reward doesn't reduce a 25%
APR very much! So pay for day-to-day and cost-of-living expenses in cash as
much as possible. Use the credit card only for the big ticket necessities you
need to accomplish your main priorities.
3) Pay off
balances in full each month. Companies keep the minimum monthly payment low so
that you'll extend your payment over time and rack up additional debt in
interest. If you can't pay off the card in full, then make the largest payment
possible each month. Always pay more than the minimum required.
4) Make your
payments as early as possible every month (at least 7-10 days before it is due)
to avoid late charges. Also, watch for the trick of the "changing due
date" (e.g., all of a sudden, your bill is due on the 25th, not the 30th).
Companies routinely charge late fees which can be over $30. Worse, when you pay
late, nearly half of all companies also jack up your interest rate to 25-30%
APR or more! Some credit card companies even impose penalty rates (universal
default) if you are late to a different creditor or utility company but on time
to them.
5) Call your
credit card company and ask for a lower rate. It's cheaper for a credit card
company to keep a customer than find a new one, so if you think that your
interest rate is too high, call the number on your card and ask for a lower
one. In a recent U.S. PIRG study, over half the consumers who called lowered their
rates by a third or more.
The following chart shows how rapidly interest accumulates if you only make a low minimum payment. It’s even worse with a bigger balance.
6) If you have a problem paying, seek help. See if the university has a financial counselor you can consult with. Consider cutting up (or locking up) your card and paying it off in a timely manner with a personal loan from a family member. Consider talking to a credit counseling service, but be careful as this once-respectable business now includes numerous fly-by-night operations. Watch out for “debt consolidation” plans. Be wary of “debt management plans” that require an upfront payment that goes only to the service (not to paying down your debts). According to the non-profit consumer lawyers at the National Consumer Law Center, there are seven warning signs of a bad credit counselor, including high fees, agents paid on commission, and the hard sell.
Do You Think You Have Been Unfairly Treated?
If you believe you are the
victim of unfair interest rate charges, late fees or other penalties, or
deceptive marketing, and the credit card company fails to address your
complaint, file complaints with your state Attorney General’s office
(www.naag.org) and the national Office of the Comptroller of the Currency
(which regulates most of the biggest credit card companies and will forward
your complaint to a different regulator if needed).
The Office of the
Comptroller of the Currency
Website: www.occ.treas.gov/customer.htm
Email: Customer.Assistance@occ.treas.gov
Phone: 1-800-613-6743
Address: Customer Assistance Group
1301 McKinney Street, Suite 3710
Houston, TX
77010
Keep originals of all items, keep a log of all communications, including phone calls (ask customer service reps their names) and follow up in writing wherever possible.
How To Check Your Credit Report
Check your credit reports at
least once a year for errors by the three national credit bureaus (Experian,
Equifax and Trans Union) that collect data on your financial history. Correct
any errors immediately because your credit report and credit "scores" generated from it are the main indicators of your
creditworthiness. All consumers have a right to a free annual credit report
from each of the three bureaus, but only through the federally-mandated joint website
at www.annualcreditreport.com,
or call it at 877-322-8228.**
Watch out for “upsell” offers,
where the three bureaus try to get you to pay more by signing up for “trial offers” for their over-priced (up to $15/month), unnecessary “credit monitoring”
services.
Consumers in CO, GA (2/year),
MA, MD, ME, NJ, and VT are also entitled to one additional free report per
bureau per year directly from the bureaus. Consumers in other states may have
to pay up to $8 per additional report, unless they’ve recently been denied
credit, are unemployed, or suspect that they are victims of identity theft .
Get information on how to obtain these additional reports at:
Equifax, 1-800-685-1111
Experian, 1-888-397-3742
TransUnion, 1-800-888-4213
If you live in one of the seven states with additional rights, or have been a victim as above, be sure to assert your right to a free report. Follow the instructions on the materials the bureaus send you to correct errors.
How To Stop Mail Solicitations
Under federal law, a consumer
can reduce the number of credit and insurance solicitations received through the mail that are
generated from the consumer’s credit report (you’ll still receive offers from
your college, the airlines you use, or stores where you shop). You can find out
more here at this government website:
http://www.ft
c.gov/bcp/conline/pubs/credit/prescreen.shtm.
You can opt out for either five
years or permanently—you can later choose to opt back in. Call this toll-free
number 1-888-5-OPTOUT (1-888-567-8688) or visit www.optoutprescreen.com. If you use the website, you can avoid giving your Social Security Number. If you use the phone number, you'll need to give it.
