Don't get caught in rising tide of credit-card debt

March 11, 1994|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Come on, it's modern and easy: Buy your groceries with a credit card.

That's the aggressive pitch being made by card issuers in 1994. More supermarkets around the country now accept plastic, which has become cost-effective for them because credit-card companies have reduced the processing fees that grocers must pay on card transactions.

Yet no matter how attractive the television commercials may seem, think twice before charging up that cart of yogurt, pork chops and cereal.

If you resist temptation and pay off your balance religiously each month, it might be acceptable. But running up a big credit-card balance for the necessities of life increases your chance of sending your family budget into a vicious spiral of compounding high finance charges. It would be a shame to go down the tubes financially over food.

With the economy reviving, credit-card spending is growing and consumer mailboxes are filling up with card offers. Get your debt priorities in shape now.

"Credit-card debt has been rising at a 10 to 12 percent annual rate over the past several months," said Charles Luckett, senior economist with the Federal Reserve Board in Washington, D.C. "Expansion of consumer spending is one reason, along with the fact that a lot of the cards have enhancements, such as frequent-flier miles and rebates, that encourage greater usage."

Although the Fed boosted short-term interest rates, competitive pressure is keeping card rates lower than in the past. The average interest rate on bank credit cards has dropped to 16.78 percent this year, the lowest since 1977. Nearly half of all credit cards now have no annual fees.

"In recession, we had a slowing of credit card usage, but we never experienced a retraction, and volume just keeps going up year after year," observed Robert McKinley, president of RAM Research Corp. "The fast-food restaurant industry is just now coming on line because technology has reached a point where the transaction to make sure the card hasn't been stolen can be completed in two-and-one-half to three seconds so the customer can get out quickly."

(RAM Research's CardTrak newsletter, P.O. Box 1700, Frederick, Md. 21702, follows industry trends and lists lowest-rate cards. A single issue is $5 and a six-month subscription $30.)

Along with improved technology comes temptation. "Our concern is not that consumers use their cards at grocery stores or fast-food restaurants, but whether they pay off the bill when it comes in, since carrying higher balances incurs those expensive finance charges," warned Ruth Susswein, executive director of the nonprofit Bankcard Holders of America, who believes two credit cards are sufficient for most consumers. "Similarly, a card that offers a rebate or frequent-flier miles is only a terrific deal so long as you're paying off the full amount and not running up finance charges."

(Bankcard Holders of America, 560 Herndon Parkway, Suite 120, Herndon, Va. 22070, for $5 offers a list of frequent-flier and rebate credit cards, and for $4 will provide a list of the best low-interest and no-annual-fee cards.)

Always find the actual rate, fees and terms of any card that features awards and decide whether it offers anything you really want.

Ten million consumers now carry the General Motors MasterCard, and more than 100,000 of them have used the rebates earned on this 16.4 percent card to purchase a new GM vehicle. But you must be a high spender to make it work, charging $10,000 in a year to earn the full $500 rebate, noted Susswein. Every dollar charged on the basic GM card earns a 5 percent rebate ($500 per year or $3,500 over seven years), with those rebates redeemable to ward purchase or lease of a new GM vehicle.

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