Credit-card quagmire ever beckons Widow, 75, finds herself on the 180-year, high-interest plan

Financial services

September 29, 1997|By ORANGE COUNTY REGISTER

Mary Wilson couldn't understand why she never seemed to make a dent in her credit-card bill.

She never used the card for purchases. Each month, she dutifully mailed her $54 monthly payment to the bank. But in 17 months, her $2,700 balance had dropped only to $2,689.

When she finally sat down to examine her account, she was shocked by what she found. Her interest rate, which she believed to be capped at 14 percent, had soared to nearly 23 percent. Some months, her $54 minimum payment didn't even cover the interest, driving her further into debt.

It's not hard to understand her frustration. If Wilson continues on her current payment schedule, it will take the 75-year-old widow 180 years to repay the bill. Yes, that's right. One hundred and eighty years.

How is that possible? It's not as uncommon as one might think. And it illustrates the importance of carefully scrutinizing credit-card debts and reading those monthly statements.

About two years ago, the Laguna Hills, Calif., resident got a call from Chevy Chase Bank. Did she want a new Visa with an interest rate that would start at 7 percent and never rise above 14 percent? Wilson didn't need the card but figured it might come in handy for emergencies.

In February 1996, just such an emergency arose. To pay off her property taxes, she used one of the blank "convenience" checks provided by the credit-card company. At the time, the interest rate was 11 percent, her statements show.

During the next year and a half, Wilson paid little attention to the account. Her son had major surgery. A grandson married. She moved to Leisure World.

The bills came, and she paid them. But by throwing out those little notices in her monthly statement, Wilson failed to notice that Chevy Chase relocated its headquarters to another state.

Corporation relocations for credit-card companies are always a red flag for consumers. Since credit-card companies are regulated by the laws of their home state, banks often shift operations to take advantage of more liberal state laws regarding fees and interest.

In Wilson's case, the interest on her existing debt shot up to about 23 percent, or about 1.9 percent a month.

At the same time, Wilson was paying only 2 percent of her balance a month.

Add to that a couple of late fees (including one levied when she mistakenly sent the bank $53 instead of the minimum $54) and Chevy Chase's practice of compounding finance charges daily -- which essentially charges interest on the interest -- and it's no surprise that Wilson wasn't making any progress on repaying her balance.

In fact, sometimes her debt was getting larger. Because some billing periods had 31 or even 32 days, Wilson's 2 percent minimum payment wasn't even covering the finance charges. She found little assistance after complaining on the bank's toll-free hot line. "I asked, 'How am I ever going to repay this?' " Wilson says. "A young woman said, 'Simple, send us a check.' " Eventually, another representative suggested that the great-grandmother make larger payments.

Bank officials declined to comment on Wilson's account, citing privacy concerns.

Wilson's problems provide several valuable lessons:

Read your statement carefully, especially the small print.

If your interest rate goes up sharply, ask why.

Watch out for changes in fees, interest or other terms when a credit-card company relocates to a new state.

Get any promises from credit-card representatives on interest rates or other terms in writing.

Pay more than the minimum payment each month. You'll repay the debt much faster and save bundles in interest.

Now Wilson just wants to get the bill out of her mind. She is planning to sell her home and hopes to use some of the proceeds to pay off the credit-card bill.

Pub Date: 9/29/97

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