Handling credit cards responsibly

Your Money

March 11, 2007|By Carolyn Bigda | Carolyn Bigda,Chicago Tribune

When you watch Janne O'Donnell and Trisha Johnson talk, you almost vow on the spot to never use a credit card again. Each is a mom with a college-age child who committed suicide while loaded with credit-card debt.

They are among many people interviewed in a new film documentary, Maxed Out, which explores the U.S. consumer's addiction to debt and unapologetically blames the industry as making it nearly impossible for people to ever get clean.

But Americans' credit problems cannot be blamed entirely on the banks, of course. We want the big houses with an elevator and laundry room on each floor, as a Las Vegas real estate agent in the film shows.

But the interest rates and fees that credit-card issuers charge certainly don't help. Nor do the debt collectors that relentlessly hound families when things go wrong.

Although the film makes your blood boil, it doesn't pointedly ask the banks to explain their practices. But despite that drawback, it's joined by a growing number of critics voicing concern about issuer tactics.

The Government Accountability Office published a study in the fall that said credit card disclosures - where all those fees and rates are spelled out - were "too complicated" for many consumers to understand.

The Federal Reserve has started a major review of those disclosures, and, in January, the Senate Banking Committee held another hearing on whether credit card terms are fair.

You probably don't need a movie, government agency or group of senators to tell you that, when used incorrectly, a credit card can be a big headache. And no matter what changes are made, credit cards aren't going anywhere.

Today, you can use the plastic at more places and with greater ease.

We put $51 billion worth of fast food on credit and debit cards in 2006, up from $33.2 billion the year before, according to CardData, which tracks the industry.

Still, because credit cards are a staple of banks' business, some issuers are making changes to attract and keep customers.

Recently, for example, Citibank announced it would stop practicing universal default, a policy in which your interest rate is based not only on your history with that issuer but on all other lenders.

The bank also said it no longer would change the terms of your credit card at "any time for any reason." New terms would be introduced only when the card expires.

Sounds good, but Citibank specifies that if you pay late, exceed your credit limit or send a check that bounces you will be charged a higher interest rate and fees.

And with penalty rates as high as 30 percent or more and late fees as much as $39, you've got to play it safe. Here's how to handle credit responsibly:

Pay on time.

Missing the due date not only is expensive but also could affect your credit report, which other lenders use to decide what interest rate to charge you. If you're too busy to pop a check in the mail, sign up for online payments and e-mail alerts reminding you that the bill is due.

Pay as much as you can.

Make only the minimum payment and you could be paying off your credit-card bill for years, even if you don't charge anything else.

Need help finding extra cash? The American Institute of Certified Public Accountants recently launched "Feed the Pig," a three-year campaign to raise awareness among 25- to 34-year-olds about the benefits of savings. You can get savings and budgeting tips at www.feedthepig.org.

"Credit cards are absolute killers if abused," said Carl George, chairman of the National CPA Financial Literacy Commission. "But you can chip away at that ... in small pieces."


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