‘Grace Period’ May Be Thing of Past
Q: Is my perception correct that the payment cycle on my credit card bill is getting shorter and shorter? I generally pay the entire balance off each month so as not to accrue interest charges. But it just seems as though there is less time than ever between the time I get the bill and the date payment is due. Is my feeling accurate? And if it is, why is it happening? --K.G.S.
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A: Your perception could be correct, although maybe you are noticing normal fluctuations in the billing cycle. But while there have been new twists in credit card billing, experts say there has actually been little change in recent years in the length of time card issuers allow as a “grace period.”
According to Ram Research, near Baltimore, Md., most of the more than 9,000 card issuers in the United States require payment in full on credit cards within 25 days from the close of the billing cycle. If full payment is not received within that grace period, interest charges start accruing.
However, in recent years, a few credit card issuers, notably CitiBank, have dropped some payment cycles down to as few as 20 days or 21 days from the billing date. The reasons, a bank spokesman explained, stem from the need to manage the volume of bill mailings. A Ram Research associate, however, said issuers are increasingly trying to squeeze a 13th billing cycle into the year and need a shortened cycle to accomplish it.
In addition to adding a 13th cycle, said Ram’s Robert McKinley, some issuers, notably Discover Card, retroactively eliminate the initial grace period when card holders fail to pay off their entire balance. In other words, if you do not pay your entire Discover balance by the date it is due, in your next billing statement you would see that Discover calculates your interest back to the beginning of that earlier billing period. It’s what’s known in the credit industry as “two cycle average daily balance” interest charging method.
Remembering the name isn’t as important as remembering the consequences: you will be effectively charged two month’s interest on the entire amount of your charges in those billing cycles.
Hardest hit by this practice are borrowers who sporadically pay off their entire bill and then run up new charges that are not wiped clean for several months. Under two-cycle billing, the borrower gets slapped with interest on money they have repaid. The effect on a borrower who constantly carries a stable balance on his account isn’t as severe because such borrowers tend to have the same outstanding balance whether it is calculated over one or two billing cycles. But cardholders who periodically pay off their charges completely wind up taking an extra drubbing every time they do not pay off the balance.
McKinley says another trick card issuers--especially the big banks--are now using is to back-date credit charges to the date the purchases were made, not necessarily the date that the transaction was received by the card issuer. This effectively sets the interest meter, if there is interest to be paid, at an earlier date.
At the other extreme, American Express’ new “True Grace” Optima card gives credit card borrowers a grace period on new charges even if they have an outstanding balance.
But McKinley believes that “grace periods” may become extinct. He argues--and persuasively--that with the advent of debit cards tied to checking accounts, borrowers will increasingly be asked to pay for the privilege of “buying now and paying later.” Under this scenario, the interest clock would begin ticking the minute you made your charge, just as some card issuers today begin charging you interest on cash advances on your charge card from the moment you get the money. Just remember, if something is too good to be true, it usually doesn’t stay that way too long.
Read the Fine Print of Mortgage Terms
Q: I own an apartment complex that is now worth substantially less than I owe on it. I am considering letting it go to foreclosure or asking my lender to accept a deed in lieu of foreclosure. I realize that my credit record will be blemished for many years, but what I am really concerned about is whether the lender can force me to repay the entire loan. I assumed the loan from the seller when I bought the complex. -- S.T.C.
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A: Generally speaking, loans used to purchase real estate, so called “purchase money” loans, are considered non-recourse loans. This means that the lender has no recourse to the borrower’s other assets for repayment of the debt. However, refinanced mortgages generally give the banks full recourse to the borrower’s assets. You would be wise to read the fine print of the loan you assumed to see what kind of loan it is, and whether those terms still apply when the loan is assumed by another borrower.
You would also be wise to consult a trusted financial and legal adviser before pursuing the course you have laid out.
Many Factors Affect Odds of Living Long
Q: We were trying to decide how much extra life insurance to buy through our company at open enrollment, and I got to wondering about what exactly the odds are that I will die this year. I’m 45 years old. -- C.A.
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A: Of course, you realize many factors can affect the odds, from eating habits to hobbies. The odds are better for women than men, whites than blacks, non-smokers than smokers. The leading causes of death for people between 45 and 64 are cancer and heart disease. For people between 25 and 44, the two leading causes are accidents and then cancer.
But to answer your question precisely: According to the Statistical Abstract of the United States, in 1990, 3.66 45-year-old men died for every 1,000 men in the population, or 0.366%. For women, the figure is 1.92. The figure ranges from about 1 per 1,000 for both sexes at age 19, to 10 at age 58 and 62 at age 80.
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Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. Or send e-mail to carla.lazzareschi@latimes.com
