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Credit Card Woes May Be Your Own Fault

My Jan. 21 column about dirty tricks credit card companies play on consumers drew quite a response. Readers wrote to share their own stories of bad service, unfair practices and ridiculous fees.

But a few people also tried to blame the companies for problems that were their own damn fault.

One writer whined about a bank that jacked up his interest rate after he missed a payment. Notice: This was not an on-time payment the company claimed was late; it wasn’t a payment that was late but received before the next billing cycle.

In this case, the payment wasn’t sent at all. The bank, in turn, took away a cushy single-digit rate and raised it to more than 20%.

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Was that punitive? Absolutely.

Was it justified? You bet.

People who blow off payments are bad credit risks, and their debt gets priced accordingly. Yes, companies used to be more forgiving, but that’s before more than 1 million people each year started declaring bankruptcy.

Another reader expressed his frustration about how confusing credit card offers are today, then admitted he wasn’t sure what the terms “balance transfer,” “purchase” and “cash advance” meant. Yikes. Companies are just waiting to pounce on people who don’t bother to learn the vocabulary of the credit card game before they play it.

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Cash advances are particularly bad news. They have always been an expensive way to get spending money, but now they’re even worse. Card companies typically charge fees of 2% to 3% for each cash advance, then tack on annual interest rates of 20% or more--even if the card has a much lower rate for purchases (the bill for stuff you buy) or transfers (the bill for stuff you bought with another card, then moved to this card).

Another reader was cranky about the way her payments were applied. Her card had two rates: a low rate for the balance she transferred from another card and a higher rate for new purchases. Her payments, of course, were applied first to the lower promotional rate, which meant her purchases kept accruing interest at the higher rate.

I have some sympathy. Credit card companies love to coax people to charge more by offering them sweet rates; the lenders are hoping when the rate expires, customers won’t be able to pay off their bills and will be forced to pay the higher rate. The welter of different rates can be confusing.

But the companies spell out exactly how they’re going to apply your payments to your balances when you apply for the card, and will often repeat the description on your monthly statement as well. You can bet their system is not designed to benefit you. After all, First USA, Citibank and the rest are not public charities. If they can get you to be stupid about your money, that’s their profit-making right.

Obviously, there’s a fine line between what’s a dirty trick and what’s not. Sending someone an application for a “pre-approved” card, then substituting another card with much worse terms qualifies as a dirty trick. So does not reporting a borrower’s on-time payment history to a credit bureau, lest competitors steal the card company’s better customers.

But putting restrictions and limitations on a low interest rate doesn’t qualify as a dirty trick, not by a long shot.

Credit card debt, by definition, is a bad idea. It’s corrosive to your financial health and much too expensive for what you get--essentially, the luxury of temporarily living above your means.

The smartest thing consumers can do is to pay off their balances so that they never pay a dime in interest. Short of that, the least we can do is read the fine print.

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Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the financial planner training program at UC Irvine. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. For past Money Talk questions and answers, visit The Times’ Web site at https://www.latimes.com/moneytalk.

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Read the Fine Print

Savvy consumers must read the fine print in credit card offers and understand a basic glossary of terms, below. For more information on credit card basics, visit https://www.bankrate.com.

* APR: The annual percentage rate, or APR, is the interest rate charged on any balance that is not paid in full each month. Issuers are required to include an annualized APR figure in any credit card offer, making it easier for consumers to compare rates.

* Balance transfer: The amount moved from one card to another. Card issuers may impose higher--or lower--rates on such balances. Some card issuers offer low teaser rates for balance transfers, but also include a 3% charge for the transaction that could offset any savings.

* Teaser rate: Low introductory rates that typically expire after three to six months.

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* Cash advance: Consumers who use their credit cards to get cash typically must pay 2% of the total for the privilege, plus a higher interest rate on the borrowed money.

* Grace period: Most companies allow cardholders 25 days from the date of the bill before assessing interest rate charges. This grace period for new purchases typically disappears if the cardholder already has a balance on the card.

* Late fee: Credit card issuers typically impose a fee of $29 if payments are received after the due date. Many card issuers also increase the annual percentage rate if a payment is late.


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