1. Your grace period may be shortened -- or eliminated.

• Usually a credit card bill is handled this way: You buy an item with your credit card. The store reports the charge to the credit card company or bank. The credit card company then pays the store and "posts" the charge to your account. If you do not pay off the account within the 25-day grace period, interest is charged, beginning on the date that the charge was posted to your account.
• However, some banks have shortened the grace period to 20 days -- only if you pay off your account in full each month! This amounts to a penalty for customers who always pay off their credit card debts.
• Some credit cards have eliminated the grace period entirely. You must pay interest on everything, from the day you buy it, even if you pay the full balance each month.

2. Low monthly payments have a high price tag.

• You may think it is beneficial to have a card that only requires a monthly payment of 2% or 3% of the balance. It is just the opposite. The longer you carry out payments, the more of your money the bank stands to collect in "finance charges." Your best bet is to pay off your entire balance each month. If you cannot do that, pay off as much as you can afford.

3. You may pay interest twice in one month.

• If you paid off your full balance in January, but then failed to pay the total balance in February, some credit cards will bill you for two months' worth of interest. This is called "two-cycle billing."

4. Cash advances cost you extra.

• Most credit card issuers impose both a finance charge and a transaction fee on cash advances. Interest starts from the day of the advance, and the transaction fee is often 2.5% of the amount taken.
• Even credit cards that advertise "no finance charges" usually charge transaction fees.

5. The real deal is in the fine print.

• Don't fall for a "teaser" credit card offer. If you are offered a new credit card with a low introductory rate, such as 6%, read the fine print: When the introductory period ends, your entire balance will probably be subject to a much higher rate such as 28%.
• Your new credit card may also come with benefits such as a free lifetime warranty, discounts on travel, or protection if a purchased item is lost. But if you sign up, be sure to read all notices of changes in the terms of your account. Credit card companies normally withdraw the special features while raising the interest rate and finance charges.

6. It may look like a credit card . . .

• Some MasterCard and Visa cards have payments deducted directly from your checking account. These "debit cards" look exactly like credit cards, but they offer less consumer protection:
  • You don't have the same right to "charge back" problem purchases.
  • If you miss payments, the bank may be able to withdraw funds from your checking account without your approval.
  • If the card is lost or stolen, you must report the problem within 60 days or be liable for all purchases made with the stolen card.

7. You can negotiate a better deal.

• If you are getting a bad deal on your credit card -- such as an "annual fee," finance charges of 18% or more, no grace period, and "two-cycle" billing -- you can contact the credit card company and demand new terms. These fees are not necessary costs of doing business, and you can request that they be reduced or eliminated.
• Or switch to a lower-cost credit card and transfer the outstanding balance.

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Presented by the Birmingham Alliance for Democracy.
Edited by Rob Collins
Last updated on 11 Oct 2000.