Credit-Card Mail May Be Boring, But Ignoring It Could Cost You

[question everything]

DECEMBER 16, 2009

Credit-Card Mail May Be Boring, But Ignoring It Could Cost You

By KAREN BLUMENTHAL
WSJ

Here's some friendly year-end advice: Read those disclosure letters that banks and credit-card companies are sending you in coming months—or at least try really hard. The text of these mailings may seem like gobbledygook. But they may require you to make important choices soon. Ignoring them could mean paying a lot more money to your credit-card company, having a credit card rejected or getting an unpleasant surprise at the ATM.


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The letters may be easy to miss, since some of them look like junk mail. And don't expect reader-friendly prose. The banks' approach is: "It's not our job to teach you the law; it's our job to comply with the law," says Adam Levin, co-founder and chairman of Credit.com, a credit-information Web site. When you open the envelopes, here are some details to look for and moves you may want to consider:
• Is the credit-card's interest rate or annual fee changing? Many companies have been aggressively raising rates as high as 29.99%. But you now have the right to "opt out" of these changes before they become effective, essentially canceling the card for new purchases, though you can continue to pay off the balance at the old interest rate.

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You may worry that canceling a credit card will hurt your credit score. Those fears are not unfounded. But let's do the math: Say you owe $5,000 on the card and you're paying $250 a month. If the original rate was 11.99% and you canceled the card, you'd pay off the balance in 23 months and pay about $600 in interest. If the rate spikes up to 19.99%, however, and you don't make additional purchases, you would pay off the balance in 25 months, along with more than $1,100 in interest — a $500 difference. So here's another way to look at it: If you cancel the card and your credit score falls, your score likely will rebound in a year or two if you pay your bills on time and keep your debt levels in check. But if you keep the card and pay the higher rate, your $500 will be gone forever. Of course, if you truly need the credit and fear you won't be able to get a card somewhere else, it may be worth the money to keep the card. And if you pay your bill in full every month, the higher rate may be irrelevant.

• Has your credit limit been lowered? And do you borrow close to your limit? Starting in February, the new law will bar credit-card companies from charging fees (typically up to $39) for exceeding a credit cap unless the customer "opts in," or agrees to pay fees for the convenience of busting the limit. If you don't opt in, you run the risk that your credit card will be rejected when you near your limit. That could put those with small credit limits or high balances in an awkward position at the cash register. It also makes travel trickier since hotels and rental-car companies often put a hold on your card as a precaution, reducing your available credit. The Fed hasn't issued final rules on how the opt-in will work, and many banks are waiting to see the rules before they spell out the option. To avoid rejection — and fees — set up email and text alerts to notify you when you're near your limit. Credit-card issuers and banks generally offer that option as part of their online service. Also, if you have the discipline, consider a second, back-up card.

• Is the bank changing how it handles overdrafts on your debit card? New Fed rules that take effect this summer will bar banks from charging overdraft fees on debit transactions (but not checks or electronic transfers) unless you opt in. Banks will no doubt market their overdraft programs, which charge up to $35 per overdraft, as a convenience. But there are cheaper options. Again, set up email and text alerts to tell you when your balance drops below a certain level. My family members have linked their checking accounts to a savings or other account as a backstop for mistakes. There's a $10 fee if an overdraft prompts the bank to transfer in money, but that's much less than per-transaction charges.

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http://online.wsj.com/article/SB20001424052748703438404574597860806674746.html (subscription)

Printed in The Wall Street Journal, page D2

[snagglepuss]

1. K&R Thanks for posting. nt

[Nikki Stone1]

2. Your thread is public service.

thank you!

[notesdev]

3. Here's another tip

unless you are very financially savvy, put those credit cards through the shredder and cancel your accounts. It's only a matter of time before you innocently/ignorantly do something that trips one of those 5-point clauses that lets them skullfuck you to hell and back.

[question everything]

4. Sometimes you have to, especially these days

I remember back in 1990 when both of us were laid off. It was not a Great Recession and eventually we did find new jobs. So I used credit cards to conserve cash for real necessities like mortgage, groceries and utilities.

For example, when we had a major car engine repair, at $1,500, the credit card came handily. When we got new jobs and moved and sold the house, I used some of the proceeds to pay off all the credit cards debts.

Many have to travel for job interviews and credit cards, not debit cards, are important for hotel and car and plane reservations. Debit cards are bad because many of these organization will put a hold on your checking account for higher amount than what eventually they will charge. And, until then, you have less funds or, worse, you don't even realize that you have less funds and each transaction kicks an overdraft fee.

[roamer65]

5. Here's two simple rules I have used over the past few years.

1. Do not carry a balance on any card with double digit interest rates.
2. Never...EVER...allow the total dollar amount of credit utilized go beyond your immediate cash reserves. This way you can pay them off if and WHEN they start to play games with you...which they will.

One bank just when double digit on me and I vaporized the balance on the account. They're now an AMEX-type card, screw 'em.

Sticking with these two rules have kept me in the credit "sweet" spot and have bolstered my credit scores. To have good credit, you have to play their game, but play it smartly.

From question everything some very smart advice:

"Many have to travel for job interviews and credit cards, not debit cards, are important for hotel and car and plane reservations. Debit cards are bad because many of these organization will put a hold on your checking account for higher amount than what eventually they will charge. And, until then, you have less funds or, worse, you don't even realize that you have less funds and each transaction kicks an overdraft fee."

I would add that many credit cards also have fraud protection and if fraudulent use of a credit card happens, it is much easier to work through than having your debit/checking account goobered by a fraudster.
In this age of identity theft, play with the bank's money, not your own.