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Getting out of deep credit card debt
By Adam | April 11, 2007
Getting out of deep credit card debt
But how much is from consumers’ charges?
Few Americans express sympathy for those who get into credit-card debt over their heads — even those who have been in financial trouble themselves.
It’s their own fault, the logic goes.
They shouldn’t have run up the bills in the first place.
And certainly, debtors shoulder a large portion of the blame for their own financial misdeeds.
Moreover, a significant segment of the population, fiscal experts say, tends to ignore problem debts in hopes that they’ll somehow magically disappear.
But the judgments might not be as harsh if more Americans understood how credit-card companies operate.
When consumers apply for credit cards, they agree to rules that are complex, counterintuitive, often unfair — and subject to change at the card issuer’s whim.
A recent report by the Government Accountability Office and Senate hearings last month focused new attention on credit-card industry practices that pour billions into card issuers’ bottom lines while saddling consumers with debts much larger than the amounts they originally charged.
Much of the attention is devoted to the “subprime” category of credit cards, which target problem buyers by promising them credit, but deliver cards laden with fees and high interest rates.
Senate subcommittee testimony included a detailed story of a young sailor who signed up for a typical sub-prime account.
Advertised with a $250 credit limit and an attractive 9.9 percent interest rate, the account actually carried fees that were charged to the card, including a “program fee” of $95, an “account set-up fee” of $29, an “annual fee” of $48 and a “monthly participation fee” of $6.
The sailor used the card to make four purchases totaling less than $85, but when he received his first bill he owed $270, plus an over-the-limit fee of $25 and a late fee of $25 (for a bill sent before he made any purchases at all).
Because card issuers can change card terms at will, it’s easy for so-called prime or even premium card agreements to revert, with little notice, to terms that would put most subprime lenders to the blush.
Subcommittee chairman Carl Levin, D-Mich., focused on several abusive practices that Congress should address, including provisions that many credit-card users might not even realize apply to them.
One of the most insidious is universal default.
Many card issuers have a policy of bumping customers up to the “penalty” rate — which can run 30 percent or more — even if they’ve received every payment on time.
That’s because card issuers levy penalty rates if a consumer makes late payments on other bills (including medical bills, which sometimes take months to resolve).
Even worse, some card issuers levy penalty rates even if a consumer has done nothing wrong, but is engaging in activity (like shopping around for a loan or mortgage) that might temporarily lower the borrower’s credit score.
Penalty rates almost always apply to the entire balance.
For example, if a consumer charges $5,000 on a card with a 30-day grace period and pays off $4,500 before the grace period ends, he might think he has avoided interest on most of his debt.
The GAO report found that most credit-card agreements are written at a “27th-grade level.”
But many practices, including universal default and trailing interest, are simply unconscionable and shouldn’t be allowed.
Commentary:
Read the fine print. If you have a credit card with some of these clause, switch to another credit card company that doesn’t gouge its so called valued customers.
-Adam
| Deep credit card debt
Daytona Beach News-Journal, FL - 2 hours ago … done nothing wrong, but is engaging in activity (like shopping around for a loan or mortgage) that might temporarily lower the borrower’s credit score. … |
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