|8 tips for minimizing
credit card fees and rates
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As the cost of credit creeps ever higher, micro-managing your finances is assuming greater importance. Obtain the wrong account and you're already in the red; slip up even once and the price to use that plastic can balloon. So how can you ensure consistently low interest rates and fees? Read on and take action.
1. Begin with the best card for you. Why start out with a credit card that offers poor terms if you qualify for better ones? That's what could happen if you only apply for offers that come to you in the mail. "Preapproved" credit cards may not offer the lowest fees and interest rates. Instead, research offers via comprehensive online credit card lists that specify terms and qualifying data, and then apply for the right card for your needs and circumstances. If you want the best rates and fewest fees, consider those to be the perks -- not mileage or cash back programs, says Ken Clark, author of "The Complete Idiot's Guide to Getting Out of Debt."
2. Pay on time. After you charge, pay by or before the due date. While one late payment won't necessarily result in massive credit damage (a missed cycle will though), you will be assessed a fee and your interest rate can increase -- and not just on that account, but possibly on others you have as well. Use technology to stay on track. "There is no better time or reason for enrolling in automatic bill pay for your credit cards than now," says Stephanie Jacobson, public affairs vice president for Chase Card Services. With it, money is deducted from your checking account on a set day and applied to your balance without you having to lift a finger.
3. Know and respect your limits. Do you know the exact credit limit for each of your accounts? Even if you think you do, call and find out so you don't mistakenly overcharge. Your spending ceiling could have been lowered since the last time you checked. Many creditors are reducing credit lines, even for cardholders who keep all accounts in good standing. Exceeding that threshold will trigger a fee, knock down your credit score and may be reason enough for your creditor to bump up your interest rate.
4. Understand the 35:65 ratio. Ideally, consumer debt should be zero -- in that event, even high interest rates wouldn't matter. However, if you do hold a balance for more than a month, make sure that amount equals less than 35 percent of your credit line. For example, if your limit is $5,000, your debt shouldn't surpass $1,750. This is called your credit utilization ratio. Anything greater and your creditor may consider you a lending risk, and up your interest rate.
5. Look out for new fees. According to Gail Cunningham, vice president of public relations for the National Foundation for Credit Counseling, cardholders also need to be aware of a potential new set of extra charges. "Lately, at least one card has slipped in a monthly fee of $10," says Cunningham. "Many consumers think that's too small an amount to worry over, but when you frame it as $120 per year, that gets people's attention!" Scan statements for additional fees and read mail for adjustment notices.
6. Mind all personal finance activity. Monitor every financial obligation closely -- from your mortgage to medical bills -- since they factor into rate and fee resets. Jacobson explains that Chase is constantly evaluating the risks and costs of funding credit card loans. "When necessary, we make changes to pricing, terms or credit lines based on borrower risk, market conditions, and the costs to us of making loans," she says. "In the challenging economic times we face today, they take on added importance." Therefore, pay all household bills on time, keep liabilities low, and apply for new accounts prudently.
7. Be a squeaky wheel. If your fees and interest rates do spike without you doing anything to warrant the change, Clark recommends taking immediate action. "Call your creditor and ask that it go back to where it was. Be polite and respectful. If you have a better offer from a different creditor, ask that they match it." Request that they send you the deal in writing, too.
8. Get credit counseling. Relief can also be found at a credit counseling agency. If you pay your debts through these nonprofit agencies, they may be able to reduce your interest rates and eliminate fees. Why would a creditor consent to the discount? Because, "they know that an independent third party is reviewing not only that specific account, but the consumer's income, living expenses and all current debt obligations in an effort to help the consumer regain long-term financial stability," says Cunningham.
In short, the key to keeping the cost of credit down is to actively manage your accounts. Now is not the time to lay back and let the cards fall where they may.