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Card Debt- The easy way into debt. Learn about credit card debt consolidation.
Credit card debt consolidation might be the most popular service
among debt consolidation companies. It is so easy to get into credit
card debt if you are not careful. Many people get into credit card
debt when they are in college and struggle for their rest of their
lives trying to get out of that credit card debt. A credit card
debt consolidation company can help you do just that. If you have
debt in a number of your credit cards a debt consolidation company
can help you consolidate your debt so that you only have one low
monthly payment.
How Do I Prevent Credit Card Debt?
Chances are you've gotten your share of "pre-approved"
credit card offers in the mail, some with low introductory rates
and other perks. Many of these solicitations urge you to accept
"before the offer expires." Before you accept, shop around
to get the best deal. Make sure the interest isn't too high, this
will help you from falling into credit card debt.
Credit Card Terms
A credit card is a form of borrowing that often involves charges.
Credit terms and conditions affect your overall cost. So it's wise
to compare terms and fees before you agree to open a credit or charge
card account. The following are some important terms to consider
that generally must be disclosed in credit card applications or
in solicitations that require no application. You also may want
to ask about these terms when you're shopping for a card. Remember,
falling into credit card debt should always be on your mind.
Annual Percentage Rate. The APR
is a measure of the cost of credit, expressed as a yearly rate.
It also must be disclosed before you become obligated on the account
and on your account statements.
The card issuer also must disclose the "periodic rate"
- the rate applied to your outstanding balance to figure the finance
charge for each billing period.
Some credit card plans allow the issuer to change your APR when
interest rates or other economic indicators - called indexes - change.
Because the rate change is linked to the index's performance, these
plans are called "variable rate" programs. Rate changes
raise or lower the finance charge on your account. If you're considering
a variable rate card, the issuer must also provide various information
that discloses to you:
- that the rate may change; and
- how the rate is determined - which index is used and what additional
amount, the "margin," is added to determine your new
rate.
At the latest, you also must receive information, before you become
obligated on the account, about any limitations on how much and
how often your rate may change.
Free Period. Also called a "grace
period," a free period lets you avoid finance charges by paying
your balance in full before the due date. Knowing whether a card
gives you a free period is especially important if you plan to pay
your account in full each month. Without a free period, the card
issuer may impose a finance charge from the date you use your card
or from the date each transaction is posted to your account. If
your card includes a free period, the issuer must mail your bill
at least 14 days before the due date so you'll have enough time
to pay.
FYI: A credit card debt consolidation
company can help you get back on track using a smart debt consolidation
plan for your credit card debt. Your credit card debt is something
you need to be careful with. If you need more information about
getting out of credit card debt contact your credit card debt consolidation
company.
Annual Fees. Most issuers charge
annual membership or participation fees. They often range from $25
to $50, sometimes up to $100; "gold" or "platinum"
cards often charge up to $75 and sometimes up to several hundred
dollars.
Transaction Fees and Other Charges.
A card may include other costs. Some issuers charge a fee if you
use the card to get a cash advance, make a late payment, or exceed
your credit limit. Some charge a monthly fee whether or not you
use the card.
Balance Computation Method for the Finance
Charge. If you don't have a free period, or if you expect
to pay for purchases over time, it's important to know what method
the issuer uses to calculate your finance charge. This can make
a big difference in how much of a finance charge you'll pay - even
if the APR and your buying patterns remain relatively constant.
See page 4 for examples of how the methods can affect your costs.
Examples of balance computation methods
include the following.
Average Daily Balance. This is
the most common calculation method. It credits your account from
the day payment is received by the issuer. To figure the balance
due, the issuer totals the beginning balance for each day in the
billing period and subtracts any credits made to your account that
day. While new purchases may or may not be added to the balance,
depending on your plan, cash advances typically are included. The
resulting daily balances are added for the billing cycle. The total
is then divided by the number of days in the billing period to get
the "average daily balance."
Adjusted Balance. This is usually
the most advantageous method for card holders. Your balance is determined
by subtracting payments or credits received during the current billing
period from the balance at the end of the previous billing period.
Purchases made during the billing period aren't included.
This method gives you until the end of the billing cycle to pay
a portion of your balance to avoid the interest charges on that
amount. Some creditors exclude prior, unpaid finance charges from
the previous balance.
Previous Balance. This is the
amount you owed at the end of the previous billing period. Payments,
credits and new purchases during the current billing period are
not included. Some creditors also exclude unpaid finance charges.
Two-cycle Balances. Issuers sometimes
use various methods to calculate your balance that make use of your
last two month's account activity. Read your agreement carefully
to find out if your issuer uses this approach and, if so, what specific
two-cycle method is used.
If you don't understand how your balance is calculated, ask your
card issuer. An explanation must also appear on your billing statements.
Other Costs and Features
Credit terms vary among issuers. When shopping for a card, think
about how you plan to use it. If you expect to pay your bills in
full each month, the annual fee and other charges may be more important
than the periodic rate and the APR, if there is a grace period for
purchases. However, if you use the cash advance feature, many cards
do not permit a grace period for the amounts due - even if they
have a grace period for purchases. So, it may still be wise to consider
the APR and balance computation method. Also, if you plan to pay
for purchases over time, the APR and the balance computation method
are definitely major considerations.
You'll probably also want to consider if the credit limit is high
enough, how widely the card is accepted, and the plan's services
and features. For example, you may be interested in "affinity
cards" - all-purpose credit cards sponsored by professional
organizations, college alumni associations and some members of the
travel industry. An affinity card issuer often donates a portion
of the annual fees or charges to the sponsoring organization, or
qualifies you for free travel or other bonuses.
Special Delinquency Rates. Some
cards with low rates for on-time payments apply a very high APR
if you are late a certain number of times in any specified time
period. These rates sometimes exceed 20 percent. Information about
delinquency rates should be disclosed to you in credit card applications
or in solicitations that do not require an application.
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