Eliminating Credit Card Debt Advice

More Americans are carrying increasingly large credit card balances, and a leading consumer journal says it's become much harder to get out of the jaws of credit card debt.

An investigation by Consumer Reports, appearing in the November 2005 issue of the magazine, says "cozy relationships" among lawmakers, federal regulators, and credit card issuers have made credit cards "more treacherous" for consumers.

The investigation reveals that credit card issuers have imposed interest rates in excess of 30 percent on consumers whose only offense might be a late payment to another creditor. The report also exposes other practices by issuers of credit cards that pose hazards for consumers, including:

• Battered card holders with fees and penalties that now often hit $39.
• Reduced grace periods when new purchases are free of interest.
• Lobbied successfully to weaken protections for cardholders.
• Increased fees for tardiness and for going over the credit limit.
• Reduced minimum payments, thereby increasing the debt.

Unfortunately for consumers, there have been no limits on interest rates for years, so a temptingly low 1.9 percent APR can morph into double-digit territory at the whim of the credit card company. Or worse, it can climb beyond 30 percent when a consumer does nothing more than sign up for a new credit card, inquire about a car loan, or make a single late payment to any creditor.

"Consumers are sometimes offered a 0 percent introductory rate, but they may not realize that it only applies to transferred balances," says Marlys Harris, finance editor at Consumer Reports. "Then they pile up purchases which accrue interest at, say, 18 percent a year."

Even consumers among the 45 percent of cardholders who pay balances in full each month are not off the hook either. As interest rates rise, issuers of credit cards are seeking ways to eke out income from them by charging additional fees for services or penalties for dormancy -- in other words, a few for not using the card.

Unfortunately, there is little help for consumers. About 45 percent of credit card issuers force customers to submit disputes to arbitration. Regulators aren't likely to be of much help either. The majority of credit card issuers are overseen by a government agency funded by the industry.

What to Do

For now, the report says, the greatest power that consumers have is their own hands. In addition to supporting consumer-friendly issuers, Consumer Reports suggests the following:

• Choose carefully. Start by reading the table of the 10 most consumer-friendly credit cards in the November 2005 issue of Consumer Reports.
• Examine the offers. Scan the Schumer box, named for Sen. Charles Schumer, D-NY, who sponsored a law mandating disclosure of all rates in a type size that consumers can read.
• Negotiate better terms. If the credit card imposes a late fee or a rate hike, ask for a waiver.
• Pay on time. Mail payments as soon as the bill arrives.
• Complain. Register a complaint with your state attorney general.