“What paying with plastic really costs”
By Sarah Max, CNN/Money Staff Writer
April 12, 2002
Fees, they’re everywhere you want to be
In February alone, the average late payment fee rose 3 percent to $29, marking the largest increase in the industry’s history, according to CardWeb.com. And a handful of issuers, including Citibank, Discover, Fleet and MBNA now charge tardy customers up to $35, depending on their balance. Consumers who shuffle their debt from one card to the next were once the bane of the industry, but thanks to balance-transfer fees, their actions are just another source of revenue. And a few, including Citibank, now charge $10 “convenience” fees for paying your bill by phone—never mind that you’re probably saving them money by doing so.
And for everything else, there’s high interest
The difference between the interest rate you signed on for and your new penalty rate can be substantial. Say you qualify for Capital One’s no-hassle platinum card, with a fixed rate of 8.9 percent, carry a balance of $4,000 and pay $200 monthly. If you pay late twice in six months, your rate will go to 19.8 percent. It will take you two additional months to pay down your debt and cost you $796 in finance fees.
It pays to discover what you’re really paying
Overall, bank credit card interest and fee income tripled in the 1990’s. The year 2001 was one of the most profitable years for the industry, with an average of 4 percent return on assets. “Credit cards are the most profitable products a bank can offer,” said Jim Accomando, president of Accomando Consulting. “With most bank products, return on investment is about 1 percent.”
It seems that issuers are counting on consumers to not question their rates or growing fees. “Until consumers put up a fight, issuers will continue raising their prices.”
Which is why you should not leave home without…Questioning your terms
The first thing you should do is make sure you’re not paying more than you should for your card. If you never carry a balance, don’t pay a high annual fee for a card with a low rate. Instead, look for a card with no annual fee or one that offers rewards.
If you do carry a balance, consider skipping a high-rate rewards card and shopping for a basic card with a low rate instead. You may find that what you save in finance charges is worth more than the rewards. Try shopping locally for a small bank or credit union. Though you may have to forgo a high credit limit and 24-hour customer service, you could save money in interest.
This is only a summarization. You can read the entire article CNN’s website at http://money.cnn.com/2002/03/13/pf/q_creditcosts/
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