CREDIT CARDS Lower interest rates a look
During the holiday season, many credit-card companies offer deals.
BALTIMORE SUN
Before beginning holiday shopping, consumers might first want to look for a cheaper credit card.
Nearly half of credit-card holders don't know what interest rates their cards carry, and 55 percent don't shop or negotiate for a lower rate, according to a recent survey by Myvesta, a debt-counseling group in Rockville, Md.
Paying a higher rate costs consumers more money, of course, and the problem may be compounded at this time of year, when shoppers tend to whip out their plastic more than usual. Holiday shoppers are expected to spend $1,656 this year, up nearly 6 percent from last year, and 63 percent will use credit cards for all or some of their purchases, according to the American Express Retail Index.
With the holidays weeks away, though, there's still time to search for a card with more favorable terms. "This is actually a great time to shop because issuers are pulling out all the stops in an effort to get consumers to charge as well as to transfer balances," said Gerri Detweiler, co-author of "Investing in Yourself: Six Secrets to a Rich Life."
Issuers are offering deals with interest rates of 4.9 percent to 7.9 percent, and in some cases, even 0 percent interest for a limited time for new customers or those who transfer balances from another card. Last week, a standard credit card carried an average rate of 13.69 percent for a fixed-rate card and 13.95 percent for a variable-rate card, reported Bankrate.com.
Check what you've got
The first step to finding a better deal is to review the terms of your cards, which may have changed over time.
"Credit-card issuers change their terms on a fairly frequent basis, once or twice a year. So it's not unusual if you haven't paid attention to your interest rate that the interest rate is inching back up," said Travis Plunkett, legislative director with the Consumer Federation of America.
Compare your cards with those listed on Web sites such as CardWeb.com and Bankrate.com. Credit-card solicitations arriving in your mailbox also can be gold mines of information.
"Instead of throwing it away, open it up and see what other people are offering you," said Steve Rhode, Myvesta's president.
If another issuer offers you a better deal to transfer balances to its card, tell your card company. If your card company wants to keep you, "they will meet it or beat it," Rhode said.
Negotiating does work. In a survey this year, staffers of the U.S. Public Interest Research Group were able to get a lower rate on their cards upon request more than half the time. And the rates on average were cut by more than one-third.
Read fine print
Although low-rate deals may be tempting, look closely at the terms. "They wouldn't offer them unless they made money off them," Detweiler said.
Be sure to check how long the teaser rate will last and what the new rate will be after it expires.
Often, issuers offering very low rates are counting on consumers making late payments, which allows the issuers to bump up interest rates, experts said.
"It can be a significant bump if they put you in that pool thinking you are a bad risk," said Karen Christie, vice president of research at Bankrate.com in Florida. "People can end up getting an interest rate that is twice what they thought by mailing that payment one day late."
Watch out for fees. "Fees are the worst. Unless you know the terms that your creditor offers, you will get nailed with expenses that you are not expecting," Rhode said.
Rhode, for instance, said one client was charged a $61 late fee on a balance of about $2,100. Although many issuers charge a flat fee of $29 or $35, this card company charged the higher of $29 or 2.99 percent of the balance.
Transferring balances
Those wanting to transfer a balance from other cards to a low-rate card should also check transfer fees. Some issuers don't charge a fee, while others charge a percentage of the balance or cap the fee at $25 to $50.
If transferring balances to another card, avoid using that card to make more purchases, some advised.
One reason is that a higher interest rate applies to new purchases, and any payments go first to reduce the low-rate debt, Detweiler said. That's contrary to the usual advice that consumers pay off cards with a high interest rate first to avoid getting deeper in debt, she said.
Another reason is that the transferred balance may put consumers near their new credit limit, and any additional charges can put them over the top, Christie said. Over-the-limit fees run about $35.