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Mastering Your Plastic

Purchasing methods are constantly evolving and becoming increasingly convenient over time.  Consumers went from having to walk a herd of...

Purchasing methods are constantly evolving and becoming increasingly convenient over time.  Consumers went from having to walk a herd of cattle to the market for trade, to lugging around a wallet of cash, to now holding all their wealth in a sliver of plastic.  Credit cards have made the world of transactions simpler and easier to navigate for consumers around the world.  Large purchases can be made without the cash up front.  Many card companies offer various reward, cash back, or points promotions for use.  Online shopping has become a breeze.

Credit cards have the ability to make any old consumer a powerful individual investor.  But, with great power comes great responsibility.  The number of people struggling with credit card debt in America is astronomical.  The invincible feeling that people get from swiping that card can often leave them devastated.  That devastation is ubiquitous in their lives, affecting their credit scores, their ability to access loans, and their financial history in general.  Credit cards are necessary and advantageous tools for most people, and, if used properly, can be a huge asset to your spending habits, but it’s important to know the facts about your card.

That shiny piece of plastic poking out of your wallet can be death trap, if you don’t know how to navigate the terrain.  There are a few things that you need to be aware of before you start swiping through the checkout lines.

1)      Interest rates are limitless- When you sign up for a credit card, you agree to a certain interest rate, hopefully a low one.  The scary fact is that in most cases that rate can be raised to whatever the credit card company likes.  There oftentimes are state laws in place limiting how high those rates can be set, but many of the largest, and most popular, credit cards are issued from federally chartered banks that don’t have to follow those state laws.  The CARD Act (the Credit Card Accountability, Responsibility and Disclosure Act) guarantees that rate for the first year of the contract, but after that, the rate is free game for any increase they like.  On the upside, the card company must notify you 45 days in advance of the increase, and the new rate only applies to charges after that change date, and not your current balance.

2)      Only domestically reliable-  Anyone taking a trip out of the country might think that carrying a credit card, as opposed to a fanny pack full of Euros, may seem like a great idea, but many card users could soon find themselves searching for the German translation of the word “denied.”  The magnetic strip found in most credit cards in the U.S. isn’t often used overseas.  EMV cards, on the other hand, are much more functional.  Those EMV cards, which are named after their developers, Europay, Mastercard and Visa, contain a microchip attached to an account instead.  You can ask your provider for an EMV version of your card for your trip that should serve you much better.

3)      Fixed rates aren’t always fixed-  Fixed rates always sound good in theory.  You know what you’re signing up for is something you can depend on continuing.  Well, the fixed rate that is here today could easily be gone tomorrow.  Credit card companies are able to change your interest rate and the calculations that go into determining that rate.  Your fixed rate could easily become variable if the credit companies so desire.  If the rate does becomes variable, the company must again give you 45 days notice before an increase, but if it becomes variable, and the rate stays the same or goes down, they don’t always have to notify you.  And, if they want to decrease your credit limit or close your card entirely they don’t have to tell you until after the deed is done.  If this does happen, the company is required to send you a copy of the credit score that caused the change.

4)      Tardiness is penalized-  This is one of the most obvious but most troublesome aspects of using credit cards.  The due date on your statement is the date that your payment must be received, and if you pass this date, you could be slammed with a fee.  But there are a few rules that protect consumers if they find themselves a little behind schedule.  Your issuing company cannot report your delinquency to the credit bureaus until your bill is late by an entire month.  This means, unless you are 30 days late, your credit score won’t be hindered.  Also, your rate can’t be raised unless you are an entire 60 days past due.  So being a few days late will cost you some money, but not your record or your rate.

Credit cards are the best thing since sliced bread for many consumers, but if you don’t know your way around the rules, you could easily find yourself swiping your life away, almost literally.  Manage your spending habits, read the fine print, and swipe within your means and you should find yourself ruling the plastic world in no time.

Photo courtesy of: http://www.christiancooper.com


DISCLOSURE: Investment advisory services are offered through Gretchen Stangier, Inc. DBA Stangier Wealth Management (“Stangier Wealth Management”), an investment advisor registered with the U.S. Securities and Exchange Commission. Stangier Wealth Management only offers investment advisory services where it is appropriately registered or exempt from registration and only after clients have entered into an investment advisory agreement confirming the terms of engagement and have been provided copies of the firm’s ADV Part 2A brochure and Part 3 documents.

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