Writer: D'Lyn Ford
LAS CRUCES -- Families with credit card payments greater than 20 percent of monthly take-home pay may be feeling some financial stress, said a New Mexico State University consumer education specialist.
"Less is more when it comes to the use of credit cards," said Susan Wright with NMSU's Cooperative Extension Service. "If you have too many cards, you may be hurting your credit record. A good number to have is three -- one gasoline card and two major credit cards."
Families that have more than this shouldn't just cut them up and throw them away. Write to the company and cancel the card. Until this is done, the credit record will continue to report use of the card, Wright said.
Also, check the method used for calculating interest on credit cards. "Some companies use a two-cycle method, which is very expensive, that calculates interest by adding the average daily balances for the current and previous months," she warned. "This method is often used by cards that have a 'pay back' program. If your card uses this method, try to pay off the bill in full each month."
The less-expensive method of calculating interest is the adjusted daily balance, which deducts payments before calculating fees.
Families that only pay the minimum required each month are creating larger debts. They should pay as much as possible each month. "If you cannot pay off the current balance each month, pay early in the billing cycle to help lower finance charges," Wright said.
Next, check the grace period on credit cards, which could be 25 days or less. If the entire bill is not paid each month, the grace period is gone. "This means that you will be paying interest on new purchases from the day of purchase," Wright explained. "The rules about grace periods have been changing in recent months, so be sure you know what applies for your cards."
Try to avoid making late payments, she said. All credit card companies have a "late charge" that's added to the current balance. The late charge is deducted from the payment and what's left is applied to the outstanding balance. Making late payments can increase debt.
Interest rates and annual fees for credit cards can be negotiated in most cases. "If you have a good payment record, companies are more likely to excuse the annual fee," Wright said. "Companies know you receive countless credit card offers, and they want to keep your business. They would rather lower your interest rate 2 or 3 percent than lose your business. If you ask and they say no, consider changing to a no-annual fee card or to one that has a lower rate of interest."
Be careful about using the "convenience" checks that come from credit card companies. "Interest on a cash-advance Ñ and that is what these checks are Ñ begins to accrue immediately, and the rate on a cash advance is higher than the rate for regular purchases," she said.
Finally, if a credit card is lost or stolen, report it to the company in writing within 60 days. "This way, you will only be liable for the first $50 of unauthorized charges," Wright said. "After you report the loss, check monthly statements carefully for several months to avoid paying for charges you did not make."
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