The truth about high interest Credit Cards
Credit has become a quintessential part of everyone’s daily existence and to live with one is bad enough. Yet, to be paying debts on high interest credit cards can be on top of the list of many people’s financial nightmares. Probably, you have read a lot of advices on the web about paying off high interest credit cards first and this is out of a simple logic that the more you prolong the payment on these debts, the more you’ll be paying in return. By paying off high interest credit cards first, you reduce your debts faster and you save money on interest rates. Although there are those who suggest an alternative path where you pay smaller debts first, which will motivate you to pay those with higher interest rates later.
High interest credit cards are becoming a trend nowadays and for this, the Congress had passed the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 which will protect consumers from predatory high interest credit cards malpractices. With credit cards being vital to a consumer’s daily life, it is high time to have a law that protects their rights from unlawful credit card practices. This new law also protects borrowers from being charged higher rates without regard to their ability to repay. Most important, changes have already been made to the time frame of making timely payments, before being charged late penalties. Monthly credit card billing statements are required to be mailed 21 days before the due date, which is an increase from the previous 14-day time frame. For those with multiple interest rates, payments will be applied first to high interest credit cards which will help avoid tricky business strategies of lenders who want to earn more on those debts with high interests.
Why Should You Pay Off High Interest Credit Cards First?
1. Your credit card company may change the terms of your credit any time.
2. You get higher late payment penalties even if you are just a day late from your credit card billing’s due date.
3. Credit card companies have the freedom to choose the interest rates they want to charge.
4. Having a single late payment can truly affect your credit score and this can have future effects on getting a house or car loan, where you will be charged higher interests for your late payment incidence.
5. You may be given a universal default by your credit card issuer if they find that you are delayed on your other payments like those for your mobile phone, electricity, etc. Your interest rates can go up.
6. Paying off your high interest credit cards can means not giving these credit card companies a room to make a profit on you, specially when they’re counting on you to spend more than you can afford. For this reason, many college students are enticed to apply for a credit card which can sink them lower in debts, having their parents bail them out of it in the future.
How Can You Pay Off High Interest Credit Cards?
1. Ask for a debt consolidation option from your lender so that your credit card debts can be managed in one payment, without you having to put up your home equity as a loan collateral.
2. By stopping charges on your high interest credit cards until the loan is settled will help you lessen your financial burden. If you can stop using these credit cards altogether, you may do so.
3. You may also transfer your outstanding balances with high interest rates to those that charge lower.
4. Don’t just settle the minimum payment amount and if you can pay it all down, do so. Those interests could have been used to save money instead.
5. Use your home equity as a last resort if you have a huge credit card debt to pay. Make sure that you can pay back your home equity loan or you risk losing your home for good.
While getting a fair deal on your credit card loans are made more flexible with the new consumer protection law, you still need to do your part in managing your expenses and spending habits. Before you even sign up for a new credit card offer, remember to read the fine print and understand what the consequences of your action will be. Your credit card company will disclose all the information you need about your monthly billing statement and you must read and review it each month for any discrepancy in computations. If you would like to know more about the new rules on credit cards and loans from the Federal Reserve Board, you may visit www.federalreserve.org, or call their toll-free number: 1-888-851-1920. For consumer information and questions, you may check FDIC ( Federal Deposit Insurance Corporation ) online: www.fdic.gov, or you may call their toll-free number: 1-877-ASK-FDIC ( 1-877-275-3342 ).
RESOURCES:
FDIC. “ New Consumer Protections for Credit Cards and Mortgages. “ 2009.
http://www.fdic.gov/consumers/consumer/news/cnsum09/Summer09BW.pdf
Irby, LaToya. “ Why Should I Pay Off High Interest Rate Credit Cards First? “ 2009.
About.com. http://credit.about.com/od/reducingdebt/f/payhighinterest.htm
CreditRepair.com, LLC. “ Getting Rid of High Interest Credit Cards ( Pages 1 – 4 ). “ 2009.
http://www.creditrepair.com/debt/credit-card-debt/high-interest-credit-cards.html#top
