Posts Tagged ‘credit card fees’

The annual percentage rate (APR) applied to your credit card accounts is a calculation of the cost of credit. All credit card companies are required to fully disclose the APR in the credit card agreement, and every lender not only calculates the APR in a different way, but may also apply a different APR for purchases or cash advances on your account. When you’re comparing credit card offers and want to make the most informed financial decisions about your credit, it’s important to understand how APR is calculated, and what the difference is between variable and fixed APR.

How APR is Calculated for Credit Cards

The APR is calculated as the rate for the payment period, multiplied by the number of payment periods over the year. For example, if your credit card provider has stated a 20% APR, then your periodic rate would be 20% divided by 12 months, or about 1.67% per month. This periodic rate is applied to the monthly balance on the credit card. Every credit card company uses a different method to determine what balance to use when charging the periodic rate.

Some credit card companies will charge the periodic rate to an adjusted balance, a previous balance, an average daily balance, or an ending balance. Others may charge the periodic rate on a two-cycle average daily balance. Understanding how the company charges the periodic rate can help you decide which card really has the best terms.

Variable vs. Fixed APR

APRs on credit cards can either be variable or fixed. A variable APR is calculated by adding a marginal rate to a reference rate, such as the U.S. Prime Rate. In this case, whenever the Prime Rate changes, the variable APR rate also changes. Each credit card company will then adjust your APR on a monthly or quarterly basis. The methodology for charging the APR rate will be listed in your credit card agreement.

It’s important to understand what the difference is between variable and fixed APR. If misread, credit card deals can quickly become credit card traps.

Fixed APRs do not take any type of reference rate into account, so your account balance will be charged the same amount in every period. While fixed APRs are a little more stable than variable APRs, they can still change when the credit card company decides to adjust their rate. All credit card companies are required by law to notify consumers that they are changing the fixed APR rate.

Understanding how APR is calculated and what type of APR is charged to your account balance can help you make the best decisions when comparing credit card companies. Take the time to review your credit card agreement so that you can make the most informed financial decisions.

Sabah Karimi

Summer is the time for lemonade stands, painful sunburns and yard sales. It’s the best time to clean out those items that have been languishing in your garage or attic for the last ten years and give them a new home. But is there a better way to keep track of the money you make than that old, traditional standby: the cash box?

As it turns out, there is. You can accept credit cards at your yard sale with an iPhone, an Android phone or a simple computer with an Internet connection. It’s easy enough to use simple merchant accounts to swipe those credit cards, and you’ll be the hit of your block because, after all, who carries cash anymore?

Smart Phone

Arguably the easiest way to accept credit cards at your yard sale is by using an iPhone or Android phone and an application like SquareUp. It also works on the iPad, iPod Touch and Droid phone, and the process is easy enough for even the most technologically-illiterate user to master.

To start accepting credit cards at a yard sale, sign up for a SquareUp account. You can do this via their web site from your computer or smart phone. They will send you a free card reader and SquareUp sticker, as well as an Internet address to get you started.

From there, you can accept credit card payments for anything by giving it a name and even a photograph on the application. The card reader attaches to your phone via the audio input jack, and you’re good to go. You don’t even have to worry about losing receipts to the summer breeze because records of each transactions are sent to you via e-mail.

Internet Connection

If you’ve got a powerful router signal or a particularly long cord, you can also use your Internet connection to accept credit card payments at a yard sale. Using an existing web site or a free Google Site, you can start taking credit cards with a simple PayPal account.

Set up your Google site and decide who can view it and what template you want to use, if any. Then, go to PayPal.com and register for an account. Once it is open, you can click on the Merchant Services button in the upper task bar, then on the “Buy Now Button” at the top of the screen.

From there you will enter the specifics for this Buy Now button, including the name of the item and its description, as well as its price. PayPal will give you a unique code for your Google Site, which you simply cut and paste.

During your yard sale, you’ll need to keep your desktop computer or laptop within easy reach to process credit card transactions. Let customers know that you are using a secure service through PayPal if anyone has any concerns.

These simple merchant account solutions will allow you to accept more payments at your yard sale and keep track of transactions more easily. Of course, you might want to keep that handy cash box on hand just in case one of your customers wants to go the traditional route.

Steve Thompson

During “Confessions of a Shopaholic,” Rebecca Bloomwood (Isla Fisher) says she fell in love with shopping as a little girl, a time when she saw grown women using “magic cards” to buy things. For a long time, most people shared Rebecca’s love for the plastic money known as credit cards, but the unstable economy has made folks more cautious about what they carry in their wallets.

Before filling out an application, it is important to look at the four basic types of credit cards:

• Charge cards
• Credit cards
• Check cards
• Debit cards

Be sure to weight the pros (credits) and cons (debits) of each.

Charge Cards

A Forgotten Wallet Leads to the First Official Charge Card

Frank McNamara gets the credit for creating Diner’s Club, the first official charge card. After he forgot his wallet and was unable to pay the check at a popular New York City restaurant in 1949, McNamara came up with the charge card concept, where diners would sign for meals during the month and then settle up just one tab at the end of the month.

Although McNamara’s first card was made of cardboard, the charge card became a hit, inspiring the American Express Corporation to come up with their own charge card designed with business travelers in mind. Credit cards are still king with consumers, but the charge card continues to thrive.

• Credits: Typically, charge card issuers set no upper limit for purchases, which means no worries at the checkout line. Because the balance must be paid in full at the end of the month, you aren’t carrying a debt load from month to month. Annual fees tend to be high, especially for premium American Express cards, but these cards come with personal concierge services.
• Debits: With no ceiling on the credit limit, it is all too easy to overspend each month. Companies like AMEX also offer the option to carry a balance on many of their cards, which means paying monthly interest.

Credit Cards

From Babylon to Bank of America

Historians have said that credit was extended as far back as 3,000 years ago with the “bill of exchange” in places like Babylon and Egypt. In the 20^th century, Mr. McNamara once again gets the credit for creating one card that could be used to purchase goods and services at various businesses. Instead of maintaining credit accounts at several places, consumers needed just one or two credit cards like McNamara’s Diner’s Club.

These days, Citigroup, Bank of America and other issuers have several different credit products, some tailored to students, business travelers and those who covet frequent flyer miles. You can get a card tailored to your exact business and personal needs.

• Credits: Merchants around the world accept MasterCard and Visa, making them an invaluable credit product. Other cards, such as Citigroup’s Chairman, carry excellent concierge services and allow the cardholder access to special events.
• Debits: Until the new credit card reforms started taking effect on August 20, credit card companies had a pretty free hand with their products. If you missed making the minimum monthly payment just once, for instance, your interest rate might skyrocket. Late fees also could, in some cases, be more than your regular monthly payment. Even with the new reforms, lenders are warning that interest rates might increase to compensate for lost revenues.

Carrying a balance from month to month also increases the cost of an item purchased on credit. Banks sometimes mail out cash advance checks with a low interest rate, but if you miss a payment, that super-low interest rate goes up.

Check Cards

Cards to Access Your Bank Account

The 1990s became the decade of the debit card, which is linked to your checking and/or savings accounts. Instead of writing a check, you simply swipe the debit card, which carries the MasterCard or Visa logo, and the money is automatically drafted from your account. Debit cards also work like traditional ATM cards, allowing cash withdrawals.

• Credits: A debit card offers consumers a way to control their spending because you typically can’t charge more than your account balance. This piece of plastic carries much of the weight of a credit card without the crushing interest rates.
• Debits: Debit cards are just as vulnerable to fraud as credit cards. If thieves steal your account number, they could wipe out your entire checking account in short order. When using a debit card to secure a hotel room, the front desk will “block out” a certain amount of money in your account to cover room charges. Even if you don’t charge anything to the room, it takes several days for this hold to go away.

Debit Cards

A Reloadable Credit Card

More than ever before, consumers are having trouble getting credit cards because of their credit history. People need plastic to rent cars and make airline reservations, which makes the reloadable or prepaid card an option for those with a history of late payments or defaults. Walmart even offers incentives to consumers who cashed their paychecks at a local store and put the money on a prepaid card.

• Credits: A reloadable card is good for people who have a habit of misusing credit because you can’t spend more than the amount available on the card. To get a prepaid credit card, you simply have to open an account and deposit money into it.
• Debits: The fees required to open an account, monthly maintenance charges and the cost of reloading the card can add up quickly. Merchants such as Walmart do offer free reloads, though, if you set up a payroll direct deposit.

Do the Debits Exceed the Credits?

When weighing the pros and cons of each type of card, the biggest factor to consider is your own spending habits. If you are a careful shopper and a good saver, a credit card could be your best option. If your credit score is below 600, however, preloaded and debit cards can give you all the power of plastic.

Steven Bryan

Getting out of credit card debt is very important. Out of all the types of debt to have, credit card debt can be the most expensive and the hardest to pay off. However, with a little hard work, determination and discipline, it is possible to eliminate your credit card debt once and for all. Here are five things you can do to begin your journey to financial freedom.

1. Pay more than the minimum amount

Making the minimum payment indicated on your credit card bill isn’t going to get you anywhere when you are trying to rid yourself of this debt. How long it takes to pay off a credit card by only paying minimum payments will depend on your interest rate and debt load. Use this calculator to figure out how long it will take to eliminate your debt by only paying minimums. Use this as a motivating factor to send in those extra payments each month.

2. Don’t use your credit card

Once you are determined to pay off a balance, stop using that card. In fact, place the card in a place that is difficult to get to. Carrying it around in your wallet is only going to make it that much more tempting to use. It will become harder and harder to eliminate a balance if you keep adding to it. If you must use your card for a purchase that only accepts credit cards — pay off that purchase amount immediately.

3. Ask for an interest rate reduction

Sometimes, a simple call to the credit card company will yield you thousands of dollars in savings. Sometimes, companies will lower your interest rate to keep your business. Every little bit helps, and this will ensure that the payments you make are devoted to paying off your principal balance instead of paying the company’s fees.

4. Never go over your limit or pay late

Going over your limit or paying your card late can trigger astronomical fees. In addition, your interest rate can adjust to the default rate, which is sometimes as much as 25 to 30 percent. If this happens, you can only imagine how long it will take to pay off your debt. Pay on time. If you are forgetful, schedule your minimum payments to draft monthly from your bank account.

5. Pay off high-interest cards first

If you are trying to pay off multiple cards, focus on the debt that is most expensive first. If you have two credit cards — one at 8 percent and the other at 12 percent — pay off the 12 percent balance first, even if it’s significantly lower than the balance on the 8 percent card.

Paying off credit cards can be somewhat intimidating. However, with a little determination and discipline, you will discover that it is a lot easier than you think.

Meg C.

With lenders tightening their standards, and with new credit card rules, many are finding that it is not as easy as it once was to get a credit card. Indeed, proof of income is needed, and for the best credit cards you will need a credit score that is at least fair to good. If you do not meet these qualifications, you may need a co-signer to get a credit card.

What is a Co-signer?

A co-signer is someone who accepts responsibility for the loan or credit card if you cannot pay. If you do not have good enough credit or a high enough income to qualify for a credit card or some other type of loan, a co-signer will vouch for you, taking on the responsibility for the loan. This person should have good credit and sufficient income.

When someone co-signs for a loan, it means that he or she is basically taking on the debt. You should still make your payments on time, but if you don’t, the creditor can come to the co-signer to fulfill the debt. Additionally, the co-signed debt shows up as part of the co-signer’s debt burden, so their debt-to-income ratio rises. A co-signer is taking on risks when he or she backs you up, agreeing to pay on the loan if you default. If there is a chance that you will default, or if there are doubts about whether you are responsible enough to pay on time, you may have a hard time convincing someone to co-sign for you, since most of the risks are taken on by the co-signer.

Choosing a Co-signer

If you are responsible but you do not have established credit or a full-time job, you might be able to convince someone to co-sign for you. This person is usually a relative, often a parent. You might also find a very good family friend to co-sign on a credit card for you. When looking for a co-signer, you should find someone who has good credit, a low debt-to-income ratio, and who is not planning major purchases for at least six months. This is someone who is likely to handle the debt well, and who can afford to co-sign for your credit card.

Once you have your credit card, you should show your appreciation to your co-signer by using it responsibly, paying on time, and in full.

Jean Marquit

Have you ever tried to read a piece of legislation only to ask yourself, “What the heck did that even mean?” Official decrees from Washington are notoriously verbose at the best of times. The latest credit card bill, the Credit CARD Act of 2009, is no different. Fortunately, the kind folks at CreditCards.com have created a far more user-friendly guide to understanding just what the credit card bill is all about.

The Credit CARD Act of 2009 multimedia guide breaks down each title, section and legislative reference into digestible chunks just about anyone can understand. The guide also allows credit card holders to find the sections that apply to them directly through an easily navigable list of subtopics.

A multimedia breakdown of the Credit CARD Act of 2009 is ideal for this credit card bill because, let’s face it, the same text pasted into a PDF document would be almost as difficult to wade through as the legislation itself. By designing the guide with clickable links and breaking down the text into terms, quotes from politicians and even links to related stories, the site ensures that consumers will not be overwhelmed by impenetrable text. Even better, CreditCards.com has also included the original text of the Credit CARD Act of 2009, so those who believe in thorough research will be able to relate the simplified information to the transcript of the law.

Credit CARD Act of 2009 Multimedia Guide: A Closer Look

The major sections of the credit card bill are broken down into five simple headings:

• Rates, terms and fees
• Youth and credit
• Disclosure
• Studies
• Other

Each of these is further divided into numerous subheadings to help you navigate the text.

Many are unfamiliar with the jargon of the credit card industry — from double-cycle billing to grace periods — terms that the Credit CARD Act of 2009 understandably references frequently throughout its text. Naturally this means many consumers are unable to understand the credit card bill even if they can manage to wade through the wordy transcript. Fortunately, the multimedia breakdown of the Credit CARD Act of 2009 defines all of these terms as you roll your mouse arrow over each one.

This type of legislation affects everyone differently, depending upon spending practices and credit history. This handy tool can help consumers understand the Credit CARD Act of 2009 and, more importantly, comprehend what the credit card bill means for them.

Now, if only someone would do this for every other piece of national and local legislation, perhaps there would be a better understanding of our government throughout our great land.

Steve Thompson

Going to college is the first step towards independence for many young adults. Many attend colleges in their home state, living on their own in dorms or apartments. During these college years a student’s main concern should be on studies and how to pursue a career upon graduation. Unfortunately, rising debt lurks in the shadows for many of these students and when they graduate, the harsh reality of this debt brings puts a tether hold on some of their plans and goals.

College Debt

It used to be that credit card debt was the big culprit for the debt college students had upon graduation. However, with the Credit Card Act of 2009, that debt won’t be a factor. But the debt of college students will still be as high as before and some instances higher. In recent years college students have been borrowing more money than they ever have in the pursuit of higher education. So many students’ borrowing has increased to keep up with the costs of rising tuition.

Tuition Hikes the Main Culprit

There used to be a time when a person entering college fresh out of high school only needed to take out a college loan for a couple of thousand dollars each semester. However, with the cost of tuition rising significantly each year, students are borrowing twice as much just to pay for an education. In fact, college tuition hikes have passed the rate of inflation. According to the College Board, between the years of 1999 to 2000 and 2009 to 2010, college tuition has increased at an average annual rate of 4.9 percent over the general rate of inflation.

Life-Altering Effects of Increased Student Borrowing

Federal Direct and Stafford loans typically give graduates a six-month grace period before they have to begin repaying their loan. However, with the current economic situation and unemployment still high, finding good paying jobs is becoming difficult for some. Even when a decent-paying job comes along, plans such as getting married and purchasing a home are put on the back burner, as graduates find themselves living paycheck to paycheck.

There may not be a way to avoid borrowing for college tuition. However, if college students are made knowledgeable about how student loans affect their lives after college, they can be better prepared to handle the debt. Financial education on debt and borrowing can benefit students a great deal and help them develop a plan to handle the debt college tuition helped them to accrue.

ShawnTe Pierce

The U.S. Census Bureau claims there are roughly 1.5 billion credit cards in use across the nation, which translates to an average of eight credit cards per American adult. At the same time, a company that advises the credit card industry, R.K. Hammer, reports that Americans annually pay more than $20 billion in credit card fees. Perhaps it is no wonder that 41 percent of U.S. adults told the National Foundation for Credit Counseling that they grade their knowledge of personal finance at “C,” “D” or “F.”

Knowledge is power. Here, then, are 10 credit card industry facts that may help you better deal with the world of credit cards.

1. Beware of the “universal default clause”

Just one late payment on any credit card can prompt the entire credit card industry to raise your interest rates on all of your cards.

2. Identity theft

A plague upon the credit card industry and personal finance in general, identity theft is described by federal authorities as America’s fastest-growing source of crime. Monthly reviews of credit card statements and credit reports are the best ways to combat identity theft.

3. Credit card offers can lead to identity theft

A typical household receives several credit card offers per year. The trouble is that if the household doesn’t shred these offers, identity theft criminals can obtain vital personal information and open credit card accounts in your name.

4. Maintain that credit score

The magic number for your credit score is above 600. Go below that and you likely will face severe credit limits and high interest rates.

5. Make some noise

The fact that you may receive multiple pitches from the credit card industry, even if your credit score is below 600, reflects the fierce competition between companies. Call the credit card companies and ask to speak to supervisors for the lowest interest rates, and even negotiate for consolidation of credit card debt. The same determination on the phone can help if you believe an unwarranted late fee or penalty has been assessed.

6. Watch those gas stations

Folks seem to run into all sorts of problems when they use credit cards at gasoline pumps. First, if you don’t have a minimum of $50 remaining on your limit, your purchase attempt may be rejected. Gasoline stations may also be slow to record your transaction. Sometimes it’s best to simply pay with cash.

7. Keep an eye on payment time frames

If a few days are shaved from a payment time frame, such as 25 days instead of 30 days, credit card holders may falsely assume that they’re paying on time, only to run into a costly late fee and all of the accompanying troubles.

8. Minimum monthly payments will cost you dearly

Minimum monthly payments often consist of little more than interest on the lump sum. The laptop you purchased for $300 could end up costing $1,000 or more if you’re paying the minimum monthly payment. In this sense, credit card purchases can cost even more than rent-to-own arrangements.

9. Shop locally

If you restrict your purchases to within your home state or within 100 miles of your billing address, you will have an easier time disputing charges for unsatisfactory goods or services. Federal law gives credit card companies more rights for purchases made out of state or beyond the 100-mile radius.

10. Sometimes, “big government” actually can work for you

When looking for advice, keep in mind that the Federal Trade Commission monitors trade within the 50 states. There’s even a U.S. Financial Literacy and Education Commission, and local nonprofit credit counseling agencies are abundant.

Michael Thompson

One of the best New Year’s resolutions you can make is vowing to get your financial house in order. Reviewing your credit report is a great way to do this and to kick off the year right.

Viewing your credit report is completely free; you are legally entitled to one free report from each of the three credit agencies: Experian, Equifax and TransUnion. Thanks to the Fair Credit Reporting Act, you can see the credit information that potential creditors and employers may use in making decisions about you.

Here are some things to look for when reviewing your credit report at the beginning of the year.

Collection accounts

Your credit report may give you some small surprises such as that $56 bill for medical lab work that was never mailed to you. Review your collection accounts and find out how old they are. Check with an attorney or consumer credit reporting agency and see what the statute of limitations are on the collection accounts. Pay off any of the accounts that are still within the statute.

Late payments

Late payments can drive your credit score down fast. When reviewing your credit report at the beginning of the year, look at your payment history. If you only have one late payment for the entire year, call the creditor and see if they will remove that late payment one time as a courtesy. Some creditors will do this, and it will help your credit score. If you notice a pattern that indicates that you may not be paying off your bills in a timely fashion, sign up for automatic drafts. But only sign up for these services if you know you will have adequate funds in your account on the date you agree to let the creditor take the money.

Accounts you don’t recognize

If you see any accounts you don’t recognize, contact the creditor for more information. It may be an old account you forgot about, or it could be an indication that someone used your financial information.

Some experts recommend looking over all three credit reports at one time, as different agencies may report different accounts. Others recommend spacing out your free credit reports over the span of one year. If you can afford to purchase additional credit reports through the year (they are usually around $10 to $30 each), try to review all three credit reports every four months.

Meg C.

Gift cards may be small, but they mean big business to the retail and banking industries. According to MasterCard subsidiary TowerGroup, gift cards generate nearly $90 billion in sales each year. With every gift card comes fine print, which could mean additional fees or use limitations. Before buying a gift card, consumers should research the fees and limitations online or directly on a card’s packaging.

Types of Gift Cards

Bank-issued gift cards are branded with the logo of a major credit card company and can be used at any business that accepts the credit cards. Although flexible in use, bank-issued cards tend to charge a number of fees.

Retailer-issued gift cards are issued by stores, restaurants or other businesses and are usually redeemable in that business only. Their policies tend to be more consumer-friendly and they charge fewer, if any, fees.

Activation and Delivery Fees

Many bank-issued cards charge a fee just to be activated, while retailer-issued gift cards are usually activated for free. Walgreens drug stores sell dozens of retail and bank-issued gift cards. The retail-branded cards sold at Walgreens have no activation fees, but bank-issued gift cards with the Visa and American Express logos do require an activation fee.

If a gift card is purchased by catalog, phone or Internet, a shipping charge may apply. Shipping charges can be avoided by purchasing a card directly at a business location. Some gift card issuers will ship gift cards for free, so consumers should watch for such promotions.

Some cards utilize a dormancy fee, usually a monthly service fee, if it is unused for a period of time. A new federal law prevents a dormancy fee if a gift card has been used in the prior 12 months, and consumer pressure has led many gift card issuers to eliminate dormancy fees altogether.

Flexibility of Use

Each gift card has certain limitations. Some gift cards may require purchases to be made either in person or online, or may limit what types of purchases the gift card covers. Some gift cards have no time limit to redeem the card, while others add an expiration date, sometimes as little as one year from date of activation, or the unused balance is forfeited. Gift card issuers know that unused balances mean profits for them. Consumer Reports says nearly 10 percent of all gift card balances are never used, an additional source of revenue for companies that issue them.

Some retailer gift cards are redeemable at other retailers owned by the same parent corporation. Old Navy gift cards can be used at the Gap and Banana Republic stores, while a gift card to Chili’s can also be used at Romano’s Macaroni Grill, On the Border and Maggiano’s Little Italy.

Only a small number of retailer gift cards allow a user to redeem the card for cash. Old Navy cards, for example, allow cash to be redeemed if the card balance is below $5.

Lost or Stolen Cards

If a card is lost or stolen, most issuers will require an original receipt or the card number to replace it, so the receipt should be given with the gift card to the recipient. Some issuers charge a significant fee to replace a card.

Tips to Avoid Gift Card Scams

Scambusters.org warns consumers of schemes involving gift cards. Thieves can steal card numbers and customer service phone numbers off gift cards displayed in stores and later call in to find out if they have been purchased and activated. Once a card has been activated, the thief uses the card number to order items online, draining the gift card before the real owner has a chance to use it.

To avoid problems buying gift cards in person, Scambusters suggests only purchasing cards that do not show their numbers through the packaging or are displayed behind counters to avoid tampering.

Consumers should avoid buying gift cards from third parties like eBay, newspaper ads or CraigsList. These scams often involve stolen gift cards, used gift cards or even counterfeit gift cards that sell for less than the face value and leave a buyer with worthless cards.

With a little research and a few precautions, consumers can not only avoid the pitfalls of high gift card fees, they can also find just the right card that will be used and appreciated by the recipient. Researching the policies and fees of a particular gift card could avoid future problems and help a consumer find just the right gift card.

Victor Medina