Considering Consolidating Credit Card Debt? Promises and Best Options

• The disappearing low rate. Many credit card companies have a “universal default policy” which allow them to increase the interest rate—double, or even triple—if you (the cardholder) are late making a payment to any creditor even if you paid their credit card bill on time. Credit card companies may also raise the rate if they believe you have taken on too much debt.
• Minimum finance charge. Annual fees are being replaced by many credit card companies by a minimum monthly finance fee of $2 to $6. This fee is charged even if you pay your balance in full. Thus you are paying a monthly fee instead of an annual fee.
• Quick trigger late fees. Most card companies no longer offer grace periods for late payments. If the payment arrives even a day late, a late fee is charged. The typical fee these days ranges from $15 to $39. Some companies are even time-stamping payments—the statement says the payment is due on a certain date; the fine print says it has to arrive by a specific time, usually noon or 1 p.m. on that day. If your payment arrives on the due date but in the 3 p.m. afternoon mail delivery, let’s say, that’s too bad—you’ll be charged that $39 late fee. Late fees and other penalties now account for a sizable portion of credit card company profits.
  
  Another trap that can cause a late fee is not sending your payment in the card issuer’s preprinted envelope. These payments may be posted five days after they are received.
• Reduced payment due period. Many card companies have also reduced the payment due period from 31 days after the statement date to 20 to 25 days. At the same time they have not deducted the statement mailing period from this payment due period. If, for example, the statement takes seven days from billing date to arrive in your mailbox, then with a 20 day payment due period, you must have your payment back to the company within 13 days of receipt not 20 days.
• Punishing penalty APRs after a late payment. If you pay after the due date by even a day or two, some card companies then increase the interest rate on the account dramatically. Miss the due date once and your rate may skyrocket to 19.8%, for example; miss it twice with this same company and the rate goes to 28.49%. That increased rate is your new rate from that point on. In addition, the company adds fees such as $29 or $39 for each late payment.
• Lower interest rate balances are paid off first. If the balance on the card was accumulated at different times—for example, a balance transfer at a 4% intro rate, new purchases at 15% and a cash advance at 19%—the card issuer applies your payment first to its fees and the lower interest balances. You continue to rack up interest on the higher rate balances.
• The disappearing grace period for interest accrual. The big print may say that the card offers a 25-day grace period on new purchases before interest starts to accrue. The small print says that if the card carries a balance (if you don’t pay it totally off every time), then interest on any new purchases or balance transfers, etc. starts accruing from the date of the purchase or transaction.
• Terms can change at any time. Many terms of agreement (that multi-page tiny print document that comes in your statement periodically) have this statement: “We reserve the right to change the terms at any time for any reason.” It usually goes on to say that the changes will affect the current balance and that further use of the card implies acceptance. Of course, when a new agreement is sent to you, the changes usually aren’t spelled out clearly.

When it makes sense to consolidate credit card debt, your Credit Union can help

• you are carrying a lot of debt on one high interest card
• you have multiple balances on several cards
• the interest rates on your card or cards are high
• you find yourself making only minimum payments on your cards
• you are having trouble making even minimum payments

• A personal or bill consolidation loan from DCU can be used to pay off your credit card debt for a lower monthly payment. In some cases, a home equity loan may a good solution. These loans are usually offered at a fixed rate that is lower than most credit card rates. Plus, you avoid the credit card loan traps.
• If you need help in better managing debt, DCU has partnered with BALANCE to provide members access to credit management services.