Credit card plans are daunting to those who don’t completely understand them; the truth is that people tend to apply for various credit card plans when they are burdened with medical charges, financially struggling or won over at the checkout counter. Although retail has cleverly disguised the commitment with significant promotions, the statements and fees that start to roll in the following month (or perhaps even a year from the purchase date) can cause you to regret those hasty decisions.
On average, each American is carrying around 1-3 credit cards, with a small minority possessing as many as 10 credit cards. Credit card plans were first introduced in the United States during the 1920s, when individual companies began issuing them to customers for purchases made at businesses. Over time, the universal credit was formed; allowing customers to use one card at a variety of businesses. Today, credit card plans have become imperative to a functional society as most financial situations will depend highly on your overall credit score.
It is not a decision to be made lightly. But nevertheless, it happens to the best of us, sometimes for the best of reasons. Before you know it, you are cringing whenever someone mentions having to run a credit report. So, how do you choose what credit card plan is best for you?
Personal preference is a large part of choosing the appropriate credit card plan to suit your needs. For example, do you pay all your bills in full at the end of each month? If so, then perhaps the best fit for a credit card plan is one with no annual fee and a grace period (which appears to be steadily shrinking) before finance charges are applicable. This negates the interest rate on your credit card plan. However, if you fall into the 9 out of 10 Americans that carry a balance on their credit card plan, make sure you fully scrutinize how finance charges are calculated since these are added to your balance. In essence, you will be paying more for what you’ve purchased based on interest for borrowing, in exchange for purchasing an item before you actually have the money in hand.
“Finance charges are calculated by applying a periodic interest rate to the outstanding balance of your account. Credit card companies use several methods to determine the balance in an account that’s subject to interest charges. The periodic rate is calculated by dividing the annual percentage rate (APR) by the number of billing periods in a year, generally twelve.” –Financial Web
In 2009, it was reported that 15 percent of American adults have been late making a credit card payment and 8 percent have missed a payment entirely. Given the downturn in the American economy, people are looking to ride it out with the use of credit cards, with the hopes that at a later date they will be able to afford the escalating payments. It’s easy to forget the consequences when a consumer is in a position of financial hardship.
These companies are not always “fair” with their credit card plans either. It’s a business creating an illusion of a security blanket, which consumers buy into willingly because they want the illusion of luxury, or some kind of emergency has forced the user to swipe. Whatever the reason may be, you’ll be singing them to the credit card collectors if you become delinquent on your account.
If you are struggling, and have avoided paying bills due to unemployment, a death in the family, etc., then prepare yourself to speak with the creditors. Also be prepared for them to start calling you every day, sometimes more than twice. Don’t ignore these phone calls because you don’t have the money. Instead, try to negotiate the terms of a credit card payment plan. Grabbing the bull by the horns is the best way to deal with debt. And if your debt is more than 10,000 then it may be beneficial to consolidate or speak with a credit card debt company
Creditors and collection agencies want to work with you because it’s the only way they will ever see the money you owe, since supposed solutions like filing for bankruptcy, will not benefit them. So let them know what kind of payments you can make and when. Or, if the bill is relatively small in comparison to your income, ask about settling for 50-75% of the balance. Credit card collection agencies represent the creditor, and they will prefer this over nothing at all. The longer your account stays with the credit card agencies, the more knocks against you in regards to credit score.
When you first sign up for a credit card plan, you should inquire about credit card protection plans. These will protect you when and if certain events occur: disability, unemployment, theft, and death. If you become disabled or are unemployed, the minimum monthly payment will be applied to your credit card until you are on back on your feet. In the event of theft, merchandise may be restored to you if a claim is approved and you have filed with the police department. Although death may seem a morbid thought; do you really want your inheritors to be responsible for your credit card debt? Think of this as protecting them.
To sign up for a credit card protection plan, you must pay a one-time fee and usually be under the age of 65—although with certain companies this may fluctuate. Keep in mind, however, that a credit card protection plan may not make sense for you if you are in the practice of only paying the minimum payment. Why?
“The rate of coverage varies from state to state. The fee ranges from 35-95 cents per $100 of your account balance.” –Epinions.com
Credit card plans are a business, and the end goal of the credit card company you chose is profit. Late fees and delinquency has serious repressions for your future, so choose your credit card wisely. It’s more complicated than what you see on the surface—a quick fix.
