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The Basics
How to lower your credit-card fees
Even good credit-card
holders are charged fees nowadays. If this is
the case for you, shop around for a better deal.
They're out there.
We've been reading that the credit-card business
is in turmoil. Delinquency rates are soaring and
card issuers are tacking on fees and hiking interest
rates in an effort to salvage their businesses.
The fix is in.
In fact, that's a bit of an exaggeration, according
to Warren Heller, who heads Veribanc, a bank research
and analysis service in Wakefield, Mass. Heller's
research shows that delinquencies are concentrated
at a handful of banks. And just a small percentage
of consumers are failing to pay back their loans.
“These two groups have found each other,"
Heller says. In the insurance business, that process
is called “adverse selection." So, for
instance, someone with a health problem is stuck
with an insurer with high rates or bad terms because
he can't qualify for new insurance. But in the
credit-card business, many card issuers are using
the current turmoil as an excuse to add extra
fees. “Now the good customers are paying
the freight," Heller says.
Look for good terms
That calls for a new strategy for cardholders.
If you're a good credit risk, you should be looking
for good terms. Heller says that banks are eager
to keep customers like you and you will be able
to negotiate better terms. Consolidating your
business at just two or three card issuers makes
you a more desirable customer, too.
If you haven't thought about what you're paying
to use your credit cards, you might be surprised.
That was the case for me. I've been writing about
credit for years. For the most part, I practice
what I preach. I keep two bankcards -- a MasterCard
and Visa as well as an American Express card,
which I got in 1975 after graduate school. That's
it.
The last time I did a card cleanup was three
years ago when my credit-card company bounced
a check to the Internal Revenue Service. I canceled
that card. At the time, Wachovia was turning up
on everyone's list of favorites. I applied for
a Wachovia card and got one. The interest rate
was comparatively low and the $28 annual fee was
acceptable to me. About the same time, I got an
offer from AT&T Universal for their no-annual-fee
card. I signed up.
Beware of low teaser rates
Now, like the rest of you, I've been getting offers
in the mail for cards with low teaser rates of
4.9% and 5.9%. Because I don't carry a balance,
I've been on the lookout for other features that
appeal to me. If you employ that same pay-as-you
go strategy, you should consider cards that charge
no annual fees or offer special incentives, such
as mileage rewards on flights or rebates on future
purchases. You should also do what I’m doing:
Look to see if there are any special deals --
or strings -- attached to the cards you already
hold.
For instance, I noticed a “special offer"
that came with my AT&T bill that would allow
me to transfer balances from other cards at a
7.9% rate. Transfers would also carry "a
small transaction fee” of 2% of the amount.
So transferring $5,000 would cost me a hundred
bucks right off the top. That’s not much
of a reward for being a good customer the past
three years.
I checked the other low-rate offers. No transaction
fee for transferring the balance. Many cards have
no annual fee either. One of them even offered
a fixed rate of 13.9%, sort of like a mortgage.
If you carry large balances on your debt, that
fixed rate could come out better for you in the
long run than the low introductory rates that
suddenly balloon to 18% or higher after the first
six months.
There were lots of premium offers that I saw,
too. Wachovia's 14.4% variable rate no longer
looks so good. Neither does AT&T's 14.2% or
the $55 annual fee I pay for American Express.
For years, I felt the extra services -- like the
so-called country-club billing -- made the fee
worthwhile because it helped me keep track of
business expenses. But American Express dropped
that a number of years back.
So I think I'll drop American Express. And maybe
Wachovia and AT&T as well. I'm going to be
on the lookout for a card with no annual fee and
with some other features that suit me.
I asked Veribanc's Heller if he'd made any card
changes recently. He and his wife just signed
up for Discover to take advantage of the cash
rebates, he said. Although the card has an annual
fee, they figure they'll recover that after charging
around $1,000 and then begin collecting their
bonus.
"Now is the time to shop around," Heller
says.
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