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Getting Out of Debt
Step 7: The Nerve!

By Dayana Yochim (TMF School)

Surprise! Some lenders don't have your best interests at heart. Even the most reputable ones bombard customers with "perks" that are designed to pad fees and interest payments. Customers can ignore those carrots -- and we suggest that all Fools do, as you know from reading the previous article.

But in their pursuit of profit, some credit card companies resort to some rather underhanded practices. The fact that many of the most blatant offenders operate out of South Dakota and Delaware is no coincidence. Those states have more relaxed consumer protection laws and let banks raise interest rates and fees to levels that are illegal elsewhere.

Here are a host of offenses to watch out for:

• Pursuing the un credit-worthy: Creditors often prey on those who are least credit-worthy by scanning credit records for telltale signs. If you are a student with no income or have recently emerged from bankruptcy, credit card solicitors would like to talk to you. They know that the recently bankrupt can't declare bankruptcy for another six years and that Junior probably doesn't know the first thing about budgeting.

• The magically appearing annual fee: You signed up for a card with no annual fee. Then, Blammo! Out of the blue you find one. Some lenders start charging an annual fee to their customers who pay their bill off every month. The best recourse: cancel the card.

• A sliding credit line: One really abhorrent practice is to entice a customer to use a cash advance check or a skip-a-month payment offer and then lower their credit limit. The maxed-out customer is then charged an additional fee for being above it. A variation on this theme is to simply lower the customer's credit limit once they reach it.

• Mysterious fees: You may not have to pay a finance charge to get a cash advance. But most banks charge hefty transaction fees, which can be around 2% of the total amount and no less than $10. Also watch out for transaction fees for calling the toll-free number to check your balance, and penalty fees for account inactivity. (Don't forget about that credit card buried in your sock drawer).

• The disappearing grace period: Watch out for lenders who pull the grace period out from under you -- especially if you are a "freeloader," someone who pays their balance in full every month. Remember, if your grace period is eliminated, you'll accrue interest from the day you make a purchase. The only way to avoid a finance charge would be to pay your bill before you received it.

Next: Sure, it looks like chicken. Tastes like chicken. But don't be fooled by the look-alikes.

Next: The Look-Alikes »

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