Last week, the news was abuzz about that Bank of America and Citigroup had followed through on their threats to impose new annual fees. Several other banks rushed to announce that they won’t be imposing fees. The very idea that one of my cards could slap me with a new fee just for having the card in my wallet and not using it really makes me stabby.

My Policy about Annual Fees
I do pay an annual fee for my miles credit card from American Express. I also receive above-average benefits and service from them. I knew about the fee and agreed to it when I signed up for the credit card. At the time, I also needed a credit card for Costco, and decided that accruing miles was a good trade-off, so I’d opt for the miles card with a fee instead of a fee-free card.

I refuse to pay an annual fee for the rest of my credit cards. They don’t provide me rewards or additional services of any kind. All of my husband’s cards except one, his oldest card, are fee-free. So far, they’ve always waived the fee when he calls to ask. If they refuse next time, we’ll cancel the card.

Why the Bank Thinks We Should Pay Fees
So far, we haven’t received a notice that we’ll be charged a fee, but we’re in the “high-risk” group. High-risk meaning that we rarely use the card and pay it off in full every month that we do use it. Apparently they’re not making enough money off people like me. Honestly, if I don’t use the card, how much money does it cost to keep me around?

I understand that credit card issuers are strapped, but they chose to extend too much credit, which allowed some customers to take on too much debt. The banks did this so they could collect over-limit fees and late fees and interest and a slew of other fees. The fact they’re getting busted for their greed is not my problem. I paid off my debt. I’m a responsible card user. They make billions of transaction fees. They don’t need an additional annual from me.

The Annual Fee is a Punishment
Basically, banks are punishing their responsible customers for being responsible. True, they don’t stand to lose much if I leave, but they do stand to lose a lot of money if hundreds of thousands of responsible customers leave due to annual fees. I really don’t think they’ve thought this through. Punishing responsible customers will only result in an increase in the percentage of irresponsible customers in their credit pool. How is that a good idea?

What I Plan to Do
If we do receive a notice or spot the charge on a bill, our first step will be to call and ask to have it waived. With one card, we’ll point out that we have multiple other accounts with the bank and have been good customers for over two decades. With the other, we’ll point out that we’ve been good customers and do spend some money with them.

If that doesn’t sway them, we’ll simply close the accounts. Yes, our credit scores may take a hit, but we already have so much credit that I’m not terribly concerned. The dip will be minimal and short-lived. We still use substantially less than 30% of our available credit, even without two of our credit cards.

I agree that the way Americans use credit has to change, but banks should be encouraging responsible credit card use, not looking for new ways charge us fees. Especially if customers accepted the card when there wasn’t an annual fee attached to it. They can’t just change the rules in the middle of the game. Well, technically they can, but it’s bad business. I’m pretty sure they’ll discover that soon enough. Then they’ll be the stabby ones.

Have you been slapped with a fee? What did you do about it?

Before my honeymoon, my dad gave me great advice for avoiding hefty foreign transaction fees and ATM charges. The advice has served me well, and served several friends well. Now I’ll share it with you.

Best Places to Get Foreign Currency
You’ll need some cash while traveling in a foreign country. If you’re traveling in the Caribbean or parts of Central America, you can usually use US dollars without trouble, but you’ll need the local currency in most other places.

ATM
The very best place to get local currency is an ATM. Before you leave, call your bank to do two things:
1. Inform them of your destinations and travel dates so they don’t lock down your card for suspicious activity.
2. Ask if they have any agreements with banks in your destination country that will let you use the other bank’s ATMs without a foreign ATM fee. You’ll still have to pay a foreign currency conversion fee (usually 1-3%), but at least you’ll avoid the extra $3-$5 fee. The list of countries varies by bank, and changes regularly.

If your bank doesn’t have agreements with other banks, take out cash in larger increments to avoid racking up too many ATM fees.

Hotel
If you’re using US dollars, your hotel can change your money, but you’ll receive a poor exchange rate and they may charge you a fee.

Currency Exchanges
These should be your last resort. They charge high fees and offer poor exchange rates. If you must use them, get just enough cash to get your from the airport or train station to town where you can find an ATM.

Using Credit Cards in Foreign Countries
You should always take 1 or 2 credit cards with you when traveling abroad, even if you don’t like to use credit. You never know when you’re going to be in a jam and need money instantly. Even though debit cards can be used like credit cards, I’d feel more secure with the flexibility a real credit card offers. Recently, I’ve seen several horror stories of people having their cards locked or closed while traveling. Always bring a back-up just to be safe. Even if you don’t use it, you’ll have peace of mind.

If you primarily use an American Express or Discover card, you can take those with you, but always bring a Visa or MasterCard, too. What the commercials say is true – not everyone takes American Express, but they all take Visa or MasterCard if they accept credit cards.

Before leaving for your trip, call your credit card companies to do three things:
1. Notify them of your destinations and travel dates so they don’t lock your card.
2. Get their toll-free foreign number in case something goes wrong with your card. American Express also gave me an emergency number in case we had a non-credit-related emergency, but most other issuers don’t do that.
3. Ask what their foreign transaction fee is. Fees are typically 1-3%. One of my cards had a 1% fee, one had a 2% fee, and one had a 3% fee. I brought the 1% and 2% cards and used the 1% card most of the time.

Some hotels and stores will offer to process the charge in US dollars. Ask to have it charged in local dollars. Some banks will charge you the foreign transaction fee even if the charge is in US dollars, and the store or hotel usually uses a less favorable exchange rate than the bank will.

Finally, know the exchange rate so you can do quick calculations in your head. For example, the pound is usually double the dollar, so a $30 item in the UK, is $60 US dollars. On the other hand, Brazil’s currency is roughly half the dollar, so a $30 item there is $15 US dollars. Fix those figures in your mind to keep track of the amount you’re really spending.

Now that you’re in a fee-avoiding frame of mind, check out my tips for packing a suitcase so you can avoid baggage fees.

Once again, the banking lobbyists are coming out against the new credit card rules passed by the Senate yesterday and likely to become law next week. These are only slight modifications of the new rules set to go into effect next year, but the banks and credit card issuers are once again trotting out their threats to try to scare Congress into not passing the bill. Silly banks – your greed is showing.

The Same Old, Same Old Threats
First, they said, “Well, if you make us be responsible, we’ll just have to reduce the amount of credit available to consumers.” Here’s the funny thing about that threat: they’re already doing it. They started slashing credit limits before the new rules were announced, and continue to do so. Continuing an activity isn’t much of a threat.

New Threats against “Deadbeats”
This is a new one. The lobby group is now threatening to start charging interest from the date of purchase, in order to make money off of us “deadbeats” who pay our bills on time. I guess the 1-4% they make from merchant fees isn’t enough now that there are new rules prohibiting predatory behavior. They’re also threatening to reintroduce annual fees and reduce rewards programs.

They may be modeling their behavior on the airlines, but there’s a key difference: the airlines have a captive audience. If you need to fly somewhere, you can’t do it without getting on a plane. I don’t have to use a credit card to buy something. I can use cash, debit cards, or even checks (assuming I can find my checkbook.)

So, if they want to charge me an annual fee, I can cancel the card. If they want to charge interest from day one, I don’t have to use the card at all. If they slash rewards programs, then my motivation to use the card is pretty limited. Right now I charge most recurring bills and regular purchases to one card out of convenience and to accrue miles, but I could easily add the recurring bills to the online bill payment and use a debit card at the grocery store or gas station. It doesn’t much matter to me.

Competition Always Wins
It happened with the airlines – some airlines didn’t charged for bags and attracted more passengers. It will happen with the credit cards – at least one bank will realize they can reap all those merchant fees if they allow a grace period and don’t charge an annual fee. The deadbeats will flock there. The other banks will be jealous and decide to play nice again.

The whole situation is ironic. Greedy banks issued too much credit to unworthy customers so they could rake in interest and penalties. As a result, the banks are losing money because those bad customers couldn’t afford to pay the interest or the penalties and defaulted. Meanwhile, the government finally decided enough was enough and cracked down on the banks. Their response? Drive away the good customers. And these people are supposed to be business geniuses?

Once again, stupid banks make me stabby.

If you have a credit card, then you’ve likely heard stories of credit issuers drastically reducing credit limits and wreaking havoc on credit scores. So far, I had been spared, until today when I received the dreaded letter. My case wasn’t as severe as most, but I still called the bank to see if I could get it raised. Here’s what happened.

The Background
First, the background. I’ve had this card since the mid-90s and have carried debt on it twice. As a result of my credit history, I had a ridiculously high credit limit. This, plus other factors, resulted in a very high credit score, which qualified me for an excellent mortgage interest rate.

The Reduced Credit Limit
Today I received a letter that my limit had been cut in half. Half! It’s still high, especially given that I charge maybe $200 a year on the card, but that’s a pretty drastic cut. My first thought went to my credit score. Would it get dinged for this? How would that affect my loan approvals? I’ve read about people having their limits reduced and seeing their scores whacked by 20 points or more.

Bank Conversation
I called the number indicated in the letter to see what I could do. I explained that I’m shopping for a mortgage and was worried about my score. She advised me that you’re supposed to cancel credit lines to qualify for a mortgage. I had to explain to her how the current FICO scoring model works.

She checked my scores and credit history and explained that the bank is reducing limits because many customers weren’t using all the credit they’d been issued. Of course, I know it’s really because they’re terrified everyone will run up balances and default.

She couldn’t increase my limit. She did, however, offer to deposit money into my checking account right now, at 0% interest until February, to help with the down payment on the house. If they’re reducing my limit to reduce risk, why are they offering me an instant loan over the phone? She also helpfully pointed out that my purchase APR is now 1.99%. Again, encouraging me to carry debt on the card, even while they’re trying to reduce risk.

I asked to be transferred to the credit department.

Credit Department Conversation
The credit department answered my call within 30 seconds or so. I actually have never had problems with their customer service, which I realize is rare. I explained to her that I’m pre-approved for a mortgage contingent on my high credit scores and am very worried that this credit limit reduction will hurt then. She reviewed my scores, history, and limit and assured me that my scores won’t be hurt. (Although my highest balance ever is nearly 50% of the new limit, which exceeds the recommendations. She didn’t mention that as a potential issue.)

She also couldn’t raise my limit and said she’s been fielding calls about this for 2-3 months, all with the same concern.

I suppose I was lucky – some people have had their accounts cancelled. I don’t expect that would happen with this account because they have some of my other accounts and probably fear losing me as a customer. It does tell me that I need to make sure I keep all my credit cards active.

If you have an older or high-limit credit card that you don’t carry a balance on, you run the risk of having it cancelled by the issuer, most likely without warning. Unfortunately, losing that card will damage your FICO score by reducing your utilization ratio and shortening your credit history. Even if you prefer not to use credit, it’s important that you keep an older credit card active if you ever plan to apply for a mortgage, car loan, or other forms of credit. Fortunately, you can do that without carrying a balance.

More Banks Closing Credit Cards
Some people have their cards cancelled or the limits drastically reduced without warning, others see their rates jacked up on somewhat questionable grounds. If you don’t carry a balance, than the latter isn’t a problem, but the former is.

Banks are doing this because they’ve finally figured out that more outstanding credit=more risk of default. So they’re moving to limit their losses with customers who are either at risk or default or who don’t earn the bank much money. They’re also moving to make more money before the new credit card rules kick in. If you don’t use your card or carry a balance, you could be in danger.

How to Keep Your Credit Cards Active
I use one card for almost all of my purchases because, at least until recently, it had a very generous rewards program. However, using one card for nearly all of my purchases made most of the other cards inactive, so I’m taking steps to keep them active.

Make Irregular, Small Purchases
Every so often, use the card for groceries, gas, or other small purchases. Just don’t forget to pay the bill. Fortunately, most cards now have email reminders when your statement is available. If you tend to forget it, schedule the payment on the spot.

Set Up an Automatic Payment
If you have a monthly recurring bill like your cell phone, newspaper subscription, or cable bill, send it to that card rather than your primary card. That regular charge will keep the card active.

Make a Big Purchase
If you have a big purchase scheduled, for example a new fridge, and you don’t plan to buy it on a rewards card, consider charging the purchase to a rarely used card. You may want to prime it with some smaller charges first to avoid security flags. Once again, make sure you pay it off at the end of the month. You don’t need to carry a balance to improve your credit score.

Rotate Your Cards
Before I had a rewards card, I would rotate my card usage. I knew which dates the bills closed (they weren’t all at the end of the month) and would use that card from the day after closing to the closing date of the next card, then switch. Not only did it keep them both active, but it let me keep my money in my checking account a little longer.

Personally, I worry less about active credit cards for department stores or retail outlets. Most of those cards have fairly low limits and seem content to keep my card active so they can send me product announcements and offers. However, if you have any large retail cards, consider using them at least once a year to keep them active.

First the bad news: these rules don’t take effect until July, 2010. Under the new rules for the good news: today the Federal Reserve Board issued strict new rules barring the deceptive and punitive practices of many credit card issuers. The policy statement is quite extensive, but these are the rules I think are most important:

The Interest Rate on Existing Balances Can’t Increase
For the most part, the interest rate that applies when you make a charge is the rate that will apply until the day you pay it off. The exception occurs when you’re more than thirty days late on a payment. In that case, credit card issuers can still increase your interest rate.

Extension of Grace Periods
The grace period – typically considered to be the time from the date the bill issued to the date the payment is due – has been shrinking. Some issuers are allowing as little as 15 days. If your bill was late, you were in trouble. Under the new rules they’ll be required to give you at least 21 days to pay the bill.

No Deceptive Credit Card Offers
You’ve probably received offers promising a 6% interest rate, only to receive a rate of 27% after you apply. That will no longer be allowed. Under the new rules the rate they offer initially will have to be close to the rate you finally receive.

No Two-Cycle Billing
I really hate two-cycle billing. Under this policy, you continue to be charged interest over two billing cycles if you carry a balance. For example, we made a partial credit card payment in January, then paid off the bill in full in February, but we were still charged interest through March.

No Universal Default
Currently, some issuers will raise your interest rate to as much as 29% if you have a late or missed payment on a card from another company. The new rules abolish that practice.

Payments Must Be Applied Fairly
If you have different interest rates for different balances, most issuers pay off the lowest interest rate first. The new rules require them to apply payments above the minimum to the highest interest rate balances first.

Payments Due on Weekends Won’t Be Late
Some issuers will consider your payment late if it’s due on Sunday and arrives on Monday. They may also set a due time of noon. Under the new rules the due time must be 5 PM, and bills with weekend due dates must be accepted as paid on time if the payment is received by the next business day.

No Fees for Online or Telephone Payments
These fees are ridiculous, and the Fed agrees. Under the new rules, you can’t be charged for making a payment through their website or by phone.

Zero Interest Is Zero Interest
This is the only one I’m not sure about. Currently, you can receive a rate of 0% until a certain date, but deferred interest accrues at the full rate. If you don’t pay off the balance before the final date, then you will have to pay all of the interest. Deferred interest will no longer be allowed – if they say 0%, it’s 0%. My concern is that this valuable financing option will disappear. As I’ve mentioned before, I use the Goodyear card to take advantage of deferred interest. However, I always pay the bill off before the interest applies. Most people don’t, so I can see why the Fed would ban the practice. The full rate is usually 22% or more.

These rules are a big win for the average consumer. True, they could have gone further, but it’s a place to start. The only downside is the delayed effective date. I’m sure the credit card issuers will take advantage of that time to bilk consumers for as much as they can. Protect yourself by being very careful with your credit for the next 18 months.

Today’s post is a guest post from Green Panda Treehouse.

How many times have you heard ‘read the fine print’? Sometimes we hear things so many times it becomes white noise. With credit cards, though, not reading the fine print can cost you a good amount of money.

“With more than a billion cards in our wallets, we floated some $937 billion in outstanding credit-card debt as of last November, according to the Federal Reserve. The average card-holding household has $9,659 in credit card debt, up from $2,966 in 1990.”

Source: Time Magazine

Make sure you’re not being charged an annual fee.
Why should you be charge a fee for owning a credit card? There are many credit cards out there that have no fee. Call your credit card company and see if they can waive it.
Saving with no annual fees: $29-$89

Review all the fees for the card. How much are late fees? When are payment due? You may have the payment delivered to them by the right day, but they might consider it late if it comes past their cut off time, which can be 12noon.
Savings on late fees: $25-$35
Savings on over limit fees: $29-35

Know your interest rate after the introductory period.
No interest rate lasts forever and the average interest rate is 14.7 %.  Check your last few statements to see if they changed any of the rates or fees, since they can do this. USA Today report how surprised one man was about his rate:

“Tommy Newsom was shocked when his bank nearly doubled his credit card interest rate this year, to 27%, for no apparent reason. A customer rep told him the law allowed the bank to do so, and that was all the justification it needed.
‘I never missed a payment,’ says Newsom, 63, of Mesquite, Texas, who owes about $5,000 on the card.”

Source: USA Today

It doesn’t hurt to call and see if credit card customer service department can lower your interest rate.

See if your credit card company charges you to make over the phone payments.
Some credit card companies make some money is by charging you $15 to receive a payment over the phone. Try to mail/send your payments a week early. If  you have to pay $15 to avoid $39 or higher, though, suck it up and pay the fee.

Know exactly how the rewards program works. If you have cash back or flier miles reward card, make sure you are maximizing its full potential. Sometimes you find that the card costs more than the credit card rewards they give.

How do you handle credit cards? Pay in full each other or carry a balance?

Note from Aryn: I was raised not to carry a balance, but had two situations in my life where I ended up with credit card debt. Both were of the “starving student” variety and I worked hard to pay them off as quickly as I could. My goal is to never carry a balance ever again.

I stopped most of my junk mail and catalogs several months ago. If you did the same, then you’ve probably seen a significant drop in your junk mail. Some days we don’t get any mail, and my husband hasn’t even registered yet! This week I took the bold step of stopping the last of the junk mail I receive: credit card offers from my own banks.

Why I Stopped the Offers
Once my junk mail stopped, I realized just how many offers I received from own banks and credit card issuers every week. It was simply ridiculous, and frankly, I was tired of buying new shredders every couple of years. These offers are also a prime source of identity theft. Thieves steal them right out of your mailbox and change the address so you don’t know about the card until it shows up on your credit report.

Last Friday I received not one, but two sets of convenience checks and an offer for a personal loan. That was it. I didn’t want any of more this junk in my mailbox. So, I girded my loins in preparation for battle with my current credit card issuers.

Six Steps to Stop Credit Card Offers
It turned out the girding was completely unnecessary. The people I spoke to were very pleasant and didn’t argue with me at all. If you want to stop your credit card offers, here’s all you have to do:

1. Register with the DMA to stop your junk mail.

2. Take your credit cards out of your wallet (or wherever else you keep them.)

3. From a landline phone, call the toll-free number on the back of the first card.

4. Push the buttons to get to customer service.

5. Tell them you want to opt out of convenience checks and all other offers they send you.

6. Repeat with the next credit card.

One of the reps reviewed her entire checklist with me on the phone and opted me out of emails and phone calls, too. Each one did offer me a new card or a balance transfer, but accepted my “no” right away.

They also said it would take about seven days to get me off all their mailing lists, which is pretty darn quick. It’s been a week now and I’ve only received one offer in the last seven days.

Unfortunately, you do have to call to make the request. None of the websites offered the ability to set my mail preferences for offers.

I had three cards to call, so the process took me about ten minutes. You don’t usually have to worry about store cards. I didn’t call American Express because I don’t recall receiving offers from them. I may have to call the airlines where I have frequent flyer accounts, but I’m not sure yet. I’ll let you know if I end up calling them.

I can’t tell you how nice it is to open an empty mailbox these days! It feels a lot like freedom.

I’ve seen many personal finance blogs and books rail against the evils of credit cards. Dave Ramsey, for example, has a very negative view of credit cards. I’ve always been in the “credit cards are good” camp, if you use them wisely. However, there’s a very good reason NOT to pay cash for big-ticket electronics: purchase protection. My friend used his credit card to buy a new Apple laptop and is very thankful he did.

His Purchase Protection Story
One morning about a month after buying the laptop, he pulled it out of the case and turned it on. Rather than the flawless screen he was expecting, there was a giant splotch at the top of the screen. It looked a lot like an inkblot. The rest of the screen still worked and there was no damage to the outside, but that part of the screen was unusable.

He took it to Apple, which refused to cover the repair under the warranty. They insisted it was damage, not a defect. They advised him to call his credit card company.

So he did. He got a repair estimate and filed a claim with Mastercard under their Purchase Assurance plan. Two weeks later he got a check to cover the repair. The repair cost was half the price of the laptop! Unfortunately, the estimate didn’t include tax, so he’s filed a second claim for the $50 in tax.

How Credit Card Purchase Protection Works
The exact protection you receive varies by issuer. Check your issuer’s website for limits, but usually purchase protection and purchase assurance cover up to $1,000 for fire, theft, or damage within the first 90 days. Some will also cover it if you simply lose the item. If you use a business credit card, coverage limits are typically higher.

In addition to covering fire, theft, or damage for 90 days, many cards also double your warranty.

To file a claim, you’ll need a receipt for the original purchase. If the item was stolen, you’ll probably need a loss report or police report. If you need a repair, you’ll also need to include a repair estimate. Contact your card issuer for instructions on filing a claim.

Once your claim is approved, you’ll receive a check in the mail for the amount covered.

Most Mastercards include coverage. Visa offers Purchase Security coverage, but only on certain cards. American Express coverage is equivalent to Mastercard protection on most cards, and some cards offer even greater protection.

What Should You Buy with a Credit Card?
If you’re planning to buy high-end electronics or small electronics that are easily lost or stolen, I would recommend buying it with a credit card. This is especially true of anything with a plasma or LCD screen, which are notoriously expensive to fix. When you use a card that offers an extended warranty benefit, you can skip the overpriced warranty offered by the store a.

Here are some items I would buy with a credit card to because of purchase protection and extended warranty coverage:

  • Video camera
  • Digital camera
  • MP3 player
  • Cell phone
  • Laptop
  • Desktop computer
  • LCD monitor
  • LCD TV
  • Plasma TV
  • Projection TV

Obviously, it’s best to use a card you pay off every month. If you add the purchase to one that already has a balance, you could end up paying more in interest than you receive in benefits.

If you’re planning on a big-ticket electronics purchase, review the protection plans offered by your cards. Choose the best coverage on the card without a balance so you can also buy piece of mind when you make your purchase.

Late last year, I received a notice from Visa informing that I was eligible to receive funds from their foreign transaction fee settlement. MasterCard and Diner’s Club were also part of the settlement. If you haven’t applied, or don’t know about it, here’s what you need to know.

Foreign Transaction Fee Lawsuit Background
The suit argues that Visa, MasterCard, and Diner’s Club (together with several issuing banks) colluded to set and conceal foreign transaction fees on credit card purchases. It also argues that they inflated the exchange rate on those transactions. The suit applies to the period between February 1, 1996 and November 1, 2006.

Although they deny wrongdoing, the banks and issuers have agreed to a settlement, which means you’re entitled to receive settlement funds if you used an eligible credit card in a foreign country during that period.

How to Apply for Settlement Funds
The application process is very simple. Just go to the Credit Card Conversion Fee Settlement website, and click the “Submit Your Claim” button. If you have your refund ID, enter it there. If not, click the tiny “I do not have a Refund ID” link to continue.

You have three settlement options:

Refund Option 1: An Easy Refund of $25. This is best for people with less than one week of travel, or total transactions of less than $2,500 between 1996 and 2006.

Refund Option 2: A Total Estimation Refund. This is based on your typical spending habits during travel. Use this if you traveled for more than a week, or spent more than $2500, but don’t have complete records to back up your claim. The refund will be a maximum of 1% of your estimated foreign transactions.

Refund Option 3: An Annual Estimated Refund. If you have records and traveled extensively, or used a company card, then use this option. You have to provide a year-by-year spending estimate, but your refund will be a maximum of 1% to 3% of foreign transactions.

My husband and I only had one trip during that period. We checked our records and found that our charges were less than $2500, so we opted for the simple $25 reimbursement. My parents travel extensively, and have their documentation, so they used option three. My sister lived abroad for a few months, so she also used option 3.

If you think you’re eligible, apply now. It’s free money and applying doesn’t take a lot of effort. The deadline to apply is May 30, 2008.

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