How You Can Save Money On Your Credit Cards

Credit card companies have a little secret they don’t like to actively make public. It’s called the “universal default clause”. These three words carry a lot of force behind them because it means if you happen to pay late on, say, your car loan or even your electricity bill, your credit card company could increase your interest rate by several orders of magnitude.

“Wait, they can penalize me for being late on a payment that’s totally unrelated to them?” Absolutely, and it drives me crazy that they can do this.

Their logic goes like this: if you’re a credit risk to others, then you could be a credit risk to them. So before you become that risk, they want to protect their interest by charging you an arm and a leg (in addition to the other two they’re already charging you for).

So let me get this straight: I’m a little short on cash so I decide to purchase something on credit. I’ve agreed to pay a minimum payment plus interest on a monthly basis. But something comes up that causes me to spend money on something I normally don’t, like car repair. Consequently, I miss my payment to (queue the ominous voice) Bank of the Northern Hemisphere. The bank freaks and thinks that by charging me up to 30 percent extra on my bill for as long as I have my account with them that will somehow magically create money in my wallet so they can get their cut?

Riiiight.

I’m not a math wizard, but I am a thinker. And my thinker tells me this has less to do with protecting their interests and more to do with them creating an excuse to satisfy their greed.

So, in addition to paying your bills when you’re supposed to, what can you do?

First, don’t live outside your means. If you don’t have the money for it, and it’s not critical you have it, wait until you have the money to buy it.

Second, if you are struggling, don’t wait for things to get out of hand before asking for help from creditors. They may have a receptive ear if you call them up first to work out some sort of payment plan.

Third, read the fine print that comes with your statement. If it’s not clear, call up the bank and ask them outright, “What can affect my interest rate?” This is particularly useful if you do this BEFORE you sign up with them. If your creditor does have a universal default clause, transfer your balance to some other bank.

Fourth, check your credit report: AnnualCreditReport.com or FreeCreditReport.com. You should be doing this regularly anyway to check for unauthorized activity.

Hey, sometimes late payments happen, and banks are entitled to protecting their interests, but gimme a break! Do they have to be so voracious about it?

[tags]credit cards,late fees,universal default clause[/tags]

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