by David Bach

Credit cards are a wonderful convenience, but they can also be financial
quicksand if you don't know how to use them properly. Unfortunately, most of
us don't.

Overall, American families have an average of 7.6 credit cards each, and
consumers as a whole owe around $800 million in credit-card debt, which
works out to more than $9,000 per card-carrying household. No wonder only 4
out of 10 card holders manage to pay their bills in full each month.

Being a realist, I know credit cards are here to stay. So you should learn
the techniques credit-card companies employ to maximize their earnings from
you -- and use that knowledge to avoid the many pitfalls unwary borrowers
tumble into.

Minimum Payment, Maximum Pain

The big secret of the modern credit-card industry is that issuers of plastic
are in no hurry to see you pay off your debt. In fact, they make a lot more
money if you make only the minimum monthly payment. And they're smart enough
to know that if they ratchet down the minimum amount due low enough -- say,
to around 2.5% of the total balance, which is where it's been lately --
you'll keep spending money, and they can make a fortune on you.

It's not in card issuers' interests for you to understand that if you borrow
$10,000 on your credit cards and pay only the minimum payment with an
interest rate of 19.98%, it will take you more than 37 years to get out of
debt -- and before you do, you will have forked over nearly $19,000 in
interest charges.

The government has been pressuring the card companies to raise their monthly
minimums. As a result of the recently enacted Bankruptcy Abuse Prevention
and Consumer Protection Act, many will be raising them to 4% this year.

But this, by itself, this won't solve the problem. If you're carrying a
balance on any of your cards and don't want to be paying through the nose,
you should still make a point of forking out more than the minimum payment.
Your goal should be to pay at least twice the minimum every month. Assuming
you aren't being charged an outrageous interest rate, you should be able to
pay off your balance in less than five years just by doing this. So do it!

Late Fees' Bite

Here's another secret. Issuers of plastic don't really mind it when you're
late making a payment because there's big money in collecting late fees.
Indeed, according to R.K. Hammer Investment Bankers, a California
credit-card consulting firm, more than 10% of the industry's revenue comes
from late fees.

And those fees can really hurt. Not only can card companies can charge you
penalties as high as $39 a month if you're even one day late, they can also
hike your interest rate. To make matters worse, many card issuers have been
shortening the time they give you to make a payment -- shrinking it from 30
to just 21 days. This means you have to watch carefully for your bill and be
sure not to be late.

One way to protect yourself is to use your bank's online bill-paying service
to schedule an automatic payment of double your current minimum amount due
several days before your credit-card bill's deadline.

If you find yourself missing the due date anyway, call the card issuer
immediately and ask them to waive your late fee. Assuming you haven't made a
habit of doing this, they will generally give you a grace period. (Just to
be sure, get a name or confirmation number from the person you speak with
and double check your bill the next month to make sure you weren't hit with
a late fee or interest-rate hike.)

Rates: Seek a Better Deal

I've always maintained that it's not debt that's killing Americans, it's the
interest they pay on it. Right now, the average rate on credit-card debt in
America is around 13 percent. But that's just the average. Rates range as
high as 40 percent annually.

What can you do? The first thing is to examine your credit-card statement
and find out exactly what your debt is costing you. Once you've done that,
go to a Web site like or and see how your rate
compares to what's being offered elsewhere. Most likely you'll find a number
of cards offering a better deal. But before you go to the trouble of
switching to a new one, call your current card company and ask if they will
lower your rate.

If the first person you speak with turns you down, ask for a supervisor. Let
them know that you're considering transferring your debt to a new card. And
be specific. Tell them the name of the rival company and the rate it's
offering. Make them do the selling: Ask, "Why should I stay with you when I
can get a much better rate somewhere else?"

Generally speaking, as long as you're polite and reasonable, they will
probably try their best to satisfy your request because ultimately they want
to keep your business. If you don't get what you want, apply for an account
with a company offering better rates and then transfer your balance there.

Annual Fees: Negotiate a Waiver

Most credit cards charge annual fees ranging from $35 to $100. If you're
like the average family and have seven or more cards, this can really add

Depending on the kinds of plastic you have, you may be able to get this fee
waived simply by calling and asking. The major exception to this rule
involves cards affiliated with frequent-flyer programs or rebate offers.

But for a regular card with no special offers, you shouldn't have to pay an
annual fee -- especially if you're a customer in good standing. So if you're
being charged an annual fee, ask today for it to be waived. And if you paid
one recently, ask them to credit it back to you.

The Zero-Percent Offer: How They Tease

Lots of card issuers now offer introductory rates of "zero percent" to
customers willing to open new accounts and transfer their existing balances
to them. These can be good deals, but beware. Many of these zero-percent
offers have very specific disclaimers -- in tiny print -- to the effect that
if you're late paying by even one day, you forfeit your zero- or
low-interest deal and your rate can be raised. I've seen deals where, if
you're late just once, the rate jumps from zero to 24 percent. And if you're
late twice, it jumps to 29 percent.

Even worse, some of these special offers carry "retroactive interest-rate
penalties," which means the cards' issuers can go back and charge you high
rates for every balance you've ever carried, even when you were making your
payments on time.

So be careful with these offers. They can be terrific if you're responsible,
but slip up once, and you can get badly hurt.

The bottom line is: If you're not careful, credit cards can become a
financial hazard that's hard to escape from. So be smart with your cards and
learn to avoid the pitfal