How to ‘Fight for Your Money’

In his new book, David Bach shows you how to save thousands of dollars by taking on the “corporate machines.” In this excerpt, he shares tips on protecting your money from credit card companies.

How to fight for your money
The fact is that when they’re used responsibly, credit cards are a good deal. They free you from having to pay for everything in cash, which can be a huge convenience. They also allow you to borrow money interest-free — if you pay your bill before the grace period ends. But let’s be honest. Most people don’t do this.

To be smart with your credit cards, here is what you need to know — and do.

Pick the right card for you
There are literally thousands of different credit cards to choose from these days: low-interest cards, rewards cards, balance-transfer cards, airline cards, student cards, prepaid cards, business cards, cash-back cards — the list goes on and on. Are you an Oakland Raiders fan? You can have an Oakland Raiders credit card. Do you love country music? You can get a Reba McEntire or Alan Jackson card. You can even get one from World Championship Wrestling with Hulk Hogan’s picture on it.

But is that the right card for you? How much is the annual fee? What’s the interest rate? Who issued the credit card? What happens if you are late paying? How much is the penalty? Does the contract include the dreaded Universal Default Clause? (More about this later.)

These are the types of questions you need to answer BEFORE you sign up for any credit card.

Some cards provide cardholders with elaborate concierge services, but they charge annual membership fees in the hundreds — and sometimes thousands — of dollars. Are these services worth that much to you? Other cards have no annual fee if you pay your balance in full every month. Are you going to carry a balance? If so, then you need a card with the lowest possible interest rate.

There are two easy ways to get a good sense of what’s out there for you to choose from. First, simply hang on to all the junk mail you get this month. I promise you — there will be a dozen credit card offers in the pile, maybe more. Simply spread them out on your kitchen table, side by side, and compare them.

The other way is to go online. Web sites like Bankrate.com, cardratings.com, creditcards.com, lowcards.com, and lowermybills.com all offer excellent comparisons of interest rates and card features. Also, the Federal Reserve Board surveys credit card plans every six months and publishes an interactive report that makes it easy to make comparisons. You can find it online at www.federalreserve.gov/Pubs/shop/survey.htm.

Read the fine print
I did a public television special a few years ago where I blew up a credit card agreement and pointed out all the legal tricks the credit card companies like to play. I had to blow it up because the fine print was so small. But these agreements are not simply hard to read. They are also hard to understand. All the same, you need to read them and do your best to understand what they say. At the very least, study the disclosure box that spells out the agreement’s basic terms. These include:

• The annual percentage rates (APRs) you’ll be charged if you carry over a balance, transfer a balance, or get a cash advance.
• The minimum payment required and how long you can take to pay your bill in full before you get hit with a finance charge (known as the grace period).
• The method used to calculate your outstanding balance if you don’t pay in full.
• Your credit limit and whether they can change it without notifying you.
• What the penalty fee is if you exceed your credit limit.
• The annual fee, if any.
• When your payment is due — and when it is considered late.
• What the penalty fee is for late payments, and whether paying late will trigger an increase in your interest rate.
• Whether the agreement includes a universal default clause (which allows the credit card company to penalize you with fees or an interest rate hike if you are late paying some other company’s bill).

Using a credit card without knowing the terms of your account is simply dangerous. It can cost you hundreds if not thousands of dollars a year. To make sure you’re not ripped off, you have to pay attention — you have to FIGHT.

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