What Credit Card Companies are Not Telling you 

Throughout my years I have met many people who were overwhelmed by the amount of debt that they have managed to acquire over the years.

Year after year they attempt to pay down their debt load, yet year after year they notice that their debt has not diminished. 

How long are you supposed to pay for the poor decisions made in your youth? When I had credit card debt I often wondered the same thing. 

Before I understood money management principles and the power of compounded interest, I charged more money onto my credit cards than I could afford to pay off. The result? I was still paying on those purchases 6 years later and my balance had not gone down $1.00. 

I knew something had to change. Therefore, I came up with a plan (see my article on reducing debt under Personal Budgeting) that paid off $6,000 worth of debt within a year and a half. 

After paying off my credit card debt I learned something about credit card companies that was startling. What I learned made me understand that the reason most people have an extremely hard time paying down their debt may not be their fault.

David Bach, in his article, “What Credit Card Companies Don’t Want you to Know,” wrote:

“If you own a credit card, you know by now that if you're late with a payment the credit card company will charge you a late fee in addition to raising your interest rate. But did you know that they can raise your interest rate if you've made a late payment on any of your other cards, including those issued by other companies? 

Not only that, but your interest rates can skyrocket to 30 percent or more if you make a late payment on your car loan, mortgage, or even your phone bill! 

"How can that be legal?" you may ask. The answer is found in the fine print of your credit card agreement, and it's called a universal default clause. According to the Institute of Consumer Financial Education, currently almost 40 percent of credit card issuers apply this policy to their customers. 

A Late Payment 'Trigger' 

Generally, a universal default clause states that a creditor reserves the right to penalize you with an increased interest rate if you're late -- that is, in default -- of a payment to any other creditor. They justify this practice because, in theory, if you pay any of your creditors late, you pose a greater credit risk and are less likely to pay your debt.

Your creditors also have the right to routinely monitor your credit file. So a creditor with a universal default clause will be watching -- and waiting. 

Let's say your Visa card has a universal default clause. Any late payment -- whether it's on your utility bill, home equity loan, or Macy's credit card -- acts as a "default trigger" allowing the bank that issued the Visa card to double or even triple your interest rate overnight. Your all-important credit score will be hurt as well. 

According to a study by the nonprofit advocacy and education group Consumer Action, the top three default triggers that cause your interest rates to spike are a decline in credit score, paying your mortgage late, and paying your car loan late. 

Other Triggers to Worry About 

Under the universal default clause, your interest rates can be increased for several other reasons, including exceeding your credit limit, bouncing a check, having too much debt, having too much credit, getting a new credit card, applying for a car loan, and applying for a mortgage loan.” * 

Now that you have received the bad news here is what you can do about your newly found knowledge. There is a website called www.mycreditcardfreedom.com. This site will show you all of the different credit card companies that are out there right now, along with their interest rates and benefits. 

After you have done some shopping around for different credit cards call your credit card company and ask them about the interest rate that you are currently paying and then ask them to match the best rate that you found using this site. 

If they do not match the offer apply for the other card and transfer your money over for a lower interest rate. If they do then begin to utilize the debt reduction strategy that you learn about in the article, “Reducing Debt Through Budgeting” until you are debt free. 

This sounds very easy on paper and the truth is paying down your debt is simple until your emotions get involved. Sticking with this plan over time will reduce your debt and pave the way for your freedom however; you must stick with the plan. 

It is not enough just to have a plan; you must have the right plan and then you must stick to that plan until it accomplishes what it was designed to do. Be bold, be consistent and you will find yourself living a life of both financial and emotional freedom. Go ahead…Move Forward! 

* http://finance.yahoo.com/expert/article/millionaire/26303