Next week, the Senate will vote on a bill that would knock out several unscrupulous credit card practices, such as raising a customer’s interest rate for paying a bill for an entirely different creditor late, or significantly hiking up the interest rates on existing balances. This bill aims to add significantly more consumer protections to the credit card industry. A recent article from TIME says, however, that the biggest problem with the credit card industry may not actually be the credit card companies, but the consumers themselves.
Why? According to the article, many consumers are seduced by low teaser rates even when the regular interest rates are sky-high rather than selecting a card that’s wise for the long term. We spend more when we purchase with plastic over cash since it doesn’t feel real. We spend money on interest payments when we have money saved in the bank we could use to pay off the card. Skeptical? The article cites studies to back up these claims. While it says that 42 percent of American households with credit cards do pay their bills in full each month, that leaves more than half of us who don’t.
What can we take from this? Selecting the right card is more important than you think. Sure, 0 percent APR for three months sounds amazing, but if the APR from there on is very high, it’s a bad deal. If you are going to carry a balance, it is critical that you select a card with a reasonable long-term APR and not be wooed by teaser rates or reward programs. You should also be sure to familiarize yourself with your credit card agreement in order to figure out what your fees are and what you can do to avoid paying them. While this new bill may do a great job of protecting us, we’ve also got to protect ourselves and make wise decisions.
On that note, here are several excellent credit card-related blog posts from the personal finance blogosphere that will help you learn how to be a wiser consumer.