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Top 10 hidden dangers of credit cards

Credit cards. It may seem very difficult to get by without them in this day and age, but the fact of the matter is it's becoming more and more expensive to live with them.

That's because credit card companies have managed to stack the deck in their favor, thanks to obliging lawmakers and regulators who have allowed them to gouge consumers for exorbitant fees and unconscionable interest rates.

And you don't have to look hard to find out how tricky they can be.

"Just read the fine print of your credit card agreement," says Ed Mierzwinski, Consumer Program Director of the U.S. Public Interest Research Group in Washington, D.C. "It's a license to steal."

"The industry is out of control, it's getting away with robbery," says Robert Heady, author of the best-selling book "The Complete Idiot's Guide to Managing Your Money."

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Robert D. Manning, a professor of finance at the Rochester Institute of Technology, agrees. "The system is weighted against the consumer," he says.

But knowledge is power, and if you want to avoid getting squeezed, you should be aware of the top 10 money-grabbing tricks credit card companies have up their sleeves:

1. The universal default penalties. Card issuers regularly check their customers' credit reports for late payments on any of their bills. Any late payment can be used as an excuse to trigger a hike in your credit card's interest rate, even if you have never made a late payment to the card issuer.

A recent study by Consumer Action, a San Francisco-based consumer advocacy group, found that 39 percent of credit cards had universal default penalties in 2003. This year the figure jumped to 44 percent.

2. Bait-and-switch card offers. Direct mail offers generally advertise the issuer's premium card at an eye-popping low interest rate, while the fine print says the company can issue a more costly non-premium card with a higher annual percentage rate if you fail to qualify for the premium card. Just because you apply for a card with a low rate doesn't mean the card that shows up in the mail actually carries that low rate.

3. Shrinking grace periods. Historically, grace periods -- the time during which your transactions don't accrue interest -- were 30 days long. They now average 23 days, and some issuers have whittled the grace period to 20 days. Some cards have no grace period at all.

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-- Posted: Sept. 20, 2004
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2004 Debt Guide
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