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Tuesday, August 22, 2006

Credit Card Traps, And How To Avoid Them



"0% interest* for the first six months, no annual fees**
and a low fixed*** rate of only 8.9%****!"

* Unless you count the deferred interest we will charge you
if you don't pay off the full balance transfer amount when
the promotional period ends.

** Except the ones we charge for "late payments****", going
over your balance, cash advances, balance transfers,
membership in "rewards" programs, etc., etc., etc.

*** Fixed for the first month, but after we may change it
without notice for: late payments, going over your balance,
changes in the prime rate, or just cause we want more of
your money.

**** Rate depends on your credit score. (Which we already
checked and intend to charge you 19.8% or we wouldn't bother
sending you this great***** offer.)

***** A payment may be late if we just don't get around to
processing it in time no matter when you actually mailed it
to us.

****** May not be great in all states.

Yes, folks, "the devil is in the details" and the truth is
in the fine print.

While this is obviously an exaggerated and fictitious
example I have seen most of these "weasel" clauses in the
100s of credit card offers I receive each year.

Some of these tricks and traps are practiced by local and
national merchants with their "store credit cards" and
"discount cards".

I have seen stores and even car dealerships make "no
interest for a year" type announcements and advertisements.
But when you actually read the contract (and who does that -
they count on you to not read the whole thing and you
probably won't understand it without your attorney) you may
find that instead of the regular payments you would expect
to start at the end of the no interest period, you are
required to pay the full purchase price.

If you want to make installment payments, you will be
required to pay the payment plus the interest (look for the
rate in the fine print) and you may also be required to pay
the interest that accrued during your "interest free"
period. Gotcha!

Or how about the "no annual fees" bit. Look out for the
contract to say "no annual fees FOR THE FIRST YEAR". Or
first two years or that a "membership" fee is required. How
that differs from an "annual fee" is beyond me.

Also watch out for the "no annual fees" for the use of the
card but "membership fee required" to participate the in
frequent flyer miles or cash back points program (which was
probably why you chose that card to begin with). Gotcha!

And how about the "fixed" rate? Read the fine print, it
will actually say "subject to change without notice". Is it
just me or do I misunderstand the meaning of the word
"fixed"?

Also your "fixed" rate may be raised to the "maximum
allowable by state law" if you go over your credit limit
(including fees that may put you over your limit before you
even know it), make a late payment, miss a payment or do not
pay the full amount. Gotcha!

And then there is that low "teaser rate". Yes that's what
it is called in the industry and it is appropriately
descriptive. That rate is given out, they aren't lying
about that. But it is only given to the people who have 700
or above credit scores, minimal debt, and a high paying job.

The majority of the people who are sent the ad will not get
the lowest rate. But you won't know your rate until you
apply for the card. But by the time they tell you what rate
you will be at they have already signed you up and issued
your card.

They count on the fact that most people will just accept the
rate and go from there. Gotcha!

So how can you avoid these traps?

Rule #1, read ALL of the fine print. If you are not clear
on something ask someone else what they think it means. Ask
an attorney friend, CPA (certified public accountant),
financial planner, banker or other person in the financial
industry. Chances are they will have several questions
about the fine print, too.

Rule #2, don't apply for a card unless or until they tell
you what your actual rate will be. This is hard because
most of them are not set up to tell you. Generally you will
need to know your credit scores and have a copy of your
credit report handy.

Even then you are unlikely to find someone through their
telephone maze that will or can actually answer your
question. Try to find a card that gives you a confirmed
rate before you apply. A conscientious company will first
request a copy of your credit report from one of the credit
bureaus before quoting you a rate.

Look on http://www.bankrate.com for current rates offered by
various credit card companies and banks. Often smaller
banks and companies offer better deals and are not as strict
or hard to deal with. Check with your local banks also. At
least with a locally issued credit card "you know where they
live".

Rule #3, always mail your payment at least 7 days before it
is due. Or try paying through the Internet. Many companies
now offer that payment method. It can also save you time
and stamps.

Rule #4, check your statement each month to be sure you are
still at the interest rate you signed up for. If your rate
has been increased, look for a late payment fee, or some
other reason for the increase. Call the company and ask
them why they increased your rate.

If your rate was unjustly increased (they processed the
payment late or credited it to your account late, but it was
not received late) then ask them to change your rate back to
what it should be.

Even if you did make a late payment, most companies will
reduce your rate after six months of on-time payments. But
if you don't ask, they will keep you at the higher rate as
long as they can.

In the credit card business it is definitely "caveat emptor"
or buyer beware!

ABOUT THE AUTHOR

� Simple Joe, Inc.
David Berky is president of Simple Joe,
Inc. which sells the Simple Joe's Debt Eraser PC software.
Debt Eraser can help anyone get out of debt quickly and
inexpensively by creating a Rapid Debt Reduction Plan.

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Types Of Mortgage



Buying a home is one of the biggest commitments you will ever undertake. So choosing your mortgage does take thought. Take some time to consider what mortgage is right for you. After all it�s your money you will be spending so, I would recommend utilizing it in the best way possible.

The kinds of mortgage available to you

There are thousands of different mortgages on the market at the moment, all offering something different, something similar but essentially offering one of two types:

� Repayment and Interest, with a repayment and interest mortgage you (the lender) you will have to payback the specified mortgage amount plus the interest in a specified time. For example if you borrowed �100,000 over 25 years, the total plus interest is �190,000 over 25 years, this is what you will repay. You will see the balance becoming increasingly smaller over the term of the loan.

� Interest only, with an interest only mortgage you only pay the interest on you mortgage, however when the term of your mortgage is over you are still left with the initial buying fee of your house. Using the above example this would be �100,000 still left to pay. When you take an interest only mortgage you will need to take out an alternate savings plan, in the form of a pension, I.S.A, or an endowment. These alternate plans run alongside your mortgage to accumulate the final sum to zero your balance after the term is over.

Advantages of a repayment and interest mortgage

� It is possible for you to pay off lump sums of your mortgage to minimize the balance and make term shorter. However do be careful as some lenders do charge for a early settlement. If you do decide to repay early it is better to do upon the changing period of your mortgage i.e. when you are eligible to start another discounted term with another lender.

� You do not always have to take out life insurance with a repayment mortgage. Some pension plans that are in place do cover for unfortunate events such as death.

� You know the full balance of your mortgage and also the term of the repayment, so you always know when your mortgage will be paid in full.

Disadvantages of a repayment and interest mortgage

� In the early years of a repaying your mortgage the majority of the monthly repayment is interest rather than capital. For lenders who move house regularly, this can mean that little of the capital is paid off.

� If no life insurance, pensions or assets are in place to cover the repayment of the house. In the unfortunate event of a death the house will still have to be repaid. If payments are not kept up to date then the house will be sold.

� There may be financial penalties for making additional payment into your mortgage account.

Interest only mortgage

With this type of mortgage, only the interest is paid off with each mortgage payment. After the term of the mortgage elapses e.g. 25 year period, the lender is left with the full balance for the initial purchase of the house. To combat this problem (if you do not have the money to repay after the term is over) you the lender can take out another policy to run along side the mortgage payment? These policies are an ISA, pension plan or endowment policy. When you find a policy to suit you? The policy will grow along with your mortgage to accumulate the balance of you initial payment over the same term as your current mortgage. So at the end of the specified lending term you have the correct amount of funds to pay your balance.

Pension Plan

Using a pension plan to accumulate the balance of your mortgage is a tax free saving scheme. The balance of your house will be saved over a period of time until you can pay your final balance. If you do intend to use a pension fund to save for the balance of your house, consideration should be taken into account to open another pension fund for retirement purposes too.

ISA Plan

With an ISA plan you invest in stocks and shares via an Individual Savings Account (ISA) - which is a tax-free method of saving. This method of saving may not be suitable for most borrowers. Before considering this option you should consult with an independent financial adviser.

Endowment

An endowment is still the most common type of interest only mortgage which also provides life assurance cover and a fixed payment for investment. The endowment policy along with the interest only mortgage should in effect end at the same time, leaving you with the ownership of your home and nothing to pay. Endowments have undergone much criticism; this is due to investors being promised high returns from their investments. However lately this has not been the case, borrowers have found their investments have been as good as expected and a shortfall in the end amount of invested cash will not match the amount owed on the current property.

Taking into account the recent problems that have arisen regarding endowment policies it is worth remembering that returns on endowment policies have been pretty good, however you do need to see the term out in full. Also endowments do provide life assurance as part of the actual policy, so in the unfortunate event of a death the mortgage balance is paid in full.

Advantages of an interest only mortgage

� Your investments and savings could accumulate more than the required amount to cover the final payment; this could leave you more cash for your own personal use.

� Some plans have good tax benefits and help reach the required amount it a quicker and cheaper rate.

Disadvantages of an interest only mortgage

� In the unfortunate event of your investments not acquiring the designated amount of cash to cover the loan repayment, the investor could face a shortfall which they will then need to pay. If you are worried about a shortfall on your investment, you should keep in touch with your investor and request regular updates on the situation of your endowment. If the worst comes to the worst, you can increase payments to compensate for the loss of investment.

� Cashing in your endowment, ISA or pension could have adverse effects on the amount of money you have saved over the past however many years. If you do decide to cash in any existing policies you may be subjected to a penalty, this could be a cash amount specified by the investment company/lender. Please seek professional advice if you are worried about the end results of your finances, don�t be too hasty as most policies accumulate more of the cash in the final year.

-->by: Michael Aldridge

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