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Across My Desk: Spending Money

Okay, this isn't about mutual fund investing but is it about spending money and hence, important. So, if you're a credit card user who doesn't pay their balance in full each month read on.

With the holidays right around the corner--- and merchants displaying their Christmas wears sooner than ever---make a mental note to remember that if you're not using cash, credit card companies have hiked up their late fees.

In a Forbes.com piece last month, not only have credit card fees for late payments jumped, credit card companies haven't done a particularly great job of telling their consumers that good news.

A report from the Government Accountability Office (GAO) looked at the fees, interest rates and disclosure practices of 28 different credit cards. What they found was that the average late fee charge was $34. That's up 21 bucks, from the average of $13 charged in 1995. Also discovered was that some credit card companies imposed penalty interest rates of over 30 percent for folks who paid late or exceeded their credit card limit.

"Millions of Americans depend on credit cards to pay their bills and buy essentials like groceries or gas. Unfair or confusing credit card practices take advantage of working families," said Sen. Carl Levin of Michigan, the senior Democrat on the Senate's investigative subcommittee, who had asked the GAO to conduct the study. "This report shines a needed spotlight on excessive credit card fees, unfair interest rates and inadequate disclosure practices that ought to be stopped."

Other findings in that GAO report include:

  • In 2005, there were about 690 million credit cards out there with more than $1.8 trillion charged on them.

  • Nearly one-half of all active credit card accounts paid little or no interest in 2005 because their balances were paid in full.

  • Disclosure information is often difficult to understand or printed in small typeface. Hence, credit card consumers may have a hard time understanding all the terms of the card they hold.

  • Fees for paying a credit card bill by phone are not always disclosed.

  • Consumers can be charged different rates for different transactions and higher interest rates---often over 30 percent--for paying late or other actions.

Bottom line: Understand what the terms and the interest rate are on all the credit cards you're actively using. What you don't know here, could mess up your long-term investment plans.

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