Credit cards --- what you should know

Doesn't debt look fun?

Most of you kids have gotten them --- credit card offers that sound amazing, geared towards college students. Eventually all of you will probably end up using credit cards as an adult, but before you ever do that, you need to make sure you know what you are getting into.

Here are some excerpts from a New York Times editorial that help explain our concerns about this. (Read the full article here.)

According to testimony, one witness exceeded his charge card’s $3,000 limit by $200 — triggering what eventually amounted to $7,500 in penalties and interest. After paying an average of $1,000 a year for six years, the man still owed $4,400.

That experience has become all too common as the credit card industry has stealthily adopted methods designed to maximize burdensome penalties and fees, while ratcheting up interest rates as high as 30 percent. Companies bombard unwary consumers with teaser packages that promise very low interest rates to start, while reserving for themselves the right to raise rates whenever they choose. The details are buried in deliberately arcane contracts that run 30 pages long and that even lawyers have trouble understanding.

And how about this:

Under a provision known as “universal default,” a cardholder who pays a credit card company faithfully can still be hit with a high penalty interest rate for missing payments with another creditor. In another despicable tactic known as “double cycle billing,” a cardholder who pays $450 of a $500 balance is charged interest on the entire amount as opposed to the unpaid balance.

So when you do eventually need to apply for credit, be sure you are working with a reputable company, such as your local bank. And even then, be very, very careful, and pay attention to the details of your agreement.