Why are credit card rates still out of control?

“Cash advances on a credit card are just a bad deal all the way around,” says McBride. “Not only is the interest rate higher on a cash advance than it is for using that credit card for a purchase, but there’s no grace period. So the interest clock starts to tick right away.”

There may be other ways to get the money you need at a much lower cost. Start with your savings. “If you have it, this is what it’s there for,” McBride says. Even if that money is in a high yield savings account, you are only making around 5 percent. Compare that to a cash advance loan at 20 percent to 28 percent.

If you do not have any liquid assets, consider tapping the equity in your house, through a home equity line of credit. This really makes sense if you already have an established line of credit.

The bottom line: Use your credit card to charge things, not as a cash machine.

How to fight back
Get socked with a higher interest rate or penalty fee and you may want to switch to another card. Before you do that, call your credit card company and see if they will do something for you. If you have been a good customer up to this point, they may waive that fee or drop the interest rate a bit.

In its October issue, Consumer Reports surveyed thousands of readers and found that people who call to negotiate a lower interest rate succeed more than half the time; 79 percent are able to get a penalty fee removed.

Unhappy credit card customers Consumer Reports asked 36,000 readers about their credit cards. “There were big differences in how satisfied people were,” says the magazine’s Amanda Walker. Many cardholders said they had a lot of trouble with customer service. That was not the case with credit unions, which also tend to have lower fees and better rates. Credit unions were the clear winners among 21 cards rated in the survey. Visa cards issued by retailers Cabela’s and Nordstrom were next, followed by American Express and Discover. The five big banks that issue most Visa and MasterCards — JPMorgan Chase, Bank of America, Citibank, Capital One, and HSBC — had "undistinguished" scores. "People were a lot less happy at the big banks," Walker says. "They tended to have more problems with their bills. They tended to have more problems with getting the help they need and they paid higher interest rates." How to pick the right card If you have an unresolved problem with a credit card company, you should file complaints with: Federal Trade Commission Office of the Comptroller of the Currency (for national banks) Consumer Action

If you have good credit and your card issuer will not work with you, it is time to shop around for another card. That does not mean jumping at the first pre-approved offer you get in the mail. It means comparison shopping.

You want to compare terms and conditions, not just the interest rate. What are the fees and penalties? How long is the grace period? Does the card have a universal default policy?

“Definitely try to get a card from a credit union if you’re eligible for one,” says Amanda Walker, a senior editor at Consumer Reports. The magazine’s survey (see side box) shows people are much happier with credit cards from credit unions. Many restrictions on membership have been removed, so it is easier than ever to join a credit union.

The Internet makes it easy to shop for a credit card. Here are three sites that let you do that: lowcards.com, bankrate.com,  and cardweb.com.

Democrats in Congress got a lot of positive press this year when they promised to take on the credit card industry. So far, they’ve done nothing to rein in what Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, called the “confusing, misleading and in some cases predatory practices” taking place.

It’s time we held their feet to the fire. It has been all talk and no action. Write the members of Congress from your state and let them know you are not happy with their inaction and want to see some regulatory changes now.

More Information

• Consumer Action 2007 Credit Card Summary
• FTC: Choosing and using credit cards

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