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Finding good credit cards
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September 29, 1998: 9:49 a.m. ET
Offers abound, but experts warn you should read the disclosure box carefully
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NEW YORK (CNNfn) - If you feel like credit card debt is smothering you to death, you might be tempted by those low-rate card offers that come in the mail.
While you can save big by transferring your hefty balance to a card with a lower interest rate, you can end up in even worse financial shape if you fail to read the fine print carefully.
"The bottom line is these offers are a marketing gimmick," said Robert McKinley, president of CardWeb Inc., a Gettysburg, Pa. company that rates credit card deals. "If you get an offer in the mail, it's important to read the disclosure box very carefully."
Let the buyer beware
The most important thing is to make sure you know how long the low rate lasts. Some cards offer a rate of as little as 1.9 percent -- but it lasts only 60 days.
Ideally, you should find a card with a rate that lasts a year, McKinley said. For example, Wachovia Bank of New Castle, Del. offers rates that last a year or even a lifetime, depending on the program.
You should also make sure you understand exactly what the rate covers, said Charlene Weldon, a credit card specialist at Bank Rate Monitor in North Palm Beach, Fla.
For example, sometimes the low rate applies to balance transfers, but you'll pay a steep rate on cash advances or new purchases.
"If there's something in the disclosure you don't understand, you should call the issuer," Weldon said.
Credit-card holders can also get walloped by fees, McKinley said. Some card companies have monthly fees in addition to annual fees; fees if you go over your limit; and even fees if you don't use your card. Other companies will bump you to a higher rate if you make late payments.
The pros and cons
Beyond those possible pitfalls, doing your homework can pay off. A lower-rate card can save you hundreds of dollars a year. For example, if you have a $5,000 balance on a card with an 18.5 percent rate, you'll save about $500 a year by switching to a card at prime rate, which is now 8.5 percent, McKinley said.
And there are so many card companies in the industry that you have many offers to choose from. With so many options, McKinley said there's no reason you should pay more than 4 or 5 percent above the prime rate -- or about 13.5 percent.
But card companies have the upper hand sometimes, too. Some issuers will re-evaluate your credit every six months, and if they see something they don't like, such as too much debt, they can assign you a higher rate. They also have wide discretion to raise rates.
While you can switch your balance from card to card as the low rates expire, keep in mind that the more you switch, the more chance you'll hurt your credit rating, said Steve Rhode, president of Debt Counselors of America.
The credit rating companies give you more "points" when you open and close accounts, Rhode said. The higher your credit "score," the harder it could be to get a mortgage.
"Low interest cards inevitably change," Rhode said.
Another problem is few people take full advantage of the low rate, Rhode said. They'll make the minimum monthly payment instead of doubling or tripling their payments to eat away at the principal.
Transferring the balance is only part of the solution, said Mark Rosen, community relations manager at Credit Counseling Centers in Farmington Hill, Mich. People need to get a handle on their expenses and set up a budget.
"The best way to deal with credit card debt is to educate yourself," Rosen said.
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