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Pay Up or Forget About Paying with Plastic

Have you ever thought about how much you would pay to keep your credit card? Years of no annual fees, favorable grace periods, and reasonable interest rates probably kept you from pondering such a question. But as major credit issuers search for ways to replace the revenue they stand to lose as a result of the CARD Act of 2009, you may soon be forced to determine just how much you're willing to pay for the convenience of paying with plastic.

After announcing a paltry third-quarter profit of $101 million last week, the CEO of Citigroup, Vikram Pandit, said "Looking forward, we will continue to focus on sustainable profitability of growth, repaying TARP and helping support America's economic recovery." Of course, at the same time, Citigroup is notifying consumers across the country that interest rates are increasing, annual fees are returning, and grace periods are shrinking.

And Citi is certainly not alone.  It's clear that all the major credit issuers have developed a renewed focus on profitable growth, but don't be fooled into thinking it won't come at a cost to average American cardholders.

For example, Matt in Salt Lake City, recently contacted Creditnet.com about some new changes to his credit card account. According to a letter he received from his credit issuer, the terms will take effect November 20th. First, Matt was notified that his interest rate will jump to 29.99%, compounded daily. And second, his account will no longer have a grace period - interest will begin to accrue from the time of each and every purchase. Keep in mind that Matt has solid credit, uses his card periodically, and never carries a balance. He's a customer in good standing, right? Maybe, but he's not a profitable customer. He never pays any financing costs, and he's never been late on a payment.

So, how does one make money off a customer like Matt? There's only one way. Take away his grace period and charge interest from day one. Matt's response was one I think most consumers will have to a change as drastic as this. He told us his card "will hit the shredder this month." Luckily, he still has other credit cards he can choose to use instead. So, where's your breaking point? Take a minute to think about how you would respond before you find yourself in Matt's position. Will you draw the line at an increased interest rate, the rebirth of an annual fee, or a shortened grace period?

I'd love to hear your comments below.

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Joshua Heckathorn's picture

Joshua Heckathorn was President of Creditnet, is a credit expert and has been featured on CNNMoney, FOX Business, Yahoo Finance, The Street, and many other national publications during the past ten years.  He received a Bachelor of Science in Management (Finance) from Brigham Young University's Marriott School of Business and earned his MBA from Seattle University.

Visit 's Google Plus profile for more.


Paula: CreditLaw.com's picture

Personally, I would take Matt's approach however I often work with consumers that do not have the luxury of shredding one of their few credit cards. I don't blame any business for trying to make a profit, but when they start using deceptive practices I take issue.

Joshua Heckathorn's picture

Thanks for your comment Paula.

As a follow up to this, how may of you have received notice regarding a new $60 annual fee on your Citi card if you don't spend enough each year?

If so, what are you planning to do?