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Facts About Your Credit Card Debt

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Dealing with credit-card debt can be stressful. One way to cope with the anxiety is to arm yourself with knowledge of your rights and options should you begin to struggle with paying your balance.

When it comes to card debt, there’s more that you can do, and less that creditors can do to you, than you might think, among other things:

1. You can transfer your balance from one bank to another.You’re allowed to move your credit-card debt to another bank, and this is an option to consider if you can get better interest rates from another card issuer. While there’s typically a fee of 3% to 5% of the balance transferred, the lower interest rate you’ll receive should soon recoup that fee, after which the fee. Note that you also can’t move your balance between credit cards within the same bank. Most issuers bake this provision into their terms of service to prevent people from continually gaming zero percent interest offers.Know that you will save the most money by moving your debt over to special balance transfer credit cards. These offers can be distinguished from ordinary cards because they give 0% APR on balance transfers for some promotional length of time. In some cases, these cards will also waive the transfer fee.

2. The banks can’t raise your interest rates on old debt, unless you become severely delinquent. When you first open your credit card account the bank locks you into an interest rate, sometimes referred to as an APR. They aren’t allowed to change this rate without giving you a written notice beforehand.Also, even if your rate is indeed raised, the new APR applies only to debt you accumulate after the rate rises; the earlier, lower rate continues to apply for charges posted before that time. There are, however, two exceptions. First, zero percent promotional APR offers do not fall under this rule. Once the promo period on those ends, your interest goes up and applies to your entire outstanding balance. Secondly, if you become 60 or more days late on your payment, the issuer can impose a special (and very high) penalty APR to any outstanding balances.

3. You needn’t go into debt to build your credit score.Some people erroneously believe that building a credit score requires accumulating credit-card debt. In fact, simply opening a card account and paying it off every month will still, over time, establish and enhance your credit score. Indeed, taking on too much debt on your cards can actually damage your score. Generally, you should not use more than 50% of your credit line.

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