"What happens if I make less than the minimum payment due on a credit card?"

I was emailed this question yesterday from a Denver couple who have seen a few of their credit card companies raise the minimum monthly payments from 2% to 4% of the account balance. (Which credit card companies now can legally do).

Good question even though you may not like the answer. The key word here is minimum. Credit card companies consider the minimum amount due each month as the smallest amount they will accept without imposing penalties. And the penalties can be harsh. For example:

-They may report your account as 'late' to the credit bureaus which will negatively impact your credit scores. They get away with this since you agreed to send in at least the minimum amount required monthly in your initial agreement. (Remember that ultra-fine print?)

-They will assess a late payment of up to $39 each month you fall short. Worse, they may add this late payment and the payment shortfall to your minimum amount due next month!

-It is likely that you will have your interest rate jacked up immediately to the highest rate allowable. These days credit card companies will not hesitate to drop the 'default rate' on you which can go as high as 31.5%*. Believe me, if that happens you will not have a chance to re-acquire your initial rate

It is clear that you must do whatever it takes to make at least the minimum amount required each month. If you find you will still fall short I recommend that you proactively call any creditor before your payment is due and try to appeal to their good nature. If you still cannot keep up with the minimum payments consider a refinance loan, credit card balance transfer (watch out for transfer fees), or contact a reputable credit counseling company.


-Bill Burniece

*According to Bankrate.com in their February 2006 survey

Practical Tips For Cutting Costs

Are You Overpaying For Your Utilities?

Many of us are spending far more on our utility bills than we should. The good news is there are solutions available that are not only easy, but inexpensive as well. Begin by gradually replacing all light bulbs with long-lasting energy savers. Next, replace all shower heads with low-flow versions. Make a concerted effort to turn off electrical appliances like lights, TVs, and computers–or even just the computer monitor–when not in use. The idea that it uses more energy to turn on an appliance is false. Also, you may want to take a good look at your next telephone bill and analyze your calling trends. Then visit a website like http://www.saveonphone.com/ or http://www.phonedog.com/ and see if you can find a better long distance rate. Lastly, most utility companies offer online audits explaining many of the money-saving options available. Here in Denver go to http://www.xcelenergy.com/ for your own audit. Believe it or not, making the above changes can save you hundreds of dollars each year.

Are Warehouse Stores Saving You Money?

The answer is maybe, but only if you're a smart shopper. Many consumers pay annual membership fees to warehouse stores in hopes of saving money through buying in bulk and reducing their visits to the grocery store. However, bulk items are not always cheaper; and the need for certain perishables will still result in trips to the supermarket. What's the solution? Visit warehouse stores with a shopping list, and do your best to stick to it. Concentrate on items which are usually good buys. These include paper goods, beverages, pharmaceuticals, electronics, and canned goods. In terms of perishables like meat and vegetables, you're better off taking advantage of in-store sales at the market. If there's a great deal on sirloin at the store, buy it in bulk and freeze it. And don't forget, clipping coupons is a big help; but only if you use them for items you'd buy anyway.

Mini Vacations, Maximum Savings

Vacations are an essential part of life. If budget and time constraints are keeping you from getting away, why not try a mini vacation? They last anywhere from 1 to 3 days and require fewer resources. A one day trip is limited only by your imagination and can include picnics, hikes, and trips to neighboring cities or attractions. Entertainment in the form of museums, carnivals, and art fairs usually cost very little and can be fun for the whole family. Two to three day trips are slightly more involved but offer even greater possibilities. If you're spending a night in a hotel, consider ordering an in-room movie. It's less expensive than taking the family to the theater, and there's a range of genres to choose from. During the day, take advantage of things like complimentary breakfasts and discounts offered by the hotel. Lastly, when choosing your destination, consider moving in the opposite direction of the crowds. A trip to the mountains in the summer, or the beaches in the fall or spring, is a good place to begin when looking for a great deal. Here in Colorado there is plenty to do in ski towns during the summer - mountain biking, fishing, hiking, rafting, golf, off-roading - all at cut rate prices.

-Bill Burniece