In our current society, misconduct frequently goes without penalty. In contrast, within the realm of card issuers such as MasterCard, Visa, Discover, and American Express, cardholders can face severe repercussions, often in form of steep APR increases, if they fail their repayment obligations. Stacey Tisdale, author of The True Cost of Happiness: The Real Story Behind Managing Your Money, advises that timely payments and careful budget management are the best means of evading such penalties.
Despite the implementation of the Credit CARD Act of 2009 by President Obama, that sought to shield consumers from exorbitant penalty APRs on their current balances, credit card companies maintain the power to levy high penalty APRs on new balances if the cardholder violates certain regulations. The most common instances leading to such penalty rates include:
Late Payments: Most card companies offer a grace period of three to five days after the stated due date, but it’s recommended to remit payments well ahead to stay clear of any penalties. Even though recurrent late payments might be needed to trigger a penalty APR, it’s still more cost-efficient to remain ahead of due dates.
Exceeding Credit Limit: Some credit cards instantly impose a penalty APR if your expenses go beyond your credit limit. Paying your full balance at the end of each billing cycle is the ideal way to restrict yourself from surpassing your limit.
Insufficient Funds: If you attempt to make a payment that gets rejected due to inadequate funds, certain card issuers may apply a penalty rate to your account. The CARD Act necessitates that cardholders receive a 45-day advance notice of any potential rate increases.
In a scenario where you trigger a penalty APR on your card, let’s say your Providian credit card, don’t stress. Reach out to your credit card company immediately. Tisdale recommends doing this because card issuers are often willing to negotiate with their clients. Being honest about your predicament, especially if you’ve maintained a good track record in the past, can lead to the company offering possible solutions. It’s critical not to ignore the problem, and if necessary, seek advice from a credit counselor.
