Spenders Beware: Credit Card Hangover Coming

For many Americans, it's an annual tradition that goes hand-in-hand with eggnog and mistletoe -- millions of people will charge millions of dollars on their credit cards this holiday shopping season.

Of course, it's easy to pull out the plastic in the weeks leading up to the holidays, but much more difficult when those bills come due in 2007.

More than 115 million Americans carry monthly credit card debt, with the average American debt around $9,000, according to Cardweb.com. And many of those paying off a high balance were surprised when the minimum monthly payment due rose during the past year.

The Office of the Comptroller of the Currency, a bureau of the U.S. Treasury Department and a watchdog to protect consumers from abusive and deceptive credit card practices, cracked down with tougher guidelines on interest rates, marketing tactics, and account management practices. The higher rates will help consumers pay off their debt more quickly, but many budgets were squeezed by the new minimum payments.

The typical monthly minimum doubled -- rising from about 2 percent to 4 percent . That can equate to a hefty increase for someone paying off the average debt of $9,000 -- as much as $400 per month more.

So it's important to be conscious of the debt you're incurring to buy gifts for friends and loved ones during the holiday season.

Find the Lowest Rate, and Pay On Time

For starters, it's best to choose a credit card that has the lowest possible annual percentage rate, or APR. Read the credit card agreement closely to find out what, if any, annual charges you'll have to pay on top of the finance charges.

Keep in mind that the annual percentage rate on your credit card can, and often will, skyrocket if you make late payments. Rates have been known to jump to as much as 30 to 40 percent, should you make a late payment. On top of this, consumers can get hit with late fees ranging from $25 to $50 and over-the-limit fees ranging from $25 to $39.

Under current credit card structures, financially strapped consumers making minimum payments each month are not able to get out from under the layer of penalties and interest rates. Federal banking officials are pressuring banks to reduce interest rates, which would be a huge victory for consumers.

What Can You Do Now?

Read the fine print. Your credit card agreement is one document you absolutely must read. All actions the credit card company is entitled to take regarding your credit card will be spelled out in fine print. Pay careful attention to the wording around interest rates, late fees and payment dates. Additionally, if there are sections or clauses you do not understand, highlight them and call your credit card company before using the card and get clarification before falling victim to a very costly misunderstanding.

Pay highest balances and high interest rates first. If you have more than one credit card, pay off the card for which you are closest to your credit limit. Your credit score takes a hit when credit card balances climb high and approach the maximum. Also, pay off the cards with the highest interest rates as every extra dollar can add up quickly.

Keep only one credit card. With so many credit card options, it is important to choose the card that best suits your finances. For example, if you know you are definitely going to carry a balance, select a card with a low interest rate, or if you may be tempted to spend beyond your means, go with a card with a low spending limit. Additionally, keeping only one card makes it much easier to keep track of your card's rules and allows you to avoid the paper chase of multiple cards.

Negotiate a Lower Rate

If you're stuck with a card that has a high interest rate, it might be possible to call your card provider and negotiate a lower rate.

The best way to navigate the fee maze and negotiate the best rate and fairest payment terms is by calling your credit card company directly. For example, if you have good credit and a track record of paying on time and you miss one payment for any reason, a call to the card company can usually stave off any finance charges or an interest rate increase for a one-time occurrence.

In one study, more than half of the people who tried to negotiate a lower interest rate were successful with just a five-minute phone call. Last year, three "Good Morning America" staffers tried to lower their rates and were successful.

The "GMA" test found that negotiating was more successful when you had a standard credit card without incentives like frequent flier miles or cash back. It also helped to know your credit score, so you know how attractive a customer you are to the credit card company. It also helped to mention the myriad of competing credit card offers you were getting in the mail.

Negotiating a lower interest rate can save you a lot of money. For example, if you have $10,000 worth of debt and you lower the interest rate by 6 percentage points, you can save $600 a year in interest payments.

If a credit card company will not lower its rates, it may be time to consider a new credit card. There are some nonprofit groups that track credit card companies that offer low interest rates. For more information, visit www.federalreserve.gov/pubs/shop/survey.htm or www.cardweb.com/perl/cardlocator/survey/lowrate.

Credit Cards and Travel

If you have holiday travel plans, particularly travel abroad, there are some key tips:

For years, the big credit card companies have levied a 1 percent fee on international transactions. And the banks that issue those cards have been known to tack on additional fees of 1 percent to 2 percent. These are often called "currency-conversion fees" or "foreign transaction fees." (You'll also be charged a fee for withdrawing cash using your ATM card, so there's no way to avoid fees completely.)

So, how can a smart traveler avoid -- or at least reduce -- these fees? Here are a few suggestions:

Ask about fees. While fees sometimes are built into the price on your statement, it's increasingly common that they're broken out as line items to help you know what they are paying. Even so, it's smart to make a call before your trip to get the whole story. Carefully quiz your bank or credit card company about what "international" fees come with using your card overseas. Even if your credit card company charged you no fees the last time you went to Europe, there's a good chance it does now. Call and ask before you go.

If you're getting a bad deal, get a new credit card. Some companies offer far lower international fees than others -- and a handful don't charge any fees at all. Capital One has a particularly good reputation for international transactions (www.capitalone.com) -- for now. If you're going on a long trip, do some research and consider taking out a card just for international purchases.

The bottom line. Here's the best formula for saving money as you travel: Pay for as much as possible with cash, using a bank that charges low rates for international ATM transactions.

Some Help May Be on the Way

In the last four months, the Federal Reserve Board has not raised intrest rates, reversing a two-year trend of interest rate hikes to slow inflation. The Fed funds rate affects many consumer credit vehicles, including credit cards.

Some economists believe that the Fed could begin lowering rates next year, which could ease the burden of those high interest rates that many consumers are paying on credit card debt. A Wall Street Journal poll of prominent economists shows that, on average, most expect a quarter-point rate cut by June of 2007.

That will mean an instant benefit for people carrying a balance on their credit cards. Most card rates are based on the prime rate, which moves up and down when the Fed funds rate changes. It is typically 3 percent above the Fed funds rate, which currently sits at 5.25 percent. CardWeb.com says the national average for variable rate cards is 16.34 percent today (14.55 percent for fixed rate cards). Those averages would likely come down slightly as soon as a Fed rate cut is announced.

But of course, the best remedy to all of these post-holiday credit headaches is a simple one: don't overspend.

And as always, that's often easier said that done.

ABC News personal finance contributor Mellody Hobson contributed to this report.