Spenders Beware: Credit Card Hangover Coming

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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.

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