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Avoiding the high price of plastic

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(CNN) -- Accumulating credit card debt can happen in a flash as a result of interest rate increases and hidden fees. CNN personal finance editor Gerri Willis spoke to CNN's Rob Marciano about how to avoid getting caught in an endless cycle of credit card debt.

Marciano: So how do you keep the price of plastic from getting out of control?

Willis: Tip number one, universal default allows issuers to raise your interest rate on your credit card if you're late paying any other bills. You can avoid cards that do this by getting a card at Cardratings.com.

They let you know who charges that. Look in your card holder agreement if you've already got a credit card for the area that mentions default pricing. Now if your default pricing is based on your credit card report, your credit card probably has a universal default policy.

The good news is this practice may be falling out of favor. Citigroup, for example, recently announced it was getting rid of the practice.

Marciano: One of the more confusing things, Gerri, is when you get your credit card statement, you pay for part of the bill and then they charge you interest on what seems to be almost the whole thing. Is that true?

Willis: Yes and double billing when it comes to interest is really frustrating. It happens when the credit card company charges interest on the sum of your balance for [the current] month and last month, regardless of whether you've already paid it off.

You're most vulnerable to this if you occasionally carry a balance on your credit card. Make sure your bank calculates your finance charge in one billing cycle. Look for the phrase "average daily balance" on your credit card agreement.

Marciano: What about late fees? Can you get around those? Sometimes you can just pick up the phone can't you and beg for it off?

Willis: Well, you can. Late fees are on the rise and penalty interest rates, if you are late, can be over 30 percent in some cases. So it's really onerous. Here's an easy way to avoid late fees -- automate your payments online. But if you know your payment is going to be late, you may be able to avoid that fee if you call ahead. Credit card companies may give you a reprieve.

Marciano: What about you get these checks in the mail from some credit card company that says it's going give you 0 percent interest for six months and you say, this is a great deal. I'm going to transfer my balances to this card. What should we look out for there?

Willis: Well, there's a hidden little problem there. Transferring a high credit card balance to a card with low rates can be a great move, but it's becoming more expensive. Balance transfer fees used to be capped at $75. But today, credit card companies are getting rid of caps on balance transfer fees.

To find out if you're going to be a victim of these fees, look at your credit card agreement. If there's a reference to a minimum fee for a balance transfer, but there's no reference to a maximum fee, chances are you're on the hook for one of these fees. You need to know what it is. Call the company and ask specifically what they're going to charge you.

Marciano: Of course, try to pay it off every month if at all possible.

Willis: Bottom line, you know, look, you've got to pay this thing down to make sure you're paying the fewest fees possible. And pay on time.



SPECIAL REPORT

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