Revolving credit and the concept of "compounding"

[garyk/nm]

Just recently, I have noticed that a couple of my credit issuers have started an insidious practice, that of adding interest and fees to my balance. For instance, I recently ordered a new Dell laptop (keep your opinions to yourself on this choice, please). My total purchase was $895. I got my first statement, showing $895 as the balance. When I got around to paying the first payment (Due dates and pay days do not always coincide), my balance was $956! I inquired of the friendly Dell rep and was told that a late fee and interest had been added to my balance. So, my $50 payment (min due $27) was more than eaten up by the additional charges.
It has been a few years (decades actually) since I was in the credit industry, but at that time this practice was known as "compounding" and was most definitely illegal. Have consumer protection laws been eroded to the point that this is now common practice?
A few calls today reveal that a lot depends on how the credit issuer is defined. If they are a National Bank (N.A.), then the OCC has control. If they are FDIC insured, but not a N.A.  then the FDIC has control. If they are a private issuer, then the FTC is the overseer.
How is a consumer to keep track of all of this nonsense? And why does each agency have different rules?
Yes, I know that paying before the due date is optimum; reality does not always allow this when on a tight budget. I guess I'm looking for a shoulder to cry on.   

[K Frame]

I've been using credit cards since the middle 1980s, and compounding interest has always been a factor.

[Firethorn]

Yes, I know that paying before the due date is optimum; reality does not always allow this when on a tight budget. I guess I'm looking for a shoulder to cry on.   

Didn't necessarily pick the right place then.

My thought was 'Credit tends to work out much cheaper when you pay your bills on time'.

Of course, I'm a 100% payment each month type.  If I can't pay it off, I don't buy it.  I also keep a reserve.

[bedlamite]

The absolute best thing I've ever done was to quit using credit cards about 6 years ago.

[HankB]

Was your new laptop a necessity for your work? If not, it was a discretionary purchase . . . one you really couldn't afford, since you couldn't make the payment on time. That your payment was only $50 is more evidence that you bought something you can't afford right now.

Of course, I'm a 100% payment each month type.  If I can't pay it off, I don't buy it.  I also keep a reserve.

Ditto - barring an emergency, I simply will not buy something on a credit card if I won't be able to pay it off right away.

The one exception was when I bought a Dell desktop almost 2 years ago - Dell offered me a deal with 0% interest for one year. I took 11 months to pay it off.

[Firethorn]

The one exception was when I bought a Dell desktop almost 2 years ago - Dell offered me a deal with 0% interest for one year. I took 11 months to pay it off.

If they're dumb enough to offer me 0% interest, while still being the best price, I'll take it.  Last laptop I bought I had the money in the bank, then when checking out they offered...

Gary, I have to agree with Hank.  Worst case, would it have killed you to do without for a month?  Also - keep a really close eye on special offers like the 0% interest schemes - most have HUGE penalties if you don't pay on time.  It's one of the reasons I'll pay the laptop off a month and a half early - just to be safe.

My favorite is the local rent to own places.  They offer stuff by weekly or monthly payments.  A bigscreen TV NOW from one of them will end up costing you the payments for two years(per ad, they probably have different schemes available).  Three months of payments will get you the same size big screen(and resolution) from Walmart, paying cash.

One of the reasons I ALWAYS discuss financial matters with my airmen.  Nothing official, but I do my best to keep them away from pay day loan places*, rent to own joints, etc...

Stuff like 'Hold of on the TV for a couple months.  Use the dayroom's until you have the cash to pay for it.'.  'You can usually get a really good deal for a car in the local lemon lot, you DON'T need a brand new Ford Explorer'.  I'll also admit that I push the TSP a bit, but also encourage a traditional savings account 'for emergencies and unexpected opportunities/desires'.

*Especially before the military interest cap, but they've figured out some ways around even that...

[ilbob]

Interest almost always compounds. AFAIK, it has always been legal to do so.

If you do not pay your bill on time, they often add a late fee. Also common and not illegal.

I think what was banned was the practice of adding the projected interest to the front end of a revolving charge account. That was deemed somehow unfair since you would still pay the same amount of interest even if you paid it off early.

[Balog]

There are legitimate reasons to incur credit card debt. Iirc Mike Irwin posted such a situation, a medical emergency with his mother. "I want a new laptop" is not such a situation. One could often get a small loan from a traditional lending institution with just a little more work.

I recently found out a relative of mine is carrying debt on a CC at %30 interest! I simply can't imagine it. My wife and I've set up a system where we pay off most bills w/ a CC, then pay off the total before months end. It helps the credit, apparently. That is the only use we have for it. 

[Leatherneck]

Firethorn, you sound like one of those old-fashioned "leaders" we read about. I love you, man.

TC