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January 15,2007

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    Universal Default

    If you have several credit cards, it may seem sensible to pay as many as you can if money is tight, and let only one go late. Sure, that account might show a blip on your credit report in the form of a late payment, but it's a self-contained loss, right?


    Not so much. The credit card industry has concocted a sneaky little mechanism called "universal default." Basically, messing up relations with one creditor can affect your standing with all your other balances. Consequently, you could see a dramatic spike in interest on a card that you have always paid on time. These rate jumps are no laughing matter, either at 20 30%, you are talking a significant chunk of change of you have high revolving balances.


    The key to avoiding this mess is to pay on all your cards, even if it means just making the minimum across the board. Playing favorites will get you nowhere, and the extra money you were planning to sock away towards principle debt will just end up wasted on exorbitant interest, anyway!

     


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