Credit Card Crunch

Our national plastic habit is reaching new heights, just as the Federal Reserve is nudging rates on those cards close to their own zeniths. The average cardholder has been adding about a card a year since 1990 and in 1994 used about 10 bank, gas and store cards to charge 25 percent more than the year before.

Some of this activity reflects the different ways consumers use credit cards now. Shoppers leave the checkbooks home and charge groceries, movie tickets and taxi fares to cash in on card rebates -- and use credit when they shop by phone and computer. But there's more of that old familiar, getting-in-over-our-heads syndrome, too. Consumers are spending $1.08 for every $1 they earn, says Federal Reserve Board member Lawrence Lindsey, who worries that the binge trend has been building for decades. Average bank-card balances are up to over $1,700, and most households have at least two or three of them. That's an awesome borrowing power that excites hungry lenders. More than 6,000 issuers sent out 2 billion pieces of mail last year trying to raid each other's balances. Here's how to make the most of that competition while it's still possible to Greenspan-proof your plastic.

Don't look now, but that card in your pocket just got more expensive. In the last three years, variable-rate cards have doubled their market share, and interest rates on three of every four credit cards now rise with the prime. In January, credit-card debt was being financed at an average rate of 18 percent, up from March's (still not very) low of 16.7 percent, according to Robert McKinley, of RAM Research's CardTrak in Frederick, Md.

Annual fees are sneaking back up, too, and there's another hazard buried in the small print. A handful of cards, including Discover and some issued by Norwest, First USA and Household Bank, use two-month billing cycles, reports Ruth Susswein, executive director of Bankcard Holders of America. That means every time there's an unpaid balance, the issuer can assess interest on the average daily balance of the last two months. Even balances paid in full the previous month get swept into the calculation. That falls like a ton of bricks on those "good" credit managers who usually pay off their bills but slip occasionally and carry a small balance.

Sometimes it only takes a phone call to get terms that are more appealing. A quick call to cancel will often get your annual fee waived and can even cut your interest rate. That's because most issuers offer more than one interest-payment plan. If that doesn't work, you'd better shop around: review your terms annually and jump ship whenever you find a better deal. If you carry big balances, you can cut your costs substantially by chasing teaser rates that last at least a year. They're still available in the single digits, and dropping your rate 4 percentage points on an average balance will save you $112 a year, reports Susswein.

Just remember to cancel the old cards: a lot of open, but unused, accounts can kill your chances for a mortgage or car loan if your potential debt load is high.

It seems like some sort of peak when you can get plastic tied to the Rolling Stones, Star Trek and Coors beer (no, charges don't net six-packs, they build charitable donations). But the binge in cobranded and rebate cards isn't over yet, says James Daly, editor of Credit Card News. A new generation offers more flexibility: instead of building points toward a specific airline or auto, you can earn points redeemable for a variety of goods and services, like long-distance calls or video rentals or even cold, hard cash.

But they're also replete with deal-spoiling small print: some don't give you rebate points for cash advances or expenses drawn on card checks; others limit total rebates. Still others, like the AT&T's Something Extra program, which expires in July 1996, may run out before you have enough time to rack up the hotel-room, rental-car, video-recorder or Honda discounts they're dishing.

Don't expect bargains here. Unless you're the one in three Americans who really pays off your balance every month, you'll pay more in interest and annual fees than you'll ever earn back. If you're a revolver, try this ploy, suggested by RAM Research's McKinley. Get two cards: one offering big rebates and one that's cheapest -- currently Wachovia Bank's $18-annual-fee, 8.5 percent-interest card. Charge everything to the rebate card and transfer balances monthly to your low-rate card.

Once in a while, you can beat the system. Businessman David Silverstein boasted in The Washington Post recently that he's made over $1,500 in profits on his 1 percent cash-back rebate card. Silverstein's system: he writes credit-card checks to himself, deposits them to his checking account and then pays off his credit- card balance the same day, before the issuer has a chance to levy interest on it. No fuss, no muss, and i percent in his pocket every time he goes round that revolving door. Make that past tense: credit-industry sources vow to close such loopholes as they find them.