Consumers are finally seeing lower rates and slightly lower payments as a result of last month’s Federal Reserve rate cut, and another cut may soon follow.

Tomorrow the Federal Reserve is expected to make its second rate cut in six weeks. Wall Street predicts the cut will be .25%. The Fed decreased rates by .50% on September 18.

The first cut was big news because it was the first since 2003, and twice as big as some analysts had predicted. However, it did not lead to a substantial savings for consumers with credit card debt. The rate cuts are small and only affect cardholders with variable rates. According to a Federal Reserve survey, approximately 57% of credit cards have variable rates.

“The first cut saved cardholders about $2 per month on a $5,000 credit card balance,” says Bill Hardekopf, CEO of LowCards.com. “Add this possible cut and the total savings from both will be around $3 per month.

“The Fed is making very small reductions in the interest rates of what some cardholders pay. Meanwhile, issuers continue to find ways to increase rates and fees. During this period that the Fed cut rates, Discover has raised its rates twice on cash advances from 20.99% in early September to 23.99% on Nov. 1. Another example of increased fees is Bank of America removing the cap for balance transfer fees.

“Consumers need to realize that despite the desire of the Fed to cut rates and relieve credit issues for consumers, issuers also clearly state in the terms and conditions that they can increase your interest rate at any time, for any reason.

“Even though rates may be reduced by small increments, the best way to get a lower rate is to talk with your credit card company. If you carry a balance, they will often lower the rate because they want to keep your debt and interest payments,” says Hardekopf.

In order to actually receive a meaningful decrease in their interest rates, credit card consumers will have to ask for it themselves.

When should you ask for a lower rate?

* If you have a good payment history and your APR is over 12%. The average APR is around 14.9%.

* If you received a high rate for your first credit card, have paid on-time, and stayed under your credit limit for 6-12 months.

* If your card started out with a low rate, but your issuer has increased it several times.

* If you have had the same card for several years and your balance is under 30% of your credit limit.

Requesting a lower rate is pretty simple, even if you don’t like negotiating and this seems out of your comfort zone. Call the number on the back of your credit card or bill. Tell them you have been a good customer but you would like a lower rate. Mention that you have received several offers with lower rates in the mail and have
researched cards with lower rates online. You want a lower rate on your card or you will switch to another card with a lower rate. Ask what can they do to help you.

If the first person tells you that they can’t lower it, call back in a month. This is one area where persistence may pay off. If they tell you they can’t lower your rate, remind them that there are other cards available.

If your interest rate is lowered by 4 points (from 18 to 14%), in the first year you will save $200 on a $5,000 balance. Apply this savings to pay down your balance.

Congress is encouraging credit card issuers to make their terms and conditions easier to read and understand. This is one area where Congress should force action. Terms and conditions are currently so complicated that many consumers just glance through them, if they read through them at all. However, there is important information in these terms and conditions that could be costly for uninformed cardholders.

“We regularly read through the terms and conditions of the cards to help make cardholders aware of the changes and fee increases. We often find a new fee or a subtle adjustment issuers make to increase current rates and fees,” says Bill Hardekopf, CEO of LowCards.com. “Issuers are required to make this information public, but they certainly don’t make it easy to understand. Nonetheless, consumers have to be aware of the policies of their credit card, or they could pay costly fees and suffer damage to their credit score. We recommend that consumers look closely at the terms and conditions before applying for a card, then look at the fine print of their own cards at least twice a year.”

Here are some examples of why consumers should take special note of certain terms and conditions of their credit cards:

* Rates, fees, and terms may change
American Express Cards state (Chase has a similar statement): “The terms of your account, including APRs are subject to change. The APRs for this offer are not guaranteed; APRs may change to higher APRs, fixed APRs may change to variable APRs, or variable APRs may change to fixed APRs. We may change the terms (including APRs) at any time for any reason, in addition to APR increases for failure to comply with the terms of your account. Any changes will be in accordance with your Cardmember Agreement.”

“Some issuers make this statement in their terms and conditions. By putting this in the fine print, they have given themselves permission to make any interest rate change to your account that they want and there is nothing that you, the cardholder, can do about it,” says Hardekopf.

* Minimum Payment Due may increase
Discover Cards read: “If more than 90% of your New Balance consists of special rate balance transfers, we may, at our discretion, increase your Minimum Payment Due to a maximum of 4% of the New Balance if it would otherwise be less than that.”

“The minimum payment due is typically 2%-2.5% of your balance. This looks like Discover is forcing you to quickly pay down your transferred balance at a lower rate, so you have room to charge more at a higher rate. Consumers who don’t read this may be surprised that their monthly payment is higher than they expected,” says Hardekopf. “However, this can be positive since it forces cardholders to pay off more toward their balance. They will pay off their debt faster, if they don’t add new charges.”

* Default APR may be applied
American Express Cards read (most issuers have a similar statement): “Your account is reviewed monthly and will be considered in default if minimum payments are not timely paid one time, or seriously in default if minimum payments are not timely paid two or more times, your account is overlimit three or more times, or your payment is returned by your bank or financial institution, in each case during any portion of the 12-month period ending with the Closing Date of the current billing period. If a Default APR is applied, it will apply for a minimum of 12 consecutive billing periods beginning with the current billing period (unless a higher APR is triggered).”

“All cards now have a tough default rate policy. If you are late or make a slip with them or any other creditor, your APR may get changed to the default rate. A missed payment can easily happen to anyone, regardless of your income and payment history. Every person who has a credit card has the potential to miss a payment and get the 30% default rate. You can call and ask them to waive the fee, but this doesn’t happen to every person who tries,” says Hardekopf.

* Misleading Reward Offers
The Chase Business Card Cash Reward states: “The rewards are based on the following tiered system: 1 point per $1 spent for new purchases up to $2,000 each billing cycle; 5 points per $1 spent for new purchases totaling between $2,000-$2,500 each billing cycle; and 1.25 points per $1 for new purchases totaling over $2,500 each billing cycle.”

“This card promotes that you will receive up to 5% cash back, but that 5% is on a very small percentage of your purchases. This offer is misleading because the cashback you would receive could be smaller than expected if you don’t read the fine print,” says Hardekopf. “This is a good example of reward tiers being extremely confusing and difficult to compare. You have to plug your expected usage into the reward formula for each card to predict what your reward could actually be.”

* Balance Transfers charges
Discover Cards read (most issuers have a similar statement): “Balance transfer requests will be processed from the lowest to the highest dollar amount. If a balance transfer transaction would cause you to exceed your account credit limit, you authorize us to process your balance transfers for an amount less than the full amount requested. Making additional transactions may still cause you to exceed your account credit limit.”

“If you transfer a balance, credit cards companies will leave room on your credit limit so you can make additional charges. It is your responsibility to know what your limit is and to stay under it to avoid penalties,” says Hardekopf. “The risk of transferring a balance is that if less than the full amount is transferred, you are still stuck with a balance on the old card. Then, you have two cards. If you aren’t disciplined, you could run up the balance on both and have more debt than when you started.”

* Payment Allocation
Citi Cards state (most issuers have a similar statement): “We apply your payments to low APR balances first. You cannot pay off higher APR balances until you pay off lower APR balances. That means your savings from any promotional APR offer will be reduced if you make purchases or cash advances that have higher APRs.”

“The payment policy of all credit cards is to apply your payment to the balance with the lowest rate first. This keeps you paying your highest interest rate for as long as possible. New purchases can also reduce your savings from a promotional interest rate.” says Hardekopf. “From the consumer’s perspective, it would be nice if the payments went to the balances with the highest interest rates first. People could pay off their debt much faster.”

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The inflatable Santas are already on the shelves at Wal-Mart, giving an early warning that Christmas is coming. Even though it feels a bit early to think about that January credit card bill, now is the time to make your financial plan to control your holiday spending.

“Most households spend between $500-$1,000 during the holiday season,” says Bill Hardekopf, CEO of LowCards.com. “If you add this amount to your existing credit card balance, you will be creating a steeper financial hill to climb. If you charge $1,000 on a credit card with an interest rate of 15% and just pay the minimum balance each month, it will take over 10 years to pay off Christmas 2007, and you will pay an additional $758 in interest.”

Here are some tips to prepare for holiday spending:

* Start saving now. Look at what you spent last year and try to save that amount in the next two months. If you spent $500, you can save $50 per week for the next 10 weeks and afford everything you purchase. “Instead of eating out, take your lunch to work or eat more meals at home from now through December; save that money for Christmas purchases,” says Hardekopf.

* Change your shopping habits now before you get into the spirit of the season. If you can’t afford to pay off your credit card in October, then you can’t afford to add a lot more to it. “It’s Christmas” is not a good reason to put yourself deeper in the debt. “If you are still paying for purchases from last Christmas, then you can’t afford a lot of shopping this Christmas,” says Hardekopf.

* If you must use a credit card loan to pay for Christmas, make sure you can pay it off by Easter.

* Pay attention to your credit limit. “If you are close to your limit in October, you could have problems by December. The punishment for going over your credit limit is no longer a simple fee. You will have to pay the $39 over-the-limit fee, and your rate may increase to the default rate that can be as high as 32%,” says Hardekopf. “More importantly, if you add to your balance and your credit utilization
goes much higher than 50%, you could hurt your credit score.”

* If you are looking for a new credit card, this is a good time of the year to apply. If the card has a 0% intro rate for purchases for six or twelve months, you can use your card as a free loan for holiday spending. This is recommended only if you pay it off before the interest charges begin.

* If you really want to stick to your budget and avoid impulse spending, pay in cash. According to Dun and Bradstreet, people spend 12-18% more when using credit cards than when using cash.

“Consumers must start having a Christmas that they can afford. If you have the type of Christmas that is advertised by retailers, then you may have to work three jobs just to pay it off by next Christmas,” says Hardekopf. “Debt can quickly tarnish the memory of a happy holiday season.”