Reader Jane emailed me last week to warn me about cash advances on credit cards. She recently stuck her credit card into an ATM, withdrew money, and was surprised to learn all the fees associated with a cash advance. She was in a bit of a pinch (she didn’t elaborate, nor did I ask) and needed cash but she left her ATM card at home, so she resorted to her credit card thinking a cash withdrawal from an ATM would be the same as a charge. Unfortunately she was wrong.

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When it comes to credit card debt, especially with the passing of the CARD Act, there have been a lot of statistics flying around. I wanted to find a authoritative source, in this case the Federal Reserve, and see what the real numbers are.

One of the tricky things about averages is that it’s hard to make an apples to apples comparison. If you’re 25 and have $5,000 in credit card debt, is that good or bad? It’s certainly worse than having no credit card debt, but what if you’re responsible for providing for a family? A single person with $5,000 in debt is “worse” than a family with $5,000 in debt, all in one person’s name, right? It’s questions like these that make the whole “average credit card debt” question, and others like it, so tricky.

Despite these difficulties, it’s still valuable to understand what the average is as well as what the various trends are. If nothing else, it’s fun too right?

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Last month I explained the importance of reviewing your finances regularly. Today, I want to amend that post and warn that you need to check your credit card statements every single month. Check in on your finances “regularly,” be it a month, a quarter, or semi-annually; check your statements every single month.

Here’s a harrowing tale of how Dan Godding, of Loveland, Colorado, is on the hook for $11,000 in fraudulent charges because he didn’t review his statement. Since he continued to make payments on the debt, and Bank of America’s fraud department failed to catch it, the charges are considered legitimate.

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Liz Pulliam Weston recently published an article summarizing and analyzing J.D. Power and Associates 2008 survey of credit card user happiness. They surveyed 8,000 users on five factors: interaction with the company, billing and payment processes, fees and rates, reward programs, and benefits and services.

I was a little surprised to see that the highest score was 783 out of 1,000 for American Express, with Discover taking second with 751. Everyone else surveyed scored less than the industry average of 724!

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A few years ago, cash back credit cards were everywhere. Today, the offers are harder to find as company hunker down and deal with the financial crisis we’re facing. Despite the economic climate, cash back credits are still out there and you can still get a little cash back on your purchases.

How do cash back credit cards work? Each credit card company does it differently but the basic idea is the same. Every time you make a purchase with the credit card, your cash back or rewards account goes up in value. When you reach a certain threshold, you can cash out your cash back. Some companies will write you a check (Citi), while others will directly credit your account balance (Discover).

Is cash back worth the hassle? The answer is it depends. Some cards offer high cash back percentages on certain purchases and you can optimize your cash back by using several cards. I don’t recommend using more than two or three cards because the return on your time will decrease as you get more cards (you may find it helps to write down the cash back categories on the card itself).

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With the passing of the CARD Act, credit card companies have been responding by instituting purchase-based annual fees. Before the CARD Act, many issuers were trimming their books of inactive, low-activity, and risky credit card accounts. You may remember American Express offering cardholders a financial incentive to close accounts.

In this environment, there may come a time when you will want to cancel a credit card. A few years ago, canceling a credit card was easy. You called them and told them you wanted to cancel, they try to keep you around, you did that dance, and then diced up your card. Nowadays, you go through the same charade, but now you have to be worried about how the cancellation would impact your credit score! Boo!

So here are some tips on minimizing the impact of canceling any one credit card.

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A couple years ago, you could play the balance transfer arbitrage game over and over again. Apply for a credit card, get a 0% balance transfer, and then transfer that right into your 5% APY online savings account. Man, those were the days!

Now, balance transfer periods are shorter, transfer fees are higher, and, most insidious of all, the interest rates after the 0% promotion ends are higher. With the recent credit card laws, I’m betting those offers will become even less inviting. While this will take all those balance transfer arbitragers out of the game, they can still be effective tools for people looking to catch up on their credit card debt. A 0% interest rate, even for only a few months, can give you a little bit of breathing room so here’s how you should compare balance transfer offers.

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The recently enacted credit card laws are having some unintended consequences. Just as many places reported, credit card companies are now turning to other “innovative” ways to drum up revenue – one of those silly unintended consequences. It turns out, some are now requiring that you make a minimum amount in purchases a year to avoid an annual fee. Sam recently received a letter from Citi about this:

My husband recently received a notice form his Citi Master Card that they will now begin charging him $35 per year as an annual membership fees. The membership fees will be waived if at the end of the year we make more than $2400 in purchases. We know for a fact that we will not meet that $2400 amount. We are thinking about canceling his credit card but then we thought that would probably hurt his credit score. What should we do?

The first strategy I would try is to ask if the fee could be waived – unfortunately, she tried that and Citi said “No.”

The next strategy I would try is to consolidate that card into another Citi card without a $2400 requirement. Sam didn’t have another card so this option was out of the question.

If neither of those two easy techniques work, you could use a trick I revealed for busting cashback tiers on credit cards – buying Presidential $1 coins. At the moment, there are five (six technically because one set is supposed to be released August 11th, but the Mint website doesn’t reflect that) sets of 250 coins available and you can buy 2 each with free shipping. That gives you $2500 in actual money can you deposit in your bank.

If you don’t want the hassle, you can always just cancel the card. It will hurt your score but unless you plan on buying a house or car in the next year, I’d rather dump the card, take the credit score hit, and not pay $35 a year for nothing.

Breaking up is hard to do, but canceling a credit card is easy. Call the company, tell them it’s just not working out, then cut up the credit card! Easy right?

What’s a little harder? Understanding the impact that can have on your credit history and score.

Fortunately, the answer isn’t as complicate as you might think.

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I thought it would be fun to add up all the credit limits of every credit card and line of credit we had to see what that amount was.

My total? $69,600 (we don’t have any lines of credit)

My cards (starred ones are cards I actively use):

• * Citi mtvU Card – $9,600
• Discover Miles – $1,000
• Discover More – $11,000
• * Capital One Platinum Mastercard – $10,000
• Citi Platinum Select MasterCard – $18,000
• * American Express TrueEarnings – $20,000

My wife? $35,500. (and we just did a quick Citi credit limit increase request and they raised my wife’s limit on one of her cards by $1,500 with no credit pull)

I win! (just kidding)

Is there a point to all this other than to have a meaningless pissing contest? First, it’s important to know your total credit limit because you want to know, if the crap hits the fan, how much money you have access to. Knowing that we have $100,000 in unsecured credit is only important if we ever need that sum in the first place. While unsecured credit cards won’t be the first place we turn to for funds, at least we know it’s there and we can make informed decisions knowing the “worst case.”

Another benefit of this exercise is that we have a listing of every credit card we have. I don’t carry the Discover Cards or the Citi Platinum Dividend card, they’re hidden somewhere in our house. Even though I don’t use them, I should know that I have an account there and the details of that account. Going through this little exercise jogs my memory about the credit cards I have.

Finally, I was a little surprised that I had $69,600 of unsecured credit at my fingertips (though if you ever read some of the App-o-rama’s at Fatwallet, $69k is what those wizards can get in a day’s time). I can see now why credit card companies are cutting credit limits. All it takes is a job loss, which isn’t reported to credit card companies or credit bureaus, and I could very quickly rack up some unsecured credit card debt.

So, do you know your total credit limit? If so, how much is it?

(Photo: Andres Rueda)