Young people and lenders

Now that the recession is over, companies are trying to find new ways of bringing in cash. Part of that includes finding and targeting a new market. That new market has been clearly carved out by credit companies, and it is the college-aged students who are now the new generation of borrowers. Credit companies know that this is a good sector to hone in on.

What qualified the new market?

The new market has no credit history and no steady income, so how does that make them the perfect group? Despite those shortcomings, they also have no history of defaulting. In a world where there are millions of defaulting customers to deal with and few ways of recouping the debt, a prospective customer without financial baggage can be enticing. In addition, lenders are focusing on college-aged consumers who have a high income potential. They are hoping that in future years, these are the customers who will have the income to buy high-ticket items and have the resources to pay for them.

Is it good for the consumer?

The question remains, though, whether or not this extended credit to the college-aged borrower is good for them. New studies are showing that recent college graduates leave school with thousands of dollars in unpaid credit card bills, and that trouble early-on carries over to their adult lives. According to a recent study done by Sallie Mae, provider of student loans, a large number of students are relying already on credit cards for their daily lives. The average undergraduate has $3,173 in credit card debt and half of all college students have four or more credit cards.

Unsecured loans are growing in numbers and amounts in society today. Younger and younger people are falling victim to the problem and the future is not showing any signs of improvement. Though the college-aged student has income potential, there is also a bigger picture to look at. They have credit card debt to deal with and once they graduate, they also will have student loans to deal with. That can put a strain on even the top-earners in the most lucrative fields.

There is some education on the way

The Credit Card Accountability, Responsibility and Disclosure Act, or Credit CARD Act, was just signed into effect a few weeks ago, and it aims to help consumers with education. The act looks at the past history of practices credit lenders use to draw in students, without giving them a clear picture of the potential consequences of holding the cards. The CARD Act strives to limit what banks can do to market their loan products to consumers between the ages of 18 and 21. There are also additional restrictions on how they handle college students’ accounts, and in many instances parents have to be involved in credit acceptance for anyone under 21-years of age.

Credit in the future

Credit in the future is going to be monitored more closely by watchdog groups, and that is good news for college students. Though unsecured loans are available, that doesn’t mean they are a good idea. More and more young consumers are learning the hard way that credit, though it can provide financial relief, comes with a high price. Without understanding that high price, they are setting themselves up for future disaster.

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Banks and credit-card companies typically charge off debts once they’re 180 days past due, and the Federal Reserve does not separate charge-offs from debt payments when reporting national credit-card debt-reduction figures. According to a CardHub.com study analyzed by MoneyNews, lenders charged off a record-breaking $83.27 billion of credit-card debt last year, which accounts for the lion’s share of the $93.2 billion drop in card balances.

Debt reduction due mainly to lender charge-offs

According to government reports, as of January 2010, credit-card balances have been declining for 16 straight months. But according to the CardHub.com study, the first quarter of 2009 was the only time during that 16-month period when consumers actually paid down card balances. In that quarter, consumers paid down card balances by $46.9 billion, and lenders charged off an additional $17.59 billion. After the first quarter of 2009, national card balances either increased or remained steady.

Credit-card debt is down, but not paid down

The CardHub.com study suggests that consumers have not, after all, been paying down credit-card debt, and the record-breaking lender charge-offs for last year evidence the financial pressure faced by many Americans. Credit-card debt charge-offs were a record-high of 10.1% in the third quarter of 2009. The rate was somewhat lower in the last quarter, but the situation is expected to become worse. According to MoneyNews, Moody’s Investor Service predicts that the charge-off rate will reach 12% in 2010. By way of comparison, in the fourth quarter of 2006, a year before the current economic downturn began, the charge-off rate was a mere 4%.

Which is not surprising

It should come as no surprise that unemployed and underemployed Americans are still financially stressed and leaning on credit cards and emergency cash loans. Increased charge-offs by lenders is just one more ripple in the ever-expanding ripple effect of the recession.

What the New Credit Card Reform Does For the Consumer

The new credit card reform, which came into effect this year, forbids credit card companies from increasing high interest rates to consumers whenever they like; however, there are other fees that have to be accepted by consumers such as the zero balance and inactive card fees. On account of this, credit card companies are frequently tightening up lending to customers, especially to those with not so good credit. This is being done to reduce the risks involved in lending, especially when it comes to charging ridiculously high interest rates to paying customers as a reimbursement for losses. This is one of the main reasons why payday loans are so attractive and one of the most popular means of acquiring money.

Making Things More Simpler for the Consumer

These are small cash loans ranging anywhere from $100 to $1000 awarded to consumers who have met a certain criteria. However, the loans do come with a due date; therefore, many payday lenders are within their right to provide extensions on due dates. One of the advantages of acquiring these loans over traditional loans is that the qualifications aren’t extensive and obtaining them are a lot easier with payday lenders online where you can apply and have your application approved within 24 hours.

A Steady Job May Be Your Only Requirement

Most banking facilities that offer loans and credit card stipulations normally require a high credit rating, a flawless credit report, an extensive employment history (2 years maximum) as well as a minimum of two years in your present housing and possibly more requirements. These types of stipulations or criteria don’t exist with payday cash loans; with the exception of a stable place of employment for substantiating repayment, everyone should qualify.

Knowing What You Are Getting before You Get It

On account of the simplicity in obtaining a payday loan, they’re classified as high-risk loans and high-risk loans have much higher interest rates starting at 15% -30%, while the APR could range anywhere from 300% to 800%. Because of this, anyone getting these types of loans are instructed to repay them by the first due date in order to avoid penalties for late payment or extension fees. These fees can add up quickly and if a loan is allowed to incur interest as well as unnecessary fees, it becomes more difficult to repay.

You will find that pay day loans have striking similarities with credit card debt and various other types of loans. Nevertheless, if consumers were more knowledgeable of the advantages and disadvantages found within the terms and conditions, they will be more prepared to make accurate decisions.

Credit cards in the US

Almost everyone in the US uses credit cards as a way to pay for debt. Dependency on credit has grown immensely throughout the economy, as lenders in the past were more than willing to extend funds to borrowers. Unfortunately, the recession put a damper on that freedom, when credit card companies were sent reeling by their former over-enthusiastic lending. They began using tactics like cutting people’s limits, even if they had more than that limit charged. This automatically put them in a higher interest rate bracket, and many times unjustly cost them over-limit fees. Credit card companies also began charging higher interest rates without notice to consumers, based on their “adjustable rate” clause in the contract. It was unscrupulous acts like this that pressed the Obama administration to face the credit crisis head on, making legislators step in and find ways of regulating credit card company activity.

Understanding credit cards

To understand what impact credit card companies’ actions have on credit, it’s important to understand how credit is scored. A consumer’s credit score is made up of five different components:

1. 35% is based on history of payments
2. 30% is based on debt percentage, or credit being used versus credit available
3. 15% is based on the length of time credit has been open
4. 10% is based on new credit taken out
5. 10% is based on a mixture of the overall credit a consumer has

Knowing this, the most important thing a consumer can do is pay their bills on time. This is the largest contributor to credit scoring. It’s also important to have a good mixture of all of these elements to maximize a credit score.

Also, length of credit is very important. It’s much more beneficial to have a good payment history with one credit card company than to open new cards that have no history. Consumers should always keep good-standing credit cards open to benefit the most from them.

Debt consolidation companies

Many experts advise against using debt consolidation companies because they do what consumers can do for themselves, for free. A debt consolidation company will charge large fees to negotiate. Experts say that if a consumer wants outside help they should contact the NFCC, the National Foundation for Credit Counsel. They charge a small fee, but it is much less than a debt consolidation firm. The NFCC will communicate with lenders on a consumer’s behalf to work out an affordable plan. They also will work with the consumer to create a workable budget that allows the client to pay down debt as soon as possible.

Debt questions to ask

One important issue to face is what actions led a consumer to having credit card problems. Did overcharging send the credit amount skyrocketing? Did fees due to late payments do the damage? Are credit cards too widespread? These are all questions that need to be addressed for consumers to create healthy relationships with credit. On the other hand, the credit card problems may be due to extenuating circumstances such as unmanageable medical costs. If this is the case, bankruptcy may be a more viable option for the individual. Regardless of what the solution is, it’s important to get to the root of the credit card problem and take care of it. The future after the recession is still unknown and consumers have to work hard to make sure they will be financially sound.

How do they monitor credit card risk?

The purpose is to calculate who may be a credit risk and methodically weed them out of the mix. If consumers use their credit cards at secondhand clothing stores, or discount grocers, lenders are taking note. The assumption is that if a consumer uses certain stores, they could be in financial strains. Based on purchasing behaviors, creditors are making decisions about consumer’s creditworthiness and changing the terms of the credit agreement accordingly.

Congress is getting involved, however. Federal regulators are looking into the extent to which credit lenders are using shopping information against consumers. It’s become a standard practice that if a consumer poses a credit risk, lenders either increase their interest rate, slash their limits or both. Federal regulators are trying to create a watchdog service to protect consumers’ rights.

A new credit card reform law

President Obama signed a new credit card reform law into action this year. There is a provision requiring a federal investigation into the practices of credit card issuers using shopping information against card users. Namely, lenders seem to be using information about where consumers shop, what they purchase, the category of merchants they shop with, their locations and the mortgage company they work with as a basis for increasing rates or reducing limits. US Representative Maxine Waters said, “Where a person shops, in my opinion, has little bearing on whether they can pay back a credit card balance… I want this study done because I want to stop some of these outrageous practices in the future.”

Reporting on lenders

The Federal Reserve and Federal Trade Commission have until August 22 to gather information on credit lenders and assess whether or not they are unfairly watching consumer’s habits. Regulators have to decide if negative profiling affected minority and low-income credit card users. American Express is one issuer of credit cards that acknowledged its former usage of profiling information to limit the amount of credit it extended to customers, though they have since discontinued the practice.

Waters added, “I’m concerned that limiting credit based on where a person shops or neighborhood they live in could amount to red-lining.” Red-lining is the practice of targeting specific demographic areas or neighborhoods for the purpose of discriminatory housing, insurance or lending actions.

Address privacy issues

In addition to not being fair to consumers, there are privacy questions to address. “Obviously that is something that most credit card holders are not going to think about,” said Paul Stephens, director of policy and advocacy for the Privacy Rights Clearinghouse. “They’ve obtained a credit card and think they can go out and use it in any way they like.”

Suggestions from experts

Until rules are sorted out, many experts are encouraging cardholders to pay with cash, use gift cards or prepaid debit cards in lieu of their credit cards. Shopping at wholesale outlets or discount grocers may also thwart profiling. One expert suggests spreading purchases over a few credit cards to avoid triggering alerts for a single lending company. Stephens added, “Cash is the ultimate privacy protector. It’s kind of hard to trace. With most other payment mechanisms, there is going to be a trail.”

National Business Summit’s beginnings

In its planning stages, the National Business Summit was focused on US growth. Almost immediately after the initial planning stages began, the banking industry failed, creating problems with lending. The housing industry experienced huge spurts in foreclosure numbers. Auto giants ended up in bankruptcy court. The government has used billions of dollars to invigorate the economy. The president took on the mission of finding effective restructuring of the nation.

The summit’s current state

Now that the recession has hit full force, the National Business Summit is more determined than ever to do something for the economy. Over 90 leaders from the public and private sectors are gathering for a 3-day meeting. Co-creator of the summit and VP of accounting for Deloitte LLP Tom Dekar stated, “The need is more crucial now… I think we may be where we are because we did not have the right policy set in each of those topic areas.” He added, “Had we had a better set of policies in the industrial sector, had we looked at the automotive market as a market… we might not be where we are today.”

Although conference organizers initially wanted to bring in 5,000 attendees, the recession caused a scaled-back conference to be planned. Only 3,000 are now expected and the venue will be at the Detroit Economic Club. Despite the change in scale, the purpose remains— gather leaders from business, academia and government to discuss and strategize solutions that increase the nation’s competitive edge within the global market.

Attendees

Expected to attend are top executives from companies like Microsoft Corp, Delta Airlines Inc, ConocoPhillips, Citigroup, GM and Ford Motor Company. Members of the Obama administration are expected to join and discuss new green initiatives, lending policies regarding credit cards, enterprise and innovation. Of the automobile presence at the summit, Dekar stated, “They enjoyed 100% of the market share in the 40s, 50s and 60s… then along came the transplants who didn’t have the same kinds of costs… given we are where we are, what do you really want to be in the future? How do we ensure the marketplace is fair to all participants?”

The People’s Summit

Critics of the National Business Summit have formed their own meeting, called the People’s Summit. Spokesman Abayomi Azikiwe, a community activist, stated, “The whole thrust of the [National Business] summit, in our opinion, is misguided… the financial community, as well as the industrialists, have created conditions for the worst economic crisis we’ve faced in 75 years. We don’t feel they have a solution.” The People’s Summit is focusing on stopping foreclosures and evictions, creating job programs, and beneficial health insurance policies. The belief of this meeting is that the US has to “cure its ails” first before it can extend or strategize its benefit to the global market.

The American public will benefit

Despite contradictory purposes, the National Business and the People’s summits are both aiming to find ways out of the recession. Though there are disagreements, the key to growth is to brainstorm as many solutions as possible and make educated choices on which ones to choose. If together the groups can improve the housing value issues, increase the benefits of credit cards, spur manufacturing in the US and find ways to create jobs, the American public will benefit.

The credit card for most of the 1990s and the first decade of the new millennium was the most often tapped source of credit for the middle class. 76.2% of U.S. households used credit cards. (Source: Federal Reserve Bulletin February 2006) When a family needs immediate access to resources that are not available from their current income, they look to credit cards. However, personal credit has proven to be one of the key destroyers of wealth for average wage earners. The average household in the United States carries an average credit card debt of $10,000 or more. (Source: Nilson report April 2009) While there is the instant gratification of borrowing against future income, the bill will always come due. If a family does not have a structured plan for repayment and clear understanding of how their personal credit works, the chances for entering a financial difficulty increases.

The Crisis of Personal Credit and the Middle Class

The problems surrounding the current use of credit have manifold sources. The first is the general lack of financial education offered to the general population. If you don’t know how money and credit works, you can’t use them properly. The other problem is the confusing language of credit cards. While many households get offers in the mail concerning low interest rates, they are left ignorant of the complete set of fees included for various actions. This makes it hard for many consumers to make informed choices concerning the credit card that would be the best personal fit for their finances.

Credit Card Reform

Congress recently passed the Credit Card Act of 2009 as the government started to understand the role that these problems with credit have in causing the recent recession. Not only were there the lessons of firms such as AIG and Lehman brothers; there was also the concern raised by some analysts that defaults by credit card holders could fuel a financial relapse into recession. The reform bill does some important things to make credit fairer and simpler to use.

1. It placed a ceiling on certain rates and fees
2. It requires that language concerning the features, rates and fees of a card be written in plain English
3. Created a Consumer Protection Agency to give consumers a federal conduit to forward their complaints to concerning violations of the Credit Card Reform bill.
4. Prevented Minors from having access to credit cards by raising the age limit

The Individual Importance of Financial Responsibility

The solution for families wanting to get out from under credit card debt doesn’t stop with the passage of a government bill. It also requires better self-education about personal finance. For example, one needs to learn how to properly leverage personal debt against family assets. It also means knowing the real meaning of what a financial asset or liability is. For example, one of the biggest misconceptions for the average consumer was that their home was an asset. However, an asset adds to your resources; it doesn’t drive you into financial bankruptcy. Most homes are bought on credit rather than cash, so they end up being a drain on families’ incomes. So knowing the makeup of your personal finances is an important first step.

Saving more than you spend is another important thing that middle class households are starting to learn. This is important because these reserves can help pay down debt and improve purchasing power in a more concrete way than credit. Many experts suggest that a family save around 20% of their income.

Conclusion

The inherent problems concerning personal credit become possible to overcome by taking into account the new strides made by legislation and combining it with the hopeful emergence of a financially educated public.

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Effective Monday, new credit cards will offer consumers more protection, adding peace of mind to an industry in turmoil. The main changes have been focused on “retroactive rate increases” and “impulsive penalty interest rates”. Surprisingly the fee’s incurred by rate increases and penalty’s average at a minimum of $10 billion per year, stated by The Pew Charitable Trusts, and By Tracey D. Samuelson Correspondent / February 22, 2010. This will be a benefit to people with good enough credit to have credit cards but for many it will increase their reliance on installment loans for bad credit.

Credit Card Accountability, Responsibility, and Disclosure (CARD) Act

There are still many ways the credit card industry can improve consumer security, but in the mean-time the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act will add the extra protection needed for U.S consumers. The (CARD) Act was signed into legislation by President Obama May of 2009.

The first phase of the legislation

Last August 2009, the first phase of this legislation started to take shape. This legislation allows U.S consumers more control by allowing cardholders to decline major changes in line with their credit-card contracts. The credit-card industry has been practicing in an unbalanced manner for far too long. These changes will solidify a new America for our future generations, and responsible money practices across the board.

Federal Reserve rules on “reasonable and proportional” penalty fees and charges.

The final phase of this Act will focus on the Federal Reserves rules on “reasonable and proportional penalty fees and charges”. Many of these rules have already been implemented but there are still many changes left to be re-organized. Below is a list composed by Tracey D. Samuelson Correspondent / February 22, 2010. about some of the key changes U.S consumers can expect.

• The end of confusing billing practices

Credit-card payments will be due at the same time each month, with notification of the bill made at least 21 days in advance of its due date. Payments will be applied to highest interest-rate balances first so that customers can pay off their balances faster and more cheaply. Finally, credit-card companies will be obligated to use “plain language in plain sight” on all materials related to the account and periodically display on statements how long it would take consumers to pay off their existing balance and interest charges if they paid only the minimum due.

• Interest-rate reform

Nearly all interest-rate increases on outstanding balances will be prohibited and card companies must notify the consumer 45 days in advance of an interest-rate increase. Additionally, there cannot be any interest rate increases for the first year any account is open.

• Opting-in for overdraft and over-limit protections

Customers will now have to opt-in to an overdraft program instead of being automatically enrolled. This means that if cardholders try to make a purchase that exceeds their limit or overdraws a debit account, their card will simply be declined. Under the old rules, the transaction could go through and the consumer would be fined.

• Protections for young consumers

Credit-card companies face greater restrictions on marketing cards to college students. More generally, those under 21 will have to prove that they have the means to pay off their card limits or have a cosigner before they can be granted a card.

Many parents are looking to their credit cards to fund college for their children. This year some states, businesses and colleges are aiming to help people pay for the expense. There are some rules, of course. And of course, if something sounds too good to be true, it probably is. Parents need to do some research on any offer that comes in the mail or via the phone before they accept any funding. Here are six ways to get free money to help defray the cost of college.

State aid

There are nine states in which government agencies and charities are offering grants for college costs. Arkansas, Colorado, Louisiana, New Jersey, Michigan, Minnesota, Rhode Island, Utah and Maine are all a part of the initiative to help defray school costs. For example, in Maine, legislators began offering $500 to newborns whose parents agreed to open 529 College Savings Accounts. Many of these states offer financial extras to low to middle-income families. Louisiana and New Jersey offer wide varieties of grants and scholarships for their residents. Each parent should check with their student’s high school counselor and the FAFSA website for details on what plans are available to help with college costs.

Parents should be aware that each state has its own list of rules and regulations. Some require parents to fill out detailed forms annually, and others have very strict deadlines. Utah for example has introduced some new grants available to families, but their regulations were so limited that only 19 families ended up qualifying for them.

Employers and credit cards

Two other ways to find funding for college are through employers and with credit cards. In 2008, some employers began giving new parents grants of $700 if the parents opened a 529 savings account prior to the child’s first birthday.

Credit cards are another way to help fund college. Fidelity offers an American Express card that rebates 2% of all purchases and diverts them into a Fidelity 529 account. Also, Upromise just introduced a MasterCard that rebates money to an Upromise 529 or to a Sallie Mae education loan. The card rebates 1% on all purchases, 10% on groceries at certain stores and the user can choose to accept other rebates on gas and restaurant purchases.

Online deals to help with college

There are also many online websites that offer cash back to shoppers who click through their websites to partner websites. Littlegrad, Futuretrust, Upromise and Babymint are all websites that offer these types of cash back deals.

Colleges are also offering matching grants for parents who are saving for college. Sage Scholars, Inc. convinced 230 private colleges to “guarantee Tuition Rewards scholarships” to families who invest or shop at Sage’s website partner companies. Also, over 274 private colleges are part of the prepaid Independent 529 Plan. This is a plan that gives parents a 0.5% discount if they purchase tuition for children at current costs.

Relatives and friends

Finally, relatives and friends can aid in college funding. Freshmanfund.com and Ugift.com both offer tools that request relatives and friends donate to a college fund “in lieu” of birthday, graduation or Christmas gifts. Freshmandfund works with the 529, while Ugift works with Upromise.

Funding college

Whichever way parents choose to pay for college, there are methods of help out there. State aid, employer’s help, credit cards, online tools and relatives and friends are all viable options to look to for additional funding.

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Payday loans are in higher demand now than ever before. During the economic downturn and the credit crunch, more people from more income brackets started turning to payday loans than ever before. Reuters reports that “Customers’ average income has increased to about $50,000 from $41,000, and a significant portion of customers have a median household income over $75,000.”

Furthermore, experts predict that once credit card issuers start feeling the crunch from the new credit card laws, fewer people will be approved for credit cards. Likely payday loans will be in even higher demand as people have fewer options for credit.

How payday loans work

Many people prefer using short-term credit to using credit cards simply because it saves them money in the long run. Payday loans generally only have terms of about two weeks or until you receive your next paycheck. You must pay back your payday loan plus lenders fees all at once. So, after your two-week loan is up, you’re done. There’s no compounded interest every month on charges that can sit there for years.

Payday loans can also save people money on overdraft fees. As banks begin to lose money because of the new credit card loans, they might turn to overdraft fees as a source of additional income. Bank overdraft fees are already extremely high; many charge $35 per transaction, regardless of the amount.

Payday loans can work for anyone

More people are discovering how fast, easy and convenient payday loans are every day. You can get the extra cash you need automatically deposited into your account in just a couple of hours. You can get small payday loans for just $100, or you can borrow up to $1,500.

Whatever your financial emergency is, payday loans can help you get out of hot water. There are generally no credit checks, and payday loans don’t affect your credit score. Click “Apply Now” to fill out a short application.

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Installment loans can help save credit scores. In the market today, there are many changes in the world of credit. It used to be that credit cards were reliable options when consumers were faced with emergencies. Many people had that one credit card they kept in the kitchen drawer. It wasn’t for daily use, or even monthly use. Rather, it was solely for emergency occasions when cash was needed but not on hand.

The recession changed the way consumers can use their credit cards. Cards that formerly sat dormant for months, sometimes years, for emergencies were canceled. Not due to any mistakes on the part of the owners, but rather because credit companies did research and noted stagnant cards as “risky.” Credit lenders theorized that if their emergency funds were needed, then the consumer may not be able to pay back the debt. It is akin to that age-old adage, “You can get all the credit you want, when you don’t need it.”

What to remember when dealing with credit cards

There are some things to be aware of in the credit card world. First of all, remember that working on your credit, when you are still unable to pay your current bills, is pointless. The last thing you want to do is put time and money into paying back debt, only to have new debt bring your score even lower. You can’t work on your past credit history until any financial crisis you were in is over and you have some extra money to start paying down debts.

Secondly, remember that you don’t necessarily have to pay credit card interest to improve your score. In fact, holding a balance on your cards can be a detriment to a good credit score. The best way to manage a credit card is to pay off your debt. Remember that holding a balance is expensive, bad for your finances and usually not necessary. Make sure you pay off the full balance, even if you have to use savings or installment loans.

Thirdly, it’s important to note that credit repair is a long-term activity. Nothing will change overnight regarding your credit. Look at it this way: It took you years to get bad credit, and it will take you years to fix it. Studies have showed that it takes three times longer to fix credit than to ruin it. For larger items like foreclosures or bankruptcies, you may need to just wait for them to drop off your credit report before you can bring your score up significantly.

How to act wisely in the future with credit

Once you know how to deal with your credit cards, you need to know what to look out for when watching your credit score. Your credit score is based solely on the information Equifax, TransUnion and Experian collects regarding your payment activity on your credit cards. It benefits you to request your credit report once a year via AnnualCreditReport.com. You should file a dispute if you see any of the following:

• Late payments that are inaccurate
• Accounts that don’t belong to you
• Negative information that is more than seven years old
• Bankruptcies older than 10 years
• Incorrect information regarding where you have lived
• Aliases

These are all important to dispute, and the process isn’t difficult. Just write to each credit reporting agency, tell them the problem and request that they remove the misinformation. Always keep a copy of whatever you send to them and don’t send more than you need to. If they need specific information, they will request it.

The benefit of credit cards

Overall, the benefit of credit is great. It allows you to purchase things that you normally wouldn’t be able to afford. But it takes some time and effort to monitor your credit habits to assure that they are benefiting you. Always be aware of how much you owe and pay it down. Even if you have to use savings, installment loans or family borrowing, be sure that you have as low a balance as possible. It will only bring your credit score higher and allow you the freedom of more credit in the future.

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Let’s say you are lucky enough to get a new unsecured credit card. That means that your credit has to be somewhat stable, because credit card companies are no longer handing out credit like they used to. Now there is a rigorous intake process that sorts through applicants and notes those who are most likely to pay their debt on time and those who are most likely to default.

Once you get your credit, you run to the local store to make your first purchase. It could be something as innocuous as dinner for your family, or it could be a big-ticket item that you were waiting to put on credit. It may seem well and good for a while, but then your bill comes. For a lot of people it isn’t until their bills come that they realize the true relationship they have with their credit lenders. Though there is an immediate benefit, there is a long-term payout.

Credit card trends to be wary of

Credit is necessary in today’s market. If you ever expect to get a car, house or any big-ticket item, you have to have a decent credit score. However, now that lenders have been through the recession, they are changing their rules as to how credit is managed. Here are some new characteristics of credit cards to pay attention to:

1. Credit rates will continue to rise. Surveys show that four of every five credit cards have the dreaded “variable rate.” Since the recession, those variable rates have been steadily on the rise. Coming 2010 the trend is expected to continue. Although regulators have managed to change the rules of minimum payments, it still may take consumers much longer to pay off debt if they stick to the minimum payment amount.
2. Great deals are available, but beware. The credit cards with great deals are still going to be introduced to the market, but this time they come with some startling regulations. For example, Discover card advertised a 0% balance transfer deal that requires only two purchases a month. What was hidden in the fine print, however, was a hefty minimum requirement of purchases to be eligible.
3. Fees are on the rise. In the past ten years fees for over-limit purchases and late payments have risen dramatically. It’s a chronic problem with credit cards from most major lenders. For example, Citibank’s Citi Simplicity card offers no late fees when users make purchases once a month. The catch is that if you do go over your limit, the penalty rate kicks in. That rate is well over 30%.
4. Low-rate offers are also sketchy. Sure you may find a great low-introductory rate on a card, but there are many more ways for the lender to increase the fees involved. For example, Chase removed their cap on balance transfer fees for some of its lower-rate offers. That means that if you are transferring a substantial amount, expect to get the lower interest rate, but a higher fee. That fee may just about eat up any savings you got from the lower rate.

The future of credit is still in the lenders favor

Overall credit is still sided to benefit the lender more than the consumer. That’s nothing new in the world of credit, but it is projected to be worse than it was pre-recession. This time lenders are focused on bringing in as much cash as possible, as many ways as possible. They are making themselves ready to act quickly should future payment problems occur. Consumers need to be aware of the fine print and understand that benefits these days are not as transparent as they once were.

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What is seldom or, in fact, never advertised are the actual costs involved when using a credit card as a cash flow mechanism, specifically for the employed student who is battling to balance financial tasks, not to mention their studies and part time employment duties. These costs and charges contained within the broader definition of the credit card take the form of finance charges and interest rate charges, something of which can be avoided. However, people tend to get caught in the so-called vicious circle of spending and paying back, without being able to meet the full or even minimum amounts due.

Easy payday loans direct

A source of funding for their studies and day to day expenses is that of the option of payday loans direct, the accessibility of which can be fairly easily attained, and more so from the privacy of their dormitories. Furthermore, the large majority of students has easy access to internet connectivity and can, therefore, apply for their payday loans direct via the online option. Failing such online access, they can contact the payday loans direct lender telephonically, thereby allowing for a number of possible routes to follow when considering the payday loans direct option.

Going Paperless

The payday loans direct option has evolved significantly, and it has become basically paperless, allowing for such easy and convenient access for both students and regular employed folks alike, based upon the access options previously described. This convenient access to such payday loans direct is specifically relevant for the employed student or person due to the time constraints that exist because of all the duties and functions that one has to attend to on a normal or daily basis, which as one knows for an employed student especially, it can be nothing less than hectic.

Stats on credit card debt

The specific mention of the employed student is motivated by market research and statistics that indicate an average undergraduate student had in excess of $2,000 due on credit cards, whilst the postgraduate owed in excess of $8,000 on credit cards and other related financial instruments. This obviously does not include any study or student loans taken for the payment of tuition and its related expenses. These figures provide exactly how much the employed student requires or depends upon financing options during their time spent studying.

One of the most attractive issues of a credit card is the fact that the credit extended is often times interest free for a short period. However, people tend to over extend and, therefore, lag behind with paying the full amount back. That is exactly how the student ends up owing exorbitant amounts of debt to various credit card companies, who needless to say are often times very quick to offer credit to the desperate consumer.

Protect yourself from overextending

In considering the application or use of payday loans direct, one should understand how these financial instruments actually work. Basically, the option of this loan is based upon the fact that the full amount of money is repaid by the next pay day, hence the term “payday loan” is used to describe this option. One is, therefore, limited to the amount of loan that can be taken and by the amount of money that they will be earning within the immediate payday range. This offers a sort of protection from overextending in terms of debt and credit options.

Start your payday loans direct application HERE!

Managing cash now is taking on a new hi-tech face. The UK just announced a new “chip and PIN” system for credit cards. Currently when consumers use credit cards, they have to swipe its magnetic strip and sign a receipt. The new system has a card reader that scans a tiny chip that’s activated by a PIN, or personal identification number. Though the technology is available, the US is still hesitant to adopt the new chip and PIN.

The first reason the US is holding off on the new card system is the cost. The new technology comes along with a hefty price tag and companies are still doing the numbers in terms of ROI. The UK version is pricey, but they believe that the technology is worth the investment due to its added security features.

The cost of security

The main reason the UK developers worked with the new chip and PIN system for credit cards was to thwart criminals and credit card fraud. The magnetic strip of old cards is able to be duplicated. Criminals already have mock readers that they attach to various ATM machines that copy cards and note PIN numbers. When the criminal collects their readers, they can retrieve information and get directly into a consumer’s attached bank account. The chip and PIN system aims to make it much more difficult for thieves to attack information. It’s difficult (if not impossible) to duplicate the chip inside the new UK cards and without the PIN, there is no way to gain access to the account. The UK reported a decline in losses from credit card fraud by 218.8 million pounds in 2004 to 98.5 million pounds in 2009.

The current security system

The current method of checking out a customer includes swiping the magnetic strip on a card and then asking the customer to sign the electronic box at the check-out stand. Though retail outlets are supposed to ask for identification when any credit purchase is made over $25, studies have shown that rarely do they. Instead, they rely on a customer having a card-any card. That opens the door for fraud and theft that the new UK card developers claim they can stop.

Managing cash now for consumers and retailers is a top priority. Financial institutions are being courted for the new system because it cuts down on the amount of cash receipts. That means smaller processing costs for banks and retailers, and faster transactions. Faster transactions mean more purchases can be managed throughout a work day and that means more money for the business.

Banks’ liability

Currently banks are liable for purchases that are made fraudulently. If the customer can prove that they didn’t make a purchase, they can contact their credit card company and let them investigate. With the chip and PIN system, there is no longer a need for the liability to rest with the financial institution. The customer will be liable for any charge because that means the PIN was given out to the purchaser. Banks can claim that customers were negligent in protecting their PIN number and that alone makes them responsible for the charge.

The future of credit cards

Watching cash now is more important than ever as the economy is recovering from the recession. US financial institutions and retail outlets are still contemplating the change to the chip and PIN system of credit cards. Only time will tell if they make the investment to change their ways of operating.

Need cash now? Apply HERE!

When it comes to credit cards, many consumers have been getting shafted. All of the major banks providing credit cards have gotten away with reaping profits, and they have no problem lobbying and distributing the money to any Washington lawmaker that get in their way. Washington lawmakers are getting this dirty money from these banks to keep their regulatory laws and their profits in tact so it will not affect the credit card industry if it becomes law in a few years. During George W. Bush’s presidential terms, if anyone attempted to change any provision regarding the credit card regulatory laws, the changes were usually fizzled out and swept under the rug. The credit card industry was fine and there were more choices for the consumers and there was no reason to amend anything. There was no credit card reform in sight.

On the other hand, the United States has been in a recession and we have a new president and an administration in Washington, and they have made credit card reform one of their top priorities. The credit card industry is directly linked to consumer debt and as a result, the industry must be reformed. In May of 2009, the Credit CARD Act of 2009 was implemented. However, the bill’s first provisions were not in effect until just recently.

Things you should consider if you are a credit cardholder.

1. There must be a written notice forty-five days in advance by the credit cardholder if your interest rate of your credit card has increased.
   This will eliminate the unethical practice of allowing lenders to raise your interest rates on your account that is outstanding, delinquent, or unrelated to other credit card companies.
2. Credit card companies are prohibited from changing terms of your original contract. They can no longer charge you at any time or for any reason.
   You will no longer get an automatic late fee on your credit card because the payment due date fell on a non-business day or non-work day at your bank. If your due date falls on a holiday or a weekend, the due date will fall on the next business day and this is now required by law.
3. Credit cardholders are allowed twenty-one days to pay their credit card balances instead of the minimum fourteen day period.
   Credit cardholders are now given three billing cycles to pay off their balances via existing terms if the interest rate has skyrocketed.
4. It is required that all payments are allocated in portions of the credit card balance with the highest interest rate descending the lowest interest rate.
   Your highest rates are paid first, which was not always the case before.
5. Limitations on the limit fees that are now three per credit card account.
   Unlimited limit fees are very common; many lenders had this practice in place for credit cardholders that exceeded over their credit limit.

The credit card companies do not want you to read the Credit CARD Act of 2009.

There are more provisions in the Credit Card Act of 2009; this is just the tip of the iceberg. Credit card companies could not care less about consumers; they have no trouble raising interest rates, limit fees, and other restrictions that have not even reached the full level of potential in regards to regulation. The thing that is most shocking about these new regulations mentioned above is that banks and credit card companies would not agree to any of these provisions if they were not enforced by the law.

Credit card companies and banks will not stop their unethical practices for the sake of the consumers.

Several banks are still spending large amounts of lobbying money trying to halt this legislation, despite public outrage about the bailout money fiasco several months ago. These banks are attempting to make it easier on the credit card industry by watering down the Credit CARD Act’s provisions. This is an indicator that the credit card companies and the banks have abused their credit card practices and screwing the American people in the process for the past two decades.

For more information about the provisions of the Credit CARD Act of 2009:

http://www.govtrack.us/congress/billtext.xpd?bill=h111-627

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Consumers are lacking quick cash options now that lenders are working with stricter rules. Prior to the recession, lenders were handing out loans to sub-prime borrowers. There were few restrictions and the loan products available were vast. Almost every applicant could find some loan company to provide the credit needed. Unfortunately, though it put many Americans into homes, it did little to assure that they had the ability to repay the funds. That’s what caused the lending crash and partially fueled the recession of 2008/2009.

The change in consumers

The hard choice that many Americans are being forced to make is whether to pay their credit card bills or their mortgages. It may sound unfathomable and a few years ago, it was. But in today’s tough financial times there are a growing number of consumers who are opting to pay down debt on credit cards. According to a TransUnion study, the percentage of Americans who are current on credit card payments but behind on their mortgages is increasing. In fact, it increased to 6.6% at the end of 2009 and that is up from just 4.3% at the beginning of the year. For those who are current on mortgages and late on credit cards, the data is opposite. At the end of last year that rate was at 3.6%, which is up from 4.1% one year prior.

What the numbers mean

The change in numbers is telling of where consumers are now that they have been through a recession. There was a time when the common perception was that any homeowner would do whatever it took to pay a monthly mortgage payment, even falling back on other bills as a result. Today’s homeowner isn’t following the same model. Experts are attributing the shift to home values. When the housing market bubble burst at the beginning of the recession, borrowers watched their home’s value decline. Some declined up to 40%, and that left them with “underwater” mortgages.

An underwater mortgage is a condition where the borrower owes more than their home is worth. Knowing they were underwater left many consumers with changing priorities. They believe that if they owe more than the home is worth, it may not be as important to make a mortgage payment on time. Rather, they use their quick cash to pay down debt. A study done by RealtyTrac showed that in today’s market, about 25% of homeowners are in the underwater position with their mortgages. The common feeling is what is the purpose of putting money into an asset that is just losing value—value that it most likely will never regain?

The lending bubble’s aftereffect

Another problem the lending crash created was a market that isn’t personally invested in their property. In former years, consumers had to put 10 to 20% down on a property. It helped to psychologically bond them to the property because of their upfront investment. During the lending spurt, consumers were allowed to buy properties with little to nothing down. That meant that there is no personal investment. Add to that the huge number of foreclosures and the loss of property just isn’t as scary sounding as it once was.

In lieu of the long-term investment

More and more consumers are joining the ranks of those prioritizing paying off credit cards, rather than mortgage payments. The reason can be attributed to a huge paradigm shift in the market since the recession. Consumers want quick cash options and credit cards offer that, not homes. Americans seem more focused on having ways to afford everyday expenses like food, gas and clothes than on long-term commitments.

Need quick cash? Apply HERE!

A secured credit card is a good way to reestablish credit. Even for those who do not have a bad credit history, a secured credit card can be a safe way to control spending and avoid bad debt. Knowing exactly what these cards are and how they work helps people make sound financial decisions about their credit.

What is a secured credit card?

Some credit card companies actually exist to help people repair bad credit and control spending. They do so by offering people an opportunity to make a cash deposit in exchange for a credit card that will be secured by that deposit. The credit limit offered generally ranges up to 120 percent of the original deposit. This deposit also earns interest as long as the account is in good standing. Timely payments are reported to the credit bureaus, which can help people seeking to reestablish a good credit rating. Also, the credit bureau’s are never told that the credit card is secured and, therefore, it is featured on one’s credit report as any other credit card would be.

What happens if I default on the payments?

The reason that secured credit cards are considered safe is that defaulted payments are covered by the initial deposit. Late payments are also reported to the credit bureaus, which further damages a poor credit rating. Even with a deposit, people using a secured credit card must be responsible about paying their credit card bill every month on time.

How can I increase the limit on a secured credit card?

As discussed above, a person’s spending limit is set on a secured credit card in relation to the initial deposit. There are two ways to increase one’s credit limit, however. The first way involves adding to the deposit amount. Or a person can patiently await a second option, which involves an increase after accomplishing a good payment history during a set period of time, which is generally one year.

Interest rates and fees

Consumers with bad credit will most likely encounter higher than average fees with a secured credit card. Most also require an upfront processing fee and the annual percentage rate for a cash advance or for balances can also be high. However, the price for reestablishing good credit is usually worth the additional costs for people who use secured credit cards.

Cost, convenience, credit

While a secured credit card is more costly than a regular credit card, its reward is something that cannot be obtained in too many other ways. Those who have bad credit generally appreciate that such offers exist and many have made good use of them as credit recovery tools. The fact that they are not represented to others as a secured credit card is also a convincing factor to people, as they are able to rent cars, reserve hotel rooms and use them just as any other credit card as long as the spending limits are adhered to.
Because they require a deposit and credit limits are restrained by that deposit, some people find them to be inconvenient. Another way to view them, however, is to consider that a credit line that is limited, or secured, by a deposit helps to decrease the risk of overspending. As much as reestablishing credit, this simple fact makes a secured credit card an attractive choice for those who have had poor spending habits and a history of collecting bad credit card debt.

It's going to take some time, but it is definitely worthwhile.

In part one of this series on getting rid of credit card debt, we discussed both drastic and practical ways of approaching financial recovery. Now that you have considered those first steps, it is time to figure out what to do next in order to embrace debt-free living. The following suggestions are certainly not easy, but those who are now in full debt recovery will tell you that they are certainly worthwhile.

Get on the phone and discuss your credit card debt

Now that you’ve created a snapshot of your debt, go down your list and call each credit card company. If you are late on a payment to them, explain why and give them a date by which you can send a payment. Even if it is a small payment, be honest about when you can send it in and then do exactly that.

If you do not have frequent late payments or are not behind in your bill, and if your FICO score is decent, call each credit card company and try to negotiate a better interest rate than the one that you currently have. One way of doing this is to single out one of your cards with a more affordable rate and call the companies with higher rates to inform them that you are considering sticking primarily with the one with the lower rate. Or, another way of approaching this is to research companies offering better rates and tell the credit card companies with higher rates that you are considering changing to one of those cards because of the rate difference. If a lower rate is not immediately offered, don’t be afraid to ask them to lower it. The worst thing that can happen is that they can say no and, compared to the high interest rates that you’re paying, that shouldn’t be nearly as frightening.

If the credit card company refuses to lower your interest rate, consider moving your debt to a card with a more comfortable rate and, after doing so, you may consider canceling the high rate card.

The road to debt recovery begins with a single month

After cutting your credit cards and/or negotiating a lower interest rate, look at your monthly personal budget and very carefully calculate the largest possible payment you can make on all of your balances each month. Next, add ten dollars to the minimum payment requirement offered by each credit card company. Now, add up all of the minimum payments, plus the ten dollars that you added in the previous step. If the minimum amount that the credit card company allows you to pay is lower than the maximum amount that you can afford to pay each month, go ahead and subtract the lower amount from the higher. The remaining sum is what you should consider applying to the card that is charging the highest interest rate.

After the high interest rate card is paid off, you may consider canceling that card, but don’t stop there. Now it is time to go back to the beginning and repeat the entire repayment process all over again by focusing on the card with the next highest interest rate. Do not lower the amount that your calculations permitted you to pay before the first highest card was paid off, however. Instead, continue to designate this exact same amount out of your personal budget for paying off credit card debt until it is all gone. Continue to repeat this entire process of paying your credit card debt off by assassinating the highest interest rate cards first and working your way down until you are left with cards that have affordable rates and you are debt free.

Carefully consider emergency cash options

Once you are debt free, if you ever find yourself in need of a cash advance, before turning to a credit card, carefully weigh that option against that of a loan till payday or an installment loan from a personal loan company. Always know your options, study them closely and select the one with the lowest repayment terms for your personal budget.

Making a hard decision is the first easy step to a debt-free life

It takes some sacrifice and a lot of discipline, but you really can get rid of credit-card debt for good. Relax. Breathe. Others have done it and you can too. Paying off credit-card debt can seem overwhelming when you look at your statements each month and realize that you’re not even putting a dent in it. You may have tried getting personal loans, applying for extra cash till payday, or even working a second job, but you still feel like you’re drowning in debt.

It isn’t easy to break the credit-card spending cycle but it is, in fact, completely possible. You first have to believe that financial recovery can be achieved and then you have to make the commitment to work hard at it.

Simple (but not-so-easy) steps to financial freedom

Cut up your cards. If you’re ever going to get your credit-card debt under control, you must stop adding to it. There’s no room for negotiation on this one: Cut up your credit cards. This can feel like a drastic action, but if you’re serious about getting out of debt, you cannot use credit cards.

Consider other emergency-cash options. If the thought of not having any credit cards is too much for you to handle at first, choose one card to keep for emergency use only. Store that card in a safe place or give it to someone you trust, but don’t carry it in your purse or wallet. If the card has a high credit-limit, consider asking the credit-card company to lower it. Remember, when you’re in need of emergency cash, a credit card is not your only way out. You can get a short-term loan or an installment loan online even if you have bad credit, without the risk of over-spending.

Don’t be too quick to close accounts. Don’t be too quick to close your credit cards before you’ve paid them off. Many people have made the mistake of closing their accounts when they cut up their cards, without understanding the negative effects this action would have on their credit ratings. For one thing, closing an account stops the clock on that part of your credit history. If you’ve had credit cards for a long time and have made the payments as required, that history can have a positive impact on your credit rating. Closing an account can also negatively affect your debt-to-credit ratio, which can have a direct affect on your credit score. So cut up your cards, but do some research and ask around before you cancel any accounts.

Be honest with yourself. Take an honest look at your credit-card statements and tally up what you owe. This is scary for people who purposely avoid looking at the bottom line because of the stress it causes. Ironically, however, not knowing what you actually owe can be the most stressful part of all. Make a list of your account balances and make a note of the interest rate on each. List the balances in descending order of interest rates, so that the account with the highest interest rate is at the top of the list. Next to each entry, write down the minimum required monthly payment. Finally, note the name and phone number of each credit card company.

Make a realistic personal budget. Once you’ve decided to get serious about credit-card debt recovery, have cut up your cards and taken an honest look at what you owe, take some time to make a realistic personal budget setting forth your monthly income and expenses. Look at what’s left after deducting the essentials – rent or mortgage, car payment, utilities, food, etc., — and decide how much of your disposable monthly income you can devote to paying off your credit-card debt.

What’s next?

Read part two of this series for suggestions about what to do next. There, you’ll find advice about negotiating with credit card companies and getting rid of account balances with high interest rates. If you exercise some willpower and resolve and take these suggestions seriously, you really can find your way to a debt-free life, once and for all.

Getting out of debt is very challenging for many people. Many people are conflicted with getting out of debt as quickly as possible, but they do not know which options are right for them at the moment. There are many companies advertising their services claiming that they offer the perfect solutions for handling your debt, but how do you know if this is factual if you have not tried their services? It is very important that you find the most effective method that works with your current financial situation. Here are some tips that might help you in your financial situation to get you out of debt faster.

Build a financial portfolio of your current balances.

If you want to reduce your debts quickly, you must find a way to lower all of our current balances in a short period of time. You will need to build a portfolio of all of your current balances to formulate a plan of action. Once you have all of your bills current and organized, you can then reduce your debts in an orderly manner.

Reduce your current balances quickly.

Many people do not know that their credit cards’ balances are charged interest daily, but the total amount of interest that is on your account is not shown until the end of the month. What does this all mean? This means that you can take out small amounts of cash from each paycheck to pay off your debts during the month and this will reduce your current balances quicker. This method of clearing your debt will decrease the interest rates you are charged with monthly. Divide your monthly payments by four and pay the same amount you have on the same day every single week. Your current balances will quickly decrease when you apply this method.

Less is more.

Would you agree to put $1.00 down weekly out of your current paychecks towards your new goal to get out of debt faster? Dollars are chump change, but think about this; that one dollar can have a major effect on reducing your debts. You are already making payments weekly, so all you have to do now is add the dollar amount to your new total. For instance, you might have a monthly payment of $250.00. Divide this amount by four and you will pay the new amount weekly. You are adding the dollar to your weekly payments and you have to round the amount to the nearest number e.g. $50.00. Using this technique will decrease your interest rate you are paying overall, and you are reducing your debts consistently.

Think about the “domino effect” when it comes to resolve your debts.

You have just paid off one of your credit card accounts; you will add the exact amount you were paying your first debt with to the other debt payment that you have next. This will increase the amount you are currently paying and the next balance will be paid off in less time than your first debt payments.

Patience is a virtue.

Your debts will not go away overnight; you must have patience to achieve your goals. If you are really serious about getting out of debt faster, you have to remember a few things. It took you a considerable amount of time to get yourself into debt and it will take time to get out of debt also.

Debit cards are useful in a lot of ways. For instance, a payday loan can be deposited into your bank account within hours of your online loan application being approved. Money is then yours to spend via a cash withdrawal, personal checks, or your debit card. During this recession, many have begun using the latter more and more instead of making credit card purchases. While most are already familiar with the convenience of using plastic to pay for items or services, some may not realize the pros and cons of using a debit card, specifically.

The pros of using a debit card:

Debit cards can hamper impulse spending. While they cannot completely eliminate this problem, their use does a lot to curtail it. Unlike with credit cards, debit cards will only cover purchases when money is available to do so in the bank. In short, a debit card is just like cash and that money is automatically debited, or deducted, from your account after each transaction. This is unlike credit card spending, which allows a certain spending limit followed by installment payments to pay for charges later. A debit card does not offer this luxury. As a result, for most people, this means thinking twice before spending cash that will severely skew their budget.

Merchants who do not accept personal checks are more inclined to accept a debit card for payment of an item or service. This makes carrying a debit card as convenient as a credit card in terms of the point of sale payment method. Today, many debit cards are referred to as Visa check cards and bear the Visa logo while others bear the Mastercard logo. This means that anywhere a Mastercard or Visa card is accepted, a debit card with one these logos may be used, instead.

The cons of using a debit card

Unlike what is offered with most major credit cards, cash advances or a line of credit is not offered to debit card holders. Therefore, when emergency cash is needed or when fast cash is needed to help a person survive until their next paycheck, a debit card is of no help. However, a person in this situation, even with bad credit, may be able to consider a loan till payday or a cash advance from a company offering personal loans.

Federal regulations, which protect credit card consumers, do not apply to debit cards. This means that in a dispute over charges, the consumer has little recourse once money has been debited from their account.

Also, banks that issue debit cards with checking accounts sometimes charge a fee when cards are used. While this practice is becoming more and more obsolete, consumers are advised to check with their individual bank before using debit cards and accruing possible fees. When inquiring about this, be sure to ask, specifically, about using the card to access cash at another banking institution or ATM machine. While some may not charge fees on purchases, it is still very common for banks to charge when a card is used at another institution or at a privately owned ATM machine.

A lost or stolen debit card can also be very costly depending upon what state you reside in and the time that the card is reported missing. While very limited protection may be offered, consumers should be aware of their level of protection ahead of time. For instance, if someone does not report their card missing within 48 hours of a thief taking it, it is possible for the original card holder to be left with some or all of the liability on purchases and cash withdrawals made by the thief. The amount of liability, of course, depends upon the bank’s policies and the state laws governing any such limits.

While debit cards definitely come with advantages, such as providing immediate access to cash advance or personal loan deposits, the drawbacks involved with using them can be costly if a person is not very careful. Overall, however, they offer freedom from high interest rates while offering many of the same conveniences as a credit card. Debit cards do not help build a person’s credit, but they also do not present the risk of creating bad credit like some may have a tendency to do while using a credit card.

Secured loans can be a welcomed answer for consumers with credit problems. One form of secured loan is the secured credit card. A secured credit card is a card offered in which the consumer deposits money to their account and then their credit limit is the amount they deposited. It’s a great way for companies to safeguard themselves, because if the consumer tries to make a purchase more than the credit available, the charge is denied. They work just like debit cards and protect consumers from overcharging, and over-limit fees. The best thing about the secured credit card is that it helps consumers build or rebuild their credit. Normally after about a year of on-time payments, the lender issuing the card will offer the consumer unsecured credit cards.

Where to find a secured credit card

Secured credit cards are available from various lending companies. Consumers can do searches online and get lists of places that offer the cards. It pays to do research, however, because there are drawbacks to some of the cards. Some lenders offer the cards, but at a pricey application fee. They can also tack on monthly credit-watching fees and annual fees. A good secured lender will waive most of these fees. There may be a small annual fee and that’s normal, but they can vary drastically from company to company. Do some comparisons and find cards that offer the following:

• Low annual fees
• Reporting to all three credit bureaus
• Waived application fees
• Rewards

With the number of credit cards out there, there are many options. Consumers should never pick the first card they see, but rather do a good amount of research and find the card that costs least.

How much should be deposited

Most lenders require deposits of $300 to $500. The credit limit will then be dictated by the deposit or a small percentage above that amount. The amount a consumer deposits has no bearing on how they are reported to credit bureaus. The lending company reports the customer’s payment history alone. Some companies offer specials for depositing certain amounts, so consumers should look into the deals out there and choose the best one for them.

Banks and unsecured credit

In past years, banks were great places to get secured loans through credit cards. Today’s credit world is quickly changing and the trend in the market is for banks to cut back on secured cards and push unsecured cards with lower limits and higher interest rates and fees. For consumers with bad or little credit, however, these are not always an option. It’s best to apply for the secured cards, rebuild credit, and then move to the unsecured options. Anyone who is rebuilding after a life event, like job loss, illness or divorce, can benefit from the secured credit card.

Cautions with secured credit cards

There are some things to watch out for with secured loans. Howard Dvorkin, president of Consolidated Credit Counseling Services, referred to secured credit cards as “a Clint Eastwood movie-the good, the bad and the ugly. Some are good. They have low fees and treat customers as customers instead of cattle. The bad ones, though, take advantage and extort the clients because of their situations. Then there is the ugly, which are despicable. They will give you the card, but you have to buy this insurance policy for $55 a month.” There is a wide variation in credit cards out there, and any consumer in the market for them should be very careful. They should research various companies, read their terms and conditions, and then choose wisely.

Apply today for fast Secured Loans online HERE!

In America, credit card history isn’t something most people think about. This is because credit and credit cards appear to be a timeless method of payment. However, the use of plastic payments is, for the most part, a twentieth century luxury. At the turn of that century, a well-organized system and practice of credit simply didn’t exist. Today, however, most habitually rely on the convenient use of plastic to secure a variety of services and items. So, how exactly did the phenomenon known as credit spread so rapidly and who is the person responsible for inventing the first credit card?

Early Systems of Credit

During the 1920’s, the use of credit was regularly practiced in both the hotel, as well as the oil industries who commonly extended credit to their fondest customers. This practice then allowed patrons to pay for purchases or services later. Initially, credit was offered directly from merchants to their consumers who, in turn, also directly repaid their debts back to the original merchant.

Mimicking the success of hotels and oil companies, stores eventually began offering credit to attract new customers and as a way of boosting existing customer loyalty. As a new credit concept began to grow in popularity with consumers, merchants formed groups based on agreements to do business with consumers by accepting credit purchases on cards from other stores within their group. This alliance allowed customers the luxury of shopping at a wider number of stores while using the same agreement they enjoyed with the original merchant.

Early Charge Cards

John Briggins later created the charge card when he introduced the “Charge-It” program in the mid-1940s, which permitted merchants to directly deposit sales slips at their bank and, in turn, the bank would then bill that merchant’s credit customers. Just a few short years after that, the Diner’s Club card was introduced, which allowed customers to enjoy dining at their choice of 27 restaurants throughout New York, but pay their bill later. Even though the “Charge-It” arrangement, as well as the Diner’s Club agreement share a role in the history, which laid the foundation for credit cards as we know them today, neither of these is considered to be a true credit program. This is because, at that time, customers were bound to paying the whole amount due at each billing. Of course, this is in contrast to installment payments currently accepted by most credit card companies today. Such affords customers the opportunity to carry balances over several months. Each of these early programs, though, has its place in the invention of true credit cards, as these programs are the conceptual foundations upon which today’s credit system was eventually created.

American Express and Bank of America Take Credit to New Heights

In 1958, American Express offered their premier charge card with Bank of America debuting the Bankamericard later that year. Soon after this the Bankamericard was re-named as the Visa card and is actually the first credit card to be almost universally used by consumers and accepted by merchants across America, as well as other countries.

Credit Cards Then and Now

Recalling the invention of the credit card unveils a perfect illustration of how rapidly strong business ideas will spread and transform how business is done worldwide. In a very short time period, the credit card has grown into a popular and convenient tool routinely used in the marketplace. Understanding their purpose and how they came into being, helps in respecting how they are used today.

The recent government bailout of the nation’s banks, begun under former president George W. Bush and continued under current president Barack Obama, has produced considerable outrage among many Americans, particularly those facing mounting job losses, declining home prices and income, rising variable-rate mortgages and a host of other economic and financial pressures. The $700 billion plus rescue was necessary, government and bank leaders say, to save the nation’s banking and investment system from imminent collapse and to help restore failing banks to financial liquidity and ability to offer credit to America’s businesses and consumers, both large and small.

But the disclosures of large salary bonuses conferred upon bank executives, lavish spending on entertainment and the continued tightening of credit became lightning rods for the public’s anger. When this combined with persistent complaints from consumers about credit card and banking account abuse by banks, Congress finally moved in 2009 to address at least some of the industry’s more aggressive practices.

The Credit Act of 2009 Promises Relief to Consumers

The Credit Card Accountability Responsibility and Disclosure Act, or CARD, enacted by Congress in May 2009, is being called a major step forward in reining in some of the banking industry’s excessive practices. While there are undoubtedly some specific curbs that consumers can be thankful for, there are also clear limitations to what the new law is empowered to regulate. Plus, the time gaps in implementing the various measures are allowing banks to find alternate ways to charge fees and raise interest rates, actions which have raised the ire of consumers in recent years.

What the Credit Act Will Regulate

The first phase of CARD took effect back in August 2009. Since August, card issuers must announce any interest-rate increase 45 days before it takes effect, and the notice must be in writing. Cardholders have the right to refuse the increase by closing the account and are also allowed to pay off the balance within five years under the old terms. Some banks are allowing their customers to keep an account open but no new purchases may be made on the card until the balance is paid. Another change since August requires card issuers to deliver account statements at least 21 days before the due date, up from 14 days.

A second phase takes effect in February 2010. Banks will then be prohibited from raising interest rates on current balances unless a customer is at least 60 days behind on a payment. This restriction will apply as well to the widely detested practice of raising interest rates on one balance simply because the bank learned a customer was behind on another account with a different card issuer. In addition, a customer whose rate is increased for being 60 days late must be allowed to earn back the earlier rate with successive on-time payments for six months. But these protections have several exceptions: banks can still charge increases on introductory rates, temporary hardship rates and established variable rates.

Highlights of other rules to take effect in 2010 include: for balances with different rates as a result of special transfer offers, payments above the minimum payment must be allocated to the balance carrying the highest rate; banks can only charge an over-the-limit fee for a purchase if the customer authorizes the bank to allow purchases that push him or her over their credit limit; and cardholders cannot be charged for payments made over the telephone, online or by other means unless the customer requests expedited service.

Will the Act Make a Genuine Difference?

CARD thwarts several egregious practices imposed upon consumers by many banks. What shines particularly are the limitations to how rates can be increased and the manner in which excessive payments are distributed to different balances on the same account. Of course, constricting over-the-limit fees and extending notice periods are helpful as well. But what can banks still do to generate revenue and not be overruled by CARD? As Bill Hardkopf, chief executive officer of LowCards.com, a Web site that tracks the industry, says: “There are so many things that issuers can do that the Card Act doesn’t touch.”

What issuers have been doing leading up to CARD’s full implementation is to arbitrarily raise interest rates, including on fixed-rate agreements, slash credit limits and, in some cases, close accounts, all in the name of “a challenging economy.” What they will be allowed to do after implementation is to close accounts, switch fixed-rate agreements to variable-rate ones and start charging annual fees on some cards, including new cards. For these actions, the Act offers no protection.

Where the Consumer Now Stands

Congress has acted to provide some real benefits and protections to credit-card users and it is to be praised for that. At the same time, it didn’t act on other, onerous bank practices. For instance, there is nothing in the Act that prohibits banks from charging exorbitant interest rates that have been as high as 30 percent and more, levels traditionally associated with usury. In addition, they can charge these rates retroactively after the 60-day period of being late. These actions have been taken by banks usually in response to customers missing a payment and being deemed in default of their account. Banks have shown some flexibility for one-time late customers, particularly if they have consistent payment histories. But they almost invariably impose a late charge for missing one payment. Thankfully, the Act now limits the late charge to a maximum of $39 per occurrence and at least offers the payer 60 days to mend his or her late status before major changes occur.

If and when a card user’s bank imposes severe changes on the account, the user should communicate with the bank and ask for modification of those changes. Specifically, the consumer should ask to have the credit limit raised again if drastically lowered, ask that rate increases be lowered if drastically raised and ask that a variable-rate status be returned to a fixed-rate agreement. If a large number of consumers undertook such action, the banks could be pressured if they started to see their customers leaving them for other banks offering better credit-card terms. Also, remember that being properly informed about one’s financial rights protected by law limits the opportunities to be taken advantage of. Consumers can learn more about CARD at: www.whitehouse.gov/the_press_office/Fact-Sheet-Reforms-to-Protect-American-Credit-Card-Holders .

Finally, consumers can always, and should, write or call their Congressperson asking him or her to work to expand the consumer protections in the Credit Card Accountability Responsibility and Disclosure Act of 2009.

Credit card applications have always been a bit tedious and sometimes intrusive, but as reported on the Wall Street Journal site, new products are making it possible for credit card companies to look even further into your personal information before making a determination about credit. If you have applied for a credit card recently you may have already noticed that some companies are asking for more information than they used to. These requests, as it turns out, are just the tip of the iceberg.

Ah, the Good Old Days

There was a time not so very long ago, when credit card companies issued just about anyone a card. They even regularly upped your limit without you even having to ask, sometimes when you did not even want or need the extra credit. They relied solely on an applicant’s credit rating and good faith that the person would regularly pay back his debt. However, with the plummeting of the economy has come a great deal of hesitation among those in the credit card industry and the government has also stepped in to add some new regulations.

Just Between You, Me…and the Credit Card Company

The Federal Reserve is making it so that credit card companies are required to take an applicant’s estimated income, debt and assets into consideration before determining whether she will be granted a card and what the limit will be. Some companies such as Chase and Bank of America are already asking applicants to provide household income estimates and Capital One is requiring information about current payments, investments and savings. In addition to this, more invasive technology will soon be in place.

Digging Deeper

When filling out one of these new credit card applications it may be tempting to fudge the numbers a little to tilt the credit scales in your favour, but you had better think twice before taking this route. Some of the larger credit bureaus have created products that will estimate a person’s income from the numbers in his credit report. The applicant very well may not even be aware that this information is being checked. Of course these products do not offer exact numbers, but will give the credit companies a general idea of an applicant’s financial situation and whether or not application information is accurate.

They are Not Alone

In some cases, income tax information is now being used by mortgage lenders to check the incomes of potential borrowers. Where pay stubs and bank statements were once all that was needed to apply for a mortgage, lenders are now asking for tax returns and information from the IRS (with your permission in the form of a specific piece of paperwork).

Where to Turn if You Can’t Get a Card

People often rely on their credit cards when a sudden cost comes up that they were not expecting. They charge the amount and then pay it off when they get paid. If the new credit card rules prevent you from being approved for a card all hope is not lost. You can cover unexpected expenses in much the same way with a payday loan. Applying online is fast and easy and you will have the money you need now and then pay it off when you get paid. In contrast, you will not have to disclose income information.

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What type of financing should I use?

There are times when there are things you need to pay for quickly, but just do not have the cash on hand. When that happens, personal installment loans and credit cards are two options for financing – but it is important to know the difference.

Great for one-time expenses : Personal Installment Loans

A personal installment loan is a one time cash loan that is deposited directly into your bank account. You then pay the full amount back within a month to six weeks, in small payments. Personal installment loans are great because they have a fixed cost that you can work into your short-term budget. Often, personal installment loans require no credit check, can be applied for securely online, and the money will be deposited into your bank account in as little as 2 hours.

Good for dire emergencies: Credit Cards

Credit cards are good to have on hand for when dire emergencies arise and you need access to money right away. It is important to remember that the interest rate on credit cards compound, meaning that unless you pay the balance off quickly, you will end up paying more than you had expected. When you need access to immediate cash and can afford to pay it off before the interest acrues at the end of the month, a credit card could be your best option.

When you are faced with a need for quick cash, credit cards and personal installment loans can both be very useful. Personal installment loans offer a limited amount of cash deposited directly into your bank account that you can pay off in small increments, while a credit card offers you financing that accrues interest after the fact until it gets paid off. When you are in need of quick cash, make sure you choose the type of financing that fits your situation the best.

Need a Personal Installment Loans? Apply Here!

When it comes to bills, many people have been using small loans to fund them. The recession was difficult on many consumers. Finding ways to pay for monthly expenses was hard due to the out-of-control jobless rate, lending crash and inflated expenses. Though most people thought that credit cards would keep them out of financial difficulties, the lending crash took care of that.
Credit-card lenders quickly closed their doors when the economy took a downturn. People were left to manage on their own by using alternative methods of funding expenses. Now that the recession is over, credit is making a comeback but consumers are cautioned to be wiser about managing it. The credit card rules today are vastly different than they were pre-recession. To make it through the difficult financial economy, everyone needs to understand how the world of finance has changed.

Managing credit

Prior to the recession it wasn’t uncommon for consumers to spend more than they earned. People used credit for a wide variety of things they wanted, with little concern for repayment. When credit lenders changed their rules, or closed accounts altogether, people got scared. They suddenly realized that credit wasn’t the reliable option for paying bills that it once was. A study of the market shows that consumers need to change their way of thinking. Michael Silverman, economist for Baird and Friedman, stated, “Credit needs to be planned carefully based on a consumer’s priorities. If you see yourself buying a house in five years, then this is the time to start worrying about fixing your credit score, paying down debt and acting wisely with credit you already have now.” According to experts, the biggest caution when it comes to dealing with debt is to use forethought. Silverman added, “Gone are the days of using credit to buy whatever you want. In today’s world, credit needs to be used for one purpose: to create a positive credit history.”

Managing debt

Almost everyone has debt. Whether it is in the form of mortgage loan, automobile loan, credit card advance loan or other small loans, it is imperative to have a plan to tackle it. Budgeting is the number one way to manage. Every consumer should keep track of their expenses and income. They should know exactly how much left-over money they have at the end of every month. If there isn’t any, then that is an issue too. Silverman added, “Too many consumers live paycheck to paycheck despite the recession… the recession should have been a wakeup call for everyone.”

Installment debt

When it comes to installment debt, almost everyone needs it. To buy big-ticket items, most consumers need to use installment debt. For example, 30-year mortgage loans come with interest rates from about 5% to 7%. Automobile loans come with 8% to 9% loans. Everyday items need to be funded somehow and credit has been a life-saver for most Americans. The great thing about installment debt is that it is easily budgeted into daily life, and it has an end date. That end date is when the account is totally paid off and the asset purchased becomes owned-in-full by the borrower.

Revolving debt

In the world of debt, there is also revolving debt. Revolving debt includes any “open-ended line of credit.” Visa, MasterCard, and department store credit cards. These are the worst type of credit because there is no end date and the interest rates can change. Of course there is legislation in place to thwart credit card companies from gouging consumers, but it still takes a vigilant eye to manage it. This is the type of credit that gets most people in trouble. It’s easy to over-charge and convenient to buy on credit, but there is a price to pay. Normally that price is anywhere from 10% to 35% in interest. For example, paying the minimum payment on a $3,500 credit card loan could mean making monthly interest payments for 15 or more years.

Credit in its best form

Although credit has its downside, there is still a great advantage to using it wisely. Managing credit makes it one of the best tools when it comes to funding big-ticket items like homes, cars, appliances and vacations. Rather than using small loans or savings, sometimes it makes sense to pull out a credit card. Credit shouldn’t be feared, but rather consumers should educate themselves on how it works, how to use it for their lives and how on-time payments should be a priority.

"Your eyes feel so very heavy. You will pay only the minimum balance on your credit card…"

We all know by now that making only the minimum payment on your credit card balance each month is a recipe for long-term debt. If that sounds appealing to you, then by all means, continue to fatten the pig. It loves the sloppy seconds (thirds… fourths…) of Joe Consumer. The best way around becoming a swine in such a situation is to pay your credit card balances in full.

But the minimum payment – the amount you must pay in order to keep ahead of accumulating interest – can be so enticing. It’s there in bold print on your bill, and would take so little out of your checking account. You’d be rid of it and have free reign to spend that money on something delicious. There it is, each and every month on your bill. It pops, and so many people have become conditioned to accept.

It’s Psychological Anchoring

It’s related to hypnotism and hypnotic conditioning, according to Neil Stewart of the University of Warwick. He writes in his Association for Psychological Science article “The Cost of Anchoring on Credit Card Minimum Repayments” that the minimum payment is a powerful suggestion that serves as a psychological anchor.

Think about it. Credit card debt is out of control. As a nation, Americans are on the hook for more than $2.5 trillion. Of that total, over $950 billion is tied up in credit cards. In the United Kingdom (from where Stewart hails), that’s nearly £175 billion with just over £55 billion on credit cards. Lenders are required by various agencies to collect at least a minimum payment each month, but you can be certain that if they could ask for less, they would. Compound interest is already a financial gale force; lack of basic regulation would prove to be a perfect storm.

Hypnotic Triggers Surround Us

This isn’t “hoodoo” or mysticism; it’s how our brains work. The power of suggestion is the cornerstone of advertising, politics/religion, sexuality and so many human affairs. Stewart suggests that anchoring in the financial sector involves using numbers to bias our judgments and decisions, even if the message is rather implausible. Call the minimum payment suggestion on a credit card statement a Jedi mind trick, if you will. You know they’re the droids you’re looking for, but the lure of the message is too hard to ignore. People should pay more, but the minimum payment suggestion is front and center like a hypnotic focal point.

Stewart’s Survey Opens Your Eyes

The author draws from a 248-member survey sample of credit card holders in the United Kingdom. They are split evenly by sex, and the ages range from 18 to 65. Of these, 196 participants carry credit card balances over. Ignoring the lure, 113 pay in full, while 83 made a smaller payment. Thirteen of these make the minimum repayment.

Perhaps Americans are more susceptible to financial hypnotism, or perhaps they are less educated than their British counterparts? I base this assertion on the marked difference in percentage of consumer credit debit being in credit cards between the nations.

So Stewart Spices it Up a Bit

Using data from a market research company, Stewart looks at a scenario where mock credit card statements were sent. Some included minimum payment information, while others did not. The outstanding balance remained the same. What he found is slightly different than what you might expect: those presented with a suggested minimum payment were not necessarily less likely to pay in full, but they definitely paid less when partial payments were made. Removing that hypnotic suggestion had a dramatic effect; mean repayment amount went up by 70 percent.

What Does This Mean for Real Credit Card Debt?

The author points out that if a consumer has a credit card debt of around $4,000 at a 20 percent APR, just a two percent reduction in the amount paid quadruples interest charges over the year. Including minimum payment numbers “roughly doubles interest charges,” Stewart found; it proves to be almost irresistible hypnotic conditioning. By the numbers, minimum payments amounting to $909 (about 23 percent of the $4,000 balance) would lead to $109 in interest charges. If the hypnotic trigger is not present (no minimum payment listed), repaying $1,603 (40 percent of the $4,000 balance) leads to a mere $49 in interest charges. “Anchoring on minimum-repayment information may be costly,” writes Stewart.

But Would Additional Warnings Help?

Not necessarily, and this is where financial education enters the picture. While additional warnings have been proposed, multiple sources Stewart engages have found that “warnings about the dangers of making only minimum repayments are likely to lead to disengagement rather than behavior adjustment.” In general, warning someone about anchoring and related hypnotic conditioning tends to prove ineffective; Americans’ general misunderstanding of compound interest certainly doesn’t help matters. However, Stewart does suggest that going one better than listing a minimum payment amount is necessary. Tables that show a variety of repayment scenarios and their impact would tend to help break the trance, so to speak. Credit card debt would lessen nationwide and make credit repair more likely. Remember, when it comes to hypnotic conditioning, nobody is being forced to do something against their will. It would be worth examining our own customs and motives when it comes to personal finance.

An interest rate of 79.9%? Can you be serious?

First Premiere Bank is offering a credit card with so high an interest rate, that it could take short term loans to pay it off. If you have heard of the tactics credit issues used at the height of the recession, then you know that they are willing to get nasty. A lot of people saw their credit slashed, their interest rates soar or their card accounts closed altogether during the economic downturn.

Credit lenders were suffering due to handing out credit in months prior with no regard for defaulting loans. Unfortunately, people did default—in record numbers. They also soon learned that credit cards were not the reliable option they once thought they were.

The newest tactic

The newest tactic in the world of credit is a credit card with an interest rate of 79.9%. First Premiere Bank, a subprime lender, is the company offering the loan. When you open an account, you get a credit line of $250. That account though, comes with $256 in fees for the first year it’s opened. Though there are rules that limit the fees at 25% of the card’s credit line value, there are ways around it. First Premiere knows that yes, there is a cap on the fee, but there is no cap on the interest rate. Anuj Shahani, analyst, said, “It’s the highest on the market. It is the highest we have ever seen.”

The issue with First Premiere and other lenders

The real issue is the reasoning behind the outrageous interest rate. First of all, First Premiere Bank is targeting the person with a bad credit history for the product. Their advertisements center on the phrase “bad credit.” The company is setting itself up as one of the few lenders willing to take a chance people who have bad credit histories and enable them to start repairing their credit. Secondly, this is the most credit-reliant group in the market and the problem is that they are also the group most likely to default. In response to the bank picking this as their target market Shahani said, “It’s outrageous. People will need additional short term loans just to pay off the debt on this card.”

The bank’s response

Before you think that the bank has any reservations about the rate, think again. The company said that though it hasn’t committed to using the high interest rate consistently, it is still going ahead with it for now. A spokesperson for the bank said that the rate is reflective of the company “pricing our product based on the risk associated with this market.” The bank has an aggressive direct-mail marketing plan for coming weeks. They promote their acceptance of a wider range of credit scoring consumers than any other company. They also note to the customer that “you might have less-than-perfect credit and we are OK with that” on the flyer.

The future customers of First Premiere Bank

The future customers of the bank will most likely have low credit, although there are signs that the bank is being more discerning about whom they extend credit to. For example, 84% of mailers were sent to subprime households and that’s down from 91% last year this time. Despite the uproar over the credit rate, industry insiders are saying that people will most likely deal with it. They will stretch their budgets, take out short term loans or borrow from family to make payments. CEO of CardHub.com Odysseas Papadimitriou said, “Even when the cost of credit is astronomical, for people in true emergencies, it’s much better than not having access to credit.”

Despite the current economic climate and the ongoing credit crunch, there are still plenty of credit cards out there to apply for. Let’s talk about the best way to choose your next credit card.

Interest Rates

Certain perks, such as airline miles or cash-back rewards, are nice, but the interest rate you’ll be charged is perhaps the most important feature of any credit card. Even seemingly small differences in interest rates can make a big impact on the amount you’ll pay in interest as long as you carry a balance.

Let’s look at an example

Say you have a credit card with a $2,000 balance and an interest rate of 14%. If you make only the minimum monthly payments, it will take you 173 months to pay off your balance and you’ll pay a total of $1,833.24 in interest.

Compare that to a card with the same balance and an interest rate of 20%. In this case, if you pay only the minimum each month, you’ll wind up paying a total of $2,723.59 in interest over the 186 months it will take you to eliminate your debt, a difference of $890.35 for just a few percentage points.

As you can see, it’s definitely worth it to spend some time shopping around to find the credit card offers with the lowest interest rates possible.

Bonuses and perks

While the bonuses and perks offered by different credit card companies shouldn’t be as big of a concern as the interest rate you’ll be charged, they’re still something that you’ll want to take into account. Given the huge variety of rewards programs today, it shouldn’t be hard to find one that suits your needs. If you’re a big-time traveler, a card that offers travel points towards airline tickets or hotel stays may be a good choice. Or, if you make frequent credit card purchases, look for a card that offers cash back on every item you buy.

Alternatively, if you can’t decide on a single rewards program, look for a card that offers a general rewards program or one that earns you bonuses at a certain number of locations you frequent. For example, some cards exist that allow you to select a limited number of purchase locations – like a certain line of grocery stores or gas stations – and earn extra bonuses on items bought there. Over the life of the account, these bonuses and perks can add up, so they’re certainly not something to scoff at.

Rates and fees

Besides the interest rate you’ll be charged on the balances you carry, credit cards may institute a number of other fees or charges that will cut into your spending power. Obviously, it’s in your best interest to avoid as many of these as possible. A few of the things you should check the fine print for include annual fees to keep the card open, rate hikes that occur if you’re late with a payment by as little as one day and the credit card company’s policy on fraudulent transactions. Being an informed consumer from the start will help to prevent any surprises from catching you off-guard later on.

That's a monster of an APR you've got there, First Premier Bank. Give me a payday loan instead!

Back in June of 2009, Deborah Weiss of Personal Money Store reported about how the new credit card laws could backfire on hard-working Americans. It’s unlikely that President Obama or most members of Congress could have predicted then just how much of an end-around some credit card issuers would take in order to avoid the teeth of the new legislation. While the new law caps fees at 25 percent of a card’s credit line, it does not set a cap on interest rates, reports Candice Choi for the AP. Thus, we have a 79.9 percent APR subprime credit card monster, courtesy of First Premier Bank.

Not a Premier to Write Home About

Yes, First Premier Bank is known for offering subprime credit cards – a niche that has its place in a market filled with consumers with less than perfect credit – but this is ridiculous. The new laws are intended to curb abusive practices, and First Premier is taking full advantage of a gigantic loophole. Perhaps Mr. Obama and Congress should have considered that a few months ago? Now that First Premier Bank has set a precedent, I wouldn’t be surprised to see more of this kind of highway robbery.

From Inauspicious Beginnings

Here’s how First Premier’s toxic subprime credit card used to work: there was a minimum of $256 in fees for the first year for a credit line of $250. The consumer was in the hole from the beginning. Once the new credit card laws go into effect in February 2010, that fee will be cut down to 25 percent of the credit line.
Starting in February, however, a new law will cap such fees at 25 percent of a card’s credit line. For a card with a $300 limit, that would still be a $75 fee for the first year. So to make up the difference, First Premier puts on the full court press with a 79.9 percent APR. It was previously 9.9 percent.
“It’s the highest on the market. It’s the highest we’ve ever seen,” Anuj Shahani of research firm Synovate told the AP.

But That’s Not All

If paying $20 per month on a $300 isn’t enough for you, there’s a $29 penalty if you pay late or go over the limit. Mess up just once and that’s likely the road you’ll be traveling. First Premier Bank has been offering this kind of credit card black hole primarily to subprime homes with FICO scores under 700. Their catchy come-on is “You might have less-than-perfect credit and we’re OK with that.”
They’re also OK with a 79.9 APR credit card, clearly. A company PR note claimed that they “price (their) product based on the risk associated with this market.”

And This isn’t Some Fly-By-Night Operation

Based out of Sioux Falls, S.D. (a credit card hotbed, along with Minneapolis, Minnesota), claims that First Premier’s card-issuing arm (Premier Bankcard) is “the 10th largest issuer of MasterCard and Visa cards in the country.” They sport “more than 3.5 million customers.” I hope each of them know what they’re in for, potentially.

You Could Have Had a Payday Loan

Imagine the possibilities to save. If you use your credit card in emergencies, you’re paying so much more. And if you have the 79.9 percent APR First Premier Bank card, you’re paying beyond belief. With a payday loan (which isn’t a revolving line of credit in most cases), you’re only paying 15 to 30 percent on the short term loan. If you use a credit card like this monster instead and carry the balance over month to month, you may as well sell yourself into indentured servitude.
Should subprime credit like this be available? Unfortunately I’d say yes, because having choice is better than no choice. But please… friends don’t let friends apply for a 79.9 APR credit card. First Premier Bank will just have to come to their senses.

Apply for Payday Loans HERE!

Credit repair is possible, but only if you increase your debt literacy. (Photo: flickr.com)

Do you consider yourself to be financially literate? How about when it comes to debt – is your level of debt literacy high enough that concepts like credit repair are second nature to you? Chances are your opinion of your debt literacy is higher than the reality. This is much in keeping with a trend numerous studies have observed in Americans: their level of debt literacy is less than adequate to deal with a complex financial market where important decisions – even on the average consumer’s level – can make the difference between a lifetime of saving or an endless cycle of debt. One recent study for the National Bureau of Economic Research by Dartmouth Economics Professor Annamaria Lusardi and Harvard Financial Management Professor Peter Tufano entitled “Debt Literacy, Financial Experiences and Overindebtedness” shows us just how far Americans have to go before debt literacy and credit repair become a part of the everyday financial lexicon.

Survey Methodology

Saving, investing and being prepared for retirement are vital elements of financial health and well-being. However, runaway personal debt and a widespread lack of basic debt literacy understanding tend to take the place of the more positive aspects for many Americans. What the authors attempt to do with their study is to examine the connection between financial literacy and debt. As the authors see it, debt literacy amounts to “the ability to make simple decisions regarding debt contracts, in particular how one applies basic knowledge about interest compounding, measured in the context of everyday financial choices.” To measure debt literacy, the authors worked with a market research company to create and conduct a survey that asks a broad consumer sampling three questions designed to assess their understanding of basic debt literacy concepts like compound interest. The questions were intended to be solved via reasoning alone, so they were simple enough that calculators were not needed. Afterward, participants were asked to rate their own knowledge of debt literacy.

What Did They Expect to Find?

If numerous studies on the financial knowledge of the U.S. consumer were any indication, it wasn’t going to be a fairy tale ending. Douglas Bernheim documented Americans’ lack of financial knowledge as early as 1995. They fail to understand basic financial concepts, “particularly those relating to bonds, stocks, and mutual funds,” and are quite fuzzy on such things as terms and conditions on large-scale loans and mortgages. This trend looks to continue on into the future, as a National Council on Economic Education study of high school students shows “a widespread lack of knowledge.”

Is this a uniquely American phenomenon? Sign point toward “No,” as a survey of Health, Aging and Retirement in Europe (SHARE) indicates poor scores on financial numeracy and literacy scales. Even a member of the U.K. Treasury reported that United Kingdom borrowers have “a poor understanding of mortgages and interest rates.” As a whole, studies in America and Europe show that those with a lower level of debt literacy were less than likely to have a well-developed retirement savings plan, accumulated wealth, stock investments or low-fee mutual funds. They were more likely to have more expensive mortgages, however.

Survey Questions and Analysis

Here are the three debt literacy questions utilized in the authors’ study. The first involves compound interest:

Suppose you owe $1,000 on your credit card and the interest rate you are charged is 20 percent per year compounded annually. If you didn’t pay anything off, at this interest rate, how many years would it take for the amount you owe to double?

A)     2 years;

B)      less than 5 years;

C)      5 to 10 years;

D)     more than 10 years;

E)      Do not know;

F)      Refuse to answer.

Ignoring interest compounding would lead to doubling in 5 years; someone who knew about interest on interest might have selected a number less than 5; someone who knows the ―Rule of 72 would know that it would be about 3.6 years (i.e., correct answer (ii) ―less than 5 years.). Answers above five years reflect misunderstanding of the concept of interest accrual.

Fewer than 36 percent of respondents got this one right. Considering how many people carry revolving balances on credit cards, that’s a troubling statistic, but less than surprising. Many consumers have difficulty grasping percentages and fractions, and compound interest deals with these. The authors found a particular problem in this area for respondents aged 65 and older – many can’t do simple interest calculations.

How Long Will it Take to Pay Off Debt?

That’s something else any consumer with credit card debt should know, so the authors posed this as their second of three questions:

You owe $3,000 on your credit card. You pay a minimum payment of $30 each month. At an Annual Percentage Rate of 12 percent (or 1 percent per month), how many years would it take to eliminate your credit card debt if you made no additional new charges?

A)     Less than 5 year;

B)      Between 5 and 10 years;

C)      Between 10 and 15 years;

D)     Never, you will continue to be in debt;

E)      Do not know;

F)      Prefer not to answer.

Slightly more than 35 percent of respondents knew that making the minimum payment amounts to an endless cycle (choice D). That’s it. The remainder show a less than solid grasp of debt literacy on this question. Hopefully they’ll do better with the final question.

Interest, Time and Money

You purchase an appliance which costs $1,000. To pay for this appliance, you are given the following two options: a) Pay 12 monthly installments of $100 each; b) Borrow at a 20 percent annual interest rate and pay back $1,200 a year from now. Which is the more advantageous offer?

A)     Option (a);

B)      Option (b);

C)      They are the same;

D)     Do not know;

E)      Prefer not to answer.

Only seven percent got this question correct. “Most chose a) even though the stream of payments to finance the purchase of an appliance at $100 per month in (a) has an APR of about 35 percent versus the 20 percent in option (b),” write the authors. Personally, this question threw me. As I read it, no interest is implied by choice a). But perhaps I’m missing something.

Demographics of the Debt Illiterate

The study authors found that debt illiteracy is indeed widespread. Respondents 65 and over showed the least debt literacy on the first question, while younger subjects (under 30 years of age) tended to get the first question correct but miss the final two. Gender and race divisions emerged, as did those between married respondents and unmarried. Among the unmarried, it is interesting to note that those who list as being divorced, separated or widowed performed at a lower level than those who had never been married. Surprising no one, respondents with higher income (particularly those earning $75,000 per year or more) scored higher than those in lower income tax brackets.

But Who Thinks They’re Literate?

On a scale from 1 to 7, where 1 means “very low” and 7 means “very high,” the study authors asked respondents to rate their financial knowledge. The average overall score was 4.88, and most considered themselves to be at least above average. Over half of those surveyed marked themselves as a 5 or 6, while only a wink over 10 percent actually chose 4 or lower. Rankings tended to mirror the demographic groups found in the three-question knowledge portion of the survey, but there were two notable differences. In particular, the over 65 age group rated themselves highly but scored lower at an average of 5.3, while the divorced/separated/widowed did the same but clocked in at only 4.79. Again – surprising no one – those who rated themselves high on average had higher incomes and accumulated wealth.

Four Clusters, Four Levels of Debt Literacy

The authors identified four distinct groups among the survey respondents. On one end of the scale are the “in control” group, comprising 26 percent of the sample. They are “firmly engaged in the traditional financial system. These individuals all have credit cards, but do not carry any revolving balances. They have relatively high (but not the highest) levels of experience with mutual funds, stocks, and bonds. They also had the highest incomes. On the other end are “fringe” users who partake of alternative financial services more often, such as payday loans, tax refund loans and pawn shops. Their likelihood of having ever invested in a stock, bond or a mutual fund—or held a mortgage—is about one fifth that of the “in-control” sample.

The middle groups make up what the authors claim to be 43 percent of Americans. The “borrower/saver” group (12 percent) has “the highest level of experience with savings and investments of any of the four clusters, with 98 percent having experience with savings or CD products, 83 percent owning mutual funds, 83 percent owning stocks, and 65 percent owning bonds or savings bonds. They are more extended than the “in control” group in that 95 percent carry revolving credit balances. The final 31 percent are the “overextended” group, who have “less experience with savings and more markers of extended credit.” They typically only pay the minimum on credit cards and have much more experience with penalty fees and much less with stocks and bonds. The authors consider this group to represent the “average American.”

Know Your Debt Level

This is the final question the authors asked participants:

Which of the following best describes your current debt position?

A)     I have too much debt right now and I have or may have difficulty paying it off;

B)      I have about the right amount of debt right now and I face no problems with it;

C)      I have too little debt right now. I wish I could get more;

D)     I just don’t know.

In November 2007 when the data was initially collected – barely predating the recession – around 40 percent of respondents had a negative relationship with debt. It seems likely that the numbers would skew even higher.

Lack of Education Will Cost You

That’s exactly what is found with Americans in credit card debt. Those who the authors found to be less financially knowledgeable tended to pay higher fees and finance charges. In fact, the authors estimate that a third of the costs such consumers pay on credit cards are a direct result of a paucity of debt literacy. In total, credit card holders paid $26.8 billion in penalties. Those less educated financially educated make up about 28.7 percent of the cardholder population, but account for a whopping 42 percent of those charges.

Richness of financial experience and a healthy amount of financial and debt literacy are the true recipe for accumulating wealth and approaching credit repair. Considering what Lusardi and Tufano found in their study, this “widespread lack of financial skills” is something America should be concerned about. Making financial education a mandatory part of school curriculums everywhere would be a good start, because what you know is more than worth its weight in gold.

During the recession, payday loans replaced credit card spending. Consumers have always used credit and have become growingly dependent on it for purchases. In particular big-ticket items were always bought with credit. In late 2007, credit problems began. Lenders pushed more and more credit onto the consumer and paid no attention to whether or not they had the ability to pay the money back. It caused many people to go into default on their loans and sent credit card companies reeling with outstanding debt.

Credit lenders started using tactics of their own to mitigate their losses. Some credit companies cut people’s spending limits drastically. For example, Mara Lindley, consumer in Toledo, Ohio, said, “Our credit card limit was $30,000 pre-recession. Then our credit card company cut that limit in half, even though we had $16,000 in charges on the account. … Then they started charging us huge over-limit fees, but we didn’t have anything to do with being over our limit!” Lindley is not alone. Many consumers saw credit card companies get aggressive.

Post-recession: what can consumers expect

Now that the recession is deemed “over” by some experts, what can consumers expect from their credit companies? It seems that most credit card companies are still trying to manage huge losses but are ready to start offering consumers services and specials again. Here are some benefits of credit cards that people should take advantage of:

• Credit card companies will arbitrate discrepancies. One of the biggest advantages of having and using credit is that if there are problems, companies will go to bat for the consumer. For example, if a consumer finds a charge on their statement he or she can call customer service, but say that gets them no where. Or, say the company insists they pay the charge regardless of their argument. The buyer can still turn to their credit card company and file a formal dispute. The company then contacts the party that charged the account and they hash it out. A lot of times a credit company has more power to sort issues out on the behalf of their clients than individuals do.
• Automatic bill pay is invaluable. Let’s face it: today’s world is a busy one. Who has the time to remember when every utility bill is due or when every payment is sent out? The best way to handle finances these days is to use the auto-bill-pay option credit card companies offer. Consumers can sign up and let the credit card company automatically issue payments. This is a great tool for anyone with a busy life. It can help a consumer avoid having to use savings, payday loans or family lending to cover expensive late fees.
• Protection against identity theft. Finally, using credit cards can be a great way to thwart identity thieves. For the most part, consumers will have a said amount of time to dispute a charge, normally 60 to 90 days. Once they do, the credit card company will investigate, issue them another card if necessary and the matter is taken care of. It’s invaluable to have a large company working alongside a consumer to protect their personal information and bank account.

Payday loans still viable options

Although credit cards are becoming a reliable tool for consumers to manage their debt, payday loans are still on the table as a good option for immediate cash needs. These short term loans are a great way for consumers to find extra money for emergency medical bills, car repairs or other surprise expenses. While credit cards may not work in all situations, payday loans are secondary funding options that prove their worth time and time again.

Apply for Payday Loans HERE

Consumerism must be jump started again by consumers, but credit card companies have to play ball. (Photo: Wikimedia.org)

The best thing about payday loans is that they are reliable. Post-recession, many people are finding the world of credit just isn’t what it used to be. In the past year, consumers rethought their former decision of using credit to make most of their purchases. Due to the recession, Americans cut back drastically on discretionary spending. That’s bad news for credit card companies whose business is predicated on consumer spending.

Fitch Ratings recently reported that income of U.S. credit card companies will “continue suffering because of the lousy labor market, bankruptcies and bad loans.” They are also citing that the continued unemployment rate of well over 10 percent is expected to last throughout much of 2010. “As a result [of the unemployment rate], the losses of credit card issuers could worsen further,” they stated.

The Consumer’s Relationship with Credit

Consumers have had a good relationship with credit card companies over the past few decades. While it was slated to benefit the credit card company more, consumers were still able to purchase big-ticket items they couldn’t normally afford without it. Credit card companies became lax, though. According to Justin May, an economic analyst for Fitch, “Lending companies were like fat and happy old men thinking their feast would last forever… What they didn’t realize was that nothing lasts forever. Even their bread and butter.”

From 2006 to 2007, credit companies were handing out credit left and right. They did little to study an applicant’s history or present financial situation, much less their ability to repay the debt. After extending too much credit and no return, credit card companies realized they were in a serious financial bind. The companies had little recourse once the recession hit its peak because people simply could not afford to pay their debt. Many people fell into foreclosure, bankruptcy or just ignored their financial commitments. All three were bad news for credit card companies who at one time had a strong tie to the consumer market. Suddenly, consumers in need of quick cash started looking to payday loans, friends and family and other alternative ways of finding funding. No longer were credit companies the only viable option for consumers in need of help.

What the Recession Has Taught Us

Now that the recession is officially deemed “over,” there are some lasting concerns. Credit card companies are still reeling and writing off huge debts. It’s estimated that there is about $3.5 billion in debt that companies admit they probably will never see. Consumers are still struggling to find funds. Though the market is somewhat stabilized, there is a lingering conservativeness with spending. People aren’t running out to use what little credit they have and credit companies aren’t extending new credit. Most people have tarnished credit reports now and don’t qualify under lenders strict policies. May added, “Credit card companies don’t want to risk any more than they have to and aren’t extending credit to those who need it. Though that is what they have been accused of doing for years, if they don’t extend credit soon, they won’t have a business.”

In the end, it will be up to the consumer to get the market rolling at full-steam once again. Though payday loans and family lending have sustained them thus far and proven to be more reliable options than credit card companies, hopefully they will change their ways. Lending companies are hoping people will start using credit to spur the credit industry on, once again.

Apply for Payday Loans HERE!

In the current credit crunch, obtaining credit has become more difficult than ever. Even people who previously had no trouble applying for credit cards or loans are finding their applications turned down in this grim financial market.

Unfortunately, however, credit cards are required for many different transactions, from renting a car to making a hotel reservation, and it can be highly inconvenient to function without them. So what can you do if you’re one of the many people who can’t get a traditional credit card?

Consider a prepaid credit card.   A prepaid credit card may seem oxymoronic – after all, isn’t the point of a credit card that you can buy things without having the money up front? Oxymoronic or not, however, a prepaid credit card can help you to establish the good credit you need to build a solid credit history.

How prepaid credit cards work

When you sign up for a prepaid credit card account, you pay the available-credit limit of the card up front. For example, to get a prepaid credit card with a $500 limit, you deposit $500 when you open the account. You may also incur some nominal fees – usually $5-$10 – but after that, you’re able to use the prepaid card in the same way you would a traditional credit card. There won’t be any interest charges or monthly statements; although you won’t be able to make further purchases once you’ve depleted your balance.

Choosing a Prepaid Credit Card

The first thing that to look for in a prepaid credit card is a provider that reports your payments to one of the three major credit bureaus – Experian, Equifax or TransUnion. Having these payments added to your credit history is essential if you want to use a prepaid card to help build good credit. Not all providers offer this service, so it’s important to check before signing up.

Fees are another important consideration. Some account setup fees are to be expected, but be wary of providers who charge you every time you deposit funds or who charge a percentage fee for certain types of transactions. These fees charged by less scrupulous companies can cut into your prepaid balance very quickly; decreasing your spending power and the amount that you can buy using your prepaid card.

Some cautions about prepaid credit cards

Despite having some advantages, a prepaid credit card is not the same as a traditional credit card, and many payment processors are aware of this distinction. For example, services that require regular monthly payments – like your cable or cell phone provider – may be reluctant to accept a prepaid credit card for payment, because there is no guarantee that funds will be available in the future. Acceptance of a prepaid credit card for periodic payments is typically handled on a case-by-case basis – some providers will accept a prepaid card, and others will not. For this reason, it’s not recommended that you rely on a prepaid credit card as your only payment method.

Is it safe to shop online with credit cards? Much safer than running into a credit card ninja at night! (Photo: marines.mil)

Credit cards lead to the many success stories when traveling around the Web, uncovering the answer to an often taboo question: Is the Web really making money? 2009 offline and online retailers expect to see a 1.8 percent increase in 2009 sales, according to the Retail Compass Survey of 100 chief marketing officers at leading retailers.

Is the Internet Making Money During the Recession?

Most major retailers offer online shopping, particularly because they accept credit cards. Cheryl Schmidt, owner of Taste of Toledo Gift Baskets and Gifts, is a business owner getting steady interest from the help of the Web. “About half my sales come from my Web site,” Schmidt says. It’s not that all her sales come from online, but many people use her online store as a catalog to call in orders or go to the store if they live in or near the Toledo area. Taste of Toledo offers Christmas-themed gifts this time of year. The Toledo and Ohio Gift Basket remains most popular during the holidays and even year-around.

Online Shopping Can Be Dangerous; Keep Yourself Safe

While shopping online is more convenient and safer, in most cases, than shopping in a store, never let your guard down. The BBB (Better Business Bureau) offers tips for online shopping, some include:

Trust In Your Instincts

If a gut feeling makes you uncomfortable about bidding on or buying an item online, or if you feel more pressure than an ant under an elephant to place an order quickly, you should probably avoid buying from the Web site.

Gain Knowledge of Web-based Auctions

The worst thing to do is jump directly into a Web-based auction without checking out the important details. Take the time to get familiarized with not only the rules and policies of the auction site, but with all the legal terms involving warrants, refund policies, etc. of the seller’s item which you would like to bid on.

Do a Double-Take with Prices

If you stumble upon a wonderful Web site offering the best looking laptop computer for $50, red flags should wave. Be careful, keeping in mind to watch out for prices that seem too good to be true. It doesn’t matter if the product is being sold as new or used, the price should coincide with the item you’re planning to purchase. If you aren’t sure, do some online research. This could also confirm your decisions to use discretion when shopping online with credit cards.

Find the Privacy Policy and Read It!

It’s very important that you read the privacy policy to find out what information the seller is going to try and collect from you, how the information will be used and how you can stop the process. If you search for the privacy policy link somewhere on the seller’s home page or included with the legal terms (where it should be located) and find nothing, don’t do business with them.

Be Alert and Check the Connection

After you’ve drooled over the things you wish to buy, you might want to pull out your credit cards and click on the “buy now” button. But before you give your payment information, there are various icons and software programs that indicate security software is in place on the Web site. You want to see what level of encryption the retailer uses, as well as whether their credit card security is associated with a company like VeriSign. If all is in place, you can relax and buy with ease.

Inspect Your Purchase When It Arrives

Once the item arrives in the mail, examine it carefully. If you happen to notice any problems, contact the seller in writing immediately. Tell the seller what’s wrong with the product, being as detailed as you can. Also, ask for repairs or a refund, and keep a copy of your correspondence.

Pay the Safe Way

The safest way to pay for anything on the Internet is by using the Visa, MasterCard or Discover logos; or, simply put, credit cards. In the event of fraud, card issuers have security methods in place that consumers can use.

Credit cards are an important part of consumer finance. Understand them well! (Photo: flickr.com)

Consumers are suffering financially due to the recession and need to know how to manage their credit cards, savings and investment accounts. In today’s society, credit cards are a staple. Their convenience and many uses make them one of the easiest ways of purchasing items. Unfortunately, they are also a very easy way to get into financial trouble if consumers are spending more than they earn. Not using or establishing credit can also be detrimental. Most consumers cannot afford big-ticket items like homes, cars and large appliances without the use of credit. Because of the importance of credit, consumers need to understand how to manage it. Here are types of credit to understand and use wisely.

What is Installment Debt?

Installment debt is what allows consumers to get a 30-year home mortgage at eight percent or a car loan at nine percent. Credit is extended for the item, and then the loan is repaid throughout a set amount of time on an amortization schedule. Monthly payments are a fixed amount over the course of the loan. The loan repayment begins with mostly interest being paid off, but later principal is repaid.

Installment debt can easily be budgeted. Once a consumer knows what their payment is, they can work it into their monthly expenses. Installment debt can be good debt if a consumer earns a higher return on the investment of cash, and then they pay on the installment debt.

Revolving Credit

Revolving lines of credit, also referred to as “open-ended credit,” is available to consumers from Visa, MasterCard, American Express and department stores. When a consumer applies for these cards, they get a standard credit limit based on their credit rating and can use it for purchases. Again, there are monthly payments to consider and some lines of credit also have monthly and annual fees.

Although revolving credit can be convenient, consumers need to understand that paying minimum payments benefits the credit company. Because many credit cards charge rates upwards of 18 percent, it pays for you to not pay more than the minimum. Companies make huge revenues from interest payments. For example, paying the minimum on a $2,000 credit card loan could mean making only interest payments for the next decade.

There are some benefits to revolving credit. Consumers can purchase items they normally couldn’t afford and spread out payments. Unfortunately, many people go overboard with their credit cards and end up in serious financial trouble. Spending more than is coming in is always a dangerous decision, but consistently doing it can mean a quick financial demise.

Using Credit Wisely

Regardless of the type of credit consumers have, they need to use it wisely. One way to do this is to examine every loan agreement and see exactly what the fine print says. Keep track of all rates, balances and fees to understand how much money is truly being used for beneficial purposes and how much is going directly to credit companies.

Eliminating Credit Debt

Some people are opting for completely eliminating credit card debt as a response to the economy. If consumers think this is the route they want to take, they should first evaluate their individual spending habits and see where money drains are. It is relatively simple to track money and where it goes with a little diligent research. Problem areas will show themselves and consumers should immediately find ways to eliminate them. Then, based on current spending habits, consumers should recreate a better budget that allows them to pay off debt on credit cards, pay bills and manage expenses.

Credit card interest rates are going up. Has your bank dropped the bomb on you? (Photo: wilpf.org)

If you have been relying on credit cards to get by each month, you may need to borrow money just to pay the minimum payment these days. Credit card companies are raising interest rates dramatically in an effort to stay ahead of the declining economy. But the problem is that they are not just doing this to those who have had problems paying their bills on time, but those who have always paid on time. Does this seem unfair to you? Yes, but the cold reality is that people who have had their credit cards for 10, 20 or even 30 years, with previous interest rates at about nine percent, are now getting slapped with rates over 20 percent!

Is This Legal?

Yes, because the fine print in your agreement that you signed when you first accepted your credit card states that they can raise your rates at their discretion. But it will not be for long, because the new rules affecting their behavior, known as the Card Act of 2009, will not take effect until August, 2010. Regardless of your personal situation, even if it hasn’t changed, the overall financial environment has changed, creating more risk for banks and credit card companies. If they spread out the risk, they can limit their losses on those who default on their payments.

Shouldn’t I Be Notified?

Currently, banks do not need to give you more than 15 days to let you know that your rate will be increased, and what you can do about it. Did you miss this notification? You probably did, as they put this in your monthly statement, or even in a separate envelope that you may mistake for junk mail and throw it away. You have a chance to decline the new rate and continue paying off your bill, but if you miss the deadline, you will be stuck with the new rate. After August, 2010, you will get at least 45 days notice, which should help you actually see it.

My Rates Increased – Now What?

The ideal situation is that you catch the notification before the deadline and call your bank right away to let them know that you decline this new rate. If you opt out of this new rate, they will close your account, but you will continue paying off the balance at the lower rate.

However, if you miss the deadline, another option is to pay off any balance that you owe and close your account. You can possibly borrow money at a lower rate than what your credit card is currently at to pay off the balance and save yourself thousands of dollars in interest rates.

Or, if you want to keep the account open, transfer the balance to a lower rate card. Be sure to check your credit on your other card first, as well as what the balance transfer fee is. If you are not careful, you may end up paying more in fees doing this, than if you were to accept the changes and keep your account open.

Plan Ahead

The best route to saving money in the long term is to plan ahead. Before you borrow money to pay off your high credit card debt, create a budget that shows where your money will go and when. This way, you know exactly what to count on. Of course, creating a budget is only half the story—you must stick to the budget you create, so that you will have no need for credit cards or high interest loans in the first place.

Using credit cards can be a pleasure and a pain. Will anonymous credit cards make security one less thing to worry about? (Photo: flickr.com)

Credit cards are both a blessing and a curse for millions of people worldwide. Managed use of this form of consumer credit can help build one’s credit score and provide a convenient means through which to transact with merchants who require a credit card in order for a consumer to secure services (automobile rentals, hotel rooms, etc). The key to managing one’s credit card usage, however, is a something that many consumers do not practice: paying off the balance each month. By making only the minimum payment, credit card debt grows significantly as interest is compounded. Revolving lines of credit like credit cards can saddle a consumer with a lifetime of debt.

Then There’s Identity Theft

Use of credit cards can expose consumers to the nightmare of identity theft. Whenever you pay a restaurant bill with your card, you’re exposing yourself to risk if the server is less than honest with your sensitive information. If you’re shopping online at a site with less than industrial-strength security, great potential for an information leak is there. Giving your credit number over any form of telephone connection is highly problematic as well.

Such scenarios of financial pain and horror might cause you to wonder how you can keep yourself from becoming a victim. One answer is to use payday loans rather than credit cards in emergency situations where you need quick cash, as the process does not generally expose you to potential identity theft. However, having a small number of credit cards can be beneficial to your FICO score (indicating diversity in your credit portfolio, which creditors like to see), so perhaps a better long-term answer would be how to make credit card usage less dangerous.

Make it Anonymous, Perhaps?

Elli Androulaki and Steven Bellovin of Columbia University recently published a study entitled “An Anonymous Credit Card System” which proposes a system that could serve as a solution to this problem with credit cards. Consumers would be able to kept close track of their credit card usage while banks would be able to justify the payments it makes to merchants through an anonymous E-cash system.

An Anonymity Barrier

One of the benefits consumers enjoy when using credit cards is that logs of transactions are readily accessible. In addition to convenience, this provides a level of security in that consumers can challenge erroneous charges. However, such logs can be a double-edged sword in that banks can (and often do) sell that consumer profile information to third parties. What the study authors propose is a system that maintains the benefits while at the same time protecting consumer and bank privacy through a barrier of anonymity. For consumers, however, the anonymity system express is conditional in that the consumer must make honest attempts to keep up with payments. If an overspending transaction occurs, the consumer is blacklisted from the anonymous service.

For online retail, truly anonymous credit cards would prevent any unauthorized outsider from acquiring information about a transaction or those involved in the transaction. Androulaki and Bellovin stress that banks would not be able to create profiles that they sell without the cardholder’s permission. In order to achieve this level of privacy and security, the authors have created a theoretical system whose high points will be discussed here.

The Dawn of Credit Card Security

According to previous studies of credit cards and state-of-the-art security methods, measures have existed since at least 1994, but such schemes have involved extraneous trusted parties to maintain security. Furthermore, previous credit card protection schemes offered no expense reports or means of error correction for consumers. Using E-cash as a money substitute that cannot be copied or spent more than one time has furthered security schemes, but it requires prepayment to function and works only for online transactions. It also provides no avenue for error correction or clear listing of transactions. Prepaid debit cards are limited in their security application for similar reasons.

What the authors propose is a system that combines an E-cash system for making payments and a combination of “blind and plain digital signatures” for other operations. Consumers, merchants, card-issuing banks, acquiring banks (institutions merchants are authorized to receive payments through) and credit card associations (Visa, MasterCard and others who set transaction rules between the different bank types named here) would all be served by this system. Credit cards under the new system, write the authors, “should not be forgeable or usable by any third party. It should be possible for cardholders to track their transactions (Expense Report Service) and provide an undeniable proof of any mischarge (Error Correction Service) without endangering their privacy.”

How E-cash works

There are two types of E-cash used in this system, drawn from “wallets.” One is accessed by the consumer while the other is where merchants deposit E-cash received from the consumer. Blind signature schemes are used to ensure that merchants get paid and consumer identities are protected from third parties. If set limits are exceeded, conditional anonymity of the consumer is revoked – an added incentive to make payments, which appeases the banking establishment. For the most part, merchants and consumers are identified only by signature keys when they open their E-cash accounts with their banks. In order for consumers to access their E-cash credit cards, they create an anonymous pass code. Backups, multiple layers of encryption and loss recovery systems are present here, as are timestamps for online transactions; consult the study for a more detailed account. It is interesting to note that encryption is performed by the consumer during the anonymous credit card origination process, via secure home software. Thus, a home computer would be required.

How are Anonymous Credit Cards Paid?

Obviously a consumer honor system would be inappropriate, so the consumer is required to report the amount of money spend each month to the card-issuing bank. Regular backups and reporting are required to protect both banks and consumers. Spending is proven through receipts. The card-issuing bank then computes the consumer’s monthly payment through the same formula used today for standard credit cards.

How Does Error Correction Work?

The consumer has the right to contact their credit card association in the event of an error or fraudulent use. In the event of a error, a receipt is required in order for a correction to be made. When the merchant makes the correction and gives back funds via E-cash, the currency passes the refund to the credit card association, who in turn moves it to the merchant’s acquiring bank. It is the acquiring bank who finally moves the funds back to the consumer’s card-issuing bank. If fraudulent charges require purchase cancellation, the exchange is handled in a similar fashion.

Breaching the Veil of Anonymity

As mentioned previously, consumer anonymity is dropped if credit cards are charged over their limit. In that instance, all E-coins withdrawn by the consumer are traced. The authors mark this as necessary for loss recovery. But seeing as how a cardholder may open as many anonymous accounts as desired, being able to achieve transaction linkage is possible.

Buying into the Checks and Balances

The anonymous credit card system proposed by the study authors could eliminate identity theft altogether (until someone figures out how to introduce decryption technologies in the middle of the process). That could occur, but the system proposed could be the best current option for safe credit card use.

I find it interesting that the proposed system would require consumers to hang on to their receipts. It’s something consumer groups and banks (not to mention mom and dad) always advise us to do, but how often do we practice what they preach? If you’re a conscientious consumer who already keeps track of such things, your adjustment to such an anonymous credit card system would likely be painless. For those of us who are forced to become more accountable, the transition would be more difficult. However, it is a much safer financial road to travel. It is also a responsible road. Sure, payday loans are still be more desirable in situations where carrying a balance over from month to month becomes too expensive, but credit cards will still have their place. The layers of checks and balances that preserve security may sound inefficient to some, but remember that the financial world rarely gives us something for nothing. This isn’t trading freedom for protection, in my opinion.

The Obama administration is working hard to reform laws for companies who issue credit cards. On May 22, the president signed off on the Credit Card Accountability, Responsibility and Disclosure, or Credit CARD, act of 2009.

The bill is set to improve the way companies deal with consumers and act as a watchdog agency that protects users. Here are some of the benefits of the new law.

Increases are retroactive

Card companies can no longer raise rates on an existing balance unless the customer is 60 or more days past due. There will no longer be “anytime, any reason” clauses that almost every credit company employed in former contracts.

If the cardholder does trigger the default rate, the bank has to be willing to restore the rate if the cardholder maintains six consecutive on-time payments. Rates also can’t be raised the first year after the card is issued and low introductory rates have to last at least six months.

Rate hikes

Lending companies are still able to raise credit card rates, but they have to give consumers 45 days notice before the new rate is effective. This can help consumers to budget more wisely and switch to new credit cards if needed. Currently, notification time is only 15 days.

Gail Scherwood, a consumer in Billings, Montana stated, “The notice we received was dated two weeks prior, but we didn’t get it until four days before the increase. That didn’t seem fair.” This new rule hopes to resolve this issue, and give customers time to react to pending increases.

Fees

Fees are another hot topic with credit cards. Cardholders no longer will face over-limit fees “unless they elect to allow the creditor to approve over limit transactions.” Also, in general banks won’t be able to charge fees to consumers who pay their bills over the phone or online.

The only fee they will be able to tack on is an expediting fee at the consumer’s request. In addition, if cardholders pay at a bank’s branch, the payment must be posted same-day to avoid late fees.

Student credit cards

There are restrictions on students ages 18 to 21. This consumer group has to have:

1. An adequate income or a co-signer
2. Attended a financial literacy course

If they don’t have both, they won’t be approved for a credit card. This law protects young people who, in the past, were heavy targets for the credit card industry. As a result, many young people were overwhelmed with debt because of the “free” credit cards they were being inundated with. A recent survey showed that the average college student is holding $3,173 in credit card debt. This is a record high since 1998 when the first study was done.

Double-cycle billing is over

Another result of the new credit CARD law is a ban on double-cycle billing. This is when credit card companies base their finance charge on the current and previous balances. This allowed companies to charge interest on debt already paid from the previous month.

Payment allocations

Previously, payments were applied to lower-rate balances first, thus bringing in fees and interest rates on higher balances. Credit card companies are no longer able to do this. The new law requires that any “above minimum payment is applied first to the credit card balance with the highest interest rate.” This could save thousands for consumers.

More time

Finally, consumers will have more time to pay. Card companies must send out statements to consumers 21 days prior to payment due dates. This will give people adequate time to make their payments and adjust their budgets.

Credit CARD

The new law for credit cards should be enacted shortly. It will do a lot to monitor companies’ actions and protect card users. President Obama’s goal was to set in motion a safeguard for credit users, and this law is the first step to reaching that goal.

Related Video:

Add a "c" to "Shleppers" and you may have an arduous journey! (photo: flickr.com)

No one wants to max out their credit cards when moving. But that’s what happened to John Winston of Salem, Massachusetts: “We were a simple move…going to a neighboring city. Our moving company promised that it would cost $875, and a possible added cost for extra time. That was reasonable.”

In the end, the moving company gave John an onsite estimate of $1,950, after his things were loaded on the truck. Fearing the movers would hold his property hostage, he decided to pay the bill with a credit card and dispute it with the office later.

The dispute with the office never happened, however, because the moving company closed before John could contact them. The company completed the move, but John ended up paying the entire $1,950. The contract he signed clearly stated that any disputes had to be handled prior to moving.

How to move without breaking your budget

Moving can be a disaster if consumers aren’t prepared for the transaction. People who are moving should settle the details before the moving truck shows up. Here are some tips for moving without breaking your budget.

Do some comparison shopping

Moving costs can vary widely based on the company you choose. Check with at least three companies before signing on the dotted line. Visiting CityMove.com is a great way to get online bids from several moving companies. Consumers can compare quotes and decide which services are most important and most cost effective.

John Katz, CEO for Flat Rate Moving Company advises, “Request the moving company visit your home prior to moving so they can see exactly what items, big and small, are going to be going. You don’t want any surprises on the day of the move for yourself or for the company.” Also, make sure that quotes include an estimate of how long the job will take. The last thing you want is additional charges to your credit cards for over-time hours.

Perform background checks

Consumers should also run background checks on every company they are considering. The Better Business Bureau can give valuable information on the business dealings of each company and consumers can see the complaints, if any, that have been filed. Make sure the company doesn’t have any repeat offenses, such as continually showing up late, misrepresenting themselves, or overcharging. BBB.org or Yelp.com can provide reviews of businesses. Consumers should also ask moving companies for three recent client references.

Sort through your stuff

Moving time is a great time to get rid of things you don’t use or need. Moving estimates can be made on either total weight or per-hour rates. Either one can be minimized by less having less to move. Garage sales, donations, and give-a-ways are great ways to get rid of things you don’t want to pay to move. Not only does getting rid of excess baggage cut down on moving expenses, it provides extra cash from garage sales or a tax deduction receipts from donations.

Jon Sorber of Two Men and a Truck, suggests people move small items themselves. Sorber said, “Every time a mover has to go into the house, that’s more time [you're paying for].” It’s often easy to move lamps, plants, books, china, and toys for yourself. You can also can pack items, roll up rugs, and break down bed frames yourself rather than pay movers to do it.

Invest a little extra effort

With a little extra effort, consumers can spare themselves unnecessary expense when it comes to moving.  Rather than maxing out credit cards, paying twice as much as the estimate, or paying for unnecessary things like packing, consumers should take a proactive approach to moving. Doing so will save time and ultimately, money.

Learn how you can organize your bills so that they seem less of chore and more of an achievement.

You see them every day, and you hate to open them. What more exciting news could they possibly bring than reminding you of your obligation? Don’t they realize there is a recession going on? Do they think you have extra cash lying around? Rather than looking at them like the 800-pound ogre that won’t go away, begin organizing bills by priority and take a conquering approach to them.

According to psychologist Maslow’s hierarchy of needs, the first thing you have to satisfy are physiological needs such as food, shelter and breathing. This is generally a good guideline to follow, but you don’t have to exactly stick to it to the T as you’re organizing which bills to pay first. You may want to consider this recommendation.

Keep a Roof Over Your Head

As you’re leafing through those dreaded envelopes, organizing the bills in order of least ulcer-inducing, remember first that you’ve got avoid sleeping under a bridge. Mortgages may be the biggest pain because they are the largest payment, but if you consistently miss paying that bill, then be prepared to pitch your tent underneath the nearest overpass. Okay, perhaps that’s a bit harsh. At least consider that you have to first take care of your physical needs.

Got to Get Around

The second priority in organizing your bills is making your car payment. Unless you live in a city and have daily access to fast public transport, you need be able to get to and from work or to that next job fair. In the United States, Canada and other spread out societies, you can’t really go too far without wheels. We are highly dependent on cars to perform day-to-day functions.

Health Insurance

Despite this being under large debate in the government, health care is not something to gamble with. Swine flu, cancer treatments, disability-related injuries, obesity and stress-related symptoms have all affected physical and mental health in some form or another, especially in this economy. You need to be able to see the doctor whenever necessary. Don’t leave your health to chance and whimsy.

Who’s On First

Pay the bill that has the earlier date. You might have thought this would be the first criterion in paying bills, but you have to consider your personal needs as you’re organizing. Can you afford a negative balance in your checking account until payday rolls around the next week? Or can you afford to lose your house for a month as you maintain a positive balance in your checking account? Once you meet your physical needs, then you can take on the pesky bill that knocks early at your door.

Highest Percentage Credit Cards

Paying off high interest-rate credit cards is emphasized time and again by financial experts for good reason. Missing these payments on a consistent basis just piles on unnecessary fees. Remember that you are paying a penalty for being late. If you show up late to a meeting, you get a stern look. If you’re late with a promised card payment, you’re slapped with an added cost you don’t need right now. Some credit cards are a lot harsher about your delinquency than others by how high they charge you.

Even a place like this is hard to enjoy when you don't know what you're paying! (photo: wikimedia.org)

Now that the recession is leveling off, many people are getting ready to start using their credit cards again. Because the economy is projected to reach its turnaround point mid-summer, consumers are looking to use their cards to pay for summer vacations.

Marilyn Dean of Los Angeles, California stated, “We haven’t had a real vacation in two years…the first year we just opted not to go but the second year the recession hit us hard and we couldn’t.” Like many other Americans, Dean is planning for a year of normalcy, and that includes a well-deserved vacation.

Paying for vacations

When it comes to paying for vacations, many Americans are looking to their credit cards. Anne Banas, editor of SmarterTravel.com, stated, “It’s pretty much the best way to make a purchase, especially your big items. It’s just really easy. And you don’t lose much in the exchange.”

Some consumers are worried about exchange rates, however, those are secure. Both Visa and MasterCard secure money based on “wholesale rates offered to large banks and corporations,” instead of the retail rates most customers are charged. Every time Americans use a credit card for an overseas purchase, they are guaranteed an excellent exchange rate.

Stiff fees for overseas purchases

Although the exchange rate is taken care of if a consumer pays with credit cards, there are other things to be aware of when traveling. Fees can crop up quickly with any overseas purchase. Most banks charge a “currency conversion fee” when their customers purchase items outside the US. This fees can range anywhere from 1% to 3% of the purchase price. Consumers should do some advance planning and call their credit card companies to find out what the fees for foreign conversion are.

A recent study by Bankrate.com showed that Capital One was the only card company that did not pass the conversion fee on to their customers. If you know you’re going on vacation in a few months, it may benefit you to open a credit card account that has no conversion fees and use it solely for travel.

Over-the-top fees for cash advances

Taking out cash advances on credit cards is a huge budget-breaker. Interest rates on cash withdrawals often exceed 20%, and that interest begins accruing from the minute the money is withdrawn. David Lytle, editor of Frommers.com, stated, “The rates on those things are awful. It’s the worst way to get money.”

Hidden fees for debit card withdrawals

When traveling abroad, the best way to get money is to use a local ATM and a debit card. A debit cards is linked directly to the cardholder’s account, so it deducts funds automatically. Consumers should be aware, however, that some banks charge anywhere from $2 to $5 for each withdrawal from an ATM outside their network. It’s also possible for some banks to charge 2 to 3% of the amount withdrawn with a debit card at an ATM.

Consumers need to understand the fees and policies of their banks before they travel abroad, and if they find a bank that offers a better deal it may be wise to open a special travel account. With some careful research and planning, paying for  an overseas vacation really can be worry-free.

Credit cards should be used carefully. However, if you need a car, the incentives available now could make using a credit card to buy a car feasible. (Photo: picasaweb.google.com)

If consumers are in the need of a car, this may be the right time to use credit cards to do it. Most dealerships have huge inventories and no way to get rid of them. The recession has put auto dealers in difficult positions, since most Americans are in no hurry to invest in big-ticket items. That’s great news for consumers who are looking to make an auto purchase. Potential savings on a car are substantially greater and selections are huge. Most auto dealers are making generous deals, with cash-back options and low financing rates. Cars that once were marked up are now being marketed at well below the sticker price, and sometimes even lower than the dealer’s cost.

Scott Painter, CEO of TrueCar, said, “There’s no question that you should get a screaming deal… the slump in sales resulted in discounts so steep that new cars can sometimes be less expensive than comparable used ones.” According to research done by TrueCar, last year dealers sold approximately 21 percent of 2009 models for less that dealer price. This year, that number is up to 25 percent already.

Dealerships Feeling the Pain

Adding to the auto industry climate is the rapid closings of many dealerships. In 2008 there were 1,200 closing dealers, this year GM Corp alone is planning on closing 1,200 to 1,500 franchises. These closings have helped turn the industry upside down. For example, at one time the Range Rover was a high-quality luxury vehicle. Now, there are fleets of the vehicles available with $12,000 cash-back on purchases. This isn’t the only vehicle with this kind of savings. Cadillac’s CTS sedan comes with $7,000 in incentives, while Ford’s 2010 Transit Connect vans are already coming with a $300 cash-back special.

Credit Cards: A Near Necessity

Credit cards are almost a necessity in today’s world. Many people use credit cards for everything from everyday purchases to big-ticket necessities. Although the recession has taken its toll on the credit and lending industry, companies are trying to right their wrongs and help customers make purchases. Recently, the federal government has stepped into the credit card mess, citing unscrupulous activities and demanding changes. Credit card companies understand how bad they look in the eyes of the public due to their dodgy dealings. Some companies are cutting customer’s limits, but also bringing down interest rates to make payments more manageable. They want to have customers who continue to pay on their bills, rather than just file bankruptcy or abandon the accounts.

Because of this, credit cards are slowly being used once again to fund high-ticket items like cars. With the overwhelming discounts and deals available, this is a wise choice for some consumers. Lilah Branson of Nashville, Tennessee said, “I need a car and I wasn’t planning on buying on in the recession. But then I saw the deal my credit card company offered and the deal the dealership had…combined, the deals were too good to pass up.”

Things are Slowly Picking Up

Credit cards are helping people again, slowly integrating back into everyday use. No one knows the where economy will be once the recession is completely over, but consumers are steadily getting their feet wet and wading back toward normalcy.

More creditors are agreeing to settlements on credit card debt before law changes make their rates illegal. (Photo: picasaweb.google.com)

A new study is showing that many lending companies are settling debts on delinquent credit cards. As a new way of mitigating losses, many credit card companies are settling cards for notably less than the total amounts owed. Edward McClelland, a writer in Chicago, is a consumer who had an outstanding balance of $5,486 to deal with. At a loss, McClelland offered the credit card company’s customer service representative half of the amount. Surprisingly, his offer was accepted without supervisory permission.

A growing trend with credit card companies is to accept settlements directly from customers. Due to the unemployment rate in the nine percent range and more people struggling with bills, companies are opting to take what they can get. Companies are also giving their customer service teams direct authority to settle with customers. David Robertson, publisher of the credit industry journal called “The Nilson Report,” stated that “Now it’s the card company calling you and saying, ‘Let’s talk turkey.’”

The Credit Card Secret

Many card companies are keeping their new settlement policies secret, however. Only a few are willing to disclose their new loss mitigation plans. Bank of America and American Express are both professing to using the tactic on a “case-by-case” basis. And other companies are mum on the topic, though the Bankers Association stated that settlements are a growing practice.

This change in procedures is an indicator that the credit card industry is losing some of its control over the market. The upcoming credit reform bill is another looming change that factors into lenders’ planning processes. Once 2010 arrives and the bill is passed, companies will have a hard time raising interest rates and many of their once-common fees will no longer be legally applicable. The reality is that despite changes and more rules for credit cards and lenders, they are still looking for ways to find debt relief. It’s estimated that credit card debt is reaching $939.6 billion and a record level is being written off. Adam K. Levin, founder of Credit.com, stated that “Creditors would rather have a piece of something now, instead of absolutely nothing down the road,”

Future Plans for Creditors

For the first time, credit agencies and banks are examining new programs that would allow counselors to use reductions of principal as part of their account settlement processes. Previously, counselors would work with companies to modify interest rates and late fees, but the balance had to remain unchanged. It was the one non-negotiable factor in accounts.

In addition, many creditors were used to being tough on delinquent customers, citing their assets as proof they could pay. In the end, creditors could sue or put a lien on the credit holder’s assets. The after effects of the recession have created a credit-holding body that has less to lose. This is posing a problem with credit card companies who still want their money, but find little options on how to get it.

Credit Cards Settling Like Never Before

Debt relief for companies issuing credit cards is a number one priority. The swelling amount of delinquent accounts that have come from the faltering economy has forced them to consider a new, more realistic methodology for dealing with consumers. They are willing to settle with customers and take what they can get, rather that staunchly demand money they probably will never see.

Novak Djokovic may need one of his credit cards to help pay the fines for his latest on-court outburst. (Photo: Wikipedia.org)

“Use one of your credit cards, Novak!” I shout from my semi-comatose position on the couch. I just witnessed a tennis player’s breakdown that’s going to cost him money, maybe lots of it. Novak Djokovic missed a tiny little lob over the net and smashed his racquet into the court surface in rage. The racquet, of course, folded and close-up shots from the TV cameras showed possible ridges in the court surface.

This is Gonna Cost!

Whatever happens, this little display of temper is going to cost you, Novak. Probable fine from the APT tennis organization will be in the region of $10,000, wasted racket – $200, repairs to courts surface – a whole debate. The Shanghai Club may decide to lay a complete new surface, because the surfacing contractor will no doubt tell them that it is impossible to ‘patch’ a court surface… “We will never get it perfectly smooth.” If you are really unlucky, they may decide to resurface all the courts in the club so the colors match. As far as the racquet is concerned, one of your credit cards will look after all the messy details.

The Money Angle

This year is the first that Shanghai joins eight other cities in hosting an ATP World Tour Masters 1000 event, the new top tier of tournaments on the ATP World Tour. It is also the finale to the three-week Asian swing of the ATP World Tour. The prize money is over five million dollars. Wow, Novak, you couldn’t have picked a worse place for your demonstration. Over a billion Chinese will remember you.

We Understand

We may be highly critical of your actions and your uncontrollable desire to smash something, but inside we do understand. The court surface was a better choice than your opponent, Gilles Simon, or the umpire or even some stray character out of the audience. But the media is going to dine out for weeks on this event. All sportsmen and others who are trained to such a high pitch snap easily. My grandson, aged nine, lost a swimming race by a touch last week and he’s inconsolable, mentally kicking himself for taking too long on a turn. He hasn’t smashed anything in rage, but I’m sure he will learn as he gets older.

Ambition

It’s all about ambition, the desire to win, to excel, to never be second. Every time we are on the way to the swimming pool, grandson reminds me that his ‘dream’ is to swim in some future Olympic Games. I hope he makes it. Then he says, “What was your dream when you were my age, Pop?” It’s difficult to explain that I wanted to be a tail-gunner in a Liberator bomber. Luckily, I was too young to achieve my dream.

The Novak Djokovic Dream

Novak has achieved his. At age 24, he will be elevated to the world’s number three ranking in a week’s time, something very few people manage to do. He has already won about 14 million dollars playing tennis, so he walks with a wallet full of unlimited credit cards. The racquet-slamming incident was not money linked, just an outward sign of sportsman’s total frustration.

Banks have suffered through the recession with huge mortgage industry defaults, but a new fear that credit cards will do the same is looming. Ken Lewis, Bank of America CEO, stated he believes that despite the government’s $700 billion rescue program, it will be “an awful year” for credit cards and companies that issue them.

It’s estimated there are almost $76 billion in credit card loans, and more than half of that debt is held by Bank of America, JPMorgan Chase and Citigroup.

The charge-off rate

Already setting the stage for disaster is the banking industry’s estimate that  their charge-off accounts have reached a historic high of 7.73 percent. Most experts anticipate that figure will increase, as the unemployment rate is still dangerously high.  This rate is commonly accepted as the most accurate indicator of future losses in the banking, mortgage and credit card industries.

Analyst Mike Taiano believes that the charge-off rate could be higher than 10 percent by year’s end. “With the economy the way it is, most consumers are still struggling. … Though there are some indicators that we are through the recession, there is still a long way to go to recover,” he said.

Bracing for the loss

Unlike the recession of the ’80s, when unemployment rates ran high also, this generation brings its own set of problems. First, new proposed legislation is set to allow consumers to request their banks reduce their mortgage debt if they have filed bankruptcy. Experts are fearful that this will cause more people to file bankruptcy so they can default on credit cards and other outstanding debts.

On the brighter side

David Robertson, publisher of the Nilson Report, stated that it’s “encouraging” that banks are adept at maneuvering recessionary periods after “years of practice.” When facing credit card losses, they know what cautionary actions to take.

For example, banks are slashing limits already and raising interest rates to bring in as much revenue as possible.  They are also working their customer service teams exceptionally hard, encouraging communication with customers. American Express is a leader in the mitigation process and recently offered their credit card holding customers a $300 cash-back return if they paid their account balances off and the closed their accounts before April.

Citibank

There is also news that Citibank is joining the ranks of a banks coming up with strategies to mitigate loss.  The company is looking to work out a joint venture for its private credit card division that serves retailers, as a way of moving out of the credit card business altogether.  However, experts say Citibank is alone in wanting to distance themselves from the credit card industry.

Most banks know they will have a difficult time attracting a completely new set of customers and would rather work hard to keep the ones they have, while easing their own risk.  Stuart Gunn, director of Bridge Strategy Group, stated: “If you want to be the retail bank of choice, it means you have to have CDs, debit cards, home equity loans and credit cards. Do you really want to exit one of the major lines of business?”

This Federal Reserve/Vanderbilt/Penn study tries to connect payday loans to credit ruin, but what they leave out suggests a rosier alternative. (Photo: flickr.com)

Credit cards have proven to be both a useful tool in establishing a credit history and a bane to those consumers who hope to maintain a good credit history. The temptation to “swipe and go” has been actively cultivated by the American media. With the magic plastic in hand, consumption is quick and easy. Those who pay off their credit cards each month may escape the revolving interest trap, but the vast majority of credit card users must not pay their balances in full. If they did, why would credit card companies offer reward programs? If consumers weren’t tied into earning points and paying interest fees, the programs wouldn’t be profitable for the companies.

What about Payday Loans?

According to multiple sources, over 10 million U.S. households use payday loans each year. These short-term loans are paid off over a set period of time, typically two weeks’ time. They fulfill a need and are not a swipeable ticket to impulse purchases. Certainly payday loans CAN be used for impulse buys, but lenders make it clear that this is not advisable. Furthermore, the amount available is finite, typically smaller than the credit limit available on a credit card.

Yet Sources Continually Try to Connect Payday Loans to Financial Ruin

Take the January 2009 interdisciplinary study “Payday Loans and Credit Cards: New Liquidity and Credit Scoring Puzzles?” Written by Sumit Agarwal (Federal Reserve Bank of Chicago), Paige Marta Skiba (Vanderbilt University Law School) and Jeremy Tobacman (University of Pennsylvania), this study attempts a statistical correlation between credit card default and payday loan use. In particular, the trio attempts to make the case that consumers consistently make bad decisions by choosing to take out payday loans when they have credit card liquidity.

There must be a reason that consumers make such a choice, however. Agarwal, Skiba and Tobacman do not define such reasons, so I will attempt to fill the crucial gap.

Methodology and Results

Agarwal, Skiba and Tobacman analyze a sample of 102,779 people who took out payday loans from a single lender (this is significant, as I’ll show in a moment) and 143,228 with credit card accounts in states where the same payday loan company operates. They discovered that while credit card issuers used FICO scores as the primary means of determining a consumer’s credit worthiness, the payday lender used Teletrack scores instead, which tend to track borrowing history more on the subprime scale.

According to the study authors, Teletrack scores were eight times more effective at predicting payday loan default than FICO scores. Thus, it can easily be assumed that the more effective credit evaluation device creates more successful payday loan transactions that it would defaults and additional fees. The mainstream media is too often ready to accuse the payday lending industry of wielding such fees like a fire hose on unwitting consumers, but the truth of the matter is much less dramatic.

Payday Loan Customers Have Access to Prime Credit

Even though the authors’ study indicate that on average, consumers who use payday loans have a lower average income compared with those who just use credit cards, the same study indicates that their average FICO score is still in the 620 or slightly lower range. Thus, they can still access prime credit cards.

Why is it then that, as the authors indicate,

Two-thirds of people in the matched samples have at least $1,000 of credit card liquidity on the day they take their first payday loans, much more than the typical $300 payday loan.

It’s an interesting question. A 2001 survey by Elliehausen and Lawrence regarding credit card availability and usage found that 56.5 percent of respondents who used payday loans had bank-issued credit cards with liquidity available, but 61 percent “hadn’t used them in the past year in order to avoid exceeding the cards’ credit limits.”

People Don’t Like to Admit When They Fall to Temptation

The authors show us that there is a steady decline in credit card liquidity leading up to the time when consumers take out payday loans, but the liquidity doesn’t disappear entirely. The authors comment that

This is interesting because it speaks to the question of why people borrow on payday loans. If liquidity were flat until a large drop one month before the payday loan application, we would suspect that a single large bad shock had unexpectedly arrived. Since we find average liquidity falling steadily, impatience, general financial mismanagement or persistent shocks seem more likely explanations.

Perhaps what Agarwal, Skiba and Tobacman define as “impatience” or “financial mismanagement” could include the psychological temptation having a credit card that needn’t be paid off in full each month (advisable, but generally not required). It would be worth studying that factor in greater detail, as I know from first-hand experience that having access to credit, using it and allowing it to revolve month-to-month is an easy trap. In my opinion, such situations are not out of the ordinary. Closer study is warranted.

The Author’s View of Payday Loans is Limited

Obviously, if you only survey financial results based on the clientele of a single payday lending operation, your results will be far from definitive. When the authors claim that credit card holders who take out payday loans are 92 percent more likely to experience credit card delinquency, such a dramatic number indicates to me that the statistical sample is much too small to be meaningful. If consumers evaluated by Teletrack are generally less prone to payday loan defaults, why would credit card defaults be all that different?

It is significant to note here that applying for payday loans does not generally depend upon or impact one’s FICO score. That is one of the major selling points of the product, as consumers with less than perfect credit can take out a payday loan for a set amount when necessary. There is no system of revolving credit at work with payday loans; the balance is paid in full at a set date two weeks in the future. Furthermore, since payday loans obtained after Teletrack reference are generally not recorded in a consumer’s credit history, other lenders cannot use a consumer’s payday loan history against them when they apply for large-scale loans for homes, vehicles, education, etc. If banks could use payday loan information against consumers, they most certainly would. Their track history of penalizing and confusing consumers with credit card terms prompted President Obama to step in with fair credit practice legislation, which in my mind only serves to support my argument that banks will charge whatever they can.

Why Don’t Credit Card Companies Use Teletrack?

You’d think credit card companies would find any subprime information about a consumer to be valuable in their attempts to justify higher rates and limiting practices. The study authors indicate that the reason credit card issuers don’t normally use Teletrack is that the credit bureaus charge them for each credit query. Perhaps the leverage they can glean on a consumer is not valuable enough to counteract the fees?

Temptation Yields to Payday Loans

Considering how much damage a consumer can do to their credit history by allowing revolving interest credit cards to spiral out of control, the set maturity period of payday loans could readily be considered a better option. From a psychological standpoint, not having a tempting credit card in hand when you surf E-commerce sites or drift through the local shopping mall could be advantageous to the consumer. While Agarwal, Skiba and Tobacman have the beginnings of a useful study here, a larger sample of both credit card issuers and payday loan businesses is needed to make a more meaningful assessment of the payday loan’s supposed correlation with credit destruction. Perhaps then consumers can more easily see that the practices of banks who issue credit cards may be the most harmful advice out there. See the video below if you aren’t convinced of that yet…

Related Video:

If you are looking for Payday Loans, Apply Now!

(Photo courtesy of flickr.com)

Lenders are starting to offer credit cards to consumers again. It’s no secret that lending to troubled borrowers was the beginning of the credit-industry downfall. Have credit card companies learned a lesson? Or are they headed down the same road again?

Brenda Jerez, who recently overcame credit problems by slowing paying off each bill in installments after medical expenses and emergencies left her $50,000 in debt, is already being solicited by credit card companies again. Said Jerez, “It’s like I’ve got some big tag: target this person so you can get them back into debt.”

Targeting troubled-credit consumers like Jerez  seems like a sure-fire way to repeat the cycle of default lending. But this type of consumer is the biggest customer base for many credit companies.

The next troubled market

Lenders are use sophisticated techniques to target consumers by creating detailed profiles of their financial health. It’s estimated that over 100 million Americans have been profiled thus. The information is sold to other credit companies, mortgage brokers, and banks that all compete for the next untouched market, and they seldom care if that untouched market is less than qualified. Jim Campen, executive director of Americans for Fairness in Lending, said, “They get people who they know are in trouble, they know are desperate, and they aggressively market a product to them which is not in their best interest…It’s the wrong product at the wrong time.”

Predictive modeling

Predictive modeling is a new tactic being used by credit card companies to predict the likelihood that consumers will need lenders, even before the consumers know it. Sometimes bulk letters are sent to homeowners asking if they want to refinance. Later, via email or telemarketing, lending companies find out whether the consumers threw the forms out or used them. This can indicate to companies offering credit cards or home loans which consumers may be in the market for a refinance loan in the near future.

Mortgage triggers

Mortgage triggers are another strategy used by mortgage loan companies is. When a consumer applies online or at a bank for a home loan or refinance, banks automatically get their name and information and can check their credit history. Then they offer the consumer loans and vie for their loan package.

Since 2005, Experian, Equifax, and TransUnion all have sold lists of consumers who apply for loans to banks and mortgage brokers. Alan E. Geller, CEO of Vision Marketing, said, “We call people who are astounded . . . they say, ‘I can’t believe you just called me. How did you know we were just getting ready to [apply for a loan]? We were just sitting back laughing.”

Benefit or detriment?

So the question remains whether or not this form of credit is truly a benefit to consumers, or if it’s just another way for credit card and mortgage lenders to trap people once again. Many experts maintain that it is beneficial to have credit available, but they also warn that without a solid plan to tackle debt, consumers may find themselves in even worse financial predicaments than the ones they are in now.