If your credit card statement is this frightening, take advantage of the provisions of the Credit Card Act. (Photo Credit: CC BY/Jason Rogers/Flickr)

In 2009, President Obama signed the Credit Card Act into law. One of the provisions of the law is that credit card companies, in conjunction with the National Foundation for Credit Counseling, must provide resources for consumers who have difficulty with their finances. While they’ve held up their end of the bargain, recent NFCC studies have found that consumers simply aren’t taking advantage, reports Bankrate.

Free credit counseling, fallen by the wayside

Only 150,000 U.S. consumers struggling with credit card debt have accessed the nonprofit help to which banks and the NFCC have access, said NFCC spokeswoman Gail Cunningham. The contact number is toll-free and printed on credit card statements. As credit card debit still weighs heavily on the average, recession-weary American, the lack of initiative is troubling.

“I certainly think one of the reasons for the low response rate from consumers could be attributed to a lack of prominence,” said Cunningham. “Perhaps the number is buried somewhere.”

Within the recesses of public prejudice might be where that number is buried. Experts believe that many consumers who see the toll-free Credit Card Act number on their credit card statement may think it’s yet another “service” from the big, bad credit card company to take their money. However, Cunningham has observed that the number has been absent from some statements, which would be a violation of law.

Credit card debt shrunk in 2010

A study by Credit Karma indicates that from January to December, U.S. consumer credit card debt decreased by 8 percent nationally, to an average of $7,404 per person. Eight states, including California, Colorado, Connecticut, Indiana, Oklahoma, Tennessee and Nevada, showed as much as an 11 percent improvement.Wisconsin made the biggest dent in credit card debt, slashing and burning through the credit jungle for a 31-percent improvement over 2009.

On the other side of the scale, states like Delaware, Iowa, Louisiana, Missouri, Nebraska and New Mexico grew their credit card debt by as much as 6 percent. Mississippi was the biggest loser in the Credit Karma Survey, with 8 percent growth.

Looking for credit card help?

Visit the National Foundation for Credit Counseling website at nfcc.org for the information on non-profits near you that can help. The Federal Reserve’s website also has a free calculator with which you can calculate how much you’ll owe if you only make the minimum monthly payment on your credit card. For your mobile, there’s a useful Android Market app called Personal Financial Calculator. Or, if you are looking to compare overdraft APRs of installment loans and other consumer loan products, check out our “Loan Overdraft Calculator,” linked below.

Sources

Android Market: Personal Financial Calculator

Bankrate.com

Federal Reserve

Loan overdraft calculator

National Foundation for Credit Counseling

Obama signed the Credit Card Act. Are you using its programs?

Student loan debt is expected to rise even faster as tuition increases and federal financial aid options dwindle. Image: Flickr/grifray's photostream CC-BY-SA

More students are going to college, and most of them are going into debt. Student loan debt outpaced credit card debt in 2010 and is expected to pass $1 trillion in 2011. Student loans, long considered a “good debt,” may morph into a bad debt for graduates faced with decades of payments.

Student loan debt rises with tuition

In 1993, less than half of students earning a bachelor’s degree graduated with student loan debt. By 2008, the number of students graduating in debt had risen to two-thirds. In 2009, college graduates left school with an average of $24,000 in student loan debt. Total student loan debt is expected to reach $1 trillion this year and grow at at even faster rate. Republicans in Congress want to cut Pell grants, a form of federal financial aid for lower-income students. As cash-strapped states cut funding to universities and colleges, tuition increases will add to a mountain of debt that is expected to have a profound impact on the current generation of college students. As student loan debt grows, so does the rate of student loan default. Credit damage, as well as burdensome student loan payments for those who don’t default, will limit the range of options when it comes to buying a home or having children. Those who have children may have to choose between paying off their student loan debt or saving for their children’s college education.

Good debt versus bad debt

When it comes to debt, student loans have always been considered “good debt,” as opposed to “bad debt” such as credit cards, auto loans or payday loans. In the aftermath of the recession, any kind of debt has become undesirable. But even as the average cost for a four-year private education has reached more than $37,000 a year, according to the College Board, student loans can be good debt if the degree results in a salary that allows the debt to be paid in a reasonable amount of time. A simple rule of thumb among financial advisers is not to borrow more than you expect to make in the first year on the job after graduation. That rule of thumb, however, highlights the risk of taking on student loan debt. Finding a job that pays off the average cost of college with a degree in sociology or history is unlikely. The risk may be lower for fields such as engineering or medicine, but the costs, and the debt, will likely be higher.

Bottom line: debt is risky

When it comes to good debt versus bad debt, the bottom line these days is simple: all debt is bad if you can’t pay it off. Default rates are rising — to almost 50 percent — among students who attended for-profit colleges. Student loans usually can’t be discharged in bankruptcy. For federally guaranteed student loans, the government can garnish wages, withhold tax refunds or dock Social Security payments. The Obama administration did make it easier for student loan debtors stuck in low-paying jobs by forgiving the balance on debt for those who have dutifully paid 15 percent of their income toward their student loans for 25 years — or 10 years if they work in public service.

Sources

New York Times

Creditcards.com

care 2

Credit card debt relief plan

As stated previously, a plan is essential to recovery associated with credit card debt. Think of this as your bailout plan. When creating this plan, you must examine your current expenses as well as how you spend your money. This will require some record keeping, so it is important to establish a means of tracking where your money goes. Many individuals may use a ledger, and others may benefit from making an Excel document to track expenses. The choice is yours, but remember that the goal is to track where every penny goes so that you understand exactly how you are spending your money. By having this type of record, you will be able to discover ways to curb your expenses so that more money is invested into paying off credit card debt.

Emergency fund

When creating a plan to eliminate credit card debt, it is essential to ensure that you have a sufficient emergency fund set aside. Though putting all of your extra money into paying off your debts might sound logical, it could actually result in incurring future debts when you run into an emergency that requires fast cash. It is best to open a bank savings account for emergency funding. This way, you can also accumulate interest payments — which results in more money.

Life Insurance Policy

If you are interested in recovering from credit card debt, you should look into the life insurance policy that you have. If you find that you have one that is described as being “Whole Life,” you will also find that you have the option of borrowing some of the money that is considered to be the value of the policy. You could use some of that money to pay down some of your credit card balances. Once you get your financial affairs in order, you may pay back the loan from your life insurance, and repayments typically do not have any interest added to them.

Minimum monthly payments

As you know, when you have credit card debt you are expected to make a minimum monthly payment each month. While making the minimum payment will avoid incurring more interest and penalty fees, it is important that you consider making more than a minimum payment each month. You may simply live a bit below your means or cut back on something that is not considered to be a necessity. Doing so will ensure that you have extra money to pay more on your credit cards.

Live frugally, save energy, money

In order to save more money to put toward paying off your credit cards, it is important to learn how to live frugally. You must become an expert at making a penny go as far as possible. For example, instead of using a clothes dryer, you can use a clothesline to save electricity. You can conserve energy by unplugging items when not in use, using energy-efficient light bulbs and reducing the electricity you use overall. You can also grow your own food, make your own soap and use solar lights instead of lighting that requires electricity.

Additional streams of income

There are many ways to create additional streams of income. Creating additional income will provide you with more money to put into your emergency fund. More importantly, it can provide the money you need to put toward your debt. You could work overtime, get an additional job or learn ways to make money online. You can clean out your attic, closets and garage to find items to sell.

Buy used products

When making certain purchases, consider purchasing used products because they are usually cheaper than newer ones. Yard sales, thrift stores, flea markets and online websites such as Amazon and eBay are wonderful places to purchase used clothing, movies, games, electronics, jewelry and more. The money you save could be used for payments on your credit card.

Skip entertainment

If you enjoy entertainment products such as movies and books, you should look for more frugal ways to enjoy them. For example, if you enjoy reading, go to the library instead of the bookstore. If you enjoy watching television shows or movies, there are many websites that offer those shows for free. You should use these alternatives instead of renting movies or paying for cable services. Doing so will save you a tremendous amount of money that can be applied to credit card debt.

Walk instead of drive

If you live in an area that is close to stores and your job, you should consider walking or riding a bike instead of driving a vehicle. This can help save on car insurance, fuel and vehicle maintenance.

Credit card debt relief

As you can see, there are many different methods of creating more cash for credit card debt relief. By following the steps outlined in this guide, you can easily pay two to three times more than your minimum monthly credit card payment and eliminate that debt.

Living on a budget has Americans feeling all tuckered out. Image: CC JoyTek/Flickr

Middle class Americans are suffering from “frugal fatigue” as they wait for the end of the recession to trickle down to them. Frugal fatigue is a weariness with tight budgets, pinching pennies and settling for less. But as living within one’s means becomes the new normal, frugal fatigue may describe a failure to accept financial responsibility.

The frugal fatigue epidemic

Frugal fatigue has set in upon a generation of Americans not accustomed to creating a budget, tracking spending and saving for an emergency fund. Two thirds of Americans are suffering from this debilitating disorder, according to the National Foundation for Credit Counseling. In a recent NFCC survey, 66 percent of respondents said yes, they had frugal fatigue, and they’re tired of pinching pennies, but they have no choice but to continue for the foreseeable future. Twenty percent in the survey said they were better off living with a new sense of financial responsibility and are happy to continue. Eight percent claimed their financial habits were unaffected by the recession and 5 percent were ready to return to their spendthrift ways.

Giving in to frugal fatigue

The rate of economic growth, however slow, is encouraging some people who have jobs to set aside their frugality and splurge. After two years of decline, credit card debt is rising, car loans are boosting U.S. automakers, and investors are leveraging their debt. According to the Federal Reserve, revolving credit card debt increased 2.5 percent from $807.2 billion to $826.6 billion in December. Non-revolving debt such as installment loans rose from $1.608 trillion in November to $1.611 trillion in December. Investors have been watching and have acted accordingly. On the New York Stock Exchange, the margin of credit, which is money investors borrow to buy stock, increased to $276 billion in December, up from $233 billion in January 2010.

Frugal fatigue is all in your head

For consumers suffering from frugal fatigue, it’s important to remember that it is a state of mind, not a psychological disorder. Those who who miss spending beyond what their income can support have missed the point made by the recession. Is it better to feel stressed by a pile of debt, or feel at ease for being relieved of that burden? Many people who lose weight just end up putting the pounds back on again. Others stay fit for the rest of their life.

Sources

MarketWatch

MSNBC

Daily Finance

Much of the $240 billion payroll tax holiday will be spent on lattes, but discipline can turn yours into real money. Image: CC i need coffee/coffee hero/Flickr

The payroll tax holiday gives everyone earning a paycheck a 2 percent raise in 2011. The government enacted the payroll tax holiday as an economic stimulus and hopes you will spend it. But there are better ways to use the payroll tax holiday to stimulate your own economy in the next two years.

Happy payroll tax holiday!

To figure out how to use your payroll tax holiday, calculate how much the tax break will add to your disposable income. Until Jan. 1, you’ve been paying 6.2 percent of your wages to Social Security. For the next two years you will only pay 4.2 percent. Two percent doesn’t seem like much, but it adds up to $120 billion a year the government won’t be spending on weapons, Fannie and Freddie or ethanol subsidies. The Obama administration is counting on you to spend your fair share instead, on everyday essentials like lattes, smartphone apps and cigarettes.

How much is your payroll tax holiday worth?

The payroll tax holiday is designed so that a little extra money trickles in every pay period. The money shows up in such indiscernible amounts that most people won’t notice as it’s spent. But over the course of a year, the nickels and dimes add up to dollars. For example, two percent of $40,000 a year is $800. The best way to corral that bonus is electronically. The simple strategy is to divert 2 percent of your paycheck to an additional savings account set aside for the payroll tax holiday. Then use it to reward yourself for your discipline by paying cash for something you always wanted.

Maximizing your payroll tax holiday

Paying down debt is the absolute best way to use your payroll tax holiday. Your credit cards probably carry 15-to-20 percent interest. Saving money on credit card interest adds more to the value of your 2 percent raise long after the payroll tax holiday is history. If you make an automatic electronic payment, increase the monthly amount by 2 percent of your paycheck. You take home the same amount you did before, and your debt is reduced faster. If you have a 401K, boost your contribution by 2 percent. In two years you’ll have $1,600 extra. If your employer matches, $3,200. In 20 years at 6 percent a year you get $10,593. Now that’s a tax break.

Sources

New York Times

Consumerism Commentary

Before you pop the cork on the New Year, make some financial resolutions to make sure it's a good year. Image: CC geishaboy500/Flickr

Now is the time to get your personal finances in order. A new year is a good occasion for tying up loose ends on your financial checklist. Get off to a good start in 2011 by taking care of tax issues and re-evaluating your financial priorities.

What to put on your year-end financial checklist

Take financial steps in the week between Christmas and New Year’s Day that will make 2011 a better year than 2010. There are a few days left to address some critical tax issues for 2010. Charitable donations are still good for a 2010 tax deduction until Dec. 31. For another 2010 tax deduction, now is also a good time to dump depreciated stock. You can sell it and write off a loss up to $3,000. Consider converting an IRA to a Roth-IRA. You will pay tax on your Roth-IRA conversion, but if you do it by Dec. 31 you can spread the tax out until 2012. This week is also your last chance to get a free credit report in 2010 to make sure it’s accurate.

Financial resolutions for the new year

Find new ways to be thrifty. Start with credit card debt. Getting rid of credit card debt should be an even higher priority than saving money. Why? because the return you get on savings doesn’t come close to the high interest rates you’re paying on credit card debt. Pay down the expensive credit card debt first, then start saving. You’ll be able to save more. To help pay down credit card debt faster, figure out how much a habit costs and give it up. Make your own coffee or ride your bike to work. Take the money you would spend on lattes and gas and increase your monthly credit card payments.

Work together on financial goals

A lot of personal finance advisers recommend writing down your financial goals for the coming year. However, most people who do that soon forget them. In addition to writing down your financial goals, tell a member of your family or a friend you trust what your priorities will be. Ask them to hold you accountable to your promises and offer to do the same for them. Together you can both be more successful than you would going it alone.

Sources

Sacramento Bee

Wall Street Journal

New Fed restrictions are expected to take effect in October 2011, at the earliest. (Thinkstock)

The Great Recession occurred largely as a result of unsafe lending practices that allowed consumers to exceed their means and drag the nation’s economy down with their personal finances. The extent to which this occurred could have perhaps been decreased if more proactive federal regulation had taken place.

It appears as if the Federal Reserve learned its lesson from the national financial swoon as it recently announced regulations that serve to close loopholes within the new credit card law (CARD Act) before they cause significant damage. Such a move comes in refreshingly severe contrast to the laissez fair-type policy practiced by the Fed for the last decade and seems to be a positive sign for the financial well being of the United States.

CARD Act background

The CARD Act — which took full effect in August — instituted numerous consumer protections designed to curb the predatory, harmful credit practices that were previously allowed to perpetrate unchecked and helped lead to the nation’s financial malaise. While this is the most sweeping piece of credit card legislation passed in years, sometimes vague language has allowed certain unscrupulous credit card companies to continue dangerous practices.

APR change protections

Prior to the Fed regulations, the CARD Act stated that issuers could not change a consumer’s interest rate during the first year that an account was open or apply increased APRs to existing balances unless consumers were at least 60 days delinquent. Such rules even pertained to accounts with introductory rates. However, some companies evaded the spirit of the law by offering to waive consumers’ APRs for a certain period of time while retaining the self-conferred right to revoke the waiver at will. For example, instead of offering you a 0 percent APR credit card, they would give you a card with a 15 percent APR, that they would offer to waive for the first 12 months. Their rationale was that waiver revocation would not be an APR change rate but merely a re-instituting of a normal rate. However, the Fed restrictions — expected to take effect in October 2011, at the earliest — close the door on such fee waivers.

Fee limits

The CARD Act also prohibits credit card companies from charging more than 25 percent of a card’s limit in fees during the first year an account is open, a provision that affects bad credit credit cards most significantly. Certain companies found their way around this by charging processing fees that had to be paid before an account could be opened. These fees, according to issuer thinking, did not count toward the 25 percent limit because they were not assessed during the account’s first year. However, like the fee waivers, this semantic interpretation was nullified by the Fed’s decree.

Income Determination

The Fed also banned the use of household income as a determining factor of a consumer’s ability to pay, holding that personal income will provide a far more accurate indication of how much debt someone can afford comfortably. This distinction will help protect people from the widespread severe disparities that existed between amounts owed and means of payment prior to and during the recession.

These Fed changes will surely provide consumer aid upon taking effect, but their larger implication is what’s truly important. If the Federal Reserve continues to address issues before they become significant problems, the chances of facing another recession down the road will decrease significantly. This organization had not acted so swiftly in more than 10 years, so it appears as if a policy shift has taken place. However, once could be a fluke, but two or three make a trend, so pay close attention to how the Fed acts in the coming months. Its behavior could serve as an apt indicator of our economic future.

Ignore debt relief ads and consider getting rid of credit card debt by taking out a personal loan with a much lower interest rate. Image: CC TheTruthAbout/Flickr

If you need credit card debt relief, pay no attention to the ads on the Internet or late-night TV. The best way to get rid of credit card debt is to do it yourself, perhaps with a personal loan. Take independent action to boost your credit score faster so you can save money on future borrowing with lower interest rates.

Why credit card debt is so expensive

To find a more manageable way to pay off credit card debt, consider a personal loan. Compared to a credit card, a personal loan can have a much lower interest rate, depending on your credit score. Interest on credit card debt overwhelms so many people because not only are the rates very high, the interest is compounded daily. Some credit cards sock consumers with interest rates as high as 29 percent. Imagine having $10,000 in credit card debt at 29 percent interest. If you paid the minimum monthly payment of $250 every month it would take 143 months to pay off — that’s 12 years.

Why personal loans are so interesting

Using a personal loan for credit card debt relief can save a lot of money with a lower interest rate. Shop around for the best rate possible. Some banks and credit unions have personal loans at between 5 and 8 percent. Call at least three financial institutions. Be honest, and don’t be afraid to explain your situation. If you can manage to find a lender who will give you a personal loan at 6 percent, that $10,000 could be paid off in 45 months (less than four years) with the same monthly payment.

How good credit saves money

By getting rid of credit card debt and faithfully paying down the personal loan, a better credit score will bring many future benefits. For example, a person with good credit can get an auto loan right now for about 6 percent interest. A person with bad credit will pay about 13 percent. That amounts to thousands of dollars over the life of the loan. For a mortgage loan on a $300,000 home, a good credit score will save hundreds of dollars a month in interest and could add up to $100,000 when it’s all over.

Sources

CreditLoan.com

WTOL.com

Liability considerations

It is a common belief that business credit cards confer some measure of financial liability protection to small business owners. The perception is that because these cards serve business purposes, any financial difficulties encountered while using them ultimately falls not on the owner as an individual, but on the business as a separate entity. This is not the case, however, because lenders make no distinction between a small business owner and his or her company. Unlike with larger businesses, small business liability is personal liability. Therefore, one advantage commonly attributed to small business credit cards is actually nonexistent. This fact becomes especially important when the effects of the new credit card law (CARD Act) are considered.

CARD Act implications

Among the many regulations instituted as part of the CARD Act are stipulations prohibiting lenders from applying increased interest rates to existing balances or implementing penalty APRs until a consumer is 60 days delinquent. While these changes do provide significant consumer benefit, they only apply to personal credit cards. Therefore, a bank can assess an arbitrarily increased interest rate on a balance held with a business credit card, thereby making a user’s credit card debt more costly. This fact makes use of such cards inherently risky for carrying debt, as it is a common practice for credit card companies to raise interest rates as a means of quickly increasing profits. Thus, a small business owner should employ a personal credit card for this type of spending because of the protection and stability it will provide.

Still, having a business credit card for smaller purchases that will be paid for in full each month is a good idea, as well.

Business card utilities

Business credit cards should be employed for all purchasing that does not expose one’s balance to vulnerability because such cards have certain features that make them apt for business use. More specifically, business credit cards provide better reporting that allows users to easily track and monitor business purchases as well as give cards with personalized limits to employees, which owners can then earn rewards on.

Recommendations

Personal and business credit cards have inherent perks and drawbacks. However, when used correctly in concert, they provide a net benefit to small business owners. A user must simply remember to fund any purchases that will lead to a balance with a personal credit card and all others with a business credit card. By doing so, this person will be able to manage his or her small business with the predictability and cash flow stability necessitated by the current state of the economy and precluded by unexpected cost-of-debt increases.

A debt consolidation loan can make sense with low interest rates and loosening credit standards, but do your homework. Image: CC lemonjenny/Flickr

If you’ve ever considered a consolidation loan to facilitate credit card debt reduction, now is a good time. Banks are reported to be loosening credit standards and interest rates are very low. However, make sure you’re consolidating debt for the right reasons, and do your homework to get the best deal.

Be aware of debt consolidation risks

Debt consolidation usually makes sense on paper for someone struggling to pay off credit card debt. Credit cards are the most expensive form of borrowing. They even have a higher interest rate than an unsecured personal loan through a bank. A strategy adopted by many people to consolidate debt is achieving lower monthly payments and a lower interest rate by using their home as collateral. This is the primary risk involved with consolidation loans: taking unsecured credit card debt consolidating that debt into a secured debt. If for some reason the borrower defaults, the lender takes the home.

What is your borrowing strategy?

Borrowers have to think a debt consolidation loan through to the end. When it comes to uncomfortable debt, relieving the symptoms does nothing to cure the disease. Simply wanting a lower monthly payment to improve cash flow is not a good borrowing strategy. Often a lower monthly payment means a longer term, which adds up to paying out a lot more money over the life of the loan. But simplifying debt reduction has its value. One payment at a lower interest rate can reduce the risk of missing a payment and help build or maintain a decent credit score.

Doing debt consolidation right

Debt consolidation, however convenient it may appear, is not a quick fix. Borrowers have to do their homework. Most importantly, make sure you know your credit score. Then analyze your debt situation. List all your debt and minimum monthly payments, plus the interest you’re being charged. Look on your credit card bills at the feature showing how much you need to pay each month to retire the debt in three years. Is a debt consolidation loan still a good idea? Be sure that you know what kind of interest rate your credit score qualifies you for. Shop around. Compare interest rates, monthly payments and fees.  Compare your current monthly payments with the debt consolidation loan payment to make sure you’re getting a better deal.

Sources

Americas News Online

Bankrate.com

Creditcards.com

A low average return on savings could make debt reduction pay off more, but people can't ignore their emergency fund. Image: Thinkstock

In these uncertain economic times, should a person try saving money or reducing credit card debt? With the average return on savings in the U.S. so low, many financial experts say that consumers will come out ahead in the long run with debt reduction. Basically, the cost of carrying credit card debt outweighs the benefits of saving money. Americans as a whole agree, as consumer credit is experiencing its deepest decline in history. This is good for individuals trying to regain their financial footing. But massive cutbacks in consumer spending are hurting the economy as a whole. The result is an environment that makes saving for an emergency fund in lieu of debt reduction a good idea.

Low interest rates favor debt reduction

Record-low interest rates could mean that debt reduction will pay off bigger for the time being than bolstering an emergency fund. Peak Personal Finance reports that low rates mean cash saved in an emergency fund yield less. It is likely people  will benefit more by paying down high interest debt than putting money into a so-called “high yield” savings account. According to Money-Rates.com, the average return on savings accounts under 10,000 as of July 24 was 0.80 percent. Plus, there’s a good chance credit card companies will raise rates significantly when the economy improves. The present environment could be the best time to make meaningful headway with credit card debt reduction.

The debt reduction trend

The flagging economic recovery in the U.S. apparently has consumers following that advice. Financial-Planning.com reports that middle class savings tumbled to an eight-month low in June, according to a report by First Command Financial Behaviors. It was the lowest rate of savings since October 2009. At the same time Americans have stepped up reducing their debt. But the debt consumers paid off wasn’t enough to offset the savings reduction. Those with a positive savings-to-debt ratio, which is total savings compared to total debt, dropped 39 percent in June, down five points from a record-high of 44 percent in the first quarter.

Emergency fund can’t be ignored

Although the numbers dictate that debt reduction may offer more financial benefits that debt reduction right now, Peak said that people still can’t ignore their emergency fund. Everyone should have a monthly savings goal. How much of that cash goes either to debt reduction or savings depends on a person’s situation. If job security is an issue, the emergency fund should get priority. People who feel secure in their jobs could do better by aggressively pursuing credit card debt reduction.

Credit card debt has been declining nearly two years running. The trend drags on economic growth, but helps credit card companies stabilize earnings and losses. Image: Thinkstock

American consumers are steadily paying off their credit card debt. The Federal Reserve reported that U.S. families cut back on credit card use for the 23rd month in a row. Overall consumer borrowing, which includes credit cards and auto loans but not home mortgages, fell at an annual rate of $3.6 billion in July — the 17th decline in the last 18 months. Paying off credit card debt is helping stabilize a lending industry suffering from an epidemic of credit card delinquency. But a prolonged slide in consumer borrowing is a drag on the U.S. economy as it struggles to recover from the Great Recession.

Credit card debt drops with consumer spending

Consumer borrowing on credit cards fell 6.3 percent in July, following a 7.5 percent drop in June. The Associated Press reports that credit card debt has declined for 23 consecutive months — a record run. As American households struggle to repair their finances, economists expect they will keep cutting back on credit card use as long as incomes and employment don’t improve and banks struggling with high loan losses maintain tight lending standards. By borrowing less and saving more, families are helping themselves but hurting the overall U.S. economy, which depends on consumer spending to expand.

Consumers held in check by banks

To minimize their losses during the economic downturn, banks have made credit cards hard to get. However, The Street reports that consumer demand for credit cards remains strong. According to a quarterly FICO survey, new credit card accounts dropped by 17.7 percent during the 12 months that ended last April compared with the previous 12 months. In the same period, credit card applications fell only 3 percent. The Street said the numbers show consumers weren’t allowed access to all the credit they sought. During that time, the total amount of credit available on all U.S. consumer credit cards fell by 12.2 percent.

Credit card companies hire more lobbyists

The decline of consumer borrowing on credit cards is actually helping credit card companies. Debtmerica Relief reports that despite new credit card rules that limit interest rate hikes and penalty fees, credit card companies are becoming more stable as consumers reign in their spending. Credit card companies such as Capital One Financial and Discover Financial Services have seen earnings and losses stabilize. As consumers pay off more credit card debt, lenders are charging off fewer delinquent accounts. This allows them to spend money that was held in reserve to counterbalance losses. They are spending 25 percent more on increased lobbying efforts to influence future changes in federal laws.

Student loan debt has outpaced credit card debt as college costs rise and some wonder whether going in hock for a bachelor's degree is worth it. Think Stock illustration.

Americans now owe more for their student loans than their credit card debt. While people are paying down their credit card balances in the aftermath of the financial crisis, college costs continue to rise. Some analysts say less consumer protection for student loans than other types of borrowing is a reason for the trend. Others say college costs have risen beyond the return on investment in student loan debt. Meanwhile, research shows that most of the top growing job fields don’t require a bachelor’s degree.

Student loan debt rises with college costs

Americans owe about $826.5 billion in revolving credit, according to June 2010 figures from the Federal Reserve. The Wall Street Journal reports that student loans outstanding today total about $829,785 billion, as compiled by FinAid.org. Mark Kantrowitz, publisher of FinAid.org and FastWeb.com, told the Journal that he estimates $300 billion in federal student loan debt has been incurred in just the last four years. With college costs increasing rapidly and the duration of unemployment increasing, many parents borrow to make up the difference.

Student loans lack consumer protections

Student loan debt can be more dangerous than credit card debt. Student loans usually can’t be written off in bankruptcy. And some student loan repayment terms inflict harsh penalties for borrowers who miss payments. According to Student Loan Justice, federal student loan borrowers have none of the consumer protections that come with credit card debt, including statutes of limitations, truth in lending laws, state usury laws and fair debt collection statutes. The group calls student loan lending “an inherently predatory lending system that succeeds when the students fail.”

College costs drain family finances

Student loan debt is rising along with college costs. Bank Investment Consultant reports that average total college costs for 2009-2010 were $35,636 at private universities and $15,213 for in-state students at state colleges. These costs have been rising by about 5 percent a year. Many top institutions have announced that total charges will top $50,000 in the current academic year. To cover such costs, families may have to use current income and spend savings as well as borrow money.

Bachelor’s degrees net poor returns

Rising student loan debt leads some to wonder whether going in hock for years to get a degree is worth it. The New York Times reports that no more than half of students who began a four-year bachelor’s degree program in the fall of 2006 will get that degree after paying tuition for six years. Of the 30 jobs projected to grow at the fastest rate over the next decade in the U.S., only seven typically require a bachelor’s degree, according to the Bureau of Labor Statistics. Among the top 10 growing job categories, two require college degrees. Richard K. Vedder, founder of the Center for College Affordability and Productivity, told the Times that 15 percent of mail carriers have bachelor’s degrees, according to a 1999 federal study. He said

“Some of them could have bought a house for what they spent on their education.”

Consumers are paying down their credit card debt and avoiding new charges, so always open your mail and read the fine print from credit card companies busy creating new ways to gouge their customers. Flickr photo.

Consumer credit dropped in May much further than was forecast, with the decline led by significant drop in credit card debt. Credit card delinquencies fell to their lowest rate since 2002. As Americans save more and borrow less, desperate credit card companies are coming up with new ways to gouge customers. New credit card rules aimed at curbing the usurious behavior of credit card companies may be giving consumers a false sense of security.

Consumer credit drop exceeds forecast

A Federal Reserve report released Thursday showed that consumer credit dropped at an adjusted annual rate of 4.5 percent in May–the fourth consecutive month of declining credit.  Revolving debt, which includes most credit card debt, dropped by 10.5 percent ($7.3 billion) in May, according to the Fed’s report. Non-revolving debt, including car loans, fell by $1.8 billion in May. Business Week reports that economists’ projections in a Bloomberg survey ranged from a decrease of $5.2 billion to an increase of $2 billion in May. Consumer credit has increased only twice since the end of 2008. Consumer spending, which accounts for about 70 percent of the economy and is what America is counting on to revive the economy, will be weak as Americans pay down their debt.

Credit card delinquencies also drop

Credit card delinquencies are declining right along with consumer credit. The American Bankers Association (ABA) reported that late payments for bank credit cards fell in the first quarter to the lowest level in eight years. Market Watch reports that bank card delinquencies–card payments at least 30 days overdue, fell to 3.88 percent of all credit card accounts in the first quarter, compared with 4.39 percent in the fourth quarter of 2009. The credit card delinquency rate, the lowest its been since the first quarter of 2002. The ABA reported also said that overall consumer loan delinquencies declined, but only job creation will bring further improvement.

New credit card rules are to be broken

Credit card companies are seeing revenues decline. But even with new credit card rules designed to protect consumers going into effect next month, credit card companies are trying harder than ever to burn customers with creative new fees. CNNMoney.com reports that banks will be able to get around many of the new rules. For example, new rules cap late fees at $25 and do away with inactivity fees, but now more credit card companies are charging annual fees.

Credit card companies hope you won’t notice

When it comes to the new credit card rules, consumers may think that credit card companies can’t raise interest rates on existing cards anymore. But in reality, they can do anything they want with new balances, as long as they give 45 days notice. If your credit card company sent you a letter that you didn’t open a while back and you see your interest rate skyrocket on your latest charges, that’s what happened. Plus, credit card companies can still cut credit limits and close credit cards without advance notice, which will really hurt a credit score.

Always open credit card company mail

Other credit card companies have recently hiked balance transfer fees, cash advance fees and foreign transaction fees. Gerri Detweiler, personal finance advisor at Credit.com, told CNN that read the mail you get from your credit card company is more important now than ever. Don’t automatically assume its junk mail, because you’re only going to have the 45 days to opt out if you actually read the fine print. And as credit card companies become more desperate, they will not only raise existing fees but create all kinds of new fees.

Knowing your credit score is the most basic fundamental of credit repair. But it’s even more important to know what affects  your credit score. And even more important than that is knowing what you can do to improve your credit score.

Your credit score is free

Thanks to financial reform, doing something about your credit score is easier than ever. Free credit report services are advertised all over the Internet. Until now, those free credit reports didn’t include your credit score. You had to pay extra for that. But part of the recently passed financial reform bill ensures that you can get a free credit report that includes your credit score once per year.

Why is your credit score so low?

When it comes to credit repair, most people don’t know how they affect their credit score. For instance, Wallet Pop reports that many people assume if they pay their bills on time, their credit score is good. The truth is, even if you always pay on time, when your credit cards are maxed out, your score is lower than it should be. When credit bureaus see borrowing to the limit, they see risky behavior. To improve your credit score, tackling excess credit card debt is your first priority.

Credit repair: pay off credit cards first

To raise your credit score, pay off credit card debt first. There are two basic types of debt. Installment debt is secured by collateral, like a car loan. Revolving debt is your credit card balances. For some people, credit card debt revolves forever, which is not good for the credit score. Since credit card balances are unsecured, credit report companies like FICO say they’re more risky than installment loans. So paying off your credit cards will do more to raise your credit score than paying off your car.

Pay off collection agencies last

Unfortunately, if you’ve been taken to collections, your credit score is already hurt. Paying the collection agency won’t change the numbers. Bankrate.com reports that by the time your debt goes to collection, your creditor has already written you off. Although paying the collection agency will end the harassment, the payment won’t erase the delinquency from your credit report. Bear in mind that a surprise call from the collection agency can result from missed payments on everything from utility bills to library fines. The key to protecting your credit score is to avoid collection in the first place.

No thanks to charge cards

To keep your credit score from dropping, keep refusing that charge card every department store tries to sell you. This is because opening and closing credit accounts can lower your credit score. Wallet Pop said FICO credit bureau research has found that opening any type of credit account is automatically seen as more credit risk. If you do get that charge card and pay it off in full, your credit score will rebound in a few months, but it won’t rise above the level it was before you bought that new outfit.

Don’t cancel your credit cards

Sometimes when it comes to credit repair, it looks like the deck is stacked against you. Especially when canceling credit cards can lower your credit score. When you cancel a card, the line of credit it carries goes away. With less credit available, your credit score goes down. Instead of canceling, just zero the credit card out and throw it in your dresser drawer. New credit card rules prohibit credit card companies from canceling cards you don’t use–which used to hurt your credit score–so you don’t  have to worry about that anymore.

Use installment loans wisely

Taking out an installment loan for credit repair is risky, but it can work to pay off credit card debt with personal discipline. If you have a bunch of maxed out credit cards, the new installment loan won’t negatively impact your credit score as much as those debts. For this strategy to lower your credit score, you have to make yourself pay off the credit card debt with the installment loan, and throw the credit cards in the drawer until the installment loan is paid off.

Get professional credit repair help

Speak to a professional today and take proactive steps to repair your credit. For a FREE credit consultation, call 1-877-563-2076.

Knowledge about personal finance among Americans is increasing, but high credit card debt shows some hard lessons learned during the recession are being ignored. Flickr photo.

Americans are more educated about credit than they were before the recession, however, their knowledge about personal finance isn’t resulting in better decisions about credit and lending. A survey indicates that most Americans know the interest rates they are paying on their credit card and they know their credit rating. Even so, they continue to carry high interest credit card debt and many don’t know how to improve their credit scores.

Personal finance know-how no good

A survey of personal financial knowledge by Harris Interactive on behalf of Lending Club shows that Americans still aren’t making the most of hard-learned instant cash credit lessons learned during the recession. Adults unaware of their credit score came in at 31 percent, compared to 45 percent who didn’t have a clue in 2007 according to a Bankrate, Inc. survey. Fewer adults (22 percent) who use a credit card don’t know the interest rate on the credit card they use most often (compared to 29 percent who reported not knowing in 2007, according to a National Foundation for Credit Counseling survey).

Credit card debt prevails

Credit card companies will be glad to know that of those adults who do know the interest rates on their cards, the survey shows 31 percent have an interest rate of 20 percent or more and 64 percent pay 14 percent or more. Although 93 percent of credit card users know it’s possible to negotiate for a better rate, only 29 percent have ever tried to. Although closing a credit card account negatively impacts credit score, 18 percent erroneously believe it increases your credit score; 27 percent believed it has no impact. For those with debt other than a home mortgage, credit card debt is the most common type of debt overall (67 percent) and often the most expensive type of debt to carry.

Personal finance advice

To gain more knowledge about personal finance, AOL Money Coach Jennifer Openshaw has advice for consumers who want to be smarter when it comes to credit. If you aren’t aware of your card rates, find out. And once you do, take the initiative to ask for a lower rate. About 68 percent of those who ask for a lower rate are successful and build confidence in their financial savvy as well. Start with a target rate in mind, be assertive and ask for the supervisor if necessary.

Know what affects your credit score

Openshaw also suggests learning about what affects your credit score. Know that closing older accounts reduces your balance-to-credit card limit ratio, which may actually lower your score. If you have trouble controlling your credit card spending, it may be better to take the temporary hit to your score so you have fewer sources of temptation. Finally, cut your costs on current debt, consider paying off all your debts with one lower interest rate bank loan, but don’t do it on a credit card.

Debt consolidation with careful planning to make sure you don't end up paying more in the long run can be a good strategy for debt relief. Flickr photo.

Debt Consolidation loans can be a good way to simplify your debt. But when it comes to debt relief, it’s only the first step. You have to change your spending habits as well, or you’re simply trying to borrow your way out of debt, which doesn’t make any sense no matter how you look at it. Debt consolidation makes sense if, by grouping all individual forms of debt into one place, the interest rate is lower. But if the only reason for the lower interest rate is a longer term, you could end up paying more money in the long run. In that case, you may be improving your cash flow, but debt reduction is a mirage.

Debt consolidation takes good planning

Debt consolidation takes careful planning to save on interest and get out of debt faster. Numerous free debt consolidation calculators are available online. A debt consolidation calculator helps you consider all the factors that determine whether it makes sense to consolidate. Use an online debt consolidation calculator to experiment with different interest, payment and term scenarios to develop a plan of action.

Good debt consolidation moves

Some debt consolidation approaches are better than others. M.P. Dunleavy at MSN moneycentral reports on some of the best debt consolidation moves. If you own a home and have some equity in it, consider taking out a home equity loan. A home equity loan carries a fairly low interest rate, currently in the high single digits, and the interest you do pay is tax-deductible. If your car has a secured loan, you can refinance it and use the extra cash to pay off debt. A personal loan can be a good option because the interest rate will be a lot less that what you’re paying to the credit card company.

The debt reduction snowball

When it comes to debt consolidation, many financial advisers believe that for real debt reduction, you need to formulate a plan to pay off each debt separately. Financial adviser Dave Ramsey likes what he calls the “snowball approach.” With the snowball approach, debs are paid off one at a time, from the smallest to the largest. Ramsey advocates listing your debts in order. The smallest balance should be your number one priority. The snowball can give you some success fairly quickly knocking off the easier debts and motivate you to continue with the larger debts. Ramsey said personal finance is 20 percent knowledge and 80 percent behavior.The debt snowball works for dealing with debt, but it takes a lot of financial discipline, budgeting and saving money.

Student loan debt doesn't have to affect your ability to get a mortgage loan if you make payments on time and explore student loan repayment options. Flickr photo.

Will student loan repayment  get in the way if you want to buy a house? Not if you’re on schedule to pay them off on time. Because they don’t yet understand how credit and lending works, a lot of graduates often get themselves into trouble by blowing off student loan payments. What they don’t get is that young people are responsible for building their credit history and a strong credit score.  The best way to start is with credit cards and student loans. Most young people would think making credit card payments on time is more important to a credit history than doing the same with a student loan. But with a credit score a debt is a debt, and debts must be paid.

Student loan repayment and  credit scores

Lenders divide debt into two categories: installment loans and revolving loans. Student loans, mortgages and car loans, which require you to pay a fixed amount each month, are installment loans. Your student loans do have an effect on your credit score, but it’s not always negative. When credit bureaus calculate credit scores, student loan debt is viewed more favorably than credit card debt. Owing a lot of money on installment loans is not going to hurt your credit score as much as maxing out your credit cards.

Debt-to-income ratio

When you find the house you want to buy and its time to apply for a mortgage loan, lenders don’t just look at how much money you owe and whether you make payments on time. In addition to your credit score, your income is a major part of the equation. This aspect of a credit score is called the debt-to-income ratio. A couple’s or individual’s debt, including the new house payment they are promising to make on time, every time, should not be more than 35 percent of their total income.

Preparing for a mortgage loan

Before you try to qualify for a mortgage loan, eliminate or minimize as much debt as possible. It’s probably not possible to pay off your student loan right away, so make sure the mortgage never interferes. Not paying your student loans could adversely affect your life and credit score for many years just as much as much as defaulting on a mortgage. Students have been given several options to aid them when they need help in the repayment process.

Student loan repayment options

In the interest of preventing a growing trend of student loan default, many student loan repayment options are available. A standard student loan repayment program is the normal schedule on a monthly payment basis. An extended repayment program can stretch to 25 years, but keep in mind that this approach increases the total amount of the interest over the life of the loan. Graduated student loan repayment programs begin with interest-only payments for borrowers who anticipate making increasing financial progress, which most graduates do. Payments increase along with interest over the life of the loan.

When the mortgage will have to wait

If you find yourself in real trouble when it comes to making your student loan payments, there are ways to solve the problem. However, they won’t help when it comes to applying for a mortgage. Many recent graduates who are having a hard time finding a job in the current economic climate opt for the income-sensitive repayment program. This program is for borrowers who do not earn enough to cover their loan payment. An arrangement is made for a payment between 4 percent and 25 percent for the first five years and again the interest increases over the life of the loan. As a last resort, you may want to consider a consolidation repayment option. It allows student loan borrowers to combine multiple loans into one, extend the repayment term and sometimes lower the payment.

Personal installment loans online are a practical solution for debt consolidation when overall monthly payments can be lowered with one payment. Flickr photo.

Personal installment loans allow you to borrow cash for whatever you want. You can now apply for personal loans over the Internet, where there are an infinite amount of choices and terms. Personal loans can be used for all types of financial needs . Personal installment loans can be a practical solution for debt consolidation and debt relief, especially if the loan has a lower monthly payment than credit card debts. A secured personal loan requires you to provide the lender with an item or items of collateral. with unsecured personal loans the lender cannot take any of your assets if you default. More risk for the lender makes the interest rates higher.

Loans for people with bad credit

Personal loans online are available for just about anyone, even people with bad credit, a limited credit history or no credit history at all. In all these cases, you can qualify for a personal loan. The interest rate will be higher and the term shorter, but once you get a personal loan and always make the payments on time, you will boost your credit rating and future loans will be easier to get, with better rates and terms.

Fast cash loans no credit check

Personal loans online, unlike auto loans or mortgage loans, can be used at the borrower’s discretion. Any financial need — vacations, car repairs, school expenses, unexpected medical bills, emergency home repairs — can be addressed by setting up a personal loan online. The maximum loan amount for an unsecured personal loan online depends on the lender’s personal loan guidelines. the Best part about getting an unsecured personal loan online is that the entire approved amount appears in your bank account not in months, weeks or days, but right away.

Loan consolidation for debt relief

Debt consolidation and debt relief are some of the most practical reasons to get a personal loan online. Many people use these loans to consolidate other debts into a single monthly payment. The objective debt consolidation is to reduce overall monthly expenses. Before taking out the online personal loan, make sure the monthly payment is less than the total of the payments you were making on all the other debts.

Online loans for credit repair

Getting a personal loan online for debt consolidation is a sound solution for credit repair. A set monthly payment will free you from the endless minimum payment trap of credit card debt. But don’t borrow any more than you need and keep the term as short as possible. The longer the loan term, the more you end up paying. You have to be disciplined enough not to create more debt. Never apply for a personal loan online for debt consolidation until you make an honest commitment with yourself to stop spending more than you earn.

Get professional credit repair help

Speak to a professional today and take proactive steps to repair your credit. For a FREE credit consultation, call 1-877-563-2076.

Avoid bigger problems by applying for cash today

When you’re out of cash, scraping by until payday can lead to late fees, derogatory credit reports, anxious days and restless nights. A payday cash advance can resolve all those issues, and help you get back on track with your next paycheck.

Avoid credit-card debt by applying for cash today

With a payday loan, you can’t accidentally overspend the way you can with credit cards. Unlike credit cards, there’s no guess-work and no surprise at the end of the month. With a cash advance, you know right up front how much you owe. You also know exactly when and how your loan will be repaid and how much it will cost.

Avoid payment hassles by applying for cash today

When you get a payday loan, you don’t have to write a check or even remember to pay online. Most online payday loans are paid back in one automatic deduction from your bank account on an agreed date, generally your next payday. You might also qualify for an installment loan that lets you make several smaller payments over a longer period of time. There are even installment loans for bad credit.

Avoid delay by applying for cash today

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