Credit card use continues to decline. Photo Credit: MoneyBlogNewz/Flickr.com/CC-BY

Use of credit cards is beginning to trail off as more people start preferring to use cash. Fewer people are willing to go into debt and less willing to borrow money for purchases by using a credit card. Card use has been declining for some time, and higher interest rates and fees make credit cards less attractive to the cost conscious.

Major credit bureau notes decline in credit card use

Credit bureau TransUnion has noted a decline in the use of general purpose credit cards, according to Daily Finance. The credit rating bureau asserted in a recently released study that nearly 8 million people quit using a general purpose credit card, the kind normally issued by a bank. The number of people who either don’t have or don’t use a credit card now is more than 78 million, according to TransUnion. TransUnion also noted that credit card delinquencies declined by 9.8 percent during the third quarter of 2010. TransUnion credit rating bureau compiles data used in determining a persons’ credit score.

Federal Reserve notes less credit card use

TransUnion also noted that consumers were still using other forms of credit, such as installment loans, despite the drop in credit card use. The Federal Reserve, according to the Wall Street Journal, observed that credit card use was still declining in February of 2011, but non-revolving credit use was increasing. Revolving credit use, or bank-extended lines of credit and credit cards, declined by $2.71 billion during February 2011. Revolving credit use has only risen once since 2008. Non-revolving credit, or non-mortgage consumer loans such as auto loans or personal loans, increased by more than $10 billion during the month of February. The increase was likely driven by auto sales, which have been increasing steadily for the past few months. The Federal Reserve data indicates that TransUnion’s assessment of declining use of credit cards and continued use of other forms of credit is plausible.

Interest rates and fees on the rise

Because of the Credit Card Accountability, Responsibility and Disclosure Act (the CARD Act), banks have stricter rules about how they can change interest rates. The rates are not capped, according to Fox News, but the card issuing institution is prohibited from raising interest rates without a certain amount of notice. The average interest rate on credit cards is beginning to slowly rise along with the number of memberships fees that banks are charging customers.

Sources

Daily Finance

TransUnion

Wall Street Journal

Fox News

Rhode Island legislators will soon debate the merits – or lack thereof – of 2011 H 5562, yet another payday loan rate cap bill. (Photo Credit: CC BY-ND/Patrick Haney/Flickr)

Just as He-Man had his infamous “By the power of Grayskull!” battle cry,  opponents of payday loans continue to cry for cartoon-like 36 percent APR interest – cartoonish because 36 percent has been proven numerous times to be well outside the bounds of practicable business reality. Yet legislators in Rhode Island, led by sponsor Rep. Frank Ferri, D-Warwick, are pursuing yet another bill that would attempt to cap payday loans at the same 36 percent APR. Lenders argue that this will drive them out of the state and drive consumers in need toward unscrupulous loan sharks.

2011 H 5562 would eliminate payday lending in Rhode Island

Volumes of published and unpublished independent research have shown that when companies that offer payday loans with no credit check are driven from a community, the overall financial condition of consumers degrades. Payday lenders don’t need that kind of blow to the bottom line, let alone the state of Rhode Island.

Advance America Vice President Jamie Fulmer told the Associated Press that a 36 percent cap would force Advance America to pull its 20 branches from Rhode Island. As it stands currently, the branches charge $10 for $100 payday loans. If Rep. Ferri’s 2011 H 5562 manages to become law, payday loan businesses could only charge $1.38 per $100 loaned.

“This is not a reform bill; it’s designed to eliminate our industry outright,” said Fulmer.

Anti-payday loans bill offers a single exemption

According to The Providence Journal, 2011 H 5562 offers but a single exemption to the 36 percent APR cap. Organizations that offer payday loans with no credit check can charge as much as 260 percent APR on short term loans. Because such loans come to maturity long before a year is up, the concept of an annual percentage rate on payday loans is not a useful yardstick, however.

Politician cries ‘financial rape,’ business trusts consumers

In a bout of cartoonish exposition, Rep. Lisa Baldelli-Hunt, D-Woonsocket, told local media that payday loans are “financial rape” and that a 36 percent APR is “predatory.” However, as Community Financial Services Association of America spokesman Steven Schlein told The Providence Journal,

“Consumers know what they’re doing. You walk in and you see our rates in big letters on a poster. We’re the most transparent financial service there is.”

Sources

Associated Press

The Providence Journal

Rhode Island General Assembly

Photo Credit: MoneyBlogNewz/Flickr/CC-BY-SA

Safeguard your credit cards so your experience with them will be a dream come true instead of a nightmare. Many consumers crave expensive fashions or toys purchased the credit card company’s money. This practice is great if you are the lender, but it’s dangerous for customers. However, if you learn to use them to your advantage, credit cards can be beneficial to you and your credit report.

Dangers of doing business with big banks

Financial institutions make a living on the high interest customers pay. Debt can accumulate so fast that the minimum payment will be all that the consumer can afford. The minimum payment may be low, but it’s not to benefit the card holder. Many payment plans are designed to take the buyer more than 30 years to pay it off. Some credit card companies offer the option to skip a payment, but interest still accrues. When a special promotion offers “same as cash” within a certain number of months, all the interest will be added to the bill if a balance is still owed past the due date. These companies are not in business to run a non-profit agency to assist those who have financial needs. Instead, they aim to benefit their investors with huge profits. Don’t become a victim of lawful conduct that borders on unethical and benefits huge financial conglomerates.

Credit traps to avoid

Avoid making large expenses whenever possible on  credit cards. Many doctors offer a credit card to pay for their services. Owing for medical treatment can get you caught in a web of high interest and unnecessary stress. Automobile loans should be purchased through a bank that offers the lowest interest; don’t just automatically accept the dealership’s funding offer. Usually, credit unions offer the best rates and lower monthly payments. Some consumers have purchased homes with a cash advance taken out on several credit cards at one time. This practice does not make financial sense because interest rates on cash advances can be astronomical.

Pay attention to credit card terms

How does one budget and monitor the use of credit cards? Always know when the payment cycle starts and ends. If a payment is made too early, you could end up with a late fee added to the next billing cycle for non-payment. The fee could be enough to take a family of four out to dinner. Pay the bill off each month within each cycle. Note the billing cycle is less than 30 days in some cases.

Avoid bad purchasing habits

Avoid treating  credit cards as a second income. Use them as a convenience and for easy record keeping. Credit cards can offer protection that cash doesn’t. Items purchased with a card can be disputed more easily, and retailers know this. Get one credit card through your bank instead of several department store cards. Shop for the lowest interest rate, and read the fine print on every application. Whenever you get a junk mail credit card offer, call and ask the company to take your name from the list. Protect your personal information. It’s one of your major assets.

Less is more

One to three credit cards with a low limit can be beneficial because it shows stability on your credit history. Keep in mind that whenever a credit card is closed, it shows up on your credit report. You can use credit cards to your advantage. Good credit management practices can build a portfolio that financial institutions will use to approve loans when you want to buy your next car or home.

Credit card issuers, such as Bank of America, have been affected by new laws regarding credit cards. Image: MoneyBlogNewz/Flickr.com/CC-BY

New regulations for credit cards on how interest rates and fees can be assessed are working. However, some loan lenders are lamenting the new rules that require greater disclosure when changing terms with customers. Outlawing guerrilla-style fee and interest raises has led Bank of America and other companies to lose value from credit card units.

Bank of America realizes loss from credit card unit

The largest loan lender in the nation, Bank of America, recently announced that it would be adjusting previously filed financial statements regarding the banks’ credit card unit, according to Bloomberg. B of A announced that it was adjusting a write down of FIA Card services, its credit card unit, for late 2009 from $10.4 billion to $20.3 billion, meaning the credit card unit is worth $20.3 billion less thank it was in 2008. In other words, the company adjusted previous filings to reflect a greater loss of value than previously thought. The write down is not a true cash loss, but an adjustment of the “goodwill” value, or the value of an asset above market value, due to the prestige of the holder of the asset. The bank cited regulatory conditions and “deteriorating credit quality” for FIA Card Services being worth $10 billion less than estimated in 2009.

CARD Act cited for losses

Some credit card loan lenders, such as Bank of America, are claiming that they are being hampered by new regulations, specifically the CARD Act, or Credit Card Accountability Responsibility and Disclosure Act. It is posited that the act means less access to advance cash for further lending, though this means that the law is working. Since the CARD Act was enacted, fewer people have been hit with late fees and stung with sudden interest rate raises, according to CNN.

New card law a smashing success

The CARD Act has yielded some great results. Since the law was passed, studies show that about 2 percent of card holders had interest rates raised, compared to 15 percent before the CARD Act was passed. Late fees, which accounted for $901 million in instant cash for card issuers in January 2010 — before the Act took effect in February 2010 — had dropped to $427 million by November 2010. That means companies from Scottsdale to Birmingham and all over the U.S. that look to seemingly surreptitious practices for revenue are having a harder time, which is what the CARD Act is supposed to do.

Sources

Bloomberg

CNN

Interest rates on credit cards have hit a 13-year high. Image: MoneyBlogNewz/Flickr.com/CC-BY

The interest rates charged on credit cards have recently reached a 13-year high. Since legislation has changed the rules about how interest can be charged, card companies are raising the base rates to make up lost ground. It is working, as credit card companies are also posting high revenues.

Legislation leads to higher rates on credit cards

The interest rates on credit cards is reaching a 13-year high, according to CNN. The current average interest rate for credit cards is 14.72 percent. However, the interest rate charged to a customer varies between card issuers and also can depend on credit scores. People with poor credit ratings can be charged interest rates in excess of 50 percent. The average APR on credit cards has been rising over the past two years, as the recession ate into card company and bank profits. On top of consumers being less willing to add to their debt, Congress passed the CARD Act, which prevents credit card companies from raising interest rates after a customer signs an agreement or without due notice. However, the major card issuers won’t be running for emergency loans anytime soon.

Card companies post huge earnings

Despite rising rates giving the impression that it is harder for credit card companies to earn a living, recent earnings statements show that is certainly not the case. Visa, according to the New York Times, recently posted an earnings report stating the company had increased profits by 16 percent, a profit of $2.24 billion, in the most recent quarter. MasterCard, according to the Wall Street Journal, managed to post a 41 percent increase in profits by the end of the most recent quarter.

Harder to get a credit card

Though card issuers certainly want more people to get credit cards, the interest rates may make it prohibitive to people who have less than stellar credit. Having to take out installment loans to pay for a weekend trip from Jackson to Birmingham is not a thrilling prospect for many people.

Sources

CNN

New York Times

Wall Street Journal

Peter Schiff thinks home prices have a long way to fall. (Photo Credit: CC BY-ND/Libertarian Stoner)

While some people think now is a great time to buy a new home because interest rates are so low, there are experts who continue to advise caution. Euro Pacific Capital CEO Peter Schiff says home prices have not bottomed out yet. In a recent Wall Street Journal piece, he even goes so far as to suggest that home prices will fall at least 20.3 percent – and may drop even further.

Home prices must drop to come back to the trend

According to Peter Schiff, home prices must fall another 20.3 percent in order for the cyclical pattern to match the historical trend. However, he admits that even that won’t necessarily be the floor upon which plummeting home values crash. Considering that the U.S. has recently seen a negative Case-Shiller home price index, it’s clear that we’re in the middle of a housing double-dip. Marry that to other economic data on jobs, retail sales and industrial production and Edward Harrison of Credit Writedowns believes that while the U.S. may technically be in economic recovery, that recovery is weak at best.

The Fed is delaying the inevitable

The artificial means through which the Federal Reserve is attempting to prop up the housing market is at best a diversionary tactic, suggests Schiff. High levels of private and public debt – as well as the continually bleak job market – have clouded the economic picture for the U.S., and only by allowing economist-defined historic cycles to play out will the nation get out of trouble without further delay.

Peter Schiff’s view of home prices and the Case-Schiller is that even a 10-percent decrease beneath the 100-year trend line is reasonable over the next five years, even if mortgage rates rise back to customary levels. Even cutting the decrease in half (to 5 percent) would be welcome. Ultimately, Schiff believes that when rates stay low, the dips will be smaller, yet inflation will rise.

Some say buy now

Despite Peter Schiff’s warning that home prices are going to fall significantly, some believe the grass is greener on the other side. Hedge fund manager Bill Ackman says ignore the naysayers, because houses are now “a screaming buy.” Ackman says that low interest rates, the already significant value loss and cheap government loans are reason enough.

Sources

Business Insider

Credit Writedowns

Wall Street Journal

Schiff doesn’t think the dollar is in a good place, either

http://www.youtube.com/watch?v=pQ34p8MBf2E

The yuan is now a commodity for global exchange. (Photo Credit: CC BY/Jason Wesley Upton/Flickr)

China has played its hand very close to the vest when it comes to controlling its currency, but as the Wall Street Journal reports, the time has come to spread the wealth. The yuan, which Beijing once prohibited from being bought or sold outside China’s borders, has been released into global currency trading for the first time. Considering China’s position as a world economic power, interest in yuan exchange has been tremendous.

Yuan exchange: from zero to $400 million

Daily yuan trading quickly accelerated from zero to $400 million, according to reports. As China has loosened the reins on its currency, other nations are now able to transact with China in yuan for the first time, whether it be in finance trade, investment or borrowing. While the value of the yuan is still under tight control – China believes this will keep the currency from fluctuating as wildly as the dollar and euro – the availability of the yuan worldwide could change the face of world business, writes the Wall Street Journal. And demand for the yuan is already extremely high.

‘Full convertibility of the yuan’

Norman Chan, head of Hong Kong’s central bank, told the WSJ that “This is a step moving to full convertibility of the yuan … a major change of the international financial landscape.”

While the dollar, yen and euro currently dominate the $4 trillion global currency market, the yuan is fast-approaching critical mass, according to traders. Chinese companies bank their yuan in Hong Kong accounts – where offshore trading is permitted – in tremendous amounts. By year’s end, experts predict that 300 billion yuan ($45 billion) will be ready for convertibility.

How yuan trading works

Global currency trading in yuan will require traders to have a Hong Kong bank account. Chinese companies will be allowed to move yuan offshore for business purposes like exports and imports. Once the yuan is in an offshore account, the holder of the account can use the currency as they please.

As banks like Citigroup and HSBC are already offering investors yuan-priced options and companies like McDonald’s and Caterpillar are selling debt priced in yuan, it is clear that yuan exchange won’t be slowing down any time soon.

Sources

Wall Street Journal

Just when inflation was going so well…

The Federal Reserve Board meets on Tuesday, and markets are watching with baited breath to see which option they choose. Image: Flickr/Craig Hatfield

The Federal Reserve, the board that sets overnight loan rates for banks, is mulling possible actions to help the economy grow. These changes could be as simple as maintaining course, or as aggressive as risky stimulus moves. Markets around the world have been trading slowly, waiting for the Fed to announce its decision, which is expected late Tuesday.

Federal Reserve option one

The first option in front of the Federal Reserve is the most common – maintaining or dropping interest rates. The interest rates set by the fed are used to determine rates for everything from mortgages to internet loans. By keeping these rates at their current historic lows or dropping them, the Fed would be encouraging the use of credit. The risk, however, is that deflation could stifle whatever gains might be made.

Federal Reserve option two

The second option the Fed has in trying to stimulate the economy is purchasing government debt. The Fed does have some cash on hand to offer a personal cash loan to the government. The mortgage investments that created this income could be turned around to purchase government debt, driving long-term interest rates down. The risk, though, is that this would not stimulate any borrowing.

Federal Reserve option three

The riskiest move, and the one with the most payoff, would be for the Fed to start purchasing securities again. In 2009, the Fed bought more than $1 trillion in securities from Fannie Mae and Freddie Mac. Though this helped encourage lending, Fannie and Freddie are still in trouble. Any large purchase would help guarantee any of this debt and (theoretically) increase the amount of money lent out by businesses. The risk, though, is that this move would be seen as a verification that the economy is in very bad shape, driving investors out of even the best payday loan opportunities.

Payday lenders wishing to operate in Colorado will have to conform to new regulations. Image: Flickr/respres

In the state of Colorado, new laws intended to limit short term cash loans are set to go into effect. In August of this year, Colorado payday loan direct lenders will have the interest rates and repayment terms of their products capped. The bill is stronger than some in the industry had hoped for and weaker than many legislators were pushing for.

Limiting interest rates

The interest rates of personal debt loans in Colorado will now be limited to 45 percent annual interest. Like most pay day advance loan products, the term of the loan is much shorter than a year, but interest rates are often calculated on an annual basis. The current cap on these loans in Colorado is 300 percent annual interest. Legislators were pushing for a 30 percent cap, though lenders pointed out that high administration costs and default rates made offering loans at that rate very difficult.

Extending the term of the loans

Currently, the short term loans offered in Colorado can have terms as short as two weeks. When the new legislation goes into effect in August, that term will be extended. Lenders will be legally required to offer a term no shorter than six months on the loans. Borrowers will also be required to have the flexibility of repaying the loan earlier than the six month term.

Monthly and origination fees

To help ensure that short term loan credit is still available in the state, the new bill allows both monthly and origination fees on these loans. Lenders will be allowed to charge an origination fee of $75, and monthly fees of $7.50 per $100 borrowed, up to $30 maximum.

The debate over payday loans in Colorado

On the Senate floor and in the Governor’s office, the debate over pay day loans has been heavy. Some legislators want to pass even stronger regulations on the payday loan industry. The current bill, though, passed with a very slim one-vote majority. In the end, payday loans continue to be a controversial issue, and the state legislature is sure to revisit the issue again.

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.

Predatory lenders attack when a loan is originated; loan sharks attack later, when the loan is being serviced.

Earlier this month, the Virginia House of Representatives voted overwhelmingly (96 to 2) to place new restrictions on car-title lending. Loans secured by vehicles have become very popular. Increasingly, however, they are being attacked by consumer protection advocates and other special interest groups as a particularly virulent form of predatory lending.

Following the lead of a similar law in Tennessee, law-makers in Virginia made a failed attempt to regulate car-title lenders last year. Two years ago, however, they managed to enact legislation regulating payday lenders.

Virginia places limits on car-title loans

According to the Washington Examiner, the Virginia legislation will do away with open-ended car-title loans and limit loan terms to one year. It will also establish minimum standards for borrower eligibility, restrict loan amounts to 50 percent of vehicle values, establish interest caps and prohibit the charging of interest after a vehicle has been repossessed.

What is predatory lending?

Predatory lending generally refers to unfair, deceptive or fraudulent practices by lenders during the loan origination process. There is no precise legal definition of predatory lending, but according to Wikipedia, the FDIC has broadly defined the term to mean the imposition of “unfair and abusive terms on borrowers.”

There are, of course, many state and federal laws prohibiting specific practices that satisfy the FDIC’s definition of predatory lending, but the term is basically used as a catch-all for various illegal activities in the generation of loan agreements. Predatory lending issues frequently concern loans secured by cars or real estate, which can be structured to facilitate a borrower’s default and to create unfair profits for the lender as a result of repossession or foreclosure.

Will the new Virginia law stop predators?

At least one outspoken Virginian thinks the new car-title loan regulations are, to put in inelegantly, “a joke.” Writing for the Daily Press, Carol Capó points out that the enactment of payday lending regulations in Virginia opened the door for unscrupulous lenders to circumvent the intent of the law by shifting their business to car-title loans.

Car-title loans,  Capó says, inflict even more harm on borrowers in precarious financial situations than payday loans do. When borrowers in desperate need of money pledge cars as collateral for high-interest loans, they don’t just risk losing their cars. They risk being unable to get to work where they can make money to pay off the car-title loans as well as the other debts that drove them to desperation in the first place.

What do predators do with all that money, anyway?

Capó says the interest rates allowed by the new legislation are exorbitant, and that they resulted from proverbial lobbying efforts. Car-title and open-ended lenders, she says, bought the interest rates they wanted by contributing more than $1.5 million to Virginia politicians over the last five years.

The changing economy and investments

The result of failing credit is people want to put away cash. A recent Gallop poll showed that over 60% of Americans are more focused on saving than spending. That means that people are listening to the news about retirement funds and taking matters into their own hands. Social Security is expected to be gone in upcoming years and people will have to be prepared with their own cash reserves to manage through retirement. Though it is difficult, there are reasonable ways to save, but consumers are cautioned to be aware of things that could eat away at their hard-earned savings. Here are some things to watch for as the economy still shifts to regulate itself.

Federal income taxes

Everyone who has retirement accounts needs to know how funds will be taxed once they tap into the money. Changing rules can quickly diminish savings and leave consumers with considerably less money than they had anticipated. For any consumer who has 401k, SEP plans or IRAs, they need to be aware of the tax ramifications. Experts caution that consumers should consider putting money into tax-free vehicles like Roth IRAs and Roth 401k accounts. Tax-exempt bonds or capital assets like stocks, mutual funds and real estate are also good options that hold up well to any changes in the federal tax rate.

Changing interest rates

Another issue consumers need to be aware of is a change in interest rate. For example, if consumers look at the average CD interest rate, it is considerably lower than it was a few years ago. The interest rate on a year-long CD barely reaches 1%, while in 2002 the rate was at 6%. Consumers need to be aware of how anticipated funds can be much lower if the interest rate continues to fluctuate. CD laddering is one way to mitigate losses due to interest rates. This method will generate higher income from long-term interest rates and reduce losses of short-term changes in the market.

Pensions are reduced

Payday cash is not the only inflow of funds consumers need to be aware of throughout their lifetimes. There is also the pension to worry about. For example, a few years ago United Airlines filed for Chapter 11 bankruptcy. Though workers’ overall pensions were insured, that didn’t mean that some had to take considerable hits to the amount. One pilot who worked for United Airlines took a $7,200 a year cut in his pension without notice as a result of the company’s restructure. Retired consumers need to be aware of how their former employer’s changes can affect their payout. It’s a hard lesson to learn, but the key is to be prepared for it with additional cash reserves if it does happen.

The future of investing

Consumers are being warned by experts to change their way of viewing retirement funds. Although a worker can pay into funds for the duration of their working years, that no longer means the money will remain stable. Market fluctuations, changes in interest rate and changes in taxation all can affect funds. The best thing for consumers to do is to be aware of the potential changes and either move money to different savings vehicles or compensate in other ways for the losses. Payday cash should be a high priority for consumers today, but so should their retirement plan. Experts are warning people to be vigilant about what could happen in the future. The recession taught people a hard lesson on how investments’ values can change quickly in a volatile market.

Federal Reserve Chairman Ben Bernanke has been under constant fire since the beginning of the great recession. Some people say he was put into a difficult situation, but still others maintain that his performance has been worthy of scorn. Marketwatch reports that gold prices have fallen for the third straight day, while Reuters reports that the Bernanke testimony has people skittish on jobs and America’s economic recovery. Payroll loans should be expected to continue at their current rate as the economy remains uncertain.

Frank McGhee of Integrated Brokerage Services told Reuters that difficulties with the euro have shifted some of gold’s value back toward the dollar. Gold bullion, which has generally been seen as safe in tough economic times, is tending to run with riskier markets, which some consider to be a bad sign.

Recovery “not yet sustainable”

Continued low interest rates go along with this, which does little to encourage investors. Bernanke testimony included a promise to Congress that the Federal Reserve will abandon its “ultra-low monetary policy” when there is real recovery, namely by adjusting the rate for lending between banks.

Gold and currency trade are down

That’s the way it will stay until there are more obvious signs of recovery, signs that sustainable recovery is well underway. Reuters indicates that the International Monetary Fund is attempting to liquefy its gold supply, which is influencing prices and keeping traders wary. It all leaves regular people wondering where they can get a personal loan to make expenses. The Bernanke testimony doesn’t make things appear any more positive at the moment.

(Photo Credit: http://www.flickr.com/photos/gageskidmore/ / CC BY-SA 2.0)

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Get the facts lined up before you decide to consolidate

Consolidating student loans may be a helpful alternative for someone struggling to pay off multiple loans, particularly if some have high variable interest rates. Although college loans are considered to be good debt because they are financing a person’s future, they can nonetheless be a burden to repay. Those who find themselves in deep student-loan debt after their educations are complete often find that consolidating student loans really helps with the bottom line.

The decision to consolidate student loans

There’s no right or wrong answer when it comes to whether or not you should consolidate student loans, but there are many factors to consider. The only answer that applies universally is that whether you should consolidate depends on your individual circumstances at the time, including type of loans you have and their interest rates. For instance, as of 1996, PLUS and Stafford loans have featured a fixed interest rate. For students with loans prior to 1996, however, the interest rates were variable. This means that the rates on these loans may continue to fluctuate each year. People with a variable rate often consolidate their loans in order to obtain a lower fixed rate.

Getting the best rate when consolidating student loans

Variable interest rates for student loans are established on July 1 of each year. Depending on current interest rates, a person planning to consolidate may want to wait until July 1 to do so, especially if interest rates have been falling.

Treasury-bill rates and student loans

One way to gauge how student loan interest rates are shaping up is to watch the government’s interest rate on the 91-day Treasury bill upon which student loan interest rates are based. You can do this very easily online at the federal government’s public-debt website . Note that special formulas apply to different loans. For instance, the rate announced on July 1 equals the Treasury bill rate from May plus 2.3 percent whereas the PLUS loan rate equals the May Treasury bill rate plus 3.1 percent.

Check your facts first

It is best to make sure that these formulas are correct before making the decision to consolidate student loans. You can do this easily with a little online research online or by speaking with a financial planner. If after studying current interest rates, it appears that a lower, fixed rate can be obtained by consolidating student loans, consolidating may be a good idea.

An online loan may help

Whether or not you decide that consolidating student loans is the best option for you, an online loan or cash advance is easy to obtain and can help you pay off student loans and other debt. Credit checks normally aren’t required, so people with bad credit can generally get online loans easily. However you approach repaying your student-loan debt, considered all the options, but don’t ignore the debt. Consolidating your student loans can help protect your credit rating, and in the long run, a good credit rating really pays off.

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.

Interest rates remain low to start the New Year and the economy is beginning to show signs of stabilization in the mortgage sector. These elements add up to a promising outlook for those people interested in buying a home in the coming year. Some areas of concern remain, however, causing the credit market to remain tight. One of these concerns is the fate of the Fannie Mae and Freddie Mac government programs. These federal programs have been controversial since their inception, and their shaky financial standing in a debt strapped government is a real concern for the future. According to U.S. News, there are some things that borrowers should consider when deciding whether or not to move forward on their plans for a new mortgage. Borrowers can better position themselves for success and a better rate when armed with the right information.

Credit remains tight

The economy is recovering and the President is pushing for banks to help consumers obtain mortgages. Lenders are not likely to have short memories, however. The last few years have been stressful and economically dangerous in the banking sector. Don’t expect to find lenders reverting back to the easy credit days of 5 or 10 years ago. Borrowers need to take steps to build, repair, and keep their credit ratings as high as possible to get the best chance for approval.

Save, save, save

One effect of the tight credit market is the disappearance of zero down mortgage loans. The FHA will require a 3.5 percent down payment and borrowers will have to come up with 20 percent down to get the best rates available from banks. These requirements are nothing new for mortgage loans. The difference is that it will be less likely a borrower can get seller financing or roll the down payment into their mortgage. Secondary loans for down payments will be virtually non-existent. Borrowers will have to show that their down payments come from them and are the benefit of sound financial planning.

Credit score requirements may be raised

FICO reports that lenders are requiring a score of at least 730 to get the best mortgage rates and the minimum score to get a mortgage at all is approximately 620. In the past, scores in the mid 500’s were commonly approved for new mortgages. Borrowers will have to do a better job of explaining problems on their credit reports and show better proof of their assets during the approval process as well. Borrowers should get a copy of their credit reports from all three of the major credit bureaus and begin working on repairs now if they plan to get approved this year.

Federal rate hike expected

The time to act is now for people looking for the lowest rates. The economic recovery is good news, but comes with the expectation of higher interest rates to stave off inflation. The feds are likely to raise rates as early as February if the economy continues to rebound. The rate hikes will be small at first so that the fragile recovery isn’t crushed. However, every dollar counts over the course of a 30 year mortgage.

Many consumers today are looking for debt relief. Without knowing it, however, they have the solutions to many of their problems right in front of them. Due to the recession, now is not the time to be lazy about change or being proactive. Here are some things that need to be addressed because if they aren’t, the will cost dearly in the long run.

Optimizing savings rates

Many people are not proactive with where they put their money. It’s more convenient to put money into one bank and leave it there, even if there are higher interest-returning accounts available. Justin Prichard, bank expert at About.com, stated, “The best annual percentage rate consumers will get at traditional banks is about 0.75 percent APY. Internet banks can easily offer up to 2.25 percent.”

Though it seems like a small difference, over time it adds up. For example, on a $100,000 account, compounded monthly for five years, the 2.25 percent interest rate earns an additional $8,000 more than the 0.75 percent rate. Prichard added: “People are creatures of habit. If their money is somewhere, and they’re busy doing other things, they don’t necessarily try to do better. But if people have a decent chunk of change, it’s worth it.”

Having an IRA set up

Despite their perks, many people are putting off starting their IRAs. If a 40-year-old opens an IRA and saves $5,000 annually at 6 percent, that person will have about $291,000 by the age of 65. Whereas if he or she had started the account at 25, at the same deposit and interest rates, the account would contain $821,000.

The benefits of an IRA make it hard to believe that every consumer isn’t proactively using the tool as a way to save money. It’s tax-free money and matched by many employers. People should start taking advantage of these as early as they possibly can. Time is the key to compound interest.

Take advantage of department stores’ rebates

A great way to find extra money is to take advantage of department stores’ rebates. A lot of customers are lax when it comes to cutting off the barcode, filling out the application and sending it in. Rebates, however, can save customers up to 10 percent of their big-ticket purchase. When those items are dishwashers, refrigerators and computers, the savings is substantial. The key to finding debt relief is looking at small ways to cut back. Rebates are a great way to find extra money.

0 percent financing deadlines

Consumers also don’t normally pay attention to when their great 0 percent financing deal ends. Many stores offer 0 percent financing for a specific time period. These are great to take advantage of, but consumers need to remember that at the end of the allotted period, interest charges start.

For example, P.C. Richard & Sons sells $3,200 televisions with a 0 percent financing rate for 18 months. After the 18-month period, the interest rate is 22 percent. Say a consumer pays $3,100 prior to the 18-month period and has a remaining balance of $100. If he or she waits one day after the offer expires, that person will owe $800. The first $100 was the remaining balance, but $700 is the interest owed on the entire $3,200.

Savings are available

In the end, savings are available but consumers have to be actively involved in their management. It may seem like a lot to remember deadlines and rules, but if one action brings savings to apply toward debt relief, then it’s worth it.

The financial collapse that began in 2008 stimulated Americans to begin saving more, with national saving rates going up significantly over the last year. However, this increase in savings also coincided with a dramatic drop in interest rates, meaning that most interest-bearing savings instruments are now earning minimal returns. The low rates of interest from most traditional savings accounts have led many people to ask where they should put their savings in order to get a decent return and what sort of savings strategy they should adopt.

Forget about the rate

Basically all of the primary savings instruments – bank savings accounts, certificates of deposit, money market funds, and so on – are offering minimum interest rates for the time being, making any choice about as good as the other. Instead of focusing on the current interest rate, at present you should consider the safety of your savings first and foremost. That is, deposit your money in a FDIC-insured account, regardless of the current interest rate. This guarantees that you will not lose anything beyond inflationary devaluation.

Interest rates are likely to increase

Despite the effect it may have on efforts to mitigate the recession, the fact of the matter is that the Federal Reserve is going to have to increase interest rates at some point to offset the decline of the dollar and to encourage increased foreign investment. With much of the rest of the world already going into active recovery, new investment opportunities are wooing away foreign investors from the United States. In order to remain competitive and balance out the effects of declining dollar value, the Federal Reserve has little choice in the matter.

What an interest rate hike will mean

For people in debt, an increase in the interest rate will have a detrimental effect as the interest levied on the debt will also go up; however, for savers the current low rates of return should also rise. Once interest rates begin to increase, it will be prudent for savers to shop around for better deals. For the time being, you should avoid putting your savings in any sort of account that limits your immediate access to it. If the interest rate goes up over the next few months, then there will be much better opportunities than anything available now.

The continuing credit crunch

Although the worst effects of the credit crunch seem to be over, the banks are still wary of lending to anyone without a good credit score and sound financial situation. This mean not only that are many banks are being cautious about lending to private customers, but that they are also being careful about lending to each other. Eventually, many banks, especially local banks with sizable commercial real estate holdings, will be working hard to attract cash investors. Looking into savings with these banks might be worth the time and effort.

Basic advice for right now

Right now you are not likely to find any secure savings options that are paying decent interest, but this is bound to change in the foreseeable future. Therefore, the best idea is to keep your savings liquid and do not lock them into anything. Once interest rates go up, many more opportunities will present themselves and at that point it would be worth the effort to shop around for the best rates you can find. Further, since rates are bound to go up, if you have much variable debt, perhaps you should consider using your savings to pay it off before interest rates go up.

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.

Payday loans have not put this woman on the street. This study indicates that there is in fact no clear correlation between using payday loans and facing financial calamity like bankruptcy. (Photo: flickr.com)

Human Ecology professors Ruth Berry and Karen Duncan of the University of Manitoba appear to have been ready to point the accusing finger at payday loans in Canada. Given supporting data, it appears they would have been happy to report that payday loans and bankruptcy were strongly connected in the Great White North. However, “The Importance of Payday Loans in Canadian Consumer Insolvency” does nothing of the sort because doing so would fly in the face of hard evidence. There is no clear correlation between bankruptcy and use of payday loans in Canada, according to the authors of this study. In fact, the overall financial well-being of payday loan customers appeared to be slightly more favorable than those surveyed who did not use payday loans.

Payday Loans in Urban Centers and Inner Cities

In much the same way that payday lending has grown across the American landscape, payday lenders have stepped in to serve people of the inner cities who have been abandoned by the traditional banking industry – all because there wasn’t enough money to be had. And yet the same banks are the ones who charge payday loan companies with exploiting the public. While it is true that interest rates (when annualized as APR) for payday loans are higher than some traditional bank loans, the ease and convenience of payday loans tends to trump the offerings of banks and credit unions who demand higher customer qualifications and force applicants through a maze of paperwork. Credit-constrained consumers who lack liquid assets continue to find payday loans infinitely useful.

Berry and Duncan Want to Find the Payday Loan-Insolvency Connection

In their quest for this grail, the authors obtain data from “the main industry players in the payday loan field in Canada,” namely National Money Mart Company, RentCash and Cash Money. They also reference the Canadian Payday Loan Association, which is the national industry association that represents at least 40 payday loan companies (including those mentioned above), and the Financial Consumer Agency of Canada through analysis of related studies.

Previous Studies Didn’t Find a Connection, Either

“Not much literature exists connecting the experience of payday loans with consumers filing for bankruptcy,” write the authors. Perhaps this is because there isn’t a real connection? One study they cite found that only one in 10 payday loan customers filed for bankruptcy following a payday loan. Other studies noted a similar percentage. Those respondents who were found to have multiple payday loans at the same time may have been more prone to bankruptcy, but this group was found to be a minority. Moderate usage – which represents the majority of payday loans – shows no clear correlation with bankruptcy filings. In fact, a study by Robert Mayer (“Payday Lending and Personal Bankruptcy,” 2004) showed that those who displayed such moderate use owed only 17 percent of net monthly income, which is hardly a bankruptcy-inducing situation.

More Findings that Break the Mold

• The authors’ data indicated that payday loan customers tended to hold less in the way of long-term loans that did those surveyed who did not use payday loans. Such loans were most often mortgage loans.
• Interestingly, those who filed for bankruptcy and had used payday loans carried “significantly less” short-term debt than those bankruptcy filers who had not filed for payday loans. Payday loan customers held a mean of $14,485 in debt for 2005 and $13,938 for 2006, while those who did not use payday loans showed a mean debt of $25,972 and $26,615 in those years.
• Insolvent consumers didn’t display any tendency toward being either male or female.
• Households surveyed who used payday loans tended to be smaller than those households who didn’t.

Data by City

Berry and Duncan analyzed data from a number of major Canadian cities. What they found tended to be consistent with what has been discussed thus far: that payday loans do not correlate directly to bankruptcy and that payday loan consumers tended to display greater financial well-being than those surveyed who had never used the short term loans. Here’s a sampling:

Vancouver: Bankruptcy households who used payday loans versus those who did not displayed a higher average income.

Calgary, Edmonton and Toronto: Payday loan users showed much less long-term debt.

Installment Loans: Yet Another Path to Avoiding Bankruptcy

Berry and Duncan freely admit that “bankrupts with payday loans are more likely to be employed and have higher incomes and lower debt-to-income ratios than other bankrupts.” This brings them to their burning question: “Do payday loans contribute to bankruptcy?” Numerous studies paint very different pictures regarding the average amount for payday loans. Since more of them point to relatively small figures, it seems unlikely that such amounts would contribute heavily to bankruptcy. And since many lenders offer installment loans as an option in the event that a consumer is unable to pay their payday loan on the maturity date, there is a built-in path leading away from default and bankruptcy.

There’s an Indictment in Here Somewhere

Despite the fact that they found that payday loan customers tended to be more financially healthy than those respondents who never used the product, Berry and Duncan continue to operate from the position that payday loans are some evil product that should be avoided at all costs. Such is not the case, truly. They fulfill a need that traditional banking has largely ignored. Oh, but if only “mainstream lenders provided more accessible services, and educational institutions and non-profit or government agencies gave more objective information about payday lenders in public service advertisements, perhaps these borrowers might attempt to access other lending options,” write the authors. They follow that statement with the false claim that payday lenders do not make their interest rates known to consumers. In America, payday loan companies are required by the Truth in Lending Act to make this information readily available to consumers.

Prescience and Payday Loan Law

If there were only a database in place that could record payday loan usage, then perhaps there would be fewer abuses. That’s what the authors suggest in their 2007 study, and it has come to pass in numerous U.S. states. “A model that might be considered for regulating the number of payday loans held by one individual is the Drug Program Information Database (DPIN) which connects Manitoba Health and all pharmacies in Manitoba to a central database,” they write in reference to a 2006 Manitoba Centre for Health Policy study. “This prevents duplication and double-doctoring by providing the dispensing pharmacy with real time information to show the patient’s drug profile and allows the pharmacist to deny filling a prescription, which is the same or similar to another recently prescribed.” This is quite similar to what we see with payday loan databases. Such inventions do tend to lean toward the nanny state frame of mind, but many lawmakers have insisted upon pushing it through.

Correlation Does Not Imply Causation

And in this case, the authors can’t even draw a correlation between payday loans and bankruptcy filings in Canada. Certainly, those who have filed for bankruptcy would be burdened by any additional debt (including payday loans), but that implies no correlation (let alone causation). “It is not possible to determine whether the loan is hastening the insolvent’s decision to file for bankruptcy,” write Berry and Duncan. I’d go further than that, based upon their findings. I’ll say what they appear unwilling to admit: that payday loans help more than they hurt when used moderately (as most are). Bankruptcy is frequently the result of a complex mixture of financial and social issues. Payday loans are no scapegoat.