A lot of people talk of the topics of debt consolidation against debt negotiation because both of these alternatives suggest the opportunity for financial freedom. Identifying which alternative is best will depend on the person’s situation. Every of these decisions have pros and cons. Both must begin with a cautious research of the personal financial case. The customer must decide what kind of service, what they are able to pay and what the entire consequence will be for the credit report. Consolidation and negotiation will be represented in a different way depending on whom the person speaks to and what their favors are. Consolidation organizations will take the view that debt consolidation against debt negotiation is not actually two various things. The majority of companies can and will provide both services. Not only will they consolidate debts into one paying but they will negotiate with lenders for lessened interest rates and annulment of fees. They will help with consolidation and payment of the debt but this is not actually negotiation. It is crucial for the person to comprehend exactly what service is accessible and how it will be used to make credit grow and lessen the debt.
When considered from the negotiation part, this debate can be seen as something entirely dissimilar. Negotiation draws into the bargain with lenders for a smaller repay amount. The majority of lenders are able to settle for a lessened amount if the amount is repaid in entire sum. Negotiation services will work with the customer to find the compromise. This can be a long proceeding, taking as long as half a year to a year. Once a customer identifies what they can essentially repay, the organization will make an offer for the person to lenders. The customer must have the finances in the bank waiting when a settlement is achieved as repayment is required instantly.
Because these several alternatives are very dissimilar, they will have dissimilar effects on a credit report. Negotiation may not fix credit but it will represent that the customer has repaid the liabilities in entire sum which can go a long way with future lenders. Consolidation has customarily an impact on a credit report after counseling. Some lenders view this as a good step, specifically since timely repayments are settled. They may shift all bad information once the customer has finished a consolidation program, but this depends on lender. Reviewing the impacts on the credit report is just one of many approaches that the debt consolidation against debt negotiation discussion can be considered. This subject can be discussed from another point of view. Some individuals may feel it is perfect to repay off everything that they have to, which is only reached through consolidation. Others think that things like interest and fees are not inevitably valid liabilities that must be repaid back. Regardless which party of the discussion an individual take, it is up to the person to come to a final decision about expenditure habits.
Today one must know how to select the credit repair companies that really “deliver”. Too many of the credit repair companies are fighting to get you as their loyal client, but of course not all of these companies are ready to really assist you with repairing your credit. More info about credit repair companies.
Customer debt settlement suggests an approach for debtors to lessen or eliminate unsecured liabilities through negotiations with credit card organizations and other personal credit lenders. If one takes complicated, unsecured liabilities through charge accounts and other personal credits, there are a lot of settlement organizations that can assist in a legitimate and positive way. Customer debt settlements can be reached by professional sources you can find in the web. A customer debt settlement has become a favored option for a lot of people who have remarkable personal liabilities and are not capable to meet their payment amount.
The majority of Americans who are thinking of consumer debt settlements, find they are in immoderation of ten thousands of dollars of unsecured debt through credit card charges alone. A huge number of households are repaying between eighteen to twenty four percent money charges on charge accounts and refuge to repay the interest charges every month without taking the principal. A customer debt settlement alternative may offer the relief required. For those who are experiencing financial difficulties through many unexpected circumstances such as illness, divorce or unemployment, utilizing a company can offer a welcome alleviation. Organizations, law companies and non-profit companies provide alternatives for personal, financial decisions. Some options contain consolidation credits and conversion an individual budget. But for those who require financial management, debt settlement is an approach to repay off all financial liabilities and start to fix credit history without using bankruptcy. A confident, credit counseling organization can offer a professional judge who can negotiate with creditors a lessening of all liabilities to repay off. Sometimes securing as much as a sixty percent entire debt lessening, meets the creditor’s needs.
Sometimes, if one is not capable to agree to pay up to eighty five percent of a customer debt settlement, credit card and other creditors will accept to report a balance with them paid as agreed. This will eliminate individual’s credit report immediately and credit history can be fixed. Customer debt settlements that are made for less than eighty five percent are harder to settle a positive repay off status, nevertheless not unreal. An experienced professional may sometimes be capable to settle an agreement for a paid as agreed repay off status for a lessened percentage. It depends on the lender’s capability. These decisions can be efficient because most creditors are happy to get some repay off as opposed to nothing. Another alleviation alternative suggested is negotiations for more crucial financial circumstances. Customers who have met with unforeseen, financial difficulties can find assistance through organizations that can negotiate with lenders on behalf of customers. Through professional judges (arbitrators), consolidation services debt settlements can be secured that can lessen a customer’s entire debts by as much as sixty up to seventy percent in some situations.
By far not all credit repair companies are created equal. And though credit repair market is flooded with credit repair companies offering their services, you need to be smart to choose the best.
Learn more about credit repair sales here.
Credit card companies are the great part of the financial market. People are looking for the good credit card offers as nowadays it’s essential to have the credit card. Even if you prefer to pay in cash in order not to get in debts, you still need a credit card as there are products and services you can buy with the credit card only. The credit card is also great in case of emergency if you don’t have enough cash with you at the moment. It might even save your life. Of course, not all people are able to manage their finance in the right way and keep under control the use of the credit card. The interest rates the credit card companies offer are usually more high than the average value in the financial market. Therefore the excessive use of the credit card might result in the growing debts. In order not to follow this way the customer should remember the terms and conditions of his credit line and follow the rules strictly. It’s necessary to make the monthly payments on time and pay all the necessary fees. This will not only save you money but also add some good records to your credit history. This is the simplest way to improve your credit values such as the credit score and rating. These values are the most important factors when you need the personal loan and the bank you apply for makes the decision on the approval of your application.
When you look for the new credit card, you will see that the number of different offers is great. They vary not only with the credit conditions but also with the specific options the credit card companies offer to their customers. However, it’s also necessary to take care about the fees. Make sure that you don’t have to pay something special.
The credit card options are very different. The most popular one is cash back and the customers find it very profitable. This is the good advantage for those who have good credit score. In order to apply for the cash back program it’s necessary to check whether the credit values are high enough. If not, your application is very likely to be rejected. The cash back programs are usually called the reward programs. The common concept of them is the following. When you pay with the credit card, the definite amount of money is sent back to your credit card and in this way the purchase is cheaper. This amount depends on the price of the product or service you buy and the definite credit card program.
The reward is another incentive to spend more. You need to be very careful with this option. Note that the cash back credit card programs often have higher interest rate. This is the way the credit card companies benefit from this credit card type. They don’t offer anything for free.
Although your credit card has lots of great options, it’s good idea not to use it too much.
This simple rule can save you big money in your everyday life: never rush to fill out any credit card applications, before researching the niche.
Surely sometimes credit card applications are the only way to get access to the numbers about quotes. In this scenario your actions make sense. In all other cases – do not hurry up. Visit this blog and learn the useful tips about how to choose proper credit card applications and how to act
accordingly.
Nine months later, the Credit CARD Act of 2009 is finally going into full effect. We’ve seen banks slowly react to the new laws by working the loopholes, rather than complying ahead of time, but come Monday February 22, 2010, all the provisions of the CARD Act will be law. Here are a few of the key changes to the law that matter to consumers:
Credit Card Disclosures
Credit card issuers must now give you 45 days notice before making changes to your rates or fees. This includes:
- Interest rate hikes (for fixed APR credit cards)
- Doesn’t apply to variable rate cards
- Doesn’t apply for changes after an introductory rate expires
- Doesn’t apply for defaulted accounts
- Change annual fees, cash advance fees or late fees that affect your card
- Make other “significant changes” to your terms
If you don’t like the changes, you have the right to close your account. Closing your account will let you opt out of the changes and you will have a minimum of five years to pay off your balance. Note: this could mean that your minimum payment will go up.
Credit card companies must tell you how long it will take to pay off your balance. A new section will be added to your bill that tells you how long it will take to pay off your credit card with the minimum payment as well as how much you will end up paying in interest. Also, your bill must show you how much you will have to pay to eliminate your credit card debt in three years and how much interest you will pay in that scenario.
Billing and Payments
Credit card companies must deliver your bill at least 21 days prior to the due date.
Credit card bill due dates must be the same each month.
Payments sent prior to 5 PM on the due date are considered on time.
If due date falls on a a holiday or weekend, credit card companies must accept payments as “on time” on the following business day.
Credit card payments apply to highest interest balances first. For example, if you have a cash advance balance at 20.99% and a normal purchase balance of 13.99%, your payments pay down the cash advance balance first. This does not apply to purchases for deferred interest plans. If you wish to pay down the balance on deferred interest, you must request that extra payments be applied to that balance. Otherwise, your credit card company will begin applying payments towards the deferred interest 2 billing cycles prior to the end of the deferral period.
Double-cycle billing, otherwise known as two-cycle billing, has been banned.
Credit Card Fees, Rates and Limits
Credit card issuers cannot increase your interest rate in the first 12 months after signing up for a card. There are the usual caveats to this rule, however:
- Does not apply to variable interest rate credit cards.
- Introductory rates can still be offered (for a minimum of 6 months)
- Does not apply if you are over 60 days late on a payment
Increased rates will only be applied to new charges. For example, if you have $5,000 in debt at 13.99% and the credit card company raises your interest rate to 17,99%, you’ll still pay 13.99% on the original $5,000. Subsequent balance accrued will be financed at 17.99%.
Cardholders must opt-in for over-the-limit protection. Otherwise, your card will simply be denied if you are maxed out. If you do opt-in for over-the-limit protection, your credit card company can only fee you once per billing cycle for going over-the-limit.
Credit card fees are capped at 25% of the initial credit limit. This only applies to annual feels, application fees, etc. and does not include penalties.
Consumers under 21 must have a co-signer or show proof that they can make payments.
With all that being said, it’s important to note that the CARD Act doesn’t cover everything. Be sure you’re aware of what’s not in the CARD Act. After February 22, credit card companies will still be able to do the following:
What’s Not Covered by the CARD Act
Credit card companies can raise your interest rate after 12 months without cause. All they need to do is notify you, pursuant to the above rules. This will apply to your future purchases.
There is no cap on interest rates. This is something that consumer advocates fought hard for but didn’t get into the bill. Credit card companies can still charge you sky high rates if they want (and if its commercially viable). But of course, you can always close your account if this happens.
New fees are fair game. The CARD Act made the mistake of specifying the fees that it was restricting. The new kids on the block – stuff like dormancy fees, paper statement fees and foreign transaction fees – are still on the table. Read more about new credit card tricks in the post-CARD Act era.
Your credit limit can still be reduced. Issuers can still cut down on your rates or even close your account without the 45 day notice. Be sure to call and ask why if this happens, since it can be hell on your credit rating.
Variable rates still suck. While efforts have been made to protect your fixed rate APR from getting jacked up, variable rate credit cards, by nature, can still go up and up for essentially no reason.
How do you feel about the new changes thanks to the CARD Act? Do you feel safe as a credit consumer? Or do you feel like it’s too little, too late? Sound off in the comments.
Image: SEIU International
Related posts:
- Watch Your Back: 8 Up and Coming Credit Card Fee-Creep Tricks
- Credit card bill on the way… (We hope!)
- New Rules for February: College Students Won’t Be Receiving Any Valentines from Credit Card Companies in 2010
Credit cards are far from one size fits all and the big names in lending know it. That’s why they’ve devised each credit card to target a specific demographic and income level. Whether it’s so you can get the most rewards out of the credit card or it’s so the credit card companies can get the most profit from you is debatable. Either way, it’s interesting to see the vast differences between luxury credit cards and plastic for the poor, unemployed and possibly even bankrupt. Check out some of these outliers on either side of the spectrum.
Luxury Credit Cards for Big Wigs and High Rollers
The American Express Centurion (aka the Black AMEX)
Centurion, literally, means an officer in the Roman army. In other words, one of the most powerful individuals amidst one of the most powerful empires in history. And that’s exactly the message that the Black AMEX means to convey. This invite only luxury credit card is the engimatic credit card of the rich and famous with numerous high bars to keep the riffraff out, including a $2,500 annual fee. To even get on the radar, you have to spend $250,000 annually on an American Express Platinum Card, another exclusive invite only card that requires you to first rack up a big bill on your American Express Gold or American Express Green card. There are approximately 30,000 to 100,000 people out there who’ve jumped through enough golden hoops to wield this monocle-dropping piece of plastic including Simon Cowell, Beyonce Knowles, Kanye West, Jerry Seinfeld and Lindsay Lohan.
Visa Black Card
Barclay’s Bank came up with this “me too” card in early 2009 and are trying to build a mystique and prestige comparable to the AMEX Black Card by stating that the card is available only to 1% of the U.S. population. However, with an annual fee of $495 and the ability to apply online, the Visa Black Card is clearly the poor man’s luxury credit card. Still, Visa goes to great lengths to make you feel like a sultan even if you’re nothing but a lowly princeling by offering 24/7 “world class concierge” service, meaning they’ll do everything for you from coaching you on business meeting protocol in Japan to booking you a tee time or hunting down a rare, out-of-print book.
Citi Chairman Card
The Citi Chairman Card was designed to pamper C-level executives of global moneymakers at the dizzyingly high standard of luxury that they are accustomed to everywhere else they go. Originally catered towards clients of Smith Barney, the Citi Chairman card offers 24/7 concierge service, sweet deals on private chartered jets and ample insurance for pretty much any little thing that can go wrong at home or abroad, all for a $500 annual fee.
Credit Cards for the Poor
Visa ReliaCard
“Just because someone doesn’t have any money doesn’t mean you can’t make money off of them” was probably the rationale behind U.S. Bank’s ReliaCard, a debit card designed for the unemployed. For those out of work but still covered by unemployment insurance, you can choose to have your paychecks from Uncle Sam loaded directly onto your Visa debit card so you can use it just like any other piece of plastic. It’s actually kind of a win-win situation, especially for those who don’t have bank accounts: you avoid the exorbitant fees of seedy check cashing joints, the government saves on paper and the card issuer gets interchange fees.
Bank of America Secured Visa
A secured credit card is about the best route you can go when rebuilding your credit card after a bankruptcy or credit rating misstep. But they are becoming harder and harder to come by. That’s because they aren’t hugely profitable for credit card issuers since there is little to no risk of defaulting, overdrawing or incurring a late fee. For example, the Bank of America Secured Visa’s credit line is commensurate with the amount of collateral you put up and it can be as low as $300. The card only has a $29 annual fee and is really more like a credit card with training wheels for people looking to rebuild their credit.
AccountNow from Visa or MasterCard
The Visa AccountNow and Mastercard AccountNow are kind of like a payday loan joint and a prepaid credit card all rolled up into one. You can have your paycheck deposited directly into your AccountNow card and then use it like any other Visa or Mastercard. You can also wire cash to your card through MoneyGram or Western Union (making it great for Nigerian scammers, I guess). But the really whiz bang thing about the AccountNow card is the ability to get a little bitty loan from time to time. You can do so by requesting and advance by phone or online and then the money is put onto your card. You have to borrow in $20 increments and your charged an upfront advance fee of 12.5%. After that, iAdvance automatically takes a cut of your direct deposit paycheck to pay off your debt.
Of course, you should really, really crunch some numbers before deciding if this card is right for you. In fact, iAdvances own website says: “You should carefully consider the costs of iAdvance. Alternative forms of short-term credit exist that might be less expensive and more advantageous to you as the borrower.”
Know of any outrageous luxury credit cards or credit cards geared towards low income consumers? Tell us about them in the comments.
image by infrogmation
Related posts:
- Dreaming Big: The Luxury Credit Cards
- The Business of Credit Cards – Part I
- A Primer: Secured Credit Cards
Washington Post recently ran some required reading for all credit card users entitled “Five myths about America’s credit card debt.” Don’t be deceived by the somewhat banal title – this piece is actually very illuminating and broaches some topics not usually discussed in the day-to-day blogosphere.
The last myth is perhaps the most interesting and topical. Here it is:
“The CARD Act finally protects consumers against the credit card industry’s most abusive practices.”
The answer to this is a surprising “yes and no.” According to the Post, there is some overdue reigning in of some of the most egregious credit card practices, but some restrictions and protections are left out and some measures were simply too little too late.
This next paragraph is old news to anyone who’s been taken for a ride by the credit card companies in the past few months, but its still satisfying to see the mainstream media confirm it again:
On the negative side, Congress stipulated a nine-month phase-in period for these regulations. For millions of Americans, especially those suffering from employment and income interruptions, this is too late. If you’re in debt today, this bill doesn’t help you. Companies already have jacked up interest rates, sharply reduced lines of credit, increased service fees and diluted the value of loyalty reward programs. These trends have brought consumer credit scores down, triggering higher borrowing costs and greater difficulty finding work.
So, we’ve taken two steps forward when we really need a giant leap in credit reform. The “silver lining” of this relatively disappointing bill, according to Washington Post, is that more consumers are completely disillusioned with credit cards and are “leaving home without it.” But there are still some of us who haven’t quite weaned ourselves off of revolving credit and for us, there is still a considerable gap between federal regulation and lender practices that personal responsibility can’t quite fill. And to believe that the credit card industry will ever stop dreaming up new tricks and traps to maneuver around the new credit card legislation is just plain naive.
American consumers should start demanding a sequel to the Credit CARD Act now. In fact, a trilogy is probably in order (third time’s a charm, right?). The CARD Act was a small victory, but the industry and the lawmakers need to know that we as consumers still aren’t satisfied. We are still plagued by predatory lending practices, violated by debt collectors who call everyday and harass our family members and neighbors, subject to the whimsy of credit card interest rates and fees and treated like second class citizens in favor of profits and corporations.
I read the comments and the blogs everyday and I see a lot of people who are still angry and with good reason. But in order to affect lasting change – and get it right this time – we need to focus our efforts and rage in a way that the powers that be (that’s government and the lenders themselves) hear us. So, if you have been wronged, make sure you formally lodge your complaint through one of the following channels:
1. Submit an FTC Complaint
The FTC is supposed to protect you, but before they can take action, they need to know what needs to be fixed. The best way for them to get this information is for consumers to bring them their complaints. After a certain issue or complaint about a specific company or industry reaches a certain critical mass, the gears start turning. Send them your complaints about credit card companies using the FTC Complaint Assistant.
2. Sign a Petition
The actual civic affect that signing petitions has is hard to measure. But doing so online is so quick and easy that it certainly wouldn’t hurt. Here are a few causes you can rally behind:
- MoveOn.org Urging Credit Card Companies to Stop Taking Cuts from Haiti Contributions
- Consumers Union Petition Urging Credit Card Companies to Obey the Spirit and Intent of the Credit CARD Act
- A Similar Petition from Colorado Senator Mark Udall.
- Petition Online Action to Cap Credit Card Interest Rates at 19%
3. Write Your Congressman
Many of us are quick to blame the president for unfavorable laws and national policy, but its your congressman who may actually listen to you. Find out who your congressman is and tell them what’s on your mind. Track them on OpenCongress.org and see how they are voting. If anything they do is against the best interests of their constituents, let them know. It’s incredibly easy – it takes about as much time as it would to fill out one of those Facebook surveys.
Click here to write your representative.
Click here to write your senator.
4. Tell Your Story
As I mentioned before, I’m witnessing a lot of unrest in the blogosphere, which is great. Blog about credit card deception, leave comments telling your story and share other people’s stories on Twitter and Facebook. Most Americans know that the credit industry is broken, but there are still many who don’t know just how bad it is. Spread the word as far and wide as you can. If you have a local news channel, send them an email. Send a letter to the editor of your local paper. Share your story at ResponsibleLending.org. The world needs to know.
5. Complain to Customer Support
Remember – you, as a cardholder, are a customer. And remember when the customer was always right? Letting companies know you’re dissatisfied isn’t completely a lost cause and if you don’t, they may just assume that everything is hunky dory. Most companies have some type of metric for measuring overall customer satisfaction, and anything you can do to get those numbers as realistic as possible is in the best interests of the company and your fellow cardholders. Send them an email, fill out their contact form or call the number on the back of your card whenever you’re unhappy and let someone know. Who knows, they might even fix your problem.
6. Hit the Streets
If you live in a metropolitan area or near the headquarters of a credit card company, then you might consider organizing a protest. It’s a lot of work – a lot more work than signing a petition – but it has a far greater impact. Read up on how to organize a protest, educate yourself on your rights and get out there and be heard.
Have you had any success lodging complaints with or about credit card companies? Leave us a comment and tell us what worked for you and what wasn’t worth your time.
Image by Paolo Tarantini
Related posts:
- Top 10 Worst Credit Card Practices
- How to use The Fair Debt Collection Practices Act to your advantage
- The Business of Credit Cards – Part II
February 2010 is almost upon us, which means the CARD Act is about to kick in to full effect. Of course, the credit card companies haven’t been resting on their laurels, waiting for the government to take away their moneymakers. They’ve been thinking up creative ways to sneak in extra fees and charges without you knowing. With a little vigilance, you can catch some of these – and even prevent them. Read on to find out how credit card companies are getting more of your money in 2010.
Paper Statements
All “Go Green” sentiments aside, it’s in the credit card companies best interests to forgo paper statements because it costs them in postage and supplies. To recoup their losses on printing statements when you can get them online, some companies are now tacking on “paper statement” surcharges of around $1 a month. Not astronomical, but it can certainly add up – especially when you consider that they used to be free. Watch your statement carefully for any new charges, or check out this list of companies now charging for paper billing compiled by The Consumerist. Or better yet, go paperless now just in case.
If you’re uncomfortable with leaving your financial details in the cloud, you might want to save a digital copy locally or print it off on your own. Personally, I use CutePDF to “print” off virtual copies and save them on my hard drive. Of course, this poses a greater security risk – especially if you have a laptop, since any punk in a coffee shop can nab it and have full access to your financial details. But saving some record locally – whether you keep it on an external hard drive that stays at home or in an encrypted volume – is necessary, since you may lose access to your online statements after you close your account.
Annual Fees
Annual fees are becoming the norm and it seems like just a matter of time before the free credit card is a thing of the past. This tactic is sometimes selectively imposed by credit card companies. Some consumers suspect that only cardholders who continually pay off their balance and never pay any interest are targeted for annual fees, though this hasn’t been confirmed yet. Other credit card issuers are applying annual fees to all of their customers.
Watch your mailbox for any nondescript mailings from your credit card company as these will often contain your new credit card terms. Also be on the lookout for any emails notifying you that you have new messages that can only be viewed when you login to your account (a pain, I know, but that’s the idea).
Inactivity Fees
Another way that credit card companies are making money from customers who don’t fall into the vicious cycle of paying off finance charges and late fees is by imposing an “inactivity fee.” Bloomberg reported on this a few months ago, This may have already existed in your contract but hasn’t applied since you set a card aside due to changing terms. Pull up your contract and sort through it to make sure that you aren’t liable to pay a fee after 12 months or so of inactivity. Or, just to be safe, order a pizza or a CD with your credit card, pay it off immediately, and then put it back in the drawer for a spell.
Secondary Cards, Replacement Cards
Credit card companies have also started charging for second cards (i.e. authorized users) and replacement cards. This isn’t really avoidable – when you need a new card, you need a new card. But if you’re shopping around for a new credit card, you may want to look for one that allows free secondary cards for family members.
Temporarily Waived Fees
Another way that fees and subscription charges can sneak up on you is when they are “waived” when you sign up but kick in after 12 months. For example, many credit card contracts have you agree to annual fees when you first sign up but you won’t notice because it’s waived for the first year. You’ll see these advertised as “$0 annual fee*” with “for the first year” in tiny print. Other cards come with a baked-in annual fee that gets waived after you pass a certain spending threshold or if you apply a certain amount of reward points. If your spending behavior has changed, you may find yourself blindsided by dormant fees.
Cap Removals, Upped Balance Transfer Fees and Rates
Balance transfers are notoriously tricky to navigate. On the one hand, they really can help you save hundreds of dollars in the long run. But on the other hand, they can sometimes hide big fees. Typically, balance transfer fees are calculated from a percentage of the balance you are transferring. To make these more consumer friendly, many credit card companies had a cap, so for example, you wouldn’t pay any more than $250. But some credit card companies are doing away with those caps, which means you can potentially pay much, much more, which might even negate the benefit of transferring your balance.
Raised Minimum Finance Charge
You’ve probably already heard the horror stories about consumers having their minimum finance charge raised. Oftentimes, these people are already on the ropes and could only afford to pay the bare minimum (a problem in itself). For some, when that minimum payment gets raised, it can force people to miss their payments, incurring late fees.
“Pick a Rate” Variable Rates
With the new legislation putting the kibosh on arbitrarily fiddling with fixed rates, many of us saw our cards being switched to variable rates. The formula they disclose for calculating your interest rate has a sheen of accountability – it’s usually pegged to the prime rate (i.e. + 13.99% of prime rate). But many credit card companies add a devious little caveat to that which says that the rate can depend on the “highest prime rate within 90 days.” Credit card companies can then pick and choose which prime rate to base their calculation off of. So, if there’s a spike in April, you’ll be paying that high rate until July. And if on July 2nd, there’s another spike, you’re back up at the top again. With a three month span of prime rate figures to choose from, there’s plenty of leeway for credit card companies to give you a high rate.
There’s no real hedge against this tactic except to always assume the worst when signing on the dotted line. Remember that we’re just coming off a recession – so the interest rates are bound to go up from here. Keep that in mind when you apply for a variable rate credit card.
Witnessed a sneaky credit card fee tactic? Let us know about it in the comments.
Image adapted from Marxchivist
Related posts:
- 20 Common Credit Card Fees to Watch Out For!
- The CARD Act: How it Will and Won’t Protect You After February 22
- 8 Sneaky Credit Card Company Tricks
If you haven’t seen the movie Maxed Out, go watch it now (you can stream it on Netflix). Not to say that there’s anything completely revelatory about it – we all know that the credit card industry is predatory and heartless by nature. But Maxed Out highlights how dire the situation really is. And the issue doesn’t fall squarely on lack of legislation and or poor personal restraint – it’s about the whole package: how credit is marketed, how credit card companies profit, how credit card companies treat their customers and the political attitudes towards the credit industry.
One of the most apt characterizations of the credit-industrial complex was by Harvard Professor Liz Warren (among others) who likened consumer lending institutions to drug dealers. Warren says:
“One of the most popular customers of credit card companies right now [are] people who have been through bankruptcy. The reason, as one of the vice presidents of Mastercard once explained to me, is that they they have two things about them: One, that they can’t file for bankruptcy again and the second is that they have a taste for credit. And I said, ‘What does that mean?’ He said ‘Well, they’re willing to make minimum monthly payments forever. And that’s where we make our money.’”
That’s not customer loyalty. That’s codependency.
As we all know, credit card debt is one of the toughest vices to kick. And according to the movie, the average American household spends $1,305 on credit card interest payments every year. That’s one costly habit.
When did you get hooked on credit?
Maxed Out goes on to discuss how credit cards reel customers in. As we’ve discussed at length here at MYC, one of the oldest tricks in the book is to target young college students who just turned 18, are cash-strapped and relatively financially illiterate. They setup booths on campus (or, as of February 2010, just a little bit off campus) and offer free T-shirts, free sandwiches or some other throwaway trinket. After that, they start mailing them “convenience checks,” cash advances and other costly incentives that encourage them to spend, spend, spend – whether it’s on books, beer or room and board. In the movie, we meet the mother of one college student who came home with $12,000 of debt after the first semester. This is debt that follows students long after they’ve graduated, if they do it all. In fact, Duck9.com found that “financial pressure” was the number one reason for students dropping out of college, trumping both academic disqualification, health problems and poor social fit.
Who are the pushers?
The debt collectors interviewed in Maxed Out don’t hesitate to discuss the mind games they play with debtors. According to one pair of high octane collectors:
“I got you on the phone, I was best friends with you, I found out everyrthing I could about you and that gives me power. Information is power. ”
“You attack pride fear integrity, a person’s honor… I like to make the analogy that you’re like this pirate on this pirate ship and you got that person and you’re walking them out on the plank and you walk ‘em out as far as you can out on that plank without pushing them off and then you bring them back to get what you want from them.”
Of course, it’s easy to categorize the payday loan sharks and the debt collectors who harass your family members and neighbors over your debt as a different class of the lending industry, the seedyunderbelly of an otherwise ethical, conscientious industry. But as the film points out, major banks, like Wells Fargo and Bank of America, fund or outright own the largest cash checking companies. That’s because they want to keep you in debt. They want to keep you out on that plank.
How does your credit addiction affect your life?
As with other addictions, such as alcoholism and drug abuse, it’s difficult to distinguish when a pattern of behavior has crossed the line between overexuberence and full-blown addiction. The easiest test is to look at how credit affects your life. Ask yourself these questions:
Has your credit card debt been affecting your personal relationships?
Tension in long-term relationships is often either caused by or manifested in clashes over finances. “Money problems” are often cited as the number one reason for divorce.
What was your last fight about with your spouse or significant other? Do you keep any secrets from them? If so, are they about money? In a credit-obsessed country where over half of marriages end in divorce, could there be a connection?
Have you compromised your goals or career for the sake of paying off debt?
We’re all familiar with the depressing notion of a “crack whore.” It’s someone so addicted to crack cocaine that they sell their body, their dignity and their health just to feed their addiction. Maybe that’s an overblown analogy to draw. But maybe it’s not. Ask yourself this:
- Do you hate what you do for a living? Would you be working at your current job if you didn’t have so many bills to pay?
- What would you be doing with your life if you were debt free?
- Do you work overtime in order to make ends meet?
- Would you consider yourself a wage slave or a debt peon?
As pointed out in the Wisebread article I linked above, many people object to the idea that they are shackled by credit card debt. The author of the piece says:
Those making free choices aren’t slaves, they said, even if their poor choices result in a hard life. There’s some truth to that. But there’s also some truth to the notion that our system makes it easy–almost automatic–for people to trap themselves.
It’s undeniable that most roads lead to debt. It’s nearly impossible to get an education, a car and a home without going thousands of dollars into debt (unless you’re wealthy to begin with). In order to finance these important steps in life, you do have to play with fire to a certain degree. And it’s all too easy to get burned.
How do you get out of debt?
How does one get out of debt? It’s not easy. Hardly anyone can do it by themselves. Debt therapy, financial self help and personal finance advice has become a bona fide industry in itself (Suze Ormann, David Ramsey, the vast universe of personal finance and debt management blogs with millions of readers worldwide). You are constantly hearing terms like debt counseling, debt rehabilitation, debt consolidation. And then, of course, there’s bankruptcy – the government-sponsored halfway house between debt and a supposedly clean slate (though your credit rating will be besmirched for years to come). Debt, like addiction, cannot be broken without intervention.
And then, as sadly illustrated by Maxed Out, there are some that do get pushed all the way off that plank by debt. There are the ones that feel so overwhelmed that they choose to disappear – to abandon their families and drive away, on the run from their own insurmountable debt. More tragically, some choose to end their own lives.
Living in harmony with credit and debt
Like drugs and alcohol, people react differently to credit. Some are naturally averse to it (”I never touch the stuff”), some carry on healthy relationships with credit and others become fatally addicted to it, falling into a vicious cycle of mutual abuse. Every single advertisement for a malt liquor or beer implores you to “enjoy responsibly.” Meanwhile, all credit card companies can talk about is all the “rewards” you’ll receive for overspending.
Something fundamental has to change about the way our society coexists with credit and debt. An arrangement where credit and debt serve to help us, rather than merely profit from us, is hard to imagine. But the first step to overcoming any harmful addiction is admitting that you have a problem. Films like Maxed Out signify that we as a society are reaching a breaking point and we are finally realizing that something has to change. How will that change happen? Will someone or something intervene? Or will we breakdown, fall apart or self-destruct?
Are you addicted to credit card debt? Do you feel victimized by the credit card industry? Or do you feel that it’s just a matter of will power and personal responsibility? Let us know your thoughts in the comments.
Photo remixed from ad-vantage and stopnlook.
Related posts:
- Lessons learned from the documentary Maxed Out
- Calling Bulls*t on the Credit Industry
- Credit Card Debt After Death
I don’t know about you guys, but I’ve been noticing an increasing trend lately that I’m not completely on-board with yet. Retailers who use rebates to lure us in are moving from a paper check to a prepaid debit card, and it’s not just retailers, either. Unemployment checks are on the decline, Instead, unemployment offices seem to be handing out reloadable debit cards when an applicant has been awarded unemployment. Each time they get paid, the card is loaded rather then cutting a check or sending a direct deposit.
After researching this a little more, I found a great article on why companies are doing this over at creditcards.com. You can read their article here.
As for my thoughts, let’s talk about the pros and the cons.
Pros
I try to be an optimist in these types of situations, so let’s start with the good.
# 1 – Less Paper
I’ve been working on making my life a little more green, and while I have a long way to go, I appreciate the fact that using these debit cards eliminates some paper usage…sort of. Some retailers decide to use more mail fillers to market their target audience, so I’m not referring to them. But, overall, issuing a prepaid debit card instead of a check does save on paper.
# 2 – Convenience
Getting a card in the mail means you don’t have to make a trip to the bank in order to use the money. You simply activate the card, if required, and go. Makes it nice and simple.
# 3 – Quicker Turn-Around Time
One good thing about getting the cards as opposed to the checks is that you get your money a little faster. It used to be that it would take anywhere from 6-10 weeks to get a paper check, what with the retailer needing to verify if you’ve met the requirements, processing the rebate, cutting the check, and then mailing it out. The debit cards streamline that process a bit more.
# 4 – Faster Processing On Lost Cards
Inline with getting your money faster, if the card is lost or stolen, the processes for having it replaced seems to be much easier as well. I’ve never personally experienced this, but from what I’ve been told, the wait time is much less than if the retailer issued a check because it’s all electronic.
I’m sure there are more pros to these cards, but in truth, I’m not a big fan so I find that I tend to see the cons a little more clearly. Perhaps readers can give us a few more pros that I’m missing?
Cons
And now let’s look at the downside of receiving these prepaid debit cards from both retailers and unemployment agencies.
# 1 – Difficult Access To The Money
Some of these cards make it difficult to access the money that is rightfully yours. Many retailers wish to keep the money they issue as a rebate in-house, so they won’t allow you to use the card with any other retailers, only within their stores. Other retailers make it difficult to access remaining cash on a card if it’s been used previously because you have to find someone who knows how to do a split tender transaction, or that allows such transactions. Surprisingly, this is not commonly taught in retail.
# 2 – Some Come With A Ton Of Fees
Aside from the fees that could be incurred just from trying to access the card, there are also maintenance fees to watch out for if the card is not used within a certain amount of time. Some even have penalty fees for using it outside the intended network. Then there are ATM fees to consider, as well as cash advance fees if you’d like to access the money that way.
# 3 – Expiration Dates
As if retailers haven’t made it challenging enough to accept these cards, they tack on a expiration date. I’ve lost out on several rebates myself because of this one. It is very easy to stick the plastic in your wallet and forget about it. If you don’t use the money by the expiration date, and provided there are no maintenance fees slowly eating away at your balance, you lose that money. The company is not likely to issue you another card.
# 4 – Benefits Lost
I actually have to credit Erica Sandberg over at creditcards.com for this one because I didn’t even think about, but it fits here so I’m repeating it. When you use these prepaid cards to make purchases, you’re missing out on the opportunity to gain reward point, airline miles, or other benefits you may receive if you had been using your credit card. While for some this may not be a significant issue, it is still a con as it relates to using the prepaid debit cards.
For myself, I don’t get rebates often enough to do much more then grumble when I get the card. I’ve actually been lucky, the few I’ve gotten have had no fees for cash advances, and since I work at a credit union, I’ve just done the cash advance to deposit to my account. It’s worked well. But, I have a member that we affectionately refer to as Mr. Rebate because he’s in at least once a week with a new stack of rebate checks. The frequency has started to slow down some and when we asked he said it’s because he’s getting rebate cards. He’s not a fan, he thinks it’s just one more way retailers make it difficult to get the rebate in the hopes that you won’t use it and they get to keep the money.
So, what are your thoughts on this growing trend? Do you think they’re a positive contribution to consumers or simply a devious plot by the retailers? Perhaps a little less dramatically, do you have any other pros or cons to add to the list?
Related posts:
- Rebate or Bonus – What’s in a Word?
- 6 Ways to Waste your Tax Rebate
- Gas Rebate Cards: Better than walking to work!
Sound familiar? I was recently asked this question by one of my clients and figured the question warranted discussion.
The average American has anywhere from 5-10 credit cards, though with the recent financial crisis, that number has probably gone down. Do American’s need that many? Maybe, maybe not. I think the number of cards themselves is less important than the amount of debt you can comfortably pay off each month.
As we’ve discussed before, your credit score is determined by several factors, one of which is the debt-to-credit-limit ratio on all of your cards. Ideally, you want to keep what you owe on each card between 25-45% of what your actual credit limit is. This ratio helps lenders determine what kind of risk you are, what kind of debt you can handle, and of course, your spending habits.
Credit cards are merely a tool, so the idea is to use them to help you build a solid credit history. As I explained to my client, the number of cards will vary based on each person’s individual needs. What they have to figure out is what those needs are and how many cards are necessary to meet those needs. In my personal experience, I’ve never needed more than two cards at most and have been comfortable with only those two cards.
However, in talking with people who’ve carried multiple cards, there are some misconceptions out there. I’ve heard that carrying one card from each of the major credit providers (i.e. Visa, MasterCard, American Express, and Discover) is a good idea because you never know who will accept which card. At some point, this may have been true, but the reality is that we are much more advanced now then we were when credit cards first came about. In the U.S., practically everywhere accepts Visa and/or MasterCard with more and more accepting Discover and American Express. Worldwide acceptance tends to favor Discover card, with the exception of Europe as American Express is more widely accepted there. While a combination of these cards may be advisable for acceptance reasons, that should not be the only concern when deciding whether or not to carry multiple cards.
Another factor to take into consideration is the upkeep all of these cards will require. By upkeep I mean that you’ll have to remember due dates and payments, etc. With our handy dandy computers, this is made much easier these days, so it may not be an issue for some. Others may struggle if they have too many cards, and so for this reason it would probably be best for them to have fewer cards. In either case, it’s important to have a system that works for you so that your bills are paid on time.
Whenever we discuss having credit cards, I’m always an advocate of not having them if you intend to carry balances. However, the reality is that a lot of cardholder’s were carrying balances on their cards, so my advice, while well-meaning, was often impractical to those people. In this case, I would say to consider your cards carefully. Irrespective of the number of cards you intend to keep, you should choose your cards based on your specific needs. That means if you intend to carry a balance on the card – whatever your specific reasons for doing so are – then you probably don’t want a rewards card with a higher interest rate. Conversely, if you’re a frequent traveler who could benefit from a miles program of some kind, it doesn’t always make sense to choose a gas rewards card.
A final factor to consider when deciding how many cards you should have is your debt-to-income ratio. I’ve talked about this before in terms of lenders and their lending practices, but as a reminder, this is what you have going out every month versus what you have coming in. Experts say the magic number is about 35-40%, meaning that your debts should be about 37% of your income. This number includes your mortgage, auto loans, student loans, credit card debt, and any other consumer debt that reports with the credit bureaus. The number of cards you choose to carry should reflect your understanding of how important this ratio is to your overall credit health.
With all of that said, I reiterate my initial statement that the number of cards is less important than the amount of debt you can comfortably pay off every month. The one good thing that has come out of this credit crisis is the change in perception for many people. Credit cards should never be a crutch to lean on in times of duress, that is what your emergency fund is intended to be. Credit cards should be a tool to help you build a good credit file. Simply put, I can’t tell you the exact number of credit cards you should have, only you can answer that question for yourself, based on your needs.
What do you think? If you’re comfortable, share how many you have and why you thought that was a good number. Do you think there is a limit on the number of cards a person should carry? Does it change when that person becomes a family?
Related posts:
- Consumer Reports’ Credit Cards Worth Holding
- Hit ‘em High, Hit ‘em Low: Credit Cards for the Rich and the Poor
- Top Reasons to Have Multiple Credit Cards
