Friday, October 30, 2009

Credit card interest rates push higher again

By Jeremy M. Simon

If you've experienced a sudden increase in your credit card's annual percentage rate, new data confirms that you aren't alone.'s weekly rate chart
Avg. APR Last week 6 months ago
National average 12.64% 12.61% 12.59%
Business 9.69% 9.69% 16.74%
Low interest 11.91% 11.91% 12.55%
Cash back 12.36% 12.36% 11.91%
Reward 12.85% 12.76% 12.37%
Instant approval 13.32% 13.32% 11.49%
Balance transfer
13.46% 13.46% 11.27%
Airline 13.60% 13.60% 14.44%
Bad credit 14.29% 14.29% 12.15%
Student 14.45% 14.45% 14.90%
Methodology: The national average credit card APR is comprised of 95 of the most popular credit cards in the country, including cards from dozens of leading U.S. issuers and representing every card category listed above. (Introductory, or teaser, rates are not included in the calculation.)
Updated: 10-29-2009

This week, APRs on new credit card offers inched up to 12.64 percent, according to the Weekly Credit Card Rate Report. The latest increase continues a trend of rising interest rates this year, as new reports show banks continue to use rate hikes and other term changes to increase revenues ahead of a new card law.

A report released Wednesday by the nonprofit Pew Charitable Trusts found that none of the cards offered online by the leading U.S. banks would meet the requirements of the Credit CARD Act set to take effect in February. "One hundred percent of credit cards from the largest 12 banks used practices deemed 'unfair or deceptive' under Federal Reserve guidelines," Pew says.Those soon-to-be-banned practices include: hiking rates at any time on existing cardholders, triggering penalty pricing with just one or two late payments per year and applying payments to lower interest balances before higher interest ones.

That doesn't surprise credit counselors, who have been hearing firsthand reports from cardholders. "People who have fairly good credit scores are seeing a rate increase, and it doesn't seem to be related to their credit situations," says Sandy Shore, senior counselor with debt management firm Novadebt in Freehold, N.J.

The latest findings from Pew show just how steep and widespread those APR increases have been. According to the Pew report, advertised APRs rose an average 20 percent during the first half of 2009. It also reported that 99.7 percent of cards allowed issuers to raise APRs on existing cardholders at any time, up from 93 percent in December.

Even as the February deadline for compliance with the CARD Act approaches, banks haven't stopped hiking APRs. Data released Thursday by Comperemedia -- which tracks credit card direct mailings -- shows that the mean purchase APR on variable rate card offers has reached 12.53 percent in the third quarter. That's up from 12.06 percent in the second quarter and 11.8 percent at the end of last year.

According to data, the national average APR has advanced to 12.64 percent from 12.59 percent six months earlier.

"We're seeing [APRs] edge up, particularly for cards that don't have a fee," says Andrew Davidson, senior vice president with Comperemedia in New York. Davidson explains that banks are experimenting with higher rates on some cards and new fees on others. "The CARD Act will be eating into revenues and so issuers are looking at any legitimate means possible" to offset the loss of revenue, he says.

He notes that credit cards that don't charge an annual fee are seeing their APRs increase, while cards with a fee have seen rates come down. "Just saying card rates are going up isn't the full picture," Davidson says.

Those cards that charge a fee -- typically rewards cards -- tend to charge higher APRs to start with. They now account for a larger portion of new card mailings: Davidson says that offers for fee-based reward cards totaled 26 percent of mailings, an increase from both 21 percent in the second quarter and 13 percent one year ago. That has helped boost the average APR for offers overall. "Issuers have become more cautious and they're putting out more premium offers. That's a reflection of this trend," he says.

Banks have good reason to be cautious. As layoffs continue, many consumers are finding it increasingly difficult to make credit card payments. The latest data from Fitch Ratings shows that card payments more than 60 days late rose to 4.22 percent in September.

Shore says that examining the credit reports of prime borrowers suggests that the economy is taking its toll -- including evidence of cardholders with rising levels of debt compared to their available credit -- even if the cardholder's credit score doesn't yet reflect that reality. "Somebody can have a high credit score, but there are signs of stress," she says.

Shore says that as banks introduce annual fees, cardholders could respond by closing those accounts rather than making an annual payment. "People who have very good credit are going to reduce the number of credit cards they have," she says. With fewer open accounts, if they decide to make a large purchase on plastic, those borrowers could unwittingly bump up their utilization ratios -- and damage their credit scores.

Her warning to those cardholders is one all borrowers should obey in this economy: "Now you have to be really careful."

Uncle Sam wants you ... unless your credit stinks

Finances unfit? Your country may not let you wear its uniform

By Melody Warnick

You may be ready to serve your country, but if your finances aren't in good shape, your country may not allow you to serve.

Like a lot of civilian employers, some branches of the military in the United States now run a credit check on anyone who wants to enlist -- and a credit history full of late payments, bankruptcies, accounts in collection, foreclosures or sky-high debt can keep you from joining up. Uncle Sam wants you... unless your credit stinks

Each branch of the military sets its own policies about whether to check out the credit history of potential recruits, so not everyone puts a long-overdue gym payment on par with the inability to pass a physical. However, when you're signing up with the Air Force or the Coast Guard, a credit check is a standard part of your background check.

Even if you pay on time, a heavy debt load may put a blip on the military's radar. The Air Force rules out applicants with a debt-to-income ratio of more than 40 percent, which means that your debt (for credit card bills, car loans, student loans, medical bills and the like) can't rise above 40 percent of your monthly gross income. They don't look kindly on bankruptcies, foreclosures or late payments, either.

In the Air Force, "we trust individuals to be able to work on their own with very little supervision. If you're having problems taking care of your own personal responsibilities, how can we trust you with the responsibilities of the Air Force?" says Angelo Haygood, deputy chief of Air Force recruiting operations.

In the Coast Guard, which has the strictest rules, your application will get tossed out for a debt-to-income ratio of 30 percent or more (meaning that your debt adds up to one-third of your monthly gross income) or for bad debt. Since implementing that standard in 2008, credit history black marks have rendered 25 percent of otherwise qualified Coast Guard applicants ineligible to serve. Even if you've aced your physical and passed the Armed Services Vocational Aptitude Battery -- the military admissions test -- a history of money mistakes means you'll still be sent packing.

The Army, Navy and Marine Corps, on the other hand, usually run credit checks only on applicants who need to qualify for a security clearance, who seem to be in financial trouble or who require a dependency waiver -- necessary for those with more than three dependents (a spouse and two children, for instance). But they forgo hard-and-fast rules in favor of a case-by-case approach.

Financial readiness and mission readiness
Mountains of credit card debt and past-due bills may not reflect on your patriotism, but they can paint a not-so-pretty picture of your future service, say military experts. Haygood says the Air Force sees potential recruits money mistakes as a sign that they're irresponsible or just plain untrustworthy. For starters, money woes can make you more likely to engage in a financial crime -- such as espionage -- to pay off debts. "You don't want someone dealing with secret information who is in bad debt to the point where they could compromise information to get money to pay the debt off," says Douglas Smith, a public affairs officer with U.S. Army Recruiting Command.

Credit issues can also lead to job performance issues when members of the military need to hold down a second job to pay off bills. Even the distraction of dealing with creditors and sweating over rising debt can make servicemembers less-than-stellar employees. "Credit card debt can be a very heavy burden," says Chief Warrant Officer Scott Carr, a spokesman for Coast Guard Recruiting Command. "If a person is getting called by creditors, it's constantly on their mind. It's putting a lot of stress on them, then they start to become an ineffective member of the unit. You're starting to put your shipmates' lives in danger because you're not totally focused."

We trust individuals to be able to work on their own with very little supervision. If you're having problems taking care of your own personal responsibilities, how can we trust you with the responsibilities of the Air Force?

-- Angelo Haygood
Air Force recruiter

In the past, the Air Force checked candidates' credit only if they fell into certain categories: They were married, older than 23 or they admitted they'd had financial problems in the past. New 18-year-old recruits were seen as too young to have any credit history, let alone overwhelming debt, so credit checks weren't done until recruits got to basic training. Over time, however, so many young recruits had credit issues that it warranted a change in policy, says Haygood. "One guy who was 19 years old had over $9,000 of bad credit. We found that banks were lending to people younger and younger, whether they had a job or not." As of September 2008, the Air Force's new policy dictates that 100 percent of potential recruits are subject to a credit review.

Not everyone takes such a dim view of recruits with underwater credit. "There's not a minimum credit score to join the Navy," says Tom Jones, a public affairs officer with Navy Recruiting Command. "We're looking for people who say, 'Hey, I want to put the country before myself,' not, 'Hey, I have a 690, will you take me?'"

Be all that you can be
Not everyone with heavy-duty debt or bad credit is a military washout. The Army, Navy and Marine Corps are more likely to accept a candidate with past money issues. According to Lt. Col. Thomas J. Rouse, deputy commander of U.S. Army Central Clearance Facility, which processes financial eligibility determination for new recruits, the Army takes a more holistic look at applicants with credit report problems, weighing mitigating factors such as when the foul-up occurred, the severity of the issue and the maturity of the person at the time.

Recruiters are also more sympathetic if you can provide a good explanation for your financial woes -- for instance, overwhelming medical bills or a misunderstanding with a roommate about who was paying for that final month's rent.

Still, it's hard to predict what will and won't matter to a recruiter, so avoid surprises and find out exactly where you stand before you step foot in the recruiting office. "If you feel you have some credit issues, get one of the free credit reports and check your credit. Then go through it and fix any negative credit before you even go and talk to a recruiter," says Haygood.

There's not a minimum credit score to join the Navy. We're looking for people who say, 'Hey, I want to put the country before myself,' not, 'Hey, I have a 690, will you take me?'

-- Tom Jones
Navy recruiter

You may have to spend a few months paying off loans or making good on bad debts, but once you fix up your financial past, all branches of the military will be willing to give you a shot. Even if you were caught flat-footed in the recruiters' office, an effort to restore your credit and pay down loans earns you a second chance.

Once you're in
Once you've cleared the initial financial barricades and are in the military, you're not home free. In all branches of the military, security clearance is tied to your personal finances, so if you squeaked by enlistment with a so-so credit report, you may still find yourself ineligible for certain positions within the military. Even long-time military members are subject to periodic credit checks when their security clearances are being reviewed for, say, a promotion from "secret" access to "top secret." If you've fallen deeper in debt or racked up a fresh pile of past-due notices, you could be denied a promotion or have your current security clearance revoked.

The problem isn't uncommon. In 2008, 81 percent of security clearance denials for members of the Navy were due to money problems. And a 2006 Associated Press report found that the number of soldiers in the Navy, Marines and Air Force whose debt led to a loss of their security clearance skyrocketed from 284 in 2002 to 2,654 in 2005, a ninefold increase.

The U.S. military is trying to help its members get a grip on their finances with a variety of tools.

  • The Service Members' Civil Relief Act,, a decades-old law revised in 2003, aims to keep financially challenged military members from falling deeper into debt by capping interest rates on credit cards and mortgage loans at 6 percent for active duty military. A written note to a lender should give you a substantial break on interest payments while you're serving.
  • Each military base or installation has an on-site personal finance manager available to offer credit counseling and help set up a budget.
  • The military also partners with nonprofit credit management firms to offer free credit scores, reduced-rate debt consolidation and personalized action plans for improving credit to service men and women.

Bottom line: Times are tough for everyone, but to make a go of a career in the military, you'll have to be on your best financial behavior -- starting before you march off to see a recruiter.

Branch-by-branch guide to enlisting when you're in debt
Branch Who gets a credit check? What are potential red flags? What happens if you fail to meet the requirements?
Army Applicants who need security clearance Bad debt, accounts in collections, delinquencies, foreclosure or bankruptcy You don't get security clearance
Navy Applicants who need security clearance High levels of debt You don't get security clearance
Air Force All applicants Debt-to-income ratio of 40%; bad debt; late payments; bankruptcy; accounts in collections You can't enlist until your financial issues are resolved
Marines Applicants who need security clearance High levels of debt You don't get security clearance
Coast Guard All applicants Debt-to-income ratio of 30%; bad debt You can't enlist until your financial issues are resolved

Wednesday, October 28, 2009

Want a better FICO score? Step No. 1: Pay bills on time

Credit scoring formula also relies on mix of credit, debt ratio

By Jeremy M. Simon

Credit Score Report
Reporter Jeremy M. Simon
Jeremy M. Simon covers credit scoring and other issues as a staff reporter for

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'Credit Score Report' stories

Question for the expert

Dear Credit Score Report,
What's the key to getting a good credit score? I always hear people talking about them on the news, but I just don't really know a whole ton about them, other than it's important to have a good one so you can get a credit card or a car loan or whatever. I'd like to have one of those myself someday, but I'm totally clueless about what it all means. Help! -- Vince

Answer for the expert

Hey Vince,
Here's the short answer to your question: Pay your bills on time.

Of course, it would be great if that was the only factor impacting your credit score. There are, however, plenty of other variables to keep in mind, though maintaining a record of on-time payments is the most important.

Just how important it is depends on the scoring model used to generate your credit score. After all, there are several different scoring models in use by lenders. But the most widely used credit scores all consider your payment history to be the most important factor. We'll focus on the FICO credit score, since banks most often look to that scoring model to help them make lending decisions.

Under the FICO model, 35 percent of your FICO score is based on your payment history, making it the single biggest factor in determining your score. Just where does this information come from? Lenders and businesses you've dealt with provide a record of your payment history, including whether or not you paid your bills on time, to credit bureaus. The bureaus -- the three biggest of which are Equifax, Experian and TransUnion -- collect that information and list it in credit reports or pass the data along to third-party companies, such as FICO, that apply their own formulas to it to come up with your credit score.

Businesses may report both positive and negative information to the credit bureaus to be included in your credit report and, by extension, your credit score. Your credit report may also include any bankruptcies or other major financial troubles you've had as a borrower.

That's why it's important to make sure that your credit report information is accurate. Any incorrect negative information may unfairly suggest that you are an irresponsible borrower and could hurt your credit score. To prevent this, you can order copies of your credit reports from the three major credit bureaus using every 12 months to make sure that everything looks accurate. If it doesn't, be sure to take the necessary steps to correct it. ('s sample letters for disputing credit report errors can help.) Since Equifax, Experian and TransUnion may each have a record of different information reported by various businesses and banks, be sure to take a look at the separate reports from each bureau.

The next most important factor influencing your credit score (making up 30 percent of the score) is the amount you owe, though it's about more than just a grand total number. FICO compares the amount of debt you currently owe to:

  • The amount of debt you started off with, in the case of installment loans, such as student debt.
  • The amount of debt you potentially could have, in the case of revolving debt, such as credit cards.

For example, in the case of revolving debt, a credit cardholder who has $2,000 in debt on a $10,000 line of credit would likely have a better FICO score -- all other things being equal -- than a cardholder who has $1,000 in debt on a $2,000 credit line. That's because the second borrower is using a larger portion of the total credit available to him. From a lender's standpoint, a lower utilization ratio suggests you are less likely to max out your existing line of credit.

It also helps if you've been responsible with a variety of debts. The more balances -- credit cards, student loans, car loans, etc. -- that you've paid down responsibly, the more likely the lender is to assume that you'll handle any future debts wisely.

Please note, Vince, that timing is everything. Paying your bills mostly on time just doesn't cut it. You'll also want to make more than just the minimum payment in an effort to pay down that debt as quickly as possible. This applies to non-FICO credit scores as well. Even if your potential lender considers the lesser-known VantageScore scoring model, the two most important factors are still payment history (32 percent) and utilization -- defined by VantageScore as "percentage of credit amount used/owed on accounts" -- which accounts for 23 percent of your VantageScore.

There are other factors -- such as how long you've had your oldest credit account and how many times you've applied for credit in the last few months. (See the pie chart on this page for more information.) But none impact a credit score like your payment history. So, Vince, pay all your bills ahead of any due dates and reduce your debt, and your credit score will certainly indicate your responsible borrowing behavior. When it does, those loan approvals will follow.

To get your credit scoring questions answered in the Credit Score Report, please send them my way.

See you next week.

Tuesday, October 27, 2009

How credit card interest charges accrue on a daily basis

By Todd Ossenfort

The Credit Guy
'The Credit Guy,' columnist Todd Ossenfort
The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues.

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'The Credit Guy' archives

Question for the expert

Dear Credit Guy,
If I make an additional huge payment to my credit card right after I make my scheduled payment, will a finance charge on the additional payment be made? Example: I owe $13,000. The scheduled payment is 300. A finance charge is taken, and a few days later, I make a payment of $10,000. Will a finance charge still be taken? -- Mr. Paul

Answer for the expert

Dear Mr. Paul,
Your question aside for a moment, I definitely encourage you to go ahead and pay the $10,000 on your credit card account. In this economic environment, it is a good idea for everyone to pay off or significantly reduce large credit card balances.

To give you a specific answer to your question regarding how your extra payment of $10,000 will affect your finance charge or interest charges is not possible without reviewing your cardholder agreement. However, I can give you the general "101" on how many creditors apply payments and calculate interest charges on balances.

Most creditors assess interest or finance charges based on your average daily balance, and the interest is accrued daily. If you check your card member statement, it is likely that under the finance charges section of the statement there is a listing for the daily periodic rate -- reported as a percentage -- and a corresponding annual percentage rate.

Each day the balance of your account is multiplied by the daily periodic rate and the interest calculated is added to your balance. As an example, your $13,000 balance at a daily periodic rate of .02805 percent would add $3.6465 in finance or interest charges to your balance. The next day of the billing cycle your balance would be $13003.65 and multiplied by the daily periodic rate would add interest charges of $3.6475, which begins to add up. You begin to see how this works.

(Note to the math-challenged: Remember on percentages to add two zeros to the right of the decimal on the daily periodic rate when multiplying to get your finance charge. For example, multiply .0002805 by the balance to get your answer.)

At some point in the monthly billing cycle your payment is received. The payment is posted to your account based on the sometimes rather complicated rules included in your cardholder agreement. Typically, if you pay by check, the check must be received by 1 p.m. of a business day or it will not post until the next day. When making a payment online, the rules for when the payment is posted should be included in the transaction. For instance, it may include wording such as "this payment will appear on your statement 12 hours after it is received." Once payment is received, your balance goes down and along with it the interest you pay.

What many people do not understand regarding payments on credit card accounts is how the daily accumulation of interest affects your balance. For example, your $13,000 balance likely accrues almost $60 in interest charges before you make your monthly payment of $300. What that means is that what you thought was a $13,000 balance is actually $13,058 by the time your payment arrives. Your $300 is subtracted from the balance and your new balance is $12,758 -- not the $12,700 that most people believe it to be.

So, if your account accrues interest daily, the sooner you make your extra $10,000 payment the better. A balance of $3,000 at a daily periodic rate of .02805 percent accrues $.84 in finance charges daily compared to $3.65 daily for your $13,000 balance. And of course if your daily periodic rate is higher than .02805 percent, you save even more.

Take care of your credit!

Sunday, October 25, 2009

6 ways to prevent bank overdraft fees

By Tamara E. Holmes

Years ago, if you balanced your checkbook and monitored your ledger, you wouldn't have to worry about overdrawing your bank account. But with the widespread use of debit cards, many are finding that avoiding overdraft fees is not as easy.

5 ways to protect yourself from overdraft fees

Congress and the Federal Reserve are both considering ways to make banks revise their overdraft policies. Until they act, here are six ways to protect yourself.

  1. Know your bank's policies.
  2. Opt out of overdraft protection.
  3. Remember: Danger may lurk at a POS
  4. Be wary of holds.
  5. Enlist technology.
  6. Plead your case.

Banks and credit unions collected nearly $24 billion in overdraft fees in 2008 -- 35 percent more than two years earlier, according to a study by the Durham, N.C.-based Center for Responsible Lending. But armed with a little knowledge, "consumers are in control," says Nessa Feddis, vice president and senior counsel for the Washington, D.C.-based American Bankers Association. Here are six ways to protect yourself from debit card overdrafts:

1. Know your bank's policies
Don't assume your bank will stop you from withdrawing money if you have insufficient funds. Thirty-five percent of financial institutions let their customers overdraw their accounts at ATMs or with debit cards, and charge a median of $26 per overdrawn transaction, according to economic research firm Moebs Services of Lake Bluff, Ill.

"Generally, smaller institutions and credit unions are more apt to have lower fees and fairer policies," says Gail Liberman, co-author of "Quick Steps to Financial Stability." Some banks process the largest charges first regardless of the order in which items were purchased. So if a large purchase drains your account, and you then buy two $4 cups of latte, you're likely to be hit with overdraft charges for each cup.

Some banks are making their overdraft policies friendlier. For example, Bank of America announced last month that it would not charge overdraft fees on more than four items per day nor would it charge them on an account overdrawn by less than $10 a day. J.P. Morgan Chase also last month said it would levy overdraft fees no more than three times a day and would not charge customers for accounts overdrawn by $5 or less. Though the changes may save some consumers money, overdrafts will still be costly, says Kathleen Day, a spokeswoman for the Center for Responsible Lending. "You go $10.01 over your account balance, and you're still slammed with the overdraft fee," she says.

2. Opt out of overdraft protection
There's a good chance that your bank account is enrolled in some type of overdraft protection program even if you haven't asked for it. Under fire from the Federal Reserve Board and Congress, some banks -- such as Chase and Bank of America -- are revising their overdraft policies to require new customers to opt in when they open an account. But as Day points out, "That doesn't do anything for the millions of customers already ensnared in this."

If you find yourself racking up overdraft fees, you have a couple of options. You can opt out of the program and have your charges denied if you overdraw on the account. Or you can have your checking account linked to your savings account or a line of credit, advises Liberman. Though utilizing a line of credit will cost you money in interest, the amount will likely be less than the overdraft fee, and you can deposit money into your account to cover the shortfall immediately, avoiding further interest charges.

3. Remember: Danger may lurk at a POS
Many consumers think -- and rightly so -- that taking cash withdrawals at a retail store's point of sale (POS) is a smart move, because it avoids bank ATM fees. True enough, but the POS has also become a profit center for banks. That's because the point-of-sale terminal at the typical retail store won't signal you that you're about to pull out too much money and trigger an overdraft fee. The Center for Responsible Lending says that point of sale transactions are the leading cause of overdraft fees, generating about 38 percent of them.

4. Be wary of 'holds'
Sometimes when you use your debit card to make a purchase, a vendor will place a "hold" on your account to ensure that you don't spend that money before the bank processes the charge. Unfortunately that hold may be for more than you actually spent, particularly for purchases in which it's unclear what the final bill will be, such as use of the gas pump or a stay at a hotel, says Feddis. While the hold can't stay on your account for more than three days, that's plenty of time to overdraw an account, particularly since there's typically no indication that some of your funds are temporarily unavailable.

You go $10.01 over your account balance, and you're still slammed with the overdraft fee.

-- Kathleen Day
Center for Responsible Lending

To avoid being penalized for holds on your account, use your debit card's PIN transaction feature for purchases rather than the signature feature. "Those are two different systems," Feddis says. When you enter your PIN number and use your debit card as an ATM card, the money is withdrawn from your account directly and no holds are placed on your account. By using the PIN transaction feature exclusively, you'll always know how much money you have available as long as you keep your ledger updated.

If you do tend to use your debit card's signature transaction feature, one way to protect yourself from overdraft fees is to keep an extra $100 to pad your account so you have a little cushion, says Liberman.

5. Enlist technology
Some people have a hard time keeping track of their balances. If you're one of them, "many banks will allow their customers to arrange for an alert to be sent to them by text message or e-mail if their balance falls below a certain amount," says Feddis.

6. Plead your case
If you do find yourself hit with overdraft fees, don't assume it's an automatic loss. Call your bank to see if they'd be willing to give you a break, particularly if it's not a common occurrence.

"Institutions trying to keep their customers will waive the fees and often the branches have discretion on these issues," says Liberman. If your bank is unsympathetic, consider taking your business elsewhere, she adds.

Friday, October 23, 2009

Credit card rates flat as banks look for other ways to boost profits

By Jeremy M. Simon

Interest rates may be flat, but don't cheer yet: Banks are simply shifting their money-making strategies, experts say.'s weekly rate chart
Avg. APR Last week 6 months ago
National average 12.61% 12.60% 12.42%
Business 9.69% 9.69% 16.74%
Low interest 11.91% 11.92% 12.39%
Cash back 12.36% 12.36% 13.90%
Reward 12.76% 12.76% 12.37%
Instant approval 13.32% 13.32% 11.49%
Balance transfer 13.46% 13.10% 10.99%
Airline 13.60% 13.60% 14.44%
Bad credit 14.29% 14.29% 11.79%
Student 14.45% 14.45% 14.90%
Methodology: The national average credit card APR is comprised of 95 of the most popular credit cards in the country, including cards from dozens of leading U.S. issuers and representing every card category listed above. (Introductory, or teaser, rates are not included in the calculation.)
Updated: 10-22-2009

According to the Weekly Credit Card Rate Report, the national average credit card APR rose just slightly to 12.61 percent this week, although the change was due to some reconfiguration of card offers in the database rather than any rate hikes by lenders.

Despite a slowdown in APR increases, analysts warn that cardholders could still end up paying more. "You may get a pause in rate lifts and a move more toward testing fees" on credit cards, says Elizabeth Rowe, director of banking advisory services with Mercator Advisory Group in Maynard, Mass. "It's not a pause in activity -- it may just be a pause in strategy."

Rowe says that the ongoing earnings season -- when companies announce their quarterly results -- combined with continued scrutiny from regulators, consumer advocates and the media, may also discourage banks from raising rates at this time. "Banks are already so high profile at the moment that the last thing they want to do is bring in one more thing to be negatively assessed. And that negative thing would be what they are doing with credit card rate and fee schedules," she says.

Some banks are touting their efforts to take the high road. Bank of America, Discover and Capital One have pledged to not raise interest rates ahead of the Credit CARD Act. That law will make it tougher for banks to make such moves.

That doesn't mean issuers are being generous, however. Capital One, Citi and U.S. Bank this week eliminated introductory APRs on several cards.Those intro APRs offer cardholders a chance to make card transactions at lower rates for a set period of time.

Meanwhile, a report on economic conditions around the country also shows that money isn't always reaching borrowers. The Federal Reserve said loan demand remained "weak or declining" in many areas of the United States.The Beige Book survey of regional Fed banks showed that loan demand was "reported as stable or declining by New York, St. Louis and Kansas City," while Cleveland said consumer lending was "flat or reduced." The Fed also acknowledged that rising consumer delinquencies were "often noted."

As job losses continue, consumers' difficulty with making card payments is hurting banks. J.P. Morgan said its credit card business lost $700 million in the third quarter of 2009, with even deeper losses expected next year. On Oct. 16, Bank of America said its credit card devision has posted five straight quarterly losses totaling $4.7 billion, although card delinquencies slowed in the third quarter. During a conference call, BofA's chief financial officer said the bank continues to be "cautiously optimistic that delinquency trends signal a stabilization in losses," reported.

Following BofA's most recent quarterly loss, the bank's chief executive told analysts that it has "a lot of people looking at the business and looking at the changes that need to be made both in infrastructure and other ways we can make money."

But with consumers' tax dollars already used to prop up troubled banks, Rowe says that it would look bad for card issuers to be seen mistreating what are essentially their shareholders through increasingly costly credit cards.

House committee: Move up credit card law

Lawmakers want to make interest rate restrictions effective Dec. 1, 2009

By Connie Prater

Consumers could be protected from credit card interest rate hikes a little sooner under a measure approved by a key U.S. House committee Thursday.

Members of the House Financial Services Committee passed a bill to speed up implementation of the Credit CARD Act of 2009 by nearly three months, to Dec. 1, 2009. Portions of the law, which restrict interest rate hikes on existing credit card balances and limit fees, are currently scheduled to take effect Feb. 22, 2010. But lawmakers said recent APR and fee increases levied by the major credit card issuers warrant faster enactment of consumer protections.

House panel votes to speed up credit card reform

"Some card companies have publicly stated that they will no longer increase interest rates, but some companies are continuing to do this retroactively on balances," Rep. Carolyn Maloney, a New York Democrat, said during debate on the bill (H.R. 3639). "Some consumers are not only being hurt, they are really being crushed in this economy."

Credit card issuers lobbied hard for delayed implementation because they said they needed time to revamp their card billing, marketing and application systems.

"The CARD Act represents the most sweeping reform of the credit card industry in decades and requires a major overhaul of intricate business practices by card issuers," according to a statement issued by Kenneth J. Clayton, senior vice president for the American Bankers Association trade group.

"Banks are working diligently to implement the CARD Act by next February, as Congress required, but it would be extremely difficult, if not impossible, for them to meet the new deadline contemplated by this bill. Moving up the implementation date will place additional strain on institutions and is likely to further restrict access to credit at a time when consumers, small businesses and the broader economy need it the most," Clayton added.

Lawmakers who opposed faster implementation cited an Oct. 20 letter from Federal Reserve Chairman Ben Bernanke stating a Dec. 1 startup would not give regulators enough time to draft guidelines for the law.

"The regulators and the companies and the different entities that are involved in issuing credit cards and managing credit cards just simply cannot accommodate these changes so quickly. We simply cannot do this in that time," argued Rep. Mike Castle of Delaware. The Republican lawmaker co-sponsored an amendment with Rep. Christopher Lee of New York to require the Federal Reserve to certify that regulators and card issuers can meet the deadline before the measure could take effect. "You simply can't overhaul entire business enterprise systems overnight."

Added Lee: "Attempts to speed up the transition too quickly would ultimately lead to consumer harm." Their proposal failed.

Small card issuers exempt
The committee agreed to allow smaller credit card issuers (those with 2 million accounts or fewer) to keep the original Feb. 22 startup date. Maloney noted that the majority of consumer complaints are about the top issuers -- namely Chase, Bank of America, Citi, American Express, Discover, Capital One and Wells Fargo.

Smaller card issuers, including many credit unions and community banks who issue only 10 percent of credit cards nationally, complained they have limited resources. "They barely have the computer staff and the lawyers to go in the right direction by the original effective date," Democratic Rep. Brad Sherman of California said during debate on the measure.

[I]t would be extremely difficult, if not impossible, for them to meet the new deadline contemplated by this bill.

-- Kenneth J. Clayton
American Bankers Association

Gift card measures unchanged
The committee also approved an amendment to allow gift card restrictions in the Credit CARD Act to keep their original August 2010 enactment date.

The Fed is still working on the regulations dealing with credit cards and is just beginning to write the regulations for gift cards," said Sherman. "Gift cards are being shipped now for retailers for sale for the Christmas season. It makes more sense to stick with the original effective date in the legislation already enacted."

The next step
Lawmakers have only about six weeks until the Dec. 1 start-up to gain final approval of the bill. The measure now goes to the full House for a vote. A similar bill must also pass in the Senate and be signed by President Obama before it can become law.

Consumer financial protection agency advances
In other business Thursday, the financial services committee also voted 39-29 to create a Consumer Financial Protection Agency -- a federal watchdog that would focus on protecting consumers from bad mortgage, credit card and student and car loan deals.

The financial watchdog measure must also go to the full House for debate and vote. Lawmakers said they expect it to come up within the next month. The Senate must also consider and pass the plan.

Low credit score? Good luck getting a new credit card, study says

By Andrea Leptinsky

Consumers are getting far fewer credit cards than a year fago and most of the new approvals are going to those with better credit scores, according to new statistics released by credit bureau Equifax.

Fifty-four percent fewer new credit card accounts were opened in July 2009 than the previous July, Equifax reports in its September 2009 Credit Trends Report, released Oct. 13. More than half of those new accounts went to consumers with an Equifax Risk Score higher than 740. That's nearly double the percentage from July 2007. During that same period, the percentage of new cards issued to consumers with credit scores lower than 660 dropped by almost half, to just over 22 percent. (The Equifax Risk Score can range from 280 to 850, similar to the better-known FICO score's range of 300 to 850.)

The credit bureau's report offers further proof that a move to become stricter with card approvals, initiated when the recession began in 2007, is still under way. The challenges facing the credit industry -- including the onset of the economic recession and the enactment of sweeping pro-consumer reforms -- have forced issuers to re-evaluate their business practices.

"We have taken a number of actions to maintain our credit quality," says Mai Lee, spokeswoman for Discover Financial Services. "These actions include ... suppressing credit line increases on high-risk accounts and investing in proactive risk management and operational practices." Discover is also eliminating some long-term inactive accounts in order to reduce its contingent loan exposure, Lee said. Other major issuers have made similar moves, including increasing APRs and changing cards from having a fixed interest rate to a variable rate.

Taking things too far?
Some are concerned, however, that issuers' moves are becoming too extreme. Testifying before the Senate's Subcommittee on Financial Institutions on Oct. 14, Federal Reserve Gov. Daniel K. Tarullo cautioned issuers against taking things too far and becoming too controlling in their tactics for assessing borrowers' ability to pay.

"The Federal Reserve has directed examiners to be mindful of the effects of excessive credit tightening in the broader economy," he said. "We are aware that bankers may become overconservative in an attempt to ameliorate past weaknesses in lending practices, and are working to emphasize that it is in all parties' best interests to continue making loans to creditworthy borrowers."

Although issuers are being more mindful of who they offer cards to, consumers are also saving at a higher rate, paying off more of their debt -- and eliminating their own unnecessary lines of credit before issuers have a chance to do it for them. The result of belt-tightening by consumers and issuers: The number of credit accounts active in the United States has dropped by 88 million since September 2008 and credit lines have been reduced by $751 billion, according to Equifax.

"The data reflect an economy in transition with consumers doing better with their financial management, but with many still struggling in the face of high unemployment and restricted credit," says Dann Adams, president of Equifax's U.S. Consumer Information System, in a statement. "Consumers are conserving cash and reducing debt across the board. We haven't seen savings rates this high since shortly after the third quarter of 2001 -- just after 9/11."

Tuesday, October 20, 2009

10 flu-fighting credit card tips

Cards can carry germs, but you can be inhospitable

By Jay MacDonald

What's your best money defense against the H1N1 swine flu? Credit card and swine flu

It just might be your credit card, provided you follow these flu-fighting safety tips.

Seasonal viruses tend to spread from person to person when the germs that cause them become airborne via coughing and sneezing. When you touch a surface that contains those germs and then touch your eyes, nose or mouth, those hitchhiking microbes can quickly start a block party in your body.

Money is a common carrier of seasonal germs, which thrive in warm, relatively moist locations like your purse, trousers or jacket pockets. Because it is porous and changes hands frequently, currency can easily pick up and pass on germs. Why do you think they call it filthy lucre?

Enter credit cards to the rescue!

Sure, plastic can pick up germs just as readily as cash or third graders. The difference is, you can clean your credit cards quickly and easily. And with a little diligence, yours will be the only hands to come in contact with your sanitized credit cards.

"Any surface could contribute to the passing of the virus, which typically will live up to six to eight hours after contact has been made," says Llelwyn Grant of the Centers for Disease Control and Prevention (CDC).

"We stress things like cover your nose and mouth with tissue when coughing or sneezing; wash your hands as frequently as possible, mainly with soap and water or alcohol-based hand cleaners; avoid touching your eyes, nose and mouth because these are typically ways in which germs are spread; and stay home when you are sick," Grand says.

Here are 10 flu-fighting credit card tips for healthy shopping this winter.

1. Clean the keypads
In terms of daily touches by sniffling strangers, point-of-sale terminal keypads and ATM keyboards rank right up there with doorknobs and stair rails as a Woodstock for germs. Even before you pull out your plastic, use an antibacterial wipe or tissue with alcohol-based sanitizer to de-bug the keypad or keyboard as well as your own hands and fingers before you start your transaction.

2. Swipe your own card
It's fortuitous that the swipe-your-own-card movement, which initially grew out of concerns for card security, coincidentally fights germs as well. Because when you innocently hand your card to Florence the friendly checker, she will hand you back a card carrying not only her germs but unsavory hitchhikers from every debit card, credit card, bill and coin she has handled since her last break. Yuck!

"We don't have any data on the number of germs that are passed through the handling of credit cards, but there is that possibility, especially if you're dealing with an individual who is contaminated," says Llelwyn Grant of the CDC. "It could fit into that window where their contamination is high."

Don't risk it. Swipe your own card (after cleaning the keypad first) and give Flo a big smile instead.

3. Wield your own pen
How times change. When once we complained that there were no pens available at the payment terminal, we now dread having to pick up that lone bacteria-bearing Bic. Solution? Carry your own pen and use it to sign your credit card slips. When confronted with a touch-screen stylus, either use your own pen with the ball point retracted or sanitize the stylus with an antibacterial wipe before use.

4. Avoid public surfaces
How many times have you placed your card on a courtesy counter while you navigated the onscreen prompts at a payment terminal? Millions, right? And that's probably the number of potentially harmful germs your card picked up as a result. Consider all public surfaces suspect, especially counters and floors. Best bet for counter sanitation: Only draw your card for the big swipe.

5. Wipe after swipe
Granted, the inside of a card terminal slot is a pretty mysterious place, filled with all sorts of gadgets that few of us understand. But one thing is certain: It also likely harbors bacterial residue from the countless cards that preceded yours. Clean in, dirty out. To avoid packing home other people's illnesses, wipe your card apres swipe with an alcohol-based antibacterial product. You'll earn extra public-health karma if you wipe it down both before and after your swipe.

We don't have any data on the number of germs that are passed through the handling of credit cards, but there is that possibility, especially if you're dealing with an individual who is contaminated.

-- Llelwyn Grant

6. Wallet up
Frequent card users can become pretty cavalier with their credit cards, leaving them handy for convenience on dashboards, restaurant tables, bar counters and even public bathroom vanities. Anytime your card touches a public surface, millions of germs potentially make the leap from that cold, impenetrable plastic to your warm, porous hands and from there to your eyes, nose or mouth. The only time your credit card should be exposed is when you are using it. Otherwise, wallet up, both for security and hygiene.

7. Avoid dirty money
A credit card has a natural advantage over currency as a germ-fighting form of payment because it can be quickly and easily cleaned and disinfected. But if you stick your freshly cleaned card back into your wallet or pocket next to a fistful of filthy bills, it doesn't take a Louis Pasteur to figure that your clean plastic will be instantly compromised.

"Some people use a wallet that is specifically made for credit cards that separates them from your regular currency," says the CDC's Grant. "If you feel more comfortable, you should by all means do that."

8. Don't lick that card!
It sounds bizarre, but some cardholders and more than a few cashiers will occasionally apply a little saliva to the magnetic stripe on a credit card to give it a better chance of being approved when swiped into a balky card reader. Ewww, but true: Licking a credit card can make it work better. To avoid this unpleasant and potentially infectious exchange of bodily fluids, don't lick credit cards -- yours or anyone else's! Should someone lick yours, wipe it off immediately with a sanitizing product, preferably nonflavored.

9. Wash up at the mall
For healthy shopping, don't wait until you return home to wash your hands. By doing so, you risk transferring the germs you acquired during your credit card transaction to things like your steering wheel, child car seats, key chain and upholstery. The CDC recommends washing your hands for 20 seconds with soap under the hottest water you can stand. That's about a long as it takes to sing "Happy Birthday" to yourself twice -- and we can't think of a better gift.

10. Shop online
What's an extremely effective way to keep other people's hands off your credit cards while you shop? Duh -- shop online, of course. This flu preventive takes the worry out of being close to folks with runaway bugs -- unless of course, you're using a shared keyboard and you've got a home or office that's overrun with snifflers and sneezers. Then, be sure to keep the antibacterial wipes handy. They'll help with germs and bugs, even if they won't protect you from computer viruses.

Financial transactions surpass 100 billion in 2009

Debit outpaces paper checks, credit and automatic payments

By Cara Henis

The number of electronic and check transactions taking place will reach record levels, surpassing 100 billion by the end of 2009, according to new information from Moebs Services, an economic research firm.

Both consumer and business spending practices were studied in Moebs' research, which found that credit cards, debit cards, checks and automatic payments are being used more often than ever before.

Of the more than 100 billion transactions, debit cards are expected to comprise 33 percent of the total, while credit cards and checks will each likely be used less than 25 percent. Though automatic payments are expected to represent only 20 percent of the total number of purchases, forecasters predict their popularity will increase in the coming years. An automatic payment is a routine authorized withdrawal from a savings or checking account to pay bills.

"Based on current transactions, our projections show that debit cards and automatic payments are taking over at an increasingly rapid rate from the traditional checking account for most Americans," said Mike Moebs, CEO of Moebs Services, in a press release.

Although the number of transactions is increasing, total spending is still declining as it has been since 2008. Consumers are making purchases more often, yet spending less.

"This research indicates that consumers are doing significantly more transactions for significantly fewer dollars than in the past," said Moebs in a press release. "This may be due to easy electronic payment methods replacing cash."

2009 payment form transactions

With the increase in debit transactions, Moebs outlines four possible implications facing consumers and their financial institutions:

  1. Financial institutions will reap less revenue from overdraft fees as consumers move away from paper checks and opt out of overdrafts.
  2. Improved online security will be necessary to prevent fraud as consumers rely more on electronic payments.
  3. As the volume of electronic payments increases, there will be a need for quicker and more transparent ways for consumers to manage their accounts and to prevent possible errors.
  4. Technology will have to processing all transactions in real time to improve efficiency and to reduce costs.

"Our research suggests banks, credit unions, brokerage and investment houses should accelerate their planning for electronic payment use because we believe there will be implications to the bottom line of financial institutions in pricing, fee structure and service delivery," concluded the press release.

Friday, October 16, 2009

How bad are your credit card mistakes?

Grade yours on a 10-point scale

By Erin Peterson

Nobody's perfect. When it comes to our financial lives, we've all done things we later regretted -- whether it's getting slapped with a $3 fee for using an out-of-network ATM or going on a Las Vegas bender and losing the house on an overly aggressive poker bet. How bad are your credit mistakes?

The key is to understand the scale of the transgression. With credit card blunders, that's no easy task -- is it worse to take a cash advance or to pay a bill a day or two late? Experts graded a range of credit card mistakes on a scale from 1 (losing a few bucks to a cash machine) to 10 (losing the house). Find out which worry the pros most -- and which may (almost) get a free pass.

Paying late
How bad is it? 6
The details: Credit card companies are notoriously prickly about late payments -- even a payment that's late by a few minutes can pile up fees, interest charges and other penalties. Depending on how late the payment is, your card issuer may also report the problem to any of the credit bureaus, which can wreak havoc on your credit score. The good news, says Stacy Francis, president of Francis Financial, is that the error may be reversible. "You do have the option of giving the credit card company a call and asking them not to report it," she says. "If you've generally been an on-time payer, they may waive the fees and not report it."

Paying only the minimum on your card
How bad is it? 4
The details: Credit card companies love it when you pay off your debt slowly, but you should loathe it. It won't necessarily affect your credit score, but that doesn't mean it's a good practice. Sending in only the minimum payment "is definitely going to keep you in debt longer, and you're going to pay a heck of a lot more in interest," says Francis. "You may be paying twice as much -- or more -- as you would by paying in cash."

Buying on a card just for rewards
How bad is it? 1
The details: If you're paying off your balance on time and in full, using your cards to grab extra rewards isn't necessarily a bad plan, says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. "You can win the rewards card game if you know how to play," she says. "But you do have to know yourself." Because most people spend more when they're paying with plastic than with cash, be cautious and recognize when you're buying something only because plastic makes the purchase painless.

Missing a payment
How bad is it? 9
The details: Not only are you going to be slammed with fees, interest charges and other penalties when you miss a payment, but you'll likely see a rise in your interest rates. If that weren't bad enough, you'll also have to contend with a significant hit to your credit report -- about 35 percent of your credit score is based on your ability to pay bills on time. As a result, you'll pay more when you try to get a loan. "Missing a payment has both immediate and long-term consequences," says Clarky Davis, Care One Debt Relief's Debt Diva. "You may be dealing with the fallout for years."

Maxing out a card may not have an immediate financial pull, but it's a sign that you're not budgeting or spending your money wisely.

-- Clarky Davis
Care One Debt Relief

Having too many cards
How bad is it? 6
The details: If you're the type to apply for a card just so you can grab a discount on clothes or other merchandise, you likely have a huge stack of cards in your purse or wallet. You're probably not getting enough value from the card to make it worth the high interest rates or additional complications from additional bills and junk cluttering your mailbox -- and you're increasing the likelihood that a payment slips through the cracks or that you'll be a victim of identity theft. "There's rarely a good reason to get a new card if you've already got a general-purpose card, a rewards card and a low interest card," says Cunningham.

Maxing out a card
How bad is it? 7
The details: Maxing out a card can have a serious impact on your credit score, since about 30 percent of your score is based on "credit utilization" -- the amount of credit you've used relative to the amount you have available. More important, says Davis, is the fact that it likely signifies a distressing trend in your personal finances. "Maxing out a card may not have an immediate financial pull, but it's a sign that you're not budgeting or spending your money wisely," she says. "It means you don't have enough saved up to cover unexpected expenses."

Playing the balance transfer game
How bad is it? 5
The details: Moving your debt from a high-interest card to a low interest card with a balance transfer isn't as smart a move as you think, says Francis. "About 15 percent of your credit score is affected by your recent credit applications," she notes. Pile up a few transfers and your score will take a hit. "Credit bureaus don't [differentiate] that these cards are for the same [debt], they just see it as you getting pre-approved for more and more credit." Add in the fees that generally accompany balance transfers and you're not gaming the system -- you're getting hammered by it.

Debt settlement plans
How bad is it? 9.5
The details: If you're overwhelmed by debt, negotiating down your balance with the credit card company (also called debt settlement) sometimes helps you pay pennies on the dollar on your debt -- but you'll pay a steep price. First, there's the tax hit you'll take for the amount of debt that's forgiven -- it will count as income during that tax year. And your credit score will be decimated, so don't expect you'll be able to take out a loan soon after consolidation. Next to bankruptcy, debt settlement "is the most negative thing you can do to your credit score," says Francis.

Getting a cash advance?
How bad is it? 8
The details: It may feel like free money, but the truth is that it's anything but: You'll likely have a fee associated with the advance, and you'll likely pay a higher interest rate than you would by using the card associated with it. "You also have no grace period," notes Cunningham. "You'll start accruing interest from the moment you get the money." While these are all dangerous attributes in and of themselves, they're not the worst part, says Cunningham. "When you start using cash advances, you have to understand why you're using them as they're likely symptomatic of a deep financial problem."

Using a card in a pinch
How bad is it? 2
The details: If the fridge went on the fritz or the furnace conked out in mid-January, you might not have the means to fund its immediate replacement. Putting the bill on a credit card -- and paying it off quickly over the course of a few months -- is a pretty solid option, says Cunningham. "You don't want something like that to become standard operating procedure," says Cunningham. "But it's OK to have a balance on a card for a few months when you're going through a rough patch in your financial life. Just make sure it's on a card without an annual fee or with a very low annual fee."

Will cash gifts, inheritance go to creditors after bankruptcy?

It's best to put off receiving cash right after you file

By Sally Herigstad

To Her Credit
To Her Credit, Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006).

Ask a question.

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Question for the expert

Dear To Her Credit,
I filed for bankruptcy four months ago and it was final last month. I had mostly credit card debt -- about $25,000 worth, and it was all discharged in a Chapter 7 bankruptcy. I live in Utah.

My mom has cancer and isn't expected to live much longer. She is still competent at this point. She wants to leave me about $20,000, but she is afraid that if the bankruptcy court finds out about it, they will just take it to pay my creditors. My stepdad has volunteered that if my mom wills my share of the money to him for now, he will turn around and give me $20,000 next year. I trust him and know he would follow through on that promise.

Should I suggest to my mom that she write me out of her will? Or maybe she can give me one of her cars instead of money? What should I do? -- Aurelian

Answer for the expert

Dear Aurelian,
I'm so sorry to hear about your mom. What a difficult time!

Federal bankruptcy rules are pretty straightforward on this issue. If you inherit money from a person who dies within 180 days of the date you filed for bankruptcy, you must tell the courts. The money becomes part of your bankruptcy estate and is distributed among your creditors. You filed for bankruptcy four months -- about 120 days -- ago, so if your mom dies within the next 60 days and you are named in her will, you must tell the courts.

If your mom decides to rewrite her will and strike you out of it, that's her decision. David P. Leibowitz, a business and consumer bankruptcy lawyer in Illinois, says, "You can plan to a certain extent. There's nothing wrong with that." And if your stepdad decides to give you a gift next year or sooner, you don't need to worry about the bankruptcy courts taking it. The bankruptcy court cannot take gifts made after the bankruptcy is final, according to Leibowitz.

You can always disclaim an inheritance if you don't want it to go to your bankruptcy estate. You never have to accept an inheritance.

Another option would be to have your mom set up a spendthrift trust for you. A spendthrift trust is out of the reach of creditors. You'll need professional legal help to set up the trust.

"Cars are treated the same as cash," says Leibowitz. If your mom gives you a car instead of cash, it doesn't change the rules. "Even family heirlooms or a dining room set are subject to the administration of the bankruptcy estate," he says.

Just because items become part of your bankruptcy estate, however, doesn't mean they are automatically up on the auction block. You can claim an exclusion on certain items or up to certain amounts, and the bankruptcy trustee has a certain amount of discretion in choosing what to liquidate.

Planning to avoid the long arm of bankruptcy courts is not illegal or immoral. Think of it the same way you would consider tax planning. Tax planning is fine; tax evasion is not. The difference is whether you play by the rules and are honest. Trying to hide an inheritance -- for example, by not telling the courts you received $20,000 -- would be illegal, and you could face penalties for doing so. But if your mom writes you out of her will or sets up a spendthrift trust, Leibowitz says, "You didn't make that happen." You can't help it if she makes arrangements to protect what she wants to give you.

It can be difficult to talk with your mom and stepdad about money at a time like this, but you are fortunate that your family is addressing money issues now while there are more options to choose from. I hope that your mom has some good days left with you and your family, and that she can give you a gift you can keep, as she intended.

Credit card APRs fall slightly, reversing recent rate-hike trend

By Jeremy M. Simon

Credit card interest rates dropped slightly this week, after several banks made a commitment to abstain temporarily from additional rate hikes.'s weekly rate chart
Avg. APR Last week 6 months ago
National average 12.60% 12.64% 12.35%
Business 9.69% 9.80% 16.74%
Low interest 11.92% 12.10% 12.05%
Cash back 12.36% 12.36% 13.90%
Reward 12.76% 12.61% 12.19%
Balance transfer 13.10% 13.10% 10.80%
Instant approval 13.32% 13.32% 11.49%
Airline 13.60% 13.97% 14.44%
Bad credit 14.29% 14.29% 11.79%
Student 14.45% 14.45% 14.90%
Methodology: The national average credit card APR is comprised of 95 of the most popular credit cards in the country, including cards from dozens of leading U.S. issuers and representing every card category listed above. (Introductory, or teaser, rates are not included in the calculation.)
Updated: 10-15-2009

According to the Weekly Credit Card Rate Report, the national average annual percentage rate on new credit card offers slid to 12.60 percent. The decline, which snapped a three-week run of rate increases, stemmed from the addition of cards to the Rate Report database and not from APR decreases by major credit card issuers.

Major banks left APRs unchanged this week following recent pledges from Bank of America, Discover and Capital One to not raise interest rates ahead of the Credit CARD Act, which will make it tougher for lenders to hike interest rates on their customers. The act's major provisions take effect until February 2009.

Other major issuers have declined to make similar promises, and even the ones that have are still making other changes to their terms and conditions. For example, BofA said this week it plans to begin charging annual fees on some of its cards beginning next year.

Banks had been raising rates amid an economic and regulatory environment that has become increasingly challenging. "At the end of the day, they've got to match their risk with their portfolio," says Michael Rubin, author of "Beyond Paycheck to Paycheck." "If the interest rates are no longer politically palatable, another option -- as appropriate -- is to introduce annual fees," Rubin says.

While some banks are still making moves, the Federal Reserve is unlikely to do so anytime soon. The Fed influences credit card APRs by changing its key lending rate, called the federal funds rate. The bulk of credit cards have variable rates tied to the prime rate, which moves up and down based on fluctuations in the fed funds rate.

In minutes released this week from the central bank's most recent policy meeting, the Fed said its members "anticipated that inflation would remain subdued for some time," thus limiting the need to keep inflation in check by raising the federal funds rate. That outlook was reiterated in a speech by Fed Vice Chairman Donald Kohn, who noted that the risk of further economic declines currently outweigh the risk of inflation.

Rubin says that banks may also leave the APRs on their card products unchanged in the short term. "I think they got done what they've got to get done, so they're priced the way they need to for the moment," Rubin says.