Car - Laptop - Mobile - Money

Don't hide debt problems from collectors, friends or family

2010-01-02T19:32:00.000-08:00

Building a support system can help you get through

By Sally Herigstad

To Her Credit

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).

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To Her Credit archive

Dear To Her Credit,
I am having financial trouble because my alimony payments have just ended and my home business has failed. I was never making much from my home business in network marketing anyway.

I am seeking employment, but I can't make credit card payments at this time. I've missed one month of payments, and for the past week, I have been receiving phone calls throughout the day from two banks that I owe. Out of fear, I have yet to speak to these banks. I see the bank names on caller ID, and I don't answer the phone.

When these banks find I'm in the process of seeking employment and want to pay my debts but cannot pay at this time, what will their actions be? Can they send someone out to my home, or are they only allowed to contact me by phone and mail? Thank you for your help. -- Charlee

Dear Charlee,
Being unemployed and unable to pay your bills is very distressing, as anyone who has been there knows. However, it sounds like right now you are more fearful than you need to be. If you understand what is likely to happen and you know your rights, you can lay the worst of your fears to rest.

The bank generally won't know you are unemployed unless you tell them. Andy Jolls, CEO of VideoCreditScore.com, says, "There's nothing in your credit file that shows you are unemployed. Your employment situation and how much you make are not factors in your credit score."

You may want to go ahead and tell the bank you are between jobs. In fact, you may qualify for a forbearance program if you are unemployed for long and have no other income. (To learn more, read "Credit card forbearance programs offer reprieve from debt.")

If 10 percent of the population is unemployed, probably at least 10 percent of the bank's customers are in the same situation you are. Jolls says, "I haven't heard of anybody telling the credit card companies, 'Hey, I'm unemployed,' and the credit card companies raising their rates or closing down their accounts. My sense is that would be discriminatory."

If your worst fear is that someone from the bank or a collection company may come to your home, you can stop worrying about that. Creditors are not allowed to come to your home or place of business, nor are they allowed to talk to your employer, neighbors or anyone else about your debts.

Creditors can call you on the phone -- but only until you tell them to stop. Next time the phone rings and it's one of your credit card companies, answer the phone but don't discuss your account with them. Tell them to contact you by mail only. They must comply.

When they do contact you by mail, be sure to respond. Keep a copy of all correspondence for your files.

As soon as you're not worried about creditors showing up on your doorstep or you've stopped them from calling you several times a day, it's time to make a plan for paying off your debts.

To make a real difference in your financial situation, you must become very honest with yourself and with the people who care about you. "If she has this level of secrecy around not wanting to share with the banks, her family members probably don't know either," says Jolls.

When a home business fails, people's friends often don't even know. If your friends don't know you're short of money, they're going to ask you to go out to dinner and do other things to spend money. "If they know," says Jolls, "they're going to say, 'Can we get together and make pasta?'"

If you level with your parents, they may be able to help. Many parents are willing to help their grown children go back to school or to even let them live at home if they need to.

You may even want to talk to a counselor from a nonprofit credit counseling agency about your situation. They have helped many people like you. You may be surprised how much their experience and perspective can help. You can find accredited counselors through the National Foundation for Credit Counselors or the Association of Independent Consumer Credit Counseling Agencies.

I understand your hesitation to discuss debt. Being secretive about your financial troubles only makes them worse. Being more open and building your support system can help you get through even tough times like these.

How to create New Year's resolutions that actually work

2009-12-31T17:39:00.001-08:00

Most of us resolve to improve; heeding the '3 Rs' help you keep them

By Marcia Frellick

Millions of recession-weary Americans are making New Year's resolutions to spend less, save more and be more responsible with credit. But without a plan, experts say you're likely doomed to fail.

The good news is that with careful and realistic planning, you just might be able to keep that resolution and move closer to your dreams of greater financial stability.

Resolutions are becoming more and more popular amid today's double-digit unemployment and general economic uncertainty. Three in four Americans will make at least one financial-related New Year's resolution in 2010, according to a survey from Omaha-based brokerage TD Ameritrade and the Opinion Research Corp of Princeton, N.J. That's up from 71 percent in 2008. And despite the popular belief that resolutions don't often work, the survey found 60 percent of those who made financial resolutions last year reported they were still "going strong" -- though it is possible that more people say they keep their resolutions than actually keep them.

With that in mind, we spoke with personal finance experts to get their thoughts on what actually works.

The '3 Rs' of resolutions
To start with, they say resolutions that work follow "the three Rs."

They should be:

1. Reasonable.
2. Realistic.
3. Rewarding.

That means that goals shouldn't be so lofty that they're unattainable, and planning for them should include ways to both hold yourself accountable and to pat yourself on the back for a job well done.

Here's more of what these experts had to say.

Kathleen Gurney, CEO
Financial Psychology Corp.
Resolutions are incredibly emotional things. Gurney, a psychologist based in Sarasota, Fla., says you can't forget the emotional component of cutting back. If you do, you're making an already challenging endeavor just that much more difficult.

"When you say you will cut out all family splurges for the next three months, can you emotionally afford that?" Gurney says. "By about February, you may become really resentful that you don't have that time to de-stress with your family."

To keep the emotional impact to a minimum, Gurney offers the following suggestions:

Remove as many willpower decisions as possible. If your resolution is to spend less and your favorite activity with a friend is shopping, find another way to be together, and let the friend know why. If you are prone to spending what you make, sign up for monthly automated savings.
Keep track daily. Gurney suggests keeping a daily journal and writing down three things you did well toward keeping your resolutions and three things you need to do to improve. This is a way to reward yourself daily and reinforce the behavior changes you're making.

Leigh Ann Fraley, blogger
"Save Leigh Ann -- The Daily Rantings of a Bulimic Shopper"
Recording daily progress on her spending goals and writing about her debt in a public way made all the difference for Fraley, who racked up $19,947 in credit card debt before she began blogging about her financial struggles in 2005. She maxed out cards despite the fact she was a financial educator at a bank in California and lectured groups on how to manage their finances. Through her blog, she was accountable to herself and her readers.

She wiped out her debt in a year with the moral support of readers who clicked into her blog, which she still maintains. Last year, she was laid off and took on more credit card debt for COBRA insurance payments. But now Fraley, who just turned 40, has been rehired by the bank and has a four-month plan for becoming debt-free again.

She offers this advice on making resolutions:

Get an accurate picture of what you owe. Stop the denial. Open up the bills and get the real picture, she says. "People usually think they are worse off than they are, and they think there's nothing they can do."
Don't just vow to give up the lattes. Invest the latte money. "Take that $2.50 and move it over every day into a savings account with online banking. Then you can see it add up."
Cut up your credit cards if you don't trust yourself. Fraley cut hers up and now keeps the pieces in a transparent box as a warning. (See video: How to cut up a credit card)

Nicole Mladic, blogger
"The Budgeting Babe"
Mladic of Oak Park, Ill., 30, had $25,000 in student loans by the time she moved out of her parents' house. She then quickly realized her reserve was rapidly draining and she had to act. She says setting small, achievable goals and getting educated about finances help maintain resolutions.

Many people her age are struggling with debt. In the TD Ameritrade survey, more than half of Americans between the ages of 18 and 34 said they are more likely to make a financial-related resolution in 2010 than they were in 2009. Mladic offers these suggestions:

Start small. For instance, open a savings account and vow to save $25 a month instead of saying you will save for a down payment. Also, you can resolve to increase your 401(k) contribution 1 percent at a time. She says she started with 2 percent and is now at 10 percent plus her company's match.
Get educated. She felt she didn't know nearly enough about finances to reverse her situation and neither did many of the young women she knew. She started a blog called The Budgeting Babe in 2004 and continued it until late summer 2009. Months later, she made her last student loan payment.

Kit Yarrow, consumer psychologist, author
"Gen BuY: How Tweens, Teens and Twenty-Somethings are Revolutionizing Retail"
Yarrow, a psychology and marketing professor at San Francisco's Golden Gate University, says the new year often follows a bloated feeling of overspending, which is a motivator for change.

It's also when people find more support for their resolutions, and that's an important part of maintaining them. Stop-smoking, weight-loss and financial-help programs commonly roll out after the new year. Even if you don't join a group, Yarrow recommends giving a verbal commitment to at least a few people when you make your resolutions.

"It's funny. People will cheat on themselves before they'll cheat on someone else," she says.

She also recommends these tips for keeping resolutions:

Post tangible reminders. "Visual cues are very important, especially for young people raised on the Internet. Tape up a picture of the thing you are working toward as a constant reminder."
Emphasize positive action. When making a resolution, she says, focus on what you should do rather than what you should not do. Instead of focusing on not shopping or not having, find something proactive to do, such as budgeting or writing down expenses. In some ways, that will help replace the loss, she says.
Celebrate a milestone. Acknowledge a month of good budgeting or three months of reducing debt. But don't reach for the wrong reward -- like a spending binge, she says.

But none of this matters if you don't take the first step, and it doesn't have to be January 1 for you to start living in a more financially responsible way. "The reason New Year's resolutions often fail is because if you're motivated enough to change your life you don't need an arbitrary date to do it. ... Changes in behavior come when you seize the moment," Yarrow says.

How to read FICO's explanations of what's hurting your credit score

2009-12-31T17:38:00.002-08:00

Don't take the credit critique personally, especially if your score is high

By Erica Sandberg

Opening Credits

Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families."

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'Opening Credits' stories

Dear Opening Credits,
My credit score is good -- mid-700s. I've heard that there are things that you can do to hurt your score that don't make sense to me. I got my credit report earlier in the year and was shocked to see several comments. I don't recall the exact statements, but this is my understanding of what they meant:

Too many revolving accounts with balances. I have three credit cards I use regularly. At the time, the total balance was around $1,000. I pay the entire balance off each month.
Available credit too high. Over the years, several of my cards have gotten updated limits. Discover had me at $21,000. So, I called and had the limits lowered. How much is a reasonable limit to have?
Too many revolving accounts. I had a few credit cards that I'd never used. So, I closed the accounts. Since then I've heard a few people say this is a bad thing to do. The only debt at the time was our home mortgage. Paid off my car loan a few years ago. Were my actions in error? -- Donita

Dear Donita,
Actions in error? Have some confidence, Donita! You have a terrific credit score. Anything in the 750 range is more than acceptable, which means that even if you weren't trying, you've been doing a lot of things right.

In fact, it looks like you've satisfied the two weightiest factors in a FICO score: payment history (accounts for 35 percent of your credit score) and the amount of debt you have in relation to your credit limit (30 percent). By paying your bills on time and keeping what you owe well below the amount you can actually charge, you've achieved a credit score most lenders would be thrilled with. Check out the box on this page for more information about what goes into your credit score.

Now, what's up with the confusing credit report "explanations"? With such a good score, the statements don't make much sense. Here's why: Many of the comments you are reading are nothing more than stock responses and shouldn't be taken so literally. They aren't actually personalized to your exact situation, but are general suggestions as to why your score isn't at the "perfect" 850.

For further clarification, I turned to Jose Rivas, a financial educator for Consumer Credit Counseling Services of San Francisco (my old haunt). He reviews countless consumer credit reports for this nonprofit organization each year.

"The comments listed seem like the generic suggestions that are written into the mathematical code of the FICO scoring model," says Rivas. "When a credit file is processed by the FICO scoring model, the process will yield a three-digit score, unless you have no credit history, and four recommendations for improving the score. As a person's score gets closer to 850, there is less and less for the FICO model to recommend for improvement, but the process is designed to still yield the four recommendations."

In other words, for individuals like you who have scores in those upper numbers, the explanations about why it's not perfect are kind of meaningless. Why? Because FICO only publishes general information about how a score is determined -- a skeleton, basically, of why your score may go up or down. The meat and bones of the mathematical model they use is proprietary. (They pulled back the curtain a bit in November 2009 when they released some details of how late payments, foreclosures and other mistakes impact your score, but by and large, the scoring remains a mystery.)

Rivas does question the point about your available credit too being too high, saying, "there is no known drawback to having 'too much' available credit. This is usually a lender's feedback, but not likely to be FICO score-related." And because you don't carry over a balance from month to month, I don't see how lowering your credit line with Discover did any significant damage.

In general, it is best to keep older, well-managed credit accounts open. Doing so helps with the "length of credit history" section of a FICO score. Though a relatively minor factor in calculating your score (15 percent), having a long, traceable record of using credit positively works in your favor. However, your excellent score confirms that the effect of closing them has been negligible.

As for having too many revolving accounts with balances, I believe the number of credit cards you have is fine. Having three active credit accounts is generally perceived as ideal. It's balanced: You are not a one trick pony with a single card, and you don't have so many that your reports are overrun with random accounts.

In the end, try to not put too much stock in what random people tell you about credit reports and scores. If you have a question about anything financial, whether it's credit reports or investing, go straight to the source. I'm not suggesting that your best friend, sister-in-law or coworker is incorrect or isn't knowledgeable, but it's always best to get information on such important subjects from professionals who are actually in the business.

Just keep doing what you're doing, Donita. Your credit intuition is on the mark.

Chrome Bags Soyuz Laptop Backpack Review

2009-12-31T17:38:00.001-08:00

BY: Jerry Jackson, NotebookReview.com Editor
PUBLISHED: 12/28/2009

If you're looking for the perfect laptop bag for your new notebook then you may be in luck. Chrome Bags promises the Soyuz laptop backpack is the ultimate solution for road warriors who are constantly running between the office and the gym ... or maybe need to join a conference call from the beach. Is this $180 laptop backpack worth your holiday cash? Keep reading to find out.

Soyuz Specifcations:

Dimensions: 21 x 14 x 6 inches (L x W x H)
1000 Denier Cordura Body
Airmesh Strap Construction
Waterproof RF Welded Urethane Roll-top Main Chamber
Ergonomic EVA Compression Molded Back Panel
PVC Coated Weatherproof YKK Zippers
Full Shoulder Strap Accessory Attachment Belts
Industrial Metal Cam Locks Under Arm Compression Buckles
11" x 17" File Pocket With Organization Pockets
Five Additional Weatherproof Cargo Pockets
MSRP: $180.00 (available at www.chromebags.com)

Build and Design
The designers at Chrome Bags are obviously aware that modern road warriors don't haul the "traditional" mobile office anymore. Today your average mobile professional brings a notebook PC, a smartphone, and a variety of personal items ranging from a day's worth of clothes for an overnight business meeting or an outfit for the afternoon workout.

The Soyuz laptop backpack meets these needs and more thanks to dual primary compartments, multiple weatherproof pockets, and a sleek design that easily fits inside the overhead compartment on a flight or under the seat in front of you. The main roll-top backpack compartment is fully waterproof with a seam-sealed main chamber that will keep sweaty workout clothes away from delicate electronics or keep your beach clothes separate from your laptop. The side-access laptop compartment features a moderately padded section for your notebook and a divider for paper files or hard copies of your next business presentation. Another compact waterproof compartment on the front of the bag is the perfect place to store USB flash drives or any other small items you want to keep dry.

User Comfort
Of course, all of the waterproof storage in the world won't help a backpack that isn't comfortable on your shoulders and your back. Thankfully, the Soyuz is exceptionally comfortable thanks to shoulder straps that have airmesh padding and a back panel with ergonomic pads. While the surface of the shoulder straps that faces your shoulders has great breathable padding it's the front of the shoulder straps that I found particularly impressive. The front of the shoulder straps features seatbelt-quality reinforcement straps for added durability and metal compression buckles to keep the shoulder straps set to the right length. Shoulder straps are usually the first thing to fail on most of my laptop backpacks because I haul multiple notebooks and netbooks when traveling (I review these things for a living, after all). The straps on the Soyuz feel so rugged that I suspect they can handle any abuse I inflict upon them. If you prefer to carry your backpackl one handed using the top handle then you'll be pleased to know that the top handle feels nice and strong ... but the roll-top enclosure at the top of the bag does get in the way of the handle sometimes.

Usability Issues
The Soyuz proved itself to be a fantastic travel companion during my month-long test of the backpack. I used the Soyuz as my daily work bag and as my only carry-on bag for several business flights. Not only was the slim profile of the Soyuz easy to squeeze into overhead compartments and under seats, but the rugged construction held up to scrapes, drops, and more than a few rain showers without damaging the contents of the bag.

That said, I often found myself wondering if the Soyuz had enough padding around the main laptop compartment. None of the notebooks or netbooks I used during the review period were damaged in any way, but the padding on this bag "looks" thinner than what I see in most of the bags that arrive in our office. As mentoned before, the top handle on the bag is often obstructed by the roll-top enclosure, so if you don't roll the top as tight as possible before closing the Velcro then you might not be able to get a good grip on the top handle. Other than these issues I can't say there were any major usability problems with the Soyuz. As long as you don't attempt to overstuff the bag with multiple laptops, a change of clothes, paperwork, and your lunch then this bag has all the room you're likely to need for a work day or an overnight business trip.

Conclusion
The Russian word "Soyuz" means "Union" in English, and I think it's fair to say that the Soyuz laptop backpack from Chrome Bags is the perfect union of form and function. The Soyuz is the ideal companion for urban road warriors who need to jump between the office and an active lifestyle. The interior of this backpack offers enough storage to get you through a day's worth of work and play and it's rugged enough to last as long (or longer) than you do.

If I have any criticism about this backpack it's that the roll-top enclosure sometimes gets in the way of the top handle, the laptop compartment could use a little more padding, and the waterproof Urethane elements might look a little unappealing to some business professionals (though I think it looks great). Still, the Soyuz is a fantastic premium backpack at the $180 price point and might be the perfect choice for someone looking for a new laptop bag.

Pros:

Attractive industrial design
Weatherproof and rugged
Abundant compartments

Cons:

Limited laptop compartment padding
Industrial design might look unprofessional

2009-12-31T17:37:00.000-08:00

By Greg Ross

Symantec pcAnywhere 12.5 is a remote control application that allows users to operate a computer from any other computer in the world -- include PCs running a different operating system. Is pcAnywhere really the ultimate cross-platform remote desktop tool? We put it to the test in this review.

Symantec pcAnywhere 12.5 can connect almost any two computers, regardless of what OS either is running. However, as with any non-Web-based remote desktop program, pcAnywhere users need to know the exact IP address of the target computer (which never works well in my experience). Moreover, to connect via the Internet, pcAnywhere requires a third-party VPN.

Program Interface

The basic view for pcAnywhere 12.5 is very self-explanatory and resembles XP's play-toy interface. From here, you can access wizards to start using the most important features of the program. Clicking Remote Control starts up a wizard to connect to a computer at a known location, File Transfer starts up an FTP session wizard with a known pcAnywhere host, and Host launches the program necessary for the local computer to be remotely controlled. Quick Connect pulls up a window that is a little more advanced as it automatically scans for pcAnywhere hosts on the local network (good for home networks with DHCP enabled), and allows the user to invoke encryption protection during the remote session.

Remote Operation provides quick access to settings that largely impact the quality of the remote session experience. High-quality remote session streaming is useful when plenty of network bandwidth is available, while low-quality streaming is best for bridging two computers over the Internet. You can also set up a remote printer that can be accessed during the remote session.

The most important feature found in the Settings tab is the ability to configure pcAnywhere 12.5 to boot automatically with the computer, which I think should be mandatory in any remote access software. Callers are client computers that connect to the host, and a wide range of authentication options are available (including support for Windows user logins). One can never have enough security options in remote access software and pcAnywhere 12.5 certainly excels here.

While the overall user experience with pcAnywhere 12.5 was good, the various layouts and wizards were not exactly user-friendly a times.

When a remote session is running, the target computer's screen is front and center within the same interface.

The web browser version of pcAnywhere 12.5 is not as refined as the main program, but then again the Java web client is meant to be carried around on a USB memory key or used on a computer where the main client program cannot be installed.

Performance

During the evaluation period, the target computer was connected to the internet via a 6Mbit DSL connection. The computer used to access the target was connected to the same DSL connection for a high-speed test, or connected to the internet using a public Wi-Fi hotspot in the same city.

In each test, I never had any issues with input lag or slow refresh rates while I was running office applications. The only time pcAnywhere 12.5 ever had a problem was when I ran my video tests at too high a quality given the network connections I was using. When running on the public Wi-Fi network, pcAnywhere 12.5 defaulted to using low-quality mode with 256 colors. At those settings, I had no issues with input latencies or full screen changes like scrolling and window maximizations.

Performance only got better when pcAnywhere 12.5 was using my 6Mbit connection. Full-screen window changes refreshed in less time and scrolling through long documents was not as stuttered as with some of the competition. Where pcAnywhere 12.5 starts to show off is in successfully streaming video content with decent visual quality. Unfortunately, pcAnywhere 12.5 does not support audio transmissions so the experience was a little bittersweet. Nonetheless pcAnywhere 12.5 provides the best video streaming experience of any remote desktop app I've reviewed.

Connecting to the host using the client's web browser Java application was an interesting experience. Controlling the computer was almost as easy as from the main program, except that I could never get the scrolling wheel to actually work during these sessions. Scrolling was stuttered, but otherwise performance was acceptable given its intent.

Conclusion

In the end, pcAnywhere 12.5 certainly shines. The user interface is not as polished as I would prefer for a consumer application, but there is a wide array of powerful configuration options that are available. Performance was in line with the competition but, under the right circumstances, pcAnywhere 12.5 downright impressed us. It has incredible cross-platform support that should meet just about anyone's demands, and it even has a web interface that operates just like its web-based competitors.

In the end, the adage that 'you get what you pay for' is definitely true when pcAnywhere 12.5 is concerned. At $200 retail, it is certainly an expensive product. However there are no monthly fees and you can use it as long as you wish. Keep this product on the short-list, and look out for rebates.

Pros

Works with Windows, Linux, and Mac
Excellent performance, especially with video
File transfer and multi-monitor support

Cons

No audio streaming support
Web access requires third-party VPN
High up-front cost

IBM Lotus Symphony 1.3 Review

2009-12-31T17:36:00.001-08:00

By Jay Garmon

IBM Lotus Symphony is Big Blue's free alternative to MS Office. Can Symphony win a battle of the bands with Microsoft's productivity heavyweight, or does it ring hollow? We sound it out in this review.

Symphony is a forward-thinking and relatively full-featured productivity suite, but it lacks polish in some key areas. It's solid, but I wouldn't pay for it; luckily, it's free. This clunkiness starts with the download process, which involves over a half-dozen screens, requires the creation of an IBM ID, tries to opt you into affiliate e-mail newsletters, and insists the user actively decide between using IBM's Java-based downloader or a regular browser HTTP download. It's that needless lack of user-friendliness that mars an otherwise great app suite.

IBM Lotus Symphony gets high marks for supporting multiple operating systems, including Windows, Mac OS X, and multiple flavors of Linux. It loses marks for its format support, in that it can open multiple file types but can really only save to to handful - notably excluding MS Office 2007 file save options.

Interface and Usability

Symphony shares some ancestry with OpenOffice -- it's based on OpenOffice 1.1.4 source code -- but the two products diverged several iterations ago. Like most office suites, Symphony includes a word processor, spreadsheet and presentation program, but it integrates them in a somewhat unusual fashion. Lotus Symphony 1.3 looks and feels like a recent generation Web browser - in fact, it has a somewhat feature-crippled Web browser built in - in that it employs a tabbed interface for its applications.

Essentially, Symphony lets you open a new spreadsheet, presentation, or document just like you'd open a new tab in Google Chrome or Firefox. Each of these tabs shares a standard menu layout, which means commands don't move around like they do in the current MS Office ribbon interface. When you open a specific tool set, it often generates a sidebar or menu-bar that stays onscreen until you close it. This is handy, but opening too many sidebars can crowd out the actual document.

The tab system also has the advantage of letting you toggle between multiple docs and sheets easily, though I recommend not doing the same with the extremely poor built-in browser. Web connectivity is nonetheless quite essential to Symphony, even though it's conventional software and not a Web app. An online user wiki is your best source of help information, and you can link directly to document templates, plug-ins and widgets from the Symphony Web site.

Widgets are somewhat like Google Gadgets crossed with MS Office Macros, in that they can analyze data in your documents and process them in the sidebar. For example, you could write a widget that reformatted addresses on the fly. They're a good idea in principle, but I had trouble finding a practical application for them.

Lotus Symphony Documents

Lotus Symphony presents a document interface very similar to a MS Word 2003, though there are just enough quirks to give Word power users pause. For example, Symphony has a very solid spellchecker but no grammar-checker or thesaurus. Robust functions that aren't found in most Web-based apps - like mail merge - are present and usable, though not spectacular.

My personal acid test for word processors is the ability to use the find/replace function to making formatting changes. Like OpenOffice, Symphony honors a list of regular expressions that let you create complex find/replace command strings. While I could accomplish most of the same power-tricks that I regularly use in Word, Symphony made me jump through more arcane hoops to get there. Symphony passed my personal hurdle, but it didn't exactly leap over it.

Lotus Symphony Spreadsheets

As I do with every new spreadsheet, I threw the most complicate, graphics-laden, macro-and-formula-infested file I could find at it to see how it held up. Despite warning of conversion errors, Symphony handled the Dungeons & Dragons 4^th Edition multipage autocompleting character sheet with ease. No obvious function breakdowns or layout problems occurred.

When we used Symphony to create basic spreadsheets, all the standard formulary functions were present, and in fact the sidebar system proved useful in dealing with multiple commands at once. What isn't present are the SQL database hook-ins and pivot tables that MS Excel power users may depend on for heavy data-crunching. Symphony is a solid spreadsheet handler, but don't expect it to displace Excel for your custom uses.

Lotus Symphony Presentations

Symphony was decidedly schizophrenic when it came to presentations. It failed to properly convert our sample PowerPoint 2007 document, breaking some layers and graphs. That said, Symphony offered almost too many customization options when it came to building spreadsheets. A hefty clip-art library, multiple transitions, and 3D object generators were almost dizzying in their possibilities. For once, I think MS Office power users will; be comfortable with an alternate app, as there was little that PowerPoint can do (aside from Sharepoint hook-ins) that Symphony couldn't Except, of course, competently handle PowerPoint 2007 slideshows.

Conclusion

IBM Lotus Symphony is the ignored stepbrother of OpenOffice, in that both are free, traditional software alternatives to MS Office, but that OpenOffice is the one that has been embraced by the open source community. As such, it is OpenOffice that has the final shine and polish -- and template and extension support -- that Symphony lacks. Using Symphony is hardly a bad choice -- especially given the price tag -- but there's nothing Symphony does that OpenOffice doesn't do better. In the end, that's the worst criticism I can offer.

Pros

Free
Runs on Linux, Mac or Windows
Feature-rich

Cons

Lacks polish
Limited file format support
Poor third-party suppor

How fast does your credit score recover from your goofs?

2009-12-29T08:07:00.004-08:00

Time heals credit wounds, but how soon and how well remain a mystery

By Jeremy M. Simon

Credit Score Report

Jeremy M. Simon covers credit scoring and other issues as a staff reporter for CreditCards.com.

Ask a question.

'Credit Score Report' stories

Dear Credit Score Report,
I know if I have even one 30-day late payment, my credit score drops. Question: How long is the penalty? When can I expect to see my score increase again? -- Mike

Hey Mike,
Experts say you can expect a late payment to hurt your credit score for seven years, with your score gradually recovering over that time frame as you make smart borrowing decisions -- though exactly how much and how fast your score recovers isn't entirely clear.

The federal Fair Credit Reporting Act says that negative items can only appear on your credit report for seven years, but it doesn't say how the credit industry should treat the impact of those items after they happen. That vagueness, combined with the secrecy and complexity involved in credit scoring, mean that it's tough to say exactly how a borrower's credit score will recover from a late payment. Still, provided the borrower makes smart decisions following a slip-up, time will heal those credit wounds.

"Every consumer's situation is different, but generally speaking, the impact from a negative item, such as a late payment, will lessen as that item ages" says Steve Katz, spokesman for credit bureau TransUnion.

While FICO, creator of the most-widely used scoring model, largely keeps the details of its scoring model a secret, we do know the approximate damage a late payment will cause. FICO pulled the curtain back a bit on its scoring model recently when it acknowledged just how much certain credit mistakes can hurt a borrower's credit score. For example, in the case of two hypothetical consumers, FICO said that a 30-day late payment would reduce a FICO score of 680 by 60 to 80 points, while an identical late payment would reduce a FICO score of 780 by 90 to 110 points. (For more on this topic, see our story on FICO's damage points.) You can run FICO's credit score simulator to get an idea of how much damage various mistakes, including a late payment, may cause to your own credit score.

But when it comes to the recovery process, it's still largely a mystery. FICO spokesman Craig Watts says your score will recover over time because the scoring model factors in when you made your errors, how bad they were -- for example, was your payment late by 30 days or by 90 days? -- and how often you made them. However, FICO's mathematical formula can't predict exactly how fast your score will improve. Watts says there are simply too many changes that can happen over time in a consumer's credit report, both due to the cardholder's own actions and changes that are beyond the consumer's control. For example, you wouldn't have any control over the continual aging of your existing accounts.

Still, FICO's Web site gives some clues as to how a credit recovery might play out. FICO says that for negative items on a credit report, "a collection that is 5 years old will hurt much less than a collection that is 5 months old." Please note the use of the phrase "much less" to signal that five years out from your late payment, its impact will be seriously lessened.

In discussing a foreclosure's impact, FICO says "it's a common misconception that it will ruin your score for a very long time. In fact, if you keep all of your other credit obligations in good standing, your FICO score can begin to rebound in as little as two years." Based on the fact that a foreclosure is much more damaging to a credit score than a late payment, it would make sense that in your case, your FICO score would also begin to recover within two years of your late payment.

Although FICO leaves it somewhat unclear what a recovery from score damage looks like, the steps you need to take to recover from that mistake are clear: "The best way to minimize the impact is to catch up on the payment and then continue to make all of your payments on time," says Rod Griffin, director of public education with credit bureau Experian.

By always making on-time payments from now on, as well as keeping debt levels low and only taking on additional lines of credit when necessary, that late payment will become just a minor slip-up on the road to an improved credit score.

Good luck!

-- Jeremy

Instant in-store credit card offers in danger of extinction

2009-12-29T08:07:00.003-08:00

New credit card law requires retailers to ask customers for income, other data

By Connie Prater

Instant in-store credit card offers -- you know, the ones pitched by perky sales clerks offering 15 percent off your purchase if you sign up now for a store credit card -- may disappear in malls and retail outlets across the country come February.

RETAILERS SAY INSTANT, IN-STORE
CREDIT CARD OFFERS MAY VANISH

WHAT'S HAPPENING: The Federal Reserve has proposed rules requiring credit card issuers, including retail stores that offer instant in-store credit, to assess customers' ability to pay card loans before issuing them credit cards.

WHY IT'S IMPORTANT: Retailers say instant credit card offers won't be possible if consumers have to provide paycheck stubs or other income information at the cash register.

WHAT'S NEXT: The Fed must issue final rules sometime before the Feb. 22 startup of the Credit CARD Act. The Fed won't say whether it will revise the rules to address retailers' concerns.

That's because a provision in the new credit card reform law says that starting Feb. 22, 2010, credit card issuers must consider an applicant's ability to repay the card loan before issuing a new card or increasing the credit limit on an existing account.

The measure has thrown a speed bump into the instant credit approval process and has the retail world in an uproar. Some of the biggest names in retail -- Saks Fifth Avenue, Macy's, Best Buy and Lord & Taylor -- are objecting to new guidelines proposed by the Federal Reserve Board. If given final approval, they say, it could kill the retailers' lucrative in-store instant credit card plans.

A speed bump to instant credit?
"We think it's pretty serious," says Mallory Duncan, senior vice president and general counsel for the National Retail Federation trade group. The Fed wants to require lenders to review income or asset information -- such as paycheck stubs or investment statements -- of people applying for new credit cards. The problem: Instant credit won't be so instant if consumers must fork over paycheck stubs at the cash register (known in the industry as the point of sale).

"My guess is most people don't walk around with either a pay stub or financial information in their purse," Duncan says. "In an effort to achieve one goal, the Federal Reserve Board may be inadvertently issuing consumer unfriendly regulation."

Macy's and other stores claim the restrictions could impact consumer spending at a time when the country is trying to pull itself out of a recession. Retailers have other reasons for concern. Data compiled by The Nilson Report, a payment card industry newsletter, show store credit cards were declining long before the new credit law. Outstanding balances on retail store cards -- known in the industry as private label credit cards -- have been falling as a percentage of total credit card balances for nearly two decades -- from nearly 24 percent in the early 1990s to about 11 percent in 2008, according to Nilson.

Some shoppers are shunning store cards -- which typically limit customers to spending at a single store chain -- and opting instead for general purpose credit cards that carry the Visa or MasterCard logos and can be used anywhere those brands are accepted. Store cards have historically had higher default rates and cardholders with lower credit scores than general purpose cards.

My guess is that most people don't walk around with either a pay stub or financial information in their purse.

-- Mallory Duncan
National Retail Federation

How instant credit works
Currently, many stores require sales clerks to ask if shoppers have store credit cards. If they don't, the smiling clerk makes a pitch to sign customers up for cards -- sometimes with the inducement of getting 10 to 15 percent off that day's purchase, or, if online, getting free shipping or a gift card. If the customer agrees to get the card, they may be given an application form to fill out. Some stores have computer terminals set up to allow customers to input personal data: name, address, date of birth and Social Security number. In other stores, customers may be asked to fill out paper application forms, which are used by store personnel to input data into a computer.

With the click of a button, the application is electronically sent to the credit card bank used by the retailer or directly to a credit reporting agency (Experian, Equifax or TransUnion). Within seconds, a credit report and credit score is generated for the customer, and the bank sends an approval or denial of the application to the store. If approved, the customer's purchase goes through as the first charge on the new credit card account. The actual card is mailed a few days later, along with the credit card agreement outlining the terms and conditions of using the account. If there's a problem on the credit report, such as a history of paying bills late, bankruptcy, charge-offs or debt collection activity, the application is denied and the customer may be asked to provide additional information, such as bank account numbers or proof of income.

There's no huge benefit of instant credit for consumers.

-- Gail Hillebrand
Consumers Union

Under the Fed's new "ability-to-pay" rule, there could be an additional step that would take the instant out of instant credit. "A card issuer has not complied with this provision if, for example, a card issuer does not review any information about a consumer's income, assets, or current obligations, or issues a credit card to a consumer who does not have any income or assets," according to the Fed.

That could mean customers may have to hand in a pay stub or some other proof of income or assets along with the initial credit card application. Stores would have to figure out how to scan this information into their computer systems and how to evaluate the customer's ability to pay based on that documentation.

Liar loans?
Another potential problem: Customers who deliberately lie about their incomes, either because they are embarrassed to reveal it to store clerks, want privacy or want to overstate their income in hopes of improving their chances of getting a credit card. Currently, annual household income is a standard question on credit card applications. This amount is self-reported and not verified.

Duncan from the retail federation argues past credit history is a better predictor than income of how customers will repay credit card loans. Income becomes more important for big ticket items such as homes and cars, he says.

"An applicant's credit history demonstrates a consumer's commitment to meeting their financial obligations," Steven Franks, Macy's senior counsel wrote in the comments filed with the Fed. "Their ability to properly budget for monthly expenses is indicative of their ability to make at least their minimum payments. This type of evaluation is more revealing to a credit card lender than asking an applicant for an unverified income amount."

The proposed rules may also create new roadblocks for stores hoping to increase credit limits on existing accounts. Duncan gives the example of a customer with an $800 credit limit on a Saks credit card who wants to buy two suits that cost a total of $900. The store can run a credit check, look at the customer's past payment history with the store and instantly approve bumping the credit limit up to $1,000 to accommodate the sale. Under the proposed Fed rules, the clerk would have to ask the customer for income information.

"Most consumers would find that conversation, if not intrusive, then distasteful while standing in line," Duncan says.

He adds: "We're not in the position that we want to alienate good customers ... Very few merchants are going to want to have that conversation. You want to have as few negative conversations with your customers at the point of sale."

RETAILERS SOUND OFF ABOUT PROPOSED CREDIT CARD RULE ON ABILITY TO PAY
Some of the nation's top retailers filed comments with the Federal Reserve objecting to proposed rules on assessing applicants' ability to repay credit card debts. Click the links to read their comments. "We are worried that this new requirement will have a chilling effect on the willingness of our customers to apply for credit and the willingness of our store associates to offer credit." -- Belk Inc. "There is concern that consumers will hesitate to provide such sensitive and personal documentation (like pay stubs) to retail associates." -- Best Buy Inc. "Consumers seeking credit should not be required to make information about their income or assets public in order to apply for credit in a retail store." -- Charming Shoppes Inc. (Lane Bryant, Catherines Plus, Petite Sophisticate, Fashion Bug) "Consumer credit is crucial to our retail business and we do not wish to create unnecessary hurdles for our customers." -- Lord & Taylor "Both the store associate and the applicant are placed in an uncomfortable position when discussing sensitive information with other customers standing in close proximity." -- Macy's Inc. (Macy's and Bloomingdale's) "Very few people carry income information (such as a pay stub) that would be necessary to satisfy the proposed language nor would customers (and those waiting in line behind them) be inclined to wait in line for it to be evaluated." -- The Talbots Inc. "We believe that the proposed rule will restrict commerce." -- Saks Fifth Avenue

RETAILERS SOUND OFF ABOUT PROPOSED CREDIT CARD RULE ON ABILITY TO PAY

Some of the nation's top retailers filed comments with the Federal Reserve objecting to proposed rules on assessing applicants' ability to repay credit card debts.

Click the links to read their comments.

"We are worried that this new requirement will have a chilling effect on the willingness of our customers to apply for credit and the willingness of our store associates to offer credit."
-- Belk Inc.

"There is concern that consumers will
hesitate to provide such sensitive and personal documentation (like pay stubs) to retail associates."
-- Best Buy Inc.

"Consumers seeking credit should not be required to make information about their
income or assets public in order to apply for credit in a retail store."
-- Charming Shoppes Inc. (Lane Bryant, Catherines Plus, Petite Sophisticate, Fashion Bug)

"Consumer credit is crucial to our retail business and we do not wish to create unnecessary hurdles for our customers."
-- Lord & Taylor

"Both the store associate and the applicant are placed in an uncomfortable
position when discussing sensitive information with other customers standing in close proximity."
-- Macy's Inc. (Macy's and Bloomingdale's)

"Very few people carry income information (such as a pay stub) that would be necessary to satisfy the proposed language nor would customers (and those waiting in line behind them) be inclined to wait in line for it to be evaluated."
-- The Talbots Inc.

"We believe that the proposed rule will restrict commerce."
-- Saks Fifth Avenue

Consumer group: Instant credit fuels impulse buying
Consumer advocates and credit counselors who coach people out of mountains of debt say making it harder for people to get credit cards while shopping is a good thing. It may cut down the number of people who get into trouble with compulsive buying.

"The risk of instant credit is impulse borrowing," says Gail Hillebrand, financial services campaign manager for Consumers Union, the nonprofit owner of Consumer Reports Magazine. "Instant credit is generally not a good idea for consumers. Other people can get it pretending to be you, which creates a mess for you."

Hillebrand says consumers with decent credit scores likely have the ability to pay. "If can you afford to make the payment, you probably already have credit available to you. In that case, you can use another credit card. There's no huge benefit of instant credit for consumers. It's retailers that need instant credit -- not consumers."

Duncan from the retail federation acknowledged that retailers will lose out if instant credit is curtailed. "These customers are typically more loyal to the stores," Duncan says, adding, "There are advantages to both the retailers and the consumers in this."

Signing up for a store credit card is about more than just getting a credit card. The retailer builds a database of loyal customers that can be mined for years with marketing and promotional programs. Store cardholders who are offered special deals and services (earlybird specials, discounts, coupons, etc.) help move merchandise and contribute to a store's bottom line.

At Lord & Taylor, the high-end retail store, 40 percent of its $1.1 billion in customer sales is conducted with a Lord & Taylor credit card, according to comments filed by Christopher Sim, the company's senior vice president and CFO. Similarly, Belk, a department store chain that operates in 16 states, predicted a sales hit.

"The ability of customers to purchase on credit is critical to our retail sales," wrote James. A Ward, Belk's vice president of credit. "In these tough economic times, we simply cannot afford for credit to become less attractive or more cumbersome to obtain, and we expect this income requirement to have a direct impact on our sales."

As an alternative, several retailers have suggested that the Fed modify the rules so that opening credit card accounts with small credit limits -- perhaps $3,000 or less -- would be exempt from income review requirements.

Hillebrand from the consumer group agrees a low credit limit account may not warrant a review of income data. "They certainly could start you off with a very low credit limit," she says. "If you want more, fill out the form and tell us all this other information."

Credit bureaus offer solution
Experian and Equifax -- two of the three major credit reporting agencies (TransUnion is the third) -- have launched services in recent weeks they say will help retailers and other lenders assess borrowers' ability to pay in the same amount of time it currently takes to pull a credit report. Called income-estimation modeling, the programs rely on statistical analysis of databases of financial data to estimate a credit card applicant's income and assess their ability to pay loans.

Experian's Income Insight tool uses verified financial information from the IRS and other sources and links it to the credit bureau's database of millions of consumers, says Brannan Johnston, Experian's vice president of income and deposits. He says the model assesses the likelihood that applicants can pay based on verified income from the databases and on outstanding credit balances, available lines of credit, how long they have had credit, the sizes of their mortgages and whether they've ever missed a payment.

"For those lenders that ask income on an application, Income Insight can be used for income verification," Johnston says, noting that because the program is a statistical model, it is not used as the sole basis for declining an applicant. People who are deemed unable to make payments by virtue of the model would be asked to submit pay stubs or other proof of income before they could get loans.

Equifax announced on Dec. 8, 2009, it was expanding its ability-to-pay services to include tools that use IRS, employer and other databases to estimate personal income. "By combining the predictive power of modeled financial measures, such as income, with the accuracy of bureau data and verified income, credit issuers have additional options to minimize risk and assess consumer ability and willingness to pay," according to an Equifax statement.

Representatives from Experian met with Fed officials in November to brief them on how the income estimation tools may help lenders meet the ability to pay requirements.

The Fed is reviewing the comments submitted on the guidelines and must issue final rules before the Feb. 22 effective date of the credit card law. A Fed representative would not comment on whether the ability-to-pay rules will be revised based on the retailers' concerns or if the income estimation modeling tools would satisfy the Fed's requirement for assessing ability to pay credit card loans.

What will retailers do?
Duncan from the retail group says if the Fed doesn't revise its rules, some retailers may be forced to back away from instant credit offers.

"Some will try, in some of their stores, asking for financial information at point of sale," Duncan says. "If the reaction is negative, it will go away. In the short term, it will dry up a lot of very good deals for consumers."

Tough choice: credit card debt vs. down payment on a car loan

2009-12-29T08:07:00.001-08:00

Consider your credit score, amount of debt and size of loan

By Todd Ossenfort

The Credit Guy

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

Dear Credit Guy,
I have two credit cards. One balance is $2,645 with a credit limit of $2,800. The other balance is $5,143.86 with a credit limit of $5,500. I have $1,800 that I was going to pay on these or pay down on a car. My credit score is 680. I pay my bills on time all the time and always more than the minimum. I was looking to buy a car within the next 30-45 days. I am wondering whether I should pay this money on one or both of my credit cards, and how much? (Which will help my credit score the best?) After making these payments to my credit card or cards, how long does it take for your credit score change to show up? I really would like to get the best interest rate when I go to buy my car. -- Sharon

Dear Sharon,
I believe you would be better off in the long run using your $1,800 as a down payment on your car purchase. My rationale is that if for some reason you needed to sell your car, particularly early on in your loan term (reasons you may need to sell might include getting laid off from your job, a decrease in salary or some other interruption in your income) without a down payment, it is likely you would be upside down in your car loan. Upside down means you owe more on your loan than the car is worth. In a must-sell situation, you would then be in a bad financial situation, either having to continue to pay on a car loan when you no longer own the car or face repossession because you can no longer afford the loan payments -- both of which could be very expensive.

With a credit score of 680, you would qualify for a national average 48-month term loan on a new vehicle at 9.5 percent interest. If you increased your credit score to the next level or 690-719 range, the national average for a 48-month loan would be 7.5 percent. The lower rate would save you $906.46 in interest charges on a $20,000 loan over the life of the loan. I know you don't want to pay any more for your car loan than you need to, but I would rather you plan for the unexpected.

If you disagree with my advice and would rather use the money to pay down your credit card balances, you could pay $1,245 on your card with the balance of $2,645 and the remaining $555 on the card with the $5,143 balance. Paying the majority of the $1,800 on the lower balance card will bring what you owe down to 50 percent of your credit limit and should boost your credit score. One of the elements considered for your FICO credit score is the ratio between the credit available to you and the credit you are currently using. The goal is to owe less than half of the credit available to you. You would still be over that limit on the higher balance card, but you would be bringing one of the accounts down to that magical 50 percent acceptable level.

Take care of your credit!

Adult son racks up $20,000 on mom's cards

2009-12-20T20:42:00.000-08:00

What's a mom to do? Sell his stuff... fast

By Sally Herigstad

To Her Credit

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).

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To Her Credit archive

Dear To Her Credit,
When my son (49) had bad, bad credit, I authorized him to use two accounts of mine -- a Visa and a business American Express card. I had the AmEx account because I was going to start a cookie business and the rates seemed good. I never used or signed either card. I told him he could use the cards for a couple of months, and I assumed he wouldn't spend more than a few hundred dollars.

His signature is on all of those bills. I didn't know he was still using them, in fact I thought I had closed the American Express. Now I find out that he called them and had all the bills sent to him. He has run up balances of over $20,000.

What can I do other than seeking legal help and ruining his life? I cannot pay those bills nor do I want to hurt my credit score as I pay the minimum or more each month, but the companies have been calling me.

I know I should not have been so generous, but he is my only son. -- Lenore

Dear Lenore,
You have a worse problem than a $20,000 debt right now. You have a son who, way past the age when he should know better, is treating you disrespectfully.

I know you had the best of intentions. We parents all want to help our kids and to have good relationships with them. In the short term, it seemed like handing over your cards to him would accomplish both of those things. In the long term, it has accomplished neither. Giving a card to someone who cannot handle money is like opening a tab for an alcoholic. And unpaid debts between parents and children only cause more stress in relationships.

If you authorized him to use the cards, he didn't break any laws doing so. I don't know if he had the statements sent to him because he intended to make the payments himself or to hide them from you. Either way, sorry to say, the bills are in your name.

Bankruptcy is not a good option. That amount of money is not worth going bankrupt over as it would cost you another $5,000 in fees by the time it's over, plus repercussions to your finances for the foreseeable future. It's not your answer.

People ask a lot about negotiating debt settlements with the credit card companies. However, despite what you've heard in some advertisements, nobody can snap their fingers and cut your debt in half or make it go away. Banks typically settle with debtors only in extreme hardship cases, such as catastrophic illness or unemployment. Loaning out your credit cards to your son probably won't qualify.

The first thing you should do is close every account your son has access to. Check your credit report and make sure he hasn't bought anything else in your name.

Next, level with your son and tell him you cannot afford these bills. Kids often assume their parents have unlimited money (although a 49-year-old kid should know better). Tell him he is going to have to pay you back and give him suggestions on how he can do so.

He must have bought things with the $20,000. Is any of it returnable? People who go on spending sprees often have clothes with the tags still on or electronics still in the box, for instance. They can go back to the store. Used items can be sold on eBay or Craigslist. If he's enjoying the latest sound systems and video games while you get stuck with the bills, the party's over. I don't care if it's installed in his car -- tell him he has to pay for it or sell it.

You can even offer to take items of value in lieu of cash. Does he have a motorcycle, a fishing boat or guns? He may laugh when you tell him to hand over his toys, but this level of debt is no joke. You are perfectly capable of turning it into cash to start paying down this debt. If he can't part with his stuff, maybe he will suddenly find cash.

Don't let him reduce what he owes you by claiming inflated values of what he owns. People tend to overestimate what their things are worth -- often by two or three times. Check out the wholesale values yourself, or agree to only reduce the amount he owes you by the cash you get out of them.

I'm assuming that if your son is 49 years old, you must be retired. Earning enough money to pay off $20,000 would be daunting. Your son, however, is in his prime earning years. He spent the money -- he can pay it off.

If he's already working full-time, your son might have to take an additional part-time job to pay off the debt. If there are no jobs where he lives, he may have to start a service business of his own that doesn't require an investment. Depending on his skills, he can do odd jobs such as driveway resurfacing, roof cleaning, after-school tutoring or Web site design. Essential services are the best bet because even in a slow economy, people still pay for them.

The bottom line is this: Your son owes you $20,000 and he has to pay it back. It's the best thing for him, for you and for your relationship with him.

Federal Reserve again leaves interest rates unchanged

2009-12-17T22:31:00.001-08:00

Experts say rates won't increase until unemployment rate falls

By Jeremy M. Simon

The Federal Reserve left its lending rates unchanged again on Wednesday, and experts say it's likely to continue that plan until sizable numbers of unemployed Americans begin finding work.

That central bank decision came at the conclusion of a two-day meeting, with Fed officials voting unanimously to leave its federal funds rate at a range of 0 percent to 0.25 percent, keeping the prime rate at 3.25. Variable rate credit cards -- which account for the majority of plastic -- have annual percentage rates that are set using the prime rate. That means when the central bank eventually raises the fed funds rate, which it last did in December 2008, most cardholders in the United States can expect to pay higher rates on their credit cards.

However, that decision may be months away. With unemployment currently at 10 percent, economists weren't surprised by the Fed's latest decision to hold off on hiking interest rates. "They're not going to do it before they have positive employment numbers," likely around the second quarter of 2010, says John Silvia, chief economist with Wells Fargo.

Fed points to job losses
The Fed highlighted the unemployment problem in the first sentence of the statement accompanying its decision. "Information received since the Federal Open Market Committee met in November suggests that economic activity has continued to pick up and that the deterioration in the labor market is abating," the Fed said.

Still, despite that note of optimism, the Fed says that joblessness remains a challenge. "Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit," the statement said.

Amid other key portions of the Fed's statement, its language didn't change at all from earlier statements -- for example, when saying that the strength of the economic growth isn't enough to warrant interest rate hikes. The Fed said it continues to expect the health of the economy to require "exceptionally low levels of the federal funds rate for an extended period."

Unemployment continues to influence lending rates
Analysts agree the Fed is waiting on the labor market's recovery. Although the U.S. economy has shown signs of life, the unemployment rate remains in the double digits. In October, unemployment reached 10.2 percent, before dipping slightly to 10 percent in November.

"The Fed typically waits for the unemployment rate to fall notably for a number of months before it is willing to raise rates, and we believe this should prove especially true with the unemployment rate at a 10.0 percent level," Barclays Capital's economics team said in its weekly report on Dec. 11.

That means, for the time being, any changes to annual percentage rates will come from the card issuers themselves rather than the Fed.

Banks making moves
Banks continue to suffer losses as unemployed workers struggle to repay their loans. On Tuesday, Capital One said its U.S. credit card charge-offs -- or the amount of loans the bank has given up on collecting -- rose to 9.6 percent in November, Discover reported that its credit card charge-offs increased to 8.98 percent and Chase said its write-offs advanced to 8.81. Bank of America, meanwhile, posted a 13 percent write-off rate in November, down from the previous months' rates, but still the highest rate among those banks that have so far reported their results.

To offset these losses, banks have made borrowing more costly and difficult for cardholders. For card issuers, "you tighten the standards in a recession and loosen the standards as the recovery proceeds," Silvia says. Banks have also blamed their tighter lending standards on increasing regulation, which lenders say makes doing business more expensive.

For now, banks are more focused on the current recession than a pending recovery. As of last week, interest rates on new credit card offers reached 12.75 percent, according to the CreditCards.com Weekly Credit Card Rate Report. That's the eighth increase in the past 12 weeks, and it represents an increase of more than three-quarters of a point from June and a point and a half since summer of 2008. Cardholders may also find themselves paying higher fees for late payments, balance transfers and cash advances, as well as inactivity fees.

However, Silvia says that card issuers have likely already implemented the bulk of their interest rate increases. "I have to believe most of the change occurs in availability rather than the rate itself," he says, with consumers still finding it difficult to get their existing credit lines extended or get approved for new credit cards.

As for interest rates, Silvia says credit card APRs could start to come down after the Fed begins to adjust its monetary policy next summer. (The prime rate is just one of the factors that influences credit card APRs, so banks still have significant control over many of the others.) "I think the banks are going to lag whatever the Fed does, so it won't be until the end of next year before anything gets done" by card issuers, he says.

'No payment, no interest' credit card deal? No way

2009-12-17T22:30:00.004-08:00

Make no mistake: If there's a balance, you owe a minimum monthly payment

By Erica Sandberg

Opening Credits

Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families."

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Dear Opening Credits,
I did a balance transfer to a Chase card. I did not realize, nor was I told when the card was issued, that it had monthly minimum payments. I have usually done payment transfers where if the balance is not paid off by a certain date, the interest is retroactive. I would pay on the balance when I could. I did the same with the Chase card, not realizing the balance. I made two payments, missed two months, then paid it off. Now, five months have gone by, and they finally called me to tell me I have a balance in excess of $300, and a payment of $180 will bring the account current. I explained my situation, and they are unwilling to listen/help. Do I have any recourse? Is there anywhere I can go to get help? I offered to pay a portion, but they won't budge. -- Shelley

Dear Shelley,
I must say that I'm mystified that you weren't aware that minimum required payments are an intrinsic aspect of revolving credit cards. Did you really think that you could add a balance to a new credit account and not be expected to send them some money each month?

The only rationale I can imagine is that you mistook a "zero APR on balance transfers for X months" offer from Chase for the financing arrangements that some retailers offer for furniture or major appliances. Typically, in those cases, as long as you pay 100 percent of the sales price within a certain time frame, you won't have to make any payments and won't be charged a penny in interest.

However, what you got is a standard credit card, and all companies that issue such products require monthly payments on what you owe whether you actively made purchases with that account or have transferred the balance from another card. To be sure you got that information, though, I asked Gail Hurdis, Chase Card Service's communication & public affairs vice president about your situation. "There is a section in the customer agreement that calls for a minimum payment," says Hurdis, who goes on to say that it also explains in detail how the payment and interest is calculated.

Apparently you managed this account fine in the beginning, as you submitted two consecutive payments. Then, for whatever reason, you skipped a couple of cycles before sending in what you thought was the remaining balance. Your troubles began when you missed the payments, as it caused finance charges and other fees to be added to the account. The end result: that unanticipated bill of about $300.

This leads me to my first piece of advice, which is to make sure you open all of your mail. You say you first heard of this surprise debt when Chase called you, but it is standard protocol for issuers to send letters alerting customers that their account is delinquent before making collection calls. Because you weren't expecting a bill, you may not have been as diligent about checking the correspondence from the bank.

Now, I understand that you don't want to pay the debt and have attempted to have it purged. Chase won't budge and, frankly, I don't see why it should. You were under an obligation to pay at least the monthly minimum (the "payment due" printed on your statements was further indisputable proof that remittance was expected), which, at least for a couple of months, you did not do. Because of that, Chase is fully within its rights to add on the charges.

So what should you do? This leads to my second and most pressing piece of advice: Pay it. Now. You legitimately owe the money. It's been five months since Chase has received any cash from you. Though the amount due is not large, chances are it's being reported on your credit report and doing some major damage. I'm willing to bet that it won't be long before Chase charges the debt off and sends it to a collection agency. When that happens, troubles will only increase. Your credit report will take another bad hit, and you'll be dealing with collectors, who are not typically a joy to work with.

Do not miss this opportunity to get back on track, Shelley. For a mere $180, you can offset the problems that will surely happen if you don't. And next time you enter into a contract with a credit card company, read the application and agreement carefully before accepting the offer. The terms will be spelled out -- from how much you are expected to pay each month to the grace period and fees. For now, consider this a valuable life lesson in the real world of credit.

Creative new fees escape CARD Act rules, surprise consumers

2009-12-17T22:30:00.003-08:00

New report highlights ways issuers have gotten around new law

By Tamara E. Holmes

While the Credit CARD Act of 2009 puts an end to abusive tactics card issuers have long used to boost their profits, consumers need only to look at their card statements to know there's no reason to celebrate.

In the past year, card issuers have rolled out or expanded their use of other ways to collect millions more in fees each year, many of which are hidden to consumers, according to the Durham, N.C.-based Center for Responsible Lending's Dec. 10 report, "Dodging Reform: As Some Credit Card Abuses Are Outlawed, New Ones Proliferate."

"Credit card issuers are going to more than ever try to find ways to make extra profits," says Joshua M. Frank, a senior researcher with the Center and author of the report. New charges and changes to the way fees are calculated are adding to the balances of a growing number of cardholders. While some of the practices were instituted after the Credit CARD Act was approved in May, others were quietly being put in place earlier as a result of the recession. The one thing they have in common, says Frank, is that "none of them are explicitly prohibited by the Credit CARD Act."

Hidden rate changes
Consumers with fixed rate credit cards won't have to worry about interest rate changes to current balances if they pay on time, under the Credit CARD Act. The vast majority of cardholders, however, carry variable rate cards, in which the interest rate is determined by adding a fixed percentage to the rate of an index such as the prime rate. For them, things get a little murkier.

In the past, issuers would generally use the highest prime rate in a cardholder's current billing cycle as the starting point for determining a credit card's rate for the month. However, a number of issuers have amended their terms this year so that they now can select the highest prime rate in the previous 90-day cycle, a move that costs consumers $720 million a year, the Center for Responsible Lending estimates. As a result, the interest rate paid by cardholders may not go down in a given month even if the prime rate goes down. "It's so hidden and obscure that it can't be interpreted as anything other than a way to extract money from people in ways they don't understand," says Frank.

Credit card issuers are going to more than ever try to find ways to make extra profits.

-- Joshua Franks
Center for Responsible Lending

Variable rate cardholders are also impacted by another pricing strategy, as many issuers have begun setting "floors" -- limits to how low a cardholder's variable rate can go. While the rate will rise with the prime rate, it won't go any lower than the flooreven if the prime rate goes beneath that point. As of December 2009, the prime rate is at the historically low level of 3.25 percent. But "if you get a card in the future and the prime rate is, say 6 percent, then you wouldn't get the benefits of a decrease in the rate that would likely occur," Frank says.

New and expanded fees
Changes to interest rate calculations aren't the only ways issuers are mounting charges on consumers. A number of fees have become more prevalent this year, according to the center's study.

Minimum finance charges can be greater than the amount of interest owed. As a result, if a consumer owes only $0.50 in interest, he may have to pay $2 because that's the minimum interest fee.
Card issuers charge late fees that vary according to the card balance, so those who owe the most pay the highest fees. "But right now almost nine out of 10 people are in the top late fee category," says Frank. Though issuers often tout the lowest late fees, "the average fee that people pay has gotten higher and higher."
Cardholders who don't incur regular charges risk being hit with inactivity fees. This strategy is even applied to cardholders who've opted out of a change of terms to the account and can no longer charge new items. Although their inactivity is forced, they may end up paying an additional $36 per year.
Foreign transaction fees, which cardholders pay when a currency exchange takes place, are nothing new. But this year, more card issuers redefined "foreign" more broadly to include any transaction that at any point touched a foreign bank, even if the exchange took place in U.S. dollars. Likewise, the fee has inched upward with a majority of issuers charging 3 percent in 2009, compared with 2 percent in 2004.
Card issuers are also cashing in on cardholders' use of balance transfer offers and cash advances. Not only are the fees for these transactions rising, but many card issuers are implementing minimum charges and removing caps they once had in place to keep the costs from surpassing a certain level. For example, a card issuer may implement a 4 percent transaction fee on cash advances with a $20 minimum. If a cardholder borrows $100, the 4 percent transaction fee would be $4. However, because of the minimum rule, the cardholder would pay an additional $16.

An exercise of choice
Consumers have more control over some charges than others, such as the ability to use a card to avoid an inactivity fee, but they need to keep a close eye on credit card statements. "We are seeing a lot of changes in the agreements so it's something for people to be really aware of in the next three to six months," says Sarah Fouquart, a group manager with Troy, Mich.-based GreenPath Debt Solutions. Those who don't understand the changes should ask their issuers about them, Fouquart adds.

While many of the top credit card issuers are embracing these new fees, consumers might also look to smaller regional banks or credit unions to avoid paying some of these additional costs, suggests Frank. "Usually you'll find that these organizations care more about the relationship with the customer than making a quick profit on one product," Frank says.

New fees and charges are unlikely to disappear anytime soon, but consumers still have options. "There's no harm in shopping around a little bit," says Fouquart.

Improving a great credit score comes down to timing

2009-12-17T22:30:00.001-08:00

By Jeremy M. Simon

Credit Score Report

Jeremy M. Simon covers credit scoring and other issues as a staff reporter for CreditCards.com.

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Dear Credit Score Report,
I have question about my FICO score (currently 768) and, in particular, how my "credit card utilization" is part of the score. My wife and I have three credit cards: a Chase Visa with a $45,000 limit, a Citibank MasterCard with a $10,000 limit and an American Express card. We use the MasterCard and American Express very little -- maybe $25-$50 per month combined. We use the Visa a lot, with charges of $7,000-$15,000 per month and highs of $30,000-$40,000 in a few months each year. The majority of charges are business-related and reimbursed immediately by my wife's company. We always pay the balance in full each month. I noticed on another Web site (CreditKarma.com) that my credit card utilization rate is graded as a "D," which I think, is bringing down my score. Please advise as to how to rectify this situation and bring my FICO score up. Thank you in advance. -- Salomon

Hey Salomon,
Your credit score of 768 suggests you are doing a lot of things right, including regularly paying your credit card bills in full. However, when it comes to your utilization ratio -- the total amount of debt you carry compared to your total available credit -- you appear to be a victim of bad timing.

Here's how: Credit card issuers send your account data to the credit bureaus, which in turn, apply credit scoring formulas to that data. When you request to see your credit score, the number you get reflects a snapshot of your credit report based on the most updated information in the credit bureau's records. That means the score that gets calculated is only as good as the most recent data that goes into it. Different credit card issuers report cardholder account information at different times -- some report each month, some once a quarter, others at other intervals. Therefore, depending on when you request it, your credit report might still include a $30,000 account balance, even if you have since paid that debt off.

Paying off credit card balances in full every month is an excellent credit habit, but doesn't mean that one's lender will report a zero balance to the credit bureaus.

-- Craig Watts
FICO spokesman

"Paying off credit card balances in full every month is an excellent credit habit, but doesn't mean that one's lender will report a zero balance to the credit bureaus," says Craig Watts, spokesman for FICO, the company whose credit scoring model bears its name.

That seems to be what's happening to you. According to Steve Katz, spokesman for credit bureau TransUnion, banks generally report a cardholder's account information to the bureaus about once every 30 days, but it can really vary. For example, Chase says it reports the current card balance on the 13th or 14th of every month. Citi, American Express and Wells Fargo each say it reports the account balances listed on cardholders' monthly statements. Bank of America says it reports account balances 30 to 45 days after payment is received.

These are self-imposed reporting deadlines for these issuers, and when the bureaus actually report can fluctuate for any number of reasons. Still, that timing can make a difference to your credit score. Here's an example of how this might work:

Say you have a balance of $30,000 on your Chase card on Dec. 13 or 14. (You've had only tiny balances on your other two cards for the past few months.)
According to Chase policy, that balance is reported to the credit bureaus.
You pay it off in full on Dec. 16.
You apply for a loan on Dec. 22.
The credit report that the lender sees will likely not show your balance as paid in full because the most recent information about that account was pulled on Dec. 13 or 14, when your balance was huge. That leaves you with a high utilization ratio.

"A high utilization rate is an indicator of risk, so it can have a negative impact on credit scores," says Rod Griffin, director of public education for credit bureau Experian. And since lenders use credit scores to decide whether to let consumers borrow money -- and at what interest rate -- a higher ratio can cost you real money.

How much money? That's hard to say, but a recent announcement from FICO said that a hypothetical person with a 780 credit score -- a bit higher than yours, but close enough -- could see their score plummet by 25 to 45 points for maxing out a credit card. A 45-point drop would still leave you with a very good score of 723, but it would leave you just one small mistake away from a credit score in the 600s. That drop could cost you hundreds each year the next time you apply for a car loan or a mortgage. It could even lead an issuer to reject your next credit card application. (For more details, check out our story about FICO's "damage points.")

You mentioned that you have a 768 FICO score. But you should know that Credit Karma provides TransUnion TransRisk scores. Those scores are generated using a different scoring model than the FICO score, which is better known and much more widely used by lenders than TransUnion's model. (They do share some similarities, however, including a scoring range of 300 to 850.) With your FICO score of 768, you should already qualify for the best rates from lenders. While that's obviously a good thing, it does mean that it'll be harder to raise your credit score since it's already very high. In Credit Karma's grading system, you probably had excellent scores in other categories, even though you had a poor grade for credit utilization.

But if you are still concerned about improving your credit utilization and FICO score, consider the following steps:

Make credit card payments more than once a month. By making card payments two or more times during a billing cycle, rather than just at month's end, you can keep your average balances lower and improve your utilization ratio. Credit Karma's chief executive and founder Ken Lin says that because a sudden change in payment behavior could raise fraud concerns at your bank, you should alert them ahead of time about your plans.
Spread your spending among several cards. While there may be a good reason for primarily using one of your credit cards -- such as keeping business expenses separate, earning rewards or airline miles, etc. -- consider spreading your charges across all your plastic. That way, if one account's terms get worse or the account suddenly gets closed, you will still have open and active accounts and lines of credit to use.
Request a higher credit limit. Consider calling your bank and asking them to increase your credit limit. But be warned: With lots of banks cutting limits and closing accounts, it's a tough time to get more credit. Some experts discourage consumers from contacting their bank right now unless absolutely necessary, since it can trigger an account review and leave you with worse terms.

If you follow these tips -- and continue paying your debt on time and in full every month, as you have been -- you'll continue to have a high credit score.

Good luck!

8 tricks to not rack up card debt during the holidays

2009-12-17T22:29:00.000-08:00

By Sally Herigstad

To Her Credit

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).

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Dear To Her Credit,
I've been trying hard this year to work down my credit card debt, and I'm proud of the progress I've made. If I keep this up, I'll be debt free by next summer.

I'm worried about the holidays coming up, though. Every year, my list of people to buy for gets longer. If we exchange gifts one year, we have to the next -- and it can never be something noticeably cheaper than last year's gift. I even buy gifts just to stash in the closet, just so I have something to pull out when people drop by with surprise presents.

How can I keep from maxing out my credit cards this year without feeling like a Scrooge? -- Tiana

Dear Tiana,
Oh, the ever-expanding Christmas gift list! I know how that goes -- a fun little gift one year given with the best of intentions leads to decades of gift exchanging that turns into anything but fun. It's madness.

I got the most delightful e-mail from a friend this year. She said, "Let's not exchange gifts this year." She noted that our kids are older (at ages 28 and 30, they won't cry if I don't send a toy), and we both have new daughters-in-law to shop for.

So we've called a truce. I won't send to her and her kids, and she won't send to mine.

The gift list isn't the only thing that expands year after year, however. Christmas card lists get longer and longer. Once you're in a card database, you'll probably get their cheery missive from now until you die -- or after. (I've been guilty of addressing a card to the long-deceased before. Fortunately my husband caught it before it was mailed.)

Here are some ways you can enjoy the season without racking up a lot of credit card debt:

Try my friend's tactic of calling a truce. If that's too formal, casually mention to friends that you're cutting back this year so nobody has to feel guilty about not buying so much.
Watch out for personal spending. Malls are dangerous, especially with all those sales going on. Am I the only person who comes home from "Christmas shopping" with things I happened to find for me?
Shop online. It's easier to compare prices, and you'll be less tempted by store displays of things you don't need. And the shipping will probably be offset by the gas you don't use.
Scale back the card list and save on printing and postage. Do you even know everyone on your list? It's OK to delete a few names every year. If you have more than 50 or 60 addresses on your list, you can probably cut back.
Make a few homemade gifts. Food is always a hit, and you don't have to worry about it gathering dust!
Shop locally. Get to know your local craftspeople. They probably have online sites, too. It's nice to give something your relatives across the country can't buy at their chain store.
Get the most from your holiday lights and decorations. More isn't better. Stringing a few lights won't make a noticeable difference on your electric bill, but lights you can see from space will. Estimate your holiday lighting bill with this Energy Cost Calculator.
Celebrate locally. The community production of "The Nutcracker" is not only cheaper, but it's more personal and you can actually see the actors. The parking will probably be free, and you might even know someone in the cast.

I'll still get plenty of shopping in for the most important people on my list. I actually enjoy gift shopping, which I think is done best with a friend and plenty of latte stops. It's the most fun before the crowds get too big or panic sets in, while you can still take time to admire the decorations and critique the Christmas music together.

Enjoy your friends and family this season -- preferably in front of a fire with a cup of homemade hot chocolate. Sometimes agreeing not to give so many gifts is the best gift of all.

8 ways to stay debt-free during the holidays

2009-12-14T03:38:00.001-08:00

By Erica Sandberg

You've budgeted fanatically, spent judiciously, whittled down debt, and now the holidays are here. If you're holding credit cards with unused credit lines, this can be a dangerous time.

Stores are stocked with enticing items, the kids are clamoring for gifts and even your spouse is hinting at something special. A voice whispers to you, "Loosen up. It's the season for giving. The cards are right there in your wallet. Just use them!"

Hold up, Santa. Random charging is never a good idea, but in this economy, it's particularly foolish. Here's how you can hold the reins and ring in the New Year on a financially sound note.

Set your limits. Even if you've already begun shopping, take stock of your remaining funds and determine a total and a per-person spending allotment. "I've capped gifts at $50 to each of my kids and my nephew," says Naomi Derner from Portland, Ore. She also conferred with friends. "I've asked them if we can limit the gift cost to $15 -- so token gifts or homemade only." Such communication takes the pressure to overdo out of the equation. Cutting back on nonfamily presents also works for Jeanne Sager, a consumer and family reporter from Callicoon Center, N.Y. "We've told people in advance there would be no gifts, and we don't expect anything in return. It sounds grinchy, but I've found a lot of people are relieved not to get another stupid candle!"

Goal-ify your card. Sure, the holidays seem terribly important right now, but they'll be just a memory before you know it. Racking up high debt this month can impact what is really crucial -- your long-term objectives. Think about where you want to be financially by the end of 2010. Then, write those goals down on small Post-its and attach them to your credit cards. Each time you reach for the cards, the notes will serve as reminders of what you really want to do with your money.

Stash the plastic. Before hitting the stores, you just may want to rid your wallet of credit cards entirely and take your debit card instead. This way, you can only spend up to the amount in your checking account and avoid the temptation to charge more. You won't be the only one adopting this technique: A survey conducted by the National Retail Federation found that one-fourth of this year's holiday shoppers said they'll be using only cash, and 43 percent will use debit cards.

Shop with points. Have a credit card that has allowed you to earn points for travel and other goodies while you charge? If so, and you've accumulated a fair number, now may be the perfect time to cash them in. Most rewards programs provide cardholders with an amazing catalog of gift items. Browse through their offerings and shop for the holidays without dropping a dime of your "real" money.

Lower the line. If your balance is zero, yet you have the ability to charge $10,000, spending a grand of that can seem pretty reasonable -- even if you can't pay it off until 2011. However, if your credit line is $1,000, charging the maximum doesn't feel quite as right. Though drastic, you can ensure you don't overdo it by asking your credit card company to reduce your credit limit. After all, you can't charge what you aren't allowed to charge without incurring expensive over-limit fees. There are some drawbacks to this method though: It could affect your credit score, and if you want that big line back, it may not be available.

Plan with your partner. It's all well and good for you to keep charging in check, but is your partner doing the same? A new survey from Capital One Financial Corporation examining the financial habits of couples found that 55 percent of those surveyed have not yet discussed their holiday shopping budget with each other. Carve out time for a couple's discussion, says Shelley Solheim, Capital One's director of financial education. "Make sure you are on the same page with your partner about spending limitations," says Solheim. Setting goals together during this season can prevent added stress or disagreements -- and unnecessary liabilities.

Prep your kids. If you tend to overshop because you don't want to disappoint your kids on the big day, hold a family meeting to discuss what the holidays really mean, as well as your financial boundaries. Bob Brooks, host of "The Prudent Money Show" radio program and author of "Deceptive Money," says parents often make wrong assumptions about what kids value. Younger children usually just like ripping open wrapping paper, so inexpensive gifts can suffice. For older kids wanting costly items, consider this a teaching moment. "Let them know what you have to spend, and ask them if they think it makes sense to get into debt for what they want," says Brooks, and give them the option of one big gift or several smaller ones.

Stuff the stocking stuffers. Some of the sneakiest budget killers are the last minute, quick-pick-up items you buy on a whim or out of guilt. These include fillers for stockings and gifts for those who aren't on your list but who surprise you with a present. It's easy to get caught up in impulse shopping, so think hard about each purchase, however small. Little things add up quickly and can cause unplanned-for debt.

The calendar will soon turn to 2010, and December's bills will be in the mail. Project how you'll feel when they arrive: Will you be in a panic because the balances have ballooned, or relieved that you maintained a healthy relationship with your credit cards?

The mystery of multiple opt outs explained

2009-12-14T03:36:00.000-08:00

Sometimes you have to opt out of a rate increase more than once

By Todd Ossenfort

The Credit Guy

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

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Dear Credit Guy,
I had a major bank credit card, the interest rate was increased but I opted out of the increase with 8.99 percent and my account was closed in 2007. I am continuing to pay off my credit card, but recently I noticed my rate increased from 8.99 to 12.24 percent. When I called about the increase, they said a notification was sent to me about the rate increase and I had not opted out again. So, my rate is increased. Is this legal? I thought it was the law that if you opt out you can pay off your balance with the current rate, but it seems even after you opt out, the rate can continue to increase and you have to do multiple opt outs during the entire pay off process. . -- Mohammed

Dear Mohammed,
It is difficult to answer your question regarding the legality of increasing the interest rate on an account where you have previously opted out of a rate increase without reviewing the original cardholder agreement. However, the large bank that issued you the card is likely to have a team of legal representation, so it is very unlikely they would proceed with an illegal action. In most cases, when you opt out of changes to your cardholder agreement, the account is "closed" and you can no longer make purchases with the card. Given that fact, many people would make the assumption that it would not be possible for the card issuer to make changes to a "closed" account.

I asked a consumer attorney, Richard M. Alderman, and his response was, "The account may not be really 'closed,' but is just inactive and no longer allows any future spending. Until it is paid in full it is still 'open.' If that is the case, the card issuer may still propose changes to the terms and the consumer would have to reject them."

Should you have access to your original cardholder agreement, you might want to take a look at it and see if you can determine what happens to your account once you have opted out to proposed changes to your agreement the first time. Even if you can find it, you may not be able to wade through the fine print and legal terminology to come to a definitive conclusion.

My recommendation is that you open and review all correspondence from your card issuer and continue to opt out of any proposed changes to your cardholder agreement. Be sure to send a certified letter stating you are opting out with a return receipt request.

This practice of requiring consumers to opt out multiple times to changes in a cardholder agreement is new. It is likely these actions are a direct result of the fact that the remainder of the provisions of the Credit Card Accountability and Responsibility Disclosure Act of 2009 (Credit CARD Act) go into effect in February 2010. The good news is that the Credit CARD Act will prevent card issuers from these types of actions moving forward. Specifically, your card issuer will no longer be allowed to raise your interest rate due to universal default and can only raise your rate for being 60 days late.

One other important provision of the Credit CARD Act will require card issuers to post their cardholder agreements on their Web sites, thus eliminating the guesswork in what is allowed and what is not. Then you won't have to search for a document years down the road; it will be available at the click of a mouse.

Take care of your credit!

Consumer credit card balances fall again, Fed says

2009-12-11T02:24:00.001-08:00

By Jeremy M. Simon

See updated story: Consumer credit card debt falls for 13th straight month, Fed says

Credit card balances fell again in October, according to Federal Reserve data, leaving the average card-carrying American household with nearly $1,000 less in credit card debt than it had a year ago.

According to the latest Federal Reserve data released Monday, credit card balances tumbled by $6.9 billion in October, marking a record 13th straight month of decline. The data, contained in the Fed's monthly G.19 report, looks at various components of consumer debt, including revolving credit -- a loan category comprised almost entirely of credit card debt -- as well as nonrevolving debt, which includes such debt as auto loans, student loans and loans for mobile homes, boats and trailers. Overall, revolving debt fell to $888.1 billion from a revised total of $895 billion in September.

Americans' credit card debt stood at $975.2 billion in September 2008. The 13 monthly declines since then have seen U.S. cardholders eliminate $87.1 billion in credit card debt. That means the average U.S. household with at least one credit card -- of which there are 91.1 million, according to payment-card industry newsletter the Nilson Report -- has eliminated roughly $956 in credit card debt during that period. That's a relief in a time of high unemployment rates and overall economic uncertainty for many families around the nation, though there's some debate as to exactly what it means.

Frugality or something else?
Taken as a whole, consumer debt fell nearly $3.5 billion to $2.483 trillion in October -- a record ninth straight monthly drop, dating back to February. While some experts say that the dropping debt levels are a sign of newfound American frugality, others say consumer psychology hasn't been fundamentally altered. Gregory Miller, chief economist with SunTrust Bank in Atlanta, says consumers are spending and will continue to do so. ~~"As far as existing accounts are concerned, I doubt the household sector -- or the business sector -- will change their credit card spending," says Miller.~~ He said external factors, such as lower gasoline prices over the past year, have allowed consumers to get more for their money and keep their card balances down.

Federal Reserve Chairman Ben Bernanke said in a speech Monday that "consumer spending also has been rising since midyear. Part of this increase reflected a temporary surge in auto purchases that resulted from the 'cash for clunkers' program, but spending in categories other than motor vehicles has increased as well," Bernanke said.

Those numbers would seem to be good news for an economy that's so heavily dependent on consumer spending. However, not all data is positive. Recent data shows the amount of unpaid credit card accounts fell in the third quarter. Also, a survey from the National Retail Federation showed the number of consumers who shopped during the Thanksgiving weekend increased from 2008, but the amount of money spent per consumer fell 8 percent

Banks play a role
Rubin says that rather than attribute the ongoing drop in card balances entirely to thrifty consumers, banks are also keeping card balances under pressure. "Are people not spending on credit cards because they don't want to, or are people not spending on credit cards because they can't?" he asks.

Evidence suggests that, at least in part, consumers may not have a choice when it comes to their card spending. Card issuers have been tightening credit standards, closing existing accounts and writing off bad debt they have been unable to collect. Some of banks' efforts to protect themselves from losses appear to have worked. TransUnion says that late card payments fell to 1.1 percent in the third quarter from 1.17 percent on the second quarter. TransUnion also reported that the average balance on outstanding bank cards fell to $5,612 from $5,710 one year earlier.

Rubin notes that even making a small minimum payment can keep accounts current and out of delinquency. That's why he is hesitant to cheer the lower delinquency figures.

However, when consumers are seriously delinquent, lenders may give up on ever collecting those unpaid balances. Often, Rubin says, it may be cardholders with the most substantial balances who find themselves unable to make payments when times get tough. "I would strongly suspect that those having the write-offs have the biggest use of credit," he says.

After a write-off at one bank, these consumers may no longer be able to qualify for credit from another lender. That means they might not be able to find the credit to spend, even if they wanted to spend it.

"It means there's not as much a change in psyche as there is a change in availability" of credit, Rubin says.

Consumer credit card balances fall again in October, Fed says

2009-12-11T02:23:00.001-08:00

By Jeremy M. Simon

Credit card balances fell again in October, according to Federal Reserve data, leaving the average card-carrying American household with nearly $1,000 less in credit card debt than it had a year ago.

AMERICANS' CREDIT CARD BALANCES KEEP FALLING
Americans' credit card debt has fallen $87.1 billion from its September 2008 total of $975.2 billion. The chart below shows how steadily consumers have pecked away at that debt during a record run of 13 straight monthly declines in credit card balances. That's an average of $956 per credit cardholding household. Note: Decrease shown in billions.

AMERICANS' CREDIT CARD BALANCES
KEEP FALLING

Americans' credit card debt has fallen $87.1 billion from its September 2008 total of $975.2 billion. The chart below shows how steadily consumers have pecked away at that debt during a record run of 13 straight monthly declines in credit card balances. That's an average of $956 per credit cardholding household.

Note: Decrease shown in billions.

Frugality or something else?
Taken as a whole, consumer debt fell nearly $3.5 billion to $2.483 trillion in October -- a record ninth straight monthly drop, dating back to February. While some experts say that the dropping debt levels are a sign of newfound American frugality, others say consumer psychology hasn't been fundamentally altered. Gregory Miller, chief economist with SunTrust Bank in Atlanta, says consumers are spending and will continue to do so. He said external factors, such as lower gasoline prices over the past year, have allowed consumers to get more for their money and keep their card balances down.

Those numbers would seem to be good news for an economy that's so heavily dependent on consumer spending. However, not all data is positive. A survey from the National Retail Federation showed the number of consumers who shopped during the Thanksgiving weekend increased from 2008, but the amount of money spent per consumer fell 8 percent.

CONSUMERS CONTINUE TO SHED DEBT
In October, Americans' credit card debt fell 9.3 percent, continuing recent trends. The below chart shows the percentage change in credit card debt since the third quarter of 2008 -- the last time credit card debt increased in a quarter.

Banks play a role
Michael Rubin, author of "Beyond Paycheck to Paycheck," says that rather than attribute the ongoing drop in card balances entirely to thrifty consumers, banks are also keeping card balances under pressure. "Are people not spending on credit cards because they don't want to, or are people not spending on credit cards because they can't?" he asks.

Evidence suggests that, at least in part, consumers may not have a choice when it comes to their card spending. Card issuers have been tightening credit standards, closing existing accounts and writing off bad debt they have been unable to collect. (In fact, a Fed representative confirmed that part of the decline in outstanding credit card debt is due to banks writing off bad debt.)

Some of banks' efforts to protect themselves from losses appear to have worked. National credit reporting agency TransUnion says that late card payments fell to 1.1 percent in the third quarter from 1.17 percent on the second quarter. TransUnion also reported that the average balance on outstanding bank cards fell to $5,612 from $5,710 one year earlier.

Rubin notes that even making a small minimum payment can keep accounts current and out of delinquency. That's why he is hesitant to cheer the lower delinquency figures.

"It means there's not as much a change in psyche as there is a change in availability" of credit, Rubin says.

A desperate debtor's option: hardship programs

2009-12-11T02:22:00.001-08:00

By Todd Ossenfort

The Credit Guy

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

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Dear Credit Guy,
I've talked recently to two different credit card consolidators and explained that my husband's second job has taken more than a $10,000 cut this year. I am not able to work. Slowly, we have gotten ourselves in a jam and are unable to pay our credit cards. The consolidator said that she would recommend a hardship program. How exactly do I go about this? I need to do something soon. -- Barbara

Dear Barbara,
You are absolutely correct that you need to act quickly. Before you do anything, however, you need to know exactly what you can afford to pay each month toward your credit card accounts. It would be counterproductive to ask for and qualify for a repayment program that you ultimately cannot afford. Once you determine a realistic monthly amount you can pay on your credit card accounts, you will then need to keep in mind that the amount must cover all accounts you currently owe. For example, if you have four credit card accounts and $400 per month to cover those accounts, you will need to be sure the repayment programs you agree to (for example, $75 per month to creditor A, $85 per month to creditor B, $140 per month to creditor C and $100 per month to creditor D) do not exceed a total of $400.

I am assuming that the credit card consolidators you talked to did a full counseling session with a full budget analysis. If they did, you called the right agency. If they didn't, call someone else. I recommend you only speak to a qualified nonprofit credit counseling agency for assistance. You can find help from a trusted agency by visiting a local office of the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling. A certified credit counselor will review your current financial situation and make recommendations based on your income and expenses. If it makes sense for you to enter into a debt management plan (DMP), your counselor will explain how the plan works and let you know any fees associated with the plan. On a DMP, you will make one payment to the credit counseling agency. The agency will then disperse the money to your card issuers. Most DMPs will have your creditors paid in full in five years or less.

Many card issuers are now more willing to work with consumers than they have been in the past. Most have what is considered a "hardship program" offered through the nonprofit credit counseling agency that allows you to pay what you owe with a lower monthly payment than your current minimum payment. Each card issuer will have varying requirements you will have to meet in order to qualify for the program. Keep in mind that you will not be able to add to the balances of any card accounts that are placed in a hardship program with your card issuer.

While coming to an agreement with all of your card issuers, you will need to pay what you can on time and as agreed. Rather than paying nothing on any of your accounts, make minimum payments in full on as many accounts as you can, and pay nothing on the others until you quickly find a lasting resolution.

Take care of your credit!

Can debt collectors garnish Social Security?

2009-12-06T19:43:00.001-08:00

Typically, no, but take steps to protect those funds anyway

By Sally Herigstad

To Her Credit

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.

To Her Credit archive

Dear To Her Credit,
I got a call from a credit card debt collector today who said he could get a garnishment on my Social Security benefits. He says he can take 25 percent of my monthly check. I can barely get by on my benefits as it is. They are my only source of income.

What can I do? -- Margaret

Dear Margaret,
He can't take your Social Security check or any part of it. Nor can he keep calling you and ruining your day -- if you know your rights.

Social Security benefits are generally exempt from garnishment, except in cases of unpaid taxes and child support. This debt collector is hoping you don't know that and that you will fork over the money.

There is another way he could get your benefits, however. If a creditor goes to court and gets a court order to have the bank freeze your checking account, the effect will be much the same as garnishment. If your Social Security checks are deposited directly into your account and the bank freezes your account, you won't be able to pay your bills. Plus, it could take weeks or even months to get it all straightened out.

Some states have recognized this problem and have tried to pass laws prohibiting banks from freezing accounts that contain exempt funds, such as Social Security benefits. In other states, banks have more discretion in deciding how much effort to make in determining if most or all of your money is from exempt sources.

For example, Jay Spruill, general counsel of the Virginia Bankers Association, says, "In Virginia, you would be able to claim the Social Security benefits as exempt property through the court. The garnishment form that is served on the bank and the customer, advises the customer how to go about claiming the exemption, so the customer does have the ability to get the funds 'unfrozen' or returned if they have already been delivered to the court."

Banks would rather not have to decide which of your funds are exempt; in fact, they have resisted being put in the position of having to make that decision. Spruill says, "The problem for a bank that tries to make this determination is that a bank account may contain both exempt and nonexempt funds. As a practical matter, the bank would have to do research to determine the source of the funds, which would create significant challenges. For example, how far would the bank have to look back to determine whether the account had any nonexempt funds?"

"That is why the court should make the determination as to whether funds in an account are exempt," Spruill says.

Here's what you can do:

Check with your bank and ask them about their policies. If it seems embarrassing to go to your local bank and ask about garnishment policies, call by phone or go to another branch. You can also seek free or low-cost legal advice about the laws in your state and how you can avoid having your account frozen.
If you're worried about your account being frozen and you get your benefits by direct deposit, consider going back to paper checks. Call (800) 772-1213 or go to the Social Security Online Services. Then, if your account is ever frozen, at least you will be able to cash the next check that comes, instead of having it land in a frozen account.
The next time this collector calls, tell him not to contact you by phone anymore. Ask him for an address where you can write to him. Then download a cease-and-desist sample letter, fill in the blanks and send by certified mail.
Look for long-term solutions to your financial problems. If you need outside help, contact the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling.

A word of caution: Do not call shady debt elimination operations or other companies that do not adhere to professional standards. These companies can leave you in worse shape than before.

If you wait until your account is frozen, you'll have to go to greater lengths to undo bank fees and to get your benefits back. Take steps to protect your benefits now.

Sending money to friends, family abroad? Options abound

2009-12-06T19:42:00.000-08:00

From traditional agents to high-tech Web sites, you've got more choices than ever

By Karen Kroll

Say you'd like to get a few bucks to your college-age son who's studying abroad, or you need to send money to relatives on another continent. You have a growing number of options -- ranging from the old-school to the high-tech -- for doing just that.

Prefer the personal touch? You can work with an agent to handle the transaction. Just want it done now? Transfer the money using your computer. Soon, a few up-and-coming services will even let recipients of money transfers get funds via their mobile phones. In all, the worldwide market for remittances -- a formal name for payments from individuals in one part of the world to those in other parts -- hit $443 billion in 2008, the World Bank estimates, and no one sends out more than the United States.

Remittances are big, big business
An estimated $47 billion in remittances were sent from America in 2008, according to the World Bank, more than twice that of any other nation except Russia ($26 billion). More than half of those American remittances ($25 billion) went to Mexico alone -- often from an expatriate family member who is sending much-needed money to his struggling family back home -- but people in virtually every corner of the world have received some sort of remittance payment from the United States.

The global economic recession is taking its toll on remittances, however. The World Bank currently projects that total worldwide remittances received will reach $420 billion in 2009, a $23 billion drop from the previous year. But even with the decrease, there remains a tremendous amount of demand for remittance services.

There's also a wide -- and ever-expanding -- variety of options available for making the payments, so you can choose the way that suits you best.

Keeping it personal
Each way of transferring money has its pros and cons, but for many, the old way -- a face-to-face meeting with an agent -- is still the best. For example, if you want to fund the transfer with cash, rather than a credit or debit card or bank account, it's probably your only choice. But perhaps the most common reason for conducting the transaction this way is also the simplest: Many people simply like to work with a human when they're moving money to faraway places, says Saul Wolf, remittances manager with the World Council of Credit Unions.

Comparing costs of wiring $200 to Mexico
Type	Cost
Using an agent	Ranges from $7.99 to $14.99
Using a computer	Ranges from $4.99 to $12. Additional charges (up to $25) may apply for the initial transaction.
Using a cell phone	Not yet available in the U.S.

"It can be daunting to send money overseas," Wolf says. "You want a person in front of you, who you can come back to if there's a problem."

It can also be comforting to know that the person to whom you're sending the money will have to deal with a real person as well -- to guarantee that the person who is supposed to get it actually does. Both MoneyGram and Western Union, giants in the money-transfer business, have taken steps to help ensure that. For instance, both firms generate a distinct number for each transaction that the sender passes to the recipient. Also, in many countries, the recipient has to present photo identification in order to pick up the money.

The downside? Using an agent isn't as convenient as sending funds either online or via the phone. You have to physically visit an agent, and your recipients would have to do the same at their locations. That can be challenging if the recipient lives in a remote part of the world, far from post offices, airports, financial institutions and other such places where money transfer firms are typically located. With that in mind, be sure to visit the money transfer firm's Web site for a list of agent locations -- and their hours -- before completing your transaction.

Find out all you can about fees as well, as remittance costs can add up quickly. The fees vary depending on the amount you're sending, where it's going and how fast you'd like it to get there. For instance, using Western Union to send $200 from Chicago to Mexico for arrival within three days will set you back $7.99. It's $14.99 to get it there in minutes.

Sending money online
Don't want to bother with visiting a brick-and-mortar store or dealing with an agent in person? MoneyGram, Western Union and a growing number of other firms let you handle money transfers via your computer. The primary advantage: convenience. You can send money from the comfort of your home whenever you like.

What you can't do, however, is pay with cash. You'll need to fund the transaction with a bank account or credit card.

iKobo, based in Maitland, Fla., is one company that offers online transfers. Here's how it works:

To start, create an account with the site, provide information such as your name, street address, phone number and e-mail address. You'll also have to provide answers to security questions, such as your mother's maiden name. You'll then receive an e-mail confirmation with a link back to the site.
After signing in, provide the name and contact information for the recipient along with the amount you'd like to send.
Next, provide your credit card or bank account information.
Once you've identified who is to receive the money and the amount, iKobo mails the person a reloadable debit card. You can send between $10 and $1,000 per transaction and from the United States; you can send funds to up to four cards at once.
The recipient then activates it by logging onto a computer and verifying the card number and personal identification number.
At that point, the money you've sent is loaded onto the card, which the recipient can use at stores and ATMs that accept Visa, says Craig Taylor, chief marketing officer with M2 Global, iKobo's parent company. In some countries, card recipients can activate their accounts through their phones.
After the first transaction, any additional funds sent to the card are available immediately.

For your first transaction with iKobo, you can expect to pay two fees. The first is to send the Visa card to the recipient, and this ranges from $2.99 for cards mailed within the U.S. to $24.99 for cards sent internationally via Federal Express. On every transaction, including your first, iKobo also charges a money-transfer fee. Sending $200 from the U.S. to Mexico will run $8 when funded from a bank account, and $11.50 when funded through a credit card. Add in the cost of sending the actual card, and your total can jump to more than $36.

Xoom.com, based in San Francisco, lets you electronically send money from your bank account, credit or debit card or PayPal account. The recipient can pick up the money at a partner bank or retailer; in China, the person can get it at a branch of the national postal system. The money can also be deposited in the recipient's bank account. In several countries, the funds can be delivered to the recipient's home.

It can be daunting to send money overseas. You want a person in front of you, who you can come back to if there's a problem.

-- Saul Wolf
Remittances manager, World Council of Credit Unions

As with other services, fees vary. Sending $200 from a U.S. bank account to Mexico will cost $4.99. Doing the same transaction with a credit card or PayPal account runs $9.99

But is it safe to send money online? Mark Beccue, a senior analyst of mobile money services with Oyster Bay, N.Y.-based ABI Research, says that the firms offering these services take a number of steps to ensure the security of the transactions. Xoom.com, for instance, encrypts all personal information, says Julian King, senior vice president of marketing and corporate development. Its computers reside behind a firewall and aren't directly connected to the Internet. In addition, all employees must pass criminal and financial background checks before they're hired.

Coming soon: sending money to a cell phone
In many developing parts of the world, people are more likely to have access to mobile phones than to banks or the Internet. With that in mind, a few companies and organizations have announced plans to develop money transfer services that will let recipients receive money via their phones. For instance, in August 2009, MoneyGram announced plans to enable recipients of money transfers in some parts of the world to use their mobile phones to collect the funds. At this point, the company hasn't released any information on pricing or availability.

One obstacle when it comes to using cell phones to transfer money is the lack of clear regulation, Wolf says. "There are questions about how the telecommunications regulations overlay with money laundering regulations." As a result, while mobile money transfers are a long-term solution, movement to date has been slow, he adds.

That said, some industry experts expect these obstacles to be overcome and mobile phone use to grow. Juniper Research Associates predicts that more than 500 million people worldwide will use mobile devices to transfer money by 2014.

Poll: Two out of five parents giving adult children bailouts

2009-12-03T05:51:00.001-08:00

Credit counselors advise parents, children to seek budget help

By Connie Prater

It's not just big banks that are getting bailouts these days. Two out of five people with adult children say they have paid off debts for their offspring -- most notably, car loans and medical bills, according to a new CreditCards.com scientific poll.

The survey follows up on a similar poll conducted in late August 2009 that measured intentions, not acts. It found men were more willing than women to pay off large debts for their children -- with or without an expectation of ever being repaid. The latest poll took the issue out of the hypothetical realm and asked if anyone had ever actually repaid their children's debts. The survey finds that 42 percent of people with adult children said they have paid off a debt for their children at some point.

The poll bears witness to what credit counselors say they're seeing more and more in debt management sessions as an increasing number of their clients are parents drowning in -- their children's debt.

"We have a lot of parents who call us and say, 'Hey my kids are in trouble. What do I do?'" says Michael McAuliffe, president of Family Credit Management, a Chicago nonprofit credit counseling agency.

Look to the economy, record job losses and home foreclosures for reasons why children are tapping their parents for money. McAuliffe cites another potential reason: "It used to be that kids would be embarrassed to ask for help. Not anymore."

Giving a hand or a handout
The stigma has been reduced, he says, perhaps by a generation used to having their parents take care of virtually everything for them and a culture where financial failure is becoming more commonplace. "Thirty years ago, to file bankruptcy, that would be considered a terrible thing," McAuliffe says. "But the stigma has been reduced. More are asking for help."

The poll was conducted Nov. 20-22, 2009, by GfK Roper, which surveyed 1,004 adults 18 or older, via random digit telephone dialing. The poll was commissioned by CreditCards.com. The margin of error for the full sample is +/- 3 percentage points. (See poll methodology.)

About 45 percent of the respondents had children over the age of 18. They were asked if they had ever paid off a debt for an adult child and, if so, what kind of debts they had paid off.

The most commonly repaid debts were:

Auto loans (40 percent).
Medical debt (37 percent).
Utilities (31 percent).
Credit cards (30 percent).
Student loans (29 percent).
Mortgage (11 percent)
Other transportation-related bills, such as car repair, gas or tickets (5 percent).
Personal loans (4 percent).
Other kinds of loans (6 percent).

Respondents were also offered "gambling" debt as a choice; no one said they paid off a son or daughter's gambling bill.

Women were slightly more likely to pay off their adult child's credit card debts than men (33 percent versus 26 percent). Parents from the Northeast were least likely to say they paid off a child's debt (34 percent), while people living in the Midwest were more likely to do so (52 percent).

What's a parent to do?
McAuliffe says parents should not be guided by guilt or feelings of obligation when hit up for loans or to pay off debts.

A PARENT'S GUIDE TO PAYING OFF CHILDREN'S DEBTS:
Establish up front if you're providing a gift or a loan. Determine if you can, in fact, afford to pay off your child's debt. If you don't have a retirement plan of your own, you may not be able to help. Ask for help. Get advice from a certified credit counselor about both your child's and your own financial situation. Consider referring your child to a social lending Web site for a loan. Ask your son or daughter if they're making sacrifices. You may feel resentment if you pay off their loans and they continue to rack up debt or spend beyond their means. Don't be afraid to say no to the request. Consider alternative ways to help your offspring, including letting them move in with you, providing child care or offering references for jobs.

A PARENT'S GUIDE TO PAYING OFF CHILDREN'S DEBTS:

Establish up front if you're providing a gift or a loan.
Determine if you can, in fact, afford to pay off your child's debt. If you don't have a retirement plan of your own, you may not be able to help.
Ask for help. Get advice from a certified credit counselor about both your child's and your own financial situation.
Consider referring your child to a social lending Web site for a loan.
Ask your son or daughter if they're making sacrifices. You may feel resentment if you pay off their loans and they continue to rack up debt or spend beyond their means.
Don't be afraid to say no to the request.
Consider alternative ways to help your offspring, including letting them move in with you, providing child care or offering references for jobs.

"There are several things you have to ask yourself. The most important thing is can you afford it? We're seeing people coming in with their own financial problems, sometimes as a result of trying to help their kids," he says.

Parents are advised not to pay off their children's debts if they don't have sound retirement plans in place for themselves.

"If you don't have your retirement on track, then to me, that's the end of the discussion," he says. "What are the cold, hard facts? Retirement pensions aren't there like they used to be. Social Security is not going to provide the same kind of income that previous generations had. There's not going to be anyone there to help you. No matter what, you cannot afford to help your children."

Throwing good money after bad
The old saying about not throwing good money after bad money definitely applies to these situations, McAuliffe says. Just paying one month's mortgage for a struggling child is short-sighted and won't likely solve the problem if lack of income is the cause. If parents do decide to pay off their children's debts, they should do so with a big-picture plan in mind.

Key questions to ask their children: "Is the house up for sale? Is there equity in it? Is work down to part-time? Are you looking for employment and are you going to be able to get it in a reasonable time frame?" McAuliffe says.

Another key question: Is this a gift or a loan? The August 2009 CreditCards.com poll found people with children were more willing to pay off debts of $1,000 or more if they expected to be repaid than if they were giving the money with no strings attached.

If lending the money, McAuliffe suggests parents consider using social lending Web sites such as Prosper.com, which allow users to borrow money from friends, relatives or strangers and repay it over time. The advantage for parents is they aren't calling an adult child asking about a late payment -- another potentially awkward family moment.

If you're paying off the credit card, make sure that they are closing those credit cards and cutting them up.

-- Michael McAuliffe
Family credit counselor

Changing habits
Adult children facing hard times should be prepared to make sacrifices. "If I'm loaning a significant amount of money and my kid is paying off their debt, if they are still going out to eat regularly, if they are still paying money for cable TV and multiple cell phones, that needs to be looked at."

McAuliffe acknowledges that parents may be reluctant to tell their children to rein in their spending. "That's hard for a parent to say, but you can say, 'Hey, I want you to go talk to a credit counselor and have them evaluate your budget.' If you're paying off the credit card, make sure that they are closing those credit cards and cutting them up," he says.

To adult children, McAuliffe advises: "If you're borrowing money from your parents, make sure that you've made sacrifices yourself. Too often they are still going out to eat, still having their cable TV and still not modifying their spending habits at all."

Cash alternatives
Instead of paying off debts, parents can offer to help their children in other ways.

"Maybe babysit for them or do other nonfinancial assistance," McAuliffe says. "If they can't afford their home and you can't afford to make their mortgage payment for them, let them move in with you. There are nonfinancial kinds of assistance that you can provide that can help them financially."

A new study released by the Pew Research Center found 13 percent of parents with adult children report at least one son or daughter has moved back home in the past year. One in 10 18- to 34-year-olds in the Pew poll say the bad economy forced them to do so. Social scientists have coined a new name for these return-to-nesters: "boomerangers."

Parents who pay off their children's debt should be aware of the message they are sending and children should know this, McAuliffe says:

"If you get into a jam, there's not always going to be someone there to bail you out."

Poll methodology:
The survey was conducted from Nov. 20-22, 2009, by GfK Roper Public Affairs & Media on behalf of CreditCards.com. Random digit dialing phone interviews were completed with 1,004 adults, all 18 years of age or older. The raw data were then weighted by a custom designed computer program that automatically developed a weighting factor for each respondent, employing five variables: age, sex, education, race and geographic region. The margin of error was plus or minus 3 percentage points for the full sample.

When your credit's still married and you're not

2009-11-30T20:30:00.001-08:00

Make sure all your financial ties have been severed

By Todd Ossenfort

The Credit Guy

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

Ask a question

'The Credit Guy' archives

Dear Credit Guy,
Help! I just reviewed my credit report. I was divorced in 1999 and just found out my ex has a credit card bill of almost $30,000. This was charged AFTER the divorce. On my credit report, it states that the account owner is the authorized user. Can I be liable for this debt? Who is the authorized user, myself or my ex? I'm scared to death! -- Rick

Dear Rick,
Don't panic. The first thing you need to do is determine what is going on with this account. Is it an account that you had when you were married that you forgot about, a new account opened after you divorced or something else?

Without seeing your credit report, it is difficult to say, but if you are the authorized user on the account, you would not be responsible for the debt. However, you need to be sure. The account listing on your credit report should include contact information for the card issuer. Call the issuer and ask if you are an authorized user on the account or if you are the primary account holder. If the issuer says you are an authorized user, they cannot discuss the account with you further because you are not the cardholder.

If you are the authorized user, you need to have your name removed from the account. The main reason being that the account could negatively affect your credit if mishandled by your ex. Unfortunately, a divorce does not separate credit accounts shared jointly by two spouses. The only way to be relieved of responsibility on a credit contract that you jointly signed as a married couple is to close the account, alter the terms of the loan or, in the case of an authorized user account, have the authorized user's name removed from the account.

To have your authorized user status removed, contact the card issuer and request that your name be removed from the account. You will need to have the security information for the account to request the change. The security information for many card issuers is the cardholder's account number, billing address and the last four digits of the cardholder's Social Security number. If you cannot provide this information, you will need to have the primary cardholder, your ex-spouse, make the request.

Should you learn from the card issuer that you are the person responsible for the account and your ex-spouse is the authorized user, ask the issuer to send you verification that you are indeed the primary account holder. Because you were not aware of the account and the charges were made after the divorce, she may have opened a new account in your name and named herself the authorized user. If that is the case, your ex-spouse stole your identity, and you could report the account as such. Doing so would legally implicate your ex-spouse in a crime.

Before you take such drastic steps, however, you might let her know that you are aware that she opened an account in your name without your permission and that if she moves the balance to a card in her own name and closes the account, you will not report the identity theft. Keep in mind that until the balance is moved to an account in her name or you report the account as identity theft, you are financially responsible for the balance on the account.

One last thing: To avoid unpleasant surprises like this one, it is an excellent idea to check your credit reports once each year. You can do so for free at www.annualcreditreport.com.

Take care of your credit!

Enforcement delayed on Internet gambling ban

2009-11-30T20:29:00.000-08:00

Credit card-wielding gamblers, regulators have 6 more months

By Martin Merzer

With a regulatory deadline hanging over their heads, credit-card issuers and others in the banking industry have been granted a reprieve -- an additional six months to comply with new rules intended to ban online gambling.

The Federal Reserve and the Treasury Department announced Friday that the controversial and somewhat ambiguous new rules, which had been scheduled to take effect on Dec. 1, won't be enforced until June 1.

And maybe not even then.

Rep. Barney Frank, D-Mass., a leading critic of the new rules, said the delay would permit legislators to press ahead with new legislation that would largely overturn the widely criticized Unlawful Internet Gambling Enforcement Act, passed in 2006.

That law, which rode to passage with little discussion when tacked onto another bill, essentially banned U.S.-based firms from conducting or assisting online gambling operations. In practice, credit card accounts are the financial vehicles used most often by gamblers to place their bets, pay their losses and collect their winnings.

The bill generally prohibited transfers of money from U.S. financial institutions to gambling sites, but it required banks and credit card networks to navigate a thicket of confusing and often contradictory definitions and rules. Among other things, it never got around to defining the term "illegal Internet gambling."

'Midnight regulations' criticized
"The Department of the Treasury and the Federal Reserve Board of Governors deserve a great deal of credit for suspending these midnight regulations promulgated by the Bush administration, which would curtail the freedom of Americans to use the internet as they choose and which would pose unrealistic burdens on the entire financial community," Frank said in response to Friday's action.

"This will give us a chance to act in an unhurried manner on my legislation to undo this regulatory excess by the Bush administration and to undo this ill-advised law," he said.

Frank's bill, called the Internet Gambling Regulation, Consumer Protection and Enforcement Act, would establish a federal framework under which Internet gambling operators could obtain licenses to accept bets from residents of the United States.

His bill mandates thorough investigations of potential licensees and it requires technological barriers to deter underage gambling, fraud, money laundering and tax avoidance.

Quite a lot of money is at stake. Even amid all the controversy, Internet gambling remains a $10 billion-$12 billion per year industry in the United States, according to Congressional testimony and various industry experts.

Banks also seek delay
In announcing the delay Friday, the federal agencies said they were acting in response to requests from Frank, as well as from Wells Fargo, the American Bankers Association, the Credit Union National Association and a wide range of groups associated with the gambling industry.

"The agencies acknowledge some of the challenges regulated entities are experiencing with the act's definition of 'unlawful Internet gambling," the Federal Reserve and the Treasury Department said in a joint statement. "Moreover ..., several members of Congress have indicated interest in revising the Act.

"The agencies are thus persuaded that a limited extension of the compliance date for regulated entities is appropriate," the statement said.

The action was cheered by a variety of gambling interests, including the Poker Players Alliance, a group that claims more than 1 million members and has lobbied hard to overturn the Unlawful Internet Gambling Enforcement Act.

"This is a great victory for poker, but an even greater victory for advocates of good and fair public policy," said Alfonse D'Amato, the group's president and a former U.S. senator from New York in a release. "These additional months are critical to provide legislators time to clarify UIGEA and pass legislation to license and regulate poker early next year. It is our hope that another extension would be granted should the [June 1] deadline approach before these pieces of legislation can be passed."

Simply delaying the compliance date serves no interest except that of the Internet gambling enterprises that have long evaded American gambling laws ...

-- Rep. Spencer Bachus, Sen. Jon Kyl
Proponents of Internet gambling ban

Some Republican lawmakers, however, were less pleased. They sponsored the 2006 law and have consistently defended it.

"Simply delaying the compliance date serves no interest except that of the Internet gambling enterprises that have long evaded American gambling laws and will continue to do so until effective enforcement is in place," Rep. Spencer Bachus, R-Ala., and Sen. Jon Kyl, R-Ariz., said earlier this month in a letter to Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke.

How to escape the credit card fee cycle

2009-11-28T06:42:00.001-08:00

Being buried with fees? Get out now!

By Sally Herigstad

To Her Credit

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).

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To Her Credit archive

Dear To Her Credit,
Can a credit card company continue to charge you late fees, over-limit fees and maintenance fees after your account has been closed by the bank?

I missed one payment with my credit card company for the first time in three years. I called and asked if I could make reduced payments until my financial situation improves, but they refused to work with me. I've been making less than the minimum payment because I can't afford to make the total due with the fees. The more fees and interest they tack on, the more impossible it becomes for me to make the minimum, let alone make any progress on it.

I have sent in letters and made numerous calls to the company to try and work out my account. I called today and was told my account was closed, but they plan to continue to charge my account over-limit fees and late fees.

Can they do that? What can I do to stop it? -- Quana

Dear Quana,
Once you get behind on payments, the fees can start coming like a barrage of snowballs. It makes it hard to get back on your feet! A few years ago, a friend of mine owed about $1,000 that, for one reason or another, got away from her. The late fees and over-limit fees started piling up, the interest rate went up to 33 percent, and before she knew it, she owed $3,000. Ouch!

Unfortunately, yes, they can do that. If you owe money on an account, even though the bank has closed the account and you can no longer make charges on it, you are still subject to late fees, over-limit fees and continuing interest expense on all of the above.

Every time your payment is late or is less than the minimum, you pay a fee. And every month your balance remains over your credit limit, you pay another fee.

The exception is the annual fee. If the account is closed, you should not have to pay the annual maintenance fee.

The Credit CARD Act of 2009 contains provisions to regulate fees, including over-limit fees. Under the section of the law dealing with over-limit charges, consumers can choose whether they want to pay over-limit fees if they buy something that puts them over their credit limit, or if they want the transaction to be rejected instead.

The new law also limits the over-limit fee to once every billing cycle. This portion of the law goes in effect Feb. 22, 2010.

On Aug. 22, 2010, additional provisions go into effect. One of them states that over-limit fees, late fees and other fees must be reasonable and proportional to the violation. As of this moment, exactly what that means hasn't been spelled out.

Contacting your credit card company was a good first step. However, the banks are inundated right now with people asking for help, many of whom are in worse shape financially than you are.

The next step is to get help from a nonprofit consumer credit counseling agency. A credit counselor can help you explore all the options for your situation. In addition, the counseling agencies have negotiated guidelines with credit card issuers for setting up debt management plans or forbearance programs. Under these programs, the bank may reduce your interest rate, waive fees and let you make lower minimum payments, giving you a chance to start making payments on time again.

Laws and regulations can only do so much to protect you from high fees and interest charges, but you can find the help you need to get back on your feet again. Once you get relief from high fees and interest expense, you can take control of your finances and start working your way out of debt once and for all.

BofA rate hikes push national average credit card APR higher

2009-11-28T06:40:00.000-08:00

Higher rates, economic struggles likely to dampen holiday spending

By Jeremy M. Simon

Interest rates on new credit card offers rose slightly this week, according to the CreditCards.com Weekly Credit Card Rate Report, as Bank of America increased rates on two of its cards.

CreditCards.com's weekly rate chart
	Avg. APR	Last week	6 months ago
National average	12.71%	12.68%	12.24%
Business	9.74%	9.49%	16.74%
Low interest	11.65%	11.65%	12.22%
Cash back	12.08%	12.08%	12.06%
Balance transfer	12.13%	12.07%	10.99%
Reward	13.29%	13.29%	13.01%
Instant approval	13.32%	13.32%	10.74%
Airline	13.60%	13.60%	12.96%
Bad credit	13.74%	13.74%	11.37%
Student	14.89%	14.89%	14.52%
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.)
Source: CreditCards.com
Updated: 11-25-2009

The national average credit card annual percentage rate rose to 12.71 percent, up from 12.68 percent the previous week and 12.24 percent six months ago. The average is calculated from about 95 of the most popular credit cards in the country, including cards from dozens of leading U.S. issuers and representing nine major categories of credit cards. Introductory (teaser) rates are not included in the calculation. Among the average APRs in the nine categories, two jumped higher and seven were unchanged.

This week's increase in the average was due to Bank of America hiking the interest rates on some of its cards. It's far from alone: Two months ago, the average stood at 12.32 percent; six months ago, it was 12.24 percent.

With BofA and many other banks continuing to raise APRs, some experts say cardholders will remain hesitant to charge purchases, limiting the economic recovery. On Tuesday, data showed third-quarter gross domestic product growth was weaker than previously estimated, due to restrained consumer spending.

That trend is likely to continue: A survey released Monday by the Consumer Federation of America and the Credit Union National Association showed that 43 percent of consumers plan to cut back on holiday spending this year, with nearly a quarter of poll respondents expressing concern about meeting monthly credit card payments.

Those numbers represent an improvement over last year's holiday survey, but they still display far more consumer pessimism than the numbers seen before the economic recession began.

"During these recessionary times, more people have been seeking to pay down debt and build up their savings," CUNA Chief Economist Bill Hampel said in a press release."We certainly have seen that behavior among the nation's 92 million credit union members. Our survey indicates the pattern is continuing into the holiday season."

CreditCards.com survey: Retail credit cards boost rates, cut rewards

2009-11-25T10:38:00.000-08:00

Retailers' cards go delinquent more often, so their terms become harsher

By Tamara E. Holmes

Once known for offering instant savings and incentives to keep customers shopping, retail credit cards have scaled back rewards in favor of higher rates, lower limits and closed accounts, according to a CreditCards.com survey of 37 leading retail cards.

Consumers have long been warned to be cautious with store credit cards since they typically come with higher interest rates and discounts that promote impulse spending. This year, many of us seem to be heeding that advice, with the National Retail Federation reporting that consumers are favoring cash to pay for purchases. That trend is not surprising given the less-consumer-friendly terms that characterized retail credit card offerings in 2009. (See CreditCards.com's 2009 retail credit cards chart.)

This year was tough for all credit card companies, but retail credit card issuers experienced greater losses than general purpose credit card issuers, says Meghan Neenan, senior director of New York-based Fitch Ratings, which tracks retail credit card losses. In October alone, the charge-off rate on retail credit card losses was 11.75 percent, compared to 10.75 for general market cards, Neenan says.

Bad news for card issuers has meant bad news for cardholders. While in recent years, store card issuers rolled out rewards programs designed to entice shoppers through savings and discounts, this year issuers have been focusing more on reducing the level of risk in their portfolios, cutting their losses by cutting access to credit.

A perfect storm
Not only were card issuers concerned with the faltering economy, but they had the Credit CARD Act of 2009 to contend with. Beginning in February 2010, the law will limit their ability to raise interest rates and fees on future balances. In preparation for the changes, many have been adjusting rates upward and "re-pricing their portfolios," Neenan says, leading to even more unfavorable changes for consumers.

"All the card issuers have taken drastic steps over the last year in underwriting," says Neenan. "They pulled back on growth, and they pulled back on credit lines."

Even in good economic times, store credit cards are likely to have higher interest rates than general-market credit cards because they tend to be the first bill consumers will default on, making them a riskier form of debt. "If I don't pay my bill at a retail chain, I just can't shop or I'll be uncomfortable shopping in that store chain," says Robert Hammer, founder of R.K. Hammer Investment Bankers, a bank card advisory firm in Los Angeles. "But if I'm delinquent on my MasterCard or Visa, I can't use it anywhere in the world, so who do you pay last?"

That tendency to default first on retailers' cards has held true, even as the market has changed, and many retailers' cards became more widely accepted. Many of today's retail credit cards have three parties involved: the retailer, the card issuer and the network. The retailer will partner with a bank to issue the card, rather than enter the banking business itself; the bank then often has a "co-brand" partnership with a payment network such as MasterCard and Visa, letting consumers use the card anyplace that accepts cards in that network.

In 2009, retailers faced a double whammy: Consumers were both reluctant to buy and hesitant to pull out their credit cards. With their stores' bottom lines were pinched by the economy and their banking partners in worse shape, credit card rate increases became as common as a President's Day sale.

CreditCards.com survey
CreditCards.com surveyed 35 retailers' credit cards in 2008 and 37 retailers' cards in 2009. Of the cards surveyed both years, 19 retailers raised their interest rates in the 2009 survey.

The changes were felt by both bargain and luxury shoppers alike. For example, Wal-Mart's interest rate for its co-branded credit card last year ranged from 11.87 percent to 20.87 percent, whereas this year, it ranged from 13.9 percent to 22.9 percent. On the other side of the spectrum, the minimum APR for Saks Fifth Avenue's co-branded offering was 11.99 percent in 2008 compared to 15.99 percent this year.

AFTER A TUMBLE, RETAIL CARD USE STABILIZING

The market for store credit cards is expected to pick back up after it fell $4 billion from 2007 to 2008, according to the market research firm Packaged Facts. Use is expected to rise in 2010, reaching $114.1 billion.

While many consumers saw their interest rates rise, others saw their accounts closed. Some companies, like Nordstrom, let cardholders know that their accounts would be terminated if they didn't use them, says Hammer. Others simply shut down inactive accounts, giving customers no choice in the matter. Still other accounts were closed when retailers such as Circuit City declared bankruptcy (though cardholders with balances still had to repay their debts).

Regardless of the reason, closing an account can potentially hurt cardholders since a credit score is partly determined by the credit utilization ratio -- the amount of debt owed in relation to total credit availability. "If you start closing credit card accounts, it will bring down your available limit and it could make your limit to balance ratio above 50 percent, possibly harming your score," says Dorothy Guzek, a certified financial counselor with Troy, Mich.-based GreenPath Debt Solutions.

Even if cardholders didn't experience rate increases or lowered credit limits, they likely saw a change in the quality of rewards and perks that come with their accounts. "The rewards are still out there, but they're not as rich as they used to be," says Hammer. For example, Barneys last year offered cardholders 3 percent back on everything spent up to $4,999. This year they cut that back to 2 percent. Last year, Kroger offered cardholders three points to go toward free groceries for every dollar spent on Kroger brand products. This year, that was scaled down to one point per dollar.

Benefits for some
Despite the changes, some cardholders can still reap financial rewards from store credit cards if they use them right. "For people who pay their bills timely, track their expenses and know what they can afford, store cards can be a good thing," says Guzek. Often cardholders receive exclusive discounts or special savings. Of course, shoppers must pay the entire balance each month so interest doesn't offset those savings, Guzek adds.

Store credit cards can also provide flexibility to those who are buying costly items such as appliances. For example, cards sometimes offer a period of no-interest payments such as six months or a year. Those types of deals can be of benefit to consumers as long as they can afford to pay for the item during the promotional period before higher interest rates kick back in, Guzek says.

Though retail credit card issuers are beginning to see fewer charge-offs, says Neenan, consumers shouldn't expect to see better credit terms any time soon, and retail card issuers will continue to be stringent with their lending requirements in the near future. "The year 2010 is going to be tough for us in banking and in credit cards," predicts Hammer.

That means the savviest shoppers will use retail credit cards as a savings tool, getting deals and discounts for items they can pay for immediately. Those who carry a balance will continue to pay more for the privilege. "Everyone needs to know their budget and that's going to help them to understand whether they have money for future card payments," says Guzek. "And if they don't, they shouldn't be charging, bottom line."

How going to jail impacts your credit

2009-11-25T10:37:00.000-08:00

Credit card issuers don't automatically learn of your woes or shut your account

By Jeremy M. Simon

Credit Score Report

Jeremy M. Simon covers credit scoring and other issues as a staff reporter for CreditCards.com.

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'Credit Score Report' stories

Dear Credit Score Report,
My brother is serving an 18 month sentence. He has no credit card debt (paid before he started his sentence), and the cards aren't being used. Will inactivity affect his score? -- Concerned Sibling

Hey Concerned Sibling,
Even if your brother doesn't use his credit cards during the time he is behind bars, his credit score shouldn't be damaged solely by inactivity.

Inactivity alone doesn't hurt a cardholder's credit score in the short term, since existing credit history data will continue to help generate a credit score. Several banks confirmed that they continue to share existing account information with the credit bureaus -- Equifax, Experian and TransUnion -- as long as the accounts remain open. And as long as the credit bureaus have that information, they will, in turn, share it with credit scoring companies, such as FICO.

"A card that is open and carries a zero balance will just be reported as current for three years," says Experian spokeswoman Danica Ross. "As long as the card is open, lenders are obligated to report updates on the account." Since your brother's sentence is for 18 months, he will be out of jail well before his account information would stop being shared.

The real threat to your brother's credit score comes from the possibility of an account closure. His card accounts could be closed due to the banks' policies about imprisoned cardholders. Citi, for example, says it will close a credit card account once that issuer learns the cardholder is incarcerated. However, experts say information about an incarceration won't come from a credit report.

"I can tell you that credit reports do not include criminal arrest or incarceration records, so there would be no indication as to why there was no activity," says Experian's Ross.

Even so, you may want to call his bank and (anonymously) inquire about their policy regarding imprisoned cardholders, just in case.

Of course, you don't have to be in jail to have your credit card account closed. In the current economic environment, banks are closing accounts on all sorts of cardholders. As unemployment continues to rise, issuers have been canceling credit cards -- both used and unused -- in an effort to control the amount of credit available to borrowers. That's because consumers who eventually run into financial trouble could potentially default on their loans and cause banks to lose money. Whether or not the cardholder is behind bars, the decision to keep accounts open is the individual issuer's. "The closure of accounts is at the discretion of the lender," says Peter Garuccio, senior director of public relations with the American Bankers Association. "We don't force banks to lend money to anyone."

If one of your brother's accounts is closed or a credit line reduced, it could increase his utilization ratio. That's the comparison between existing debt and total credit access -- and a factor in determining credit scores.

Whether the banks close your brother's credit cards due to his incarceration or simply because they are limiting their risk levels, you can still help him generate a credit history while behind bars by adding your brother as an authorized account user on your credit card. Then continue to use your credit card and pay it off each month, adding positive payment information to your brother's credit history. "If attempting to maintain good credit scores while incarcerated, a family member could add the incarcerated individual as an authorized user to stimulate credit activity," says Bank of America spokeswoman Anne Pace.

If you don't let yourself worry -- and you add your brother as an authorized user on your card account -- you've done all you can. Meanwhile, the fact that your brother paid off his debt before going to prison bodes well for his continued responsible credit use after his release.

Good luck!

Credit card etiquette: Avoid these 8 examples of bad plastic manners

2009-11-23T06:56:00.003-08:00

Crediquette taboos include squabbling over (or shying from) paying the tab

By Erica Sandberg

You recoil from financially tactless people -- but does your own credit etiquette cause others to squirm or groan? Here are the worst plastic manners to recognize and refine.

1. Bad (credit) etiquette: Advertising debt troubles.
Have credit problems? Choose confidants carefully. Complaining about your overwhelming balance, collection activity or bankruptcy puts listeners in an awkward position. Further, if your audience doesn't know you well, they'll likely base their opinion of you on that negative information rather than your more positive qualities.

Polite plastic move: Respect your audience -- if they aren't intimate friends, keep your money troubles out of the conversation. Speak in generalities, says Lydia Ramsey, business etiquette expert and author of "Manners that Sell." "It's one thing to make global statements, like 'Gosh, times are tough.' But you don't want to bring it to a personal level."

2. Bad (credit) etiquette: Hogging credit card receipts.
What a convention! You've taken taxis, had drinks at the hotel, dined in fine establishments ... and hoarded every single charge slip so you can expense all of it, whether the charges were yours or not. If you're in a group, grabbing the receipts so you can write the costs off on your personal expense report is rude.

Polite plastic move: Be mindful of taking payment turns, and only keep your own charge receipts. Never ask for someone else's, either.

3. Bad (credit) etiquette: Playing card wars at the table.
Dinner is finished, the waiter brings the check, and suddenly everyone is pulling out their plastic, with loud cries of "I got this!" "Please, let me!" or "No, it's my turn!" Thus begins the embarrassing brawl over who has the honor of charging the meal. Such raucous displays are no-nos, especially in a high-end restaurant.

Polite plastic move: If you truly want to pay, don't make a big show of it. Before being seated, present the waiter with your credit card, saying you'll be responsible for the bill. Indicate that you'd like to sign the receipt in private. When the meal commences, others will wonder about the bill. Just say, "It's covered," and move on to another subject.

4. Bad (credit) etiquette: Never reaching for your card.
Conspicuously fighting to pay is loutish, but the reverse is also egregious. If you know someone who constantly waits for your card to emerge, you appreciate how annoying such passivity is. But you may do the same, thinking your companion's company is reimbursing the charge, or that his line of credit is more expansive then your own.

Polite plastic move: Whether you're with a friend, associate or date, never assume he or she should or will pick up the tab. Unless there's a clear recompense pre-agreement, lay your card down, offer to split the charge or say, "next time's on me" -- and really do it.

5. Bad (credit) etiquette: Flashing your status card.
It's perfectly marvelous that you got an extra-special credit account, but not everyone needs to know. Showing off your Black, White or other elite credit card by whipping it out with flourish (or worse, passing it around) is crass. If others happen to notice and ask about it, fine, but flaunting the card will irritate, not impress.

Polite plastic move: Getting the goodies associated with a status card should be thrill enough. Don't have it mysteriously fall from your wallet so someone can pick it up and exclaim, "Hey, it's graphite -- I've heard about these things!" Use it as you would any piece of plastic: discreetly.

6. Bad (credit) etiquette: Bragging about your credit score
Your FICO score just cracked 800? Fabulous -- better tell everyone! Well, no. It's akin to that obnoxious student who boasted about her perfect report card. Imagine you're talking to someone who's just been laid off or is in the middle of home foreclosure. The last thing he wants to hear about is your awesome credit score.

Polite plastic move: Achieving high credit scores is cause for pride and your happiness is justified. Etiquette, however, is about making others feel comfortable. Keep mum.

7. Bad (credit) etiquette: Prying about other people's credit.
"How many credit cards do you have?"
"What's your credit limit?"
"How much do you owe now?"

Quizzing others about their credit is unacceptable. In fact, discussing debt has become the new social taboo, surpassing talking about religion, politics or sex. "These financial matters are not a point of discussion," says Ramsey. "Not even with close friends. It's totally out of line and off limits."

Polite plastic move: Don't ask. It's that simple.

8. Bad (credit) etiquette: Openly misusing the company card.
Breaking the law is not OK, but dragging a companion into your impropriety is an extreme blunder. If you charge a night of cocktails and with a wink, whisper "We talked business, didn't we?" -- well, that's precisely what you're doing. Displaying poor credit ethics is particularly damaging in business settings. "The last thing you want is for a colleague to think you're immoral," warns Ramsey. "It will come back to you."

Polite plastic move: It goes without saying that one should always strive to be upstanding, when using plastic or not.

Now that you have assured yourself that you are not Visa vulgar or Discover déclassé , we invite you to print this story out for those in your social circle who are less versed than you in crediquette. Blue or black ink only, of course.

How bad credit affects a new marriage

2009-11-23T06:56:00.001-08:00

Protect your new spouse from your past credit mistakes

By Sally Herigstad

To Her Credit

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.

To Her Credit archive

Dear To Her Credit,
A year before we got a divorce, my ex-husband had our house foreclosed on. We ended up having to file for joint bankruptcy. Thanks to my ex's shenanigans, my credit score is about as bad as it can get.

I'm dating someone now and would like to get married, but I'm worried about messing up my new husband's credit. Will my irresponsible ex's problems get dragged into my new marriage? -- Lora

Dear Lora,
Wow -- a foreclosure and a bankruptcy. One or the other is bad enough. In fact, people often go through bankruptcy to help them avoid foreclosure. Bankruptcy often allows you to keep your home, plus it may eliminate other debts so it's easier to keep up with your mortgage payments.

Of course, if your ex was irresponsible as you say, he wasn't exactly seeking the best advice, let alone taking it.

So here you are now. Thank goodness for second chances.

First the good news. "If you marry, it's not going to hurt his credit score," says New York bankruptcy attorney Edward E. Neiger. There's no such thing as a joint credit score, and the negative items from the past on your credit history cannot somehow work their way over to his report just because you marry.

Now the not-so-good news: Any time you and your new husband apply for credit together, your credit history will affect you both. Say you want to buy a house together. "If the banks require two incomes to qualify, he might not be able to buy the house," says Nieger.

It's not the end of the world, however. If you've already told your husband about your financial struggles, he won't be shocked. And although it may be more difficult for you to buy a house, it's not impossible. People who have bankruptcies in their past buy houses -- they may need to save a little longer and work on building their credit histories for a year or two, but it can be done.

When you remarry, remember these points to protect his credit and start improving yours:

Do not add your new husband to any old accounts with a negative history -- not even as an authorized user. You don't want these accounts to show up on his credit report.
New joint accounts with you will not hurt his credit as long as the accounts are always paid on time.
He can help you improve your credit score, without hurting his own credit, by adding you to his current accounts as a joint account holder.

Perhaps one of the most important things you and your intended can do as your relationship becomes serious is to start communicating and learning about finances together. You could take a class at a local community center or library, or find books or courses online. You may both be financially literate already, but going through a course gives you an opportunity to talk about expectations and goals in a way that isn't likely to come up otherwise. It's so important to understand each other, your financial styles and where you want to go with finances before the wedding!

Congratulations on your new relationship. The man you are dating sounds great -- people who are responsible financially tend to be responsible and dependable overall. I wish you both the best of everything!

Credit card APRs fall sharply, but you shouldn't get too excited

2009-11-23T06:55:00.003-08:00

By Jeremy M. Simon

The average interest rate on new credit card offers fell sharply this week, according to the CreditCards.com Weekly Credit Card Rate Report, but don't expect your rate to drop, too.

CreditCards.com's weekly rate chart
	Avg. APR	Last week	6 months ago
National average	12.68%	12.79%	12.38%
Business	9.49%	9.49%	16.74%
Low interest	11.65%	12.12%	11.95%
Balance transfer	12.07%	12.27%	10.99%
Cash back	12.08%	12.11%	12.06%
Reward	13.29%	13.29%	13.01%
Instant approval	13.32%	13.32%	10.74%
Airline	13.60%	13.60%	12.96%
Bad credit	13.74%	13.74%	12.15%
Student	14.89%	14.89%	14.52%
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.)
Source: CreditCards.com
Updated: 11-19-2009

This week, the national average credit card rate fell to 12.68 percent due to a reshuffling of card offers in the CreditCards.com database -- not because of any APR cuts by issuers. Banks previously present in the representative sample of about 95 national cards held their rates steady this week, taking a break from what has been a steady stream of increases throughout 2009.

This week's break likely won't last long, though, as banks struggle to protect their profits in the face of increased regulation, as well as cardholder delinquencies spurred by the economic downturn.

In general, credit card interest rates have been on an upward swing. Six months ago, the average rate was a half-point lower, at 12.38 percent. Someone who borrowed $5,000 on a credit card today, and consistently paid a typical minimum balance at today's rate would have to pay $9,498 to pay off the debt. That's $113 more than would have been required six months ago.

Consumers are still struggling
With cardholders already hesitant to go shopping, experts say those higher APRs are discouraging consumer spending and -- by extension -- economic growth, since consumer spending accounts for a significant portion of the overall U.S. economy.

"It is unfortunate that [rate hikes are] going on now while we're looking for the consumer to really kick in here," says George Mokrzan, senior economist with Huntington Bancorp in Columbus, Ohio.

One indication that consumers are reining in their spending: Overall consumer debt has fallen for a record eight straight months, according to recent Federal Reserve data. This aversion to debt seems unlikely to change anytime soon -- with the nation's unemployment level reaching 10.2 percent in October and some economists predicting that it will continue to rise into next year. The threat -- or reality -- of job loss makes cardholders less able to repay their card balances, increasing the delinquencies and charge-offs experienced by banks.

Issuers have, in response, increasingly turned to variable rate offers with interest rates that will increase when the Federal Reserve raises its key lending rate. Variable rates are set using the prime rate, which is 3 percentage points above the federal funds rate. Currently, the fed funds rate rests at a level near zero and the prime rate stands at 3.25 percent.

However, this week, Fed Chairman Ben Bernanke said a rate hike is unlikely in the near term. In his concluding remarks made during a speech Monday, Bernanke said that economic conditions will likely encourage the Fed to maintain "exceptionally low levels" of its fed funds rate "for an extended period."

Mokrzan says he doesn't expect the Fed to increase rates before the second half of 2010. "Until the recovery is on firmer ground, I don't think the Fed will think about raising rates," he says. For now, though, Mokrzan says that even as the recovery takes hold, nagging threats mean that lenders are being cautious.

Economists say that, eventually, it will take both banks and borrowers doing their part to aid the economic recovery. "The environment will change, and the perception of risk by the banks will improve, and the risk taking by consumers will improve," Mokrzan says.

"Everybody's involved in the process. Everybody's driving it and reacting to it," he added.

CreditCards.com's weekly credit card rate survey is based on a sample of about 95 national credit cards; the sample is chosen to be representative of the most frequently used cards by both popularity and type. That sample is updated as cards come and go from the market, and as the popularity among different types of cards shift.

Escaping co-signing: How to get out of a co-signed loan, credit card

2009-11-23T06:55:00.001-08:00

Experts say don't, you did anyway. Can you escape that co-signed loan?

By Dana Dratch

Consumer advocates and financial advisers are unanimous on the subject of co-signing: Don't do it.

When you co-sign, you're not vouching for the person's good name or character. You're not promising to tell the creditor where to find the cardholder if those payments stop coming. You're agreeing to foot the bill. All of it. Along with fees and interest.

"That is the main role," says Nessa Feddis, vice president and senior counsel for the American Bankers Association. "They are not a co-applicant or joint borrower."

"Just put the pen down and walk away," says Catherine Williams, vice president of financial literacy for Money Management International, a Houston-based nonprofit credit counseling program.

"Please, don't co-sign for anybody," says Bruce McClary, spokesman for ClearPoint Credit Counseling Solutions, a nonprofit service based in Richmond, Va. "Because it's a gamble. I may be jaded, but I haven't seen any really great outcomes."

But if you did co-sign ....
Yet, you went ahead and did it.

Maybe only now do you realize that any black marks associated with the account can go on your credit report, too. And, since you've stepped up to accept full responsibility for the debt, you could have (depending on how the issuer reports the debt), that much less credit available to you when you need it for a house, car or credit card of your own.

CO-SIGNING HORROR STORY No. 1

Take the case of one bride-to-be. Her intended picked out a ring from a local shop, presented it to her and popped the question: Will you co-sign for this?

She said "yes."

When they broke up, she kept the rock -- and the financial weight of a loan with a 20 percent interest rate. He stopped making payments; she ended up forking over more than $2,400 for a ring worth less than half that, says Catherine Williams of Money Management International.

"I've seen hundreds of cases where people's credit is destroyed," says David Jones, who heads up the Association of Independent Consumer Credit Counseling Agencies, a national network of nonprofit credit counseling services based in Fairfax, Va. Co-signers "have all of the responsibilities with none of the benefits."

Of the 10 largest credit card issuers, eight -- Chase, Citi, American Express, Capital One, Discover, Wells Fargo, HSBC and USAA Savings -- say they don't currently allow co-signers.

"It's a long-term commitment," says Todd Mark, vice president of education for the Consumer Credit Counseling Service of Greater Dallas. Too often, he says, co-signer responsibilities outlive the relationships that prompted the arrangements in the first place.

Co-signing exit strategy
So now that you've wised up and want to get out of co-signing, what do you do?

It's not nearly as easy to exit a co-signing deal as it was to enter one.

Exiting the role of co-signer can be tricky. If the cardholder still doesn't have the credit to qualify for an account without you, the company may refuse to remove you as a co-signer unless the balance is paid. That leaves you two options:

Finding a replacement co-signer (if the company allows the practice).
Closing the account yourself. You may have to specifically request an account be closed; if you ask to be "taken off" the loan, they may refuse. Again, the loan must be paid off, or small enough so that the other party can qualify for a loan in that amount.

CO-SIGNING HORROR STORY No. 2

When a couple hit a financial and marital rough spot, they got credit counseling. The biggest financial hurdles were his bills on two cards that she had co-signed. The combined total: roughly $9,000.

By the time the couple split up 18 months later, they had paid down nearly half the balances. Then the husband left town and stopped making payments. The issuers came after the wife for almost $4,000.

"There was no way she could manage on her income," Bruce McClary, spokesman for ClearPoint Credit Counseling Solutions.

The woman declared bankruptcy.

Policies on ending co-signing agreements vary with the issuer, and the best time to ask how it works is before you sign. That way, if the potential cardholder or the issuer can't or won't answer all your questions, or if it seems too difficult to exit the arrangement, you can decline the arrangement.

And even after you manage to quit as co-signer or close the account, "you are still liable for any transactions made up to that point," says Feddis.

In some situations, if the cardholder converts the card to a solo account (without a co-signer) or gets a replacement co-signer, the issuer might not hold you responsible for earlier charges. Ask the issuer how that works in advance.

Another problem for co-signers: keeping an eye on the account balance and payment history may be difficult. Before you sign, find out from the issuer whether you can request and receive statements on the account. Typically, an issuer will require your permission to raise the credit limit on the card, but ask about that, too.

And if you're ever tempted again, , and remember what the experts say.

Co-signing situations, which mix a volatile combination of close personal relationships and money, are a prescription for problems, says Williams. "In 28 years of counseling, I've only seen one of those situations work out," she says.

4 questions to ask before you co-sign on a credit card

2009-11-21T21:41:00.001-08:00

Explore alternatives, find out what you're in for with this cheat sheet

By Dana Dratch

Co-signing for a credit card has been an option for decades, but the issue of co-signing is especially relevant recently, says Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group. In February 2010, the Credit CARD Act of 2009 -- a credit reform law -- will require co-signers for card applicants under 21 who don't have sufficient income to qualify on their own.

If someone asks that you to sign on the dotted co-sign line, here are a few questions to ask yourself and the wannabe cardholder:

1. Why do you need a card?
This isn't food, housing or a ride to work. No one "needs" a credit card. There are alternatives. Here are some options for different scenarios:

Building credit or repairing bad credit: Try a card from a small retailer or a secured card. Both are relatively easy to get, and they help the cardholder build a positive history.
Paying bills conveniently: Check out electronic billing, prepaid cards or debit cards.
Traveling: Use secured credit cards or debit cards.
Supplementing income: Credit cards are debt, not income. Brainstorm other ways to raise cash.

2. Why can't you get a card on your own?
If an issuer -- which stands to make money from the deal -- doesn't want to take the risk, why should you? If you're agreeing to take on the debt, you need to ask why the person can't get a card solo. Here are some answers to common co-signer arguments:

If the applicant says: "I'm under 21, and the law requires it."
Your response: "No, it doesn't."
After the Credit CARD Act's major changes take effect in February of 2010, adults 18 to 20 can still get cards on their own -- provided they have the income to qualify. If applicants can't get cards, they probably can't afford to repay those charges.

If the applicant says: "The economy's tight. No one's getting credit anymore."
Your response: "Plenty of people get cards every day."
If a cardholder is turned down, it's because something in that credit report signals that prompt repayment is unlikely. If you co-sign and the issuer is right, you'll end up with the bill.

If the applicant says: "There are mistakes on my credit report."
Your response: "Clean them up -- it's free -- and then reapply."
If there are errors, an applicant is better off correcting them than ignoring the situation and getting another card.

If the applicant says: "I have too much credit already. My other cards are maxed out. I need another card to keep things going."
Your response: Just walk away. Better yet, run..

3. Are there other options that give me more control?
An option for parents of college students who want to give their kids exposure to credit without risking financial disaster is to add them as authorized users to the parent's card. Some credit cards allow you to limit charges by authorized user, which could limit major damages. The upside: Authorized user status also helps build credit. The downside: The bills come to you every month, and you're still responsible for them.

Don't forget your local credit union. Not only do credit unions issue cards, but if someone doesn't qualify, a credit union can offer pointers for improving that credit history.

4. Can I afford to pay off the entire account balance if the cardholder doesn't?
If you don't have the means to pay off the full balance up to the credit limit, with fees and penalty interest rates, the answer to co-signing is always "no."

And if your own future financial picture is clouded by shaky employment prospects, pending retirement, fixed income or medical conditions, you can't shoulder this burden, either.

Too many times, personal guilt or misplaced responsibility trumps common sense when it comes to making the decision to co-sign.

"It becomes an emotional decision," says Lynne Strang, vice president of the American Financial Services Association, a member group of credit lenders. "A person needs to step back and look at it as a business transaction and evaluate it on those terms."

Agencies release new consumer privacy rights notice forms

2009-11-19T04:29:00.001-08:00

Consumer groups: New format is clearer, but should be mandatory

By Connie Prater

Consumers may start to see a new look in those oh-so-boring-but-important privacy rights notices that they get in the mail each year from their banks, brokers, insurance companies and credit card issuers.

WHAT NEW PRIVACY NOTICES
MEAN FOR CONSUMERS

What: Federal agencies released samples of simplified, consumer-friendly privacy rights notices that banks and other financial institutions can send to customers.

Key points: The forms are not mandatory; banks can continue to mail out the old, legal notices.

Why it's important: Consumers have the right to opt out of having their personal information shared with third-party companies. This helps filter out junk mail and telemarketing calls and reduces the risk of identify theft through data breaches.

View the sample privacy notice.

Federal agencies released samples of model privacy rights notices Tuesday that are designed to be consumer-friendly and easier to understand. Instead of two to three pages of tiny, gray type, the new notices are set up in tables with clear language and larger print. However, the new model privacy rights forms are not mandatory, so some consumers may continue to get the old legalese-rich notices.

Privacy rights advocates called the new model forms an improvement and urged banks and other financial institutions to adopt the new format. Others, however, said if banks and other institutions aren't required to use the consumer-friendly forms, consumers will lose out.

"Obviously this is a lot more consumer friendly than the hodgepodge of privacy notices that have gone out in the past," says Paul Stephens, director of policy and advocacy for the Privacy Rights Clearinghouse, a San Diego-based nonprofit consumer advocacy group. "In our experience, we found that most individuals just receive the notices, don't bother to read them and toss them out."

"Hopefully, now that they may be in a more user-friendly format, a greater percentage of consumers will take the time to read these notices and have a better understanding of what types of information may be disclosed and to whom that information may be disclosed," Stephens added.

What the law says
By law, a host of financial institutions -- from insurance companies to brokerage firms to credit card issuers -- must send initial and then yearly notices informing consumers of their rights to keep information collected by the firms private. Companies must often share personal information about its clients with contractors who process transactions or maintain credit card and bank accounts. Law enforcement officials may also gain access to credit card and other private financial information if investigating criminal acts.

Since the form isn't mandatory, it can't be useful to consumers unless all banks issue the notices using the model form.

-- Michelle Jun
Consumers Union

Companies in the financial services industry also often share information about their clients with other marketers that then attempt to sell other products and services to consumers. If you ever wonder why you're getting junk mail or calls from a company you've never heard of after you purchase life insurance or open a new checking account, it may be because your contact information, salary or credit score may have been shared by your bank or insurance agent. Identity theft experts say the more information is shared, the more vulnerable consumers become to data breaches. Consumers who do not wish to have their information shared with other, nonaffiliated companies are allowed to opt out.

The law that requires the privacy rights notices is the Gramm-Leach-Bliley Act, named after the U.S. lawmakers who sponsored the 1999 legislation. The act requires financial institutions to disclose:

Their policies and procedures for collecting information about clients.
Whether other companies (both affiliated with the institutions and third-party outsiders) receive information about the consumer.
What steps the company takes to safeguard the consumer's personal information.
How consumers can opt out of having certain information disclosed to nonaffiliated third-party companies.

Ability to compare privacy safeguards
According to a joint press release issued by eight federal regulatory agencies, the Financial Services Regulatory Relief Act of 2006 requires the agencies to develop more reader-friendly notices that allow consumers to compare privacy policies of different companies.

"Because the privacy rule allows institutions flexibility in designing their privacy notices, notices have been formatted in various ways and as a result have been difficult to compare, even among financial institutions with identical practices," according to the privacy rights notice guidelines issued Tuesday.

Stephens from the privacy group said the "model notices may provide an opportunity for consumers to compare different financial institutions and see which ones are providing notices that are more privacy-friendly and enable individuals to, in some part, make a decision about the financial institutions they wish to patronize."

Michelle Jun, an advocate from Consumers Union, the nonprofit owner of Consumer Reports magazine, said it will be difficult for consumers to make those comparisons if all banks and financial institutions don't use the new forms.

"It's worthless if it's optional," said Jun. She likened the simplified, table format of the new model forms to the Schumer box required on credit card applications and solicitations. "Since the form isn't mandatory, it can't be useful to consumers unless all banks issue the notices using the model form."

A spokeswoman for the Federal Trade Commission (FTC), one of the agencies that developed the model forms, said the consumer-friendly disclosures are not mandatory because the 2006 law stated they were to be optional for financial firms. Those institutions that use the new disclosure forms will be exempt (also called having a safe harbor) from the law's other requirements.

In addition to the FTC, the agencies issuing the guidelines were: the Federal Reserve, the Comptroller of the Currency, the Office of Thift Supervision, the National Credit Union Administration, the Securities and Exchange Commission, the Commodities Futures Trading Commission and the Federal Deposit Insurance Corp.

In default on car loan: What to do?

2009-11-16T21:08:00.001-08:00

Negotiating with the lender face-to-face might help

By Todd Ossenfort

The Credit Guy

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

Ask a question

'The Credit Guy' archives

Dear Credit Guy,
I lost my job and my wife just got one in June. We're behind on one car and the lender wants $1,000. We have another car through the same finance company, and they said if we default on one car they would take both. Can they do that? Also, would they put the money at the end of the loan for us because we can make both payments but we can't pay the $1,000? -- Paul

Dear Paul,
I'm not sure exactly what your lender can or cannot do concerning your loan because I haven't read your loan papers. I recommend you track down the loan agreement and review the section that covers how a default is handled. Unless it is included in the agreement, I don't believe your lender can repossess your other vehicle unless it is also in default.

Once you know what is included in your loan agreement, make an appointment to speak with your lender. If possible, I'd request a meeting in person. Typically your vehicle cannot be repossessed until after the loan is more than 90 days late, so be sure you act before you reach that point.

Be prepared to demonstrate that you are now able to make the payments on both of your vehicles. Regardless of what is included in the loan agreement, most lenders would much rather you make your loan payments so they can earn the interest charged on the loan rather than deal with the costs of repossessing the vehicle. So, keeping that in mind, be prepared to negotiate how you will pay the past due amount of $1,000.

Adding the past due amount to the end of the loan may require a modification of the loan into a new loan agreement, and I would be willing to bet your lender may be hesitant to do that. In addition, it may not be in your best interest to do so, especially if the new terms will increase your monthly payment. However, if your current agreement can be extended by the number of months it would take to pay the $1,000 without changing any other terms in the agreement, then that would be a very reasonable solution.

Another alternative is to request that you pay off the past due amount over an extended period of time by adding an agreed upon amount to your existing monthly payment until the past due amount is paid in full. For example, if the lender agreed to allow you four months to pay off the $1,000, you would need to add $250 to your existing monthly payment. Assuming you could afford to make the additional payment, your lender may be willing to allow you to pay what you owe in this manner. Regardless of how the negotiations are resolved, request that the solution you decide upon be put in writing.

Moving forward, you might consider purchasing loan payment protection insurance that would provide money for your car loan payment should you be unable to so due to unemployment, death or disability. The insurance can be expensive, especially if added to your loan with the auto dealer. It is best to seek this type of insurance from an independent agent if you are interested. I'd review the affordability of the insurance with your current insurance agent at the time of your next car purchase.

Of course, if you buy a new car in the near future, many manufacturers are offering free payment protection as incentives to buy. However, I wouldn't recommend buying a new vehicle until you are once again gainfully employed and are able to put down a significant down payment.

Take care of your credit!

Fed: Consumers must opt in to debit card overdraft fees

2009-11-14T17:06:00.004-08:00

New overdraft rule is mandatory by July 1, 2010

By Connie Prater

Consumers will be able to avoid getting hit with costly overdraft fees on their debit cards under new rules released Thursday by the Federal Reserve.

Lawmakers and consumer advocates, however, said the new Fed rules don't go far enough in protecting consumers from abusive overdraft practices and vowed to continue efforts to pass more stringent legislation.

Starting July 1, 2010, banks will be required to allow debit card customers to opt-in to overdraft fees rather than automatically enrolling card users in programs that charge $20 to $30 whenever there are insufficent funds to cover purchases. That means consumers who do not opt in and who attempt to make transactions without sufficient money in their accounts to cover the purchase could have their debit cards denied at the cash register. (See 6 ways to avoid debit card overdraft fees.)

HIGHLIGHTS OF NEW
FEDERAL OVERDRAFT FEE RULES

What: The Federal Reserve issued rules Thursday requiring banks to get consumers' permission to charge overdraft fees when there are insufficient funds in an account to cover purchases.

Who is affected: Anyone with an ATM or debit card. The rules apply to existing as well as future cardholders.

How soon does it take affect: Banks must implement the rules no later than July 1, 2010. They cannot charge overdraft fees to existing customers without prior consent after Aug. 15, 2010.

What's not covered: Banks can still charge whatever they want for overdraft fees. They can also assess multiple fees during a single month. Members of Congress are vowing to push for legislation to address these practices.

Under the Fed rules, banks would have to explain what overdraft protection is, the details of how it works and the fees associated with it before asking consumers to opt in to the program. (See model opt-in disclosure.)

"The final overdraft rules represent an important step forward in consumer protection," Federal Reserve Chairman Ben S. Bernanke, said in a press release on the rules. "Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service."

Another blow to banks
The new rules are the latest setback for the nation's banks and credit unions already reeling from the effects of the economy and new consumer credit card rules coming online. Thursday's overdraft regulations are sure to trim back what had become a growing income source, estimated at $23.7 billion in 2008 and projected to hit $38.5 billion in 2009.

In third quarter financial statements filed this month, Wells Fargo indicated it expects to take in $300 million less in fee revenues in 2010 because of policies the bank has implemented to help consumers limit overdraft and returned item fees. Facing a rising tide of consumer complaints, Bank of America and Chase have also revised their policies to give customers the choice of using overdraft services.

Edward L. Yingling, president and CEO of the American Bankers Association trade group, said the bankers have created an overdraft task force to look at consumer concerns as well as how technology can be improved and the role of retailers and merchants processing transactions.

"This new rule addresses the primary concerns that have been raised by consumers and policymakers and will help bring consistency and clarity to overdraft programs. Our goal is to have a system that works well for banks and customers and keeps the payment system running efficiently," Yingling said in a statement.

The Fed rules also come as lawmakers in both houses of Congress are considering bills (H.R. 3904 and S. 1799) to curb overdraft abuses. The proposed bills are more far reaching than the Fed rules and include bans on multiple overdraft fees during a single month. Those bills also seek to regulate how debit card transactions are processed by banks. Consumer advocates have complained that transactions are processed to maximize fees for banks rather than chronologically as they occur. A hearing on the Senate bill is scheduled for Nov. 17 before the Senate Banking Committee.

Lawmaker: Fed rules don't go far enough
Rep. Carolyn Maloney, co-sponsor of the House bill, applauded the Fed for recognizing that the overdraft fee problem needs review, but said the Fed rules don't go far enough to address all of the practices harmful to consumers.

While these rules are a good, solid step forward, they don't eliminate the need for congressional action on this issue.

-- U.S. Rep. Carolyn Maloney

"While these rules are a good, solid step forward, they don't eliminate the need for congressional action on this issue," Maloney said in a statement. "The Fed still allows institutions to charge an unlimited quantity of overdraft fees, would do nothing to make fees proportional to the amount of the overdraft, and would not address the manipulation of posting order of charges to accounts. Under the Fed's new rule, a $5 cup of coffee could still become a $40 cup of coffee after an overdraft fee is added!"

She added: "My bill does all that -- it caps the quantity of fees at one per month or six per year, requires that fees be reasonable, and prohibits posting-order manipulation, and includes all transactions, not just debit cards. Those are provisions I believe make for the strongest consumer protections, that's why Chairman [Barney] Frank and I have proposed this legislation, and that's what I believe the House will be passing."

Consumer groups have called overdraft fees "high-cost loans" and note that banks can decline debit transactions when there aren't enough funds but don't because of the profits they can make from the fees consumers pay. Advocates say banks often don't explain to consumers that they can avoid overdraft fees by linking their debit cards to other savings accounts or opening a line of credit -- less expensive alternatives to overdraft fees.

Eric Halperin, director of the Washington, D.C., office of the Center for Responsible Lending, criticized the Fed's "failure to propose or enact necessary safeguards against a host of unfair practices."

"Congress needs to step in to stop the abusive practices the Fed has known about for nearly a decade, but once again has failed to address," Halperin said in a statement.

Fed research: Consumers want choice
According to the Fed, which conducted consumer research on overdraft practices, most consumers would prefer to have a choice in enrolling -- or "opt in" for -- overdraft programs for ATM and debit card transactions. The research also showed that most people do want overdraft coverage for important bills such as rent, telephone and other utilities. Thus, the new rule applies to ATM and one-time debit card transactions but not checks. A 2009 study by the Center for Responsible Lending found most overdraft fees were generated at the point of sale, when consumers are using their cards at check-out.

The Fed rule also took steps to prevent banks from discriminating against customers who do not opt in by requiring that they have the same account terms, conditions and features as account holders who opt in to the fees. Anyone with ATM or debit cards prior to July 1, 2010, cannot be charged overdraft fees after Aug. 15, 2010, unless the bank or credit union has first gotten the consumer's consent to participate in an overdraft program.

"Overdraft fees can be costly," Fed Gov. Elizabeth A. Duke, who heads the agency's Committee on Consumer and Community Affairs, said in a press release. "Our rule will help consumers better understand the terms and conditions of overdraft services and will give them an opportunity to avoid fees when these services do not meet their needs."

Said Maloney at an Oct. 30 congressional hearing on her overdraft bill: "The overdraft problem is significant and getting worse. The quantity of debit card transactions now exceeds the quantity of credit card transactions."

Money and credit lessons learned from TV

2009-11-14T17:06:00.003-08:00

What our favorite TV characters teach us about finances

By Gina Roberts Grey

The loveable television characters we welcome into our homes once a week can actually teach valuable lessons about managing money and protecting credit. Take another look at the financial pratfalls of these classic characters, this time without the laugh track. Their antics cause only imaginary harm to a budget, but beneath the comedy lay real money lessons:

Matt LeBlanc and Courteney Cox, who portrayed Joey and Monica in the hit TV series "Friends."

The show: 'Friends'
The Character: Joey
A recurring role on a soap opera means Joey finally has wads of money. Instead of budgeting his disposable income and saving some for a rainy day, Joey hastily moves into a lavish apartment. Without considering the "what ifs," he furnishes it with expensive extravagances, such as porcelain greyhounds, and racks up massive credit card bills. When his soap opera character is suddenly killed off, his income stream also dies. The change forces Joey to move back in with Chandler and rebuild his financial life.
The lesson: There's nothing wrong with treating yourself to a little extravagance once in a while, as long as you feed your savings account first. Living for today might be fun, but it could leave you out in the rain if your income is reduced, you lose your job or face a medical, car or other emergency.
The fix: Always pay yourself first. If you come into money, whether from a job bonus or large raise or inheritance, "don't be in a rush to spend it," says Melanie Donaghy, vice president of Wells Fargo Online Banking. Use extra cash to stash money in a retirement fund, pay off credit cards, invest in laddered CDs or a savings account. Then you can treat yourself to a "want purchase."

"King of Queens" cast Jerry Stiller, Leah Remini and Kevin James, who played Arthur, Carrie and Doug.
Photo: Sony Pictures Television

The show: 'King of Queens'
The characters: Doug and Carrie
When Doug and Carrie notice they've made progress with their money management skills and are starting to get out of debt, they decide to "treat" themselves. The $400 price tag on Carrie's new jacket sends Doug into a tailspin. Carrie goes to return the jacket, but finds a "loophole in the system" that convinces her if she returns things she buys -- even if she wears them -- it's as though she never really spent money. Proud of her discovery, Carrie tells Doug she's being thrifty. Doug tells her she's being "shoplifty."
The lesson: It's understandable to want to splurge after meeting a financial goal, but Jim Randall, author of "The Skinny on Credit Cards," urges keeping your eye on the ultimate goal. "You don't want to fall into a routine of taking one step forward, two steps back."
The fix: Randall says if you are going to allow yourself a small splurge, make sure it won't put you deeper in debt. "Don't reward yourself for digging out of debt by tacking on a little more," he says.

Unctuous Edward W. "Eddie" Haskell was brought to the small screen by Ken Osmond. Watch the full clip.

The show: 'Leave It to Beaver'
The character: Eddie Haskell
The charming troublemaker brags to his buddies about his father giving him a credit card earmarked for emergencies. When Wally's car battery dies, Eddie happily steps up, flashing his card to all his friends. Although Eddie's heart was in the right place, he shows off his buying power and charges without regard for how to pay the bill. When Mr. Haskell finds out, Eddie finds himself in a familiar tight spot.
The Lesson: Randall says it's not necessarily a kid's fault if they can't control spending. "Giving a kid a credit card without proper supervision or education of the ramifications of impulse spending can leave you stuck with a hefty bill." That can also send a parent's credit score tumbling if the bill can't be paid or if the balance maxes out the card's credit limit.
The fix: Be proactive. Randall suggests sending your kid back to school before adding your child as an authorized user on your credit account. "Give your kids a lesson in tracking purchases and balances online, saving receipts and how nearing credit limits can impact credit scores," he says.

Jason Alexander portrayed perpetually parsimonious George Costanza in "Seinfeld."

The show: 'Seinfeld'
The character: George Costanza
His thriftiness didn't just border on cheap -- George Costanza gleefully crossed that border and moved in to stay.

To cut corners, George ordered bargain wedding invitations that were discounted because they had subpar adhesive. His "deal" wound up killing his fiancee since the too-good-to-be-true glue was toxic, which she ingested while licking the envelopes.
The lesson: Sometimes saving a buck or two can cost you twice as much in the long run. "If a price sounds too good to be true, it probably is," says Bruce McClary, credit counselor at ClearPoint Credit, a nonprofit debt counseling agency.
The fix: Weigh all your buying options. Price match to make sure you're truly getting a good deal.

"Read all the fine print," says McClary. "Sometimes, a price appears lower, only to learn there are hidden fees built in that can blow your budget."

The show: 'Everybody Loves Raymond'
The characters: Ray and Debra

Ray finds out the diamond in his wife's wedding ring is fake and sets out to replace it without Debra knowing.

Patricia Heaton played Ray Barone's wife Debra on the sitcom "Everybody Loves Raymond."

Grabbing her ring off the table while she's in the shower, Ray leaves Deb in a panic, thinking she lost it and sets off to replace the counterfeit stone. The catch: He wasted his money. Debra confesses she found out years ago the diamond was fake and had the original stone replaced with her grandmother's very expensive real diamond. The couple ends up dumpster diving trying to find the family heirloom Ray mistakenly threw out.
The lesson: It pays to be honest. "In this episode, it would have prevented a major, unnecessary expense," says McClary. Financial deception among spouses can cost money, cause stress and weaken your relationship. For example, McClary says one negative hit resulting from a jointly held maxed out "secret" credit card or other financial deceptions can negatively impact future car loans, mortgage rates and insurance premiums.
The fix: Designate a neutral spot (perhaps a park or other public place) to routinely discuss financial matters and decisions. Agree to listen, not just talk. "Honesty truly is the best financial policy," McClary says.

The final scene
The networks are always lining up casts of new characters and scripting hilarious situations to befall them. As you welcome these sitcom sensations into your home, McClary suggests watching with an open mind. "Even though you tune into sitcoms for a few laughs, there are plenty of valuable lessons to learn, too."

American consumers getting a grip on debt

2009-11-14T17:06:00.001-08:00

By Cara Henis

More American consumers are paying down -- and even paying off -- their debts, according to a September survey commissioned by Wells Fargo & Co. and conducted by Ipsos Marketing, a marketing research company.

The quarterly survey of more than 2,000 U.S. homeowners found that approximately 20 percent of homeowners paid off their debt completely between July and September of 2009, up from just 9 percent the previous three months. The percentage of homeowners making strides toward lowering their overall level of debt also rose dramatically, reaching 42 percent, up from 30 percent in the previous quarter.

Homeowners are also getting serious about putting money away. Twenty-seven percent of homeowners increased their savings, up by about 8 percent from the previous quarter. And even those who haven't begun saving yet are feeling the urge to do so. About 55 percent of those asked said the yearning to save is a "top influence" on their spending habits.

Despite the emphasis on savings, consumers are more willing to finance family fun and vacations than they have been in the past, the report says. Yet most are doing so while holding steadfastly to a budget.

"Don't let your eyes get bigger than your wallet," a survey participant said. "Spend only what you are reasonably sure you can afford."

Identity theft booms, even as thieves rely on old-fashioned methods

2009-11-14T17:04:00.000-08:00

By Andrea Leptinsky

Identity theft skyrocketed last year in a huge about-face for fraud trends, insurance giant Travelers reported.

And while increasing in number, identity theft incidents also seem to be increasing in simplicity. Identity thievery has gone old school, with thieves grabbing wallets or laptops rather than sifting through electronic information to snatch personal data.

Identity fraud increased by 22 percent in 2008, and an identical increase is expected in 2009, Travelers said in a Nov. 2 report based on claims data from the insurer. That's an alarming change from previous years' identity theft statistics. From 2004 to 2008, the number of identity theft incidents had been on a steady decline, thanks in part to increased consumer awareness and new technology.

Why the increase? Travelers attributes the boom to the difficult economy. They say people -- perhaps beset by job woes or other financial troubles -- are turning more to burglary and other so-called "crimes of opportunity" to get by. Even though online security and data breaches often earn front-page news placement with their high-priced casualties, identity theft most commonly resulted from pickpocketing, purse swiping or computer theft. In instances where victims knew their identity had been stolen, the incident was the result of personal property theft nearly 78 percent of the time. Fourteen percent of identity theft incidents came from online or data breaches, and 5 percent from postal fraud.

Once your information has been obtained, thieves tend to open up new credit cards, Travelers reports. Stolen information is used for new accounts 75 percent of the time. Twenty percent of identity thieves will instead withdraw cash from existing accounts, and 16 percent will open utility accounts in the victim's name.

Don't be a victim
Reducing the risk of falling victim to identity thieves can happen in a few basic steps:

Be aware. The Federal Trade Commission recommends studying up -- be aware of how information is stolen and what you can do to protect your own. Monitor your personal information to check for any irregularities and to uncover any problems quickly.
Guard your Social Security numbers and financial information. Do not carry these types of information in your wallet or purse. Also, shred any financial statements or credit card applications you don't need.
For extra protection, invest in identity fraud expense coverage. This type of coverage offers high-quality resolution services that can help resolve incidences of identity theft much faster than normal processes.

"Our data indicates that identity fraud can happen to anyone at any time," says Joe Reynolds, identity fraud protection manager at Travelers in a statement. "It really becomes a matter of being vigilant and prepared in the event identity fraud happens to you."

Banks continue to tighten credit card lending standards

2009-11-11T08:01:00.001-08:00

But the grip isn't as tight, Fed report says

By Jeremy M. Simon

Getting and keeping a credit card got tougher and more costly between July and September.

CREDIT CARD LENDING STANDARDS KEEP TIGHTENING
Banks continue to make it harder for consumers to get credit cards, with about 16 percent of issuers reporting tightened credit card lending standards. The rate of tightening fell sharply in the third quarter of 2009, but lending standards remain far tighter than before the recession.

Those are among the conclusions of the Fed's quarterly survey of senior loan officers released on Monday. The survey asked banking executives about changes to their institutions' lending standards for everything from mortgage loans to credit cards. When it comes to plastic, the report showed that issuers are still raising interest rates, reducing credit limits and making other moves, but not quite at the rate they were earlier in 2009.

Between 30 percent and 40 percent of banks reduced credit limits, raised interest rates or both on new or existing customers in the third quarter of 2009. The news was better for those applying for cards. Only about 16 percent of banks said they had tightened standards for approving credit card applications for individuals and households, down from 35 percent in the prior survey and marking the lowest percentage since April 2008.

Still, banks aren't making it any easier on current or potential customers. Consumer advocates say the recent treatment of cardholders could end up hurting lenders. "In the long run, it's always a bad idea to mistreat your customers," says Gail Hillebrand, an attorney and consumer advocate with Consumers Union, the nonprofit publisher of Consumer Reports magazine. "Clearly, there are major players in the card industry who don't agree with that."

Dealing with the recession and more
Bankers will tell you that a perfect storm of troubles -- including higher unemployment, more onerous regulation and consumers' increasing aversion to debt -- forced them to find other ways to generate profits. Many of those moves were evident in the survey, which included responses from 57 domestic banks and 23 U.S. branches and agencies of foreign banks.

When asked about changes to terms and conditions for new or existing cardholders over the past three months, about one-third of banks said they had:

Reduced credit card limits.
Hiked APRs.
Raised the minimum credit scores required for a credit card.

The Federal Reserve made a special point to ask banks about the impact of the sweeping pro-consumer reforms in the Credit CARD Act, most of which takes effect in February 2010. Here's some of what they said:

Roughly half of banks said the legislation has already or will lead to reduced credit limits for customers with good credit scores, so-called prime customers. About 60 percent say they will do the same for those with poor -- or subprime -- credit.
About 40 percent say it has led to or will lead to hiked annual fees for those with good credit scores. Forty-five percent of banks said the same about those with poor credit.
About 30 percent expected to increase the use of variable rates, which allow them to more easily raise rates in the future without interference from the reform law.
About 47 percent said they intend to or have already raised minimum credit score requirements for prime customers getting a credit card. That goes to 53 percent for subprime customers.
Nearly 75 percent of banks have already or will increase APRs on those with poor credit, compared to 54 percent for those with prime credit.
Of the banks that make credit card loans, 75 percent did not expect to be compliant with the provisions of the legislation until February 2010, when most of the provisions will go into effect. The rest were either already compliant or expected to be compliant by the end of 2009.
The lone bright spot? A few banks said they expected to lengthen grace periods and decrease penalty fees.

Credit lines being cut
Other research falls in line with the Fed's latest survey. Anuj Shahani, director of competitive tracking services for the research firm Synovate, says his company's latest data indicate that it's no longer just cardholders without balances who are having their lines of credit reduced. "Initially, all the issuers were targeting transactors. But now, we believe issuers are targeting revolvers in a big way," he says, referring to cardholders who carry a balance from month to month. He says the average household had a third-quarter line of credit of $26,657, down from $28,005 in the second quarter.

ISSUERS REACT TO CREDIT CARD LAW BY CHANGING YOUR TERMS
The Fed asked credit card issuers what they have done or will do because of the Credit CARD Act, the reform law whose chief purpose was to rein in uncontrolled rate hikes. The result: rate hikes, and other tougher terms and conditions, for both prime (good credit) and subprime customers.

When a bank decides to reduce a line of credit -- or close an account altogether -- the result can be a vicious circle for cardholders who carry a balance, Shahani says. That's because if one issuer cuts a line of credit, it changes a key measure of creditworthiness -- the credit utilization ratio. Once a bank cuts a credit limit, causing the ratio to fall, other banks may step in and cut their cards' credit limits, too.

In hopes of rehabilitating their weakened credit scores, some consumers have responded by paying down their credit balances -- only to see their banks repeatedly cut the cards' limits in a process known as "balance chasing."

"They cut it multiple times as you pay down the balance," Hillebrand says.

Credit line reductions are more of a concern for consumers on the borderline between different credit grades of credit quality, she says. "The issue is more for people on the borderline between A+ and A. You do pay a different amount for A and A- credit."

APRs on the rise
Card issuers recently changed tactics, she says, shifting from lowering consumers' credit limits to raising their interest rates. Over the past two months, "all over the country, consumers have been getting a notice in the mail saying 'We're raising your rates on your existing balance.'"

Rate increases on existing balances are severely restricted by the new law.

The CreditCards.com national weekly survey of credit card rates confirms the rate spike: Three months ago, the national average rate stood at 11.94 percent. By Nov. 5, the average had shot up to 12.64 percent.

Once the economy does recover, consumers may not look favorably on banks that punished them when times were tough, Hillebrand says. "I do think the industry's marketing costs are going to go up because of the shameful way they are treating consumers now.

"People remember."

How to pay $12,000 in credit card debt quickly

2009-11-11T08:00:00.003-08:00

Unless you win the lotto, you need a plan

By Todd Ossenfort

The Credit Guy

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

Dear Credit Guy,
I have a total of $12,000 in credit card debt (five different accounts). I'm current on my payments, paying a little more than the minimum payment. I just feel like it's going to take me forever to pay off the balances on my accounts. Is there any way I can be debt-free sooner without hurting my credit and combining all those account balances into one so I can easily make one easy payment (within my budget) instead of five? I read about debt settlement and that is not the option I want to go due to the fact that it'll hurt my credit. Thanks. Hope to hear from you soon. -- Mey

Dear Mey,
You are absolutely right that debt settlement will hurt your credit. Not only that, but settling with your creditors after you are more than 180 days late is something you can do yourself without the help of a debt settlement company that will charge you a hefty fee. Saving your credit rating and paying what you owe is a much smarter route, especially considering creditors are not the only ones making decisions based on your credit rating. Your insurance company, employer, future employer and landlord may also be. Plus, any savings you realize from settling for less than you owe could have income tax implications .

I hear your frustration about seemingly taking forever to pay your $12,000 debt. One thing to keep in mind is that it's likely you did not rack up the debt quickly and unless you hit the lotto, it won't get paid off quickly. It may, however, be paid quicker than you think. Right now you are paying "a little more than the minimum payment." If you continue to make the payments that you made this month, which for the sake of argument let's say was 3 percent of your balances or $360 plus $40 for a total of $400, you will pay off your balances in 36 months or three years.

Let me clarify some things -- the pay-off period of three years assumes that you keep making a $400 payment each month, do not add any purchases to your balances, your interest rate is a reasonable 12 percent and you won't miss any payments that may drive up your interest rates. If any of these don't apply, then your pay-off period will be slightly longer.

Many people know it will take 10 years or more to pay off their credit card balances if they are making only minimum payments. What many people don't know is the key to paying off the debt in a reasonable time frame -- three to five years -- is to continue to make the same monthly payment consistently until the balance is paid. It only takes much longer when you pay only the minimum due required by the card issuer. The minimum payment decreases on your statement as your balance decreases, but if you continue to pay the same consistent monthly amount without lowering it, paying off the balance will take much less than 10 years.

In answer to your question regarding making one payment, you could contact a non-profit credit counseling agency (affiliated with the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling) in your area to determine if a debt management plan (DMP) would be in your best interest. Depending on your current interest rates, a DMP may save you some money and you would make one payment to the agency that would then disperse the money to your creditors. One thing to keep in mind with a DMP is that your accounts are closed and you no longer have access to them.

You might also consider setting up automatic payments to your creditors with online banking. This would ensure that your payments are made on time and you would only need to set it up the one time and just monitor it to assure everything is getting paid as you wish.

Take care of your credit!

2009 gift card comparison table

2009-11-11T08:00:00.001-08:00

By CreditCards.com staff

Times are tough, but gift cards will continue to be a popular present during the 2009 holiday season. Use this chart to find the gift card that's best for you.

Never expires	No dormancy or maintenance fees	Loss & theft protection
PIN available	Reloadable eCard available	Online balance check
New for 2009


Retail stores
Kmart
Meijer
Target
Wal-Mart
Supermarkets
H-E-B
Kroger
Publix
Department stores
Bloomingdale's
JCPenney
Kohl's
Macy's
Sears
Convenience stores
7-Eleven
Pilot Travel Center
Clothing
Banana Republic
Gap
Old Navy
Restaurants
McDonald's
Olive Garden
Panera Bread
Red Lobster
Starbucks

Never expires	No dormancy or maintenance fees	Loss & theft protection
PIN available	Reloadable eCard available	Online balance check
New for 2009


Pharmacies
CVS
Rite Aid
Walgreens
Electronics
Best Buy
Radio Shack
Home improvement
Home Depot
Lowe's
Office supply
Staples
Office Depot
Books
Barnes & Noble
Borders
Toy stores
Toys R Us
Bulk
Costco
Online-only
Amazon.com
Overstock.com
General purpose
American Express
Discover
Fifth Third Bank MasterCard
Harris Bank MasterCard
KeyBank MasterCard
Chase Visa
U.S. Bank Visa
Wells Fargo Visa

New for 2009
Never expires	No dormancy or maintenance fees	Loss & theft protection
PIN available	Reloadable eCard available	Online balance chec

Can't find the card you want? Check out GiftCertificates.com and Gift Card Mall to shop hundreds of gift cards for stores not listed here.

11 golden rules of practical gift card giving

2009-11-08T08:04:00.000-08:00

By Jeremy M. Simon

If you're looking for the perfect gift this holiday season, consider the practicality of gift cards.

Practical -- but fun!
If you're looking for practicality with a little more flash and fun, try collectible gift cards. Click through for a slideshow of some of this season's hottest gift cards, including ones featuring Twilight, Star Trek and more.

Amid rising unemployment levels and broader financial challenges, holiday shoppers are expected to become more budget-conscious and practical, experts say. According to research from the Hartman Group, although consumers plan to spend a net 8 percent less on gift cards over the next 12 months compared to the prior year, shoppers are expected to focus on more practical presents.

Although past holiday seasons included gift cards that tended toward the indulgent, analysts predict that categories such as electronics and clothing stores will likely suffer this year. This year, many shoppers will be spending lower dollar amounts on gift cards that can be redeemed for necessities such as groceries, gas and pharmaceuticals. "At the end of the day, one of the best gifts you can give somebody in the down economy is savings on their bills," says Duncan Douglass, a gift-card law specialist with Alston & Bird.

For those shoppers planning to give prepaid cards this holiday season, consider the following golden rules of practical gift card giving.

11 golden rules for practical gift card giving
1. Reduce the cost of gifting	7. Give the gift of health
2. Let gift card dollars go further	8. Purchase gift-card combo packs
3. Give people what they really need	9. Pitch in for group gifting
4. Don't limit where gift cards can be spent	10. Get something for yourself
5. Beware of fees and expiration dates	11. Be honest
6. Go online

1. Reduce the cost of gifting. The relatively straightforward cost of gift cards makes it easy to stretch your gift-giving budget. "Gift cards are still a very practical gift for the recipient as well as the gift giver," says Tim Henderson, senior director with consumer research and advisory firm Iconoculture in Minneapolis. Henderson notes that consumers who might have previously spent $100 on a single gift card can instead buy a pair of $50 gift cards for two separate people on their holiday shopping lists. The flexibility, choice and budgeting that gift cards allow have "always been there but are more important in today's economy," says Teri Llach, chief marketing officer with Blackhawk Network, a provider of third-party prepaid cards.

2. Let gift cards dollars go further. Choosing prepaid cards from discounters and big-box stores lets gift recipients buy more merchandise. Iconoculture's Henderson says that such stores offer the chance to select merchandise from a variety of categories, including name brand products at a discount. Experts say that flexibility will benefit discount retailers this holiday season. "I think you'll see the Kohl's, the Wal-Marts, the Targets will have a fairly good year" for gift card sales, says Jake Jacobs, executive vice president of sales and marketing with ABnote North America in Boston. Gift card distributors agree. Although revenues are down from prior years, Anne Gilman, vice president with stored value card marketing company Incomm, points to continued strong gift card sales in pharmacy and big-box stores, as well as increased sales at discount retailers such as Dollar General. "That is clearly where consumers are shopping. And those are the retailers whose business is experiencing strong growth," Gilman says.

3. Give people cards that pull "double duty." While practicality remains key, it's not the only reason to give gift cards.Useful gifts can also have an emotional value by offering a "tangible representation of intangible emotion," says Henderson. Ideally, gift cards can pull "double duty," offering the chance to be both functional and stylish. Some gift cards are even collectible. That combination allows a little piece of plastic to carry a lot of weight.

4. Don't limit where gift cards can be spent. While the large selection of items at discount retailers allows for greater choice, open-loop gift cards provide even greater options. Such open-loop gift cards -- which are typically issued by a bank -- may bear the American Express, Discover, Visa or MasterCard logo and are accepted at any store that honors those credit cards. Open-loop gift cards may also allow for redemption anywhere in a mall. Some of the decision-making involved in buying open-loop versus closed-loop cards may come down to how well you know the recipients -- and what stores they prefer. "The people you don't know that well, you tend to buy the mall [gift card], and the people you do know you tend to buy a specific store" gift card, says Anthony L. Liuzzo, a business and economics professor at Wilkes University in Wilkes-Barre, Pa..

5. Beware of fees and expiration dates. Although open-loop cards provide greater freedom, it may come at a cost. To avoid having gift card dollars eaten away by fees and expiration dates, consider your options. In the end, some shoppers may decide to bypass cards that include expiration dates and fees. With all the recent scrutiny of the card industry, the negative press around fees and expiration dates on branded gift cards has "created some additional consumer trepidation around those products," Douglass says.

6. Go online. To save yourself time while increasing your gift card options, try the Internet. Store racks can hold only a certain number of gift cards, but the Web offers a much greater variety. Sites such as Blackhawk's GiftCardMall.com let the buyer choose from a wider variety of card options than at store locations. After all, "you can only get so many pegs in a grocery store," says Blackhawk's Llach.

7. Give the gift of health. You can't get any more practical than helping friends and loved ones stay healthy. The appearance of health care gift cards "really highlights that trend toward using gift cards for the purchase of necessities," says Atlanta-based attorney Douglass. Issuers of prepaid health care discount cards include health care solutions provider WiredBenefits, Blue Cross and Blue Shield of Florida (available at Winn Dixie and CVS stores) and discount medical plan organization OptumHealth. Henderson, for one, is a fan of these types of products."I like that idea because it takes gift cards in another direction," making it about more than just buying a product, he says. "Health is something that is very near and dear to consumers."

8. Purchase gift card combo packs. Cross off several names from your holiday list at once with gift card combo packs. Displays may include multipacks and combo packs offering gift card bundles from more than one retailer -- pairing together a restaurant chain card and a movie theatre chain card, for instance. "Instead of one $50 card, you might find three $15 cards in one pack, which is perfect for stocking stuffers, teachers' gifts, coach's gifts," says Incomm's Gilman. "Around the holidays, people are always looking for lower cost gift items."

9. Pitch in for group gifting. Retailers are helping prepaid card shoppers pool their resources. Best Buy's reloadable Pitch In card, for example, allows the recipient to create an online account. Friends and family members can contribute to that account, with gift amounts starting at $5. As an example of how such a group effort might work, "I'll chip in $100, and someone else will contribute $50, etc.," Henderson says. Those funds can then be redeemed for items on the recipient's wish list.

10. Get something for yourself. Just because you're giving gifts doesn't mean you can't also treat yourself. Some stores may provide a free item with the purchase of a gift card -- or a free gift card with your purchase -- so be on the lookout for such opportunities. In the near future, Gilman says consumers can expect some yet-to-be announced value opportunities around November and December that may involve customer loyalty programs. She says an example would be offering a CVS ExtraCare program cardholder the opportunity to earn extra in-store credits by purchasing a specific partner's card at the pharmacy chain. Gilman says the upcoming reward programs are likely to relate to healthcare. "We do see some programs launching around the holiday that are health-related and are more of a self-purchase than gift," she says.

11. Be honest. No one of your list should be upset -- or surprised -- if you need to reduce your gift budget this year. Unemployment is rising. Consumers have already been charging less and reducing their debt -- which doesn't bode well for gift card sales. "Gift cards are almost all credit card purchases. That's a problem," says Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking firm in New York. And it's not like this is the first holiday to see tighter holiday budgets in this economy. Henderson cited an April survey from the National Retail Federation indicated that consumers planned to spend less on Mother's Day. Henderson says that signals just how committed shoppers are to frugality, and he expects the winter holidays to be no different. "When a consumer indicates they are going to be cutting back on Mom, I think that consumer is serious about cutting back," he says.

All those factors mean shoppers and stores will be giving added thought to gift cards. "Coming out of the recession, you have a more responsible consumer, and retailers and brands that are going to be more creative in reaching out to consumers," Henderson says.

There's a cost to paying less than you owe

2009-11-08T08:00:00.000-08:00

Yes, you may not have to pay all your debt, but you may regret it

By Sally Herigstad

To Her Credit

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.

To Her Credit archive

Dear To Her Credit,
My husband owes Lowe's $10,800, mostly from building our deck and remodeling the bathroom. Because of some recent setbacks, we've been falling behind on our credit card payments. As of next month we'll be two months behind on our Lowe's card.

We just received a large sum of money. We hope to use it to clear as many of our debts as possible.

My husband called Lowe's to see what the bottom line for payoff would be, and they easily offered that on our payment due date next month it will be $7,600. If we settle for that, how will it affect our credit? We sure like the savings as it will allow us to pay another creditor as well. -- Bonnie

Dear Bonnie,
Before you jump at the chance to save $3,200, think about what settling your debt for less than what you owe will end up costing you.

Your credit score will certainly take a hit if your credit report shows your Lowe's account as "settled" instead of "paid." The more creditors it shows you settled with, the worse it looks.

It only makes sense -- you spent $10,000, you get to keep the new deck and remodeled bathroom, but Lowe's gets to take a $3,000 loss. The purpose of a credit history is so potential creditors have some idea what to expect when they deal with you. It's like a Better Business Bureau in reverse.

Imagine you are thinking about buying something from a local business, but you check it out with the Better Business Bureau and notice -- whoa -- this business has a history of not keeping its promises! You'd probably go elsewhere.

Banks do the same thing with credit applications. The difference is they may still extend credit to you after they see you settled a debt in the past. You just won't get the preferred interest rate. You'll pay more -- possibly much more. You could spend a lot more in higher interest expense than you saved by settling with Lowe's.

Even worse, if you buy or refinance a house in the near future, having a settlement on your credit history could cause banks to offer you a higher rate on your mortgage. Every additional percentage point dramatically increases the amount of interest you pay over the life of the loan.

You could ask Lowe's to mark the account as "paid" instead of "settled" on your credit report. You should be aware, however, that you are asking them to lie on your behalf. Lowe's is under no obligation to put anything but the truth on your report.

I see one more problem with taking 100 percent of the money your husband received and using it to pay off debts. You apparently don't have a financial cushion, or you wouldn't be behind in your payments. If you use all the money to settle your debts, you still have nothing to fall back on. The next unexpected expense or dip in income that comes along, and you go into debt to pay bills again. It's a frustrating cycle of going deeper into debt and trying to get back out again and again.

The only way to break that cycle is to start planning ahead. Try to build up a reserve equal to six or nine months' living expenses, as well as a savings plan for future projects, trips or luxuries.

Lastly, you'll get an unpleasant surprise at tax time if you settle your debt. That $3,200 is likely taxable income that could bump up your taxes due by $800 or more.

Here's what I recommend:

Skip the settlement. Instead, take about half of the money you've received and start paying down your debts. Put the most money on the accounts with the highest interest rates first. If two accounts have the same rate, pay the smallest account off first. With the accounts paid down considerably, your monthly minimum payments will be smaller, making life easier.

Put the rest of the money into savings. Add to it faithfully. Even putting $25 into savings every month gives you a sense of control.

Beware of short-term fixes. The money you and your husband have received can help you get a new start by lowering your debt and giving your savings plan a head start. That may not be as immediately gratifying as wiping all your debt out at once. But if it helps you and your husband start practicing good financial habits, it will help put you in control of your finances for the rest of your life.

Discover debuts reform-law compliant credit card terms

2009-11-05T23:13:00.000-08:00

'Creative' new charges replace those the law bans

By Connie Prater

Discover has become the first of the major credit card issuers to unveil the details of how its cards will operate under new, stricter credit card regulations.

The new terms abolish fees and practices banned by a credit card reform law that goes into effect next year, but introduce other charges to take their place.

Minimum payments and penalty interest rates are going up. Cash advance APRs that once had fixed rates are going to variable rates (the prime rate plus 20.74 percent). Although the credit card law protects consumers from arbitrary interest rate hikes on existing balances, it does not regulate rates on future purchases with the card. Discover customers who miss just one payment will be hit with a default rate for future purchases that is at least 5 percentage points higher than their normal APRs. (See summary of changes.)

Issuers being 'creative'
"The issuers are really being creative to get the most money out of their customers," says Lauren Bowne, an attorney for Consumers Union, the San Francisco-based nonprofit owner of Consumer Reports magazine. Bowne, who has been tracking changes in credit card terms, says many credit card issuers are introducing new terms that attempt to get around the credit card law restrictions.

"The first piece of advice for consumers is to read everything that is sent from their card companies," Bowne says, "even if they don't carry a balance on a card. Some companies are adding annual fees or dormancy fees for not using a card enough. Once people understand the terms, they need to consider whether it is worth keeping a card open."

New notices sent to Discover's cardholders begin, "We are making changes to your Account in response to new federal law and regulations that impact all credit card companies." The credit card issuer is rolling out many of the consumer protections required in the Credit CARD Act of 2009 well before the Feb. 22, 2010, deadline set by the law.

A first glimpse
The Discover changes are the first real glimpse of how other credit card issuers may revamp their terms to comply with the new law. None of the other major issuers have released a full snapshot of their terms. But many are raising rates and fees and introducing new features, such as variable-rate floors and interest refunds for those who pay on time.

"Everybody's cards are changing," says Bowne.

The timing of the start of the Discover changes may not be a coincidence. Some of Discover's new terms are slated to take effect as early as Dec. 1, 2009, the same startup date selected by lawmakers lobbying for faster implementation of consumer credit card protections.

Discover card changes taking effect
starting Dec. 1, 2009

Interest rate hikes on existing balances. APRs won't increase for existing card balances if card users pay late or exceed their limits. However, one late payment will trigger a default interest rate for future purchases made with the card. The default rate will be up to 5 percentage points higher than the normal APR.
Some fees are out. The new law requires issuers to show that fees are reasonable and related to the infraction and that consumers must "opt-in" to over-limit fees. The law bans charging consumers fees for making payments unless they are for last-minute, expedited payments. Discover is eliminating both over-limit and pay-by-phone fees beginning Feb. 1, 2010.
No penalty interest rates for the first year. Starting Jan. 1, 2010, Discover won't hike interest rates due to late payments or over-limit charges during the first year of new accounts. Accounts with variable interest rates can still go up if the prime rate does.
APR reductions. Starting Jan. 1, consumers paying default interest rates may have their APRs reduced after the issuer reviews the account. The credit card law requires a rate reduction after six months if the review shows good payment behavior.
Payment allocation. When cardholders pay more than the minimum amount due each month, the excess payment will be applied first toward balances with the highest APR. The law requires that issuers apply that excess amount to the higher APR balances first or equally across all accounts. Discover has chosen the method that benefits consumers the most. Currently, most credit card issuers apply payments to balances with the lowest APRs first, prolonging the time it takes to pay off high-APR balances and adding to consumers' finance charges.
Payments are due by close of business. Discover is abandoning its policy of requiring that payments are due by 1 p.m. on the due date. Instead, payments will be due by 5 p.m. local time at the company's payment processing center.

Not all the news in those change-in-terms letters is good for Discover customers. Cardholders were also notified that as of Jan. 1, balance transfer and cash advance fees are going up to 5 percent of the amount transferred (compared to the industry average of 3 percent a year ago).

Minimum monthly payment amounts are increasing as of Dec. 1, and may include the amount by which cardholders have exceeded their credit limits and any unpaid balances from the previous month. In other words, if you go over your credit limit by $50, that $50 may be tacked on to your minimum payment the next month. But the notices also offer this reminder: "Making a higher monthly payment will help you pay down your balances faster."

The U.S House of Representatives voted 331-92 Wednesday, passing an expedited credit card bill (H.R. 3639). That bill would require major card issuers -- those with more than 2 million credit card accounts -- to be fully compliant with the new credit card law as soon as a similar measure is passed in the U.S. Senate and signed by President Obama. A Senate version of the bill (S. 1833) was introduced in late October by Colorado Sen. Mark Udall.

In addition, banking committee Chairman Sen. Christopher Dodd has introduced a bill (S. 1927) to require an immediate freeze in interest rates, fees and finance charges until the credit card law takes effect in February. Under Dodd's proposed freeze, credit card issuers would still be able to increase rates and fees if cardholders are more than 60 days late paying their monthly bills, have variable interest rate cards, have "teaser" or introductory rates that expire or if card users renege on or complete debt repayment plans.

Dodd's moratorium was included in the House version of the bill that passed on Wednesday.

Issuers fight fast tracking
The banking industry has fought fast-tracking efforts, saying lenders need time to revamp their business models and upgrade billing, marketing and application processes to comply with the mountain of new regulations coming.

Discover notes throughout its letter to customers that the new terms are not due to their credit reports: "We made these changes due to the impact of new federal law and regulations, taking into account the extent to and manner in which you use your Account." Discover spokesman Matthew Towson pointed out that although they are rolling out changes before Feb. 22, they still need more time to implement other requirements.

"Discover has already implemented many provisions of the CARD Act and even gone beyond the requirements in some cases," Towson wrote in an e-mailed response. "However, we have stated previously that it would be nearly impossible for us to be in full compliance of the CARD Act by Dec. 1, but we hope [to] be fully compliant before the effective date of the new law, Feb. 22, 2010."

Why then do lawmakers feel the need to fast track consumer safeguards? Consumers have been hit with one interest rate hike after another in the months since the credit card law was signed by President Obama. Fees for everything from balance transfers to cash advances have gone up, rewards card redemption points have gone down and annual fees have returned as routine features of many credit card accounts.

"They have used this time to gouge consumers and to raise rates," Rep. Carolyn Maloney, the Democrat from New York who sponsored the expedite bill in the House, said during debate on the legislation Wednesday. Her Republican colleague, Rep. Jeb Hensarling of Texas, said speeding up the legislation will exacerbate the credit crunch. "It just couldn't come at a worse time."

Following introduction of the bill to expedite the credit card law, several major banks, including Bank of America, Discover and Capital One, pledged to stop raising interest rates (except for penalty rates for nonpayment) until the new law takes effect. Critics have pointed out that most of the damage had already been done -- with issuers raising rates on millions of accounts during the first nine months of year, in part because of the economy and in anticipation of interest rate restrictions included in the credit card law.

Study: Many top issuers aren't in compliance
A survey of the top 12 bank and top 12 credit union credit card issuers released Oct. 28 by the Pew Charitable Trusts found interest rates have increased by nearly 23 percent since June 2009. The survey noted that all the bank-issued credit cards reviewed used practices that would be outlawed.

The Pew study noted that Discover and American Express have announced they will discontinue charging over-limit fees. In addition, four other issuers have already stopped charging the fee. "Though commendable, these steps have not yet led to the elimination of unfair or deceptive practices. We encourage issuers to comply with the Credit CARD Act immediately ..." the report stated.

Bowne, from Consumers Union, said her review of some of the newly introduced credit card terms points to reasons for consumer to beware. Some of the language in the change-in-terms notices may be confusing, even for attorneys. Bowne said she had to call Discover's customer service line for an explanation of its grace period clause. She urged consumers to call the card issuer for plain-language explanations of the changes and how they impact their family budgets.

"It's a good opportunity to educate people," she said. "They need to be reading these things. People need to experience reading these things -- even people that don't carry a balance. There are some cards that they are instituting dormancy or annual fees on. For people who just have the card and just have it open and aren't using it, they need to decide if it's worth it to have the card open and pay a fee."

She added: "If your credit card company makes changes that are going to make it impossible for you to make a payment or it triples the life of the loan, in the long run, the impact on your credit score of closing an account is not going to be worth defaulting on an account."

Opting out of APR increase doesn't have to impact your credit

2009-11-04T08:09:00.001-08:00

By Jeremy M. Simon

Credit Score Report

Jeremy M. Simon covers credit scoring and other issues as a staff reporter for CreditCards.com.

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Dear Credit Score Report,
I wanted to know if it will damage my credit score if I opt out on a credit card that they just changed. I pay on time, but they are changing the APR to 29.99 percent. Will it affect my credit score? -- Marisol

Hey Marisol,
As with most credit scoring issues, the answer to your question isn't so clear-cut. While the higher annual percentage rate alone won't change your credit score, closing that credit card account could. For FICO credit scores, "It's all going to depend on what else is going on in their credit report," FICO spokesman Craig Watts says. "There is no one-size-fits-all answer."

For example, say you currently have $2,000 in overall credit card debt and a combined total of $10,000 available on all your credit card lines. But then you close a card with a zero balance and a $5,000 line of credit, cutting your total available credit in half. That leaves you with much more debt compared to your total available credit ($2,000 compared to $5,000, in this example) -- increasing what's known as your utilization ratio.

"When you close a credit card, you may increase that ratio, and that's not good for your score," Watts says.

From a lender's standpoint, a lower utilization ratio suggests you are less likely to max out your existing line of credit. You don't say whether you have other cards or what you owe on any cards you have, but if you have no outstanding debt on any of your open credit cards, it doesn't matter if you have a $10,000 line or credit or a $2,000 line of credit. Your utilization rate in either case is still 0 percent, and you're in great shape.

But there are other factors to consider. Some people may tell you that closing an older credit card account is bad for your credit score because it shortens the length of your credit history. Watts says that isn't true for FICO scores, however -- at least in the short term. "The FICO score formula, at least, looks at both open and closed accounts on a credit history," he says.

You still may want to think twice before , however, Marisol. After all, information from closed accounts doesn't remain on your credit report forever. All three major credit bureaus -- Equifax, Experian and TransUnion -- say that positive information from closed accounts, such as credit cards you always paid on time, only appear on your credit report for up to 10 years. Negative information, meanwhile, remains on your credit reports for seven years. So while closing that credit card account may not immediately lower your FICO score, losing the record of your on-time payments could hurt your credit score in the future.

Here's how:

Say your oldest card is 20 years old and your second-oldest is 8 years old, then you cancel the 20-year-old card.
That canceled card stays on your credit report for seven to 10 years, until it's anywhere from 27 to 30 years old and then drops off.
Once the canceled card drops off your credit report, your oldest card is just 15 to 18 years old. That means that you have a significantly shorter track record of success (15 to 18 years versus 27 to 30 years) than you once did.
Since length of credit history is a factor considered when calculating your FICO score, it means that your FICO score will likely suffer.

Whether you asked that the card account be closed -- or the bank decided to close your account -- doesn't matter to FICO. Although this distinction can appear on a credit report, "the FICO score doesn't care who closed the account. It's not factored into your score at all," Watts says.

Marisol, if you still plan to pay off the remaining balance on that 30 percent APR credit card and then close the account, you need to be extra careful with any other debt you still have. That means continuing to pay all your bills on time, not taking on additional debt and completely paying off any other credit card balances or loans, if at all possible. But rest assured that the consistent payments you've already demonstrated on your soon-to-be ex-credit card won't simply vanish immediately from your credit history -- and your FICO score -- when you close the account.

Suddenly facing a nearly 30 percent interest rate is a tough situation, Marisol, but it's not an unusual one these days. Luckily, cardholders still have choices. In your case, by considering your right to opt out of the higher interest rate, you're showing you care about making smart decisions when it comes to credit.

Congratulations and good luck.

5 credit card opt-out oopses to avoid

2009-11-04T08:07:00.000-08:00

Make a mistake and -- oops! -- you face the higher interest rate

By Tamara E. Holmes

If you've responded to an interest rate hike on your credit card by opting out of the changes, which the Credit CARD Act of 2009 allows you to do, you may think you've dodged a bullet and avoided the spike in payments. But before you celebrate, be wary of mishaps that can nullify your agreement with your card issuer and have you wrestling with a higher rate and unfavorable terms once again.

OPTING OUT OF RATE HIKES:
THE NEW RULES

In August 2009, consumers gained the right to opt out of credit card rate increases.

Opting out means the consumer can no longer make purchases with the card. Instead, the old, lower interest rate will be applied.

Credit card issuers must inform card users of the right to cancel when they mail the 45-day advance notice of the change in terms. The notice must explain the steps cardholders can take to exercise their rights to cancel, including a toll-free number to call and the deadline for opting out.

Don't slip up, or the new, higher rate will apply. For details , see the CreditCards.com guide to the Credit CARD Act of 2009, or this opt out sample letter.

"If consumers decide to opt out of an interest rate increase for future balances, they still are going to have to pay off the existing balances, so that doesn't automatically cancel their card," says David C. Jones, president of the Fairfax, Va.-based Association of Independent Consumer Credit Counseling Agencies. "But it does eliminate the use of it unless they want to pay the higher rate."

In other words, if you use the card you've opted out of -- intentionally or accidentally -- you can kiss your interest rate goodbye. To avoid having the terms of your opt-out agreement revoked, take the following safety precautions:

1. Remove the card from sight. Consumers, on average, have 5.4 credit cards, according to credit card statistics from the credit reporting agency Experian. With so many cards on hand, it's not far-fetched for a consumer to accidentally pull out the wrong one when an emergency comes up. "We all want the security of knowing that if we break down on the tollway or the hot water heater breaks down, we have a card available," says Catherine Williams, vice president of financial literacy for Houston-based Money Management International. "But we have to understand that that is not the card to reach to." To avoid making a mistake that can literally cost you, cut the card up or put it in a drawer where you're not in danger of using it.

2. Check automated bill payment accounts. If you've used that card to pay bills online, make sure you cancel any automated payments because, again, the use of your card will tell your credit card issuer that you agree to the new terms. If you're switching your bill payment accounts to another card, do it early because "sometimes it can take up to 60 days for changes to go into effect," says Jones. Even if you generally use a different card for your online bill payments, make sure the card number you're no longer using isn't stored in the account, which can happen even if you've only made a payment once using that card.

3. Consider annual and sporadic fees. It's easy to remember what monthly bills you use your card for, but what about those charges that occur infrequently such as annual membership dues that are automatically billed at the start of each year? Don't rely on your memory. Instead, look at a year's worth of billing statements to see what charges occur infrequently so you can have them switched to another card, Jones advises.

4. Remember the season of shopping. With the holidays approaching, you may be visiting your favorite online retailer to buy some gifts. However, if you've ever shopped with the credit card you're no longer using, that card's information could still be stored online the next time you make a purchase. When you log on to your favorite retailers, check to see which cards they have on file. Make sure the card you're no longer using is not one of them.

5. Protect yourself from fraud. Approximately 7.5 percent of U.S. adults lost money through financial fraud last year, and the majority of them had their credit or debit cards compromised, according to the Stamford, Conn.-based research company Gartner. Unfortunately, thieves don't even need your physical card to do damage. "It used to be that I had to thump you over the head and steal your purse," says Williams. "Now I can do it electronically and you'd never even know it." The stakes are even higher if you've agreed not to use that card because a fraudulent charge could trigger your card issuer to change your card's terms to the higher rate.

Since you're not using this card anymore, take it out of your wallet and don't leave it laying around. If thieves do get hold of your card number and use it to charge something, call your credit card issuer immediately. By federal law, you're only obligated to pay up to $50 for a fraudulent charge on your credit card, says Frank Dorman, a spokesman for the Federal Trade Commission. You'll still have to convince your credit card issuer to leave your rate alone, which you should be able to do in the case of fraud, Williams says, but it's better to avoid fraud in the first place. "You don't want to be spending your time doing this," Williams says.

Debt can slow down retirement goals

2009-11-02T08:36:00.001-08:00

Making a spending plan helps gets you there faster

By Todd Ossenfort

The Credit Guy

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

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Dear Credit Guy,
I have approximately $800 in medical bills where I pay $10 here and there, but the total I pay monthly is about $80. I need a card that I can get for 0 percent interest for one year to hopefully get this paid off sooner. I also ran across major car repairs and home repairs, so I ran up my Sam's and two major credit cards that I would like to consolidate. My husband and I are currently bringing in $3,613 monthly, but with our home mortgage, utilities and credit cards, we're left with only $550 a month. Is there a program for us? We hope to retire in about 4-5 years, so we are in a hurry to get out of debt. Plus, we still have a teen at home and a 21-year-old we're also sending to college. -- Rose

Dear Rose,
It sounds to me like you and your husband are in need of a plan, specifically a spending plan. A family's spending plan is a road map to assure that you reach your financial goals and are prepared for the financial bumps in life that we all encounter. Your plan will need to include, among other things, money for paying down your debt and for college for your 21-year-old and your teenager.

Creating a plan is simply a matter of determining your income, which you appear to have done, and then deciding how best to spend that income. You will, of course, have some fixed costs such as your mortgage and car or other installment loans. The rest of your expenses you have some control over. For instance, you can make adjustments in your thermostat and make other changes to bring down your utility bills. Likewise, you can cut out premium channels and lower your cable bill -- you get the idea.

One of your short-term goals is to pay down your medical and credit card debt. When you create your spending plan, keep in mind that you want to pay down your debt fairly quickly. You may need to make some short-term sacrifices in order to make that happen. I suggest that you make use of these credit card calculators and determine what monthly payment you will need to make to be debt free in four to five years.

Plug in the amount that you would need to pay monthly to pay down your credit card debt into your spending plan and see if you can make it work. If you are not able to cut expenses in other areas enough to make the monthly payment needed to pay off your cards quickly, you can contact your creditors and request assistance.

Should your creditors be unwilling to work with you, you can contact a quality credit counseling agency for help. In fact, your credit counselor can help with your spending plan as well. You can find an agency at the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling. One thing to keep in mind when working with a credit counseling agency is that if you decide to enter a debt management plan to pay off your credit card debt, the accounts will be closed and you will not have access to them. Since you want to get rid of your debt and not add to it, this may not be a problem.

Once you have progressed through the process of completing your spending plan, you may find that your income is not sufficient to cover all your expenses and your financial goals of retiring in four to five years and sending both your children through college. If that is the case, you are faced with the same types of decisions governments, companies and families face every year. Prioritizing your spending and making the tough decisions of what doesn't get funded. For you, it may mean you and you husband have to work a few more years and your children may need to acquire school loans to pay a portion of their college expenses.

Take care of your credit!