The Importance of Restrained Credit Card Use

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One of the things that is becoming increasingly clear as the weeks progress is the fact that credit card debt results in a loss of control over your money situation. The most obvious evidence of this is the decision made by Chase to increase credit card minimums at this time.

Many of the folks who are subject to this increase have high enough balances that they are unable to simply pay them off and move on. And with credit standards being what they are right now, it is often too difficult to qualify for a new credit card for a balance transfer. If the minimum balance cannot be met, Chase is willing to “generously” keep the old minimum — if you are willing to agree to an end to any introductory rates and agree to a higher interest rate. (Note: Chase probably secretly hopes that you will keep your intro rate and try to make the new minimum. Then, when you reach the point where you can’t make your minimum payment, Chase can apply an even higher default rate to your account.)

At any rate, there is precious little that can be done about this. While grossly unethical, Chase’s actions nevertheless fall within the bounds of the law. This leads one to the conclusion that credit card debt clearly puts the credit card company in control. If you do use credit cards (and they can be a great tool), you should restrain your usage. Make sure you only charge what you can pay off each month.

 

Should You Get a Credit Card Through a Credit Union?

One of the issues that has many credit card users annoyed (or even downright angry) is the decision of Chase to raise the minimum payment requirement from 2% of the balance to 5% of the balance. If this had happened three years ago, it might not have been such a big deal. After all, a higher minimum payment means that you actually pay down your credit card faster, and pay less overall in interest. Unfortunately, raising the minimum payment like this in a time of recession means that already-stressed finances are becoming even more unmanageable.

As a result, many people are looking for a new credit card. However, deals are few and far between from the main credit card issuers and big banks. Instead, consider using a credit union for your next credit card. You may not get a rewards program, but at this poing, you might have more important considerations. Credit unions usually offer lower interest rates on credit cards and other more generous payment terms.

Of course, you have to meet membership requirements for credit unions, and you do need to be aware that you may need slightly better than average credit in order to get a low interest credit card. However, credit unions are more likely to be understanding and work with you. A credit union isn’t for everyone, but it can be a good choice in many cases.

 

What Can You Do When Your Minimum Payment is Raised?

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One of the biggest credit card issues right now is the fact that Chase is raising minimum payments. For many people, this means that their minimum payment just became unaffordable. Double and triple minimum payments are common, and this is causing financial hardship. In order to keep the old 2% minimum payment, customers have to agree to a higher interest rate. Which means Chase gets more money — and customers are repaying for longer.

Sadly, the options open to you when you have this problem are rather limited, and there are pitfall attached to them:

1. Apply for a new credit card and transfer the balance. While a 0% credit card offer is hard to come by, they still do exist if you have good credit. Additionally, there are offers for 2.99% intro rates as well. You can try to get one of these cards and do a balance transfer, but in many cases these are harder to get than 18 months ago.
2. Pay off the credit card. You can pay off the credit card, or you can close the account and pay off the card under your old terms. Most people, though, can’t afford to pay off the card in full. And closing the account while you are still making payments can be damaging to your credit score.
3. Bankruptcy or debt settlement. There has been some talk of bankruptcy by some who are in this position. Another option is debt settlement. However, both of these options are extremely damaging to your credit score. They should be last-ditch efforts to salvage a bad financial situation.

Unfortunately, a lot of the alternatives to paying the increased minimum or agreeing to a higher interest rate are not feasible for most people. This means more belt-tightening as they try to make higher payments. It’s not really fair of Chase, but credit card have never played fair.

 

Chase Increases Credit Card Minimum Payment Requirement

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If you have a Chase credit card, get ready to feel a little pain. Or a lot. Depending on the size of your credit card account balance. Chase is increasing its credit card minimum payment from 2% to 5%. Which means that a larger percentage of your balance will be required. For many who are already just scraping by, due to the recession, this could be financially devastating. Moolanomy offers one family’s problem:

This is bad news for Greg and his wife, because this hike increase their minimum payment $558 to $930 — which causes them significant financial stress.

That is a big deal for most people. And, apparently, Chase isn’t just doing to help their customers pay a higher minimum (and less in interest overall). Rather, the plan is to offer an option for users to take a smaller minimum payment in exchange for a higher interest rate. This move is aimed directly at credit card account holders that have low interest rates. Chase represents what is likely to involve a growing cadre of best credit card companies out to stick to the consumer while they can, before the rules that are part of the Credit CARD Act of 2009 come into being.

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Why You Shouldn’t Decrease Your Credit Limit

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Many people are becoming more conscious of the need for making better personal finance decisions, thanks to the recession. They want to reduce their debt and stop relying on credit cards so much. In general, these are laudable goals, and can contribute to one’s financial security. However, one of the mistakes often made in these cases is to ask for a credit limit decrease — or close the credit account altogether — once some of the debt is paid off. While it may seem like a good idea at the time, the reality is that such moves can damage your credit score, making it difficult to get approved for mortgages, car loans and even get the best insurance premiums.

How decreased credit hurts your credit score

One of the important things considered in your credit score is how much available credit you have, and how much of it you are using. When you get a decrease in a credit line, all of a sudden you have less available credit. And if you still have some debt on other cards, the amount of debt you are using, compared with the total you have available, becomes dangerous. This can be extremely problematic for your credit score.

Another issue is a closed credit card account. Length of credit history is also important to your credit score. If you close a credit card that you have had for more than a few years, your credit history is shortened, lowering your credit score.

While you might be tempted to get rid of your available credit, it is wise to think twice. You might be hurting your personal finances more than you think.

 

Medical Bills Cause Most Bankruptcies

We’ve heard a lot of bluster recently with regard to consumers and the economy. With bankruptcies and foreclosures mounting, many are blaming problems on excessive credit card use. And, while excessive credit card debt doubtless plays its role in bankruptcies and other issues, it is worth noting that most bankruptcies are, in fact, caused by medical bills.

Even for people with health insurance, medical bills can become costly and add up. Health insurance does not actually provide much protection against major illnesses or other health catastrophes. By the time you pay your deductible and 20% of the bill, things can get expensive. My father had a mild heart episode, and that cost $30,000. His part was $6,000 — after meeting the deductible. It has taken my parents 6 months to pay off their bills.

And many people have larger problems. What if you have an extended hospital stay, or end up with cancer? Even with health insurance, your portion could financially devastate you. In the end, it helps to be aware of the facts behind crushing debt. Sure, credit card debt contributes; but a far bigger problem is that of medical bills and debt.

 

Barack Obama Proposes Regulatory Reform

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In what could be the most sweeping regulatory reform since the Depression era, President Barack Obama has proposed new financial regulations, including the creation of a new agency, the Consumer Financial Protection Agency. This agency is to be devoted to protecting consumer interests in financial transactions — especially in terms of debt.

Recently, Congress passed a credit card bill meant to protect consumers from predatory practices by issuers. One of the main focuses of the proposed regulations from Obama includes allowing the new agency to set some rules for mortgage lenders. Creating national standards for how mortgage brokers can offer their products and services might cut down on some of the practices that led to the collapse of the mortgage market.

At any rate, the regulatory reform — if the measures are ultimately approved — is designed to provide more education to consumers, and to ensure that they are encouraged by mortage brokers and others to choose simpler options, and more traditional mortgages.

 

Should You Borrow Money from Family and Friends?

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Right now, many people are falling on hard times. However, it is difficult to get loans from more traditional lenders. Even the best Credit card companies are tightening their standards, your credit line might be cut, and your rewards program may not go as far. As a result, many people are starting to turn to other sources of funding. Family and friends are becoming increasingly popular as sources for funding.

Should you borrow money from relatives and friends?

Obviously, there are some upsides to borrowing from your family and friends. Indeed, you do not usually have to pay very high interest (if you pay any interest at all), and you can usually get the money immediately. However, as Chris Bibey points out on the Banks.com Bankruptcy & Foreclosure blog, there are some things to be concerned about when you borrow from relatives and friends:

• Your relationship can be jeopardized by the action — especially if you don’t pay the money back.
• If you want your situation kept quiet, your financial problems are more likely to get out when you go to friends and family for money.

To protect both you and your familial lender, it is a good idea to look online for some templates that can help you set up a loan agreement. That way, it is a binding contract, and you show your intention to repay. It’s best to treat such a situation as a business arrangement, rather than as an informal family or friends arrangement.

 

Credit Card Debt Falls at Fastest Rate Since 1980

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Today, the Federal Reserve issued its quarterly report on household wealth in the U.S. While there has been a rather dramatic drop in the net worth of American households, there were some interesting silver linings in the report. The most encouraging was a look at the falling incidence of credit card debt. MarketWatch reports on the reduction in household debt:

Liabilities of households fell by $114 billion in the quarter, as consumers reduced their debts at an annual rate of 1.1%. Consumer credit card debt fell at a 3.5% annual rate, the largest decline since 1980.

Indeed, this news about credit card debt is rather encouraging. Consumers are starting to look at their financial habits and realizing that credit card debt is expensive. As Americans try to improve their financial wellbeing, credit cards are being used less, and debt is being paid off. Since the recession, consumers have shown the first recorded decline in credit card use since they became popular.

The real test, though, will be for the future. Can American consumers make a habit of responsible credit card use and debt reduction? Only time will tell.

 

Student Credit Cards

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Seemingly, one of the rites of passage of growing up is getting a credit card. These days, most people get their first credit card as college students, as 18 year olds testing out adulthood. In many cases, student credit cards can be very helpful. They are easier to get than “regular” credit cards, since they are meant for students. However, the credit limits are usually lower, and the interest rates a little higher. These credit cards are meant to help students start building credit, but since students don’t usually have credit, the terms are not as generous as those offered by other credit cards.

Rewards programs

Student credit cards usually have credit card rewards programs focused around a point system. You earn points for purchases, and you can use the points to buy merchandise. Few student credit cards offer cash back or airline miles rewards programs. However, you can usually use your points for music, downloads, dorm room stuff and concert tickets. Some student credit cards (like Citi) actually allow you to earn points when you make your payments on time, keep good grades or pay off your balance.

New credit card rules

It is important to note, though, that new credit card rules taking effect in February will make it harder for students to get credit cards. Those under the age of 21 will need a co-signer for their credit cards. The only exceptions are for those who can prove that they have an independent income and can make monthly payments.