Credit Card Guides

Sabotaging Your Own Credit Card Use

June 1st, 2009

headacheSome people, for one reason or another, seem to unwittingly sabotage their own finances.  I’m pretty sure you’ve seen it – folks who seem to do exactly the wrong things when it comes to wisely looking after their financial success.

Look at many people’s credit card behaviors and you can see what we’re talking about.  In fact, the reality that so many people are experiencing major problems with credit cards doesn’t surprise me at all – the signs have been glaringly noticeable from the start.

Credit cards are intended as a financial convenience, not a source of liquid funds or a comfortable loan.  Having a credit card doesn’t mean you can finally afford a 50-inch TV which you couldn’t possibly handle paying for before.  It doesn’t mean you can take vacations that are well beyond what you can pay for.  Simply put, it doesn’t give you permission to consume items conspicuously.

As a society, we really do have to start looking at credit cards in a healthier manner.  Instead of thinking of all the things you can purchase using your credit balance, focus your attention on how much easier credit cards can make your usual purchases.  Rather than having to carry cash every time you leave the house, you can simply bring your credit card along and know that you can pay for any expenses that you need.  At the end of the month, the same amount of money that you would have spent should go into settling the amount you incurred on the card, instead of letting the debt pile up.

Any other way of using credit cards, unless carefully planned for, usually leads to self-sabotage your financial capabilities.  Don’t let the tempting allure of “buy now, worry later” suck you in.  Use your credit card responsibly.

Spreading Debt Across Multiple Balance Transfer Cards

May 31st, 2009

mulltiplecardsAre you planning to use a balance transfer card?  Most people who do usually find just one card with good terms and use that one account to move all their existing debt into.  While doing that is very beneficial, especially looking towards the future, it does have its drawbacks.

Unless you have an exceptionally high credit limit, it’s very likely that transferring your existing debt into the new card will fill up at least half of its available balance.  In fact, most folks who I’ve seen do balance transfers end up utilizing between 70% to 90% of the balance transfer card’s limit.  The result is a high credit utilization on a single card that can potentially cause a negative effect on your credit score.

Using Multiple Cards

One technique people are using is to apply for multiple balance transfer cards and spread the debt evenly among them.  That way, instead of fostering very high utilization on one card, you’ll end up using a small percentage of available credit among many cards.   In terms of your ratings, you are depicted as having a high line of credit, while managing it very successfully.   Essentially, it allows you to enjoy the benefits of a balance transfer card, without causing a possible dent in your credit score.

Dangers Of Spreading Debt

Getting more balance transfer cards, of course, means a few caveat.  Multiple cards, for the most part, means multiple annual fees to pay for,  multiple payments to schedule every month and more accounts to keep track off.  That’s a major consideration, especially if you’re already having trouble with all the accounts you have to manage.

Getting Valid Negative Marks On Your Credit Report Reversed

May 27th, 2009

businessmancallUnless it’s an errant item, negative entries in your credit report usually can’t be removed all that easily.  You can try, and that’s exactly what credit repair companies do, but there’s little guarantee that you’ll actually succeed in doing so.

For the most part, getting valid negative entries out of your credit report is a near-impossible feat.  Unless, that is, you can get yourself in a prime bargaining position.

An Ideal Scenario

Let’s say you have an outstanding credit card balance that you haven’t been able to pay the last six months.  No doubt, your credit report has already suffered, with tons of red flags created by the recent inability to settle your obligations.  Then, due to some good fortune, you came across a sufficient amount of money that allows you to settle the existing debt.  In this situation, you have a very good shot of getting most of the negative marks caused by the credit card on your credit report removed.

When you call up the bank to pay the balance in full, make sure you negotiate removal of your negative credit items as part of the deal.  With the current economic climate that sees cardholders miss out on more and more payments, the bank will usually give in to reasonable demands if that means getting the money they are owed.

Getting Help

You can most definitely do this on your own.  If you’re hesitant, though, or find it difficult to hold your own in negotiations, you can employ the help of professional debt consultants who can perform the process on your behalf.  If you get a good one, they can probably even negotiate parts of the debt removed, making whatever fee they charge no added cost whatsoever.

Credit Card Fees To Watch Out For Going Forward

May 26th, 2009

feesfutureWhile the new credit card laws will prohibit a number of old fees and billing practices that have left consumers worse for wear, they haven’t put a complete lockdown on the way credit card companies can take advantage of you.  In fact, you can bet that they’re already looking forward to recouping much of the losses the new rules will generate by tacking on new fees and other premiums.

Need a quick review of what credit card companies can no longer do?  Under the new law, the following practices are no longer allowed:

1. Over-the-limit fees
2. Double-cycle billing
3. Interest rate hikes on old balances (unless the customer is 60 days late)
4. Charges on online payments

While that may not sound like much, those few changes represent a large chunk of how credit card companies turn up such huge profits from the use of their cards.  Going forward, you should probably look out for the following fees which they may or may not begin charging to make up for the deficit:

1. Fees for checking your balance (like some bank ATMs do)
2. Annual fees for cards that used to carry no annual fees
3. Rewards programs enrollment (it may be a longshot, but I can imagine issuers charging for enrollment into their rewards programs)
4. Across-the-board interest rate hike for future purchases (which is allowed under the new law, with no cap)
5. Shorter grace periods (to maximize the interest)
6. No more 0% promotional offers

Sucks, right?  Personally, I can’t imagine credit card companies responding any way else.  They’ve been in business for a long time because they manage to adapt.  It’s too bad that they usually do it with us on the receiving end of the negative repercussions.

Credit Card Users Behaving Badly

May 25th, 2009

30sIt’s so easy to observe people doing things incorrectly, while too difficult to notice the same behavior on yourself.  Even long before, I’ll see credit card users flirting with disaster from a mile away.  Yet, when the time came that it was me in their situation, with my credit about to plunge into dangerous territory, I hardly saw it coming.

What sorts of things do you need to look out for to know when you’re in a similar boat, about to tread perilous waters?

1. Buying stuff on impulse

Any unplanned purchase always carries a big risk.  Can you really afford it?  Without the proper forethought, you increase your chances of buying something that you really can’t afford.  If you notice yourself doing it even once, take notice.  When you find yourself repeating the same behavior in a pattern, it’s time to take a serious look at your relationship with money.

2. Rationalizing irrational purchases

“I deserve it,” that’s what most everyone says when faced with the folly of the things they spend their money on.  You’ll probably live through it if you can actually afford the expense.  If you can’t though, “buying things that you deserve” can prove to be your ticket to financial ruin.

3. Paying for luxuries

If you’re using your credit card to pay for luxuries, without settling the balance month-to-month, you can rack up a huge bill without anything to show for it.  Think about it hard.  That holiday charged completely on your credit card might have entertained you for the weekend, but you’ll be paying for it in never-ending fashion if it’s really not within your means.

Credit Cards And Money In Your 30s

May 24th, 2009

impulseshoppingIf you’re in your 30s, you’ve probably had some amount of experience with credit cards.  Most likely, you’ve held a job or two, perhaps even started a business during the previous years.  Hopefully, you have started putting money away for the future, even though it wasn’t quite clear in your 20s what you’re supposed to be saving for.

1. Keep your credit card life simple

Put succinctly, make sure you live within your means.  If you’re the type to spend a little too wildly in your 20s, you’ve probably experienced the sting that excessive credit card use can do to you.  Should that past mistake be a little too serious, you might still be experiencing some of its repercussions.

In your 30s, try to keep a more level head about the way you use credit.  If you really can’t afford an apartment in the city, then don’t charge your living expenses to your credit card just so you can pursue it.  When a flashy car just doesn’t tally up in the spreadsheet, don’t force it on your credit.  Keep it simple – you’re getting old and there’s just too little time to waste on making more serious mistakes.

2. Clean up your debt

The 30s is the best time to start putting your money in tangible things, such as a house or an investment portfolio.  The less debt you have, the more of your resources you can allocate towards those important things.  As such, do your best to make it happen.

3. Start thinking about the distant future

While your retirement is still a long time away, almost every financial expert will tell you that this is the critical period for you to start on the road preparing for it.  While we’d rather ignore the signs, it’s inevitable – we’re inching closer to it.

Credit Card Debt Can Put Your Life On Hold

May 23rd, 2009

debt11Dealing with debt is a hard and stressful activity.  In fact, it’s one of the toughest things most anyone can go through, regardless of how intelligent or how talented they may be.  It is so difficult, that at times, people working through it can feel that they’re putting their life on hold.

Cutting Back

When you’re paying off debt, you’ll need to cut back on most everything.  Those three beers at the bar after work may have been peanuts last year, but when you’re settling arrears, even the smallest savings can accumulate into building up that monthly payment.  As such, it is more important than ever to prioritize where your money goes.

Cutting back, however, does not mean deprivation, although it can feel that way.  Instead of that quarterly family vacation you used to take south of the border, how about substituting weekend day trips to see local attractions instead.  Sure, it’s not the same, but that’s the beauty of life – it can be enjoyed even with the most meager means.

Enjoying Life Without Money

One of the reasons you likely ended up in debt is that you thought you needed plenty of money to enjoy life.  In fact, there are many more facets to living than the things money can buy.  Look at the time when you’re settling your debt as a chance to begin appreciating them.

Living With Pressure

The most profound effect of living in debt is the constant pressure.  One slip-up in monthly payment, after all, and your restructured debt plan just might get thrown out the window.   However, those are the cards you’ve been dealt with – accept the situation and make the best of it.  In truth, many people have been in worse boats than you, yet have continued to live happy lives.

Teaching Kids Credit Card Management

May 21st, 2009

teencardHow do you teach your teens credit card management?  According to most experts, the best way is to get them on it early via prepaid credit cards.

Prepaid credit cards work much like regular credit cards, allowing you to shop without cash, most anywhere you go.  Unlike regular credit cards, though, you can set the spending limit depending on how much funds you decide to put into it.  Whether it’s $100, $200 or $500, the prepaid credit card holder gets to charge only that and no more.

Many issuers allow credit card holders to apply for prepaid credit card extensions to their main account.  That means a parent can easily ask for prepaid credit cards issued to their children, which they can then use to give their kids allowance.  Some prepaid credit cards, such as those from Discover, are also enrolled in the rewards program (among other benefits), which means the children are able to make full use of features regular credit cards come with.

How exactly will this help teach kids credit card management, though?

1. Kids are exposed to responsible use of the card, forced to keep spending to within their “credit limits”.

2. With monthly statements, parents can get together with their kids to review their spending and talk about potential problems.

3. It helps educate them about what a credit card is about – a tool of convenience, not an avenue for unlimited spending.

4. It helps give them an idea of how to maximize rewards programs and other credit card benefits

How The New Credit Card Reforms Affect You

May 20th, 2009

creditcardmarketYou have, no doubt, heard about the upcoming credit card reforms on the way.  If you’ve ever wondered how it affects you directly (at the form it’s shaping up to be), best read on and find out.

The new bill does put many limitations on credit card issuers, although it’s still not the consumer savior we originally thought it to be.  To start with, the following restrictions are now set on them, among a few others:

1. No interest rate increase on existing balances, unless payment is 60 days late.  If the cardholder pays the minimum on time, after the hike, the issuer will need to restore the old rate after six months.
2. Consumers will need to receive a notice explaining the interest rate hike 45 days before the actual increase.
3. Some planned caps on penalties (still to be determined by the Federal Reserve)
4. If an issuer uses “risk-based pricing” to raise rate, they’ll have to use the same to lower rates
5. No charges are allowed anymore on automated phone and online payments
6. Issuers can only charge over-the-limit fees for three consecutive months for a single infraction.
7. Everyone under 21 can no longer get a credit card without either an independent source of income or a co-signer.

With these changes in effect, there’s no doubt that it will bring serious repercussions to credit card issuers’ bottom line – unless they compensate for the lost income somewhere else.  As such, people are now predicting an across-the-board hike on interest rates for all future credit card balances.  Since the upcoming reforms didn’t put a cap as to how much interest rates issuers can charge, expect it to be a considerable hike, regardless of your credit standing.

Credit card companies are required to implement the changes within the next nine months.

Credit Cards For Average Credit Ratings

May 19th, 2009

creditscoreIf you don’t have especially good credit rating and are around the average level, there are plenty of credit card options for you.  While you may be declined on your application to most of the best credit card offerings (e.g. Plum Card, Discover More), you should be able to qualify for a decent unsecured card.

An unsecured credit card with no annual fee but little else in terms of perks is easily available to people with average credit scores.  It’s just likely that all your attention is fixed on the high-end cards that you don’t notice the plethora of offerings available to those with credit ratings just like yours.

Try one of these cards on for size:

1. Citi Platinum Select Mastercard

With no annual fees and pretty decent APR, the Citi Platinum Select is a credit card that’s absolutely within your means to get.  What I particularly like about is the extra layer of security it provides for online shoppers, via a separate secure number (that’s different from your actual credit card number) for use when you buy items over the web.

2. HSBC American DreamCard Mastercard

While not necessarily a sub-prime credit card, the American DreamCard Mastercard is specifically intended for those with decent but relatively low credit scores.  It used to be bundled with HSBC’s sub-prime card offerings but is actually better than the lot of credit cards usually available to those with bad credit.  It has no annual fee and usually approves anyone with a credit rating above 600.

3. Amex Rewards Gold Card

You’ll need to be employed with a decent income to qualify for this rewards card, but it’s worth applying for anyway.  It comes with a steep annual fee but if you intend to use the card frequently, their rewards program is one of the most attractive you can find.