You 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.

If 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.

For most people, paying only the minimum amount on their credit cards can mean a financial disaster waiting to happen.  Minimum payments mean ever-accumulating interest that can pile up when performed over extended periods.

Paying Off Debt

When you pay only the minimum amount each month, even a relatively low balance can end up taking many years to pay even if you never use your card again.  In fact, even when your card incurs no new charges, your balance will end up looking almost the same month to month, with only a small amount shaved off.  That’s because monthly minimums only tend to cover the interest payments, while only shaving off a few tiny numbers from your actual balance.

Losing A Job

Any financial experts who know what they’re doing will wisely advise you to avoid paying only the bare minimum on your cards.  However, some situations might make it necessary to restrict your payments to the least amount required.

When you lose a job, for instance, it makes sense to keep as much of your cash as liquid as possible.  Since you won’t be getting monthly checks the way you regularly do, you’ll need whatever cash you have in your bank accounts accessible in the event of emergencies.  As such, paying only the minimum on your credit cards makes sense as a way to tide you over until your employment situation reverts to a positive state.

Recession

Some financial analysts claim that during these times of recession, it makes sense to pay off only the minimum on your credit cards while you try to save up at least eight months worth of spending money in your bank account.  It’s a tricky issue that makes some sense, although the experts seem to be divided on this particular approach.  If there’s a good chance that the recession will affect your employment status, it might be worth considering.  Otherwise, you’ll just end up spending more on your debt.

Comparing credit card offers usually entail more than just trying to find the lowest APR with the highest credit limit.  In fact, some cards with low APRs may end up costing you more (due to exorbitant fees)  and those with the highest credit limit will usually come with steep interest rates to make up for the risk.

1. Know Your Requirements

Unless you have a clear idea of what your credit requirements stand, it’s going to be difficult to make the best choice.  Some cards get you automatic discounts on school products while others can make your travel expenses a less costly affair.  As such, get a good idea of what you’re going to need a credit card for before comparing available offers.

2. Avoid Applying For New Credit Cards Just For The Heck Of It

Some people make a habit of just accumulating plastic.  While having more credit lines can make you feel more secure (you have plenty of credit available), it also means you’re paying more fees.  If you don’t use the credit line, you’re essentially handing over money to the card issuer for absolutely nothing in return.

3. Read The Terms

Before the credit crunch of recent months, most people accepted their credit cards’ terms and conditions at face value.  Nowadays, people are realizing how many problems such a behavior may pose and are paying stricter attention to their credit card terms.  Make sure you follow suit and study each card’s terms and conditions before deciding on them.

Want to put a freeze on your credit card spending due to current financial problems?   While I can sympathize with your situation, it’s hardly the best way of going about things.

Why did you get a credit card in the first place?  Let me guess:

• convenience of buying products without cash
• using it to automate bills and payments
• being able to go cashless during trips and vacations for security reasons
• buying items online

For the most part, none of us probably started on the road to credit cards thinking it will ever get us into debt.  If your credit card use has led you to some unwanted results, freezing your credit card spending is hardly the best way to go about it.  Instead, it’s time to impose self-discipline and find a way to get your credit card to work for you again.

• pay down your debt
• avoid charging anything on any card with revolving balances (while you’re still paying it down)
• use “clean” cards to make your life easier, but pay them in full monthly
• don’t charge any luxury items on the “clean” credit cards; instead keep them for payments that actually save you time and money.

Getting into debt doesn’t mean you should put a pause on your credit card use.  All it means is that you have to change your behavior and manage it better.  Of course, it’s all easier said than done - things are undoubtedly difficult once it’s you on the receiving end of frighteningly large interest rates.  It’s not impossible, though, so don’t hesitate to take it one step at a time.

Would life be better without credit cards?

Some people certainly think so.  After all, credit cards have encouraged unscrupulous spending for so long, that they’re (at  least) partially to blame for every cardholder unable to pay the debt they racked up.  In fact, some even go so far as to suggest that the only way to handle your finances smartly is to do without credit card entirely.

The Need For Credit

Whether you like it or not, we live in a credit economy.  Businesses get their supplies and usually get a 30 or 60 day window to pay it.  Seldom can people afford a new car or a new house on the spot and will frequently use loans to fund it.  How many college graduates - doctors, lawyers and scientists - would have finished school without credit?  Credit, for the most part, enables us to acquire what we need now, instead of having to save up for it over many years.

Responsible Credit

Credit is good.  It’s what we do with it that puts us in jeopardy.  According to statistics, 7 out of 10 consumers live paycheck to paycheck.  If those 70% of individuals took on more credit card debt than they should, chances are, their finances will end up in ruins within the next few years.

It’s not credit cards, nor any other forms of credit, that we should eschewing.  What we need is a proper education in personal finance.  If you forget all the rewards and rebates, the convenience of credit cards alone is enough to warrant its widespread use.  A life without credit cards should make it eliminate one avenue for people to mess up their finances.  However, a consumer base that isn’t financially savvy will continue to make mistakes that put them in jeopardy - whether they own credit cards or not.

During an informal poll of several small-to-mid-level Adwords advertisers, one of the discussions turned to their favorite credit cards.  Unsurprisingly, most of the cards we listed as the best credit cards for Adwords made the cut.  The Plum Card, one of those we featured, turned up as the overwhelming favorite.  Let’s see why.

The Plum Card has two major benefits going for it:

1. It offers a 1.5% rebate for all bills settled within 10 days.

2. If you make just 10% of your payment on time, you can defer the remaining payment for up to 60 days.

Once I read those, everything just made sense.  It is, indeed, a tremendous benefit to Adwords advertisers.   A lot of Adwords advertisers I know max out their credit cards within a week, some even after five days.  As such, they need to pay off all credit charges incurred in the first place.  The Plum Card essentially rewards them with a 1.5% rebate for something they’ll be doing in the regular course of business anyway.

The 10% payment makes it convenient if you do run into cashflow trouble, essentially allowing you to float your spending with just a minimum of liquid funds.  As a former manager of Adwords campaigns, I can understand the occasional need for this.  As long as you don’t make it a habit, it offers plenty of flexibility.

What’s the price of this convenience?  Pretty steep, as it turns out.  The Plum Card comes with a whopping $185 annual fee, along with pretty stiff penalties.  As an Amex Business card, the Plum Card comes with all usual privileges, including discounts at numerous hotels, merchants and car rentals.

It’s a bad idea for a consumer card, but a veritable godsend for PPC advertisers.

We all know that closing a credit card account almost always brings down your credit score.  Like most everything to do with FICO numbers, it is a case-on-case basis, with the same action sometimes netting two different cardholders varying results.

If you absolutely need to keep your credit score clean (when you have pending mortgage application, for instance), it might be prudent to avoid doing anything that can potentially put your credit score in trouble.   As such, put off closing your accounts for another day.

A Safe Way

Want to know the safest way to close credit card accounts?  Here it is:

1.  Try to bring down your total revolving balance to as close to zero as possible by paying off as much of the debt as you can.

2. Start closing accounts one at a time.  Never close two or more accounts at the same time.

3. If you have zero balance (or a very low one), close the largest credit card account first.  If you have a considerable balance remaining, close the one with the smallest credit limit.

4. When you close an account and have a floating balance, try to negotiate a higher credit limit for at least one of your remaining cards - that should offset any loss of credit line you will receive from the closed account.

5. Once you close an account, always check within the next month or two how it affects your credit score.  If the effect is minimal, you can begin plans to close another account.  Otherwise, try to wait until your rating improves again before closing more accounts.

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Everyone hates their credit card company - at least, that’s what you might end up thinking if you read up on the latest credit card news stories.  Almost every time I open a personal finance magazine, there’s always some mention of some credit card company’s arbitrary behavior, underhanded tactics and general anti-consumer stance.

Not all is bad, though.  Ask around and you’ll continue to find credit card companies whose cardholders remain as happy now as they were five years ago.

Discover

Discover has always had the best customer service and that continues even to this day of an economic recession and credit crisis.  In fact, the company is continually cited as the best example of how a credit card company should handle their business during these trying times - with composure and complete adherence to fair practices.

While many credit card issuers are making up ways to squeeze as much money out of their cardholders, Discover continues to be offer convenience to its customers with, perhaps, the best payment policy available.  They neither create unwarranted charges nor change rates and fees arbitrarily like so many companies are doing now.

Wells-Fargo

Wells-Fargo continues to be one of a select few companies that do not participate in universal default.  Your credit card rates remain based solely on your credit performance on your card with them, instead of referring to your other existing credit card accounts.

If you’re a Wells Fargo customer in good standing (e.g. you have a bank account with them), applying for one of their cards can get you some of the lowest rates in the market.  Even better, they don’t hike rates without notice like everyone does today - all customers get a 45-day window to prepare for it.

When you use Paypal for buying products online, you usually have the option of debiting the payment from either your existing Paypal funds or the credit card associated with it.  There are advantages and disadvantages to doing both, although we do tend to lean towards one of the other payments.  Find out which one and our reasons below.

Using Paypal Funds

Paypal funds can be used to either pay for items online or withdrawn into your bank account.  While you can also just keep it in your account, it’s generally not a good idea because your money just sits there, not doing anything.  Paypal doesn’t pay any interest, giving you absolutely no value for leaving your money with them.

When you pay with your paypal funds, the transaction is protected by Paypal.  After several years of watching Paypal in business, we all know they don’t exactly do the best job of it.  In fact, fraudulent transactions are very difficult to retrieve, often ending up in lengthy and unresolved disputes.  Even worse, using Paypal funds triggers security worse than when using your credit card.  For some reason, Paypal deems fund use as more prone to compromise than credit cards.  As such, a lot of the cases of accounts being “limited” due to suspicious activity are often related to the use of funds.

Using Credit Cards

Credit card use via Paypal, on the other hand, rarely pulls any security triggers.  Even better, you get a second layer of protection for your transactions.  If Paypal won’t resolve the dispute immediately, you can try cancelling the transaction with your bank - often to positive results.

Apart from the security benefits, you also get to enjoy all the other value you derive from credit card use, including points earnings and keeping your account active.  Simply put, it’s way more beneficial to transact using your card than dispensing with the funds directly ever will.