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How To Be A High Volume Credit Card User Yet Stay Out Of Debt

Credit cards superimposed ove moneyDo you put $10,000 or more on your credit cards each month? In theory, it should be really easy to manage that debt. All you have to do is pay off your entire balances on their due dates. I mean, what else do you need to know?

Unfortunately, the answer is that there is a lot more to know. Many people are simply not able to follow this system. In fact, Americans carry an average credit card balance of about $5000. It’s just not a good idea to carry a balance like this because your interest fees can quickly escalate the amount you owe. In addition, the monthly payments you would make on past spending may inhibit your ability to pay for your current expenses and save for the future. Fortunately, many high-volume credit card users have discovered how they can charge and pay off huge sums on their credit cards and always come out ahead. Here’s what they’re doing right.

1. Use software

Savvy credit card holders use technology to see where their money goes. If you don’t know exactly where it’s going and what it takes to run your household it becomes very easy to run up debt. There are numerous apps and software available to track your cash and credit flow to make sure you never overspend. Step number one towards financial well being is to know that you can pay off your credit card debt based on your regular usage and without it affecting your checking account balance or other areas of your financial life. If you want to be a successful high-volume credit card user, go online, check out personal-finance programs and find one you think will work best for you. We like Mint.com and You Need A Budget (YNAB) but some people prefer Quicken.

2. Earn when you charge

Ultra-sophisticated credit card users make money instead of paying interest by using credit cards rewards programs. The best of these offer straight up cash back. As an example of these, Target cards offer 5% cash back on purchases and an American Express card from Fidelity has a 2% cash back rewards program. The Fidelity card could be a good choice because for every $5000 you spend, Fidelity will deposit $75 into your investment account (if you have a Fidelity account). Many cards such as the Chase Freedom Card offer choices – you can either get rewards points or cash back. This card, like many others, also offers the opportunity to earn more cash back via quarterly promotions. For example, you might be able to earn double points by using the card at restaurants during a three-month period. If you play your cards right, you could maybe spend $20,000, get as much as $1000 back and then avoid any interest charges by moving your entire debt to one of those 0% interest balance transfer cards.

If you’d like to know more about the differences between cash back, points and airlines miles, here’s a brief video that answers this question.

 3. Be prepared for the inevitable

Expensive emergencies such as a broken-down car or an aging pet that requires surgery is what trips up most cardholders. These emergencies tend to feel like surprises because they exist outside ordinary spending. If you run into one of these and don’t have the cash in hand, it will have to go on a credit card –unless you’ve taken an extra step so that you are prepared for financial emergencies. What that extra step amounts to is setting aside money to pay for those inevitable emergencies. One good way to do this is to have a separate savings account with automatic deposits from your paychecks. While many financial experts say that you should have the equivalent of six months of living expenses put aside to cover emergencies, a more affordable alternative might be three months worth.

4. Have ongoing conversations about credit

Sitting down with your spouse or partner to discuss your credit situation is certainly not much fun and can lead to arguments. But savvy credit card users communicate with their partners or spouses continually to make sure they have his or her willing cooperation and participation. Don’t wait for problems to start but make credit discussions an everyday conversation, particularly if you and your spouse or partner have conjoined accounts. If you maintain a regular dialogue, you can avoid those “oops” of credit card life. For example, suppose you need a new $500 computer. That should be a joint decision as to whether you spend the money now and incur $500 in debt or save for several months so you can pay cash. The important thing is for the two of you to be able to agree as to how you are going to handle purchases such as this.

5. Commit to zero

A survey done recently revealed that 20% of Americans feel that it’s not only inevitable to carry over credit card debt but a responsible way to manage personal finances. If this is how you feel about credit, it’s time to change your viewpoint. The high-volume credit card users say that debt is not a fact of life and that the amiunt of your income is irrelevant. Pledge to borrow only what you know you’ll be able to pay back immediately and then follow through on it, no matter how painful it might be when the time comes to write a check. It really doesn’t matter how much you put on that credit card so long as you can pay it off in full and on time. If you buy only things that you know you can pay for at the end of the month, it tends to keep spending in check. This is made easy by the credit card companies that have their high interest rates and penalties. In fact, they make it seem absolutely foolish to not pay your bill in full or, worse yet, to miss a payment.

6. Pay early and oftenCheck

The vast majority of credit cards give you about a 30-day window to send in your payment. If you pay the entire balance owed you avoid any interest charges. Your statement(s) will have a due date and you need to make sure you know what it is. Savvy credit card holders actually pay as they go instead of waiting until the date their payments are due. For example, you could pay off your credit card balance every Friday and then start the next week fresh. In many cases if you pay often and in small portions, you’ll find this is easier than having to face one huge payment. Alternately, you could pay off your balance every paycheck, which is probably twice a month.

7. Lose the plastic

Most high-volume credit card users have streamlined their accounts to just a few cards. Multiple cards can lead to confusion. The more cards you have, the more likely it is that you will get into trouble. It’s probably better to have two or three accounts with large limits than a whole bunch of cards with smaller limits.

8. Respect your limits

It’s not important that your credit card issuer will let you charge up to $20,000. And what your friends are using their credit cards for is none of your business. The important thing is for you to know how much money you have and to not worry about what other people think. The people who most often get into trouble are those who buy things they can’t afford due to peer pressure. This means the critical number is not your credit limit but the amount you can afford to repay. The best solution is to focus on your budget and live below your means. Just about anybody can alter their lifestyle to do this and there’s no reason why you shouldn’t be able to do this as well.

Emergency Credit Cards? 6 Reasons Why It Is A Bad Idea

road signsNobody knows what the future brings and it is for that reason why we have to be very careful about preparing for it. Some people may think that you are being paranoid when in truth, you are just being cautious. It is also being practical because there are many disadvantages of being unprepared for an emergency. When we say unprepared, we are mostly talking about not being ready financially.

In most cases, an unexpected event comes with a financial need. Whether it is an accident, an illness or any other requirement in your personal or work life, it usually requires you to pay a certain amount to get over it. If you are not prepared, the chances of you being in debt is very high. Instead of solving the problem entirely, you have just immersed yourself into another financial emergency.

This is where most people turn to emergency credit cards. Their inability to pay for emergencies in cash made it alright for them to use credit cards. While it may seem logical to do so, you have to understand that it will actually do you more harm than good.

6 ways that using a credit card for emergencies is a bad financial choice

In an article written by Dave Ramsey in his website, daveramsey.com, he revealed an important truth about credit cards. He said that cash is better to use because you have an emotional attachment to it. That mean you will be more cautious in using it. When you use credit card, Dave Ramsey said that you are more likely to spend more because you do not feel the parting with your money. In fact, his article cited a McDonalds study that revealed how consumers usually spend 47% more when they use credit cards.

Even if you are using emergency credit cards, it will still work the same way. You will still experience a detachment when you pay for that emergency expense. But beyond that, here are 6 reasons why it is a really bad idea to use credit cards for emergencies.

  • A credit card is a loan. Do not think that just because your credit card is under your name, you are using your money. That is what makes people overspend through their credit. You have to understand that this is not an extension of your wallet. Every payment that uses your credit card is actually using the money of the creditor. You are just borrowing money. That means when the whole crisis or emergency situation is over, you have yet to deal with the payments of your credit card bills.

  • You can put yourself under so much debt. As mentioned in the Dave Ramsey article, credit will make you spend more. If you cannot pay for  your dues immediately, your credit card balance will incur finance charges. That will make your debt grow until you have paid it off completely.

  • You will not feel the need to look for alternatives to finance your situation. Since the credit card will make you feel like you have sufficient funds, you will not feel the need to look for alternatives to lower the cost you need to pay for. You have to understand that looking for better options should be a priority – regardless of how you intend on paying off the unexpected expense. You will not feel the need to approach charitable organization or similar companies that have programs to help you out.

  • Even emergency credit cards can be closed due to inactivity. You may be wondering why this is an issue. An emergency cannot be predicted. That means you can go for a long time not having an emergency. If that happens, you can have your credit card closed due to inactivity. These cards are usually automatically cancelled when there is no activity within 6 months. If you are not aware of this and something does happen, you may find yourself really unable to pay for that financial need – both card and cash.

  • Emergencies can strike one after the other and that can lead in accumulated debt. The opposite of the previous reason is you can have one emergency after the other. If that happens, the debt on your card can continue to accumulate even before you have the chance to pay for the previous debt. Do not let that happen by relying entirely on emergency credit cards. Your credit score may be seriously affected by this.

  • Your budget will be ruined. An emergency can ruin your budget because you have to input your credit cards payments into it. Depending on how much you credited to your card, you can spend months or even years paying off this expense. That will limit your budget even further.

The thing about paying off credit card debt is you will be wasting a portion of your money on interest rates. Credit.com revealed in an article about medical bill nightmares that the credit extended for medical emergencies usually start out with a low interest. The example was 9.9%. But that will rise after the introductory rate to as high as 24%. Imagine the money that you will be wasting if you use your card for emergencies. And we all know that most of the expensive unexpected expenses are our medical treatments.

The better alternative to using a credit card for the unexpected

Obviously, the better alternative to emergency credit cards is growing your reserve fund. You want to be prepared to pay for these unexpected expenses in cash. But unfortunately, only 38% of Americans have an emergency fund. That is according to the data compiled by Statisticbrain.com. That means 62% of Americans do not have savings to deal with emergency situations. They are more than likely to depend on credit cards to help them survive a crisis.

If you are part of the statistic that does not have a cash emergency fund, you need to work hard to build up one. There are many benefits to relying on a cash emergency fund and here are some of them.

  • After the financial crisis, you do not have to worry about any additional payment and you can move on immediately.

  • You will not waste money on the interest rate.

  • You will be living a stress free life because you know that you are prepared for any emergency.

  • When tragedy strikes, you can concentrate on how you can solve it because you have the funds to back up any plan or solution that you can come up with.

Given all of these points, you know that you have to start computing your emergency fund target so you can work on your financial security. Growing your reserve fund to replace your dependency on emergency credit cards is simple but it requires some form of sacrifice from you. Naturally, you have to ensure that there is something left over from your income so you can put it aside in your savings account. You can work longer hours to earn more or you can cut back on some of your usual expenses. Either way will help you grow your emergency fund the fastest.

When is it okay to pay for emergency situations with credit cards

While we strongly advise you to build up your rainy day fund, we are not saying that you completely shun emergency credit cards. If you can only be a smart credit card user, you can really make this work for you.

What we are proposing is for you to have both – emergency cash and credit cards. But instead of prioritizing the use of your card, you turn to your cash first. If the need is great and you require additional funds, you can look at your card already for help. Here are important reminders before you use your emergency credit cards.

  • It has to be used for a real emergency only. That dress that you need to buy for a friend’s wedding is not an emergency. These include the car breaking down, an illness that has to be spent on or the pipes breaking.

  • You have to completely pay it off in the shortest amount of time. That way, you minimize the money you waste on interest.

  • Look for other options before using it. As mentioned, there are other ways for you to finance an emergency – you just have to look really hard for these options.

Be wise with your credit card spending so that you will have less to worry about in your llife. Here is a video from National Debt Relief to give tips on how you can get credit card debt help in case you have accumulated this debt already.

Tips To Help Increase Your Credit Score Without Using A Credit Card

woman looking at documentsA lot of people are asking: will opening more credit cards improve my credit score? This is actually a good question. Some people are convinced that this is the only way that you can start building up your credit score.

Here’s the thing. Your credit score is dependent on your credit report. This report holds details about any debt that you have. So if you have not taken any debt yet, then what information can you place on your report? And here’s where it gets more complicated: you need a credit score to be able to take on any debt. Given all of these requirements, how can you hope to build up your credit score?

This is where credit cards are “supposedly” there to help out. However, this is something that people are hesitating. After all, credit card debt put a lot of people under some serious financial trouble. A lot of our youth witnessed how it made the life of their parents and grandparents difficult. They do not want to follow the same footsteps.

Different ways to build your credit ranking without needing a card

Well if you do not want to follow their credit card mistakes, then you don’t have to. You are probably thinking about the next question by now: how will you build up your credit score if you cannot get any type of debt?

Here’s an important truth that you need to know: there are options to get a loan without the need for a credit score. It is limited, but there are other options. Let us list them down for you.

  • Get a federal student loan. If you are young and you are still in school, you may want to start working on your credit score by taking on a student loan. The approval of this loan does not really depend on your credit score. These do not require a credit check. Of course, for it to help you improve your credit standing means you have to know how to deal with student loan debt. That basically means knowing how to pay it back properly. Try not to be late, pay as much as you can – these are the usual tips that you will get so your student loan can help you build up a high score.

  • Try to apply for an installment loan. Sometimes, retailers will allow you to purchase a product and pay for it in installment. The great thing about this option is you are expected to pay for it over a long period of time. That will help you build up your credit score without making the payment too much of a burden. The important thing that creditors and lenders are looking for in your score is how well you can be trusted to pay back what they will allow you to borrow. That is the core purpose of this financial measurement. If you do good in this loan, then you can expect to have a good credit score.

  • Loan money from a credit union. First and foremost, this will require you to be a member. Look for a credit union that you can qualify to join and open an account with them. They operate in the same way as a bank – but instead of being governed by a board of directors, it is managed by the members themselves (more specifically appointed members). When you are finally a member, you can opt to get a small loan to help you work on your credit report. Based on the September 2013 data released by the Credit Union National Association through their site CUNA.org, credit unions have loaned an amount worth $642 billion. They have an asset worth $1.06 trillion. This proves that they are capable of loaning you money. If they decline because you do not have any background on debt, you can opt to get a secured loan. That means your loan is backed by the money in your account. They should be able to give you approval then.

  • Look into peer to peer loans. These are companies that operate online and connect you to private individuals who are willing to lend you money. No bank or financial institution is involved here. Also known as social lending, this is a great option for you to get the loan that will help you build up your score. Since it operated online, the overhead costs will not be as high for the companies managing them. That means they are not compelled to get a high interest rate from you. Although they look into your credit score, it will not cost you a very high score.

  • Request existing companies to file on your credit report. If you have rent, utilities and even phone bills that are recurring every month, you can ask them to file a credit report on your behalf. They are allowed to do so but it will be more of a favor for you than out of obligation. That should help boost your credit score. At least, it will if you had never been late on your payments.

These are some of the options that you have. There are other choices but we do not really recommend them – or we haven’t heard about them yet.

If you really want to use a card to improve your credit report…

In case some of these are not appealing to you, that is alright. You can still use credit cards to help you arrive at the high credit score that you are aiming for. Just make sure you will not commit the biggest credit mistake that you can ever make – and that is to bury yourself in credit card debt.

Just remember that the actual credit card ownership is not how you will get a good score. It is your attitude towards it. You have to know how you will use these cards so you can be viewed as a creditworthy consumer. Here are some tips that we have for you to help ensure that being a cardholder will really benefit your credit report.

Pay your dues on time. The most important thing that you can do to help your credit score go up is to avoid late payments. According to the information provided in MyFICO.com, late payments can affect your score based on how recent, severe or frequent you do them. Basically, they are saying that a recent late payment can put more damage in your score than a frequent late payments in the past. So try not to be late if you really want to boost your score.

Budget every credit card use. To help you avoid late payments, one tip that we have for you is to include your credit card use in your budget plan. That means allocating an amount that you can afford. You have to plan how much you can charge on your card to avoid overusing it. Also, it will help you put aside the money that will allow you to pay for your full balance at the end of every month.

Know how to use your card properly. Lastly, you have to educate yourself on how you can use your credit card properly. That means you have to understand what the interest is and how it can affect the finance charges on your balance. You have to know how the finance charge, late payment fees and other charges can grow your debt significantly. Also, you have to understand how the grace period can keep you from credit card debt.

Understand that credit cards are quite harmless if you know how to use it properly. You can own it, use to have a high credit score and still end up with zero balance every month. It is not about the debt itself that will build up your credit score. It is how you pay for it.

Save More Money Or Pay Down Debt? Ay, There’s The Rub

stressed old manIn his play “Hamlet, William Shakespeare wrote, “To die, to sleep;
To sleep: perchance” to dream: ay, there’s the rub…” But a better question today might be “which comes first to save more or to pay down debt, ay there’s the rub.

10% to 20% – seriously?

Financial advisers say that we should be saving 10% to as much as 20% of our income. But the latest data from the Federal Reserve Bank of St. Louis is that the United States’ savings rate is just 4.2%. Why do so many of us have a tough time saving money? In most cases it’s because we’re deeply in debt. If you’re facing the double curse of high cost debt and little in the way of savings, what’s better? Should you put your money into savings or pay down your high interest debts as quickly as possible?

Put first things first

The simple fact is that if you have high interest debt and are trying to save money it’s like trying to swim when you have a cement block tied to your feet. Paying down high-cost debt should always come first before trying to save money. Here’s why. Let’s suppose that you are carrying $10,000 in credit card debt at a 15% interest rate. If you make just the minimum payments each month, it will take you nearly 30 years to pay off that debt and it would cost you about $12,000 in interest. As you can see from this example, your number one priority should be paying down debt before you do anything else, including putting money into savings. That’s because this will have a much bigger impact down the line – especially if you’re dealing with credit card debt.

However, most experts also say that before you start using money to pay down your debt you need to put a little bit aside as an emergency fund. Ideally this should be three to six months worth of living expenses. Unfortunately, that’s not easy to do if you’re carrying thousands of dollars in credit card debt. So instead of this, you might try to start with $2000 so you would have some money to cover unexpected bills.

Get a guaranteed return

The biggest benefit of paying down credit card debt is that it gives you a guaranteed return on your money. You can precisely determine and quantify a guaranteed rate of return by using your interest rate, balance and payment plan. While you would be lucky to earn 2% these days on a certificate of deposit, you could get a guaranteed 15% or more by paying down your credit card debt – making this a very good deal.

Save a fortune

When you pay more on your debt you will not only get out of debt faster, you will save a fortune in interest. Plus, once you pay down that debt you will be able to put a lot more money in your savings.

Back to the previous example

If you go back to the example given above of the $10,000 in credit card debt let’s assume that you increase your payments to $400 per month – instead of making just the minimum payments. In this case, you’d pay off your debt in three years and your interest costs would be only $2000. That would be a savings of $10,000 that you could then add to your savings account in subsequent years instead of your bank getting the money.

$9600 in just five years

In this example if you did increase your payments to $400 then continued to save that $400 per month once you paid off the debt, you’d not only be debt-free you’d have $9600 in the bank in just five years.

get out of debtPaying off that debt

One way to get out from under credit card debt is to get a home equity loan or home equity line of credit and pay it off. This would dramatically reduce your interest rate, which will reduce the amount of interest you will end up paying. However, there is a danger to this and you should tread very carefully with the equity in your home. The problem is that you would have a new loan and if not careful, could very well rack up new credit card debt. This would leave you in a worse situation because you would now have a home equity debt as well as credit card debt. For this to work, you need to have a tremendous amount of discipline and personal commitment because if you don’t, you could easily end up in even worse shape than before you took out the loan.

Another option

Another way to get credit card debt under control would be to do a balance transfer from your high interest cards to one with a lower interest rate. There are still cards available that give new cardholders anywhere from six to 18 months with 0% interest. However, before you rush off to get one of these cards make sure that you read the fine print as some have balance transfer fees of 2% to 3%. Plus, you must pay off the credit card before your promotional period expires or you’ll be hit with more interest that could be as high as 18% or even 20%.

Snowballing your debt

Third, you could use the snowball strategy to pay off your debts. The way this works is that you start by paying off the card with the lowest balance because this will give you a psychological boost to continue paying off your debts. And when you get that first credit card paid off, you will have more money available to begin paying off the debt with the second lowest balance and so on. Where this strategy gets its name is because as you pay off that first debt you will begin to gather momentum just like a snowball rolling downhill. Many people have paid off as much as $25,000 or $30,000 in debt in just two to three years by using this strategy. It was invented by the financial guru, Dave Ramsey who explains more about it in this brief video.

The worst option

There is yet another option for getting out of debt that is sometimes called the “nuclear” option. It’s to file for a chapter 7 bankruptcy. If you can qualify for one of these bankruptcies you will get all of your credit card debts discharged (eliminated). If you have medical debts, a personal loan or personal line of credit, they should also be discharged. But there’s a good reason why this is often called the nuclear option. A bankruptcy will stay in your credit file for at least seven years. It’s likely that you would not be able to get any new credit for the first two or three years after the bankruptcy and when you can get credit it would come with a very high interest rate. Plus, there are some debts a chapter 7 bankruptcy can’t discharge, including student loan debt, alimony, child support, a mortgage or auto loan and any debts incurred through fraud.

Marked for life

The worst consequence of a chapter 7 bankruptcy may be the fact that it will stay in your personal file for the rest your life. Fifteen years from now you could get turned down for a really great job when your prospective employer saw that you had a bankruptcy. Many employers now routinely check credit reports as part of their hiring process. And like it or not, some people will always hold a bankruptcy against you because they believe it shows that you’re irresponsible when it comes to handling your personal finances. Your chances of getting that dream job may also be reduced if that prospective employer sees other negative items in your credit report such as late payments, defaults, accounts that have gone to collection and charge offs.

The best policy

What this all means is that the best policy is to get your debts paid off as quickly as possible. This should always come first before putting money into savings. It will pay off big in the long-term and when it comes down to it, what’s better – to be in debt or debt free? If you were to pose this question to that group of kids sitting around a table in those commercials that are currently running, we’re sure they’d all yell “debt-free.”

How To Be A Smart Credit Card User

woman breaking a credit cardThere was a time when credit cards were treated with respect. For example, my parents had just one credit card and used it very carefully. They made only a few charges each month and were almost religious about paying off their balances on time every time.

Today, we tend to be more nonchalant about our use of credit cards. They’ve become so commonplace that many of us take them way too much for granted. As a result many Americans are having a problem with debt – due to those little pieces of plastic.

Protecting yourself from overspending

Fortunately, there are things we can do to protect ourselves from credit card abuse. It begins with making some rules about the way your use your credit cards to avoid that sinking feeling of loss when your credit card statements arrive and you see how your balances have swollen to the point where you begin to feel things have become hopeless.

10 tips for avoiding credit card  problems

Here are 10 tips that for smart credit card use than can help prevent this from happening.

1. Pay more than the minimum. If you pay only the minimum amounts due on your credit cards each month, you’re basically sentencing yourself to credit card hell. In fact, if you do this you might literally never get out of debt. One example of this is if you owed $10,000 and made just a minimum payment of $30 or $40 every month, it could take you as long as 18 years to become debt free. On the other hand, if you were to make more than the minimum required payment, you’d be out of debt in no time. As an example of how this works watch the following video to learn how one family paid off  $12,712.65 in credit card debt in just a year.

2. Pay off your cards. This may seem obvious but the best way to stay out of trouble with credit card debt is to pay off your cards. If you have a card with small balance, pay it off first, then go to work on your other cards. If you concentrate on knocking off your debts one at a time, you might be surprised at how quickly things get better.

3. Be smart about how you charge. Make sure you never run up a card to its limit. When you use a card sensibly, it will have a very positive effect on your credit. Conversely, if you run up your balance to the max, this will have a negative effect. The reason for this is that when a financial institution checks your credit one of the most important things it will look for is how much credit you have available vs. the amount you’ve used. This is called your debt-to-credit ratio and the lower it is, the better. So if you must have a balance on one of your cards, make sure you keep it low.

4. Don’t take cash advances. Cash advances come with much higher interest rates than when you use a credit card to make purchases. If you have an emergency and no other choice, it might be acceptable to take a cash advance but otherwise, stay away from them – especially those “checks” you probably get periodically from one or more of your credit card companies.

5. Always pay on time. No matter what else is going on in your life financially be sure to pay your credit card bills on time. Most financial experts say that just one late payment can drop your credit score by as many as 50 points. This could easily move you from having “good” credit to “poor” or even “bad” credit, which could cost your money because of the higher interest rates you will be charged.

6. Don’t be afraid to negotiate. Go online periodically and check to see what other cards might be available with lower interest rates than the ones(s) you have now. If you find one with a better interest rate, call your current credit card provider and ask it to match that better rate. Smart consumers do this almost every month. And if your current credit card issuer won’t match the other card, transfer your balance to it.

7. Keep an eye on your account. If you’ve been paying any attention at all to the news recently you know that there was a credit card breech that affected more than 90 million Target customers. Now, more than ever, you need to keep an eye on what’s happening with your cards. Go online and check your balances regularly – at least once a week – to make sure all the purchases you see are yours If you spot any fraudulent activity, contact the credit card company immediately and alert them as to the problem.

8. Be careful about transferring your credit card information. Don’t send your credit card information via the Internet unless you’re positive the site is secure. There are phishers out there just waiting to steal your information. Never transfer a credit card number, your social security number or other important financial information to a site unless you’re positive it’s secure and trustworthy

9. Keep your credit card accounts open. When you pay off a credit card, don’t make the mistake of closing the account. This will lower your credit score because one of the five components used to calculate your score is “length of credit history.” If you were to close out an account you’ve had for a long time this would definitely ding your credit score. Plus, it would affect the total amount of credit you have available, which in turn would damage your debt-to-credit ratio.

10. Get your credit reports on a regular basis. There was a report issued by the Federal Trade Commission last year that one in five Americans have errors in their credit reports and that 5% have errors so serious, it could be damaging their credit scores. You can get your credit reports free once a year, either from the three credit reporting bureaus – Experian, TansUnion and Equifax – or on the site www.annualcreditreport.com. The best way to get your reports is one at a time at three-month intervals. That way you would be able to monitor your reports yourself and avoid the expense of paying some company to do it.

What to look forSample credit report and key

When you review your reports, look for negative items such as late payments, defaults, accounts that have gone to collection and missed payments as these are what would damage your credit score the most. If you do find one or more of these items, make sure they aren’t errors. If you do find a mistake, you need to immediately write the credit bureaus and dispute it. You will need to have documentation supporting your claim. But if you do this the credit bureau is required by law to contact the financial institution that provided the information and ask that it be validated. If the institution that provided the information can’t validate it or fails to respond within 30 days, the credit-reporting bureau must, by law, delete the information from your credit file. As you might imagine, this could give your credit score a nice and immediate boost – maybe by as many as 50 or 100 points.

In summary

The net-net of credit card usage is actually pretty simple. Just use your credit cards wisely and with common sense. Don’t run up huge balances you can’t pay off at the end of the month, never take cash advances and keep an eye on your accounts. Do this and you will be able to take advantage of the convenience of having a credit card without the danger of a person or an originator of the will and of falling into credit card debt hell.

What Are Debt Traps And How To Avoid Them

woman chained to a dollar signIf you are intent to grow your personal wealth, it would be difficult to do so when you are in debt. There are debt traps that can really pull you down into a financial ruin.

Some business gurus like Robert Kiyosaki say that debt is not entirely a bad thing. When you utilize it correctly, it can help you grow your money exponentially. But when you do not know how to use it properly, it has the power to rule over your life and put you in misery.

Admittedly, there are debts that has the potential to do you so much good. Things like student loans or home loans that can help increase your personal net worth. But even these debts that have the potential to improve your wealth can turn into a total nightmare. At least, it will if you end up getting yourself into debt traps.

Different scenarios that will trap you in debt

Debt comes in many forms but it is used the same way. It allows you to purchase things or avail of services that you would have otherwise been unable to pay for in cash. You do not have to wait because you can use the money of someone else to finance your expenses. Of course, that comes with a price. You have to pay back the money with interest. That is how debt becomes destructive.

The FederalReserve.gov released the most current report about the American household debt. According to their data, the total outstanding debt in November 2013 is now at $3.087 trillion. It went up from the $3.075 trillion last October. Of course, this growth may be because of the holiday shopping that peaks around these months. But regardless of the cause, it still goes to show that the credit is rising. It still means people have a bigger amount to pay for.

The fact that it is rising means consumers are not paying enough. They may not be defaulting but they are adding more debt to their overall balance. You want to make sure that you will avoid the debt traps that will keep you in financial crisis. To help you do this, here are the different traps that you may want to keep an eye out for.

  • Buying too many homes. Having your own home is great. Having more than one, is also better. But here is a word of caution. Make sure that any house that you will get in excess of where you intend to live can afford to pay for itself. Investing in rental properties is a good idea because it give you a significant amount of passive income. If you can put up a two door apartment that you can rent out for $2,000, that gives you $4,000 extra income a month. But make sure your mortgage loan on either properties will be less than $2,000 a month. That way, it can pay for itself while providing you with a small amount of income to put aside for its maintenance, insurance and taxes. If you cannot do this, then be more conservative with your property investments.

  • Enrolling in an expensive school without a plan to pay back your student loans. In general, student debt is a good idea but if you fail to pay it back on time, it can lead to a lot of problems. Among the debt traps, this is one of those that cannot be discharged by bankruptcy. Expensive and prominent schools are great choices but make sure that you have your career mapped out to pay back this loan once you graduate.

  • Co-signing someone else’s loan. This is never a good idea – even if it is for your child. There are parents who co-signed the student loan of their children and when the child ended up failing to pay for it, they had to sacrifice their retirement. Even if it is a close friend or even your significant other, learn how to say no to a co-signed loan.

  • Borrowing from your 401(k). Technically, this is your money so people will wonder how this is part of this list of debt traps. But think about it. When you contribute to your 401(k), it will be on your pre-taxed income. When you borrow from it, you have to pay it back with post-tax money. And we all know that when you withdraw your retirement fund when you retire, it will also be taxed. In effect, the same money is taxed twice. Not only that, you have to pay a withdrawal fee when you borrow money from your 401(k) during your pre-retiree years. All in all, it is really not a good debt to be in.

  • Paying only the minimum of your credit cards. Believe it or not, the only people who will benefit from you paying only the minimum are your creditors. The minimum payment is a credit card debt trap. While it will keep you from paying late penalties and ruining your credit score, it will lead you to waste a lot of money on interest rates.

All of these debt traps can really put you in a bad financial situation. You should try to avoid this as much as possible. If not, you could ruin your chances to increase your personal wealth.

Tips to keep yourself out of a debt pit

The credit traps that we discussed are all real and if you fall into them, you will really find it hard to get out of that debt pit. So here are some tips that will help you avoid them.

  • Live below your means. Some people will say that you should live within your means. While that will keep you from incurring debt, it will not give you enough money for savings. If you have financial goals, you should spend below your income capabilities. This way, your extra money can go to saving or even investing.

  • Create a budget plan as a family. Creating a budget is the right way to go. It will help you ensure that you will be living below your means. When you create the budget with the whole family, you will find more success in implementing it. The members of your household can all contribute to that budget plan and they will feel more responsible in following through with it.

  • Pursue budget friendly hobbies. Living on a budget does not mean you give up on entertainment expenses. On the contrary, you need this to make life a lot more fun to live. However, you have to consider the money you will use up on it. There are various hobbies that you can pursue and some of them are even for free.

  • Limit dining out. In a study conducted by the Principal Financial Group, the top reason why Americans failed in following their budget is the fact that they ate out a lot. 22% of the respondents in their survey mentioned how dining out is the main culprit. Just make use of your kitchen to cook and eat healthy food. That will turn out to be more economical and good for your body too.

  • Save money like it’s a bill. It is also important to decide on a money that you will put aside every month. Treat it like a bill that you have to contribute to consistently. That should help you grow your emergency fund faster.

Follow these steps to keep yourself from the destructive effects of debt traps. Make wise financial decisions to ensure that you will only put your money where it will grow.

If you have acquired some debts and it is carried over from last year, here is a video from National Debt Relief to help you find debt freedom.

How To Pay Down Those Holiday Debts

Woman depressed over billsIf you’re like us you probably over did it a bit – or even more than a bit – on your holiday gift giving. We try to budget carefully but always forget that tip we need to give to our newspaper delivery guy, that cousin in Toledo that deserves a present or the cost of that holiday dinner at our favorite upscale restaurant we always treat ourselves to. Plus, we always manage to spend more on some of our family members than we had anticipated.

If you did something like this and those (ouch!) credit card bills have you worried, what could you do to pay off those holiday debts quickly? Here are some suggestions you might find helpful.

Write out a list

Sit down and make a list of all those holiday-related expenditures you paid for with a credit card. If you see you won’t be able to pay them all off at once, divide the list by credit cards and then prioritize them by their interest rates. If you pay off the cards with the highest interest rates first, you will save money on interest charges over the next few months. And you should find it easier to create a realistic pay-off plan when you know your total holiday debt load.

Use your annual or holiday bonus

If you received a nice check as an annual or holiday bonus, you might want to use it for a luxurious vacation or some other fancy purchase but resist the temptation. Put the money instead towards paying off your holiday debts – to improve your financial situation. Trust us. You’ll feel much better when you’ve paid off those credit card debts than if you’d spent a week at the beach – where the memories you made soon fade.

Stop using your credit cards

Stop using your credit cards while you’re tying to pay down your holiday debts. Take a break from using them until you get your finances under control even if those cards have points or great cash back rewards. The best way to stop using credit cards is to leave them at home when you go shopping – so you won’t be tempted to use them. If you have a problem doing this, you might give them to a friend or relative for safekeeping.

Sell unwanted items or gifts

Did you find yourself opening gifts from cousin Hank or great aunt Babs and thinking, “Wow! What am I ever going to do with this?” If you got gifts you don’t want make a list of them along with any items you have lying around the house you don’t need or use. Put the items on eBay or Craigslist and sell them. Be sure to do some research before listing them to make sure you price them fairly and realistically. Take some good quality photos and write strong, attention-getting headlines so you can sell those items as fast as possible. Heck, you might raise enough money in just a few days to pay off all your holiday debts.


man holding multiple credit cards

Sell gift cards you can’t use

There are online marketplaces such as Alula and Cardcash.com where you can sell unwanted gift cards. Alula has kiosks where you could turn in those cards and immediately get a voucher you could redeem right in that store. Plastic Jungle used to buy gift cards but now offers three non-cash options. You could use it to turn your gift cards into Best Buy rewards points, exchange them for a CVS gift card or swap them for United Airlines miles. If you choose to sell your gift cards, be sure to read the fine print so you will understand how much money you will actually get back after any transaction and selling fees. How much can you expect to make selling a gift card? You’ll probably get anywhere from 65% to 85% of the card’s value.

Transfer your balances

Could you qualify for one of those 0% interest balance transfer cards? If so, you might transfer all your credit card balances to it and enjoy from six to 18 months’ interest free. This means all your payments would go towards reducing your balance instead of being gobbled up by interest charges. If you heavy up on your payments during that interest-free period, you could have your entire balance paid off before it expires. Be aware that some cards charge a balance transfer fee. Check this out before you sign up for that new card to avoid an unpleasant surprise.

Make your payments weekly

Don’t wait until you get your monthly credit card statement and then make just the minimum payment. Make your payoff plan a top priority by doing weekly payments. This will both reduce your interest expenses and help you get back onto a solid financial footing, as it should strengthen your commitment to become debt free. However, don’t start doing this until you’ve contacted the credit card company (companies) to make sure it will accept weekly payments.

Adjust your spending habits for three or more months

You will probably need to make some changes in your budget and scale back your spending for a few months so you’ll have more cash available to pay off those holiday debts. For example, you might cancel your health club membership or some other subscriptions you no longer need. You could tighten up on your grocery budget by using coupons or by buying items in bulk. You might be able to cut your cable bill by downgrading the number of channels you receive or maybe you could drop cable and stream your entertainment from Hulu, Netflix or some similar source. Whatever you decide to do be sure to keep track of how much money you’re saving. Add up that amount at the end of the month and then calculate how much it reduced your debt load as this can help keep you staying with your plan.

Use these tips to help pay off even more holiday debtSmiling woman hugging sack of groceries

If you’re really interested in paying off those holiday debts, here are some suggestions you might find helpful.

  • Focus on buying items at the grocery store that are on sale or are generic brands. These usually have the same quality as brand name items but can cost 40% to 50% less.
  • Buy and sell clothes at a consignment store. You will not only make money this way, you can often find very high quality clothing for pennies on the dollar.
  • Skip soft drinks when you’re eating out and stick with water. Also, skip dessert. Getting coffee, soft drinks or a dessert will increase the cost of that meal by 20% to 30%.
  • Trade services with friends. For example, you might be able to trade out handyman services for haircutting, photography for babysitting or pet sitting for housekeeping.
  • Give baked goods, service IOUs or other homemade gifts in place of expensive presents.
  • Boxed cereals can be very expensive. Switch to eggs, oatmeal or fruit for a better and more nutritional bang.
  • Call your utility companies and switch to a budget plan so that your expenses will be more consistent and predictable each month.
  • Don’t host or attend any in-home parties where you would be pressured to purchase things.
  • Brew your coffee at home instead of buying it at one of those drive-through stores or at work.
  • When you cook dinner, make extra servings on purpose so that you will have leftovers for lunch or for dinner the next day.
  • Pack your lunch. You don’t have to do this several times a week but if you do it regularly, it will definitely save you money.
  • Check out books and videos from your local library. You may not find the most recent movies but you should be able to find classic movies including those wonderful children’s’ films.

Important Credit Decisions For The New Year

debt and associated wordsThe first month of the year gives us time to ponder and reflect on the choices taken, credit decisions acted on and even options waited out. It gives us a chance to learn from mistakes made, apply best practices and even try something new for the year. The most important thing is to know which practices need to be avoided to prevent credit problems to pile up.

With this, the practical first step is an audit – literally and figuratively. Taking a close look at the past year’s financial data is essential in determining credit health as the new year closes in. How much debt is still owed, how much has been paid over the year and even the interest rates. Something to ponder on as well is the attitude we developed towards debt. Do we regard it simply as a monthly payment needed to be made or a ball and chain that prevents us from living a debt-free life?

Make smarter debt choices in 2014

Perhaps one of the more exciting developments for the coming year is the new mortgage law that will be taking effect. As a Reuters.com article explained, the new mortgage law calls for careful and thorough pre-assessment of loan applications. This is geared towards ensuring that the borrower has the ability to pay back the loan. If one of your intended credit decisions in 2014 is a home loan, you have to ensure that you can qualify for this.

To be enforced by the Consumer Financial Protection Bureau, rolling this out at the start of the year is already in place with creditors. As with most new laws, discussions are still in the air about some areas that could be affected with the implementation – one of which are minority group borrowings.  But the bureau is intent on upholding the ability-to-pay assessment without foregoing the rights covered by fair-lending law.

As a consumer, this law is our shield against loans we feel we can repay but in actuality, we cannot. There maybe some financial areas we need to consider like getting rid of credit card debt or lowering some payables first before applying for a new loan. Whatever it is, the new mortgage law is our second set of eyes every time we apply for a loan.

Tips to improve your credit standing this year

For the coming year, here are some tips in improving credit standing so you can make better credit decisions. An improved credit rating opens up financial options for you for your credit needs, offers better interest rates for taking out loans and even improves your chances of getting a loan even with the new mortgage loan.

Pay off a credit card. One quick way to improve your score is to pay off a card or two. You can opt to pay off the one with the smallest balance, making it easier to pay it off. You can also plan to  pay off that card that has been crippling you with a high interest rate. It will save you money down the line. Or better yet, look at your cards and pay off that one that is least used. You are better off focusing on cards that you use.

Shop around for a card. Choosing your credit card is one of the first few credit card decisions that you have to make. The credit card industry is a competitive arena and this spells good news for those looking for new cards. The aggressive competition drives down rates and drives up perks that you can easily replace your existing cards with new ones. The idea is to study carefully that cards you are considering before jumping in to a new boat.

Use priority cards periodically. There is always a card or two that is important to us. It may be the one we use for the business when taking out a loan is not an option, or that card we have accumulated a lot of points off from previous purchases. Whatever it is, use them from time to time to prevent dormant fees or closing the card entirely.

Make on-time payment. Nothing beats paying on the dot except paying earlier than the due date and putting in more than the minimum amount. But nevertheless, remember never to forget paying on time. It prevents additional charges, fees and interests that comes bundled up with late payments. It puts a blemish on your credit standing as well reflecting your inability to pay on time.

Be proactive. Monitoring your account is as much as your responsibility as it is your creditor. Especially with the recent security breach at Target. As they released in Target.com news, the PIN numbers were taken but in its encrypted state and the key is on a separate system. Even then, we need to closely monitor our accounts and make it a practice to study carefully the charges on our card.

Know the loans you need. Never apply for a loan just because your feel like it. There always has to be a valid reason before affixing your signature above that dotted line. Think twice and smart on loan applications. Useless loans that build up your payment requirement over time has a negative effect on your credit score because you will surely struggle in meeting the payment every month.

Build-up your emergency fund. Over time and due to the complexity of finances, there are different opinions on how many months your emergency fund needs to last. One thing is certain, you need to build the fund to support you through trying times. Unemployment can now reach and average of 9 months so it is practical to build up your fund for not less than 9 months. But do not stop at 9 months, continue at it as much as you can.

Monitor your credit limit. As you use your card, credit card companies increase your credit limit as a way of thanking you for using the card. It is also given to those that pay their cards on time. With this, it is wise to know what your credit limit is to prevent from overcharging against your card. It is a good practice to keep charges well under your limit to have a manageable monthly payment amount. Being able to meet payments improves your credit standing.

Know the good debts that can make you prosper

Saving up money is a great objective for the year but there are certain types of debt that, if used properly, can improve your way of life. By making the right credit decisions, you could keep yourself from turning a potentially good debt into a bad one.

Student loans. Ken IIgunas is a Duke grad student who went to extreme measures in trying to eliminate his student loans as reported by Yahoo.com. This included living in a van and using his gym membership to take showers. But Ken is more of an exception rather than the rule. He saw student loans as an immediate debt he needed to repay in order to graduate debt free, and he did. But for most, student loans are inevitable as you pursue the formal education needed to reach your dreams.

Business loans. This type of loan is acceptable because you are trying to start a business with the objective of making more money. With this, the loan is just a stepping stone in putting up that business which can improve the financial standing of you and your family.

Mortgage loans. It is every American’s dream to own a home. And waiting for the time when you have enough to buy one just doesn’t work for everyone, especially for those earning minimum wage. Taking out a home loan is one way to get that dream house now and put focus on your monthly income. It forces you to mature enough financially and prioritize the house payments before all other unimportant expenses.

As 2014 unfolds, there are steps that we can take to re-assess how we performed the past year and credit decisions we can make for this coming year to improve our way of life. With that objective, the positive effects ripple out not only to ourselves and our family but our community as well.

Do You Need To Kick The Credit Habit?

woman thinkingAre you a credit junkie? Millions of Americans are. As an example of this in 2011 the average American household had credit card debt of $15,279. The median household secured debt was $91,000 and US families had an average mortgage debt of $149,456. Plus, in March 2012 the percent of households that had credit card balances was 39%. This means that nearly 40% of credit card holders were unable to pay their balances when due. Even more alarming there were 1.18 million non-business bankruptcies just in the year 2012.

You maybe a credit junkie if …

Do you have more than two or three credit cards and can pay only the minimum or less on them? Then you might be a credit junkie. You might also be a credit junkie if you have to juggle other bills in order to pay the minimums on your credit cards or if you charge items that you used to pay cash for such as food, gas, lunches, etc. You might be a credit junkie if you constantly incur late or over-the-limit fees on your credit cards and if you take out cash advances to pay other expenses or bills. Have you taken out one or more debt consolidation loans to pay off your credit card balances but then began charging on the credit cards again? Or have you used your bank’s overdraft protection when you’ve written checks that you can’t cover? Then you might definitely be a credit junkie.

Do you also make these mistakes?

If you’re a credit card junkie you might be compounding the problem by making these common mistakes.

First, do you not read your credit cards’ terms and conditions? In one recent survey 40% of the respondents said that they did not understand the terms, conditions and rewards programs of their credit cards. If you fail to understand your cards’ terms and conditions you’re bound to run into trouble – if not now then very soon.

Second, do you clearly understand your finance charges? In one survey JD Power found that a full 73% of those who responded did not comprehend the interest rates they were being charged. At the minimum you must at least know the rate you’re paying and the penalty rate if you don’t pay. Failing to understand this is a sure path to creating more debt.

Third, is misunderstanding the terms of an introductory offer. While it might be a good idea to shift your high-interest credit card balances to a 0% interest balance transfer card, it’s a mistake to not read the fine print. You will be charged interest once your introductory period expires and it could be as high as 18% or even 20%.

Fourth, do you get credit cards for the wrong reasons? Are you tempted to get a card because of its rewards program instead of choosing one that has a low interest rate? It’s important to understand that the credit card companies are not your best friends. Their objective is to extract as much money from you as possible. This puts the burden on you to not let that happen. And the best way to do this is by comparison shopping for your cards to make sure you will be getting the best interest rates.

How much debt is too much debt?hands chained while holding coins

Do you honestly know if you’re carrying too much debt? There is an easy way to find out. First add up all of your fixed monthly debts including all those credit card payments. Next, add up all of your monthly income. If you get money as gifts or receive bonuses or commissions, total them up, divide by 12 and add that number to your normal monthly income. Finally, divide your monthly income into your monthly debts. This is your debt-to-earnings ratio. For example, let’s suppose that your total monthly income is $5000 and your total monthly debts are $2500. You would have a debt-to-earnings ratio of 50%, which would be much too high. Most experts say your ratio should be no more than 30% and, of course, the lower the better.

How to break the credit habit

If you have now learned that you’re a credit junkie, you need to get to work and break that habit. First and foremost you need to stop using credit cards and begin paying cash for everything. One easy way to stop using your credit cards is to shred all of them but one and then lock it away or give it to a relative to hold. Or you could do as one woman did and freeze it in a container of water. Do this and you would have it available in the event of an emergency but it would not be so easy to access that you would be tempted to use it for some impulse purchase.

Another trick for breaking the credit card habit is to reward yourself for not using them. You could build a new habit via positive reinforcement. Every week that you don’t use a credit card you might reward yourself with some small indulgence like a latte at your favorite coffee shop or a visit to your neighborhood ice cream store. Just make sure you keep those indulgences cheap.

How about using old-fashioned self-control? You should be able to apply the same self-control you use to get to work on time every day to stop using credit cards.

Finally, you might try a little shock therapy by figuring out how much interest you’re paying a year. As an example of this, if you have a balance of $1000 on a credit card at 14%, it would take you 4 ½ years to pay it off, assuming your payments were $25 a month. At the end of those 4 ½ years you’ll have paid $347.55 in interest. Just ask yourself if there aren’t better ways you could use that $347.

Review your credit reportsCredit Report

If you truly want to kick the credit habit you need to get and review all of your credit reports to see exactly where you stand. You can get them free once a year either from the three credit reporting bureaus – Experian, Equifax and TransUnion – or on the site www.annualcreditreport.com. Once you get your reports you need to review them carefully to make sure they don’t contain any errors that could be damaging your credit. This can also help you understand why you’re having a problem with debt.

Don’t try to borrow your way out of debt

You can get your debts under control and ultimately paid off. The trick is to not borrow any more money because as the old proverb goes, you can’t borrow your way out of debt.

While you could be tempted to take out a debt consolidation loan and get all of those other creditors out of your life, it’s not a real solution. All you’re really doing is stretching out that debt over a longer period of time. For example, if you were to get a secured loan such as a homeowner equity line of credit or home equity loan, you’d probably be paying on it for anywhere from 10 to 30 years. You might be able to pay off an unsecured loan quicker than this but you’d likely end up with a higher monthly payment than the sum of the payments you’re currently making.

Another not so good option for getting your credit card debts under control would be to transfer all your credit card balances to a 0% interest balance transfer card. This could work but only if you are able to pay off your balance before the end of the introductory period. If not, you would still be in debt and probably at a very high interest rate.

Two healthier options

Two other ways to get debt under control are debt settlement and to snowball your debts. Both of these represent better options because neither requires you to borrow more money.

If you’re not familiar with debt settlement this is where you hire a company such as National Debt Relief to settle your debts for you and for much less than you actually owe. When you owe less you should be able to get out of debt much quicker and with a lower monthly payment. Snowballing your debts means ordering them from the one with the lowest balance down to the one with the highest. You focus all of your energy on paying off the debt with the lowest balance while continuing to make the minimum payments on your other debts. Once you get that first debt paid off you would have more money available to pay off the one with the second lowest balance and should be able to do it fairly quickly. You would then go to work on the debt with the third lowest balance and so on until you became debt-free.

If you’d like more information on using the debt snowball to pay off debt, watch this video.

How Three Federal Acts Help Protect You Finically

Federal EagleDid you know that banks, credit card companies and debt collectors have something in common? It’s that they are all regulated by the federal government. Some of these regulations have to do with your rights as a consumer. You need to understand these rights so that you can avoid being scammed or become the victim of greedy credit card companies.

It’s in the CARD(s)

The first federal law you should know about is the CARD (Credit Card Accountability, Responsibility, and Disclosure) Act that was signed into law in May of 2009. The reason it was passed is because many credit card companies were engaged in activities that weren’t illegal but were definitely on the shady side. In fact, it was quite common for credit card issuers to raise their customers’ interest rates on their existing balances and often with little or no advance notice. You could have a credit card with a perfectly reasonable interest rate of 10% only to open your statement one month and find it had been hiked to 19%. If you were carrying a balance of, say, $10,000 that increase would cost you $156 more to pay of your debt in 12 months and $516 more to pay it off in 24 months.

High late fees

Another way the credit card companies were abusing cardholders was with very high fees for late payments and what are called “overlimit” fees or fees charged if you exceeded your credit card’s limit. For example, if you had a card with a $3000 limit and your balance grew to $3300, you could be slapped with a very high fee.

Confusing information

Prior to the CARD Act, some credit card companies had TOCs (terms and conditions) that were written in such a way that some consumers either could not understand them or actually misunderstood them. As a result many people signed up for credit cards and were then shocked when their statements began arriving complete with fees, charges and interest rates they hadn’t expected.

What CARD did

The CARD act was responsible for four important changes that helped consumers considerably.

First, it dramatically reduced the practice of increasing the interest rates of existing cardholders. Second, it substantially reduced the size of late fees being charged them. And, third, CARD forced the credit card issuers to rewrite their TOCs so their costs would be easier to understand – though some confusion still remains in this area.

Provisions about interest rates

The CARD Act also contains two provisions designed to reduce credit card interest rates. They are:

1. Credit card companies are generally barred from increasing the interest rate on existing balances unless and until you’ve missed two consecutive payments.

2. They are generally permitted to increase your interest rate on new purchases but must give you an advance notice of 45 days during which time you are allowed to cancel your account with no penalty.

What’s happened with late fees?

The CARD Act also protects you from unfair or excessive late charges. It does this two ways. First, your credit card bill must be due the same day each month and if your payment is received by 5:00 PM that day, it must be treated as timely. In other words, you are to be given at least 21 days to pay your bill before you can be charged a late fee. Second, any late fee you’re charged must be “reasonable,” which is usually defined as $25 the first time you’re late and $35 the second time you’re late within the following six months.

Its effect on overlimit fees

The CARD Act has also had a dramatic effect on overlimit fees as they have all but disappeared. This is because the credit card companies can no longer charge an overlimit fee unless you expressly opt in and permit the card issuer to process overlimit transactions. Plus, the credit card companies cannot charge more than one overlimit fee on any one billing statement. To put this another way, if you were to go overlimit three times in one billing period, you could be charged only for the first one.

The Fair Debt Collection Practices Actcollector holding a past due document

The second act you should be familiar with is the FDCPA or Fair Debt Collection Practices Act that was passed by Congress in 2011. This is a particularly important act if you’re being harassed by a debt collection agency as it spells out what debt collectors can and cannot do and how you can stop any harassment.

For example, the FDCPA bans collectors from:

  • Contacting you before 8:00AM and after 9:00PM local time
  • Contacting you at your place of employment after the collector has been told that this is prohibited or unacceptable
  • Threatening arrest or some legal action that is either not permitted or not actually contemplated
  • Causing your phone to ring or engaging you in telephone conversation repeatedly or continuously with the intent to abuse you
  • Communicating with third parties to reveal or discuss your debts – other than your spouse or attorney
  • Failing to cease communicating with you after you had requested this
  • Misrepresenting your debt or using deceit to collect the debt such as the debt collector representing himself as an attorney or law enforcement officer
  • Publishing your name on a “bad debt list”
  • Seeking an unjustified amount of money, which would include demanding any amount of money not permitted under the applicable contract or as under applicable law
  • Reporting false information to the credit reporting bureaus or threatening to do this
  • Contact by media that would embarrass you such as mailing you a postcard or using an envelope that includes the debt collection agency’s name.

What else you should know about the FDCPA

There are other things that debt collectors cannot do. If you’re having a problem with one, you should go to the Wikipedia page on the FDCPA to learn all of your rights.

Stopping harassment

As you can see, debt collectors are prohibited from harassing you. Unfortunately, there are those who will hassle and threaten you regardless of the FDCPA. In this case, there are other things you can do. You could send a “cease and desist” letter to the debt collection agency notifying it to stop contacting you. If you go to this site, you will find a sample cease and desist letter you could send the collection agency. Most experts say that you should send it registered and return receipt requested so that you can prove you sent it and that the collection agency received it.

Once the collection agency receives your cease and desist letter it is allowed to contact you only once more – to either tell you that it won’t contact you again or to advise you as to what step it will take next such as filing suit.

If this doesn’t work

There are definitely some really bad apples in the debt collection business and no cease and desist letter will stop them from continuing to harass you. But there are things you can do beyond just sending a letter. For example, you could report the collection agency to your state’s attorney general’s office. You could also hire an attorney and file suit against the agency. If you are successful, you could collect up to $1000 in statutory damages, plus your attorneys’ fees and reimbursement for any other expenses you incurred as a result of the collection agency’s behavior. If you would like more information about suing a debt collection agency, go to this website.

The Fair Credit Reporting Act

The third of the three federal acts you should be familiar with is the Fair Credit Reporting Act
(FCRA). Among other things, it regulates how your credit information can be treated and requires the three credit bureaus to provide you with free copy of your report once a year. The FCRA also regulates how long negative information can stay in your credit report – typically seven years from the date of your delinquency with the exception of a bankruptcy that will stay in your reports for 10 years and tax liens that will remain there for seven years from the time you paid them.

Finally, and perhaps most importantly the FCRA provides a means for you to get erroneous information deleted from your credit reports. The short version of how this works is that if you find an item on one of your credit reports that you believe is an error, you can write the appropriate credit reporting bureau and dispute it. When you do this, the credit bureau must have the institution that provided the information verify it or it must remove the item from your report.