To follow up on her story about dealing with loan modification companies, we bring you this post by Stacey Doyle.

After paying our mortgage on time for eight years, we found ourselves three months behind. To try to save our home and finances, we are considering a home loan modification. Unfortunately for us, we are past due on other bills, so our credit rating has plummeted. We’ve therefore contemplated on doing a mortgage loan modification, but we worry about what the effect of such a move will be on our credit.

Can A Home Loan Modification Ruin Your Credit?

Homeowners who find themselves unable to catch up on their mortgage payments have several options to get rid of the obligations. But many debt management solutions available today may actually have a negative effect on a borrower’s credit score — and in particular, their FICO score. In those cases when homeowners decide to walk away from their problems, there may be grave financial consequences.

What do the FICO score people have to say about it? According to FICO PR Director, Craig Watts:

“The single worst thing any person can do to his or her FICO credit score is to have serious delinquency such as foreclosure or bankruptcy appear on their credit bureau report. The impact that serious delinquencies have on FICO scores can vary from person to person, based on what other information is on the person’s credit bureau report.”

So how is my credit going to be affected now that I’ve fallen behind on my mortgage payments? Clearly, it will fall by some points, and it will take time to repair my credit regardless of which solution works out best. In the worst case scenario, credit scores are typically lowered by up to 300 points after a foreclosure. Anyone who opts for a foreclosure will see it on their credit report for seven years, and it may take a minimum of two years before they notice any improvements to their credit score.

What Are My Options?

While it is clear that my credit will be negatively impacted by my past due mortgage payments, I still have options. Some possibilities to resolve the problem include a refinance, loan modification, foreclosure, deed-in-lieu of foreclosure, short sale or bankruptcy. Here was how I analyzed and reviewed each of these options:

• With my current poor credit, a refinance is not a viable option. It would raise my interest rate and monthly payment, which I cannot afford.
• Foreclosure might leave me with a hefty bill since currently my house is worth about what I owe.
• A short sale or deed in lieu of foreclosure would pay off my current mortgage and leave me free and clear but will make a big dent on my credit score and force me to move to a new home.
• If I were to file for bankruptcy, I may be able to keep my home, but my credit would get shot. My credit history would be seriously impacted for seven years.

After reviewing my options, I knew that I definitely wanted to avoid foreclosure: this led me to what I thought may work best for my situation, which is to negotiate a loan modification.

Dealing With Mortgage Lenders

And here’s where I am today: I’ve been negotiating with my mortgage lender since last November to no avail. My original lender was bought out by another, who claimed to have lost all my paperwork. I had the local bank branch manager handle my most recent submission, which they finally received and processed. Now I was not hopeful about this because the bank manager herself admitted that she was unsuccessful with negotiating a loan modification with her own employer. And as expected, I was turned down for the modification four weeks ago and became despondent.

After some thought and additional research, I eventually decided to enlist the help of the state Housing Authority. After two meetings, they agreed to represent my interests to try to get a loan modification and also directed me to a wealth of local resources including possible free legal services.

These days, I feel more hopeful that I am headed in the right direction after reading statements from Edward A. Mermelstein, a New York real estate attorney:

“Banks are not in the foreclosure business, so they may be more willing to renegotiate or modify their rates to help get the loans off their books and keep you in your home. Also, research the foreclosure laws and time frames in your state [every state is different] by contacting the State Government Housing Office.”

Can Troubled Homeowners Get Help For Free?

The short answer? YES.

Prior to contacting the Housing Authority for help (the assistance they offer is free!), I had spoken with some debt counselors (e.g. Home Foreclosure Fighter) whom I connected with through online searches and ads. But these folks all wanted a fee, something I can’t afford to pay right now. It didn’t make sense for me to pay for any more services when I could no longer afford my own mortgage.

According to Brian Mikelbank, a Cleveland State University professor, homeowners should try not to pay for assistance. He states: “There are other resources that are financing the (housing authority) counselors, enabling them to offer free services.” He suggests looking for help through HUD (Housing and Urban Development) counselors and community leaders: “If foreclosure can’t be avoided, these are the folks that can help you get out… with the least amount of damage to the rest of your financial situation.”

The Bottom Line

No matter which way my situation goes, I realize I am not completely doomed. Linda Ferrari, author of “The Big Score”, states:

“If the Fair Credit Reporting Act doesn’t require lenders to report negative information at all or in a specific manner, then this leaves the door wide open for negotiating deletions or non-reporting of these items.”

While a loan modification will lower my credit rating, it won’t make as much of an impact as foreclosure or bankruptcy. If the terms are negotiated well, I might even be able to have negative credit notes removed. On the other hand, if we are unable to reach a settlement, a short sale or deed in lieu of foreclosure might be the only remaining path for me to take. I will keep everyone posted about my progress and findings.

Can A Home Loan Modification Ruin Your Credit?

YNAB Pro Giveaway Code: fibonacci

Should your college student own a credit card? That’s an interesting question that many parents dwell upon. This much is true: applying for and finally receiving that first credit card is a big step for any individual. I believe that it can be helpful for someone to become exposed to using a credit card early (with caveats), depending on how “ready” for this exposure the individual is. With the appropriate guidance (and guidelines), using the right kind of credit card can prove to be a helpful financial tool for a student. What distinguishes a student credit card from all other cards? Usually, they offer lower interest rates and a lower spending limit than regular credit cards.

Let’s start out by identifying which credit cards may be most suitable for college students. Then we’ll cover some important points about card use.

Best Student Credit Cards For College Students

Here are a number of good rewards credit cards that are geared towards the younger set:

1. Discover Student Card: You’ll earn 5% cash back on choice spending categories such as travel, gas, restaurants and groceries and 1% cash back for everything else. The Discover Student Card is also a 0% APR credit card that offers no interest rate for 6 months for new purchases. It has no annual fee.
For more information, please visit this link.

2. Citi mtvU Platinum Visa for College Students: This card has no annual fee and offers 0% APR for 6 months for both balance transfers and purchases. This is a rewards card that will give you 5 reward points for every $1 you spend on books, movies, music and restaurants. For $1 spent on everything else, you’ll earn $1. You’ll also earn 25 reward points per month if you stay below your credit limit. There’s also an incentive to get good grades: earn up to 2,000 reward points twice a year with proof of a good GPA. Check out their “GPA vs reward points” table:

For more information on Citi mtvU Platinum Visa, you can check out this link.

3. Citi Forward Student Card: Here’s another no annual fee rewards credit card that rewards you for good behavior. It’s also a 0% interest credit card that won’t charge you interest for 6 months for balance transfers and new purchases. With this card, you’ll get 6,000 bonus points after spending $250 in 3 months, 5,000 points when you go paperless and 5 reward points for each $1 you spend on restaurants, music, books and movies. You’ll get 1 reward point for each $1 spent on everything else. For managing your credit well, you’ll be eligible for up to a 2% reduction on your APR and an extra 100 points per billing period. For more details, check out this link.

Tips For Using A Student Credit Card

I am a firm believer that one’s money management habits are forged at a young age. I believe that anyone can learn how to manage money and understand credit cards while in college or shortly thereafter. But on the flip side, if you aren’t savvy with money or tend to hang out with friends who are spendthrifts, you may end up developing some bad habits. If you are a student and want credit, you need to understand what you are getting into. It would be great if all of us learned about money management and paid more attention to the basics of credit card use right when we start using credit cards.

I learned a few things when I got a hold of my first few credit cards — that there’s a right and wrong way to use them. Like anything else, there are pros and cons to using a student credit card. Let’s review some of these points:

The Pros

For students, one big benefit that credit cards provide is the convenience that they offer when there are emergencies. Who knows what emergencies a student will encounter, and it is comforting to know that your college student can be financially covered with a credit card in such cases. Typical scenarios might include vehicle breakdowns and attendant car repairs and towing expenses, motel bills, meals, doctor charges, or midnight apartment repairs, such as water leaks. But impromptu trips to the Bahamas certainly don’t qualify as an emergency!

Having a student credit card will help your child learn how to be financially responsible and will also help them develop a credit history.

Here are some ways to start off on the right footing with your college student: Teach your kids to use a credit card only if they can pay off their balance in full each month. Point out that using a card for installment payments is a no-no. Other good habits to develop include keeping one’s balance below the credit limit and always paying on time.

Finally, show your kids that by using a credit card in the “right” way, they can potentially receive rewards; and using cards irresponsibly can lead to financial problems later. Making these distinctions early should help your child develop a healthy outlook on debt, credit and money management.

The Cons

One of the biggest arguments against credit cards for students is the potential for these cards to get an unsuspecting teen into financial trouble. There’s the potential to develop bad money habits when you own a credit card: one month of not paying off your balance can easily snowball into something more problematic, and where can that lead you? When you accumulate debt early in your life, it’s a problem that becomes much harder to surmount.

A student may end up with several credit cards, repeating the same mistakes with each one. It therefore goes without saying that credit cards should be used with caution especially when a student is first starting out as a card holder. If you’re a parent, you must first determine if your child is ready to start using a card, and before you give them the green light for this, lay down your ground rules well in advance.

 
Contributing Writer: BEM

Best Student Credit Cards For College Students

YNAB Pro Giveaway Code: fibonacci

Will I need a new credit card again?

We haven’t had much luck with our credit cards lately. Within the year, we had some issues when our Advanta business credit card accounts got closed with little warning. Advanta closed down their credit card division due to tough business conditions.

This time around, we’re hearing rumors about what may happen to our personal credit cards. You see, we carry Upromise rewards cards which used to be managed by Citibank. For years, we were happy with our cards, given that we were great customers who paid in full and on time, each month. Then came what we thought was a minor inconvenience: Upromise switches out their card issuer to Bank of America. No biggie for us just as long as they keep with the status quo.

Bank of America Credit Cards: Introducing New Annual Fees?

Except…. we’re now hearing that BofA is thinking of making some changes to their credit card terms, a rumor which has got many customers and consumer advocates up in arms. Apparently, the company is planning to introduce annual fees in cards that never had fees before. As a customer, I must say that this just blows. I really only care about having a good credit card rewards program and no annual fees to deal with, and it would be a shame if, after all these years, I end up having to do away with Upromise because of principle. And because I don’t intend to ever have to pay for the use of plastic.

Let’s place this all into context by reminding ourselves what the new credit card rules state. The Credit CARD Act of 2009 is intended to protect consumers from credit card companies’ more underhanded tricks. Here are just some of the proposed changes in the Act:

• Credit card bill payments will be applied to the highest interest portion of your balance rather than the portion that generates the lowest interest. This is contrary to what card companies want, which is to keep your high interest debt around for as long as possible (such as what you owe for cash advances).
• Interest rate hikes will be much more limited. With the new rules, you will no longer be getting rate increases for existing balances unless you fall delinquent on your account or you’re dealing with a promotional rate that expires.
• There will be limits on “over the limit fees”. This time, you won’t forget that charging over your credit limit will incur penalties and interest on those penalties; you’ll now be required to “opt in” before you’re allowed to charge beyond your credit limit.
• Credit card terms and conditions can only be changed after you’re given 45 days’ notice. So those with rewards points, for instance, can be alerted to the potential expiration of their rewards, way in advance. Hopefully this will mean “no surprises”.

Some of these rules have already passed, while others are set to go into effect in early 2010. As credit card companies anticipate these changes, many astute industry watchers, insiders and commentators have been predicting that some of these card companies may decide to pull one last trick or two out of their hats before the doors of opportunity close, so to speak.

Sneaky Bank of America Hat Trick

So is BofA trying to sneak one past us based on how they interpret a particular rule? With the company allegedly intending to introduce new fees with their cards, BofA insists that “annual fees” are not the same as “interest rates”. And while the CARD Act protects us from unexpected changes in interest rates, we’re supposed to think that annual fees are something else altogether and are therefore, not subject to the same rules.

Then again, there’s supposedly at least one court case that does establish a loose equivalence:

Interest = Annual Fees.

as per The Consumerist. But this is something for the legal eagles to handle.

Nevertheless, I’ve heard that Bank of America will try to “test” their customer base with the new annual fees. And while I think this is quite annoying, I wonder how much of this they can actually get away with — will their customers, like me, abandon them for the nearest No Annual Fee card? Or will there be loyalists who stick around? Who among us will simply roll around and take it, thinking that $30 a year isn’t really “that bad” in the whole scheme of things? The worst case scenario is that this sets a precedence for companies to start raising annual fees because they can no longer get away with much else. Sure, go ahead and pick on your best customers.

If this pushes through, I’ll regret having to abandon Upromise’s great rewards program that feeds cash rewards into my kids’ 529 savings plans.

Bank of America Credit Cards: Introducing New Annual Fees?

YNAB Pro Giveaway Code: fibonacci

Do you want to get rid of your debt? Then here’s a do-it-yourself debt management plan you could try!

We all want to keep an eye on our waistlines, but why not watch our “wastelines” too? Eating better and eating less can go hand in hand with spending less and getting your finances in order. I am, in fact, doing both. I started on an improved diet a few weeks ago and just the other day discovered Oprah’s “debt diet,” even though it has been in existence since 2006. They fit nicely together. In both areas, I am trying to be more frugal and am aiming to make better choices.

In the eating arena, I am eating healthier food in smaller portions — more fruits and vegetables, fish, nuts, and treating myself to desserts sparingly. I think about my new food choices before I buy anything at the grocery store. In the money arena, I want to make a budget and stick to it, buy only what I need, and use cash whenever possible. Less splurges at the grocery store will definitely help with the food bill, and this behavior should positively affect other financial areas of my life as well.

So what is Oprah’s debt diet? Oprah gathered together three finance gurus — Jean Chatzky, David Bach, and Glinda Bridgforth — to share debt elimination tips, to suggest ways people can increase their incomes and decrease their debt, and to help several families solve their financial dilemmas.

DIY Debt Management Plan: Oprah’s Debt Diet

The Debt Diet itself consists of the following eight steps, along with some specific advice per step. I think these are great guidelines you can employ on your own, to manage your own finances:

Step One: Find out how much debt you really have, and what it is costing you.

• Write down all the information you have on your existing debt, as a starting point.
• Monitor your credit score and report. Some suggestions: To get your FICO score you can visit myFICO for the information you need. Be sure to use a myFICO promotional code to receive a 20% discount. If you’re after free non-FICO scores, you may visit CreditKarma.com or Quizzle.com, where the scores they offer are proprietary. For free credit reports, check out the site AnnualCreditReport.com.
• Prioritize your bill payments. Start with paying for your necessities first (which you need to survive!), followed next by paying your taxes or any other government specific obligations. After taking care of these matters, you can finally address everything else.

Step Two: Track your spending and find extra money to pay down debt. David Bach coined this activity the “Latte Factor”: so how much do you spend on your latte (or any other goody you regularly buy) per year? How much are you willing to give up in order to free up money for your other needs?

Step Three: Know how to use credit cards to your advantage.

• Pay more than the minimum. With an extra several dollars appropriated to your credit card bill on a regular basis, you’ll be out of debt sooner rather than later.
• Lower your interest rates. Here’s something to try: figure out if your credit card issuers are willing to negotiate with you on the interest rates that you are paying. If you’re a good customer, you may have some leverage. If they’re unwilling to work with you, tell them that you’ll take your business elsewhere.
• Determine the right type of card for your needs. It also pays to have some familiarity with the different types of credit cards that are available, so it’s always good to know what type of card is most suitable for your needs. For instance, despite the tighter credit environment, balance transfer cards, and 0% interest credit cards still exist, which are effective for debt reduction if you have the discipline to pay off your balance before any teaser rates expire. Other things to note: if you’re considering getting a new card and you expect to carry a balance, then take a look at low interest rate cards. But it you always pay your balance in full then you should shop around for the best credit cards with rewards.
• Understand how credit cards “work” and what kind of tricks card companies have up their sleeve. Before signing up for a new card account, check the card’s interest rate, late fee, teaser offer and annual fee.
• Analyze and decide which credit card bills you should be paying first. There are many strategies to do this: you can pay off your most expensive, highest interest rate debt first or perhaps you may prefer to handle your smallest balance first. Oprah suggests using David Bach’s DOLP (or Dead on Last Payment) method.

Step Four: Stop spending. No explanation needed for this one.

Step Five: Create a monthly spending plan. Creating one such plan every month will help you account for both your regular, planned expenses, as well as your unexpected expenses.

Step Six: Find out ways to grow your income and take steps to achieve this. For example, you can sell items you no longer need by holding a yard sale — but I’d rather go a step further by selling them through eBay. I would then open an eBay store and try to turn this opportunity into a permanent online venture. Other ideas for increasing income include getting a part-time job or freelancing.

Step Seven: Prioritize your debts and improve your credit score. Prioritizing your debt will help you pay it off faster. You should also take steps to raise your credit rating so that you can better negotiate your interest rates.

Step Eight: Do your best to understand yourself and your own spending behaviors. Evaluate the reasons why you spend; this will take a bit of self-reflection. Also, learn how to save and work to build up your savings. You can always start by learning how to invest small amounts of money. Eventually, plan to increase your savings over time.

What I’ve provided is just an outline of what’s in the Debt Diet. For more details, you can visit Oprah.com, where you will find the Debt Diet, along with a lot of other personal finance topics.

Remember, in both eating and spending — less is more!

 
Contributing Writer: BEM

DIY Debt Management Plan: Go On Oprah’s Debt Diet!

YNAB Pro Giveaway Code: fibonacci

Should I get a personal loan? At any given point in time, that’s what a whole lot of us are pondering. Taking on consumer debt has become one hard habit (or vice) to break.

One of the most eye-opening profiles on consumer debt that I’ve seen was one from the New York Times, where they presented a whole bunch of articles and multimedia elements to answer the question: how the heck did America get in the current financial mess it’s in right now? How did we fall into such a deep debt hole?

9 Decades of Consumer Debt: How Our Debt Problems Got Out Of Control

There’s a lot we can discuss about in this series (aptly called The Debt Trap) but I wanted to focus a bit on the interactive feature that gives us a look at consumer debt throughout the years (nicely illustrated by Amy Schoenfeld and Matthew Bloch). The graphic is entitled “The American Way Of Debt” and shows the average household debt and annual savings in today’s dollars, throughout nine decades (1920 – present). It’s pretty incredible to see just how much our love affair with personal loans, 0% APR credit cards and mortgages has caused our household debt to balloon to unprecedented levels (click on the image to enlarge it):

Image from the NY Times

This pic shows the history of our consumer debt (in blue) and our savings (in orange). There are a few notable aspects here, such as how the annual savings rate during our current decade is the lowest it’s ever been — rivaling only the savings rate during the depression years (1920s – 1930s). Then during wartime years in the 1940s, there seemed to be a peak in savings, with American households saving up to $12,800 a year (wow); this situation was credited to wartime restrictions on credit, but by the end of this period, people went back to borrowing more and saving less.

Over time, we see how various debt instruments and products are introduced to the general population. Adjustable rate mortgages pop up in the 70’s, along with Sallie Mae, the largest lender for student debt. The 70’s was also the time when credit card debt began to pick up traction.

Then in the 80’s, we see how debt shifts to mortgages, and this seems to be the turning point for mortgage-backed securities — when lenders began to transfer some of the risk they were bearing onto investors. And things get progressively worse (debt-wise) all the way to the present time, where we now face these sobering facts:

In the 2000s, debts soar with rising home prices, historically low rates and increased access to credit. Only a quarter of households have no debts.

• Mortgages: Home ownership rises to nearly 70%. 31% of homeowners have no mortgage debt.
• Installment Debt: Two thirds of college students have student loan debt, up from half in the 1990s.
• Credit Card Debt: 40% of households carry a credit card balance, up from 6% in 1970. The average household carries 13 cards.

I believe that our collective household finances have never been worse than in recent years: savings have pretty much evaporated with families saving an average of $300 to $400 a year, while dealing with a debt load that’s as immense as ever. The graph shows that all types of debt are up — from credit card debt and installment loans to home equity loans and mortgages. The average debt load has blown past $100,000 and that’s where we are today. The scary thing is that this happens to be the state of consumer debt and savings today, which is only one aspect of the big picture. If you take a bird’s eye view of our nation’s financial situation — the economy as a whole, how our business and government sectors have been operating, the budget deficit — the future seems far from uplifting.

So when are we going to get our act together?

If you’re in debt, here are a few thoughts on how to manage your financial situation:

• How To Pay Off Credit Card Debt
• Get Rid Of Your Debt With These Debt Defying Strategies
• Debt Elimination Tips: How To Reduce Debt With These Dos and Don’ts
• How To Lower Your Credit Card Interest Rates

How Our Consumer Debt Problems Got Out of Control

YNAB Pro Giveaway Code: fibonacci

If you’re a borrower who’s looking to get a personal loan that’s potentially cheaper than at banks or loan companies, or if you’re an investor who’s interested in a new way to invest in short term instruments, you may be interested to know that there’s a particular service that allows both borrowers and investors to help each other out via a special network, called a peer to peer lending network.

The idea is to match borrowers and lenders/investors without the need for a “middleman”. We’ve covered this type of service in a lot of past articles, such as in this Lending Club review. But I’d like to mention another well known company in this space that is offering some cash bonuses for its members: Prosper has a few ongoing promotions right now.

There are three ways to earn cash bonuses with Prosper:

1. Prosper.com: $50 Cash Bonus To Open A New Account

While you can open an account with Prosper as a borrower or lender, only lenders (or investors) qualify for the $50 sign up bonus. All it takes is that you sign up for a Prosper lending account and fulfill two bids on Prosper loans, after which they’ll deposit $50 in your account. Here’s are some basic requirements to get you going:

• Provide your driver’s license.
• Provide your bank account information.
• You have to reside in one of these states: California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Maine, Minnesota, Missouri, Montana, Nevada, New Hampshire, New York, Oregon, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin and Wyoming

At this time, investing in peer to peer lending is only available in certain states as it is a regulated investment activity and requires scrutiny by the state government before it’s permitted. In due time, it is expected that residents from all the states will eventually be able to participate in this form of investing.

Historically, returns through Prosper have been attractive, where you may earn from 7% (for lower risk loans) to 13% (for higher risk portfolios) annually. Note of course that there are risks associated with all investments, including this one, so do your due diligence before participating in the network.

2. Earn a Cash Rebate Based On Your Investment Amount

As a lender you can also earn a cash rebate between October 12, 2009 and November 15, 2009. You’ll need to successfully bid on loan listings that result in funded loans. Once you’ve made your investments in these loans, you’ll receive the following rebates based on the amount you invest:

• Investing $1,000 to $4,999 will get you a 1% cash rebate deposited into your account.
• Investing $5,000 or more will get you a 2% cash rebate deposited into your account.

These deposits will take place by December 4, 2009.

3. Earn a $100 Referral Fee

There’s also a “refer a friend” program wherein you can receive a cash bonus of $100 for any new borrower you refer to Prosper. Any Prosper member, whether you’re a borrower or lender, can participate in this program.

For more information on the topic of peer to peer lending and other companies involved in this space, here are a few articles for your perusal:

• $25 Lending Club Sign Up Bonus
• Lending Club Return On Investment
• Personal Loan Interest Rates from Lending Club

Prosper.com: $50 Bonus For A New Account

YNAB Pro Giveaway Code: fibonacci

What should you do when your credit card company raises your interest rate? Here are some thoughts on credit card reform from our contributing writer, Jacques Sprenger.

I thought I had the best credit card around. But then getting a sudden rate hike on your credit card for no reason whatsoever is like an icy shower when you expected warm water. My issuer just hit me with such a raise which didn’t improve my mood in spite of their friendly accompanying letter: “Your history as a preferred customer has nothing to do with the interest hike which was caused by the economy’s present circumstances. You may reject the raise by paying off your credit card balance.” Right, like we have $4,000 lying around just for that purpose. The average American family owes more than $10,000 on credit cards which used to be given in cereal boxes (a little hyperbole!). Now you have to show that you make as much as Bill Gates to be approved (yes, another hyperbole).

The Government Intervenes With New Credit Card Rules

Check out the following image by Make Them Accountable. Left panel says — “before strict new credit card rules”. Right panel says — “After: Warning. Largest unsecured piano”.

President Obama would get a lot of kudos if he can convince the credit card companies to play fair: it’s actually good to see some inroads made on this matter, where the credit card industry has been made to face the “new rules of the road”. The President is apparently very much committed to leveling the playing field: “The days of any time, any reason rate hikes and late fee traps have to end,” Obama said. Chris Dodd, a long time senator who has been embroiled in lobbying controversies, is trying to burnish his image by going after the credit card companies full blast; you may have seen him make the news a lot recently. Sen. Dodd wants the new credit card rules enforced immediately and has demanded a freeze on interest rates on all existing credit cards debts. In fact, he’s introduced a bill on this recently.

What About a Credit Card Bail Out For Families?

What we also need is a plan to help those families who face a financial crisis because of illness or lay-offs. Why should we bail out all these banks, many of which own the credit card companies, if all they can think of is to lower your credit limits and raise your payments? For the life of me I can’t figure out how punishing people is going to allow them to pay their debts. And yet, banks routinely smack us with humongous interest rates because we are late ONE day. While the Fed has lowered rates to almost zero, predator credit card companies charge up to 39% for making a late payment. They should talk to some insurance companies which offer first accident forgiveness. Being late on one payment happens to all of us due to oversight or simply a slow post office. Forget the deadbeats and irresponsible people who max out their credit cards knowing they will never pay them. We are talking about upstanding people who have been paying religiously for 10 years and who’ve made these companies (and CEOs) rich.

Should You Opt Out of Interest Rate Increases?

Some people have felt the pinch: here’s someone who tells us his own story about paying 8.9% on his credit card bill, and he’s never missed a payment. He mentions how his interest rate “.. would change to a variable rate of 14.65% annually.” His card issuer is BofA — “the fine folks at Bank of America, who’ve spent the last few years buying up failed institutions like Countrywide and Merrill Lynch and taking some $163 billion in taxpayer bailout pledges..” So while BofA has screwed up and received billions of bail out money, they’re not exactly giving their customers much leeway. Here’s what this customer tells us:

The credit card interest rate hike is an offer I’m allowed to refuse. I can reject the increase and pay off the balance at the current terms, but that means I would no longer be able to use the card. If I reject the increase, it also means my credit line on that account would effectively shrink to the current balance, which could hurt my credit score.

Whether or not you decide to opt out of your interest rate hikes, you may be up the creek either way. But then again, we shouldn’t forget that using credit cards is simply a privilege. I’m crossing my fingers that existing 0% APR credit cards and balance transfer cards avoid going the way of the Dodo bird.

What Are Your Options?

Is there something we can do? My opinion here is that unless you have no choice (the new card terms and conditions are unacceptable), then keep the card, pay the least amount possible above the minimum and DO NOT use your card again. It will preserve your credit and will allow you to sign up for a new low interest rate credit card… as soon as you can find one. If you have to pay off the card, make sure you don’t close your account; simply stop using your card, again to keep your credit rating intact.

New Credit Card Rules, Opting Out of Interest Rate Increases

YNAB Pro Giveaway Code: fibonacci

If you’re looking to save money on your existing debt by considering a debt consolidation loan, there are a few things to keep in mind. I had a friend approach me once, asking whether she should refinance or try debt consolidation in order to “package” her loans better. Sure, a single loan to replace all your loans at a lower rate is a great thing, but there are a few things to watch out for:

Debt Consolidation Tips

1. Determine if debt consolidation is worth it. Deciding to consolidate your debt into one cheaper loan (or loans) usually comes at a cost. Maybe you’ll have to pay for the privilege of getting the new loan, or it could be simply the time and effort of making it all work. It gets even more expensive if you opt to hire someone to help you out with this.

2. Stay disciplined and committed. When people choose to get a new loan to pay off old ones, it’s pretty much a matter of “fighting fire with fire”. But the risk here is that once you rework your debt set up with such a loan, you may become tempted to pile on additional debt because the lower payments could make you feel complacent. Don’t take things for granted just because you’re paying less towards your debt!

3. Maintain good credit. One of the biggest ironies in personal finance is that those who have the greatest need to take out loans are usually those who have the worst credit. Unfortunately, people with bad credit are the ones stuck with the highest fees and most expensive debt around. So to qualify for loans with the best terms, take care of your credit and use debt responsibly.

4. Be careful about collateralized or secured loans. You can consolidate your debt by using your home equity, but I wouldn’t do it. In some cases, it may be the “best deal around”, but understand the risks here: if you take out a HELOC to do a debt consolidation, just make sure you stay current with your payments or you could be risking your home. A twist to this idea is to borrow from your retirement account. This could be a cheap option to get cash, but if you don’t pay back your debt when it is due, you’ll face penalties.

That said, here are a few sources for potentially cheaper loans that can help you lighten your debt load if you do decide to consolidate your debt.

Best Debt Consolidation Loans For Those With Good Credit

These are my two preferred ways to consolidate debt using cheaper loans:

1. Check out lending networks.
If you’re what’s called a “prime borrower”, you’ll probably be able to take out a loan from your bank pretty easily. But you can actually go cheaper here, given your good credit. I’m surprised that not more people are familiar with a social lending network like Lending Club. They are around specifically to help people with good credit get personal loans at a lower rate than they’d get from traditional lenders. Lending Club is a peer to peer lending network that has the following benefits:

• You can borrow up to $25,000 through Lending Club.
• You are charged fixed interest rates (as opposed to some credit cards that have variable rates).
• You pay fixed monthly payments.
• Loans have a term of 3 years, which you pay through installments.
• Personal loan interest rates are typically lower than at credit cards or banks because the “middleman” is taken out.
• You can pay off debts in full without penalties (within 3 years or earlier).
• Your privacy is ensured.

To qualify as a borrower, you should have a FICO score of at least 660 and a debt to income ratio (minus your mortgage) that’s below 25%. Also, people who reside in certain states won’t be eligible to participate in this network. However, the company is working to have this service accessible on a national level.

2. Consider balance transfer credit cards.
Shop for low interest rate credit cards if you know that you’ll be keeping a balance. Also, if you’ve got decent credit but have high interest credit card debt, you may be able to lower your card payments by considering the possibility of moving your balance over to balance transfer cards, but only if they turn out cheaper for you in the long run. If you’ll be able to pay down your debt during the intro period, then these 0% APR credit cards can be a great choice. Watch out for balance transfer fees though, as you’ll need to factor these in when you determine whether it’s worth doing the transfer.

But What If You Have Bad Credit?

Now if you’ve got bad credit, you may be out of luck here. But let’s take stock of what you can do. Here’s what I’d do:

1. Work on cleaning up your credit. If you improve your credit score, you can eventually qualify for better terms on your loans and may be able to gain leverage with lenders. You’ll have a better chance at negotiating with financial companies if you’ve got good credit and are a good customer. Here’s more on how to repair bad credit.

2. Seek government assistance. Look into government programs that can help you get back on your feet as you resolve your debt issues. Debt and credit counseling may be available for free through local government or social agencies.

3. Be careful about hiring professionals. You can also hire for-profit specialists in the debt consolidation field. However, debt consolidation outfits, loan modification companies and debt settlement companies operate in murky territory so you’ll need to keep your eyes peeled for unscrupulous agents in these areas. Not to say that there aren’t any helpful service providers around, but note that these providers charge fees for work you can do yourself. And the truth is, you can’t trust anyone with your finances more than you can trust your own self.

Best Debt Consolidation Loans For Those With Good Credit

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Not long ago, Advanta closed my business card account when their credit card division folded. I had then expressed my need for a new credit card. Now that I got myself a replacement business card, it seems that I may need to get a new consumer card as well. I have a Bank of America Upromise rewards card that has no annual fees, but I’m hearing rumblings that fees may be introduced for this card soon.

Given that my #1 requirement for a credit card is that it has NO annual fees, then I may have to start shopping around for a possible replacement. I pay my credit card bills in full each month, so I’m most interested in rewards credit cards, and in particular, cash back credit cards that have NO fees. On that note, I’ve decided to be proactive and look at a few such cards in more detail, including Chase Freedom (SM).

Chase Freedom: Credit Card For Cash Back Rewards

The Chase Freedom (SM) credit card is a cash back rewards card with the following features:

• Get a $50 cash bonus on first use or once you’ve made your first purchase.
• Earn up to 20% cash back at select retailers when you shop through Chase.
• Earn 3% cash back in popular rotating spending categories such as gas, home improvement and department stores.
• Earn 1% for all other purchases at all times.
• 0% intro APR on purchases for up to 12 months, based on your credit history.
• No annual fee.

Chase Freedom Card Rewards

Here are a few more details about the rewards: as a new cardmember, you’ll actually qualify for the $50 bonus under many scenarios. You’ll receive the bonus after your first use, which includes making a purchase, doing a balance transfer, or using checks, excluding cash advances.

The cash back rewards are unlimited, which you’ll earn when you make purchases. Note that you won’t earn any rebates when you do a balance transfer or get a cash advance. Also, you’ll qualify for additional 3% quarterly cash bonus rewards when you spend on certain categories. For the 10% to 20% cash back, you’ll have to shop online using your Chase account and using Chase’s Ultimate Rewards Mall.

Chase Freedom Card Terms

Other interesting things to note about this 0% interest credit card (for new purchases): This is a 0% APR credit card that won’t charge you interest on purchases made during an intro period. The intro period can either be 6 months or 12 months based on your credit history.

After the intro period, the card’s regular rates kick in, with variable terms depending on which pricing/rate category you fall under: Elite, Premium or Standard. The card has different rate structures based on your credit rating, so unlike other cards where everyone may receive the same rates at all times (barring some exceptions here and there), this card has variability built into its terms.

For instance, if you’ve got excellent credit, you’ll likely be receiving the Elite pricing terms, and with a more mediocre credit score, you may end up with the Standard terms. The APRs are tied to the prime rate, which is one benchmark for lending used by financial institutions. Chase also reserves the right to decide which rates to offer you. All applications will at first be considered for the most attractive terms, but depending on the credit information the issuer pulls from your reports, your rates will be adjusted accordingly. There is the possibility that you may end up with alternative rates or that your application may be denied.

Also, while this card accepts balance transfers, it’s not really considered a balance transfer card. If you transfer your balance to this card, you will be charged a prime rate plus some additional APR based on your pricing/rate category (as mentioned above).

Other Rewards and Cash Back Credit Cards

Chase Freedom (SM) has been in my list of top cash back credit cards for a while now and I’ve eyed it as a card I’d consider applying for when the need arose. For the record, here are some rewards cards that I’ve been tracking and which I’ve featured before:

Chase Freedom: Credit Card For Cash Back Rewards

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The 12 month 0% interest balance transfer credit card is back!

So much has changed over the past few years in the credit card industry, what with new regulations, the disappearance of easy credit, the reduction of credit card offers and advertisements through the mail, and not to mention, the expiration of long term and lifetime balance transfer programs (and awesome card terms). Those sweet terms we used to enjoy that allowed a lot of people to make money off their credit cards or to afford so much on plastic seem to have evaporated.

But through it all, there have been balance transfer credit cards that stayed in the market, albeit with shortened intro periods and higher transfer fees. While I’m not predicting that we’re seeing the light at the end of the tunnel for the card industry, some card issuers are showing signs of life by reintroducing the 12 month 0% balance transfer credit card.

0% Interest Credit Card With 12 Months Balance Transfer Terms

Here’s the good news for those of you who are looking for a 0% APR credit card either to transfer your balance over to, or to simply enjoy for the 0% rates on new purchases. Check out the Discover More American Flag card.

This rewards credit card is one of the Discover More card variants, except with different balance transfer terms from the rest. The Discover More American Flag credit card is available with the following great benefits and top rewards card features:

• 0% APR for 12 months upon balance transfer. After 12 months, the standard rates will apply. The balance transfer fee is 5%.
• 0% APR for 6 months for new purchases, with the standard APR becoming effective after the intro period.
• Full 5% cash back bonus in top spending and shopping categories such as restaurants, groceries, travel, gas and more.
• 5% to 20% cash back bonus when you shop at top retailers.
• Up to 1% cash back bonus will be automatically applied for all other purchases.
• No annual fee.

Discover More Credit Cards And Other 0% Balance Transfer Offers

Discover More credit cards also come in other types and carry with it other terms. For instance, this table shows the Discover More cards that are available.

Most other balance transfer credit cards offer the term of 0% APR for 6 months, along with the 3% balance transfer fee feature. You’ll have to decide which card will be cheaper for you in the long run: the shorter term (6 months) with lower balance transfer fee (3%) or the longer term (12 months) with higher balance transfer fee (5%). For those who only care about new purchases, then the Discover More cards have identical terms.

0% APR Credit Cards For New Purchases

Now if you have good credit and are looking for a cash back rewards credit card that can offer you 0% APR for a limited time, albeit for new purchases only, then check out the Chase Freedom Credit Card. This card offers a variable rate: cardholders with the best credit will receive a 0% APR for 12 months, while others may receive a standard rate of 0% for 6 months based on credit history (for new purchases). The card itself is a decent cash back credit card that yields 3% to 20% cash back on select spending categories and rewards you with a 1% cash rebate on everything else. Plus, you’ll get a $50 cash bonus after you make your first purchase.

0% Interest Credit Cards, 12 Months Balance Transfer

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