Posts on Credit Cards
Posts on how to use credit cards and avoid getting caught in credit card traps.
Highlighted posts: Sneaky Fees - Poor Customer Service: Discover Card - Don't Let the Credit Card Companies Play You for a Fool - Families Shouldn’t Finance Everyday Purchases on Credit
Related: How to Use Credit Card And Avoid Fees
Credit problems create a vicious cycle. Credit card interest rates are increased, fees are onerous and even applying for jobs is negatively affected (many employers look at credit reports as one factor in the hiring process), insurance companies look at them too and can offer higher rates. Employers and insurers have the belief that bad credit is an indication of other risks they don’t want to take on. Once into the cycle there are challenges to deal with. I must admit I think it is silly to look at credit for most jobs. But a significant number of organizations do so that is an issue someone that gets themselves in this trouble has to deal with.
I think the best way to deal with this problem is to build a virtuous cycle of savings instead. We tend to focus on how to cope with a bad situation instead of how to take sensible actions to avoid getting in the bad situation. In general we spend far too much money and take on too much debt – we live beyond our means and fail to save. Then we have a perfectly predictable temporary hit to our financial situation and a vicious cycle begins.
If we just acted more responsibly when times were good we would have plenty of room to absorb a temporary financial hit without the negative cycle starting. The time to best manage this cycle is before you find yourself in it. Avoiding it is far better than trying to get out of it.
Build up an emergency fund. Don’t borrow using credit cards – or any form of consumer debt (borrowing for education, a car or a house, I think, are ok). Save up your money until you can afford what you want to purchase. Don’t buy stuff just to buy stuff.
Re: The Vicious Circle of Poor Credit
Related: Real Free Credit Report – In the USA 43% Have Less Than $10,000 in Retirement Savings – Financial Planning Made Easy
The government has stopped some of the worst abuses by credit card issuers however, those financial institutions are not without ways of continuing to take advantage of customers, Credit-Card Fees: the New Traps
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Banks already are reaping more fees on overseas transactions. Not only are they raising foreign-exchange transaction fees—the cost customers pay for purchases made in foreign currencies—but they are expanding the definition of what qualifies as a foreign transaction.
In the past, people who made online purchases from foreign merchants, or who traveled to a country where the purchases are often in U.S. dollars such as the Bahamas, were generally immune from paying such fees. But Citi and Bank of America recently imposed their 3% foreign-transaction fees on all foreign transactions—even if that purchase is charged in U.S. dollars. Discover Financial Services also began charging a new 2% for foreign purchases last year.
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And there are ways to avoid annual fees. Citigroup is alerting some customers that it is assessing a $60 annual fee on their cards. The cure for that is simple. If you spend $2,400 on the card in a 12-month period, the bank will refund the fee.
I’ll tell you a better way to avoid the abusive fees. Don’t deal with the large banks that the government bailed out. My credit union offers a credit card with no annual fee without any minimum spending requirements, and many others do as well.
Related: How to avoid getting ripped off by credit card companies – More Outrageous Credit Card Fees – Sneaky Credit Card Fees – USA Consumers Paying Down Debt –
I have discussed the advantage of using credit unions over trying to cope with a bank since so many banks constantly try to trick customers into paying huge fees. Here are some resources to help:
- Find a local credit union – with an overview of services offered
- Find a local credit union from (NCAU) with links to Financial Performance Report data.
- Credit Unions have National Credit Union Share Insurance Fund (NCUSIF) (“backed by the full faith and credit of the U.S. Government”) instead of FDIC. The limits on the share insurance are the same as the limits on FDIC, currently $250,000 per individual account holder. Use the link to make sure your credit union provides NCUSIF coverage.
You can also get credit cards through your credit union. In general credit unions are much more interested in trying to provide the customer value instead of trying to stick them with huge fees. But don’t just trust your credit union, check out the rates and fees they charge and comparison shop for the best credit card.
Related: posts on banking – FDIC Study of Bank Overdraft Fees – Credit Unions Slowly Fill Payday Lenders Void
Elizabeth Warren is the single person I most trust with understanding the problems of our current credit crisis and those who perpetuate the climate that created the crisis. Unfortunately those paying politicians are winning in their attempts to retain the current broken model. We can only hope we start implementing policies Elizabeth Warren supports – all of which seem sensible to me (except I am skeptical on her executive pay idea until I hear the specifics).
She is completely right that the congress giving hundreds of billions of dollars to those that give Congressmen big donations is wrong. Something needs to be done. Unfortunately it looks like the taxpayers are again looking to re-elect politicians writing rules to help those that pay the congressmen well (one of the problems is there is little alternative – often both the Democrat and Republican candidates will both provide favors to those giving them the largest bribes/donations – but you get the government you deserve and we don’t seem to deserve a very good one). We suffer now from the result of them doing so the last 20 years. Wall Street has a winning model and betting against their ability to turn Washington into a way for them to mint money and be favored by Washington rule making is probably a losing bet. If Wall Street wins the cost will again be in the Trillions for the damage caused to the economy.
Related: If you Can’t Explain it, You Can’t Sell It – Jim Rogers on the Financial Market Mess – Misuse of Statistics – Mania in Financial Markets – Skeptics Think Big Banks Should Not be Bailed Out
The credit card delinquency rate (borrowers 90 days or more delinquent on one or more of their credit cards) dropped to 1.10% percent in the third quarter of 2009, down 6 basis points from the previous quarter. Year over year, credit card delinquencies remained essentially flat from 1.09% in the third quarter of 2008.
Credit card delinquency was highest in Nevada (1.98%), Florida (1.47%) and Arizona (1.35%). Credit card delinquency rates were lowest in North Dakota (0.66%), South Dakota (0.70%) and Alaska (0.73%).
Average credit card borrower debt decreased to $5,612 from the previous quarter’s $5,719, and $5,710 for the third quarter of 2008.
“At end of the 2001 recession, the national bankcard delinquency rate had increased to a high of 1.69% as that recession came to a close (in November of 2001),” said Ezra Becker, with Transunion.
The slight declines in credit card debt are an encouraging sign that more people are taking the right action to eliminate their credit card debt.
Related: USA Consumers Paying Down Debt – Consumer Debt Down Over $100 Billion So Far in 2009 – Families Should not Finance Everyday Purchases on Credit – Some Movement on Regulating Credit Cards Companies
Retailers Ready for Fight on Credit-Card Fees
The report, released Thursday by a coalition of retailers, supermarkets, drugstores and other businesses, found that Americans currently pay about $2 in “interchange” fees for every $100 they spend using credit cards. The fee is actually paid by retailers, though consumers feel it in a higher retail price. This rate is twice that charged in the U.K. and New Zealand, four times the rate levied in Australia and more than six times the cross-border rate charged in the European Union, the study says..
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“If we paid the same low credit- and debit-card swipe fees as consumers in Australia pay, then the net benefit for American consumers would have totaled $125 billion over the last four years,” the report says.
It truly is amazing how incredibly poor the banking services in the USA are. The banks have managed to provide mediocre service at exceedingly high prices. It sure seems to be due to unfair trade practices (allowed by poor regulation). See our tips on how to avoid getting ripped off by credit card companies, though it won’t help with these excessive fees.
Related: Continued Credit Card Company Customer Dis-Service – More Outrageous Credit Card Fees – Hidden Credit Card Fees – Poor Customer Service by Discover Card
Consumer borrowing falls in March at fastest pace in over 18 years, Americans saving more
In dollar terms, consumer borrowing plunged by $11.1 billion. That’s the largest dollar amount on records dating to 1943, and more than three times the $3.5 billion drop that economists expected. The borrowing category that includes credit cards dropped 6.8 percent in March after a 12.1 percent plunge in February. The category that includes auto loans fell 4.2 percent after rising by 1.2 percent in February.
The Commerce Department last week said that the personal savings rate edged up to 4.2 percent in March, marking the first time in a decade that the savings rate has been above 4 percent for three straight months.
Good. Consumer debt is far to large and should be paid down. This is a start but a small start, but a much larger reduction in outstanding consumer debt is needed before we have reached a healthy level of debt. The continued improvement in that debt level signifies a stronger economy. Far too many financial journalists instead of pointing out the benefits of such improvement note that this reduces current consumption (and thus, effectively, will lower current GDP – compared to what it would be if we continued to spend beyond our means). You cannot spend money your don’t have forever.
Having more stuff in your house (along with an increased outstanding credit card balance) does not make you economically more successful. And the same holds true for the economy. Having more stuff sitting in people’s house and an increasing debt load is not the sign of a stronger economy (even if it is a route to a higher current GDP). Increased saving and reducing debt will strengthen the economy and improve our economic success over the long term.
Related: Will Americans Actually Save and Worsen the Recession? – Proper credit card use – Personal Saving and Personal Debt in the USA – Americans are Drowning in Debt – Buying Stuff to Feel Powerful
Sneaky changes to your credit cards
Credit card interest rates are typically pegged to the prime rate, which has fallen from 5.25% a year ago to 3.25% now. But the national average rate for credit cards has actually risen over that period, moving from 11.3% to 12.4%
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* The standard balance transfer fee has risen to 3%, and Bank of America recently joined Discover in increasing that fee to 4% on certain offers.
* Cash advance fees had been 3%, but Bank of America now has 5% cash advance fees for money obtained through ATMs and at banks, and 4% fees on advances via direct deposit and checks.
* Foreign transaction fees — charged when you make purchases in other countries or use foreign banks — are going up for many cardholders. Starting June 1, Bank of America will begin charging for a service it had previously provided free: Transactions made in U.S. dollars but processed through foreign banks (such as online purchases from overseas merchants using foreign banks) will be hit with 3% fees.
The incredibly large fees are a good reason to not use your credit card for these activities. 5% to get money from an ATM. You have to be crazy to submit to such a fee. The banks continue to fight with the airlines for who can keep providing the most horrible customer service.
Related: How to avoid getting ripped off by credit card companies – Sneaky Credit Card Fees – Avoid Getting Squeezed by Credit Card Companies – Incredibly Bad Customer Service from Discover Card – more posts on credit cards
Here is a very interesting paper showing real analysis of the data to illustrate that the deteriorating condition of loans should have been caught by those financing such loans years before the mortgage crisis erupted. Understanding the Subprime Mortgage Crisis by Yuliya Demyanyk, Federal Reserve Bank of Cleveland and Otto Van Hemert, New York University.
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In many respects, the subprime market experienced a classic lending boom-bust scenario with rapid market growth, loosening underwriting standards, deteriorating loan performance, and decreasing risk premiums.30 Argentina in 1980, Chile in 1982, Sweden, Norway, and Finland in 1992, Mexico in 1994, Thailand, Indonesia, and Korea in 1997 all experienced the culmination of a boom-bust scenario, albeit in different economic settings.
Were problems in the subprime mortgage market apparent before the actual crisis erupted in 2007? Our answer is yes, at least by the end of 2005. Using the data available only at the end of 2005, we show that the monotonic degradation of the subprime market was already apparent. Loan quality had been worsening for five years in a row at that point. Rapid appreciation in housing prices masked the deterioration in the subprime mortgage market and thus the true riskiness of subprime mortgage loans. When housing prices stopped climbing, the risk in the market became apparent.
Related: Nearly 10% of Mortgages Delinquent or in Foreclosure – How Much Worse Can the Mortgage Crisis Get? – Homes Entering Foreclosure at Record – Articles on Real Estate
Punctual Payers Face Higher Rates From Card Companies
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The average interest rate charged on credit-card balances decreased to 13.4 percent in November from 14.4 percent a year earlier, according to the Federal Reserve’s December G19 report, which tracks rates for credit-card accounts. The prime rate has decreased to 3.25 percent from 6 percent last February. Most variable credit-card rates are linked to the prime rate, which follows the federal funds rate.
Rate changes announced by New York-based Citigroup Inc., the biggest U.S. credit-card issuer, American Express Co. and Charlotte, North Carolina-based Bank of America Corp. are intended to raise revenue, said Woolsey, who is based in Austin, Texas.
Citigroup’s charge-off rates of loans increased by 88 percent, climbing to 7.81 percent in December from 4.16 percent a year earlier, according to data compiled by Bloomberg. Charge- offs are loans the banks don’t expect to be repaid. American Express’s charge-off rates more than doubled to 7.23 percent from 3.32 percent while Bank of America’s rates increased to 8.45 percent from 5.24 percent, a 61 percent jump.
You can avoid worries about credit card companies increase your interest rates by taking sensible financial precautions and avoiding credit card debt.
Related: posts on credit cards – Don’t Let the Credit Card Companies Play You for a Fool – Legislation to Address the Worst Credit Card Fee Abuse – Incredibly Bad Customer Service from Discover Card
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