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
I don’t believe you should carry credit card debt at all. See my tips on using credit cards effectively. And you should have an emergency fund to pay at least 6 months of expenses to tap before using credit card debt. But if you do have debt and you are in such a bad personal financial situation where you will not be able to pay back what you have borrowed this might be useful information: Credit Card Companies Willing to Deal Over Debt
So lenders and their collectors are rushing to round up what money they can before things get worse, even if that means forgiving part of some borrowers’ debts. Increasingly, they are stretching out payments and accepting dimes, if not pennies, on the dollar as payment in full.
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Lenders are not being charitable. They are simply trying to protect themselves. Banks and card companies are bracing for a wave of defaults on credit card debt in early 2009, and they are vying with each other to get paid first.
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Card companies will offer loan modifications only to people who meet certain criteria. Most customers must be delinquent for 90 days or longer. Other considerations include the borrower’s income, existing bank relationships and a credit record that suggests missing a payment is an exception rather than the rule.
While a deal may help avoid credit card cancellation or bankruptcy, it will also lead to a sharp drop in the borrower’s credit score for as long as seven years, making it far more difficult and expensive to obtain new loans. The average consumer’s score will fall 70 to 130 points, on a scale where the strongest borrowers register 700 or more.
This is only an option to minimize a big mistake that results in you finding your self in a very bad situation. The credit card companies are not charities or known for giving away money. They are only going to do this when they figure they won’t get the full amount they are owed and figure getting some is the best they can hope for.
Related: Americans are Drowning in Debt - Families Shouldn’t Finance Everyday Purchases on Credit - Don’t Let the Credit Card Companies Play You for a Fool - Hidden Credit Card Fees
The New Paradigm for Financial Markets is George Soros‘ newest book. Here is an interview with him in May of this year, on PBS, Financial World Shifts Gears Amid Economic Tumult, about the ideas in the book and the current crisis.
GEORGE SOROS: I think this is the most serious crisis of our lifetime. It’s not just a housing crisis, but a crisis of the financial system.
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GEORGE SOROS: The regulators have failed to regulate, and they really have to — they left it to the market. That was this market fundamentalist philosophy, that markets will take care of themselves.
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And I contend that there’s been what I call a super bubble that has been growing over the last 25 years at least, which basically consisted of an extension in credit, increasing use of leverage. That was the trend in reality.
And the misconception that credit is that markets can be left to their own devices. Now, in fact, they are given to excesses, and occasionally they create crises, but each time the authorities intervene and bail out the failing institutions, provide fiscal stimulus, monetary stimulus.
So it seems like the market corrects itself, but it’s actually the intervention of the authorities that saves the market.
Related: Soros on the Financial Market Collapse - Jim Rogers on the Financial Market Mess - Leverage, Complex Deals and Mania
As I have mentioned previously credit unions do a much better job than any other financial category of providing customer value. Instead of trying to trick you and rip you off, credit unions often just provide services at a reasonable cost. What a sensible idea. Credit Unions Slowly Fill Void As Payday Lenders Leave D.C.
The credit unions’ products vary, but generally they are loans of $300 to $1,000 with an annual percentage rate of up to 18 percent. Unlike payday loans, in which borrowers sign over part of their next paycheck for the cash advance, the credit unions’ new products have longer terms, from thirty days to a year.
It is still an indication of bad personal finances to take the short term loan, but if that is the choice you make, paying a reasonable rate will greatly reduce the damage to your personal financial health.
Related: personal loans - Ohio Acts to Protect Citizens from Payday Loan Practices - Dragged Down by Debt - Don’t Let the Credit Card Companies Play You for a Fool - Sneaky Fees
I posted before on how universities seek profits instead of helping students develop good financial literacy and habits. Here are some tips on how you should use your credit card. College Credit-Card Hustle
Using state public disclosure laws, Business Week has obtained more than two dozen confidential contracts between major schools and card-issuing banks keen to sign up undergraduates with mounting expenses for tuition, books, and travel. In some instances, universities and alumni groups receive larger payments from the banks if students use their school-branded cards more frequently.
The growing financial alliance between schools and banks raises questions about whether universities are encouraging students to incur additional high-interest debt at a time when many young people graduate from college owing tens of thousands of dollars.
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Universities rarely negotiate favorable terms for their students, according to people familiar with the practice. On the contrary, some schools and booster groups entice undergraduates to sign up for cards with low initial interest rates that are soon replaced by steep double-digit rates.
Schools (and if some try to play legal games about alumni associations being separate, I don’t accept that) should fully disclose exactly what they are doing. I know they can make all sorts of excuses about why being open and honest is not right for them. Well, I think it is easy to predict they will be selling out their students and hiding that fact (if they must be open about what they are doing they will avoid some of the most egregious behavior because they know there will be consequences if they obviously sell out students). And, now Business Week has evidence that many are.
If a school is not open and honest about the deals they are making just assume they are selling out the students for their own gain. I can’t really see why we would want to support such behavior and I would encourage us not to.
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US banks Citigroup and Merrill Lynch reveal fresh $15bn loss
Merrill will suffer $5 billion of write-downs, analysts say, which would push the bank $2.7 billion into the red. t is expected to knock a further 20% from the value of its sub-prime holdings, in spite of the fact that it announced $18 billion of write-downs only three months ago. The new rash of Wall Street losses and write-downs come in addition to the billions that have already been recorded.
The world’s biggest banks have suffered losses and write-downs totalling almost $250 billion since the beginning of 2007, according to analysts. Last week the IMF shocked markets by saying that global losses from the credit crisis could rise to $945 billion.
The language becomes even more extreme as the losses balloon.
Related: Fed Continues Wall Street Welfare - Credit Crisis (Aug 2007) - Central Bank Intervention Unprecedented in scale and Scope - Soros Says Credit Crisis Will Worsen Before Improving - Volcker: Spendthrift Americans Bred Credit Crisis