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July 7, 2009

Credit Card Companies Putting The Squeeze On Consumers

As the economy continues to remain weak, American consumers are becoming more and more desperate on where to turn to for financial security. Job security is also at an all time low, with unemployment at an all time high. Because of a drastically decreased monthly income, more and more consumers are now forced to rely on credit instead. Unfortunately, credit card companies are currently engaged in putting the squeeze on credit and, as a result, on credit card users.

Credit Card Companies Putting The Squeeze On Consumers When the economic crisis came, credit card companies were hit very bad. So bad that many were facing bankruptcy before the government bailed them out -with money from the American taxpayers. Barely recovering, credit card companies went on a campaign to minimize their exposure to risks as much as they can. Credit card holders began experiencing drastically reduced amounts of credit and very high interest rates and fees.

Last May, the government signed into law the credit card bill. The credit card bill is a set of legislation which aims to level the playing field for credit card holders by getting rid of the many predatory practices of credit card companies such as arbitrary interest rate and fee changes, offering credit to high risk borrowers and deceptive and hard to understand billing and contract language. With these changes in place, credit card companies foresee that they will be experiencing a drastic cut in profits, far lower than they were able to generate in the past few years before the economic decline.

While the credit card bill is not set to become active until the first quarter of next year, credit card companies are already changing their business practices to prepare for the bill. Currently, credit card holders are seeing their interest rates soar even higher. They are also beginning to see their credit limits being cut down to almost useless levels. Fees and charges for credit card transactions such as balance transfers, over the limit charges and even merchant charges are also increasing rapidly.

These drastic changes are being implemented not only on borrowers with low credit scores but also on those with very good credit scores. As a result of these changes, credit card holders are finding it very difficult to keep up with their balance payments. What’s more, their credit scores are also getting hit hard.

It is fairly obvious that many of these changes are being made by credit companies in preparation for the upcoming credit card bill’s activation. Therefore, these changes are probably for the long term.

July 1, 2009

Getting Rid Of Multiple Credit Cards

The economic crisis has had an enormous effect on the average American consumer. Traditionally very free with their credit card use, the average consumer now considers carefully every purchase made on their plastic. While credit cards had become the preferred method of transaction in the past few years, nowadays cash is again becoming fashionable and with good reason.

Burdened with the economic and employment crisis, a majority of credit card carrying American consumers have been unable to keep up with their credit card debt payments. The resulting financial collapse that affected the credit card companies almost brought even the biggest and best of them to bankruptcy. It also brought forth the passage of the controversial credit card bill. The credit card bill is set to heavily regulate the way credit card companies are making profits. The result will be hat credit card companies are going to lose many of their most profitable income lines.

The upshot of all this is that, now, credit has become very expensive. Credit card companies are raising interest rates and fees like there’s no tomorrow, which is literally the truth. Consumers are, understandably wising up and being uncharacteristically careful of their credit card spending. Whereas, in the past, owning several credit cards was the norm, many credit card owners are now thinking of ditching their extra credit lines and maintaining only one or two.

One of the biggest problems with getting rid of a credit card line is that it will have a big effect on the consumer’s credit score. The credit score is what dictates the ability of a consumer to take out a loan. The lower the score, the more difficult to get a loan. One of the actors that affect a consumer’s credit score is the ratio between his available credit and the balance that he carries. Logically, by terminating a credit line, he will lose some of his available credit which will lower that ratio. However, keeping a credit card active is fast becoming very expensive. Many companies are bringing back annual fees and, for a card to remain active, the owner has to make regular purchases on it.

Financial experts agree that, nowadays, it is unwise to keep multiple credit lines. They suggest that, for those who want to get rid of unused credit lines, timing is key. Card holders who expect to take a loan should try to keep their credit score as healthy as possible. Therefore, terminating a credit line may not be advisable. When terminating a credit line, it is also important to remember that, usually, the older the credit card, the bigger its effect on the score, so card holders are advised to keep their older credit cards and terminate newer ones instead.

June 28, 2009

Credit Card Protection: Not A Smart Move

The credit crisis has everyone worried about their financial stability. In this tough economic times, credit cards have become a vital life line for every American consumer. Thus, their worries about not being able to make the monthly payments and losing available credit is quite valid. It is also quite understandable why many American consumers are very interested in protecting their credit. However, one thing they should never do is get credit card protection. Here is why.

Credit Card Protection: Not A Smart Move American consumers have probably seen these offers for credit card payment protection plans smartly inserted along with their monthly bill statements. Most plans cost around fifty cents to the dollar for every balance of one hundred dollars to buy. According to the plane, when you are unable to pay off your bill, your payment protection plan will be activated. When it does, the plan will pay your bill’s minimum amount due or a fixed amount, depending on the plan. The plan will also help you avoid ruining your credit score because, when the plan becomes active, the credit company will not report the situation to the credit bureaus. Credit card companies are, ostensibly offering these plans to help you recover whenever you miss out on your monthly payments.

Consumer advocates are not impressed with credit protection plans, however. According to them, these plans are too costly to be of any benefit to consumers. Plus, they provide a false sense of security to credit card holders.

According to CEO of LowCards.com, a website offering credit card information, Bill Hardekopf, consumers who buy into these credit protection plans are liable to find themselves in deep trouble. While the credit protection plan does pay your bill when you can’t, it will not protect you from interest rate charges. The interest rate fees plus the upfront cost of the credit protection plan would only make your debts larger. Thus, in the event that you actually use your credit protection plan, you will end up in deeper financial trouble instead of the other way around.

Hardekopf elaborated that, if you carry a balance of ten thousand dollars, you would be paying a hundred dollars every month for the credit protection plan. This is already a considerable cost and, what’s more, this cost is added to your balance and you are earning interest because of it. “Just the sheer cost of it is probably the biggest knock against it.” Hardekopf said.

Another problem is that, while the plan will pay your bills if you go overdue, it probably won’t pay all of it. That means that you are likely to accrue interests even with the credit protection plan in place.

June 27, 2009

How Do Debt Settlement Plans Work

If you have ever come across offers for debt settlement, you are probably very curious about these offers and would like to know if their promises will actually work. You might even be considering signing up for one at this very moment. Well, before you do anything, first read up on how debt settlement plan works so that you’ll know the risks you are getting into and if it is worth the rewards.

How Do Debt Settlement Plans Work Debt settlement companies are becoming more and more common nowadays. Taking advantage of the panicked feeling of many American consumers faced with enormous debts and no way out, debt settlement companies are becoming major players in the credit industry.

Debt settlement companies primarily rely on two things, the desperation of both debtors and creditors. Debtors are obviously desperate to get out of debt as quickly as possible. Creditors are also desperate because many debtors are defaulting on their debts and write offs are on the rise. Write offs are written as losses in the books of creditors, something they want to avoid so badly that they will negotiate for payments 50% or lesser than the original debt owed to them.

When you sign up for a debt settlement deal, you might be surprised by the fact that the first thing that they will tell you to do is to stop paying your bills. You are instead told to deposit your monthly payments to an account maintained by the debt settlement company. Also, the debt settlement company will ask you for a sizable upfront payment as well. They will also get a percentage of your debt as payment for their services later on.

When you stop paying your bills, you will get late fees, an increase in your interest rate and penalties, depending on your credit card. At this stage, there is no agreement between your debt settlement company and your creditor yet. When the credit company finds out that you are not paying your bills, they will now have the option to bring a lawsuit against you which will endanger your properties, if you have any or wages, if you are employed.

As you continue not paying your debts, your debt settlement company will then try to negotiate with your creditor to accept a payment of a lesser amount than the original debt to have your debts forgiven. Most companies aim for 35% of the original debt. If the creditor agrees to the settlement, then your debt is forgiven. However, your credit report will be marked with “settled for less than full amount” which will have a large negative impact on it.

As attractive as debt settlement offers are, there are clearly very serious risks involved. While you may have your debt forgiven for a percentage of its original amount, you will end up ruining your credit report. If you are employed or you own your home, you might be putting these in jeopardy as well. So think hard and consider all consequences before making the jump to a debt settlement program.

June 23, 2009

Credit Debt Traps Buried In Fine Print Could Mean Trouble

The way you look at your credit card probably says a great deal about how much credit balance you carry. If you are one of the lucky few who have remained debt free even in this stifling credit atmosphere, then you are probably someone who spends time to look into your bill and decipher what all the fine print means. If, however, you are one of the many American consumers who are carrying large debts on their credit cards, then there is a large possibility that you are among the American consumers who consider their credit card bills as too arcane to even read.

credit card debt problem One of the measures that the credit card bill will enforce when it becomes active is to force credit card companies to make their bills more easier to understand to the common credit cardholder. The problem is that, currently, credit card companies distribute bills which require some expert deciphering before the credit cardholder can really grasp what is going on with their bills. Here are a few details in the fine print of your bills which you should be aware of.

Available Credit

The problem with available credit is that, most credit card companies consider it more of a suggestion than an actual number which they enforce. Your available credit is something which you should always be aware of. Credit card companies, although they will inform you of your available credit, will happily let you charge over your limit. That way, they can earn form you by charging an over-limit penalty fee.

Another problem is that, credit card companies may suddenly decide to lower your limits without duly informing you. This can happen if they think that you have become a risky borrower.

Double Billing

Double billing was one of the biggest issues when the credit card bill was still up for debate. Double billing is when the credit card company charges you interest rate based on a previous balance. For instance, if you charged $300 and then paid only $200 before the bill became overdue, the company would charge you interest based on the original $300 that you owed.

Residual Interest

If you have an overdue balance and you pay it in full, you would think that you are now at zero balance. However, you would then find out that, when the next bill comes, you have some residual interest to pay for. This happens because your balance will still earn interest in between the time when the bill statement was issued and the time that you actually pay off your balance.

When the credit card bill becomes active, these deceptive practices will finally come to an end. However, that is still a few months off and credit card companies are likely to continue these practices as the months continue. The best way for you to avoid these deceptive practices is to be balance free every month and to keep a keen eye on your bill’s fine print.

June 21, 2009

Discover Financial Sees 4% Climb

Last June 18, Discover Financial Services, one of the major credit card companies in the U.S. saw a positive increase in New York trading, a rise of 4%. Earlier, the company had stated that the increase on loan losses for the second quarter was slower than forecast. Overdue loans rate had also dropped.

Discover Financial Sees 4% Climb The slow down in loan losses and rate of overdue loans may be because of the tax refunds American consumers usually get during the first quarter of the year. Traditionally, consumers used these refunds to pay off credit card and loan debts which is why most credit companies expect higher earnings during that time. However, David Nelms, Chief Executive Officer of Discover said that the improvements on the rate of delinquencies may not be just seasonal.

Like most credit companies in the U.S., Discover has been having a hard time keeping profitable in the current economic climate. The rate of unemployment in the country reached 9.4%, the highest it has been since 1983. Consumers, seeing a drop in available cash, have been unable to keep up with their credit card payments as a result. Discover had seen write-offs reach record levels and the company had forecast an 8% growth in write offs by this quarter but, surprisingly, it slowed down to an encouraging 7.79%.

Commenting on the numbers during an interview, Neims said, “I would have expected the seasonality benefit to get swamped by the higher unemployment rate, and that didn’t happen this quarter”.

However, the economic climate of the country still remains bleak and Discover has a long way to go. Moshe Orenbuch, analyst for Credit Suisse AG recently commented that should the unemployment rate continue to grow, a second wave of earning losses is likely to follow. Last June, the president also said during an interview that he is expecting the unemployment rate to grow beyond 10%.

So far, Discover has been lucky. Its loan losses have been relatively less destructive than what other credit companies are experiencing due to MasterCard and Visa settlement payments from a legal dispute. Discover agreed to a $2.75 billion settlement payment for an antitrust case it was involved in with the two largest credit card networks in the world. It is also one of the credit companies to take part of the Troubled Asset Relief Program of the Treasury last March. Some analysts are saying that Discover’s luck may not last that long.

“It is likely that this picture will turn a bit darker. There will be no legal- based financial settlements to fall back upon.”, Celent senior analyst Red Gillen recently stated. He said that Discover’s recent earnings is a “murky mix”.

June 18, 2009

Debit Card Gaining Popularity, Now Includes Rewards

As more and more American consumers see the risks of using credit cards for their purchases, debit cards are fast becoming the plastic of choice in the U.S. As a matter of fact, the switch from credit cards to debit cards has been a growing trend among consumers for a few years now.

Debit Card Gaining Popularity, Now Includes Rewards In most cases, debit cards have many similarities to credit cards. They are essentially similar in form. They are supported by Mastercard and Visa. They also offer the same convenience of paying with plastic instead of cash and allowing cardholders to withdraw money when needed. The main difference between the two is that, when a cardholder completes a purchase using a credit card, he or she is taking out a loan to pay for that purchase while, when a cardholder uses a debit card for that same transaction, he or she is using his or her own money to pay for the purchase.

With credit cards, accumulating debts is virtually inevitable. With debit cards, its impossible because, unless you opt for an overcharge feature, once you’ve zeroed your account, you cannot make anymore purchases unless you deposit more money into it. Debit cards have therefore become the preference for people who want to have the convenience of credit card transactions while still keeping a tight control in their finances.

Debt card usage is definitely on the rise. Statistics from CardData show that while purchases from Mastercard and Visa credit cards increased to 40% since 2004, debit card purchases increased to 120%. Attempting to cash in on the trend, credit card companies are doing their best to attract more customers through the traditional hook they use for credit cards: rewards programs. These days, debit cards, much like credit cards also offer reward points and cash back programs for cardholders. However, there is a difference.

Debit cards generally have a weaker rewards points program compared to credit cards. For example, instead of earning 1 point per $1 spending, debit cardholders need to spend $2 to earn 1 point. Debit cards that offer rewards also come with an annual fee which increase as much better benefits are added. Also, while debit cardholders use a PIN to execute regular transactions, for reward transactions they have to opt for a signature transaction to get the reward.

Although debit cards present a great way for consumers to keep their finances in check, for the credit savvy, it can mean losing out on the attractive rewards programs of credit cards. Therefore the choice is between losing control of your finances and getting rewards points for purchasing with plastic. Consumers will have to choose which one is more important for them.

June 17, 2009

A Practical Guide To Getting Out Of Debt

getout Debt is one of the biggest problems facing American consumers these days. The spending habits of Americans have been less than stellar in the past few years. The majority of American consumers also carry revolving credit card debt due to high credit card spending. With the economic and employment crisis, American consumers got into debt more and more.

If you are one of those who have been affected by the widespread debt problem, you might find these practical guides to getting yourself out of debt useful.

Inventory

Before you can begin digging yourself out of debt, you first have to review your financial status and see how deep you really are in. Knowing exactly what debts you are facing and what your income status is will help you get a clear picture of how you can manage your finances.

You should start with making a list of all your debts. Write down as many details as you can such as the size of the debt, the interest rate and others. You want to make as clear a picture as possible of all the debts that you owe.

Prioritize

Once you have your list, you should be able to pinpoint which debts need to be paid faster. As a rule, the higher the interest rate of a debt, the faster you have to pay it off. If you have debts which are secured against your property, make sure to prioritize that so you don’t lose it.

Advice

As a consumer, you have many avenues to turn to if you are looking for financial advice. One of the best ways to get advice is through credit counselors. These people can help you analyze your entire financial setup, beyond what debts you have, and give you advice on how you can solve your financial problems. They can even talk to creditors for you to arrange for better terms. Best of all, they work for minimal pay or even free.

Freebies

The government is well aware of the financial situation of American citizens and is providing some financial support lines for them. If you are a pensioner or you’ve just lost your job, try visiting entitledto.com to see if you are eligible for government benefits.

Relax

If you have been carrying your debts for a while now, you have probably been subject to some bullish calls from your creditors. Do not get too rattled by these. This is one of the reasons why it is important to get advice from professionals regarding your debts. They can inform you of what your rights are and the limits of how creditors can collect their money. Being informed of your rights will also prevent you from getting scammed by unscrupulous people looking to make money off people having debt problems as well.

June 14, 2009

Credit On The Decline As Economic Crisis Continue

With employment problems and a struggling economy to deal with, more and more American consumers are seeing their credit cards as their last life line. Unfortunately, as credit debt problems continue and credit companies try to secure their future profitability when the credit card bill comes into play, credit is drying up at an alarming rate.

Credit On The Decline As Economic Crisis Continue Equifax, a company specializing on providing credit data to credit companies and similar companies recently released data showing that access to credit cards have considerably diminished. Charge limits for existing credit cards have lowered significantly as well.

According to Equifax’s data, the number of credit card accounts in the U.S. was 365 million accounts for last month. In comparison, the number of accounts in June last year was at 440 million accounts. Credit card companies have also drastically reduced the available credit, withdrawing more than $600 billion in available credit during the past year alone. In May, the available credit stood at less than $3 trillion.

While diminishing available credit, credit card companies are also lowering their risks on existing credit cards. Credit card balance limits are being lowered and balance chasing is beginning to be a real problem for credit cardholders. Credit card companies are also applying stricter rules on who can avail of credit cards.

Credit card companies are hoping that, by limiting available credit, they can minimize their exposure to risk and recover from the damage caused by the increasing number of delinquencies and defaults. However, judging by the numbers provided by Equifax, delinquencies still continue to rise. Last month, the figures for delinquencies in the U.S. were at 4.79%. Delinquencies have been on a steady rise for the past four years. Compared to figures from 2005, the delinquency rate has almost doubled.

As this continues, consumers are losing out on what is possibly their last financial lifeline, their credit cards. Even more worrying is that when the credit card bill becomes active after a few months, credit is going to be even more difficult to get.

Dann Adams of Equifax stated, “The last lifeline for many consumers is their credit card, and that lifeline is getting shorter”.

Still, there may be some respite from the continuing credit crisis. According to Equifax’s figures, while the delinquency continue to rise, the pace has slowed somewhat. Adams said that mortgage delinquencies may be on the verge of peaking.

“We’re hopeful we’ve seen the bottom and are setting the stage for a recovery”, Adams said. “You don’t see it in the numbers quite yet”, he added however.

June 10, 2009

Professional Debt Management Options For Debt Laden Consumers

In these days of financial insecurity, American consumers are doing their best to balance out their finances. They are trying to make sure that they have enough savings or credit to their name in case a serious emergency should come up. Unfortunately, with the economic crisis hardly slowing pace, massive layoffs, rising unemployment and debt interest rates soaring to record levels, that is proving to be very difficult. What makes it even more difficult is that many of these American consumers are also carrying heavy debts.

Professional Debt Management Options For Debt Laden Consumers Getting rid of debt is, without a doubt the first step for anyone who wants to balance out their finances. The monthly interest and penalty fees by themselves can already ruin a budget. There are many ways to get out of debt. Consumers usually go with the “do-it-yourself” or DIY approach. However, there are many things to be said about seeking the help of professionals. While a DIY approach can work, a professional often has more experience and access to information and resources that a normal consumer does not have.

Here are three professional options that debt laden consumers can access to get a handle on their debts.

Credit Counseling

Credit counseling is where consumers should first seek out help for debt problems. When consumers go for credit counseling, the counselor takes a look not only at their debts but on their whole financial picture. Spending habits, payment habits, monthly expenses, monthly income and many other details are taken into consideration when a credit counselor creates a financial picture of a consumer. By doing this, the counselor can then help the consumer formulate a workable setup for debt payments. Counselors can also negotiate with lenders for consumers to give them better debt payment arrangements.

Debt Consolidation

For consumers who have multiple debts, debt consolidation may be the best solution for them. In debt consolidation, consumers take out a large loan which can cover all their other debts. The end result is that the consumers reduce their multiple debts into one debt. Debt consolidation can also mean better interest rates and lower monthly payments for consumers, provided they shop around for options and choose wisely.

Debt Settlement

Debt settlement is a type of debt management service wherein the debt settlement negotiates for a better monthly payment setup for their consumers. According to debt settlement advocates, the service can settle debts much faster than other debt management services. They even claim that debt settlement companies can arrange for the consumer’s debt to be lowered by an appreciable percentage.

Debt settlement is a hot topic in the financial world nowadays. There has been some controversy over shady debt settlement offers that ended up costing the consumer more. However, this does not mean that all debt settlement companies are questionable. Consumers looking for reliable debt settlement companies are advised to make sure that the debt settlement company that they choose is affiliated with the proper authorities.

June 3, 2009

Credit Card Spending Will Never Be The Same

The economic crash caught many American consumers in surprise. However, financial analysts and watchers have said that it was a long time in coming.

For several years, American consumers had gone on a spending spree with their credit cards without really taking into account what the final costs would be. When the financial crash happened, credit industry experts saw that the soaring credit card debt played a large role in it.

Credit Card Spending Will Never Be The Same The Federal Reserve maintains a survey of the total revolving debt that American consumers carry. Estimates put 90% of this amount to credit card balances. According to their figures, American consumers had $177 billion in revolving debt in September of 1988. 20 years later, in September 2008, figure was $977 billion, an increase of more than five times the 1988 value. However, in the current economical climate, consumers are drastically cutting back and current survey, dating back to last October, show a continuous drop in revolving debt, a rare occurrence.

Originally, credit cards came out as a perk for a bank’s valued customers. However, by the time credit scoring became popular, credit companies began mass marketing credit cards, claiming that they could uniquely tailor the card’s rates and penalties according to the consumer’s financial score. This resulted in a huge expansion of the credit card market. Credit cards became available even to people who had very low credit scores. This will soon come to end once the credit card bill comes into play.

Making credit cards available to people with low credit scores may seem to be a generous move by credit card companies. However, the reality is not so reassuring. People have found out that these credit cards, while seemingly helpful, actually carry high interest rates and high fees which will ultimately bury the cardholder in debt. The credit card bill will put a stop to this by tightening restrictions on how credit cards are issued. It will muzzle many other practices of credit card companies as well.

The credit card industry is, of course not pleased with this. They argue that the credit card bill will cut down their profits. To make up for their losses, they will have to lower available credit, increase initial interest rates and cut down on awards and perks programs. These industry warnings carry little threat to American consumers who are now realizing just how dangerous credit card spending can be. The drop in revolving debt may just be the first indication of a growing change among American consumers’ spending habits. A change which will hopefully lead to smarter, more efficient credit cardholders.

June 3, 2009

Get Your College Kids Credit Cards Now

If you have been following the news, you probably are probably worrying right now about your credit card and how it’s going to or is affecting your finances. If you are like the majority of American consumers, then you are probably thinking that credit cards are twice as dangerous as they are convenient. So why get your college kids credit cards?

Get Your College Kids Credit Cards Now College students and credit cards don’t mix very well, if recent survey figures from Sallie Mae are to be believed. According to the survey, more and more college students are going into deep debt and many are graduating with large debts to their name, making starting a career even more difficult.

However, like many things, credit cards are bad if you don’t use them right. While an overused and abused credit card inevitably spells financial doom, a properly managed one can help your credit score and can be very useful in times of emergencies. Your college student can get a lot of benefits from a credit card, just be sure to teach them how to use it well.

So why get a credit card right now? Why not when the “cardholder-friendly” credit card bill comes out? For one thing, if your college students get their credit cards now, it will be easier for them to do so than nine months down the road. When the credit card bill comes into effect, getting a credit card will be much more difficult for them. At the start of the school year, credit companies are going to be pushing their credit cards to college students. Make sure that you inform your kids on how to choose a right credit card and tell them to not be deceived by perks and bonuses that many credit card companies will offer along with their credit card applications.

If you are worrying that your college kids are going to go overboard with their credit card use, you can be assured by the low credit limit of credit cards. Most credit cards for college students have a credit limit of $500. You should encourage your kids to avoid overdraft protection. Overdraft fees can cost a lot. Also, colleges are already being encouraged to include financial literacy as part of their program for new enrollees. This will be a big help in educating your college students on how to use their credit cards responsibly.

Financial responsibility is one of the major requirements for success. There is no better and more effective way to teach this to your kids than by letting them try out managing credit cards while they are still in college.

May 31, 2009

Interchange Fees May Be Next Target for Legislation

The recent passage of the credit card bill from Congress was cause for celebration for credit cardholders, though the legislation itself won’t become active until nine months have passed. Now, the government is looking into other credit card practices that seem unfair to consumers and how best to legislate them.

Interchange Fees May Be Next Target for Legislation Currently, the Government Accountability Office is studying credit card usage among American consumers. They are interested in one particular practice and its effect on merchants and credit cardholders: interchange fees.

Interchange fees are fees that merchants pay whenever a customer uses a credit card. Essentially, when a merchant’s customer uses his or her plastic to purchase an item, the bank of the merchant pays an interchange fee to the bank of the credit cardholder so that the transaction goes through. This is true not only for credit cards but also for debit cards as well. The interchange fee for every transaction is usually at 1% to 2% of the total amount of the credit cardholders’ purchase. Thus, for a transaction of $100, the merchant has to pay anywhere from $1 to $2.

Most people take interchange fees for granted, as they are often buried within their transactions. However, some are taking keen interest in them. Consumer advocates are very much aware of how much interchange fees affect daily purchases of credit cardholders. Merchants are also quite aware of them, being the group who has to shoulder the payment or pass it on to their customers. The credit card companies are also very much aware of the profits that they are getting from interchange fees. Although a 1% charge may seem minimal to the regular consumer, it can mean millions to a credit card company that sees profit from it from thousands of credit card transactions every day.

The recently passed Credit CARD bill (Credit Card Accountability, Responsibility and Disclosure Act) actually has a provision that can be used to address interchange fees. The provision requires investigation on fees that merchants have to pay so that their customers can use credit cards. The main thrust of the provision is to provide disclosure to consumers on the credit card industry’s practices.

Some have noted, however, that disclosure is not enough for change to happen. Although informing credit cardholders of credit card industry practices seems like a good first step, there is still a need for stronger legislation. It ultimately depends on whether there is a change in the way credit cardholders use their credit.

May 29, 2009

Credit Card Industry Earnings Likely to Drop

The credit card industry is in an uproar over the legislations in the recently passed credit card bill. The credit card bill is aimed at legislating many credit card industry practices that cardholders see as unfair and deceitful. For the credit card industry, the credit card bill is a disastrous piece of legislation which will destroy their profitability and, according to them, limit the available credit for American consumers.

Credit Card Industry Earnings Likely to Drop During the past few years, the credit card industry has enjoyed high profitability. Many see that this is coming to an end. Although many see the credit card bill as the main reason for this, it may only be one of many factors.

Although the credit card industry is currently preoccupied with the threat of the credit card bill legislations, it is important to remember that the profitability of the industry was already going down even before talks of the credit card bill surfaced.

With the economic crisis, credit cardholders were unable to keep up with their monthly payments. Whereas many of those who struggled with credit card debt were able to at least keep up with the minimum monthly payments, they were ultimately defaulting when the economic crash came. The increase in credit card debt defaults greatly hurt the credit industry. Aside from that, it also proved wrong one common boast in the credit card industry: their capability to analyze a borrower’s risk and balance with the right interest rate.

Credit cardholder dissatisfaction over high interest rates and large financial fees is also another factor to consider. Considered the root cause of the credit card bill and its popularity, the dissatisfaction of credit cardholders over many of the practices of the credit card industry has been going on for some time. It was only a matter of time before the issue blew up on the credit card industry.

Now, with the credit card bill in place, credit cardholders are going to get the changes that they have been clamoring for. Unfortunately, many of these changes are going to hurt the credit card companies. The legislations on full disclosure of agreements and restrictions on interest hikes and financial fees will hurt the credit card industry the most.

In the past, the credit card industry has profited greatly from credit cardholders who were unable to pay off their monthly bills but did not default, only paying off penalty fees. The impact is hard to calculate, given the credit card industry’s reluctance to release any figures. Many, however, consider the amount to be quite high.

The credit card controversies, coupled with the economic crisis, have also given American consumers a crash course on financial responsibility. Many of them are going to be more careful with their credit card purchases, limiting credit card industry’s previously large profits from subprime borrowers.

May 25, 2009

The Downside Of The Credit Card Bill

With the recent signing of the credit card bill by President Barack Obama, it seems that consumer friendly credit cards will be on the way. Or will it?

barack obama Throughout the deliberations of the credit card bill, the credit card industry has largely been on hand providing dire warnings that the passage of the bill could have largely negative effect on the credit industry. According to credit card companies, with the passage of the bill, American consumers will experience a drying up of credit.

R.K. Hammer Investment Bankers’ chief executive officer Robert Hammer, who also serves as an adviser to credit card companies, said that the credit card bill, aside from protecting consumers, may also force banks to lower the available credit, cutting available credit by as high as $90 billion in order to decrease risks.

According to New York University economics professor Andrew Caplin, with such a high reduction on credit, the overall economic recovery led by consumer spending will be hurt. According to figures, the U.S. Economy relies heavily on consumer spending, with 70% of the economy relying on it.

Caplin says that, “The bill may stop various forms of abuse, but it will stop some various forms of credit. If the economic recovery is going to rely on consumer spending, it will be a long wait”.

According to Britt Beemer of America’s Research Group, consumers who use credit cards usually spend more. With the credit card bill reeling in credit card spending, luxury items such as electronics will be hurt. The apparel industry, already ailing in this economy, will be one of the industries most affected.

However, some are saying that the credit crunch is already underway. According to figures in the May Federal Reserve report, consumer credit dropped by $11.1 billion during March. This makes it the biggest drop in credit since 1990, equivalent to an annual rate of 5.2%.

Josh Frank, a supporter of the bill and center for Responsible Learning senior researcher, puts the blame of credit drying up to the practice of reckless lending and the lack of regulations in the credit card industry.

According to Frank, “The impact on available credit has been greatly overstated as an industry tactic to scare people to be against the bill”.

Although the bill puts restrictions on arbitrary interest rate and fee increases, banks can still recoup losses by increasing the initial rate. Incidentally, an issue which consumer groups find troubling. However, major credit card companies have already stated that, to recoup their losses, they will probably turn to increasing initial borrowing rates, issuing annual fees and stopping reward programs.

In the end, the issue will be decided by the credit card industry’s reaction to the bill and the change in the buying habits of American consumers.

May 10, 2009

Finding Your Way Out Of Credit Card Debt

Credit card debt is one of the biggest problems for American consumers nowadays. With rising interest rates and the state the economy is in, credit card debt problems are a dead weight that any credit cardholder would want to get rid of.

Finding Your Way Out Of Credit Card Debt Like any problem, to begin fixing your credit card debt problem, you first need to determine how big the problem is. Unfortunately, some people are not very clear about the details of their credit card debt. Understandably, some people find rummaging through all the fine print and the mathematical confusion that credit card bills carry to be too daunting. However, you will never truly understand why your monthly payments are as high as they are unless you understand the details of your credit card.

Credit card transactions carry many details that credit cardholders need to be aware of. Transaction fees, for instance, are automatic fees that you pay for every transaction. Your interest fees are the interest you pay for your debts. Credit cards also charge fees for any penalties that you can usually find in the fine print of your bills. These are just a few items that you need to be aware of.

One of the best ways that you can help yourself to get out of credit card debt is to consult a financial counseling outfit. There are many financial counseling outfits out there offering their services to help you get out of debt and stay out of it. Some of them are also non-profit agencies that can be very helpful for people who are really tight on their budget. Financial counseling outfits can analyze your credit card debt details for you, explain it to you more effectively, and lay out several steps for you to follow so that you can get out of debt. Consulting them should certainly be at the top of your list if you want to get out of debt.

Aside from consulting the experts, there are also some “common sense” steps that you can take to get out of credit card debt. The most obvious one is to stop using your credit card while you are deep in credit card debt. If at all possible, pay cash. If not, use a debit card instead of a credit card.

You can also call your credit institution and see if they can renegotiate a better monthly payment rate for you. Some banks can offer you better rates, especially if you have good credit standing. However, be careful of offers where you transfer your existing debt balance to a low interest credit card. Although the rates are attractive, you’ll be paying a much higher balance should you miss payment.
Finally, when you are paying your debt, make sure to pay first the card with the highest interest rate. You should also depend more on electronic or online payment rather than through the mail to ensure that your payment does not come in late.

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