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Date May 11, 2009

Say No To Bankruptcy

701012_68282226According to industry experts, credit card debt is one of the leading financial problems that many Americans are facing today. The economic crisis that began last year has resulted in massive unemployment, rising interest rates and an ongoing economic instability which the U.S. government is still trying to contain. All of these things mean only one thing to the common American, they are now struggling to make ends meet and every “cash drain” has to be plugged. One of the biggest drain that most Americans have to deal with is credit card debt.

To put it bluntly, there is really only two ways that you can deal with credit card debt. You can pay it all up or you can declare bankruptcy. Of the two, the easiest way out would be declaring bankruptcy. It is also the most ruinous. True, declaring bankruptcy can lower your payment rates. It might even absolve you of it entirely. However, in the long run, it can hurt more than it can help. For instance, if you declare bankruptcy, you’ve tarnished your credit record permanently. So, every time you try to take out a loan, credit card companies will check your records and, more likely than not, you will get turned down.

Obviously, the best way to deal with credit card debt is to pay it. Of course, that is easier said than done, especially with the current economy. Dealing with it on your own can be daunting and confusing, to say the least. With the amount of fine print that credit companies put in their agreement forms, you can go blind just looking for how much your monthly interest rates should be. A good idea for those with credit card debt would be to go for credit counseling.

The people in credit counseling are people who have dedicated eight hours a day, five days a week to the task that everyone else is relegating to a few minutes every time the budget comes up, understanding the credit industry. Thus, when you go to them for help regarding your credit card debt, you can be sure that they know several solutions that can ease your credit card burden. Of course they won’t make your debt disappear. They will just make it easier to handle so that you won’t be losing three quarters of your monthly take home pay to credit card debt payments.

Credit counseling agencies will investigate every minute detail of your finances to find out how to help you. They will be looking into your credit history and it really helps if you have a good one. They will consider your monthly take home pay and compare it against your monthly debt payments. Depending on how you rate, they can negotiate a lower monthly rate for you with your credit company.

Date April 26, 2009

Credit Card Processors Muscle Merchants For Cash

Since credit cards were first introduced in the 1970’s consumers have become increasingly dependent on the increased purchasing power they provide. As a result more and more small business owners who previously accepted only cash or checks have embraced customers paying with credit cards. In fact today you can use a credit card to buy just about anything, including fast food which traditionally was a cash only business.

Merchants accepting credit cards as payment open themselves to increased business and profit but not without a fee. Now in what has been referred to as the worst economic downturn in decades, credit card processors are increasing the price of convenience and in some cases putting small business out of business. The number of businesses filing for bankruptcy is on the rise and the current state of the economy does not bode well for companies struggling to stay afloat. Some credit card giants have responded by demanding a cash reserve from merchants who process credit cards. This move may be good for the credit card processor but also the final blow for many small businesses.

When a consumer uses a credit card to pay for a purchase the transaction must first be approved or authorized to guarantee the merchant receives payment. When a credit card is swiped, information is transmitted to a processor which acts as a middle man between credit card issuers and merchants. The processor is responsible for issuing credits to the merchant and debits to the issuer . By approving the transaction the processor also becomes responsible for customer refunds. Once a refund is issued to a consumer the credit card company  pulls money from the processor who in turn pulls money from the merchant. This is where the cash reserve comes into play. When a business files for bankruptcy someone has to take a loss and in most cases it is the processor. By requiring a cash reserve the processor is then protected in the event a business fails or does not have the financial resources to cover a refund.

The size of the reserves vary and can easily equal up to two months worth of transactions. More importantly if a business does not pony up the required reserve the processor can simply hold payments owed to the merchant until the reserve is met. For a large business the reserve can easily reach millions. Financial institutions claim these cash reserves are required only of businesses that present a “high risk” and consumers benefit by being protected if they seek refunds.

Unfortunately this strong arm tactic will either break small businesses who are already struggling to make it through the recession or prompt merchants to no longer accept credit cards as a method of payment. While credit card companies and processors continue to make decisions based on the need to reduce risk, it appears they are overlooking the two most important factors for their future success. Without consumers using credit cards or merchants who accept credit cards the need to eliminate risk will become a moot point.