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Date June 30, 2009

Practical Tips For Debt Ridden Credit Card Owners

Getting a credit card can be quite a liberating experience – until you find yourself deep in credit card debt. With the current economy the way it is, if you are carrying a large balance every month on you credit cards, you are possibly in a very risky financial position.

Practical Tips For Debt Ridden Credit Card Owners Aside from the bad economy and the dry up in employment, you will also have to contend with increasing interest rates and fees. Banks are currently very eager to earn as much as they can out of you. You see, not only are credit institutions in a bind due to the economic crisis, they are also in a hurry to earn as much as they can before the credit card bill takes action against them, which should be around February next year. Right now, it is a very bad time to be a credit card holder with a big debt.

So how can you get yourself out of credit card debt? There are no hard and fast rules on how you can do this. It depends mostly on what your financial situation is like and what can work for one person may not work for another. However, one thing that every credit card holder who wants to zero out their balance should do is to review their financial situation. Basically, you want to figure out how much you owe and how much you earn. Figure out where your finances are going to every month, how optimal is your credit card payment set up and how much “free” every month.

To start with, list down all your credit cards. For each of your credit lines, list your balance, their minimum payments and interest rates. After doing that, figure out your income and see how much is the exact amount that you can safely allocate to debt payments every month. Although it is tempting to allocate as much as possible to debt payments, make sure to reserve some cash for day to day expenses. Also, give yourself some financial leeway for unexpected events.

Once you’ve got that list and you’ve figured out your available cash for debt payment, pay off the cards with the smallest balance first, regardless of its interest rate. Now list your cards according to their rate of interest. Schedule your payments so that you make only the minimum payments for all your credit cards except the one with the highest interest rate. The remaining debt payment allocation that you have should go to paying off your credit card with the highest interest rate. Once that’s done, move on to the card with the next highest interest rate until you have all your debts paid off.

Date June 8, 2009

What Good Credit Actually Means When The Credit Card Bill Goes Live

Consumers heaved a sigh of relief when, last May, President Barack Obama signed into law the credit card bill which was fast tracked through Congress and released also this May. Consumers are seeing the credit card bill as a great equalizer which will give them better control over their credit and curtail the unfair and abusive practices of credit card companies.

What Good Credit Actually Means When The Credit Card Bill Goes LiveHowever, credit industry insiders are warning that the credit card bill may not be as consumer friendly as it sounds.

For the past years, credit companies had been profiting greatly, expanding available credit without taking into account the rising debt of cardholders and profiting mainly from high interest rates and large fees instead of debt payments. When the economic crisis hit, the credit industry found itself in a financial dilemma, burdened with toxic assets and increasing defaults. As a way to salvage what they could, they raised interest rates to astronomical levels and increased fees.

With the credit card bill in place, cardholders are hoping that things are going to change for the better for them, credit wise. However, if credit industry experts are to be believed, their sense of relief may be misplaced.

While the credit card bill does provide legislation which will make credit card practices less predatory and more consumer friendly, these same legislation will also mean that credit cardholders are going to have to deal with credit that is harder to get. For instance, the legislation limiting the capabilities of credit card companies to adjust interest rates of an existing debt means that credit card companies are going to be offering higher interest rates at the very start. It won’t matter either how good of a borrower the credit cardholder is.

Credit card companies see adjusting interest rates on an existing debt as a way to adapt the specific credit line according to the risk exposure of the cardholder. Without this capability, they say that they have no other choice but to spread their risks across their customers, regardless of risk. What this means is that, if a one cardholder is not able to pay the interest rate commensurate to the risk that he or she poses for the credit company, then all the other customers of that company have to pay a higher interest rate as a result.

Whether this scenario will actually happen or not still remains to be seen, cardholder advocates counter. Credit cardholders are getting smarter about managing their credit and, with the disclosure amendments in place, they can make much more intelligent decisions. Competition among credit card companies is another factor in their favor as well.

Date May 23, 2009

Credit Industry to Face Severe Losses with New Bill

The credit card bill has just made it out of Congress and is headed for President Obama’s desk. The bill is expected to be signed by the President on Friday. As the credit card bill nears completion, the credit card industry is looking ahead to an ominous future.

Credit Industry to Face Severe Losses with New BillRisky borrowers have been very lucrative for credit card companies for the past few years. Lending to borrowers with low credit scores may mean that the chances of them paying their debts are low but creditors have not been daunted. Instead, credit card companies turned the situation around and made enormous profits from the fact that payments from credit cardholders with low credit scores usually go to interest rates and fees instead of their debts. Basically, these cardholders pay the credit companies not to decrease their debt but to be allowed to keep them and to have access to more credit.

All this is going to change once the credit card bill becomes law. The credit card bill primarily penalizes credit card companies that take advantage of consumers’ inability to meet their monthly debt payments and profit mainly by offering very high interest rates and excessive fees. It will also put some control on the ability of credit companies to arbitrarily raise interest rates and fees. Lastly, the bill will aim for full disclosure between the credit card companies and the consumers. This means that credit card companies will have to make credit agreements publicly available by posting them online. Credit card companies will also have to inform consumers well ahead of time of any interest rate increases and give viable reasons for them.

Financial analysts are trying to calculate how much of an impact the bill will have. The task is made doubly difficult by the fact that card companies rarely disclose how much they earn from interest rate hikes, penalties, and other fees. Robert Hammer operates a credit card consulting company. He puts the credit card industry’s revenue loss of income from overall interest at $10 billion. This year, figures place the penalty fees that credit card companies will be imposing at $20.5 billion. Notably, last year, it was $19.1 billion.

According to Calyon Securities analyst, Craig Maurer, Credit card companies whose portfolios skew towards over-limit fees, late-payment fees and penalty repricing have the highest risk. Already, the industry is beginning to look into how they are going to realign their portfolios. Executives from the industry continue to emphasize the loss of credit, especially for risky borrowers. Front end fees are also likely to rise to offset the limitations imposed on raising interest rates after a cardholder fails to pay on time.