Credit Card Quick

A Race to the Finish: Interest Rates Soar as new Credit Card Laws Loom

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As the holidays creep closer, we may all be so busy thinking about our holiday shopping that our credit card interest rates may be the last thing on our minds. But not so fast.

Before you spend another dollar on your credit card, you may want to first check to see if it is one of the countless credit cards that will see an interest rate hike before the end of the year. Many creditors, in an attempt to beat the credit card legislation to the punch, have chosen to increase consumers’ credit card interest rates before the law goes into effect in February.

What’s Next?

And what does that mean for consumers like you? You guessed it: a potentially expensive holiday season.

Many industry analysts have seen creditors of late increasing credit card interest rates; some to nearly double their current rates. Many creditors have raised interest rates upwards of 30 percent – or more!

And don’t think that these interest rate hikes are for those credit card consumers with less-than-perfect credit.  Many credit card customers who have always played by the rules are even experiencing these credit card interest rate hikes.

A Nine-Month Mistake

Many industry experts knew that this kind of situation would result, as members of Congress gave creditors nearly nine months to consider the implications of this legislation and change up the rules before they take place.

In other words, creditors are getting what they can from their customers while they still can.

Your Rights

It is important to understand, however, that creditors still don’t have cart blanch when it comes to your credit card account. If your creditor raises your card’s interest rate, the new interest rate can only apply to new charges. In other words, if you have a balance of $1,000 with an interest rate of 9.99%, your creditor must allow you to pay off that debt at the current interest rate and not the new, raised interest rate.

There is one catch to this, however; if you fail to make a payment on time or exceed your limit your creditor can then change the terms of your contract, which would likely include an increased interest rate on your existing debt.

Consolidating your Credit Card Debt: How to Make it Work for you

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If you find yourself in over your head in credit card debt, or if you simply want an easier way to manage your existing credit card debt, you may consider consolidating your debt onto one credit card.

If you have good credit – and provided you do not already have too much debt – you will likely be able to secure a low, fixed interest rate credit card. In addition, you may be able to snag an even lower introductory rate.  You can use this new credit card to transfer all of your outstanding credit card debt, thereby alleviating higher interest rate cards and multiple, monthly payments.

Debt consolidation is usually a smart move to make, although it pays to consider your actions after you have consolidated your debt:

• Make a budget – Once your debt has been consolidated, now is the time to sit down and make a firm, monthly budget, without all of the cards that you have been accustomed to paying every month. It is important to recognize your new debt, along with its due date and monthly payment.
• Cancel other credit cards, if necessary – Although you’ve no doubt heard many credit card experts tell you not to close credit card accounts because it will lower your credit score, the fact of the matter is that if you think – even for a minute – that you might be tempted to charge these cards back up, it will simply be in your best interest to close the accounts and eliminate the temptation.
• Make a plan and stick to it – One of the best things you can do once you consolidate your debt is to come up with a realistic game plan. Do the math and figure out how long it will take you to pay off your credit card if you put X amount of dollars on it every month, and then go from there. Make a commitment to pay at least a certain amount above the minimum payment each month so you won’t be stuck with a credit card payment for years and years to come.

The Progress Card by Capital One: Helping Consumers Rebuild their Credit

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Although there are many credit card companies that are trying to distance themselves from those consumers with bad credit, there is one card that is specifically designed for credit card customers that have a less-then-stellar credit rating.

Capital One recently introduced the Progress Card, which will be available around Christmas. This card features no interest rate and incentives for paying on time.

Like any other card designed for individuals with bad credit, the interest rate is quite shocking. In fact, it may start as high as 34.9 percent. However, most individuals have few options when it comes to rebuilding their credit or being approved for a credit card.

Incentives to do Better

It is important to note that, although the Progress Card has a super-high interest rate, credit card customers can work toward lowering their interest rate, simply by paying their bills on time and paying more than the minimum payment.

For example, if you pay your bills on time for six months, and pay at least the minimum payment during that time, you will be eligible to have the interest rate reduced by five percent. As you continue to pay your minimum payment, on time, you can expect to see a five percent increase every six months. Pay on time for 18 months and that 34.9 percent interest rate is now down to 19.9 percent.

Capital One may also offer consumers an increase in their credit limit by their fourth statement if they display responsible card usage.

Working Towards a Better Credit Rating

The Progress Card, true to its name, enables individuals with bad credit to make progress and work toward a better credit rating. This card provides consumers with the tool necessary to begin building a positive credit history and credit rating.

For many individuals that have been adversely affected by the economy, the credit card crisis and the near-collapse of the housing market, this card could have not come at a better time.

Perhaps more credit card companies can take a lesson from Capital One and discover that many otherwise-responsible consumers need a second chance at rebuilding their credit and rebuilding their lives.

What you need to Know about Forgiven Debt

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You may have heard of it before: a credit card customer, bogged down in credit card debt, cuts a deal with their creditor to have some of their debt forgiven, in exchange for paying off the remainder of the debt and closing the account. Sounds good, right?

Is all Really Forgiven?

Well, not so fast. Forgiven debt is not really forgiven, in the eyes of the creditor or the IRS. In other words, when a creditor forgives some of your debt, that debt is then reported to the IRS as taxable income.

Although credit card companies are facing hard times for several reasons, including the tough economic conditions and the pending credit card laws, they recognize that tough times call for tough measures. In other words, something is better than nothing, even when it comes to collecting credit card debt.

If a credit card customer has limited resources, and the credit card company chooses not to cut a deal with the customer to resolve a credit card balance, then chances are they will not receive anything.  Faced with that fact, many creditors are now forgiving debt so that they can collect at least part of the customer’s debt.

As it stands now, credit card companies have written off nearly $275 in unpaid credit cards over the past five years.

Is Debt Forgiveness for you?

Although accepting a “forgiveness loan” from your creditor may seem like your best option, be aware that any portion of your balance that is written off will be reported to the IRS and declared as income. Credit card companies are legally bound to report any forgiven debt to the IRS, which could make things difficult for you at tax time.

For example, if you have a $10,000 credit card balance and the creditor has agreed to forgive $5,000 of that balance, you will then need to pay taxes on that $5,000 come tax time.

There are a couple exceptions to this rule: the income does not need to be reported to the IRS if the amount of forgiven debt is less than $600; or your debt has been written off by the credit card company as “unpayable,” meaning that the debt has been forwarded over to a collection agency for payment.

Your Options when you Simply Can’t Afford your Credit Card Payments

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During these difficult financial times many individuals across the country are struggling to pay their credit card bills. With rising interest rates and tighter credit restrictions, many of us have found ourselves caught in a serious situation where our income simply can’t be stretched any farther.

Combine that with job losses and layoffs, and it becomes quite clear why so many Americans are struggling to make their credit card payments.

If you simply can’t afford your credit card payments, know that you do have options:

• Contact your lenders and explain your situation. If you recently lost your job or were laid off you can always request that your lender waive your fees, lower your monthly payment or set up some kind of payment plan that will allow you to better manage your debt. Persistence is key when it comes to negotiating new terms with your credit card company. Ask questions and demand to talk to a manager or supervisor if you are having no luck working out alternate arrangements.
• Consider debt forgiveness. If you have no means of paying your entire debt, you can often negotiate debt forgiveness. Debt forgiveness involves paying off your credit card for less than you owe. For example, if your credit card debt is $10,000, your credit card company may forgive half of your debt, thereby allowing you to pay off just $5,000 of that debt. However, it is important to understand that the debt forgiven will be reported to the IRS as taxable income. In other words, that $5,000 worth of forgiven debt will be taxed come tax time.
• Consider debt consolidation. If your credit is still strong, and you recognize impending trouble, you may be able to consolidate your credit card debt into one, easily manageable monthly payment.  You may be able to consolidate onto another credit card, or take out a personal loan to accomplish this. Reconsider using your home’s equity to consolidate this debt, though, as your inability to repay your loan could cost you your home.

The Three Most Common Ways Consumers Handle Their Debt

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If you find yourself in the middle of too much debt and are looking for ways to manage that debt effectively and practically, then you may have a few options. Provided your credit is strong, you still have a variety of options when it comes to handling your debt.

• Personal Loan – A personal loan is still a popular form of debt consolidation. Personal loans require no collateral, and are therefore a bit more difficult to get than other types of loans. Because personal loans are considered unsecured debt, they may also come with higher interest rates. However, if your credit score is still strong and you’ve always paid all of your debts on time, then you will likely still qualify for a personal loan. Personal loans are often offered through credit card companies, banks and other lenders.
• Credit Cards – If you have debt from a variety of lenders, many of which have high interest rates, then consolidating your debt using a low-interest credit card may be right for you. Many credit cards offer great deals on balance transfers, thereby allowing you to consolidate all your debt onto one, easy-to-manage credit card. Be careful about balance transfer fees, however, as well as introductory rates, to be sure that you’re getting the best deal on your balance transfer credit card offer.
• Home Equity Loans/Lines of Credit – For many homeowners with equity in their homes, a home equity loan or line of credit may be an option when consolidating debt. These types of home loans generally offer low interest rates and a longer repayment period, thereby making them a popular loan for homeowners. However, it is important to remember that these types of loans use your home as collateral; in other words, if you are unable to repay your loan, your home may be used by the lender to repay that debt.

Whichever type of loan you use to repay your debts, it is important to always consider all of your options. And, as always, develop a game plan, right from the start, regarding the repayment of your loan so that you can plan your budget accordingly.

Credit Card Debt Settlement Scams: The Danger Signs

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If your debts are overwhelming and you find yourself falling behind on monthly payments, then it may be time to get the help you need.

Because the recession has left many Americans out of work and unable to meet their monthly obligations, a wide variety of debt settlement companies have cropped up. The majority of these companies are reputable, but some are not. It’s a classic example of fraudulent individuals swooping in to take advantage of a situation; in this case it is a wide group of individuals who are struggling to pay their bills.

Debt settlement services are companies that provide a service to individuals in financial straits. The goal of a reputable debt settlement service is to negotiate deals with your creditors to repay your debt, usually for a fraction of your balance, without interest fees or other charges.

It is important to understand, however, that a debt settlement service may not be right for you, and it may be more advantageous to file bankruptcy. It is therefore essential that you speak with a lawyer regarding your choices and your rights, as each situation can be very different.

Debt settlement services may be a smart alternative for individuals that want to avoid bankruptcy, or for individuals that, under the new bankruptcy laws, may have difficulty filing for bankruptcy under Chapter 7.

Once you have talked with an attorney and have decided to pursue debt settlement, it is vital that you choose a reputable debt settlement company. Although it may be difficult to differentiate between a reputable company and a scam, the following warning signs should tip you off to a less-than-reputable company:

• The debt settlement company charges a huge, upfront fee for their services. In other words, avoid any company that demands a large, initial fee is typically not trustworthy, as federal and state regulators have busted many companies that take thousands of dollars from consumers, only to fall short on their promises of debt relief.
• The debt settlement company claims to repair your credit. It is important to understand that debt settlement, regardless of which company it is through, will significantly impact your credit score. A debt settlement on your credit report will damage your credit, so don’t let anyone tell you otherwise.

It is important to remember that a debt settlement company is NOT the same as non-profit, consumer credit agencies. Many consumers find that using a consumer credit counseling agency, or simply negotiating directly with their creditors, is often a better option than debt settlement companies.

How to Deal with a Credit Card Debt Collector

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For many of people, the tough housing market and credit crisis has taken its toll. If you’ve lost your job, been sidelined with an exploding mortgage payment or have simply been unable to earn as much money because of the poor economy, then you may have had difficulty handling your credit card bills.

Your creditors may turn to a debt collector when you have been unable to meet your credit card payment obligations for at least a month or more. Debt collectors, whether they work for the creditor or through a third-party collection agency, are paid to collect past-due money.

However, there are a set of guidelines to which they must adhere, and a set of rights that you, as a consumer, should be aware of if a debt collector has begun calling:

• Be aware of the Fair Debt Collection Practices Act. The Fair Debt Collection Practices Act is a federal act set forth to protect consumers from abusive collection practices. If you feel that the debt collector is engaging in abusive or harassing practices, or does not exhibit fair treatment or respect your privacy, then you have the legal right to make them stop harassing you. You may want to check with your state regarding their standards and laws for debt collectors, as well.

For example, a debt collector can not make threats against you, and cannot use abusive or profane language. A debt collector also cannot discuss your personal account information with any third parties or call you at unreasonable hours.

• Once a creditor or debt collection agency has begun calling you, don’t ignore the phone calls. Instead, ask for all pertinent information from the creditor, including their name, address, and telephone and fax number, as well as the specifics about your debt. You can also ask them to not call you at work and to also contact you only by mail – the creditor has a legal obligation to abide by your wishes.
• Keep a file regarding all of the information received by the debt collector, as well as times and dates (and copies, if possible) of all voice mails or phone messages left by the creditor. You may also take notes of your conversations with the debt collector. Most importantly, keep copious notes of any abusive or harassing behavior in case you need to contact the authorities.
• Seek assistance from an accredited consumer counseling agency to help you manage your debts. The best way to deal with creditors is to handle your debts so that they stop contacting you; and to do this, you need to take care of your financial responsibilities, which may mean seeking the assistance of a consumer credit counseling service or bankruptcy attorney.

Avoiding Newlywed Nightmares

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The excitement and stress of planning a wedding often leaves very little time for anything else. However, in between wedding and honeymoon planning, it is important to arrange a meeting with your soon-to-be spouse regarding your finances – including your credit card debt.

Although finances and credit card debt are not exactly the most romantic or pleasant topic to discuss before the wedding, it is nevertheless important. If you and your fiancé don’t develop a game plan for handling finances and credit card debt then you may find yourselves in the middle of a newlywed financial nightmare.

Start your marriage out on the right foot by asking each other the following questions:

• How many credit cards do you have and what are their balances? If you both have three credit cards, then you may want to consider paring them down so that you both have one or two joint accounts.  Another issue to discuss is the balances on your credit cards. It is best to lay it all out on the table and so that you and your fiancé can move forward and develop a game plan to pay down the debt.
• Do you want to have joint credit card accounts, or would you prefer to have a separate account? Your soon-to-be-spouse may desire a joint account with you, as well as a separate account, particularly if he/she uses credit cards for business purposes.
• What do you use your credit cards for? Does your fiancé use his/her credit card for emergency purposes only, or does he/she use them on a daily basis to collect reward points? You will both need to come to an agreement regarding what is acceptable once you are married so that arguments do not erupt over credit card debt.
• Who will handle the finances, including the credit card bills? Many couples appoint one person to handle the finances as to prevent confusion and hassle. Talk frankly and openly about this issue and decide which person would be best suited to handle the position of “account manager.”

Borrowing from your Home’s Equity to Pay off Credit Card Debt

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Many credit card holders, particularly in this tough economy, are finding themselves in over their heads with credit card debt. Many homeowners may be tempted to use the equity in their home to pay off this debt. But is this the right choice for you?

Refinancing your Home

Many consumers choose to refinance their homes in an attempt to pay off crippling credit card debt. If you have enough equity in your home to completely pay off your credit card debt, then going this route may be an option for you. Refinancing your debt into your home loan can lessen the burden of paying several bills each month; instead, all of the debt is rolled into a single mortgage payment.

Although using the equity in your home to refinance your home and pay off your credit cards may be the sensible choice for many homeowners, it is not without its disadvantages.

First, refinancing a mortgage typically involves closing costs, which can total several thousand dollars. Although many lenders will roll closing costs back into the mortgage, you must still pay them. Another disadvantage to using your home to pay off your credit card debt is that, unlike credit card bills, you can lose your home if you default on the loan because your home serves as collateral for the mortgage.

Obtaining a Home Equity Loan or Line of Credit

Another option for paying off your credit card debt with your home’s equity is to take out a home equity loan or line of credit. Closing costs for home equity loans are generally much lower than closing costs for refinancing.  However, the interest rate for a home equity will usually be higher than a typical home loan. For many consumers, the higher interest paid on a home equity loan, however, is still lower than the interest rates on their credit cards.

It is important to understand that a home equity loan or refinance can serve as smart financial tools when you simply want to pay off your credit card debt using your home’s equity. They may also be a better financial choice, as the payment for a refinance or home equity loan will typically be much lower than credit card minimum payments because the loan is extended over 20 or 30 years.