Credit Cards- Start Saving America!

Update on Credit Cards Bill - face a new set of rules

2009-05-12T12:13:00.000-07:00

President Obama is demanding of Congress to approve a bill that stops credit-card companies from taking advantage of consumers by the end of May. "Americans know that they have a responsibility to live within their means and pay what they owe," Obama said in his weekly radio and Internet address yesterday. "But they also have a right to not get ripped off by the sudden rate hikes, unfair penalties, and hidden fees that have become all too common."

Legislation known as the Credit Card Holders' Bill of Rights has passed the House of Representatives and awaits action in the Senate, possibly this week. "You shouldn't have to fear that any new credit card is going to come with strings attached, nor should you need a magnifying glass and a reference book to read a credit-card application. And the abuses in our credit-card industry have only multiplied in the midst of this recession, when Americans can least afford to bear an extra burden," the president said.

The House proposed rules on credit cards that prohibit double-cycle billing and retroactive rate increases, requires at lest 45 days notice for any substantial changes for consumers, prohibit unexpected account cancelations by the bank and require grace period to be at least 21 days. Also, rules prevent companies from giving credit cards to anyone under 18, require that companies publish their forms in plain-spoken language and require the availability of customer-friendly comparison shopping on credit card offers.

Obama wants to sign the legislation by Memorial Day. "There is no time for delay. We need a durable and successful flow of credit in our economy, but we can't tolerate profits that depend upon misleading working families. Those days are over," he said.

However, the banking industry is fighting back. Credit-card executives argue that the new restrictions could backfire on consumers, making it harder for banks to offer credit or put credit out of reach for many borrowers. They also argue that the new rules on credit cards are without any substance and simply play on the public anger over corporate excesses and the conduct of companies receiving billions of dollars in taxpayer money. Credit cards often serve as a vital source of liquidity, both for individuals and small businesses. This bill would shrink banks’ ability to lend, resulting in less credit available to vast numbers of Americans at the wrong time.

This bill is scheduled to take effect July 2010. Banks such as Bank of America Corp, JPMorgan Chase & Co, Citigroup and Capital One Financial Corp face a new set of rules aimed at reining in abusive credit card practices.

Protections for consumers

2009-04-28T14:00:00.000-07:00

President Barack Obama is determined to get a credit-card law that eliminates the tricky fine print, sudden rate increases and late fees that give millions of consumers headaches.

Obama outlined the principles for any legislation: Protections so that consumers won't face sudden, surprising jumps in fees; requirements that companies publish their forms in plainspoken language, with no more fine print; the availability of customer-friendly comparison shopping on credit-card offers; and greater enforcement so that violators feel the full weight of the law.
The president also acknowledged the importance of credit cards; almost 80 percent of U.S. households have one. Credit cards often serve as a vital source of liquidity, both for individuals and small businesses.The Federal Reserve has already ordered new rules, to take effect July 2010, that are designed to enforce a host of new consumer protections. The effect would be put emergency freeze on interest rates tied to existing balances on credit cards.

Credit Cards: The Next Financial Crisis?

2009-04-23T15:12:00.000-07:00

Create an emergecy money fund for a rainy day .

When times are good, how do you pay for the American dream or compete with your relatives in luxurious lifestyles? When times get tough, you unemployed and your savings ran out, how do you pay your bills? More people maxize credit cards to either buy things they cannot afford or to put food on the table and gasoline in the family car.
Credit cards are often the first place where we go to pay for all luxuries and problems in our lives, from designers’ jewelry to medical bills to paying for basic needs. And if you lose your job?! Now with no home equities left, people are supplementing their income with their credit cards. More people are forced to pay for their mortgages with the credit card. Living off credit cards runs up personal credit card debt very fast. Once people hit their credit limits, they are probably going to walk away from their credit cards. Credit card default will rise even higher. Financial experts say it's a road to financial disaster.
Since 1999, U.S. households have been loading up on debt, with credit-card balances rising 75%. Yet wages have increased only by 4% during that same time period. The savings rate has similarly declined relative to credit-card balances. In 2008, the savings rate in American household has been only 0.1 percent. Meanwhile, home equity, the biggest source of wealth for most families, has been drained by the mortgage crisis. There is no longer cushion for a rainy day for those who has a bump in the road!
It’s not surprising that credit defaults are up dramatically. Nationwide, the credit card delinquency rate rose to 39 percent from the previous year. The average credit balance is around $9,000 dollars. The credit-card defaults could reach $100 billion by the end of this year.
Traditionally, the credit-card industry is resilient during economic downturns. As the economy slows and people late on their card payments, card companies can make money by charging late fees and higher interest rates. But today, consumers are broke and defaults are on the rise. Losses are far higher than companies can make up with by extra card fees and higher interest rates. In 2008, Citigroup's credit-card lost $902 million and it raised interest rates on its 54 million cardholders. Bank of America, Chase and America Express almost doubled rates on their card holders. Your interest rate can go from 7.24% to 14.48% by the next monthly payment.
In the past, most borrowers could rollover debt into new credit card with a lower interest rate. However, that option is disappearing, leaving a growing raft of people with more debt than they can repay and no place to turn. This is the same situation that created the subprime mortgage crisis, when people could no longer just roll over into a new subprime or sell their house. This comes at a particularly difficult time for banks, which rely on credit card operations as steady and highly lucrative, profit centers, contributing significantly to total revenues.

But some financial analysts would disagree. Analysts argue that credit card debt is much smaller than the amount tied up in mortgages. There is roughly $1 trillion of outstanding credit card debt compared to $14 trillion worth of outstanding mortgages. Even if credit-card defaults reach a record high of the $100 billion, a portion of that total will get paid off every month, which would result in a total default of less than $100 billion. That number doesn't come near the losses that have occurred in the $14 trillion U.S. mortgage market. Moreover, credit card asset-backed securities aren't as complex as mortgage asset-backed securities. As a result, a total collapse of the credit-card industry wouldn't have the same far-reaching impact on economy.

Nobody can predict the future. The reality is: How does it all affect you? If you’re carrying a balance on your card, your interest rate may also go up. For example, the rate on your credit card went from 8.9 percent to 29.9 percent. The balance on this account is $5,000 and you can afford a payment of $250 per month. At the rate of 8.9 percent, $37 of that payment would go to interest and $213 would go toward the balance. If you maintain the $250 per month payment, you'd be debt-free in 22 months. But at the 29.9 percent rate, your payment of $250 is split in half: Interest would eat up $125, and the remaining $125 would be applied to principal. It would take you 29 months to pay it off, and the total difference in cost for interest charges is $1,575 more at the higher rate. A big difference! Also, your line of credit might shrink even if you have good credit and if you’re applying for a new credit card, good luck getting one. What can you do?
Watch the limit, budget and pay off your credit cards: Use no more than 30% to 40% of your available credit limit across all your cards. Control your debt! Start budgeting your spending and paying off your debt. In the next few months, taxpayers will be getting stimulus checks from the government, up to $600 dollars for individuals, $1200 for couples. Pay off your debt and create an emergecy money fund for a rainy day.

Negotiate: Don’t be afraid to call your card company and negotiate terms and ask to get recent changes reversed. If you a good customer with a solid payment record and a long-term relationship with the company, they will listen even in this economy.

Shop around for a lower rate: Although, rates are going up there is always competition for your business. People with good or excellent credit might get a better deal on the interest rate. People with bad credit who are struggling may also be able to find cards with lower rates and fees. Make sure you are approved for a new card before canceling any existing accounts!

Check and double check: The new Fed rule requires clear disclosures for credit cards. Read the fine print on your account statement every month. Some credit card companies charge you so much to transfer balances that it wipes out the benefit of the low interest rate. Remember the date when the introductory rate expires and switch to another card before it does. If you fail to transfer on time, the bank will charge you that rate on your entire existing debt.

Keep up and be proactive: At least maintain your credit score and remain current on all of your bills monthly payments. If they raise your interest rate, call them, cancel your card, and repay your remaining balance. If you have had the card for many years, you should keep it open because longstanding accounts are good for your credit score. Pay down the balance but don't make any new charges. New charges trigger the new, higher interest rate. If you haven't had the card long, just cancel it. If they cut your credit line, you can either live with it or cancel the account. Although, you might not get your way, take as much action as you can to prevent it.

Final Words of Wisdom: Start Saving America!