New Credit Card Statements Could Help Consumers Decrease Debt

This is a guest post by Bill Hardekopf, CEO of LowCards.com.

Consumers will soon receive their first credit card bill since last week’s implementation of the CARD Act and their statement will look very different.

“The new debt information on your credit card statement is one of the best provisions of the CARD Act and it will benefit every cardholder,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

The most significant change in your statement will be a chart which will clearly show how long it will take and how much you will actually pay should you make just the minimum payment each month. In addition, the chart will display how much you need to pay each billing cycle in order to completely pay off your balance in three years.

Suppose you owe $3,000 and your interest rate is 14.4%. Your statement would show that if you made no additional charges and paid only the minimum payment, it would take almost 11 years to pay off the balance at an estimated cost of $4,745. In addition, it would show that if you wanted to pay off the balance in three years, you would need to pay $103 per month and it would cost an estimated $3,712.

“Consumers will be shocked at how long it takes to pay down a balance and how much interest is actually paid if you are only making the minimum payment. When people see this personal information clearly presented in black and white, it should have a significant impact on getting consumers to pay off their credit card balance in a much more timely manner. Cardholders can’t ignore reality when they see the numbers each month on their credit card bill,” says Hardekopf.

An example of the minimum payment table can be found on the Federal Reserve website.

Consumers will see several additional changes on their credit card bills:

• Your statement should be much easier to understand. Fees and interest charges should be highlighted and explained in simple language in a legible font size, not buried in fine print.

• Your statement should give a toll-free number for counseling assistance from legitimate nonprofit organizations. Issuers are required to provide contact information for three organizations that have been approved by the United States Trustee or a bankruptcy administrator to provide credit counseling services in, at the card issuer’s option, either the state in which the billing address for the account is located or the state specified by the consumer. The National Foundation of Credit Counseling (NFCC) has added help lines to meet the expected increase in consumer assistance under the government’s new regulation.

• Some issuers will give a summary of total fees and interest paid to date during the current billing cycle and year to date.

Not only will your bill look different, but the delivery and due dates may also be different. Pay attention to the due date because it is possible that your due date has changed as a result of the provision that requires at least 21 days notice before your due daye. Your due date now has to fall on the same day every month. The payment cut-off time cannot be earlier than 5PM on the due date. If your payment due date falls on a weekend or holiday (when the company does not process payments), you will have until the following business day to pay without penalty.

These statement changes may belimited to or be most effective for those with paper statements. If you have online banking without a paper statement, you will miss these numbers about your debt. You may have to go looking for it in a PDF file instead of it being delivered directly to you. According to a recent AP story, the biggest banks are not putting the minimum payment on the online account summary page. Bank of America, Chase, Citi and others say they are educating customers through mail and email about the new statements. Capital One is using banner ads about the new disclosures when cardholders log on.

“Banks should act in the spirit of the CARD Act and also make the minimum payment information easily available to online accounts,” says Hardekopf.

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LowCards.com simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card. The LowCards.com Complete Credit Card Index is the most objective and comprehensive resource on the Internet which allows consumers to compare rates for all 1260 credit cards offered in this country. Created by Hampton & Associates, the company has been analyzing the credit card industry and supplying objective websites on various consumer expenses for eight years.

Significant Credit Card Changes Proposed by the Federal Reserve

This is a guest post by Bill Hardekopf, CEO of LowCards.com.

Today, the Federal Reserve proposed a rule amending Regulation Z (Truth in Lending) to protect credit card users from unreasonable late payment and other penalty fees, as well as requiring credit card issuers to reconsider increases in interest rates. This rule will go into effect on August 22, 2010.

“This proposal addresses two key costs of using a credit card–fees and interest rates,” said Federal Reserve Governor Elizabeth A. Duke. “The rule would prevent credit card issuers from charging large penalty fees for small missteps by consumers and would require issuers to reevaluate rate increases imposed since the beginning of last year.”

The proposed rule would:

• Ban inactivity fees. Some issuers have recently instituted an inactivity fee if there are no transactions on your credit card for a certain period of time.

• Force issuers to evaluate rate increases. At least every six months, credit card issuers must reevaluate annual percentage rates increased on or after January 1, 2009 and if appropriate based on their review, reduce the annual percentage rate applicable to the account. This includes changes in the consumer’s creditworthiness, and to increase in the rate due to change in market conditions or the issuer’s cost of funds. However, the statute also expressly provides that no specific amount of reduction in the rate is required.

• Stop credit card issuers from charging penalty fees that exceed the dollar amount associated with the consumer’s violation of the account terms. Card issuers would no longer be able to charge a $39 late fee for a $20 minimum payment. The fee could not exceed $20.

• Require credit card issuers to provide reasons for increases in rates.

• Prevent issuers from charging multiple penalty fees based on a single late payment or other violation of account terms.

“These are significant changes in the credit card industry that will help every cardholder. But if history is any indicator, credit card issuers will find new ways to make up for the revenue they will lose when these rules take effect in August, and those changes could be in the form of new or increased fees,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

This proposed rule represents the third stage of the Board’s implementation of the Credit Card Accountability Responsibility and Disclosure Act of 2009. In July 2009, the Board issued a rule implementing the provisions of the Credit Card Act that went into effect on August 20, 2009. In January 2010, the Board issued a rule to implement the provisions of the Credit Card Act that went into effect on February 22, 2010.

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LowCards.com simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card. The LowCards.com Complete Credit Card Index is the most objective and comprehensive resource on the Internet which allows consumers to compare rates for all 1260 credit cards offered in this country. Created by Hampton & Associates, the company has been analyzing the credit card industry and supplying objective websites on various consumer expenses for eight years.

The Unintended Consequences of the Credit CARD Act

This is a guest post by Bill Hardekopf, CEO of LowCards.com.

On Monday, February 22nd, the major provisions of the Credit CARD Act took effect, nine months after they were signed into law.

Many of these provisions will have a very positive effect on consumers, but the law has resulted in some unexpected fallout.

“The CARD Act has some very significant benefits for credit cardholders. The restrictions on interest rate hikes and the ban on over-the-limit fees are tremendous. Consumers have cried out for these protections for years and they are finally about to take effect,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. “However, there are a number of unintended consequences that have resulted from the CARD Act. These changes might affect more credit card consumers than the law helped.”

Here is a look at some of the unintended consequences of the CARD Act:

• Since issuers will be unable to raise interest rates on new accounts for twelve months, they simply raised the advertised APR before February 22nd so it affected everyone shopping for a new credit card account. According to the LowCards.com Complete Credit Card Index, the advertised Annual Percentage Rates for credit cards averaged 13.46% last week. Six months ago, the average was 12.11%. One year ago, the average was 11.51%.

• People under 21 will find it harder to build their credit score. If they do not have a job with enough income, they must get an adult to co-sign. Many young adults will not take this extra step, losing out on the opportunity to build up a good credit history throughout college. Without a positive credit history, they may not receive as good an interest rate on their first house or car loan.

• Fees, fees and more fees. Issuers are introducing more cards with annual fees, increasing existing fees, and putting new fees on accounts. Last October, Bank of America notified a small percentage of their customers that it is adding an annual fee of $29 to $99 on their accounts beginning in February. Balance transfer fees, which have been at 3% for most issuers, have now been increased to 5% by Chase and Discover. Firth Third Bancorp recently added a $19 inactivity fee if your card is unused for a twelve month period.

• The scarcity of fixed rate credit cards. Most issuers switched their fixed rate cards to variable rates, since the CARD Act allows APR increases in variable rate cards if the index used to calculate that variable rate increases. As an example, if the infex for a variable rate card is tied to the prime rate and the prime rate increases by 1%, the APR on that card can increase 1%. Many issuers switched their fixed rate cards to variable rate cards so they could maintain their margins once the CARD Act was instituted.

• Since any amount above the minimum payment goes toward the balance with the highest APR, some issuers raised the minimum payment up to 5% on a number of accounts.

• A decrease in the amount of credit card rewards or cash rebates. Reduced rewards could come in several different forms.
  • A cutback in the payouts of cash back cards.
  • More miles or points needed for that free airline trip or hotel stay.
  • Higher tiers required for consumers to receive the same level of rewards.

• A decrease in the number of credit cards awarded by retail stores. Providing proof of income when applying for a credit card will make it significantly harder for consumers to instantly qualify for a credit card. This will certainly impact the marketing efforts of the 10-15% discount on a purchase if you sign up for a store’s credit card. Retailers rely on this marketing strategy to increase purchases and to build their mailing list of customers used for offering future coupons or early-bird discounts.

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LowCards.com simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card. The LowCards.com Complete Credit Card Index is the most objective and comprehensive resource on the Internet which allows consumers to compare rates for all 1260 credit cards offered in this country. Created by Hampton & Associates, the company has been analyzing the credit card industry and supplying objective websites on various consumer expenses for eight years.

Transferring a Credit Card Balance–A Good Idea?

This is a guest post by Bill Hardekopf, CEO of LowCards.com.

Balance transfers have been popular among credit cardholders for a number of years. More consumers are now considering a balance transfer due to the rising interest rates on their existing cards. But is this a good idea?

If you have good credit and your credit card APR is currently above 20%, this is the time to consider transferring your balance to a card with a lower rate. As we saw in 2009, balance transfer fees are increasing and the introductory periods on these offers are decreasing. This trend is likely to continue in 2010.

“Balance transfers are a good illustration of the changes in the credit card industry. Issuers once used balance transfer offers to lure cardholders from other issues; they were eager to accept any application because any growth was good. The loans were cheap and easy with 0% for at least twelve months and no balance transfer fee. These loans were so easy to get that some cardholders transferred their balance from card to card at the end of each introductory period, never paying interest on their credit card debt,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. “Several years ago, issuers added a 3% balance transfer fee, with a $50 or $75 cap. Then the cap was dropped. 3% was the standard fee until some issuers began raising it last year in an attempt to increase revenues in any way they could.”

Here are the current balance transfer fees by issuer:

• Chase: 5%
• Discover: 5%
• Bank of America: 4%
• Citi: 3%
• American Express: 3%
• Capital One: Most do not have balance transfer fees, but the Platinum Prestige card charges 3%

“The CARD Act does not restrict balance transfer fees. It would not be surprising to see further increases in the balance transfer fees this year,” says Hardekopf.

Issuers learned a lesson from the lending meltdown that helped bring the record-setting defaults that are still dragging down credit card revenue. Today, credit card default rates exceeded 10% for some issuers. This makes issuers even more sensitive to risk and they are taking strong measures to avoid it. They have sliced credit limits and limited the terms of balance transfer offers to reduce risk. In the eyes of the issuer, cardholders who need a balance transfer the most are likely in a higher risk category and could have a greater probability of default.

Who Should Apply for a Balance Transfer Card?

Start with your credit score because issuers will use this to determine your credit limit, interest rate, and length of the introductory period. If you have excellent credit (a FICO score of 740) and your APR is over 15%, you should consider transferring your balance to a card with a lower interest rate.

If your credit card rates are high because your credit score is low, it is unlikely that you will receive the offer that you need, so you must have realistic expectations. You will not receive the lowest advertised rate and your introductory period may only be three to six months. Your credit limit may be less than the amount that you requested and you may not be able to transfer your total balance. Use the average limit of your other cards to estimate the credit limit for a new card. Balance transfers may be limited to a portion of your credit limit.

“Before a consumer transfers a balance from one card to another, one should do the math to see if the amount of interest payments that you save via the introductory offer outweights the balance transfer fee that has to be paid immediately. Be sure to factor in the ongoing APR if you are not able to pay off the entire balance during the introductory period,” says Hardekopf.

If the offer you receive does not meet your needs, decline the card. Limit the number of applications because multiple credit applications are a red flag on your credit report and can lower your credit score.

Which Card Should You Apply For?

The length of time it will take to pay down your debt should determine the cards you compare for balance transfers. If it will take you more than a year to pay off your balance, look for a card with an ongoing low interest rate because a low APR for the long-term is likely to be more important than the length of the introductory period.

If you can pay off your balance in less than a year, apply for a card with 0% for 12 months for balance transfers. With a 0% loan, you will pay off your balance much faster if your total payment is applied to the balance. You will also save yourself money in interest payments.

The best cards for balance transfers are the ones that offer an introductory period of twelve months for balance transfers and a low ongoing APR. Pay attention to what transactions are included in the introductory offer. Some offer 0% for 12 months on purchases, but not balance transfers; similarly, other cards may not include the 0% on any purchases.

Avoid cards with high interest rates, even if they offer generous rewards. Since you carry a balance, paying off your debt as fast as you can at the lowest interest rate is the only factor you should use to compare credit cards. Most credit card issuers do not give you points for balance transfers.

The Fine Print

• You must pay on time, every time. If you have a late payment, your introductory period will likely end and you will be assessed the APR on the transferred balance.

• There is no grace period with balance transfers. Interest charges begin at the time the check is issued to your credit card institution.

• You can’t transfer your balance to another card with the same issuer.

• It takes about four weeks for the balance to be transferred. Continue to make all required payments until you confirm that the balance transfers were made. Multiple balance transfers will process inthe order they are requested on the application.

• The new issuer pays the amount of the balance directly to the old issuer and the amount you owe them will be reduced by the amount you transferred. The available credit on your new account will be reduced, as if you had made a purchase.

• Transferring a balance does not automatically close your old account. If you want to close the account, contact the issuer directly.

• Issuers have the right to decline balance transfer requests or transfer less than you requested.

“After you transfer a balance, stop using the old card. If you use both cards for spending, you could soon have large balances on both cards and get yourself deeper in debt that you were before,” says Hardekopf.

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LowCards.com simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card. The LowCards.com Complete Credit Card Index is the most objective and comprehensive resource on the Internet which allows consumers to compare rates for all 1260 credit cards offered in this country. Created by Hampton & Associates, the company has been analyzing the credit card industry and supplying objective websites on various consumer expenses for eight years.

Using Credit Card Rewards Points to Donate to Haiti Relief Efforts

It was announced in mid-January that the nation’s largest credit card networks–Visa, Mastercard, American Express and Discover, would waive fees for some contributions that were being made to aid Haiti relief efforts, after taking a heap of criticism for charging up to 3% of charitable donations for transaction fees. This is only the second time that credit card companies have waived fees made from charitable contributions, which companies rake in as much as $250 million dollars annually from; the first time they waived these fees was after the tsunami in 2004.

Now that the major credit card companies have waived their (in my humble opinion, devastating and ill-willed) fees aimed at charitable contributions, many companies have also set up processes in which cardholders can redeem their rewards points to make donations to aid Haiti relief efforts.

• American Express has set up a website, GivingExpress Online, which lists a number of great charities and allows cardholders already enrolled in their Membership Rewards program to donate to any of the charities listed on the website by using their Membership Rewards points. American Express has also announced a donation of $250,000 to assist several different charities dedicated to the relief efforts in Haiti, including the American Red Cross, Doctors Without Borders, International Rescue Committee and the United Nations’ Friends of the World Food Program. They are also matching employee donations for relief efforts.

• Capital One launched their No Hassle Giving Site in 2008. This website allows cardholders to donate rewards to more than 1.2 million United States charities. Since the devastating earthquake hit Haiti in early January, the No Hassle Giving Site has listed about a handful of worthwhile charities dedicated to Haitian relief efforts. Cardholders have the option to set up charitable donations online as either a one-time only donation or a reoccuring donation; cardholders will also earn rewards on their donation transaction. A Capital One spokeswoman has also declared that donations made to the relief efforts in Haiti are tax deductible and donors could obtain a detailed donation history and summary of taxable donations for their records.

• Chase cardholders who hold either Chase Freedom, Sapphire and/or Ink can redeem and donate their Ultimate Rewards points to the American Red Cross Haiti Relief and Development Fund. Donations can be made starting at $25 for 2,500 points and then in $25 increments beyond that. There is no limit to the amount of points you can redeem to donate to Haiti, as long as it is up to your points balance.

• Citibank has enabled cardholders to redeem their ThankYou Network loyalty points to make donations to the American Red Cross and the ARC Disaster Relief Fund before the earthquake hit Haiti. Since the earthquake, donations have been reported to increase to 20 times the normal number they will pulling in. On January 20th Citibank added a Haiti-specific donation option which benefits the American Red Cross International Response Fund and since then, there has been a nearly 100 times increase in the daily redemption rate of loyalty points. You may redeem your ThankYou Network loyalty points in denominations of $50 and $100 to benefit the American Red Cross International Response Fund. You can also call the ThankYou Network service center to redeem your points for a donation by calling 800-842-6596.

Woman Tribune has been reporting on the relief efforts, current conditions, ways to donate and how people around the world are uniting to help Haiti in a time of serious and desperate need. We will continue reporting as information becomes available, so please consider following our reporting on Haiti to stay up to date on what is happening there.

CARD Act–Major Provisions Less Than One Month Away

This is a guest post by Bill Hardekopf, CEO of LowCards.com.

The major provisions of the CARD Act take effect on February 22, less than one month away.

“The CARD Act made some very beneficial changes for credit cardholders. Consumers have been wanting these strong protections for years and they will become real in one month,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. “However, the industry landscape has changed dramatically since May when the CARD Act was finally signed. Issuers have reacted to a very rough economy and this new law by finding new ways to increase their revenue. They have raised interest rates, closed accounts, increased fees and decreased reward programs. It is likely that the number of people who have been negatively affected by these new changes outnumber the people that significantly benefitted from the CARD Act.”

Here are the major provisions of the CARD Act that go into effect on February 22:

• There will be new rules for interest rates. Issuers cannot increase rates during the first 12 months of a new account. On existing accounts, if your rate is increased, the new APR only applies to your new purchases; your existing balance is still charged the old interest rate. (There are some exceptions on both of these provisions: if the card has a variable rate and the index goes up; if the introductory period ends and the rate increases to the standard rate; the payment is more than 60 days late; payments fall behind in the debt management plan.) Any monthly payments above the minimum amount must be applied to the balance with the highest APR first.

• There will be protections for underage consumers. If you are under 21, you will have to prove that you are able to make payments, or you will need a cosigner, in order to open a credit card account. Issuers are also prohibited from offering free gifts to these young adults as inducements for signing up for a credit card.

• Over-the-limit fees are banned unless consumers give issuers permission to allow the transactions that put you over your credit limit. If consumers do not “opt in,” then issuers cannot charge you this fee and your transaction may not go through.

• Your statement must clearly explain how long it will take to pay your balance if you only make minimum payments. It must also teel you how much you need to pay each month in order to eliminate your balance in three years.

  “This is one of the best provisions of the bill. It is too easy to pay your minimum amount without calculating how much more you need to pay to get out of this debt. Now the reality of how much you are paying in interest will be clearly stated. Hopefully, this will be an incentive for cardholders to pay more of their balance each month,” says Hardekopf.

• There will be caps on high-fee cards. If your credit card company requires you to pay fees (such as an annual fee, processing fee or application fee,) those fees cannot total more than 25% of the initial credit limit. This limit does not apply to penalty fees such as penalties for late payments.

• There will be changes and standardizations for billing and payments. Your due date should be the same date each month and the payment cut-off time much be 5pm or later on the due date. If your due date is on a weekend or holiday when the company does not process payments, you will have until the following business day to pay.

• Two-cycle billing will be eliminated. Credit card companies can only impose interest charges on balances in the current billing cycle.

• Universal default is now prohibited. Issuers can no longer increase a cardholder’s APR based on their payment records with unrelated accounts, like a utility bill.

In addition to these provisions, there are several rules that went into effect on August 22, 2009:

• Your issuer must send your credit card bill at least 21 days (rather than 14 days) before your payment is due.

• Your credit card company must give you 45 days notice (rather than 15 days) when they plan to increase your interest rate or certain fees (annual fee, advance fee, late fee.)

• If an issuer increases your interest rate, you have the right to “opt out” of that increase. You can no longer make any new purchases with that card, but you can continue to pay off your balance at the existing (lower) interest rate for up to five years.

“We have lived with the politics and consequences of this bill for almost two years. It will be interesting to see if these new provisions are helpful for consumers or if the higher rates and fees are the only lasting changes from the CARD Act,” says Hardekopf.

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LowCards.com simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card. The LowCards.com Complete Credit Card Index is the most objective and comprehensive resource on the Internet which allows consumers to compare rates for all 1260 credit cards offered in this country. Created by Hampton & Associates, the company has been analyzing the credit card industry and supplying objective websites on various consumer expenses for eight years.

Paying Down Personal Debt

This is a guest post by Bill Hardekopf, CEO of LowCards.com.

One positive sign from the economic downturn of the past year is that consumers finally began paying down their credit card debt.

In November, Equifax reported that credit card debt had declined 7.3% from a year ago. The latest Federal Reserve Consumer Credit report revealed that credit card debt fell in November for the 14th consecutive month. Revolving credit, the majority of which is credit card debt, has fallen over $100 billion since October of 2008, from $976.1 billion to $874.0 billion.

A number of factors could be contributing to this trend. Millions of consumers have lost their jobs or experienced a significant decline in their income. But there also seems to be widespread consumer outrage with the changes made by credit card issuers. 2009 was a year full of interest rate increases, credit limit decreases, and tightened credit by issuers. These were strong incentives for cardholders to cut back on their credit card usage and pay down their balance.

“Issuers began making these changes in 2008 and we expect them to continue in 2010. Even though the CARD Act will help stabilize some rate increases, many cardholders are already stuck with very high rates,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. “The only way to protect yourself against these high rates is to pay off your balance.”

Here are some consumer tips to reducing your personal debt in 2010:

• Accept that paying off debt won’t be easy. It took you a while to get into debt, and it will probably take you longer to get out. Do not get discouraged, no matter how much you can pay off or how long it takes.

• Start with researching how much you really owe. If you only pay the minimum balance, it is easy to focus on that number and lose track of the total balance. Collect each of your bills with outstanding debts including all credit cards, mortgage, student loans, auto loans, personal loans, and bank loans. Create a summary sheet that lists the creditor, monthly payment, balance, interest rate, and credit limit for each. List the status of each account, if any bills are past due, and verify the payment due dates.

• This debt summary may be overwhelming, so prioritize which bills to pay first. If money is short and you can’t pay all of your monthly bills, first pay the bills that are a necessity for health, shelter, basic groceries, and basic transportation. Then pay the secured loans such as your car loan. Payments on unsecured loans, such as most credit cards, should come last in these critical situations.

• Contact your creditors to negotiate lower rates. The less money you pay in interest, the more money you have to pay off your bills. You may also want to shop around for a mortgage or credit card with a lower rate.

  If you are in danger of missing a payment, contact your credits as soon as you realize you have a problem. They may be able to help you work out a payment plan, lower your rate, or lower your monthly payment. Credit card loan defaults are 10% or more for some issuers.

  If the first person you speak with can’t help lower your rate or make adjustments to your account, politely ask to speak with a supervisor or someone who can. Persistence may be necessary to find the person who can or will help you. Explain that you are in debt, the steps you are taking to repay it, and what you can pay today. Document all conversations, including whom you spoke with, and the date, time, and the results. If this doesn’t work, contact the National Foundation for Credit Counseling to work out a debt management plan.

• If you have multiple credit cards with outstanding balances, focus on paying off the card with the highest interest rate first. Continue to pay the minimum on your other cards until the card with the highest rate is paid off, then focus your effort on the card next in line. Don’t close all cards that you pay off. Keep your oldest cards open and occasionally use them to buy a magazine or a movie ticket–just pay it off each month. This will help improve your credit score.

• Pay more than your minimum payment. Your minimum payment is usually only 2%-5% of your balance. At this rate, it will take you many years to pay off your debt. Pick your card to pay off and try to double the minimum payment. Soon your credit card bill will include these calculations.

• Check into transferring your balance to a lower rate card. If your rate is above 15%, it could pay off to transfer the balance for that card to one that offers 0% for 12 months for balance transfers. However, this is not the “no interest for a year” loan it used to be. Issuers have tightened their balance transfer offers and you will have to search to find an issuer that offers 0% for 12 months. Citi Platinum Select currently offers 0% for up to 12 months. Most balance transfer offers have been reduced to six month.

  To take full advantage of this 0% interest, pay as much as you can above the monthly minimum. Be aware that credit limits are shrinking and you may receive a smaller credit limit for your balance transfer. Only use this card for the balance transfer, not additional purchases.

  Pay attention to the balance transfer fee. At the beginning of 2009, the industry standard for a balance transfer fee was 3%. But some issuers increased that fee during the year. In June, Bank of America increased the balance transfer fee to 4% and Discover now charges 5%.

• If you have a credit card balance, stop using it for anything other than necessities. Use cash instead. Credit cards are convenient, but if you carry a balance, you are still paying interest for dinners, clothes, entertainment and things that are long gone. If your APR is 15%, ask yourself if the purchase is worth paying an additional 15%, ask yourself if the purchase is worth paying an additional 15% in interest per year. If you use cash, you will not only save money on interest, but also reduce the amount you spend. According to a Dun & Bradstreet report, shoppers spend 12% to 18% less when using cash.

• Pay your bills on time, every time. Late payments can cause declines in your credit score. If you are 30 days late on your credit card paument, you could lose 60 to 110 points, depending on your credit score. The higher your credit score, the more points you will lose.

• If you are surprised by your current rates, check your credit report. It may contain an error that is creating a lower credit score and higher interest rates for you. If you find an eror on your credit report, contact the credit bureau to report it. They must respond to your claim in thirty days or remove the information that is incorrect or can’t be verified. You can make your dispute by mail, telephone, or online. If the corrected error results in a higher credit score, contact your creditors to make sure they know about your improved score, and ask for a lower interest.

• The good news. If you build a history of paying your bills on time every time, and start paying down your debt, not only will your debt decrease, but your credit score will increase. As your credit score increases, contact your issuers to ask for lower rates.

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LowCards.com simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card. The LowCards.com Complete Credit Card Index is the most objective and comprehensive resource on the Internet which allows consumers to compare rates for all 1260 credit cards offered in this country. Created by Hampton & Associates, the company has been analyzing the credit card industry and supplying objective websites on various consumer expenses for eight years.

Consumer Tips for Applying for a Credit Card

This is a guest post by Bill Hardekopf, CEO of LowCards.com.

January is historically the busiest month for credit card applications. Consumers are inspired by New Year’s resolutions to save money or find themselves trying to repair the damage done by holiday shopping.

Before applying for a credit card, consumers should do an internal audit on their financial situation and then thoroughly compare credit card offers instead of applying for the first offer that comes in the mail.

“Shopping for a credit card can be overwhelming since there are over 1,000 credit cards on the market,” says Bill Hardekopf, CEO of LowCards.com, home of the internet’s only Complete Credit Card Index. “If you don’t have a plan, it is easy to just pick a card because it has a familiar name or the advertised features sound attractive. You want to pick the right card. If it doesn’t fit, credit cards don’t have a free return policy. Every time you apply for a card, it is reported on your credit score and too many applications can pull down your score.”

Start by checking your credit score to understand how lenders will judge you. Also, this will enable you to check the accuracy of the report to make sure you are not being penalized unfairly. Checking your score may help you estimate the interest rate you may receive.

Then, classify yourself. Credit cardholders fall into four categories: those who pay the full balance each month, those who carry a balance all the time, those who want to transfer their balance to a lower rate, and those with either no credit or marginal credit.

The type of customer you are dictates how you shop for a credit card.

• If you pay the full balance each month…

  If you pay off your balance each month, the interest rate is not that important. You can make the credit card work for you and earn free rewards or cash. There are reward programs for practically every hobby or interest, so apply for a card that has the best reward program that fits your needs.

  Finding the best reward card can be difficult since the offers are often hard to compare. To simplify, assume that the average reward program pays you 1% of what you spend. If the card offers you more than 1% of what you spend, it is an above average offer. Very few cards offer cashback rewards over 1%. The ones that do have a minimum spending limit you must reach to receive the higher rate, or it is part of a rotating reward program and the categories change every quarter.

  When choosing a reward card, first look at your annual credit card usage. If you charge less than $5,000 a year, your best option is a general reward card, such as Blue from American Express. You can select rewards on lower levels like gift cards, restaurants and retail stores. If you have an airline reward card and charge $5,000 or less each year, you may need give years to earn a free ticket (most cards offer a free, domestic airline ticket for 25,000 points.) If your usage is more than $50,000 per year, look for a card with unlimited rewards since some cards cap rewards at $50,000.

  Hotel reward cards sometimes offer the most generous point distribution for everyday purchases, general purchases, and bonus points. Starwood American Express offers 10,000 points (three free nights at some hotels) with first purchase plus an additional 15,000 Starpoints if you spend $15,000 in six months. Some hotel cards also redeem points for airline tickets or retailer gift cards.

  Now is the time to take advantage of cards that do not charge an annual fee and to use reward points as you earn them. Rewards aren’t covered under the CARD Act and issuers can make changes or place restrictions on them at any time. Rewards are an easy area for struggling issuers to cut costs and add fees.

• If you carry a balance…

  The average credit card rate is 13.25%. If your credit score is above 720 and your APR is over 15%, apply for a card with a lower rate. If you have good to average credit, you won’t get approved at the lowest advertised rate. Look at the rate tiers in the terms and conditions to judge what rate you may actually receive and to determine whether it will be worth the effort to apply.

  This group of cardholders has been the hardest hit by issuers reacting to the tight credit market and the provisions of the CARD Act. In 2009, issuers increased rates for many cardholders that carried a balance to as high as 29.99%. Issuers also switched rates from fixed to variable.

  “Issuers once competed aggressively to attract consumers that carried a credit card balance. Now they are raising rates, slicing credit limits, and even closing accounts for this same group. Issuers have been burned by high default and delinquency rates, and any significant outstanding balance now waves a huge red flag of risk” says Hardekopf.

• If you want to transfer a balance to get a lower rate…

  Ideally, balance transfers help you shift your balance from a high interest rate card to one with a lower rate. This used to be so easy that cardholders transferred their balance from card to card to take advantage of the intro period and avoid interest payments. Issuers allowed this and did not even charge a fee for balance transfers.

  Today, balance transfer options are still available but they aren’t as easy and welcoming as they used to be. Many introductory periods have been cut from twelve to six months, the ongoing interest rates are higher, and some issuers have increased the balance transfer fee from 3% to 4% or, in some cases, even 5%. Citi Platinum Select offers a 0% for up to twelve months for balance transfers with a 3% balance transfer fee.

  It is important for consumers to mathematically calculate whether a balance transfer makes financial sense. Compare the up front balance transfer fee (which is then rolled into your balance) and what you will save in interest payments for the introductory period to the interest payments you will make on your existing card. Carefully read the terms and conditions of the card you are considering to see if purchases made during the introductory period are covered at the introductory rate or if that rate only applies to the transferred balance.

  “If you have average credit, there is no quick fix to get a lower rate. Issuers have tightened lending and approval rates to this group. The best way to lower your rate is to raise your credit score. That will take time, but it will be worth the effort,” says Hardekopf. “Ironically, one of the fastest ways to pull up your credit score is to pay down your debt and reduce your credit utilization ratio.”

• If you have no credit or bad credit…

  Secured cards are for those who have no credit or bad credit history and can’t get a traditional credit card. This card may also be an option for those who have a completed bankruptcy. Think of a secured card as a short-term band-aid to repair your credit. If used correctly, a good payment history with the secured card should improve your credit score enough to qualify for a standard card in twelve months to two years.

  The secured card looks like a traditional credit card–a merchant will not know it is a secured card. The difference between the secured and unsecured card is the higher rate and fees for the secured card. You must make the monthly payments on the card or the bank will turn the account over to collections, further damaging your credit score.

  The deposit for a secured card determines the credit limit. If your deposit is $300, you will receive a Visa or MasterCard with a credit limit up to $300. The security deposit is not used to pay for charges but to cover the balance if the account is closed. The deposit is held until the account is closed.

  A secured card has certain requirements. You m ust have a telephone in your home, reside in the United States, and have a valid social security number. While many applications are accepted, you are not guaranteed to receive a card. Unpaid tax liens or undischarged bankruptcies may prevent you from getting the card. Some issuers will not offer you a card if you have declared bankruptcy in the past.

  Make sure that the issuer of the secured card you are applying for reports to the credit bureaus. This is necessary to help rebuild your credit history. If the issuer doesn’t report your history, a good payment record will not positively affect your credit score. Some cards require an additional fee for this. Save yourself some money and choose a card that doesn’t require this fee but still reports to credit bureaus.

  Paying your bill on time can result in your account being upgraded to an unsecured card within two years. Some cards may also increase the credit limit to more than the amount of your deposit. After twelve months of good payment history, contact the issuer about converting your secured card to an unsecured card with a lower rate and a deposit refund.

  “Once you have determined the type of credit card customer you are, compare all the cards in that category. Don’t just look at the advertised slogans or features. Dive into the terms and conditions of each card. Make a grid of the rates, fees and rewards of each card so you can compare apples to apples and make an informed decision on the right card for you,” says Hardekopf.

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  LowCards.com simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card. The LowCards.com Complete Credit Card Index is the most objective and comprehensive resource on the Internet which allows consumers to compare rates for all 1260 credit cards offered in this country. Created by Hampton & Associates, the company has been analyzing the credit card industry and supplying objective websites on various consumer expenses for eight years.

  Tags: American Express, American Express Blue card, American Express Starwood card, bankruptcy, Bill Hardekopf, Business & Finance, CARD Act, Citi Platinum Select, Citibank, consumerism, credit card airline rewards, credit card annual fees, credit card balance transfers, credit card cashback rewards, credit card debt, credit card hotel rewards, credit card interest rates, credit card reform, credit card rewards, credit cards, credit score, economy, federal taxes, Finance, financial crisis, frugal living, LowCards, LowCards Complete Credit Card Index, MasterCard, New Year's Resolutions, secured credit cards, Visa

  Credit Card Debt Declining at Record Level

  January 16, 2010 by Holly
  Filed Under Business & Finance, Finance

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  This is a guest post by Bill Hardekopf, CEO of LowCards.com.

  Data released last Friday by the Federal Reserve shows that the consumer debt is declining at a record pace.

  The Federal Reserve Consumer Credit report reveals that credit card debt fell in November for the 14th consecutive month. Revolving credit, the majority of which is credit card debt, decreased at an annual rate of 18.5% in November. This is the largest percentage drop ever recorded. It has fallen over $100 billion since October of 2008, from $976.1 billion to $874.0 billion.

  Another report, The Credit Card Index from Fitch Ratings showed that delinquent balances on U.S. credit cards reached record levels. The 60+ day delinquency rate reached an all-time high of 4.54% for the December 2009 index, which is based on performance data through November month end. This surpassed the previous high of 4.45% set in June 2009.

  “These credit records show that the lending crisis continues. Consumers are still having problems paying off what they owe on their credit card balances. Issuers are still charging off accounts. Banks are working to reduce their loss rate. They are reluctant to make new loans and have tightened lending standards. Meanwhile, consumers are cutting back on using credit cards and reducing their credit card debt,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

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  LowCards.com simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card. The LowCards.com Complete Credit Card Index is the most objective and comprehensive resource on the Internet which allows consumers to compare rates for all 1260 credit cards offered in this country. Created by Hampton & Associates, the company has been analyzing the credit card industry and supplying objective websites on various consumer expenses for eight years.

  Tags: Bill Hardekopf, Business & Finance, consumerism, credit card debt, credit cards, economy, Federal Reserve, Federal Reserve Consumer Credit report, Finance, financial crisis, Fitch Ratings, LowCards, LowCards Complete Credit Card Index

  Credit Card Predictions for 2010

  January 7, 2010 by Holly
  Filed Under Business & Finance, Finance

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  This is a guest post by Bill Hardekopf, CEO of LowCards.com.

  The LowCards.com credit card prediction for 2010 is no surprise: cardholders will pay more for credit card loans. The cost of credit cards will continue to increase for consumers even though the major provisions of the CARD Act go into effect on February 22. Cardholders could see increases in both their interest rates and existing fees, as well as the introduction of new credit card fees.

  “Credit card issuers have lost billions of dollars in credit card loans during this economic downturn. Now they are staring at these new provisions of the CARD Act that will limit their ability to make revenue. They are coming up with ways to generate additional revenue and it obviously comes at the expense of the cardholder,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. “This eans that cardholders will continue to pay more for credit card loans. Cardholders who pay their balance in full every month may eventually see the end of ‘free’ credit card loans as we know them.”

  Here are some 2010 predictions for the credit card industry:

  • More Cards with Annual Fees

    According to the LowCards Complete Credit Card Index which tracks the rates and fees of 1000+ credit cards, only about 20% of the credit cards in the United States currently have an annual fee. But that number should increase in 2010. Some credit card issuers have already made the first moves to test annual fees on a small percentage of cardholders or offer cards with annual fees that build customer loyalty.

    Bank of America has been test marketing the effects of adding an annual fee to some of their existing customers. In October, the issuer notified a small percentage of customers that it is adding an annual fee of $29 to $99 on their accounts beginning in February 2010. Only a few customers (0.5%) received the notice but the outcry against this annual fee was loud, even from consumers who were not affected.

    Chase is using premium rewards to encourage customers to select or upgrade to cards with annual fees. They introduced the Sapphire Preferred card with an $85 annual fee and enhanced benefits and earning potential.

    “Bank of America and Chase are the first major issuers to test the traditionally unpopular annual fees. If other issuers think this is working, they will also add annual fees. Issuers use each other for market research,” says Hardekopf.

    American Express recently introduced the new Zync card with a twist for annual fees. It is a charge card aimed at people in their twenties. The annual fee is $25 per year and includes participation in Membership Rewards. It also offers packs of benefits that can be purchased for an additional $20 per pack per year. For example, enroll in the Go Pack and receive twice the Membership Rewards on airfare.

    “Issuers are trying to find ways to change the dynamic of the credit card market. They want to ‘mainstream’ annual fee cards and provide enough value to attract the consumers with good credit,” says Hardekopf. “Right now the majority of consumers do not want to pay an annual fee for their credit card. Consumers shouldn’t have a card with an annual fee for their credit card. Consumers shouldn’t have a card with an annual fee since 80% of the cards currently do not have one. Some issuers may force the annual fee, but others will find creative ways to encourage customers to accept a card with an annual fee.”

  • Fixed Rate Cards Changed to Variable Rates

    In 2009, issuers switched many fixed rate cards to variable rates, making rate increases for everyone almost inevitable. Variable rates rise and fall with the prime rate. The rate is currently at 3.25%, the lowest level since the 1950’s. As the economy recovers, the rate is expected to rise. As it does, cardholders will see increases in APR.

    “Issuers will continue to move the remaining fixed rate cards to variable rates. Fixed rate cards are almost extinct, and if your card still has a fixed rate, expect it to be switched to a variable rate in the next month,” says Hardekopf. “Issuers are switching cards to a variable rate that have the prime rate as their base so that interest rate increases can be passed on to the cardholders even after interest rate provisions of the CARD Act take effect.”

  • Increases in Interest Rates

    Even though the CARD Act limits the issuers’ ability to raise rates “at any time, for any reason,” expect issuers to find loopholes and create opportunities to raise rates. In addition, since the CARD Act limits interest rate hikes during the first year for cardholders, issuers are like to increase the advertised APR so the cardholder is locked in at a higher interest rate.

  • Increase in Existing Fees

    The CARD Act does not limit fees, so expect issuers to increase the existing fees. An example is the balance transfer fee. A year ago, the industry standard for balance transfer fees was 3%, meaning if you transferred $10,000, you would incur a $300 balance transfer fee. But Bank of America increased their balance transfer fee to 4% in the summer of 2009 and a Chase increase to 5% takes effect this month. Expect other issuers to follow these increases. The same increases might occur with cash advance fees.

  • Introduction of New Fees

    Issuers can also be expected to add new fees to credit cards. This is already being tested by several issuers.

    Firth Third Bancorp recently added a $19 inactivity fee if your card is unused for a twelve month period. In August of 2009, Citi informed some of its cardholders that they will be charged an annual fee of $30 to $90 unless they spend at least $2,400 per year. Some retail cards are adding a $1 monthly processing fee should you request a printed credit card statement each month.

    “Since fees represent such a cash cow for issuers, expect aggressive increases in existing fees as well as some brand new fees on your credit cards in 2010,” says Hardekopf.

  • Decreased Rewards on Some Cards, Increased Rewards on Others

    Rewards sound generous in advertising for credit cards, but the points formula can be complicated and subject to change. Expect issuers to play musical chairs with rewards in 2010.

    Issuers will cut costs by reducing rewards for some cardholders, especially those who do not pay an annual fee and pay off their balance each month. Reduced rewards could come in several different forms: (a) a cutback in the payouts of cash back cards; (b) higher tiers required for consumers to receive the same level of rewards; or (c) more miles or points needed for that free airline trip or hotel stay.

    However, rewards will likely be used as an incentive for cardholders to accept a credit card with an annual fee. Bonus offers will be more generous for cardholders that pay the annual fee.

  • Government Regulation

    The CARD Act goes into effect in February, but that may not be the end of government regulations. Credit card reform is a hot issue and some Senators and Representatives think that the CARD Act didn’t go far enough. For example, Congress may try to force issuers to lower the interchange rate they charge to merchants. If this passes, it will reduce an important source of revenue for issuers and consumers will likely have to pay more to make up the loss.

    “Government reform sounds good and scores political points for the lawmakers who push it, but it often results in higher payments for the people it is trying to help. If you place limits on issuers, they will find ways around them because they have to make money on these loans to stay in business. Credit card companies are not philanthropic organizations,” says Hardekopf.

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  LowCards.com simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card. The LowCards.com Complete Credit Card Index is the most objective and comprehensive resource on the Internet which allows consumers to compare rates for all 1260 credit cards offered in this country. Created by Hampton & Associates, the company has been analyzing the credit card industry and supplying objective websites on various consumer expenses for eight years.

  Tags: American Express, American Express Zync card, Bank of America, Bill Hardekopf, Business & Finance, CARD Act, Chase, Citibank, credit card annual fees, credit card debt, credit card fixed rates, credit card interest rates, credit card reform, credit card rewards, credit card variable rates, credit cards, economy, Finance, financial crisis, Firth Third Bancorp, government regulation, LowCards, LowCards Complete Credit Card Index, Politics, World