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Watch out for these Ridiculous (but Legal) Credit Card Fees

Since the passage of the Credit CARD Act and its full implementation this summer, consumers have been protected in some important ways from the credit card industry. But, as Credit.com reminds us in this post about absurd credit card fees, there are still plenty of credit card industry practices to be wary of.

Here’s a look at some of the fees you should watch out for (and avoid, if possible) if you’re in the market for a credit card.

• Hefty upfront or activation fees: Though the CARD Act limited how high initial fees can be on credit cards, many issuers are still charging upfront and/or activation fees. One industry insider has apparently defended these fees as legal because many issuers assess them before an account has officially been activated, meaning that they can’t contribute to the card’s limit.
• Credit insurance or protection: This credit card charge is reportedly designed to allow consumers to stop making payments if they lose their job unexpectedly (but, one would assume, it would not stop any interest from accruing on the balance due). Naturally, it’s not free, and, according to Credit.com, your credit card issuer may not even tell you that you’re paying for such “protection” – you have to check your bill to determine whether you’re forking over cash for this. And, if you are, consider calling your card issuer to cancel it.
• Inactivity fees in disguise: Because the CARD Act forbids credit card issuers to charge inactivity fees (that is, charges for not using a card), some companies, it seems, have done little more than renamed their inactivity fees to keep them alive. Some cards apparently charge “annual fees,” which consumers don’t have to pay if they charge a certain amount each year. If you use your card very little and don’t think you’ll reach the annual fee limit, you may want to close the account.
• “Pick-a-rate” interest rates: This practice, according to Credit.com, is particularly nefarious because it can go undetected by individual credit card holders – it doesn’t cost individuals very much money, but, when applied to millions of accounts, earns a hefty chunk of change for credit card companies. What essentially happens is that credit card issuers charge a slightly higher interest rate than usual – your best bet is to avoid cards that have this language in the agreement: your interest rate “will be the maximum prime rate reported in the 90 days preceding the last day of the billing cycle.” An ordinary interest rate will be signified in your contract in this language: your interest rate “will be the maximum prime rate reported on the last day of the billing cycle.”

The bottom line? Watch out. Even though federal law protects your consumer rights to a certain extent, it’s still essential to read all the fine print and make sure you understand the terms of your credit card before you sign anything.

Posted in Consumer Credit, Credit Card Debt, Credit Cards, Credit and Bankruptcy, Financial Literacy | Comments Off

Student Loan Debt Tops Credit Card Debt in U.S.

The Wall Street Journal reported this month that the amount of money Americans owe on student loans has officially surpassed what we they owe on credit cards.

How did student loan debt come to outweigh credit card debt, which seems to dominate the headlines and personal finance blogs?

Here’s a look at the numbers behind the scenes:

• Americans currently owe $826.5 billion in revolving credit  -essentially means credit card debt. This is actually down from a high of $975.7 billion two years ago.
• Current educational debt - student loans - comes to $829.9 billion. Analysts estimate that More than  $300 billion of that was accrued in the last four years.

These numbers suggest a variety of explanations and ramifications. Here’s a look at some of the issues and likely outcomes of the new balance of personal debt.

• Paying down debt: Because credit card debts tend to have higher interest rates than student loan debt, it seems that people tend to pay off their credit cards before worrying about their student loans. That could be part of the reason why student debt has crept up in recent years while credit card debt has inched down.
• New credit card requirements: Another potential explanation for the shift is that many credit card issuers have increased minimum payments in recent months, which translates to people paying down more of their debt, whether they like it or not.
• Attention: Credit card debt generally gets more media attention than student loans, which may make paying it off a bigger priority for some people.
• Rising cost of college: The cost of attending college continues to rise. And with graduates entering a tough job market many are finding it difficult to pay down large student loan debts.

Bankruptcy and Student Loan Debt

One especially interesting element of the shifted debt load is the role that personal bankruptcy has to play.

Bankruptcy filing rates are on the rise, and the use of bankruptcy as a credit card debt elimination tool has become more common and accepted. However, bankruptcy cannot typically clear student loan debts.

• Student loans in bankruptcy: Except in cases of extreme financial hardship, student loans are not dischargeable in bankruptcy court. This means that even if a person files for bankruptcy and has other loans discharged she will still be responsible for paying her educational lenders.
• Credit cards in bankruptcy: Credit cards, on the other hand, can be discharged during a bankruptcy filing. With a Chapter 7 bankruptcy, some people clear their credit card debt in only a few months.

So what does all this mean for you? If you’ve found yourself saddled with student debt, credit card debt or both, it’s important to consider all of your options for easing your debt burden. Consider talking with a local bankruptcy attorney to explore your options.

Posted in Bankruptcy, Bankruptcy and the Economy, Credit Card Debt | Comments Off

Save on Medical Bills (and Other Pesky Expenses)

Considering that a significant number of Americans who seek bankruptcy protection do so at least in part because of overwhelming medical bills, there's a little-known trick that could prove financially amazing for some individuals. A recent article from the New York Times suggests a very simple technique for saving money on doctor’s bills.

The Trick

Luckily, this “trick” for knocking as much as 25 percent off your medical bills isn’t complicated or difficult. Here’s what you have to do:

• Call the hospital or doctor you visited when you have a copy of your bill.
• Ask if you can have a 25 percent discount if you agree to pay in full over the phone (which usually means giving a credit or debit card number).
• Wait for results.

The caveat here is that you actually have to have 75 percent of the bill available in cash; otherwise, the strategy won’t work. But, if you’ve developed a savings account for emergencies or even for routine medical costs, you’re probably in a good position to give this a whirl.

Why It Works

So why would hospitals and doctors agree to accept less than the amount they charged you, often without any sort of negotiation? Because, according to sources, many are accustomed to patients who cannot pay, refuse to pay, have their debts discharged in bankruptcy or otherwise avoid payment in full.

After all, medical debts are dischargeable in bankruptcy and emergency procedures can cost a pretty penny, especially if you’re not insured or insured well.

Where Else You Can (And Can’t) Try It

The good news (if you’re willing to start saving some money to try this trick elsewhere) is that the medical world isn’t the only one that might accept an offer for immediate, partial payment.

Consider trying it for one of your credit cards: if you have a significant balance on one card but have saved up a portion of what you owe, try calling your company and asking to make a lump payment for that portion, in exchange for their excusing the rest.

It’s a good idea to get such an agreement in writing, so if your issuer consents, be sure to include your agreement in writing when you send payment. Like medical bills, credit card debt can be discharged in bankruptcy, and many issuers will be happy to accept a guaranteed portion rather than risk losing all of it if you file.

The trick probably won’t work, though, for student loans. Because these are not usually dischargeable in bankruptcy court, student lenders have little incentive to settle for less than what you owe.

Posted in Credit Card Debt, Credit and Bankruptcy, Medical Bills, Negotiating With Creditors, Student Loans | Comments Off

Credit Card Delinquencies Down in First Quarter

As many people who have filed for bankruptcy know, one of the main causes of filing bankruptcy is unmanageable credit card debt. Often, a bankruptcy filing comes after months of missed payments.

Recent data from the American Bankers Association (ABA) shows that, as a nation, we’re improving our on-time payment rate for our credit cards. In fact, we’ve improved in a variety of areas:

• Bank card delinquencies reportedly fell to 3.88 percent of all accounts, down from 4.39 percent in the fourth quarter of 2009. The current rate is also apparently below the 15-year average of 3.93 percent and stands as the lowest rate recorded since 2002.
• Auto loan delinquencies fell in both the direct category (from 1.94 percent to 1.79 percent) and the indirect category (from 3.15 percent to 3.04 percent).
• Home equity loan delinquencies dropped from 4.32 percent to 4.12 percent, marking the first dip in two years, according to the ABA.
• Personal loan delinquencies decreased slightly, from 3.63 to 3.61 percent.
• Property improvement loan delinquencies inched downward, from 1.63 percent to 1.40 percent.
• Home equity lines of credit delinquencies dropped from 2.04 percent to 1.81 percent.

The ABA considers loans delinquent when payments are thirty days or more overdue, so the decrease in delinquency rates suggests that more Americans are making a concerted effort to make payments on time, on a variety of loan types.

But not all of the ABA’s findings were rosy: the group also noted that several categories saw increased delinquency in the first quarter of 2010:

Marine loan delinquencies: Up to 1.93 percent from 1.63 percent
• Mobile home loan delinquencies: Up to 3.65 percent from 3.41 percent
• RV loan delinquencies: Up to 1.58 percent from 1.44 percent
• Non-card revolving loan delinquencies: Up to 1.63 percent from 1.46 percent

While some analysts point to the overall decrease in consumer delinquencies as evidence to support the theory that the economy is on the upswing, others looking at the financial landscape aren’t so sure.

Numbers from the Federal Reserve released earlier this month indicate that, overall, consumer credit decreased in May 2010, which can be read as a positive sign (because people are borrowing less and so are accumulating less debt) or as a negative sign. After all, one of the main reasons we’re taking out fewer loans and opening fewer credit cards as a nation is that lenders have tightened their standards and are less willing to offer us money.

The Fed’s numbers are especially telling when broken into their categories: while consumer debt overall decreased at an annual rate of 4.5 percent in May, revolving credit (which encompasses the vast majority of credit cards) decreased at a rate of 10.5 percent, and non-revolving credit decreased only at a rate of 1.5 percent.

The jury may be out on whether these numbers are good for the larger economy, but if you’re part of the trend of paying loans on time, keep up the good work.

Additional Resources

Credit Card Borrowing, Delinquency, and Personal Bankruptcy

Debt, Delinquency, and Consumer Spending

Posted in Credit Card Debt, Credit and Bankruptcy, delinquency rate, economic trends | Comments Off

Understanding Credit Card Cancellations

Finding out your credit card has been canceled can be frustrating, embarrassing and worrisome.

Unfortunately, tough economic times may mean card cancellations become more common and more likely in the coming months.

Why Credit Cards Matter

Hopefully, you already know that your credit score is a number calculated through a formula developed by the Fair Isaac Corporation (FICO) and determines what kind of interest rates you’re likely to receive from lenders.

But what you may not have realized is that your credit card usage plays an important role in your credit score:

• Age of accounts: The longevity of various credit accounts, including loans and lines of credit, is a factor in your credit score. So maintaining a credit card for a number of years is better than opening up new ones and canceling old ones.
• Variety of account types: Another factor of your credit score is the diversity of your credit portfolio. Credit cards are one of the only tools that offer revolving credit, so they demonstrate how well a borrower handles this particular credit product.
• Credit utilization ratio: Finally, credit cards help by giving you more credit available. Part of your score comes from a comparison between how much credit you have available to how much you’re using (using less is better).

So having a card canceled on you may damage your score in three different ways, and there is no law that requires credit card issuers to notify consumers about cancellations.

Reasons for Credit Card Cancellation

Even if you’re a responsible credit card user - meaning you pay your bill on time every month - your credit card company may cancel your card. Common reasons include:

• Ratio shift: If your available-credit-to-debt ratio changes - that is, you start using significantly more credit - a card issuer may cancel your card due to "increased risk."
• Lack of profitability: Sadly, if you pay your bill in full every month, the issuer isn’t making much money from you, and may cancel your card.
• Lack of use: If you haven’t used your card in several months, it could get the shaft. Charge something small every month or so and pay it off immediately to prevent this.
• Bad economy: Market conditions, like unfavorable interest rates or housing prices, may cause card issuers to close accounts.
• Credit report information: Negative information in your credit report, whether true or not, can make an issuer pull the plug.

In some cases, you won’t be able to prevent cancellation, but you can stay on top of your finances by checking your credit report regularly and fixing any errors you notice. This will help you stay on top of any credit card problems before they arise.

Posted in Credit Card Debt, Credit and Bankruptcy | Comments Off

A Time for Credit Cards?

For most Americans, the allure of credit cards can lead to a financial trap. Credit cards make purchasing easier—but can make responsibility harder.

Credit card spending often brings freedom today while impacting your future. Whenever you buy with credit, you're promising your future income today. And if you're buying things that don't increase in value, that can be a poor investment.

If you're considering filing bankruptcy, using a credit card may be twice as bad—bankruptcy laws may prevent you from discharging recently racked-up credit card bills.

However, for those who have learned to use credit wisely, the purchasing power of credit cards can bring peace of mind, and even some added perks, while building credit.

Benefits of Purchasing with Credit

• Protect your money: Identity theft and credit card fraud can be a huge financial set-back. Luckily, most credit card issuers consider users liable for no more than $50 of purchases that turn out to be fraudulent. This protection is generally not available with debit cards, probably because credit cards involve a loan of the company’s money, and debit cards involve only the user’s money.
• Guarantee your gadgets: A lot of credit card issuers provide warranties for items purchased on credit—another reason that many store-offered warranty packages are a bad investment.
• Protect your purchases: A significant number of credit cards include clauses that offer refunds for items that are lost, stolen or damaged recently after being purchased on credit.
• Get reimbursements: Some cards offer users reimbursements if they find a price lower than what they paid for an item; others offer refunds even if they’re against store policy.
• Milk the rewards: Cash-back bonuses, airline miles and other bonuses can be extremely rewarding, as long as you pay off your balance in a reasonable amount of time.
• Travel smarter: Some cards provide insurance for car rentals, air travel, cancellations and accidents, which can cost lots of cash to buy during every trip.

The Golden Rules

Before whipping out your wallet and charging up a storm, though, keep in mind the two most important ingredients in making sure your credit card use doesn’t turn into a recipe for disaster:

• Know the cost. Don’t assume your card offers any of these benefits—read the details of your contract and ask an attorney, trusted friend, or call the company to clarify any muddling points BEFORE using any credit cards.
• Check your budget. Running up a high balance is never a good idea if you cannot pay it off. Remember that credit cards do not offer additional income; they merely offer an alternative way of purchasing with your existing finances.

Additional Resources

The Credit Card Model (PDF): A 1997 study of the debt cycle caused by credit cards and their long-term impact.

Posted in Credit Card Debt, Credit Cards, Credit and Bankruptcy, credit card bankruptcy | Comments Off

What It Takes to Get a Debt Canceled (or Reduced)

If you’re struggling with credit card debt, you’re certainly not alone. Research indicates that more than three-quarters (78 percent) of American households have at least one credit card, and among this group, the average debt is more than $10,000.

While credit card debt can be a significant financial burden no matter what the national economic climate, when the economy weakens, paying off such debt can seem almost impossible. But, if you make a commitment to eliminate your debt, you may have some alternatives to paying the entire amount you owe.

Ask for a Reduction

Deciding to pay off your credit card debt is an important part of actually becoming debt free. After you’ve laid out all your latest statements and calculated what you owe, it’s time to contact your creditors.

• Research your history: Review old bills and notices from your credit card issuers. Take notes on what accounts you’ve kept up to date, how much you owe where and what interest rates are on each card.
• Place a call (or several): If you’re like many Americans, you have more than one credit card. Choose the card you’ve been most diligent about paying on time and call the customer service number provided on the bill.
• Explain yourself: Explain to the representative that you’ve decided to pay down your balance, and you were wondering if they could lower your interest rate. Remain polite and point out the positive history you have with the account if you need a bargaining chip.

Repeat with as many of your cards as you can. Even if none of your issuers agrees to lower your rates, the worst anyone say is “no.”

Write a Letter

If you think your financial circumstances will prevent you from paying down your credit card debt regardless of your interest rates, it’s time to ask for a bit more.

• Contact your creditors. If your attorney believes that you are judgment proof (that is, that your creditors couldn’t collect any money even if they sued you), you can write to your creditors to ask for a complete cancellation of your debt.
• Contact a lawyer. A local attorney can help you determine whether your finances are truly as dire as you think. If they are—that is, if you have little enough income and few or no valuables that could be sold to raise money—you may be a good candidate for debt cancellation.

This method has worked in the past, as this post from Creditbloggers.com reports. Remember, credit card debt doesn’t have to ruin your finances. A little determination can go a long way.

Additional Resources

Credit Card Facts and Stats (PDF)

The Burden of Credit Card Debt (PDF)

Posted in Credit Card Debt, Credit Cards, Credit and Bankruptcy, debt elimination | Comments Off

Christmas Shopping and January Bankruptcy

As we approach the Christmas holiday season, I want to remind my readers of two things.  First and foremost, I want to wish all of my clients and blog readers a happy and healthy holiday season.   Financial struggles will come and go but if you have your family and your health, not a whole lot of other things matter.

Secondly, I would respectfully suggest that it is never too late to begin the process of tackling your financial issues.   Over the years I have met with many potential clients in January and February who bring me credit card bills containing charges incurred for presents in November and December.  They are ready to make a fresh start and want to file.

On more than one occasion I heard the explanation "well, I knew that I was going to have to file bankruptcy at some point – but I wanted my family to enjoy a nice Christmas first."

From my perspective as a bankruptcy lawyer, this attitude will get you in trouble.  Common sense should tell you that you cannot run up your credit cards buying gifts, then wipe out that debt a month or two later by filing bankruptcy.

Not surprisingly the Bankruptcy Code addresses the issue of "credit card binge" debt as well.

Section 523(a)(2) excepts from discharge debt that was obtained if an individual made material and false representations about his financial condition (i.e. , lies on the credit application).

Section 523(a)(2)(C) provides that:

1. consumer debts owed to a single creditor and aggregating more than $500 for luxury goods or services (luxury goods defined as goods or services reasonably not necessary for the support or maintenance of the debtor or a dependent of the debtor) incurred by an individual debtor on or within 90 days before the order for relief under this title are presumed to be nondischargeable; and
2. cash advances aggregating more than $750 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within 70 days before the order for relief under this title, are presumed to be nondischargeable;

Section 523(a)(2)(a) excepts from discharge money, property or services incurred by false pretenses, a false representation, or actual fraud (i.e. incurring debt that you knew or should have known that you would not be able to repay)

Posted in Credit Card Debt, Creditor discharge actions, General consumer bankruptcy info, christmas presents, discharge litigation | Comments Off