Possible Vote in House This Week on Credit Card Reform

If you have a complaint about an action taken by your credit card issuer, now is the time to contact your state's representatives to let them know you support the Credit Cardholders' Bill of Rights.

It is predicted that the House of Representatives could vote on the Cardholders' Bill of Rights as early as Thursday. If they do, then debate will begin tomorrow (Wednesday).

"If you have received a rate increase, a drop in your credit limit, or a closed credit card account with no explanation or fault of your own, contact your Representative and let them know about it. In this bill, they are trying to eliminate punitive practices like rate increases 'for any time and any reason'," Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "Your representatives need to know these practices are affecting all cardholders and that the proposed changes are needed."

Here are some of the provisions in the Cardholders' Bill of Rights:

* Prevents card issuers from unfairly increasing rates on existing balances. Retroactive increases are allowed only if a cardholder is more than 30 days late, it is a pre-arranged promotional rate, or it adjusts as part of a variable rate.

* Requires issuers to let customers set their own fixed credit limit.

* Requires issuers to give 45 days notice of interest rate increases so consumers can pay off the balance or shop for a better deal.

* Puts limits on "over-the-limit" fees.

* Ends "double-cycle" billing.

* Requires payments to be allocated proportionally to balances that have different rates. It will ban the practice of applying the total payment to the lowest rate first, which makes it very costly to pay off the debt with the highest rate.

"These are good reforms, but the two that will really make a difference to cardholders are eliminating the practices of rate increases 'at any time, for any reason' and applying payments to all rates, instead of just the lowest rate. These are going to save consumers money on interest payments and allow them to pay off their debt faster."

The House is expected to pass the Cardholders' Bill of Rights. It passed in the House last year, but it failed in the Senate. If the bill passes in the Senate, it has a provision for swift implementation so that the Cardholders' Bill of Rights could be implemented three months after President Obama signs the legislation into law.

Reducing Debt During Stress Awareness Month

April is National Anxiety Month and Stress Awareness Month. According to American Psychological Association's 2008 Stress in America survey, 84% of women and 78% of men say they are stressed about money. Since our finances are an area that we can control, now is the time to do something about financial stress and to reduce the anxiety by the end of the year.

One of the best place to start reducing financial anxiety is to reduce credit card debt. People are going through tough financial times and are struggling to pay their credit card bills. Credit card defaults are up to almost 10%. According to JP Morgan Chase, 6.16% of cardholders were at least 30 days behind their payments in the first quarter compared with 3.66% a year ago, and 4.97% in the fourth quarter of 2008.

"Debt is one of the leading causes of anxiety. It is a huge boulder of worry that many Americans carry on their shoulders at all times. It affects relationships, health, sleep and self-esteem. The only solution is to reduce debt and today is the best day to start," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

Here are 13 steps to handle your debt and reduce your anxiety:

1. Confront your financial problems. Too many people deny that debt exists. They purposely do not open letters from creditors, thinking that such action will ease the pain. However, denial only leads to more debt. The only way to start climbing out of debt is to admit the problem and start tackling it.

2. If you have debt, realize that it took time to get into debt, and it will probably take you longer to get out of debt. Do not get discouraged, no matter how little you are able to pay off each month or how long it takes you to become debt-free.

3. Get a clear picture of your debt. Simply paying the minimum balance on each bill without knowing exactly how much you owe is easy. To understand your debt, collect all of your bills with outstanding debts, including all credit cards, mortgages, 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, whether any bills are past due,
and verify the payment due dates.

4. Prioritize the bills to pay first. If money is tight and you have to make choices about what to pay, 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. Since credit cards are unsecured, pay them after these necessities and secured loans.

5. Contact your creditors to negotiate lower rates. The less money you pay in interest, the more money you have to pay off your bills. Start with your lenders and ask for a lower rate. If that doesn't work, shop around for a mortgage or credit card with a lower rate.

6. If you are in danger of missing a payment, contact your creditors 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. It is better business for them if you keep making your interest payments and avoid bankruptcy and foreclosure.

If the first person you speak with can't lower your rate or make adjustments to your account, ask to speak with a supervisor or someone who can. You may need to be persistent in finding the person who can or will help you. Politely explain that you are in debt, the steps you are taking to repay your obligations, and what you can pay today. Document all conversations, including whom you spoke with, the date and time, and the results.

7. If you have a high interest rate, transfer your balance to a card with a lower interest rate. If your rate is above 12%, transfer the balance for that card to one that offers 0% for 12 months for balance transfers. Getting 0% for 12 months is a great opportunity to pay down your balance. To take full advantage of this 0% interest, pay as much as you can over the monthly minimum.

"While balance transfers are a great way to reduce your debt if you use them properly, don't be surprised if the offer is less than you expect or need. Many credit card issuers have downsized their balance transfers offers and these aren't as generous or as plentiful as they were two years ago," says Hardekopf.

Most cards charge a balance transfer fee of 3% and some are now charging 4%. Make sure the amount you save on interest payments offsets this up-front fee. Since the purchase APR may be higher, do not even put the card in your wallet; simply use it to pay off your balance.

8. You must be diligent about making your payments on time. A late payment may immediately increase your rate to the default rate.

9. If you have balances on multiple cards, focus on the debt with the highest rate. Pay it off, then move on to the debt with the next highest rate. However, if you have a card that is almost at its credit limit, you may want to start with this card. Reducing your debt/credit limit ratio helps your credit score. Get your balance
down to 30% of your credit limit, and then focus on other cards that have balances close to their limits.

10. 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, clothing, entertainment, and things that are long gone. If you use cash, you will not only save money on interest, but you will also reduce the amount you spend. Studies show that you spend
12% to 18% less when using cash rather than a credit card.

11. Pay more than the minimum amount for your loans, especially credit cards. Many credit card issuers set the minimum payment at approximately 2% of your balance. This reduces the payment but makes paying off the balance almost impossible, so try to add at least $10 to your minimum payment. Look for areas where you can cut back on spending like entertainment, eating out or clothing. Use this money to accelerate your debt payments. Doubling or tripling your payment will help you pay off your debt much faster.

Assume that you have a credit card balance of $8,000 and your interest rate is 12%. If you pay just the minimum amount of 2% each month (a minimum of $10), it will take 346 months to pay off the balance and will cost $7,697 in interest. If you pay 5% of your balance each month, it will take 113 months to pay off and will cost you $1,974 in interest.

12. If you are surprised by your current rates, check your credit report. Your report may contain an error that is creating a higher credit score and higher interest rates for you. If you find an error on your credit report, contact the credit bureau to report it. The bureau must respond to your claim within 30 days or remove the incorrect or unverifiable information. 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 rate.

13. If you need more than three years to pay down most of your debt and if cutting expenses won't realistically help you pay off your debt, contact a reputable debt counselor. The National Foundation of Credit Counseling (nfcc.org) is a good place to start.

Could Credit Card Reform Come Sooner Than Expected?

Over the past 24 hours, credit card reform has been one of the hottest topics in nearly every branch of our government. Major activity has taken place in the Senate, the House of Representatives and the White House.

* Yesterday, the U.S. House Committee on Financial Services voted 48-19 to approve the Credit Cardholders' Bill of Rights. This bill will provide protection against rate hikes on existing balances, set standards for terms and conditions, and limit credit card fees. It will soon go to the full House of Representatives for a vote, possibly next week.

* Today, President Obama met with executives of card issuers to use Presidential persuasion to pursue consumer protections and encourage changes from credit card issuers. He made it clear that he will sign credit card legislation. He wants the legislation to: contain protections against sudden interest rate increases; prohibit excessive fees; use plain language in the application forms and the terms and conditions; make available customer-friendly comparison shopping on credit cards; and provide greater enforcement for violators.

* Today, Senators Charles Schumer and Chris Dodd called on the Fed to freeze credit card interest rates tied to existing balances until stricter rules take effect.

"This 'freeze' is in response to credit card issuers increasing rates and fees on so many consumers before the Federal Reserve's reforms go into effect in July 2010," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

"This has been an interesting cycle to watch. Recent reforms and a financial crisis forced the credit card issuers to quickly and aggressively raise interest rates and fees. These rate and fee increases have forced Congress to finally fast track credit card reforms. The President stepping in to publicly make this a priority should also help speed this along," says Hardekopf. "The longer this drags out, the more cardholders will be affected, which will intensify anger with consumers. Throw in billions of taxpayer dollars going to bailout these same banks, and this can become a polarizing situation. We understand that thousands of taxpayers are expected to protest at Bank of America branches on April 28th in advance of Bank of
America's Annual Shareholder Meeting."

President Obama Tackles Credit Card Reform

Credit card customers should pay attention to news from the White House on Thursday when President Obama and senior administration members host credit card executives to encourage regulation, reform, and rate relief for cardholders.

Credit card reform has been a hot topic during the past year. The Federal Reserve passed regulations that would benefit cardholders but these changes don't take effect until July 2010. There are currently credit card reform bills working their way through both the House and the Senate.

Despite the political and public outcry against certain practices by issuers, most of the changes issuers have made are ones that increase their revenue, making the situation for cardholders even more difficult.

"Credit card issuers have not only ignored the pressure for change, they have responded with increases in both interest rates and fees. It will be interesting to see how they respond to Presidential persuasion," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

Here are some of the recent changes in credit card rates and fees:

Straight rate increase
* CapitalOne increased interest rates to new customers on 15 cards in February. For example: the Platinum Prestige card increased from an APR of 7.15% to 11.9%; the No Hassle Miles Rewards card from 8.15% to 13.9%


Rate increases for segments of customers
* In June, Bank of America will increase interest rates up to the "low to mid-teens" for cardholders who carry a large balance with a current APR that is less than 10%.

* Discover has also notified a segment of customers of a rate increase in June.


Foreign transaction fees
* Starting May 1, Discover will charge a 2% foreign transaction fee.

* Several issuers (Bank of America, Citi, Simmons) will begin charging a 3% fee for all transactions made outside the US in US dollars. Previously, the fee was not added when foreign transactions were made in US dollars.


Fee increase for balance transfers
* In June, Bank of America will increase its fee for balance transfers from 3% to 4%. This increase will also apply to cash advances and ATM advances.

* Discover will also increase its balance transfer rate from 3% to 4%.


Change in terms
* In January, Chase added a $10 monthly fee and increased the minimum payment from 2% to 5% for those who have carried a large balance for over two years and have made little impact in what they paid off. The monthly fee was rescinded in March after substantial outcry from Chase customers.


"These published changes do not take into account the tremendous number of customers who have had their individual interest rate increased. In today's environment, if customers do anything that show they are a greater risk, they are extremely likely to see their interest rate increased and/or their credit limit decreased very quickly, maybe the next month," says Hardekopf. "This increased risk could come from missing a payment, being late on a payment, exceeding your credit limit or perhaps using too much of your credit limit. To minimize the chances of getting hit with a credit card rate increase, consumers need to make sure they pay all their bills on time, pay more than the minimum amount and not use more than one-third of their
available credit."

Significant Increases in Student Credit Card Debt

This week, President Obama is turning his attention to credit card abuses and senior administration officials are scheduled to meet with credit card industry executives on Thursday.

One area that needs attention is college student credit card debt. A new study just released by Sallie Mae shows that the number of cards, balances and anxiety are increasing while full payments and financial understanding are decreasing.

Here is Sallie Mae's summary from the study, "How Undergraduates Use Their Credit Cards":

"Despite the credit crunch and economic downturn, the study reveals record highs in the percentage of students with credit cards, the number of cards they carry, and their average balance. At the same time, more than half of college students express surprise over how high their credit card bills have reached. One-third of students aren't talking to their parents about responsible credit card use. Three-quarters of students are paying finance charges on a regular basis by borrowing against their credit cards and not paying off their bills in full each month. Others are not budgeting appropriately, thus are paying for some direct education expenses, including tuition, with credit cards instead of using federal student loans and
private education loans which are typically less expensive forms of credit."

Here are statistics from the Sallie Mae study that show why some form of regulation may be a good idea:

* Average amount of debt carried by cardholders is $3,173. It was $2,169 in 2004, a 46% increase.

* 84% have at least one credit card. Up from 76% in 2004. The average number of cards is 4.6. Half have four or more cards.

* Seniors graduated with average credit card debt of more than $4,700, up from $2,900 in 2004. Almost half carry a balance greater than $7,000.

* Only 17% pay off their balance each month. 22% make the minimum payment. 14% pay some cards in full and make only the minimum payments on others. 7% pay less than the minimum payment.

* One-third put tuition on their credit card. Up from 24% in 2004.

* Besides education supplies and books, 84% use credit cards to pay for food, 70% for clothing, 69% for cosmetics.

* 60% were surprised how high their balances had reached, and 40% charged items they knew they couldn't afford.

* 58% got their first card from a direct mail solicitation. Only 17% said parental referral.

"These statistics are concerning, because these students will walk into the 'real world' with a lot of debt from their credit cards and student loans. It is going to take some time and work to pay it all off. They are also learning bad practices with credit cards and not receiving the financial guidance they need," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "They are not only using credit card loans for education needs, but also food, clothing and make-up. Students need to remember they are paying at least a 15% penalty known as the interest rate on these loans. Since so many are just making the minimum payment, it will take them many years and a surprising amount of money to pay off a pizza, a shirt, and some mascara. Students must understand if they can't afford to pay cash now, they can't afford to buy now.

"Members of Congress have introduced legislation that will restrict the marketing and availability of credit cards to college students. However, issuers will strongly fight against this. College students are an important target market because card loyalty starts at a young age. They also consider these loans to be a pretty good risk because parents usually bail out their children," says Hardekopf.

More Bad News for Credit Card Customers

In this period of increasing APRs and fees, two more major issuers, Discover and Bank of America, have just notified some of their cardholders that they will receive rate increases in June. In addition, Bank of America is raising the fee for balance
transfers to 4% from 3%.

Bank of America says credit card customers who carry a balance and have interest rates below 10 percent will see their rates increase to the low to mid teens. Discover would not disclose the amount of their increase.

Citi and Capital One increased the interest rates to new customers on a number of their cards in February.

"Bank of America's move to increase the fee on a balance transfer could set a precedent in the industry. A few years ago, most issuers had a cap on the fee for a balance transfer of $50 to $75. Then, this moved to a 3% fee. Now we wouldn't be surprised if other issuers follow and make 4% the standard fee for a balance transfer," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "It will cost a Bank of America customer $200 to transfer $5,000. Since the fee is rolled into the balance, you will also have to pay interest on this fee. This is bad news for consumers because transferring a balance to a lower rate card is one of the options for lowering their interest payments and paying off their debt."

Credit card issuers are looking at some very concerning statistics. Last week, The Federal Reserve released numbers to show that borrowing on credit cards is down by 9.7%. Currently, issuers are in the process of releasing first quarter reports that will show a continued increase in delinquencies that are approaching 10%.
Issuers seem to be responding to these losses by increasing rates and fees, as well as making changes to credit card terms that put the squeeze on or even squeeze out cardholders.

These are just the latest changes during an active first quarter where some issuers have tightened reward offers, reduced or eliminated balance transfers, increased interest rates, and added foreign transaction fees.

"For years, these banks fattened their revenue and grew their market share through easy lending, big credit limits, and luring away cardholders with generous terms for balance transfers," says Hardekopf. "Suddenly, they are experiencing some very rough waters and they are making changes that are hurting consumers.

"Unfortunately, we have not reached the end of this cycle. Issuers are losing money and federal regulations will eventually force them to make a few changes that will benefit the consumers. In the meantime, issuers appear to be responding with increases everywhere they can, which penalizes and hurts the cardholders whom they depend upon," says Hardekopf.

Credit Card Protection Plans: A Good Idea for Consumers?

Credit card issuers now seem to be placing more emphasis on offering insurance or payment protection plans for people that carry a balance on their credit card. In this time of uncertainty about one's employment and finances, these offers with their appealing advertising may seem like good financial protection, but the benefits are not worth the cost.

Credit card issuers advertise these protection plans as a way to have peace of mind during unexpected life events such as death, unemployment and disability. Or even during happy events such as marriage, having a baby or moving into a home. One issuer even promotes these plans by stating, "you and your account payment history are protected so you can focus on more important things."

"These protection plans sound like a good idea, especially during these tough economic times. But in most cases, these protection plans are a bad deal for cardholders and should be avoided," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "These plans are targeted to customers who can least afford them."

The cost of the purchase protection varies by carrier. It ranges from $0.50-$0.99 per $100 that you carry as a balance. If your balance is $10,000, the protection plan could cost almost $100 per month or $1200 per year. "If you carry a balance on your credit card, the monthly cost of the plan is added to your balance and you have to pay interest on it," says Hardekopf. "These plans are another way for issuers to
increase their revenue."

There are better safeguards than purchasing a credit card payment protection plan. If you already have life insurance, that plan may cover your debts after death. If you have a major life event which leads to difficulty making your payment, contact your issuer and try to work out a payment plan.

"If you have the money to pay for the protection plan, it would be a better idea to use that same money to pay down your balance. You will save yourself a lot of money in interest and pay off your balance much faster," says Hardekopf.

The plan is appealing to some people because if you have a qualifying life event, it freezes your account so that it stops interest accrual and the minimum payment is made until you are able to work again.

If you are considering a credit card payment protection plan, read the fine print. Credit card protection plans don't follow the same rules as traditional insurance. It is the consumer's responsibility to be familiar with the requirements and exclusions of these plans.

Consumer tips with credit card protection plans:

* Look for time limits and exclusions. Payment periods vary by the reason you need them.

* Examine the age requirements since many have a maximum age limit.

* Look for employment requirements.

* Ask the issuer what situations will it pay for? What situations aren't covered?

* Will the plan cover your spouse or supplementary cardholders?

* What happens if you miss a payment or if your account isn't in good
standing when you file a claim?

* How and when can the policy be cancelled?

* Before purchasing, be aware of exactly what you are getting and how much it will cost.

If you are close to your credit limit, or have a history of late payments on your card, you may have trouble qualifying for such a plan. If you are currently unemployed, you will not be eligible. Most issuers require that you be employed for 30-90 days before enrolling, and you must be a full-time employee.

Credit Card Reform Moving Forward

Yesterday, credit card legislation took another step toward passage as the U.S. Senate Banking Committee narrowly passed The Credit Card Accountability, Responsibility and Disclosure Act. Known as "The Credit CARD Act", the bill seeks to ban abusive credit card practices.

The bill will now go to the Senate floor but the committee's chairman, Sen. Christopher Dodd said he would work to modify the bill in order to broaden its support in light of the close 12-11 vote.

Today, congressional credit card reform takes place on another front. The House Financial Services Subcommittee on Financial Institutions considers a similar bill, The Credit Card Holder's Bill of Rights.

If either credit card reform bill passes, the legislation could:

* Prohibit card issuers from unfairly raising rates.

* Prohibit applying rate increases retroactively.

* Limit over-the-limit fees.

* Ban universal default.

* Prevent issuer from changing terms as long as the user pays on time.

"The Federal Reserve has already passed similar credit card regulations, but they don't have to go into effect until July of 2010. Meanwhile, banks and lending institutions find themselves in a very turbulent financial situation. Some people believe they are using this pre-regulation time to increase rates and fees and generate revenue any way they can, even at the risk of angering their cardholders or adding to the financial burdens of struggling households," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "While these regulations are good for consumers and they are needed, it's not a win-win situation for everyone. These reforms will be costly for banks while they are still in crisis. Banks are warning that these reforms may derail the government's efforts to increase available credit for consumers needed to encourage spending."

Issuers and banks are still trying to recover from collapse of bad loans. The number of defaults for credit card loans is still growing each quarter and some analysts predict the default rate could eventually be as high as 9-10%. These defaults are alarming for issuers and costing them billions of dollars every year. As a result, they are minimizing risk every way they can, even offering financial incentives for the riskiest cardholders to pay off their balance and close their account. To protect themselves, issuers are increasing rates and cutting credit limits as soon as they sense that a cardholder has become any greater credit risk.

The credit card regulation limits the issuer's ability to raise rates at "any time, for any reason." The banks and lending institutions say this will limit their ability to take risks, so they will accept fewer applications for credit cards and everyone will have higher rates. They are lobbying against these changes and doing what they can to dilute them.