The CARD Act requires credit card companies to disclose the details on how much they pay to colleges for the rights to market their cards to students and alumni. The Federal Reserve’s first Report on College Credit Card Agreements was released Monday, showing that credit card issuers paid over $83 million to colleges and their related alumni organizations in 2009.

Issuers paid out $83,462,712 to a total of 1,044 colleges and associations, an average of nearly $80,000 per institution. A total of 53,164 new college credit card accounts were opened under these agreements in 2009. The report details the payments to each school.

The University of Illinois Alumni Association received the highest payment of $3,272,657 in 2009. The Penn State Alumni Association received $2,835,000. Both of these payments came from Bank of America. The University of Notre Dame got $1,860,000 from Chase in 2009.

While 17 issuers struck marketing deals with colleges, three credit card companies–Bank of America, Chase, and U.S. Bank–accounted for approximately 96 percent of all college credit card agreements submitted to the Board. Bank of America alone had marketing deals with 86 percent of the institutions.

Bank of America submitted 906 college credit card agreements, more than fifteen times as many as any other card issuer. In 2009, it made payments totaling $61,968,307, an average of $68,398 per agreement. It opened 38,610 new accounts under its college affinity program.

U.S. Bank submitted 60 agreements and spent a total of $2,502,744 ($41,712 average). It opened up 7,911 new accounts in 2009.

Chase Bank submitted 36 agreements and paid out $13,892,863, a staggering average of $385,912 per agreement last year. It opened 529 new accounts under these agreements.

Issuers are willing to pay these figures in return for valuable information from colleges and alumni associations, which could include phone numbers, e-mail addresses and physical addresses of members. The agreement usually comes with a right to market cards to them a specified number of times.

Under the CARD Act, credit card issuers can no longer offer incentives or giveaways to encourage card applications on college campuses. It also prevents anyone younger than 21 from getting a credit card without proof of ability to pay or an adult co-signer.

If you are tight on your checking account balance, you may want to think twice about using your debit card for certain purchases.

After a debit card is swiped for payment, certain retailers like hotels, gas stations and car rentals, sometimes place a hold or a block on money from the account in order to secure the payment, protecting the money from any other use. This reduces the risk that the customer will be overdrawn and leave the merchant unpaid.

The hold can even be for more than the the amount of payment. For example, some hotels puts a hold on 120% of the cost of your room. If the cost is $100, that’s a $120 hold on your account. It holds the cost plus the additional amount to cover any incidentals expenses that may occur during the stay.

The actual charge is not put through until the merchant submits their batch of transactions and the banking system transfers the funds.

A big surprise can also happen at gas stations. If you use your debit card at a pump that does not require a PIN, your bank may block out as much as $50 to $75. (Some stations may place only a $1 hold to make sure the account is still active). That hold can last up to 72 hours. A card can be declined even if you have enough money for the gas, but not enough for the hold.

While account holds occur more often and cause more issues for customers with debit cards, merchants can also use them on credit cards to make sure the customer isn’t going over his credit limit.

Blocking probably isn’t a problem if you have enough money in your bank account. The problem comes if your balance is low or if multiple payments hit at the same time. The hold can lead to costly charges for insufficient funds if you still have overdraft protection on your checking account. If you do not have overdraft protection and you do not have sufficient funds, the card will probably be declined.

Here are some tips for dealing with account holds:

* When you rent a car, check into a hotel, or have to give your card in advance of service, ask if the merchant puts a hold on your account, how much the hold will be, and how long the hold remains in place. If you are going on a road trip with a rental car and multiple hotels, make sure you have enough money in your account for multiple account holds.

* Pay your bill with the same debit or credit card that you used at the beginning of the transaction. The hold may only last a day or two if you pay your bill with the same card you used when you checked in. If you pay the bill with a different card, check or cash, your card issuer may hold the block for up to 15 days after you check out because they weren’t notified of the final payment and may not know that you paid another way.

* Use a credit card for hotels and car rentals. Some hotels even place signs at check-in recommending credit card payment to avoid the hold.

* If you use a debit card for payment, use your PIN number. PIN-based transactions are registered immediately.

The Justice Department sued Visa, MasterCard, and American Express for anticompetitive practices. At the same time, it reached a proposed settlement with Visa and MasterCard. The ruling aims to end anticompetitive practices and allow customers to save money, but it is likely to also have unintended consequences for consumers.

Interchange Fee is Confusing
Interchange fees, or swipe fees, are difficult to understand, and credit card processors like Visa, MasterCard and American Express have provided very little information about these fees, protecting their control and this significant revenue source.

Interchange fees began in the 1960s to help banks to cover the cost of processing credit card transactions. The fee is divided between the merchant’s bank, the consumer’s bank and the credit card company. The fee covers processing fees, billing statements, fraud protection, innovations, and other expenses.

Interchange fees typically range between 1.0% and 3.5% of every purchase made with a credit card. Few consumers realize how much the merchant pays for the convenience of credit cards. There is no mention about the fee in the credit card terms and conditions, and merchants have been prohibited from mentioning swipe fees to customers. Merchants argue that these fees have inflated the cost of goods, especially for the consumer that pays with cash instead of a credit card.

Interchange fees are not a flat rate for every merchant. They can vary by industry, the method of card acceptance, the merchant’s volume, the type of card, transaction size and special deals. For example, many grocery stores and utilities have lower interchange fees as a special incentive from the networks, but interchange fees may be higher for merchants in industries such as travel and entertainment because customers spend more with their credit cards.

Visa, MasterCard, American Express and other processors have enforced this system as long as possible because it is a large source of revenue. Last year, Visa, MasterCard, American Express, and their affiliated banks collected $35 billion in swipe fees.

The Settlement
Currently, retailers and merchants must accept all cards in the payments network but they can not provide discounts or guide customers to individual cards or alternative payments, even if these cost less to process. The Justice Department ruled that this is anticompetitive.

In the settlement, Visa and MasterCard will no longer prevent merchants from offering immediate discounts or rebates for using a particular card or other form of payment. Merchants can also give preferential treatment to a card or card network, and they can promote particular cards in communication with customers. Merchants can also inform consumers about their costs incurred from the use of a specific card.

The settlement allows any merchant that only accepts Visa and MasterCard to start immediately. Since American Express is not participating in the settlement, many merchants that accept American Express along with Visa and MasterCard will not be able to take full advantage of their new options under the proposed settlement.

Effect on Consumers
This verdict will create change for the credit card issuers, merchants, and consumers. For the first time, merchants will be able to direct customers to the cheapest payment. However, the payment choice is still up to the customer. Will they embrace the discounts or continue to use the same cards to accumulate their rewards?

It is unclear how this will trickle down to consumers. Notices and additional choices can add confusion to checking-out, making lines and waiting even worse at the cash register. Shoppers using cash to take advantage of discounts will also take more time as they count out their payment. Shoppers also spend less when they pay with cash.

Possible Response from Credit Card Issuers
Even though the verdict is against Visa, MasterCard, and American Express, it will spillover onto all other credit card issuers. If consumers switch to cheaper cards or alternative payments, it will not only decrease the amount of interchange fees revenue for banks, but also their interest revenue.

On a number of occasions these rulings against banks and credit card companies have had unintended consequences on consumers. This verdict is another blow to credit card revenue during a time when issuers have been slammed with new rules and restrictions following the financial crisis. Issuers will likely respond with higher rates and fees on credit cards and other bank services in order to make up for this loss in revenue.

Credit card analysts are split on how issuers will react to this development. Some feel credit card issuers may increase incentives for using reward cards. Perhaps issuers will tie cash and point bonuses to certain spending levels, providing a reason to continue using the credit card. Some issuers are already doing this: the Discover More card offers a $100 cashback bonus after one makes $500 in purchases within the first three months; the Chase Freedom Visa gives a $100 bonus if one spends $799 in the first three months.

On the other hand, some analysts believe this will decrease credit card rewards. For years, some believed that the rewards system was financed by the interchange fee. If the revenue from the interchange fee decreases, rewards may also decline. 71% of credit cardholders held a rewards card in 2008.

American Express Refuses to Settle
American Express was also sued by the Justice Department but refuses to settle. The company says its business model is different from Visa and MasterCard because it issues its own credit cards and negotiates directly with retailers to set the swipe fees. American Express swipe fees are higher, and it justifies these because they help pay for the services and rewards that are popular with higher income clients who retailers are anxious to attract.

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Global regulators have agreed on new banking rules aimed at avoiding another financial collapse. The new rules, which will gradually require banks to hold greater capital buffers to absorb potential losses, are likely to impose stricter discipline on credit cards, mortgages and other loans and reshape the credit industry. The requirements will be phased in over a period of years.

This will Require banks to keep more capital on hand will limit the amount of loans they can make, but it will make them better able to withstand the blow if many of those loans go sour. The rules also are intended to boost confidence that the banking system won’t repeat past mistakes.

U.S. officials including Federal Reserve chairman Ben Bernanke issued a joint statement Sunday calling the new standards a “significant step forward in reducing the incidence and severity of future financial crises.”

China will overtake the U.S. as the largest market for credit cards by 2020 with about 900 million cards in circulation, according to Mastercard, Inc. the world’s second-biggest payment network.

Chinese credit cards will probably increase by an annual 11 percent in number and 14 percent in transaction value until 2025, MasterCard said in a statement in Shanghai today. Issuers’ revenue will jump 20 times by 2025 and profit may grow 30 times.

China will have about 1.1 billion credit cards by 2025, compared with 230 million now, Chen Bin, vice president of MasterCard’s China unit, said at a press conference in Shanghai today. Transaction value will likely surpass the U.S. to $2.5 trillion by 2025, Chen added.

There is little risk of a credit-card crisis in China because of government policy and bank prudence, said Ling Hai, MasterCard’s regional president.

Story by Luo Jun for Bloomberg News

http://www.bloomberg.com/news/2010-09-10/china-to-pass-u-s-as-largest-credit-card-market-by-2020-mastercard-says.html

Continental and United announced their merger today. Reward card and frequent flyer members should prepare for changes.

Both companies are describing this merger as good for members of their frequent flyer programs. According to their official announcement, “the merger will create the industry’s leading frequent flyer program, providing more opportunities for more customers to earn and redeem more miles in more places worldwide with more partners.”

It is too soon to predict if frequent flyer members will benefit from this merger. Combining the two airlines will cut costs for airlines but it will likely reduce the number of routes and seats for travelers. This could lead to higher prices for tickets and less availability. Obviously, the seats go to the paying flyers first, so it is going to be even more difficult to use your miles to book the flight that you want. Consumers may also have to earn and redeem more miles as the ticket prices increase.

Possible Changes for Airline Reward Cards:

Both airlines have their own credit card rewards program (the Continental World MasterCard and the United Mileage Plus Signature Visa) and cardholders will continue to receive mileage credit when using them. After the merger goes into effect, some cardholders will have to get a replacement for the new airlines. After Northwest Airlines merged with Delta, the Delta Skymiles card replaced the Northwest Airlines Worldperks Visa.

It is probable that the new reward card will cost more for some customers than current card because the two current cards are different.

The Continental World MasterCard offers 25,000 bonus miles after the first purchase. It offers 2 miles per $1 spent when you purchase tickets from Continental using the card. It offers 1 mile per $1 spent on all other purchases. The annual fee is $85. Additional miles cost $32 per 1,000 miles.

The Mileage Plus Signature offers 30,000 bonus miles after you spend $250. It offers 1 mile per $1 spent. The annual fee is $65. Additional miles cost $67.25 per 1,000 miles with a $35 processing fee.

Switching to the replacement card may be relatively easy for most cardholders because Chase issued both cards. However, this is a good time to re-evaluate your reward cards. Do you use the points? Have they been accumulating for years and you still aren’t close to a free ticket. For the average consumer, it takes several years to accumulate enough points for a free ticket and this could possibly get more difficult with the merger. If it takes over two years to earn a ticket,
consider switching to another card that allows you to use points for cash, hotels, or retail purchases. You can redeem at much smaller increments and use the points faster.

The Merging of Frequent Flyer Programs:

The OnePass and Mileage Plus programs will continue to operate independently until the merger is completed. Miles in both programs are still valid and able to be used according to existing program rules. Eventually, a new frequent flyer program will blend both programs together.

Miles held in both programs will be combined together, more than likely on a 1:1 basis. If you participate in both programs, this merger could allow you to combine points from both programs and accelerate your path to a ticket.

Pay attention to the notices you receive that describe the changes. It is possible that the new terms could change your frequent flyer points. If you have enough points for a free ticket, the best idea may be to protect yourself and use them now.

The dust has settled, now that the Credit CARD Act has been in effect for over one month. But consumers and issuers are both finding some hazy areas in the new provisions. In some cases, this confusion was brought about by Congress not spelling out how these provisions were to be implemented.

Here are examples of some confusing elements of the CARD Act:

1) Limiting credit card offers to young adults under 21. The CARD Act requires that young adults must have a job with enough income in order to be approved for a credit card, or they must get an adult to co-sign on the account.

This is still a gray area of the CARD Act. Issuers have not yet specified a standard income level that is needed from the young adult to be granted approval. What proof of income has to be shown and how will it be verified?

Several issuers have added some questions regarding income on their online applications.

Citi student applications ask: “Do you have a checking account, savings account, money market account? What is your yearly income including wages, stipends, scholarships and grants? Do you have any outstanding loans?”

Bank of America now includes this statement: “Federal Law requires that we collect income information to determine your ability to pay. If you do not have income, we may request a guarantor.”

Even the ‘may request a guarantor’ in this statement makes the provision a little less concrete.

2) Proof of income. This is now required on new credit applications. Consumers must prove their ability to make required payments before they can open a new credit card account or increase the credit limit for an existing credit card account. Congress did not provide guidelines on how to verify income.

Consumers are still waiting to see how issuers will find a solution that quickly and efficiently handles income verification. This is a good idea, but it slams the brakes on instant credit, and retailers are protesting that a delay in approvals will hurt sales. In the past, instant approval for a credit card was based on your credit score and customers were able
to both apply and shop on the same day with that credit. Issuers aren’t told how to do this. Will it be the honor system where consumers fill in the income line on the application and that is good enough?

3) Issuers must provide a toll-free number for credit counselors in the monthly statement. When cardholders call the number, the issuers must give a name, phone number and address for at least three organizations that have been approved by the U.S. Treasury or a bankruptcy administrator.

Bankers and the American Bankers Association were against this provision because it would give the appearance that banks endorse specific credit counselors. The credit counseling industry has had problems with a few dishonest agencies and banks want to distance themselves from this as well as avoiding any suggestion of favoritism and a risk to their reputation.

Each issuer handles this recommendation differently. Some stay out of it as much as they can, giving a list with all 158 approved agencies. Citi refers inquiries to three specific nationwide agencies with which it already has a strong relationship.

This is still a good provision for consumers with severe debt problems because it can help them find a reputable debt counselor. However, if credit card debt is a significant issue, you should first try to work out a debt settlement with your credit card issuer.

4) Fairer distribution of payments. The CARD Act requires a different distribution of payments. The minimum payment is still applied to the balance with the lowest interest rate. If a cardholder pays more than the minimum payment, the remainder will be applied to the balance with the highest rate.

If you carry a balance, this can be a very helpful provision of the CARD Act.  However, some issuers have doubled the monthly minimum from 2.5% to 5% during the past year for some cardholders. If your minimum payment has doubled, it may be difficult to pay more than the minimum payment and take advantage of paying off your debt at a lower rate. By increasing your minimum payment, issuers keep you paying the highest rate for a longer period of time. The CARD Act does not restrict issuers from raising their minimum payment requirement. Of course, the good news is that the more you pay on your balance, the faster you will pay off your debt.

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 issuers; 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. 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 fee, but the Platinum
Prestige card charges 3%

The CARD Act does not restrict balance transfer fees. Consumers could
see further increases in the balance transfer fees this year.

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 exceed 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 outweighs 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.

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 a low 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.

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Data released on 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 the continuation of the lending crisis. 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.

Federal Reserve Study:

http://www.federalreserve.gov/releases/g19/Current/

Fitch study:

http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=20100105006570&newsLang=en

December and January are traditionally the busiest months for new credit card applications. Shoppers want lower rates for their holiday purchases. Budgeters want lower rates to help keep their financial resolutions. This year, applicants may be disappointed in the credit card offers they receive from issuers.

Shopping and applying for cards is not as easy as it used to be. Consumers should now expect higher rates and lower credit limits. Approval is no longer a sure thing. Issuers are struggling to keep profitable, and they are trying to generate new revenue from their cardholders who are finding it difficult to make their card payments.

Still, getting a card with a lower rate can save money on interest and can be worth the effort. Here are some tips for shopping for a credit card:

1. Start with your credit score.
Lenders make their judgment about your credit worthiness based on your credit score. A FICO score of 700 or more is considered very good; over 760 will usually qualify you for the best rates (up from 720 several years ago). A consumer with a score less than 640 will receive high interest rates and limited credit options. Issuers will also use your credit score to determine the features of your card such as the credit limit and balance transfer terms. If you are surprised by your credit score, check it for errors. Correcting mistakes is the fastest way to raise a credit score.

2. Honestly assess how you will pay off the credit card.
You need to take a hard look at yourself to determine what kind of credit card customer you are. Will you pay off the entire balance each month on time or will you carry a balance? This will determine the type of card you need.

If you pay off your balance each month, consider a rewards card with no annual fee. Cash back reward cards are usually the best because you can use cash to purchase anything. Know that issuers have cut back on reward offers. 1% is now the standard amount for rewards of points or cash. Also, pay attention to the reward tiers. Even though the issuer advertises a 1% cash rebate, it may take a certain level of spending to reach the 1% level.

If you carry a balance most months, apply for a card with the lowest possible rate. The less you pay for interest, the more you pay toward your balance and the faster you can pay off that balance. Do not pay a higher rate just to get rewards.

3. Transfer your balance to a card with a lower rate.
Transferring balances between low rate cards was once an easy and profitable game for many cardholders. However, this lost money for issuers and the offers for 0% interest on your balance for twelve months have almost dried up. This year, balance transfer fees jumped from 3% to 4% and, in some cases, 5%.

This is discouraging news for consumers who are placing hope in balance transfers. However, if your APR has been increased significantly, your issuer may be forcing you to try to find another card with a lower rate. Before you begin the process of transferring your balance to another card, contact your issuer and ask them to lower your current rate. This doesn’t happen as often as it used to, but it doesn’t hurt to ask.

4. Pick one card and apply for it.
Compare three or four cards. Study the terms and conditions of these cards. Then select the best one and submit an application. Limit the number of applications that you submit because each application is recorded as a credit inquiry on your credit report. Multiple applications are a red flag that can lower your credit score because people actively seeking credit are typically a higher risk to lenders than people who are not seeking credit.

5. Avoid store cards.
Do not apply for a store card just because the store gives you an immediate discount on your purchase. The rates are usually much higher than an average card. If you don’t pay off the balance in full the first month, you could pay much more in interest than the money you saved.

6. Pay attention to your rate.
Most rates are now variable and they will increase in the future as the Federal Reserve raises the prime rate.

7. Only apply for credit if you need it.
Do you really need a new card, or can you work with the cards that you have? Most consumers carry too many credit cards which leads to further temptations to spend.

New holiday spending surveys are providing data that shows consumers plan to cut their holiday spending and reduce their usage of credit cards. Credit card delinquency rates are up again, showing consumers are still under financial stress. Many cardholders are still reeling from large APR increases they have received this year and they can no longer afford to charge their way through the holidays.

According to the National Retail Federation’s 2009 Holiday Consumer Intentions and Actions Survey, U.S. consumers plan to spend an average of $682.74 on holiday-related shopping, a 3.2% drop from last year’s $705.01. About 71% of consumers plan to use cash, check or debit cards as their primary payment method when buying holiday gifts. Only 28.3% of shoppers will use credit this year compared to 31.5% a year ago, a 10% decrease.

Paying with cash is the best way to add a safety brake during holiday shopping. Studies show that consumers typically spend 12-18% less when we use cash for payment. Counting out and handing over cash is a sobering reminder of how much items really cost. It causes the consumer to pause and consider if the purchase is really worth their labor.

According to a recent USAA survey, more than half (55%) of respondents are planning to avoid charging their holiday purchases and 85% plan to use cash for some of their holiday purchases. Among the shoppers who plan to use their credit cards, 74% plan to pay off their balance immediately so that they do not pay interest. 20% say they will pay off the balance in a few months while 7% say they will only pay the minimum balance.

However, many consumers have not prepared a plan for holiday spending. 19% are not sure how they will pay for their holiday purchases. 22 % who plan to use cash haven’t saved any money in advance. (USAA survey)

Budgeting and creating a plan for your holiday shopping will help so you don’t get caught up in the moment and spend more than you can afford. Credit cards rates are now too high to just charge something and assume you will be able to pay it.

If you charge $1,000 on a credit card with an interest rate of 15% and just pay $25 of your balance each month, it will take you until May of 2014 to pay off this Christmas, and you will pay an additional $370 in interest. If your APR was recently increased and you carry a balance, leave that card at home so you won’t charge anything more on it.

Millions of Americans are still paying off the holiday purchases they made last year. 6% of adults–or about 13.5 million Americans–were still carrying debt from last year’s holiday season. In households with children under 12 years old, 10 % were still carrying debt. (Consumer Reports Holiday Shopping Poll, October 2009).

We are entering the holiday gift card season. While new studies show gift cards are the most popular presents to give and receive, the hidden costs may outweigh the convenience of the gift. It is important for consumers to give and use these cards correctly.

Gift cards are easy to give, but they are also easy to forget. If the card has a monthly fee or expiration date, these can become costly little pieces of plastic. Even though gift cards take the hassle out of holiday shopping, you want to use them wisely. It is important to know the terms of the card you are buying.

Holiday gift cards are a big business. According to the National Retailers Federation (NRF), sales of gift cards reached almost $25 billion in 2008. A new NRF study shows that 55.2% of adults are hoping to receive a gift card this year.

However, many households still have unused gift cards from the last holiday season. According to a new Consumer Reports survey, 25% of adults that received a gift card in 2008 have yet to redeem at least one of the cards.

For consumers, this is the time to check your wallets, purses and drawers for gift cards that you received last year and use them immediately. Some cards may start charging a monthly fee after twelve months which drains away the value of
he card. You can even use them to start your holiday shopping.

Here are some consumer tips for buying gift cards:

* Buy a card only from a merchant you trust.

* Make sure the store is in a good financial position.

* Ask about the fees and expiration dates of the card. Read the card’s fine print.

Here are tips for using gift cards:

* If you receive a gift card, use it as soon as possible. Don’t put it aside and out of sight. Use it before you lose it or forget about it.

* Check the terms and conditions of the card you receive. Look for an expiration date or any use fees.

* Gift cards from major credit card networks can be used at any retailer that accepts their credit and debit cards.

* If the gift card is from a credit card network, write down the card number. If it is lost or stolen, the card can be cancelled and a replacement issued. The replacement fees range from $5.95 to $12. Most store cards can’t be replaced if they are lost or stolen. They are treated as cash.

* Keep the card, even after the balance is depleted, until you are sure you won’t be returning any of the items that you purchased with it. The retailer may require the card with the return.

* If there is a problem with the card, contact the store or financial institution that issued the card. If that doesn’t resolve the issue, contact the Federal Trade Commission at 877-FTC-HELP.

There are important differences between store cards and general purpose cards. Store gift cards are limited to that retailer or family of stores and many have no fees or expiration date. Not all store cards can be used online.

General purpose cards are from Visa, MasterCard, and American Express. They can be used any place these cards are accepted. The purchase fee ranges between $2 and $7. Many cards charge a monthly maintenance fee that is typically $2 or $2.50 and starts after six or twelve months.

The CARD Act does provide gift card protections, but these provisions don’t go into effect until August 2010. It prohibits gift cards from expiring before five years from the date of purchase or when money was loaded onto the card. It also prohibits fees for the first twelve months.

What happens to unused gift cards? They can eventually revert back to the retailers as income. Some states can even claim unused gift cards as abandoned property.

If you have unused gift cards that you won’t use, you can donate the card to GiftCardGiver.com; that site will distribute the card to non-profit agencies that can use the card to help others.

Credit card default rates are now above 10% for several major issuers. This means these banks don’t expect to be paid back on over 10% of their credit card loans. To cut their losses, issuers now appear to be more open to settling or negotiating a payment plan for your credit card debt.

While settlement and payment plans could worsen a poor credit score, it does remove some of the weight from the burden of debt. Experts suggest that cardholders be proactive and try to work out a solution to help them avoid bigger financial problems.

Bank of America, the nation’s largest bank, recently reported that its default rate jumped to 12.5% in May, up from 10.5% the month before. American Express said its default rate rose to 10.4% from 9.9%. Defaults will continue to climb as unemployment continues to rise and the financial crisis continues. This increase in defaults means billions of dollars per year in losses for banks.

Growth in delinquencies is a major problem for credit card issuers. They must write down a balance to zero once a person has been delinquent for 6 months. They will continue to try to collect the debt through a collection agency, but they have to show the loss on their books.

If you are having financial difficulties and can’t make your credit card payments, now is the time to contact your issuer, explain your situation and work out a payment plan. Issuers are now under stress and, in some cases, they may be more willing to work with cardholders to create a payment plan.

Where should consumers start?

If you can make some monthly payment, ask your issuer to lower your rate and waive your fees. In many cases, a lower rate and reducing the interest payment will make a big difference in how much of your debt you can pay off.

If you are in danger of missing a payment, contact your creditors as soon as you realize you have a problem. The sooner you contact them, the more willing they may be to work with you.

If the first person you speak with can’t help lower your rate or make adjustments to your account, ask to speak with a supervisor. 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. The adjustment could result in reducing the amount outstanding or working out a payment plan that could work for both sides. Document all conversations, including the person with whom you spoke, the date, time, and the results.

If you are already in default and unsure of what to do as a first step, don’t ignore the problem and hope it goes away. A good place to start is “Help With My Credit,” a service started by financial institutions and credit card issuers to educate and assist cardholders who are struggling to make their credit card payments. “Help With My Credit” provides a toll-free telephone number (1-866-941-1030) for consumers to call with credit card and debt issues. Operators will provide information about contacting credit card issuers and accredited credit counseling agencies. Consumers can also get help and information through a website, HelpWithMyCredit.org. ( http://www.helpwithmycredit.org )

If you are in danger of default and close to or over 90 days past due on your account with no hope of paying it off, you can also talk directly with your credit card issuer about debt settlement. They may be able to help you work out a settlement where the account is closed and you pay a portion of the amount that is due.

Keep in mind that there are negatives to arranging a settlement for debt. Closing an account due to settlement is bad for your credit score and will affect your score for several years. If the forgiven debt is more than $600, you must also pay income taxes on the amount that is forgiven by filing a Form 1099-C.

Do not respond to ads from debt settlement companies that promise to cut your debt in half. They charge high fees, much of it due up front, for services that you can sometimes do yourself with the same success. In some cases, they can even make the situation worse.

A non-profit accredited counseling agency can help you get lower interest rates and develop a debt management plan. The National Foundation of Credit Counselors ( http://www.nfcc.org/ ) is a good place to start. Their Debt Management Plan is a systematic way to pay down your outstanding debt through monthly deposits to your credit counseling agency, which will then distribute the full amount of these funds to your creditors. It takes approximately 36-60 months to repay debts through a Debt Management Plan and when you are finished, they will help you re-establish your credit. Fees include a $25 counseling fee and a $10-$25 monthly fee for the Debt Management Plan.

Last week, the House easily passed the Credit Cardholders’ Bill of Rights and sent it on to the Senate.

But the Senate is considering its own version of a credit card reform bill called the CARD Act. This week, the Senate begins discussions on the Credit Card Accountability Responsibility and Disclosure Act, an entirely different credit card bill than what passed in the House.

In a number of ways, the CARD Act in the Senate is similar in a number of ways to the House’s Cardholder Bill of Rights, but it is also considered stronger with more regulations. Both end some of the unfair practices used by credit card companies and require more notice on all interest rate and fee increases. However, the Senate bill is not expected to pass quite as easily as the House bill. Republican senators are expected to be more sympathetic to the difficulties that new regulations will place on banks and are hesitant to make laws that limit a bank’s ability to raise rates when they are needed.

If the Senate passes the CARD Act, the next step will be to merge the Senate and House bills together. Since they passed different bills for credit card reform, both bills will be sent to a conference committee. Members from each house form a conference committee to work out the differences. If the conference committee reaches a compromise, they prepare a report detailing the changes they have proposed and send the new bill to both houses for a vote. Both the House and Senate must approve this report, or the bill will be sent back to the committee for further work. Once the bill is approved by each house, it is sent to the President for his signature. President Obama has already declared that he will sign a credit card reform bill.

While the Fed, House and Senate are addressing many of the same issues, the Senate’s version includes these stronger legislative regulations:

* Requires interest rate increases to apply only to future credit card debt

* Prohibits late fees if the card issuer delayed crediting the payment

* Prohibits the charging of interest on credit card transaction fees, such as late fees and over-limit fees

* Prevents issuers from multiple over-limit fees for exceeding a card limit, and allows such fees only when a cardholder’s action, rather than a fee or finance charge, causes the limit to be exceeded

* Strengthens credit card industry regulation and supervision

*Provides each federal financial regulator with the authority to prescribe regulations governing unfair or deceptive practices by banks and savings and loan institutions

* Requires issuers to offer consumers the option of operating under a fixed credit limit

* Requires issuers to lower penalty rates that have been imposed on a cardholder after six months if the cardholder commits no further violations

* Requires issuers to provide individual consumer account information and to disclose the period of time and total interest it will take to pay off the card balance if only minimum monthly payments are made

* Requires issuers soliciting to persons under the age of 21 to obtain an application that contains: the signature of a parent, guardian, or other individual who will take responsibility for the debt; proof that the applicant has an independent means of repaying any credit extended; or proof that the applicant has completed a certified financial literacy course

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. Experts say they are interested to see the response to presidential persuasion.

Recent changes in credit card rates and fees include:

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%, and the No Hassle Miles Rewards card increased 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.

Experts warn that in today’s environment, cardholders who do anything to show that they are a greater risk, such as missing or being late on payment, exceeding their credit limit or using too much of their credit limit, are likely to see their interest rate increased and/or their credit limit decreased. To avoid being affected by a credit card rate increase, experts advise cardholders to pay all their bills on time, pay more than the minimum amount, and not use more than one-third of their available credit.