Consumer Tips for Settling Credit Card Debt

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 may relieve a bit of the pain for issuers and cardholders, this is not an ideal solution. It is just a way out to avoid total loss. For cardholders, it means their financial situation is so difficult that they can't pay anything on their loans. They probably already have a poor credit score and settling their debt could make it worse, but it does remove some of the weight from the burden of the debt. For issuers, they are losing money on loans, but at least it isn't a total loss," says Bill Hardekopf, CEO of LowCards.com and author of
The Credit Card Guidebook. "It is important for cardholders in this situation is to be proactive and try to work out a solution. Their actions could 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 six 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 whom you spoke with, and 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 about 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 through, 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.

Protecting Yourself Against Credit Card Fraud

Credit card fraud is widespread. Cards being stolen and used to purchase gas. Restaurant workers stealing credit card information to use for personal purchases. Phony bank emails urgently requiring you to send account information. PIN and account information skimmed at ATMs.

Daily news stories show that credit card fraud can occur in a variety of ways and can happen to anyone. The more you know about it, the better you can protect yourself.

Credit card fraud is theft that occurs anytime a credit card or a card's information is stolen and used as a fraudulent means of payment in a transaction. It can happen without the cardholder ever realizing that the card information has been stolen. When a card is lost or stolen, it remains active and open until the cardholder notifies the issuer that the card has been lost or stolen. The thief can use the card until it has been reported and cancelled.

According to the FTC, credit card fraud costs cardholders and issuers billions of dollars each year.

"While most issuers have technology to help identify fraudulent activity, it is the cardholder's responsibility to frequently monitor the account for fraudulent charges. Also, review your credit reports to look for suspicious activity or accounts that were opened by someone else in your name," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

Credit card fraud has advanced beyond stealing and using real credit cards. Here are two common practices that are used to steal your credit information:

* Skimming. Skimmers are devices that can be used to swipe credit cards and collect the account numbers and information embedded in the magnetic strip. Anyone can buy a small, handheld skimmer. These can be used in restaurants. The waiter or cashier takes your card, charges your account, then swipes it a second time to steal the information. Skimmers can also be installed at ATMs to catch your PIN when you enter it. One way to detect these skimmers is to look for raised edges on the machine. If you are unsure about the ATM, use another one.

* Phishing. The most common form of phishing is the email that appears to be from your bank or credit card issuer with an urgent message about your account. These emails require you to reply with your account information or give you a number to call to supply your account information. Once you provide this, they can take money from your account or open new accounts in your name. Legitimate banks do not ask for information in this manner.

Here are some tips from the FTC and FBI to guard against fraud:

* Sign your cards as soon as they arrive.

* Carry your cards separately from your wallet in a zippered compartment, a business card holder, or another small pouch.

* Keep a record of your account numbers, their expiration dates, and the phone number and address of each company in a secure place.

* Keep an eye on your card during the transaction, and get it back as quickly as possible.

* Void incorrect receipts.

* Open bills promptly and reconcile accounts monthly, just as you would your checking account.

* Report any questionable charges promptly and in writing to the card issuer.

* Notify card companies in advance of a change in address.

* Be cautious when responding to special offers (especially through unsolicited e-mail).

* Be cautious when dealing with individuals and companies from outside the country.

* The safest way to purchase items via the Internet is by credit card because you can often dispute the charges if something is wrong. Make sure the site you are using is a secure site.

* If you bank online, don't use the "automatic sign on" for bank or credit card sites.

* Never provide your credit card number or other personal information on the phone, unless you are able to verify that you are speaking with your trusted financial institution or a reputable merchant.

* Don't give your account number to anyone who sends you an email or calls you on the phone.

* To make sure store or restaurant employees aren't skimming your card, keep an eye on your card as they swipe your card for payment. The devices used for skimming are sometimes disguised to look like cell phones.

* After the purchase, check to make sure you were handed back the right card.

* If you are traveling to a foreign country or making a large purchase with your card, notify your credit card issuer in advance so your account won't draw attention for possible fraud.

* Cover the keypad with your hand when entering your PIN at an ATM. There may be cameras or someone watching as you enter this information.

* Occasionally change your account number (one can change an account number without closing the account). Also change your PIN from time to time.

If fraud does occur, or your cards have been lost or stolen, immediately call your issuer. You are protected by law so that once you report the loss or theft, you will not be further responsible for unauthorized charges. Your maximum liability for credit cards is $50 per card. After you report the fraud, you will be sent a fraud affidavit to fill out and return.

How Newlyweds Can Minimize Financial Stress

It is the wedding season and many newlyweds are about to start their life together. While they have the same dreams and goals as newlyweds before them, many are going to find it much more difficult to get credit to finance those goals. New credit card regulations and the reaction by issuers are likely to have a big impact on those who are just staring out and applying for credit.

"This a difficult financial time where easy credit is no longer available to everyone. It is now more difficult to get loans for homes and credit cards. Your credit scores, history, even spending activities are now closely watched and you will have to prove to credit issuers that you are not a risk for defaulting on a loan. The sooner you start planning for this, the more prepared you will be. Your engagement period is a good time to start building a financial plan," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

Your spouse is "business" partner as well as your life partner. Your credit, good name, and financial future will be tied to this person. Don't assume that your spouse thinks the same way you do or shares the same beliefs about money. Their spending and saving habits may surprise you.

"Have an honest discussion about money," says Hardekopf. "If your partner has difficulties managing debt or spending, it will not only affect your finances, but could also affect your credit score."

Talking about money is difficult for anyone, but discussing finances before the wedding is a good way to test the relationship. If you can't have an honest discussion about finances before the wedding, then this may not be the person you want to join together with for the rest of your life. Finances are one of the biggest causes of stress in a marriage. You will be better off if you can confide in each other and create a financial plan.

Here are tips for avoiding the stresses of marriage and debt:

* Before the wedding, show all of your cards. Tell your spouse about your income, debts, issues you have with money, how your parents raised you to handle money, your strengths and weaknesses with money, and admit if you are a spender or saver. A good place to start is to use a budget or bank statements from the past twelve months to show how you used your money. Your monthly debt, including your mortgage, should not exceed 35% of your gross income.

* Have a wedding that you can afford. This is not the time to start running up large credit card bills and still be paying for your wedding on your fifth anniversary.

* Each of you should get a copy of your credit reports. This will give you a clear picture of how you both handle money and it will help avoid any future surprises. Aim to get your score over 750 to receive the lowest interest rates for your first mortgage and other loans.

* Avoid credit card debt. The best rule of thumb is simply, "if you can't pay for something with cash, you can't afford it." Don't fall into the trap of buying something with a credit card with the intent of paying it off in just a few months.

* Get one or two credit cards and stick with them. Building a good payment history with one or two credit cards is a positive factor in your credit score.

* Each spouse should have a credit card in his or her own name to build your own credit score.

* If you have a balance, pay off as much as you can over the minimum each month. If you get gift money, tax refunds, etc., use this to pay off your debt. The faster you pay it off, the faster you can focus on saving and getting ahead. Reducing your debt-to-credit limit ratio also improves your credit score.

* Before the first bills come in, make a plan for how the bills will be paid and who will pay them. If you have separate accounts, know which account pays each bill.

Beware of Foreign Transaction Fees on Your Credit Card

Credit card issuers are now turning to foreign transaction fees to further increase their revenue. Since February, four issuers--Discover, Citigroup, Simmons and Bank of America--have added or expanded this fee. Consumers need to be aware of this fee because it is much broader than it first appears and it could be charged even if one never leaves the United States.

Until recently, the foreign transaction fee was a 3% fee charged by some issuers on purchases made outside of the country. Now, issuers are expanding that fee to include all transactions made or processed outside of the United States. That means shopping online could cost you an additional 3% of your purchase if that online merchant is based in another country. Or, if you purchase airline tickets or a hotel room with a foreign based company, you could be charged an extra 3%. If you purchase a high priced item, that additional fee can be quite a surprise.

"Before you order anything from a merchant that is not based in the United States, it is a good idea to call your issuer and ask about this fee," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "You can save yourself a little money by using a credit card that doesn't charge a fee for foreign transactions. CapitalOne is one of the few cards that still does not charge a foreign transaction fee."

While credit cards are convenient to use when traveling outside they country, they are costly.

"Every transaction that you put on your credit card while in another country could be charged an extra 3%, including lunch, t-shirts, books, artwork and souvenirs. It is a good idea to keep this charge in mind to know the true price of the item you are buying," says Hardekopf.

Understanding the Credit Card Reform Legislation

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.

The CARD Act in the Senate is similar in a number of ways to the House's Cardholder Bill of Rights but 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. But the Senate bill is not expected to pass quite so easily. 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 the report of the Conference Committee 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, here are some areas where the Senate version is stronger with more 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.