Inspiring Thoughts

If you don’t like something change it; if you can’t change it, change the way you think about it. ~Mary Engelbreit

Changes in our lives are usually inevitable. Whether it is spring changing to summer or trying to change a bad habit, most of us will experience some form of change at one point.
As we undergo a major change, we may have mixed feelings. For example, if you recently enrolled in a debt negotiation program, you may feel optimistic that you took the first step to achieve financial freedom. Yet, the fact that you must live on a budget and have limited access to credit may scare you.
Living without available credit may be quite an adjustment, especially in a world where credit cards are accepted everywhere from local pizza shops to furniture stores. Many retailers may also pressure you to apply for credit cards when you checkout and you may have to decline more than once.
Some consumers may also use credit cards to pay for unexpected emergencies or to buy necessities before their next paycheck arrives. Without this security, new debt negotiation customers may feel like they will never be able to survive without credit.
Although overcoming your dependency on credit cards may be difficult, try to focus on the positive aspects of your financial decision. Look to the future and imagine how relieved you will feel once you are free from the bounds of debt. As a result of hard work and perseverance, you may one day not receive any more calls from collectors or have to keep track of multiple credit card bills.
Throughout your debt negotiation program, we will provide you with a variety of money-management tools such as this newsletter. Our goal is to equip you with knowledge that will help you remain debt-free. During these changing times, remember that your negotiation company is here for you. Feel free to give us a call if you ever have a question about your program. We realize that the many changes that you are experiencing can be stressful and we want to help you accomplish your financial goals.

Stop Making Financial Excuses

Changing bad financial habits usually requires a lot of hard work and determination. At times, it seems easier to put off this daunting task and make excuses. These actions could of course delay your financial progress on the road to financial freedom. Below are some common financial excuses and how to overcome them.

"I deserve totreat myself."

Working towards building your reserve account is hard work. Rewarding yourself occasionally is a good way to recognize your efforts and an incentive to keep striving for your goals. However, treating yourself everyday or more than your budget can handle may lead to overspending. To keep your reward system in perspective, try setting a schedule. For example, every time you discover one of your debts have been settled, treat yourself to lunch at a nice restaurant or the new best-seller. The items do not have to be extravagant. You may enjoy and appreciate your rewards more when you realized that you have worked for them.

"I don’t have timeto save money."

Establishing a realistic spending plan and eliminating unnecessary items from a budget can be rather time-consuming. You may have to set aside a few hours each month for tasks such as tracking your expenses, clipping coupons, and sorting through receipts. Dedicating sufficient time to a particular goal usually pays off in the long run. You can use online resources to help you save money. Sites such as Kiplinger’s online budget worksheet (www.kiplinger.com/tools/budget/) can help you create a workable spending plan. You can also search for coupons online at http://www.coupons.com/.

"It is hard to save in a bad economy. "

According to a recent survey conducted by the Opinion Research Poll, 77% of Americans feel that the media is making the economy worse with negative coverage. Frequent reports about the state of the economy may make some people have a pessimistic attitude, which can inhibit achieving goals. Although the current economy is not in the best of shape, it is important to keep a positive outlook and hope that circumstances will improve in the future. Many consumers also exercise frugality in the midst of a recession. It is a good idea to get together with friends and family to find ways to cut costs.

"I will start saving money tomorrow."

For tasks that require hard work, it is easy to procrastinate and say that you will begin tomorrow or at a more convenient time. The first step to achieving your goals is to begin immediately. It may also help you to make long-term and short-term goals. The chart below may help you brainstorm future goals that you would like to accomplish. Many times seeing your goals in writing can help you envision your success. Eliminating budget busters such as expensive lattes and vending machine snacks are also habits that you can start to break today instead of waiting until tomorrow.

Credit card debt rises faster for those 65 and older

By Kathy Chu, USA TODAY

Cash-strapped older Americans are racking up credit card debt faster than other consumers amid dwindling retirement portfolios and rising medical costs, a study shows.
The study, which will be released Tuesday by Demos, a liberal public policy group, shows that low- and middle-income consumers 65 and older carried $10,235 in average card debt last year, up 26% from 2005. Card debt for all borrowers surveyed rose 3% during that time, to $9,827.
Overall, revolving debt — mostly on credit cards — grew during much of 2008, the Federal Reserve says. But as consumers pared spending, outstanding debt also fell. From the fourth quarter of 2008 through the first quarter of 2009, revolving debt slipped 2.3% to $939.6 billion.
Vulnerable consumers are turning to credit cards for necessities, not luxuries, Demo's survey shows. For instance, more than half of households say medical expenses contributed to their credit card debt.
"The frivolous spending idea, that's not what's driving families into crazy debt," says Jose Garcia, a Demos associate director. "The expense that most affects families is the cost of living."
Demos' phone survey, conducted April through August 2008, polled 1,205 low- and middle-income households, defined as those with 50% to 120% of local median income. The margin of error is plus or minus 3.7 percentage points.
The data are in line with other industry research showing that seniors are becoming the face of the indebted.
From 1992 through 2007, the latest data available, older Americans' credit card debt grew faster than the overall population, according to the Employee Benefit Research Institute, a non-partisan group that studies economic security.
"You see a great increase in credit card debt for people right near retirement age," says Craig Copeland, a senior research associate at EBRI. "They're probably still working, but they're also the most likely to become disabled," which could force them to rely on credit cards.
Demos' survey found that those carrying credit card debt are also paying more for it: Close to one in four households now pay more than 20% interest. And households charged late fees paid an average of four fees during a 12-month period.
These high rates and fees can upend consumers' budgets, advocates say. "When your interest rate goes up, it's another hammer blow to your ability to make ends meet," says Sally Hurme of AARP, the group for consumers 50 and older.
Find this article at:
http://www.usatoday.com/money/perfi/credit/2009-07-27-credit-card-debt-seniors_N.htm

Consumers hit again as some banks raise credit rates, fees

The ink has barely dried on credit card reform signed by President Obama in May, and already, issuers are raising prices again.
Most issuers have raised rates or fees for certain borrowers. In the latest round, Bank of America and Chase have increased, or are increasing, their maximum balance-transfer fees, from 3% to 4% and 5%, respectively. Chase is also expanding the definition of who could get hit with a penalty interest rate. Meanwhile, InfiBank is establishing a higher minimum APR — the greater of 15.99% or 11.99% plus the prime rate — on many cards. And Capital One and Citigroup continue to raise card rates for certain borrowers.
Issuers' actions come as a growing number of consumers lose their jobs and default in record numbers on their credit card debt. The industry is also preparing for restrictions to take effect in February 2010. That new law limits when issuers can raise interest rates on existing debt and charge late and over-limit fees. But it doesn't impose a cap on card rates and fees.
Keefe Bruyette & Woods analyst Sanjay Sakhrani says issuers are repricing accounts "given the pressure from a high level of charge-offs and delinquencies and ahead of the rules being implemented."
The banking industry says Congress has no one to blame but itself for higher rates and fees because banks had predicted that restrictions on pricing would lead to higher costs for everyone. The changes, according to Scott Talbott, a senior vice president for the Financial Services Roundtable, which represents the nation's largest banks, are a "natural result" of the new law: "The industry is restricted in setting credit terms based on the borrower's individual risk profile, so the price goes up for all borrowers."
Yet some critics say that issuers are taking advantage of a loophole in the law to bolster their financial conditions. Increases in credit card rates have been "widespread" as issuers try to make up for falling revenue because of higher loan losses and pending restrictions, says Bill Hardekopf, chief executive of LowCards.com, an information site.
Sen. Charles Schumer, D-N.Y., and Sen. Christopher Dodd, D-Conn., have called unsuccessfully on federal regulators to impose an "emergency freeze" on rate increases on existing credit card balances.
In a statement Monday, Schumer slammed issuers for trying to "wring more dollars out of their customers." Some of the changes in card terms, Schumer says, are "against the spirit of the law and ... just plain wrong."
Issuers' pricing changes mean that consumers have to keep an "eagle eye" on the fine print of their bills, says Ruth Susswein, deputy director of national priorities at Consumer Action, an advocacy group.
Curtis Arnold, founder of CardRatings.com, a comparison site, says he can't "totally fault the issuers for making adjustments while they can, as long as it's not highway robbery."
By Kathy Chu, USA TODAY

Find this article at: http://www.usatoday.com/money/perfi/credit/2009-06-29-banks-fees-credit_N.htm?obref=obinsite

Consumer Bankruptcies on Pace to Hit Pre-Reform Levels in 2009

The American Bankruptcy Institute said that consumer bankruptcy filings in the first half of 2009 are higher than at any point since bankruptcy reform in 2005, and are on pace to hit levels seen before the legislation passed.
There were roughly 675,000 consumer bankruptcy filings in the first half of this year, according to data released last week by the American Bankruptcy Institute.
If the current pace continues, more than 1.3 million consumer bankruptcies will be filed this year, a level that hasn’t been seen since 2005, a record-breaking year for consumer bankruptcy protection requests. The record that year was due, in large part, to a change in bankruptcy laws that made it harder for consumers to file and provided some protection for creditors.
The new bankruptcy law led to a large spike in filings just before it took effect, and a sharp drop-off for the next several quarters. There were nearly 2.04 million consumer filings in 2005, and only a quarter of that the following year, according to American Bankruptcy Institute statistics. Annual bankruptcies didn’t surpass 1 million again until last year. The first time consumer bankruptcies had topped 1 million was 1996, at more than 1.1 million. From 1997 through 2004, bankruptcies ranged between 1.2 million and 1.6 million.
The American Bankruptcy Institute reported that the overall June consumer filings total of 116,365 was 40.6 percent higher than the 82,770 consumer filings recorded in June 2008. While the June total represented an increase over the previous year, it was 6.8 percent lower than the total from May 2009. Chapter 13 filings constituted 27.7 percent of all consumer cases in June, a slight increase from May.
But the quarter-over-quarter trend is pointing higher. According to ABI data, there were 316,158 total consumer filings in the first quarter of 2009 and 359,193 filings in the second quarter, a level that roughly mirrors quarterly filing averages seen before the bankruptcy reform legislation was passed in 2005.The trend prompted ABI Executive Director Samuel J. Gerdano to comment, “We expect that there will be more than 1.4 million new bankruptcy filings by year end.”The more bankruptcy filings, the harder it is for collection agencies to recover debts, says Dan North, chief economist at Euler Hermes ACI, a trade credit insurance firm. The collection agencies tend to be collecting unsecured debts, which fall behind secured debts when the bankruptcy courts allocate the debtor’s assets.And debtors have become smarter about protecting their assets, North adds. So if a debtor has disposable income, he’ll put it into an IRA or some other vehicle outside of the reach of the bankruptcy court.This is likely occurring more often, according to North, who points out that disposable income is increasing at the same time that bankruptcies are. Many consumers are putting that additional disposable income into savings as evidenced by the sharply rising savings rate.“The bankruptcies will continue after the recession is over,” North added. “Bankruptcies and unemployment will likely continue for a couple of quarters.”North added that the recession itself could be near an end, but business and consumers alike, who were burned by the economic conditions of the last couple of years, are very unlikely to recover very soon because many had gotten themselves too deep into debt and had nothing to fall back on when real estate-related credit started drying up.
Source:
http://www.insidearm.com/index.cfm?objectID=5AB31D86-A174-D60D-77EE0B3773EE990B&print=1

5 Factors That Determine Your Credit Score

Are you sure you know how good your credit is?

Since September, more credit-card companies have been cracking down on card holders they consider risky -- and even lowering the boom on those good standing -- by reducing their credit lines or increasing their interest rates.

About 65% of banks have lowered the credit limits of new or existing credit-card customers, according to the Federal Reserve’s April survey of senior loan officers, up from 45% in January.
Consumers have taken notice: 19% of customers reported recent interest-rate hikes in June, up from 15% in February, and 14% said their credit limits were recently lowered, up from 8% in February, according to a separate telephone survey of 1,000 credit-card customers conducted by a market research firm for Credit.com.

Recent legislation to prevent credit-card firms from making those kinds of changes won't stop rate hikes and credit limit reductions, as companies may attempt to implement these before a new law takes effect. The Credit Card Accountability Responsibility and Disclosure Act signed by President Obama in May aims to protect consumers and improve transparency associated with sudden changes in their credit-card company policies, but the law will not take effect for another two to eight months. In the meantime, consumers should expect more interest rate or fee hikes or credit line reductions, says Ken Lin, CEO of CreditKarma.com, which offers free credit scores and free tools to help consumers improve their scores. Individuals with credit scores below 700 may see their credit lines reduced, and those with scores below 620 could see some of their credit cards canceled, Lin says. “The idea is to eliminate risky credit card holders before this legislation takes effect,” he says.
Of course, most decisions on interest rates and credit lines are handed down not by MasterCard (MA: 181.48, +0.54, +0.29%) or Visa (V: 66.85, -0.30, -0.44%) but by the banks that underwrite them.
Bank of America spokeswoman Betty Riess says the bank has always “closely monitor[ed] accounts for risk and may adjust customers’ lines…depending on their risk profile.” In April, Bank of America notified less than 10% of its customers of a rate increase, which went into effect on their June statement, she says. Some of those increases were the result of the bank’s periodic review of individual credit risk, which looks at how individuals are using all their credit and whether they’ve defaulted on loans to other creditors, she says.
Discover (DFS: 11.39, +0.16, +1.42%) says that most of its customers haven’t experienced credit line reductions or interest rate increases, but the firm increased interest rates on a small number of cardholders who were paying late or not paying at all.
American Express (AXP: 28.76, -0.62, -2.11%) spokeswoman Desiree Fish says the company has been reducing lines of credit since September but that the majority of its customers haven’t been affected.
Spokespersons for Bank of America (BAC: 12.23, +0.04, +0.32%) and American Express say their firms haven’t announced policy changes associated with the credit-card legislation.
For now, consumers would be wise to keep a closer eye on their credit scores. Here are the five most important factors that affect your FICO credit score and a few ways to protect yourself against the credit crackdown.

Do You Pay on Time?

• 35% of your credit score
  

Start marking your credit-card bill due dates on your calendar. Paying your bills on time plays the biggest role in determining your credit score.
To stay on top of your charges, consider setting up an automatic bill payment, says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. Look over your past bills, estimate your minimum required monthly payment and set up automatic bill payments for that amount, she says. That way, you’ll meet the payment deadlines, dodge late fees or interest-rate hikes, and remain free to pay the remaining balance at your convenience.
The consumer who pays his bills on time every time maintains an average credit score of 706, Lin says, but the drop-off is huge. The average score of a consumer who pays on time 99%: 658.
Making a late payment can also lead to universal default, the condition in which credit-card companies raise your interest rate on their cards for being late with another company’s payment. Once the Credit Card Accountability Responsibility and Disclosure Act goes into effect, that practice will be curtailed, but if card issuers perceive an increase in a cardholder’s risk level through some other means, they could roughly double their rates, Lin says. The annual percentage rate of the average credit-card firm is now 10.9%, according to Bankrate.com.

What Do You Owe?

• 30% of your credit score
  

Paying bills on time doesn’t guarantee a high credit score. You’ll also need to keep your balances from surpassing 30% of your total credit line.
Your credit score is based in part on your credit utilization ratio, the amount you owe in proportion to your total credit limit. If your credit-card company reduces your credit limit, your debts make up a larger percentage of your credit line. If your line is cut unexpectedly, call your issuer to try to undo the reduction, especially if you’ve been on time with payments and maintain a low balance.
In some cases a credit line reduction is unavoidable, says Linda Robertson, a certified financial planner with Financial Finesse, a financial education company . In the past year, many retailers like Fortunoff and Linens ‘n Things shut down or went into bankruptcy and canceled their credit cards. When their credit-card holders lost those lines, their scores may have suffered, she says.

How Long Have You Been Borrowing?

• 15% of your credit score
  

A middle-aged consumer often fares better in this category than a recent college grad.
The length of your credit history is basically a straight measure of the number of years you’ve had credit. The trick here is to keep your first credit card open, even if it has a high interest rate or a low spending limit. Use it a few times a year so that the credit-card company doesn’t shut it down, Cunningham says.

Is Your Credit Still Expanding?

• 10% of your credit score
  

Applying for new credit is often a Catch-22. With new credit, you can prove your ability to handle several payments on a monthly basis. However, applying for too much credit in a few months can slightly harm your credit score, says Cunningham.
“It signals that you’re desperate for credit and don’t have cash available to pay for your needs,” she says.
Opening new accounts over time will raise your credit score in the long term, provided you pay your bills on time, says Craig Watts, spokesman for FICO, the company that calculates and issues the credit score that most lenders use. Requesting and checking your own credit report from FICO or one of the three credit bureaus won’t affect your score, he says.

Is Your Credit Diverse Enough?

• 10% of your credit score

To maintain credit diversity, opt for a variety of credit, including credit cards, a car loan or a mortgage – but make sure to pay each bill on time and keep the accounts active. Opening a wide variety of new accounts and not using them won’t raise your credit score, Watts says.

Source: http://www.smartmoney.com/personal-finance/debt/5-factors-that-determine-your-credit-score/

Citi Hikes Rates. Is Your Credit Card Next?

Holding on to a credit card with a low annual percentage rate is becoming even harder.
Citigroup has increased interest rates for as many as 15 million U.S. credit-card accounts, according to an article published late Tuesday in the Financial Times, citing anonymous sources. It is still unclear how high the new hike will leave customers' rates or whether all card-holders will be affected equally. Citi did not return a call seeking comment.
The rate increases were revealed just months before the new consumer-protection rules in the Credit Card Accountability Responsibility and Disclosure Act are scheduled to go into effect. The law, which was signed by President Obama in May, aims to shield consumers from unfair practices and improve transparency associated with sudden changes in their credit-card companies' policies.

Citi isn't alone. In April, Bank of America notified fewer than 10% of its customers of a rate increase, which went into effect on their June statement, says BofA spokeswoman Betty Riess. Some of those increases were the result of the bank's periodic reviews of individual credit risk, which examine how individuals use all of their credit and whether they've defaulted on loans to other creditors, she says. Discover says the firm increased interest rates on a small number of cardholders who were paying late or not paying at all. American Express spokeswoman Desiree Fish says the company notified some card holders in June that it is increasing interest rates by two to three percentage points effective July. “From time to time we have to make changes to adjust to the economic environment," she says.
Spokespersons for Bank of America and American Express say their firms haven't announced policy changes that are specifically associated with the credit-card legislation. Wells Fargo and Discover spokespersons declined to comment on future strategies.
Interest rate hikes are part of a long-term trend that started before Congress passed the new legislation, says Ken Lin, CEO of CreditKarma.com, which offers free credit scores and free tools to help consumers improve their scores. And consumers can expect to see more rate increases over the next few months, he says.

Here is a quick update on rate hikes and how they might affect you and your credit:

What did Citi do?
Citi increased interest rates on between 13 million and 15 million U.S. credit-card accounts that are co-branded with retailers, according to the FT.
After Citi became aware of the FT story, the firm issued the following statement: “We have adjusted pricing and card terms for some customers as part of our regular account reviews. This is an ongoing process to ensure we offer terms, interest rates, credit lines and products based on individual needs and risk profiles.”
Before the most recent hike, Citi credit-card holders of co-branded cards who were carrying a balance saw their rates increase by an average of three percentage points between January and April, the largest increase among the top card issuers for that period, according to a Credit Suisse report cited by the FT.

Why is Citi doing this?
Citi said in its statement that these changes reflect the rising cost of doing business in the credit-card industry.
Citi and other credit-card issuers' actions were triggered in part by a rise in the number of consumers unable to pay their debt, an increase in the cost of extending credit and a shrinking number of opportunities to securitize loans, says Travis Plunkett, the legislative director at the Consumer Federation of America. Securitization involves packing loans into securities and selling them to investors; with the economy still in decline, fewer investors are willing to buy these assets because they don't expect a healthy return.
Card issuers are also making policy changes in an effort to undo their own errors, Plunkett says. In the run-up to the credit crisis, issuers were extending credit to high-risk individuals who may not have been able to afford their own borrowing habits. Consumers' ability to repay their debts has worsened as the unemployment rate has climbed, Plunkett says.
Could other credit-card issuers plan similar moves?
Card holders can expect more card issuers to change their terms, particularly by increasing interest rates, before the new credit-card legislation goes into effect, says Linda Sherry, a spokeswoman for Consumer Action, a nonprofit consumer education and advocacy organization that studies credit trends. Some parts of the law will go into effect as early as August.
The law is designed to make it more difficult for card issuers to engage in risk-based pricing, which includes increasing interest rates for risky behavior, like making a late payment on another lender's credit card, Lin says. “Historically, credit-card companies have had leeway to determine their own risk indicators and charge based on that, but with this legislation it'll be harder for them to do that,” he says. “They're trying to get ahead of the curve now.”
One way card issuers could beat the system is to spread higher interest rates among most credit-card holders, not just the risky ones, Lin says. That could mean higher rates for individuals who pay on time and have stellar credit histories. “The net effect is that everyone's pricing will go a little higher,” he says.

What can consumers do to protect themselves?
One option for most Citi card holders it to take advantage of the issuer's “opt out” option, which allows them to dodge a scheduled interest rate increase on their card on the condition they stop using it after its expiration date. Card holders can continue to pay off their balances after that. While this option helps avoid a higher interest rate, it means that you'll have one less credit card to use. Moreover, once the card expires, it could lower your credit score.
Another option is to call the card issuer and work out a personalized plan to pay off your balance. In some cases, issuers will allow holders to retain their original interest rates, provided they pay off their balances immediately, Plunkett says.
In general, card holders can transfer the existing balance on a card that gets hit with an interest rate hike to a new card that offers 0% APR on balance transfers from a few months to a year. (Typically, this requires a one-time fee of around 3% to 5% of the balance amount you’re transferring.) However, these offers have been disappearing over the past year and are given only to borrowers who are considered creditworthy, Plunkett says.
In any case, try to pay off balances as soon as possible. One of the last rules of the new law is that card issuers won't be able to raise your interest rate on an existing balance – just on purchases going forward, Sherry says. However, this part of the law isn't scheduled to take effect until July 2010, she says. That's why card issuers are putting rate hikes in place now, while they can make money off your existing balance.

Source:

http://www.smartmoney.com/personal-finance/debt/citi-hikes-rates-is-your-card-next/

Financial Job Scams Rise in a Bad Economy

The economy may be slow, but thieves may be using these times to take advantage of unsuspecting individuals. The FDIC wants consumers to be aware of some common job schemes being reported, followed by tips that may protect you.

Work-at-home scams: Thieves prey on people who have lost their jobs or need extra cash by sending unsolicited e-mails and running advertisements on the Internet. The ads offer flexible, easy part-time jobs that allow you to work at home. These jobs usually involve a lot of pay for doing very little. Examples include processing payments or shipping items. According to the FDIC Consumer news, a lot can go seriously wrong with these supposed employment opportunities. This company may steal your identity and commit fraud by obtaining your bank account and Social Security numbers, perhaps as part of a fake job application. Or, you could face major losses if your new boss requests that you deposit a check or electronic transfer into your bank account and wire funds out of your account. Later your bank tells you that the original deposit was bogus and you’re responsible for the money. For more information about work-at-home scams and a complaint form, go to www.IC3.gov, a web site established by the U.S. Department of Justice and the National White Collar Crime Center.

Mystery shopper scams: It’s common for businesses and consulting firms to pay consumers to shop at their retail locations or dine at their restaurant. The mystery shoppers are then required to submit confidential reports about the experience. But fraudulent individuals are cashing in by setting up fake mystery-shopping programs that look very real, including job applications and professional-looking web sites. They are then convincing new hires to wire money using funds from their own checking account. Here’s a typical scenario according to FDIC Consumer News. Your first assignment as mystery shopper is to deposit a $2,000 cashier’s check into your bank account, supposedly to cover a $1,900 purchase you’re about to make for your new part-time job, plus a $100 advance payment for your services. You’re then instructed to withdraw $1,900 in cash from your bank account, take it to a particular store to have the funds wired to a person in Canada. Later, you’ll go home and fill out an evaluation of the store’s money-transfer service. Eventually, the cashier’s check you deposited will be returned as counterfeit, and you will be responsible for the money you withdrew from your account.

What can you do? To learn more about common financial frauds and how to protect yourself, visit www.mymoney.gov/scams.shtml, a site dedicated to financial education and sponsored by the FDIC. You can also research companies by visiting the Better Business Bureau web site (www.bbb.org).
Trust your instincts and be cautious before you commit to any work-at-home job that may seem too good to be true. If you want to work at home, determine what your strengths and interests are as with any other job search. Then, try to find ways that you may be able to earn extra money at home. For example, consider baby-sitting or pet sitting for families in your community. If you have computer or data-entry experience, consider using your home computer as an employment tool. Companies who ask for money in order to provide you with work should trigger a red flag.

Credit-Protection Plans: Not the Best Defense

Peace of mind is one thing you can't put on plastic.
Cardholders anxious about the economy and their own financial security may be tempted to try, however, by signing up for so-called credit-protection plans. Offered by credit-card issuers for a monthly fee, these plans claim to cover your payments should you lose your job, become disabled or die. “The pitch from the credit-card issuers is: If anything happens and you can’t pay off your debt, we’ll pay it for you,” says Ken Clark, a certified financial planner based in Little Rock, Ark.
But in most cases, the only finances that are being secured are those of the card issuers, says Matt Sheldon, an attorney and consumer advocate in New York who specializes in debt reduction. “These are a cash cow for the companies,” he says. Not only are plans pricey, but the pages of fine print that come along with these agreements are full of loopholes that leave policyholders uncovered, he says. For example, unemployment insurance won’t kick in if you voluntarily leave your job, or are let go for performance reasons.
Credit-protection plans work best for people who are uninsured or underinsured, says William Burfeind, executive vice president for the Consumer Credit Industry Association, a trade group of companies that underwrite plans. “It fills a need in the marketplace,” he says, and can be an inexpensive alternative for people who might not be eligible for a traditional life or disability insurance policy.
Even so, there are plenty of factors (and pitfalls) to consider before signing up for a credit-card protection plan.
Costs could dig you deeper into debtDepending on the card issuer, state and the protections included, the monthly fee for a credit-card protection plan ranges from 35 to 99 cents per $100 of debt, with most plans charging more than 50 cents per $100, says Sandy Shore, senior counselor for Novadebt, a nonprofit credit counseling agency. That means someone carrying a $5,000 balance would pay $17.50 to $49.50 a month ($210 to $594 annually) -- and that's not including the extra finance charges they'll incur from tacking plan payments onto the balance. You’re better off using that cash to pay down your balance or (if you’re really worried) stash it in an emergency fund, says Shore.
Consumers whose balance is zero at the end of the month won't be charged a fee for Chase's credit protection plan, says spokeswoman Gail Hurdis. (Otherwise, the issuer charges 59 cents or 89 cents per $100, depending on the plan selected.) And when a cardholder activates plan benefits, their balance won't generate interest, she says.
Life insurance trumps protection plansIn the event of disability or death, credit-protection plans usually kick in after other insurance policies, says Clark. So there’s little point in signing up if you already have life insurance or disability insurance through an employer or a private policy. Such policies often offer broader coverage and tend to be a better deal, he says. “In a best-case scenario [with a credit-protection plan], you’re paying $300 a year for $5,000 protection,” he says. In comparison, a healthy 35-year-old man could secure $250,000 in renewable term life insurance for about $230.
Exclusions can leave you uncoveredRead the fine print to see what's really covered and under what circumstances. “Disability [coverage] may only pay if you can’t do any work whatsoever,” says Shore. For example, a surgeon with damaged hands who could still flip burgers wouldn’t get any help with his bills, she says. And unemployment protection is usually null and void if the layoff focused on performance issues. “That includes situations where they laid off all but, say, the top three performers,” says Clark. “I promise you that before they start making payments, they’re going to call your employer.”
“Every consumer should read the contract and have a basic understanding of what their benefits are and when they kick in,” says Consumer Credit Industry Association's Burfeind. Every policy, he adds, must meet state-mandated standards and issuers must also offer a 30-day trial period, during which a cardholder can cancel the plan and receive a full refund.
Issuers offer more generous hardship helpIn the event of unemployment or disability, credit-protection plans typically make only the minimum monthly payment on your behalf, while the balance continues earning interest, says Sheldon. Consumers who get hit by either circumstance can get better results appealing to their issuer for a hardship plan, he says. Under these plans, issuers may agree to cut the rate to 0% and waive the minimum monthly payment for a set period of time (usually, a year or two). You’ll pay a per-month fee that’s similar to that of a credit-protection plan, but only as long as it takes to get back on your feet. The catch: Your account may also be frozen during that time.
Capital One, which charges 99 cents per $100 for its protection plan, lets cardholders continue to charge on their card while benefit payments are being made, says spokeswoman Pam Girardo. And because the cardholder’s payments are still being made (via the plan), your credit rating won’t be affected.

Source:

http://www.smartmoney.com/personal-finance/debt/credit-protection-plans-not-necessarily-the-best-defense/

Inspiring Thoughts

Beauty always promises, but never gives anything.
~Simone Weil

Images of beauty constantly surround us. Attractive actors and actresses entertain us on television and in the movie theatres. Beautiful homes catch our eye as we drive through town. We envy the shiny new vehicle that our neighbor just purchased. These beautiful people often become our role models while the fancy cars and stunningly decorated homes serve as our definition of beauty. In fact, we may even have acquired a lot of our debt because of our repeated efforts to beautify our lives.

You may now understand that paying off debt does require some sacrifices. Because buying beautiful items may not be an option at this time, this may depress you or make you long for a lifestyle in which you were able to indulge in nice things with the swipe of a card.
It may be normal to experience these feelings, especially if you recently enrolled in a debt settlement program. As time goes by, you may begin to prioritize your expenses and distinguish the difference between needs and wants. When you recall some of the previous purchases that you made on credit, you may realize how frivolous they were. Your closet may be overflowing with trendy clothes that were out of style by the next season. That shiny new car eventually depreciates or breaks down. You bought a living room set during a "No Interest for Five Years" sale and a year later you are tired of looking at the color.

As you work towards paying down your debt, you may not be able to buy new items on a whim, but you can still occasionally pamper yourself as long as it does not stray too far from your spending plan. You may also consider less expensive alternatives or use creativity to breathe new life into the items that you already have. For example, plant some inexpensive and readily-available annual flowers to beautify the exterior of your home this summer. Find colorful fabric to cover and disguise the color of the couch. Visit secondhand shops to find unique furniture treasures that you can paint or refinish. All of these projects can involve the entire family.
Speaking of family, consider activities that are easy on the wallet. For example, host a family board game night, designate one day each week when the family goes out for ice cream, or plan a bicycle ride at a local park. Ten years from now, parents and children are more likely to cherish these experiences than that shopping spree to buy a new summer wardrobe. In other words, find ways to experience life’s beauty without spending a fortune.

The new stimulus plan may put more dollars in your paycheck.

The Making Work Pay credit, one of the key tax provisions included in the American Recovery and Reinvestment Act of 2009, will result in more take-home pay for millions of American workers.

Available for tax years 2009 and 2010, the Making Work Pay credit is 6.2 percent of a taxpayer’s earned income with a maximum credit of $800 for a married couple filing a joint return and $400 for other taxpayers, but it is phased out for higher income taxpayers. According to the IRS, most workers will qualify for the maximum credit. Because the credit is refundable (people can get it even if they owe no tax), most low-income workers will also qualify for the full credit.

Taxpayers will not get a separate, special check mailed to them from the IRS like last year’s economic stimulus payment. Payments will appear in smaller increments in the paychecks of taxpayers. The IRS urged employers to implement this process on April 1, 2009.
Eligible workers will get the benefit of this change without any action on their part. This means that workers don’t need to fill out a new W-4 withholding form to get the Making Work Pay credit reflected in their take-home pay. Though all eligible taxpayers will need to claim the credit when they file their 2009 income tax return next year, the benefit will generally be spread out over the paychecks they receive beginning this spring and continue until the end of the year.

According to CNN Money, taxpayers may want to be careful that they are not getting more money then they are entitled to through the Making Work Pay credit, which may affect future tax returns. Specifically, people that work multiple jobs may want to ensure that enough withholding is held to cover the tax for the combined income. Also, married couples that file jointly may want to check that they will not surpass the $800 allotment. The IRS has an online calculator at www.irs.gov/individuals/page/0,,id=14806,00.html to assist taxpayers in figuring out the amount of withholding.

News, financial tips, and other information regarding personal financial freedom

• Make sure your credit report is really free.
  
  
  Many TV commercials with catchy jingles claim that consumers can get a free credit report. According to the Federal Trade Commission (FTC), the only authorized source to get your free annual credit report under federal law is AnnualCreditReport.com. To reinforce this message, the FTC is featuring two new videos with their own catchy tunes. Both videos are available at www.ftc.gov/freereports and www.YouTube.com/FTCVideos. The new videos highlight the differences between AnnualCreditReport.com and those other sites that claim to provide “free” credit reports. Other sites require users to pay hidden fees or agree to additional services. For example, some sites provide a free credit report if you enroll in a new service. If you don’t cancel the service during a short trial period, you’re likely to see membership fees on your credit card statement.
  
  
  
• Enjoy your city ‘on the cheap.’

Motivated by the current coupon-clipping climate, Cities on the Cheap (http://www.citiesonthecheap.com/), was created to help those that want to check out the low-cost activities in their local city. This site consists of a rapidly growing network of “On the Cheap” blogs. Each blog highlights city-specific freebies, discounts, and deals. Visit the site to see if you can find some deals in your city. Cities on the Cheap now include more than 40 city blogs in the U.S. and Canada, with more in development.
Save money by carrying big bills.
Keep large bills in your wallet if you want to spend less cash, according to new research from the University of Maryland’s Robert H. Smith School of Business. Researchers find people are more likely to think twice about making a purchase when they carry one large denomination of cash rather than many smaller denominations equal to the same amount of money. For example, you are more likely to hang onto a $20 bill than 20 one-dollar bills. This is because there is a greater “pain of paying” associated with breaking a large bill and there is a good chance you will lose track of spending when you break a large bill. When those studied knew they had to save $100 and exercise self-control in spending, they were more likely to choose a single $100 bill than five $20 bills.

• A major credit card company offers a helpful guide.
  

Chase Card Services in partnership with College Parents of America has issued an informative guide that helps parents discuss financial issues with teens and young adults. Topics include “Understanding Credit Cards” and “Creating a Livable Budget.” You can download this free 32-booklet by visiting www.chaseclearandsimple.com/Students_Guide.