Photo Credit: www.low-interest-rate-credit-cards.net

In these tough financial times, I’ve been a big proponent of people cutting up credit cards with high outstanding debts and paying them down.  In general, that goes counter to what many financial analysts have been telling people to do, saying it will bring down credit scores.

My point has been that credit scores mean nothing if a person continues wracking up more and more debt, as that also hurts one’s credit score, and that it’s better to gain control over spending while working towards getting out of debt.  A high credit score only tells people that you look like a good risk at getting more credit.  However, if you’re already overly maxed out, you’re already past the point of no return, and it’s more important to gain control.

That’s why it was good seeing a statement coming from Greg McBride, the senior financial analyst at BankRate.com.  He stated just what I’ve been saying for months now:  “Consumers have a tendency to focus on the nuances of credit scoring and often lose sight of the bigger picture.  They are so worried about something hurting their credit score, particularly in an environment like this one where lenders are tightening up and making it harder to qualify, that they are willing to live with bad terms that they never would have agreed to in the first place.”

These days, credit card lenders have started penalizing their good paying customers to recover from those customers of theirs who have had problems keeping up with their debt.  Recently, Capital One began jacking up some of their customers rates more than 7% in an attempt to get back to solvency.  American Express went a different way, by capping limit amounts on cards and making people pay more to pay off their monthly balances.  Both alienate their customers, but the worst part is financial “experts” going on TV telling people that they should just accept the limits, pay off the cards, and protect their credit scores.

If you’re someone who pays off your monthly balances as soon as you accumulate them, having your interest rate jump that high that quickly may not impact you much at all.  However, if you’re someone who carries a balance, it might not be in your best interest to keep that card, especially at a much higher rate.

A calculation might help you understand what you might be up against.  Say you have a balance of $2,000, an annual percentage rate of 13.9%, and your monthly payment at the present time is $35.  If you always paid $35, even though the amount of your minimum payment will go down with your balance, you’d end up taking 7 2/3rds years to pay off your balance.  If you take those same numbers, only increase the APR to 20.9%, it would take you 25 3/4ths years to pay off the same balance.

Is it worth any credit score to allow banks or other lenders to take that kind of advantage of you?  It’s something to seriously think about.

See more:
Credit Card Debt Consolidation
Should I Cancel My Credit Cards?
How to Get Out of Debt Part I

Unemployment is Hardest for Men

A few days ago, my wife was commenting that it seemed like the husband’s of many of her friends were losing their jobs, and suddenly its women who are taking care of the household. It seemed like an odd thought at the time, but now it seems that the statistics are backing that up.

In a story written by Andrea Coombes of MarketWatch, She points out that, indeed, statistics are indicating that there is a wide gap between the unemployment rate of men and women, the second highest gap in recorded history, which began in 1948. The highest gap was in May, which means it’s actually fallen in the last month. The unemployment rate for men in June 2009 is 10.6%, whereas for women it’s at 8.3%.

The belief is that the male dominated industries of construction and manufacturing have taken the brunt of major job losses, whereas the major employers of women, health care and education, have fared a little better, especially health care, which has actually shown an increase in employment. Men make up 87% of manufacturing jobs and 71% of construction jobs, whereas women make up 81% of health care jobs and 61% of education.

The reason this puts a big burden on families is that there’s still a big gap in the incomes of men and women, with women still making around 71% of what men make in similar positions. Unemployment payments don’t come close to helping families get through tough times, and once men lose jobs in these two areas, which are high paying jobs for people who usually have less education, it’s harder for them to find comparable paying jobs.

Introduce race into the equation and the numbers are even worse. The unemployment rate for black men is 18%, and for black women 12.2%, whereas for white men it’s at 9.7%, and white women 7.3%. It’s traditionally harder for black men and women to find new employment.

Economists disagree on what’s coming next. Some believe manufacturing jobs will come back as the economy starts to turn around, as more people are ready to purchase durable goods without saving as much. Others believe that those manufacturing jobs are gone forever, and that there will need to be a change first in education, then the types of jobs people continue to look for. Indeed, the concept of reinvention, as in changing careers in midstream, is growing.

Though manufacturing jobs are declining, construction jobs do seem to be on their way back, as housing starts are starting to turn in some communities, and a big part of President Obama’s stimulus package starts to reach the cities, many of whom have had building projects on hold. So, there will be opportunities for some communities to start turning around, and the biggest beneficiaries will be men.

And it’s just what the doctor ordered; let’s hope that it’s in time.

See more:
Unemployment Centers Close Friday
Meltdown 101: Why Unemployment Will Linger
What Do Unemployment Figures Mean?

Should I Cancel My Credit Cards?

There’s a raging debate among financial experts as to whether people should cancel credit cards or not. Once the first recommendation of every financial expert, over the last five years that advice has been questioned and there’s a reversal from some sides of the aisle, whereas the other side of the aisle has stood firm.

The side that’s changed came upon a different landscape. They now saw outstanding credit as a good thing, whether it was being used or not. Creditors were relying more on Fico Scores/Reports
, which used as part of their algorithm how much credit a person already had been approved for, how much they had available, and how well they were keeping up on it. A great FICO score would come from someone who had available $50,000 of credit or more, but had no outstanding balances. The credit had to be shown as being used in some fashion also; a person couldn’t just be sitting on credit that wasn’t being used to get a positive score.

The new advice totally went against the grain of long standing fiscal responsibility principles that said if you weren’t using credit, and didn’t see yourself needing it, to close it out and get it off your report. Also, if you were someone who was trying to work your way out of a debt hole, canceling credit cards would keep you from using them again, giving you control over your financial situation, which would improve as you started to see benefits from paying down your debt.

It’s recently come to a head as the world has been dealing with its recessionary state. All those credit card letters that used to come at least once a day have dried up. People with good credit are suddenly seeing their interest rates going up, whether they’ve ever missed a payment or not. People who miss a payment by even one day are seeing drastic jumps in their interest rates. And some banks and credit card issuers are retroactively capping balance amounts, making people pay a lump sum to get out from under a high level or else risk getting penalized for being over their credit limit.

Now, those who have said that cutting up credit cards was a bad idea are having to challenge their own thinking. Recently on CNN Money, a financial counseling expert said that he believed most people who saw these jumps in interest rates should keep their cards and try to pay them off quickly so they wouldn’t be hit as hard with the higher rates. That answer didn’t get a positive reply from the person he was on with, and he quickly added that each consumer had to decide for themselves if they wanted to put up with higher interest rates, and that they could possibly switch to a different credit card with lower rates, or possibly apply for new cards at low introductory rates.

Of course, since no one is getting those offers for no-interest introductory rates anymore, the point is moot, and the advice is weak. Of course every person has to decide for themselves; that didn’t have to be said. But it does point out something that many of us have known for years. Even financial gurus can’t always offer the best advice for everyone as far as determining the best way to go.

Here’s my take on it. FICO scores are heading the way of dial up internet service. The housing crisis has shown that a good FICO score still won’t always get you a loan if the bank can find another way around giving you a loan. If the same continues to happen for anyone else looking for good financial deals, FICO becomes obsolete and means absolutely nothing to anyone.

Therefore, the decision does really come back to you, the consumer. If you feel you can’t get a handle on your spending, cut up your cards and pay down your debt. Keep at least one card, since many hotels, car rental companies, and other businesses won’t allow you to reserve anything without a credit card number on it. Get rid of temptation if you must. Always take care of your most immediate need first. Make the best decision you can live with, and let time take care of the rest.

See more:
Credit Card Debt Consolidation
Credit Card Companies Raising Rates on Consumers
Old Credit Cards – Should I Cancel Them

How to Get Out of Debt Part III

Here is the finale on our series, Part III, of getting yourself out of debt. If you haven’t read the first two parts, click here to view How to Get Out of Debt Part I, How to Get Out of Debt Part II.

6. Time to make some phone calls. I’m not going to recommend that everyone cut up all of their credit cards unless they’re in serious trouble. If you’ve been keeping current on all of your payments while getting deeper into debt, you at least have a chance to help yourself out. Call all of your big credit card companies (Visa, Mastercard, Discover) and ask for a rate reduction. If you’ve kept up on payments, most of them will offer you a reduction, which can save you a lot of money in fees, and in some ways immediately reduce your payment amount.

Next, if you need a quick infusion of cash and have a car payment, call them and ask if you can delay payment for one month. Most auto loan companies will give owners upwards of 10 times during the life of a loan where they can delay payment a month, though you will pay a very small fee and your loan will be extended a month for each delay. Still, it’s a nice way to get a one month jump on some funds that might help you get over, or caught up, on some delinquencies.

7. Get a part time job. Yes, I know this one everyone hates. The thing is that there’s only so much one can hope to save while trying to cut expenses, and a nice part time job might add at least $200 to your cash flow during the month, often much more. Of course if you work a full time job with lots of overtime this might be hard to do, but for most people, that’s not a concern.

Here’s the thing. There are different kinds of part time jobs. If you can write, you might be able to find some freelance writing work that could earn you some nice pay and you won’t even have to leave the house. Maybe you can find something that fits a particular skill you have. In Loral Langemeyer’s book The Millionaire Maker, she often makes that a part of her recommendations for clients who work with her, and many of them have found that it turns into a better career than the one they’d been doing, makes more money, and they enjoy it more.

Following these tips will get you out of debt, though it’s not an easy process and could take awhile. However, alleviating the worries of whether or not you will ever be able to overcome your debt will be a big benefit to you once you see what you’re up against, and you’ll love the feeling of independence that you’ll end up giving yourself.

See more:
10 Steps to Overcoming Credit Card Debt

How to Negotiate A Credit Card Settlement

How do you plan to get ahead? Ways to Increase Your Income

How to Get Out of Debt Part II

Continuing with our miniseries on getting yourself out of debt, we tackle the concept of payment plans. Click here to read How to Get Out of Debt Part I.

5. Set up a payment plan; yes, the dreaded “budget” word. Luckily, you’re already partially there because you’ve listed all your debts. If you have one and know how to use it, list everything in a spreadsheet program because this will make it easy to track, or at least set everything up. Here’s what you want to do.

First, figure out which bills are due when. Base it off either your one week or two week payment schedule; if you get paid once a month, you can skip this part. Set up a schedule where you know when you’ll pay which bills for at least six months.

You’re probably wondering why. Earlier we figured out what your net income was for 26 weeks. However, most people budget for twice a month payments, which means you actually get two extra weeks of payments a year. So, what you’ll find is that, if you extend your budget for six months, you’ll gain a pay period, and thus earn yourself a little benefit and boost which you’d have never known about if you hadn’t budgeted.

Something else you’ll do with your payment plan concerns your credit card payments. There are three schools of thought on this one. The first says to tackle the card with the highest interest rate first. The second says to go after the cards with the highest balances first. The third says to go after the cards with the lowest balances first. Let’s take a look at each of these.

The cards with the highest interest rates add more to your balances on average than other cards. Going after these balances saves money because it saves on the amount of interest you’re getting charged for.

The cards with the highest balances are the ones that make you feel beaten up and overwhelmed. If you go after these balances first, as you see them coming down your stress level will decrease.

My favorite, however, is going after cards with low balances first. The principle behind this is that everyone works best when they can see successes. The quicker you can pay off a balance, the better you’ll feel, and you’ll be ready to tackle the next card.

Of course, the idea behind all three of these ideas is that, whichever one you select, you pay more than the minimum balance, at least 50% more if you can afford it, and stop using all of your cards except possibly one; we’ll come back to that concept. Then, when you pay off the low balance card, you take that payment and apply it to the next lowest card, and so forth.

The thing is, if you have a low balance with a high interest rate, this is a win-win. If your highest balance is also your highest interest rate, you’re heading towards trouble quicker, and you just might have to go after that one first, bringing the balance down to a safer level before going after one of your other cards.

Why do I recommend you keep one card going? The reality is that if you can use one of your credit cards for small purchases, what you’ll have to pay the next month is relatively low compared to having to pay cash for everything. You don’t use it for everything in a month, just a couple of things. If you put gas in your car weekly, maybe throw one of those weeks onto your credit card. Maybe one week in the month use your credit card for the purchases. This is extreme, but if you have the space on the card it might help for a quick fix, though we’re weaning you away from credit cards eventually.

See more:
How to Get Out of Debt Part III

75 Painless Ways to Save Money

8 Simple Ways to Save Money

7 Days of Money Saving Tips

How to Get Out of Debt Part I

Many times, when people are looking for ways to reduce their debt, they go looking to find someone else to help them with their problems. The truth of the matter is that every person is capable of figuring their way out of debt if they have a job and are bringing in some kind of money. Below are some tips to employ to help you gradually, or quickly, work your way out of debt.

1. Write down all your debts. This is always the first step, because, as Dr. Phil might say, you can’t address what you won’t acknowledge. Take one month’s worth of bills and write down what each is, as well as what the amount is that you’re expected to pay. As it pertains to credit cards, also write down the annual percentage rate. Also, write down how much you estimate you spend on things such as food, gas, entertainment, etc.

2. Calculate your monthly net income. Net income means how much you actually bring home, or have deposited into the bank. Hopefully, it’s the same amount every pay period; if not, then it’s going to be a total estimate. There’s a few ways of doing this. One, if it’s the same amount, multiply that by either 52 if you get paid weekly, 26 if you get paid bi-weekly, or 12 if you get paid monthly.

After you’ve done the first two things, see what the difference is between what you’re bringing home and what your monthly bills come to is. Hopefully, you’re on the positive side as far as income goes. If you’re close either way, there’s still hope. If you’re in the ditch, and your expenses outweigh your income, you’re in trouble, but there’s still hope for you.

3. Take a look at the bills you’re paying to see what may be there that you either don’t really need, or can reduce. For instance, if you have cable and have all the premium channels, you could probably get rid of some of those to reduce your bill. Maybe with your cell phone you can eliminate the internet for awhile, or reduce your text message plan somewhat. These are luxuries, not necessities, and you might miss them, but your wallet will thank you. Most people will find that if they really take a good look at things like this, they can save anywhere from $100 to $300 a month, depending on how much they were spoiling themselves.

4. Take a better look at expenses that aren’t monthly bills. You’re probably not going to be able to reduce your gas consumption because you’re not really going to save all that much money taking the bus to work unless you drive long distances, in which case taking the bus might make a lot of sense. However, reducing your entertainment budget might be a big deal, especially if you’re eating out twice a week, or every day for lunch. It’s almost better to increase your food bill a little bit to get things so you can take a lunch with you, and maybe eat out once every two weeks, at a less expensive restaurant, instead of weekly. If you’re really in trouble, extra spending to make yourself feel better will only hurt you.

See more:
How to Get Out of Debt Part II

How to Get Out of Debt Part III

Dr. Phil’s Tips to Eliminate Debt

The 12-step Get Out of Debt Program

FTC Crack Down on Debt Consolidation Companies

Recently the Federal Trade Commission has decided to join attorney generals around the country in looking at debt consolidation companies to see whether they’re misrepresenting what they say they’ll do for consumers, as well as verify that they’re not harming consumers at the same time.

Their first issue is in determining how these companies are obtaining clients in the first place.  They actually sued and froze assets of one company, United Savings Center & Mutual Consolidated Saving, for violating telemarketing rules.  At the same time, they cited them for promising lower interest rates on outstanding debt while collecting high fees up front.

A reality with companies like this is that most people who sign up with one of them, more often than not, will drop out of the program once the going gets tough, and the going will get tough.  Most debt consolidation companies, if they’re not non-profit groups, will wait until your credit is trashed before they’ll attempt to take action, which could be as long as 18 months.  During that time, you’ll receive both collection letters and calls, and could even possibly be sued, though most of these companies tell you it won’t happen.  So, people drop out, then realize that money they’ve already paid is non-refundable.

Also, companies they negotiate with don’t have to reduce either interest rates or payments, though many of them will once you’ve reached a very bad spot.  So, the promise that they will do it is a violation of the law, since it’s something they can’t really guarantee.

The FTC’s second issue, therefore, is in the promises that are made to the consumers, along with the make up of the deals they have consumers sign.  Most of those deals have people pay an upfront fee, then monthly fees.  The New York State Attorney General’s office released guidelines for people to follow, and one of the first is to never pay up front for services from these companies until they’ve accomplished what they say they will, which almost no one will because that’s not what they’re trying to do for you.  Many of these companies, who are now trying to distance themselves from the pejorative title of “debt consolidation” and are switching to either “debt settlement” or “debt negotiation,” won’t begin talking to anyone on your behalf until they know they can negotiate a rate that will also afford them the opportunity to collect a nice percentage of the savings on the back end.

Having outstanding debt is scary.  That doesn’t mean one should sacrifice common sense in the face of fear.  Check out any debt consolidation company with your local Better Business Bureau.  Check them out online to see how many complaints there are against them, and what types of complaints they are.  The first step everyone should take, though, is to contact the lenders and creditors themselves first, to see if an agreement can be arranged.  In these days of a tough economic environment, many people are finding lenders and creditors willing to work with you to get something, and it will protect your credit history much better than any contracts you may sign with a debt consolidation company.

As always, be wary of outstanding promises of almost anything.  Protect yourself and your money; someone’s always willing to take it from you.

See more:

Debt Consolidation Companies Under Fire

New York Attorney General Launches Investigation Into Debt Consolidation Companies

Capital Debt Settlement, based in Fresno, CA, seems to be an enigma debt consolidation company. On the one hand, they seem to have some people who love them. On the other, they’ve been accused of some bad practices, mainly when people have decided they wanted to opt out of participation.

First, the details. The company has been around since 2003, but wasn’t incorporated until 2006. The core of their business is debt settlement, which is what most of these companies actually do rather than true debt consolidation. In March 2009, they hooked up with a law firm, Allegro Law, to handle what they call “debt management”, which in essence means this company will work with Capital Debt Settlement and their clients by trying to get lower interest rates on their credit cards, something most of these companies won’t do, but also something most people can do on their own by just calling the credit card companies themselves.

Capital Debt Settlement has many certifications also. They’re a member of The Association of Settlement Companies (TASC). They’re also a member of the United States Chamber of Commerce and D&B, who says they’re the world’s leading source of commercial information and insight on businesses. They’re also a member of the International Association of Professional Debt Arbitrators, in April moving up to “Silver” status through its certification programs.

They charge the industry standard of 15% to set up your account, and have a $30 monthly fee. For once, you don’t get the scare tactic against other types of debt consolidation and protection on its main page, but they do have a page with the same standard slams on other types of debt consolidation. However, they haven’t had any complaints against them as reported by the Better Business Bureau.

So what’s the controversy? It seems that, though there haven’t been any complaints against them through the BBB, there are plenty of complaints online about them. Each complaint is about the same thing, which is people who decided they didn’t want to follow through with the program and wanted out. It seems that Capital Debt Settlement still goes into their bank account and takes some sum of money, which most people have reported as $75. Capital Debt Settlement representatives say it’s a cancellation fee, but those complaining have said it’s not in the contract. Without seeing a contract we can’t confirm that, but those who swear by the company say there is a clause in the contract stating this as a fact.

Either way, it seems that Capital Debt Settlement might be a company to talk to if you need some help in getting your bills together and getting some relief from your debt.

GHS Solutions

GHS Solutions is a debt consolidation and settlement company based in Florida. They’ve been in existence since 2006, and, depending on which source you want to believe, are either a premiere company or one that you need to watch out for.

At a certain point, when you’re reviewing debt collection companies, you start looking at their websites for something different. GHS Solutions site, once again, has a page that has the same exact information most other debt consolidation companies have, in the same order using the same words in talking about the five options they believe every person has. When you keep seeing the same thing over and over, it instantly makes you suspect, whether it’s justified or not.

If they accept you, there is a set up fee of 15%, with no monthly fee, settlement fee, or processing fee. They do keep the first four payments to pay their fee, which is different than most companies, which take the first three. They tell people that they average between 40 and 70% of a reduction, which is interesting since I haven’t seen any other site do that. I also haven’t seen any other site show how much someone might have owed, and what the payment was that they actually made. There’s no way to prove if it’s accurate or not, but it does look impressive seeing it.

First, some downsides. They’ve only been in existence since 2006, but they have numerous complaints against them through the BBB; or do they? One site showed 36 complaints against them, giving them a F rating, while another site, not listing how many complaints, gave them a B rating. I tend to believe the bad rating more, mainly because there are numerous complaints against GHS Solutions online. Some complaints stated that the company said they’d talk to creditors and prevent them from getting phone calls and from being sued; that seems to not have happened. Other people said it was in the contract that you might get sued. That’s something a potential client should be told up front, whether it’s in the contract or not.

GHS Solutions does have some credible organizations that they’re a member of. One of those organizations is the United States Organization for Bankruptcy Alternatives (USOBA). They are also a member of the Association of Settlement Companies, and the International Association of Professional Debt Arbitrators. This means they’ve at least tried to do some positive things.

In the end, GHS Solutions may or may not be the company for you. Three years really isn’t enough time to be able to do a full evaluation on a company, but if you don’t feel safe, find someone else to help you.

Well, there’s an upside and a downside to all of this. Let’s look at the upside of it first.

First, you’re not getting bothered by all those requests for your participation. Truth be told, if you had taken the time to fill out all of those applications, you’d have been doing yourself more harm than good. Two things happen, neither one of them good, when you continually fill those forms out. One, your credit statement shows every time you apply for credit, whether you get it or not. Having too much credit is almost the same as not having enough; other creditors get scared and wonder what’s going on. Two, if you get turned down, that shows up also, and it also affects your credit score and rating.

Second, strangely enough, the pressure is off. When all those mailings kept coming, you felt like one day you just had to fill some of them out. I almost hate to admit this, but what I used to do was open them up, darken my name and address, put it into the envelope they sent and put it back in the mail. Of course I only did that if they’d already paid for postage. My theory was to waste their time as much as they wasted mine; petty I know, but I felt better.

Now, let’s look at the downside. The first is that it indicates just how bad the banking problem is. We always say credit card companies, but the truth is that almost every credit card offer we get comes from a bank of some sort. Banks hurt, they stop giving out credit.

Second, we need that credit, or at least some of it. As banks start tightening up the rules for who gets what, suddenly even good credit scores aren’t working for us. There have been more people with good credit being turned down because it’s not good enough, or any other stupid reason banks want to give. It doesn’t even give you an advantage to apply from your own bank anymore.

Three, why might we need that credit? Right now there are a lot of people in some tough financial straits. It wouldn’t hurt to have the opportunity to apply for one of those no-interest credit cards for at least a year right now, at a high enough interest rate to consolidate some of the outstanding debt and be able to make smaller payments for awhile to ride out the bad financial storm. It’s much easier to apply for another credit card than it is to apply for a consolidation loan, and you learn the results much quicker also.

Am I nostalgic for credit card offers? No, but it does seem a bit off without them.