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By Carlos De Paula A look at most people’s postal boxes these days would give impression that banks are giving away money. If you have good to fair credit, you get tons of credit card offers. If have a crummy credit rating, you are still getting offers, many with life saving low APR balance transfers. Even if you have just filed for bankruptcy, you will still get less savory offers, but they will be there. It is very easy to have enough credit corresponding a few times your annual salary. These offers are often quite appealing, with zero to 3.9% APRs, great offers on balance transfers, and often banks raise your credit limit within 6 months, if you pay your credit cards on time. Sounds good, after all, at zero percent you cannot go wrong. It is money given away! Not so fast. When you sign a credit card application, you normally believe you have a contract set in stone. Just like any other contract, you believe, any changes would need to be agreed by both parties, in advance, and should be negotiable. Guess what, credit card companies, as a normal course of business, amend the contracts unilaterally, without asking your permission and without negotiation. If you use the card again, you are agreeing with the change! These changes normally have to do with the appealing APRs that first prompted you to get the card and instruments whereby banks can increase them punitively. Back in the old days, if you were late on credit card payments you would get a nice call, the day after the payment was due. And a nastier one 10 days after. I suppose banks eventually figured that most people were normally late due to an honest oversight, sooner or later, and thus the rules of the game were changed. Initially, banks began charging late fees, which often amount to more than 30 dollars, every month you are late. You would no longer get a call, just a $30.00 bill on the next statement. Adding insult to injury, if you do have quite a few bills to pay, eventually you might be late a couple of times a year. So the banks perceived, I guess. Now, if you are late at least twice in the course of a consecutive 12-month period, the bank can increase your APR, on the ground that you have just become a little bit of a higher risk. So, your appealing zero percent credit card, suddenly becomes a 12 %, then an 18%, until becoming a ridiculous 30% APR credit card. By that point, you might be trying to shift credit card balances to new offers, and thus try to manage your APR crisis. Guess what. A lot of credit card companies have a policy of obtaining your credit report every once in a while, and you might have an immaculate record with them, never been late a single time in 20 years, but the fact that you goofed with bank “X”, which is in no way affiliated with them, gives them ground to hike up your APR. All of a sudden you are no longer one of the their best clients: it does not matter that you shifted a $5,500.00 balance to their appealing 6.7% APR last month. Your new APR is now 18%, more than the 16.7% of the card you shifted from! And the story goes on, and on. By the time you are through with them (which might be never in most cases), you have an unmanageable debt, all done lawfully. You might ask, why do banks lend out such huge mounds of money to people they know will not ever pay the full balance, because they are incapable of sustaining such high debt load? And why do so with unsecured credit, in other words, based on a promise to pay, without any collateral? We might instinctively believe that the amount of deposits a bank holds gives it “value”. Our instincts are wrong. The reality is that in accounting, the deposits are considered a liability. Why so? Because the bank has to pay the deposit back. So what gives a bank real “value”, is put it simply, assets, are operations that will generate money for it, among them, loans. Although secure loans are safe, they generate a little spread (the difference between the cost of money to the bank, and the interest paid by the borrower). The real bucks are in unsecured credit, such as credit cards. Additionally, not only are there big bucks in unsecured credit, but also “big fat”. In this day and age of mega bank mergers, banks have to prove they are good prospective partners by the sheer volume of loans on their portfolios - the fat. Not only that, it does not matter for a bank that you are only paying the minimum due every month. If you that, you are giving them profit, which is what they need to build fat for potential mergers, and build value in their balance sheets, wherefrom big year-end bonus will come for management. Really, a 65 year old bank president cares less if you are still going to be paying your credit card 20 years from then, he wants his bonus now! So, in a nutshell, the “system” serves them well, even if they know an “x” number of people will eventually file for bankruptcy or simply stop paying the bills. Some folks have taken the position that bankruptcy might be a good way to “get back at the system”, essentially becoming professional Chapter 7 filers. However, the bankruptcy laws have been changed, and the general opinion is that the new law will not make life easier for debtors. Using bankruptcy “to get back at the system” is indeed a thing of the past. So, my advice to you is, keep the number of credit cards you have to a minimum. If you can, pay off your entire balance at the end of the month. If you can’t, never pay only the minimum due. If at all possible, don’t get any store credit cards, which always have high APRs from the start, and which are generally more aggressive collectors. Use the old system of saving money to make major purchases and never exceed a year’s income in credit card debt. Don’t let the situation get out of hand: consolidating your debt might be a good idea, and always do it sooner, rather than later. YOU CANNOT WIN THE CREDIT CARD ROULETTE. DON’T TRY IT. You can link to this article on your web site using the following code: Website Code: Forum Code: CommentsWe're looking for comments that are interesting, substantial or highly amusing. If your comments are excessively self promotional (use your real name, no keywords please), obnoxious, or even worse, boring, you will be banned from commenting. Your comment must be related to the post. Please do not comment on how great or wonderful the post is. All comments are moderated and, if approved, will display in less than 24 hours.
1 in 8 people in the UK pay only the minimum payment required on their credit cards. You may think that you are keeping on top of your finances but the truth is you will be losing a lot of money by paying in this way. It has even been suggested that paying only the minimum amount on your credit card can indeed worsen your debt rather than improve it. The Minimum Payment Black Hole Credit card companies have been lowering the percentage for the minimum payment in recent years. By paying a lower minimum amount on your credit card it will mean you paying off your debt in a longer time period hence the credit card company earning more interest from your debts. By taking longer to pay off your debt the more the interest will accumulate on your balance. The government has pushed through to try and get credit card companies to clearly explain the minimum amount and add minimum payment warnings on all credit card statements to further inform card holders of what it means to be paying off only the minimum payment. There are companies that are already including this feature on their statements. Prevention Paying even a little more than the minimum payment each month can drastically reduce the amount of interest you will have to pay. Paying off your entire credit card bill every month means you will incur no interest charges at all as there is normally a grace period. If you can afford it this is the best way of utilizing your credit card. There are ways in which you can alleviate the problem of large balances. Shifting your balance to a different credit card that offers an introductory 0% interest balance transfer will give you time to pay off your debt without having to pay added interest. Be aware that using this credit card to purchase goods will only add to your debt. Keep this card for the sole purpose of paying off your balance. Make sure your balance is clear before the introductory period runs out as you will again be faced with interest charges. Credit cards are a very useful tool in today?s society. Make them work to your advantage by knowing all the facts about your finances and credit. Joe Kenny writes for CardGuide.co.uk, offering the latest information on <a href="http://www.cardguide.co.uk/">credit cards</a>, visit them today for more <a href="http://www.cardguide.co.uk/best_buys.html">best buy credit cards</a>. Visit today: <a href="http://www.cardguide.co.uk/">http://www.cardguide.co.uk</a> You can link to this article on your web site using the following code: Website Code: Forum Code: CommentsWe're looking for comments that are interesting, substantial or highly amusing. If your comments are excessively self promotional (use your real name, no keywords please), obnoxious, or even worse, boring, you will be banned from commenting. Your comment must be related to the post. Please do not comment on how great or wonderful the post is. All comments are moderated and, if approved, will display in less than 24 hours.
The ostrich solution never works when it comes to debts ? they just don't go away that easily. Take a tip - there's never a better time like the present to tackle a debt problem ? as soon as piling bills give you a knotted feeling in your stomach, face up to the problem. Here's some practical advice. Make savings on your credit card bills. Savings should be easy to come by. You just need to make cold calculating use of the special deals that many of the credit cards are offering. Savings can be found by moving your balances to credit cards with lower interest rates and special introductory offers. For example, take advantage of the 0% deals on balance transfers such as that offered by Mint ? they'll give you 10 months interest free but there's a 2% balance transfer charge. Marks and Spencer have the best transfer free 0% introductory offer. Their 0% deal lasts 6 months. And ensure the interest you pay on any new purchases is reasonable ? better still, since you're now cutting back hard, don't use your card at all! However, if it's not practical to avoid using you card, then try HSBC. They offer 0% for 9 months on balance transfers and new purchase - but they also levy a 2% balance transfer charge. The credit card companies may call you a ?rate tart? and hate you for switching around but be hard nosed and regularly move your balances between cards to take full advantage of their introductory offers. Then, when you're a month off the end of a deal, look for a new card and get the balance transferred. Reduce your monthly expenditure with a Debt Consolidation Loan. The purpose of a Debt Consolidation Loan is to reduce your monthly outgoings. You take all your existing loans and credit card balances and roll them together into one loan that gives you a single and lower monthly payment. The lower repayment is realised by reducing the overall rate of interest you pay and spreading the loan repayments over a longer period of time. But as with everything, there are snags to watch out for. After you've rolled up all your existing loans into the Debt Consolidation Loan, don't start reusing the old credit lines you've just paid off. If you do, you'll simply end up digging yourself into a deeper hole and make your position much worse! And there's another aspect you might be forced to consider. If you're a homeowner looking for a fairly big consolidation loan, the lender may want your debt secured against your home. If this happens, think carefully before signing. Remember, if you fail to sustain the agreed repayments, the lender can apply to the courts and force you to sell your house. That would certainly be bad news! Seek help. There's lots of help available to assist people resolve their debt problem. A good starting point is the Citizens Advice Bureau. They're local with 3,200 branches throughout the UK and are there to help. Then there's the Consumer Credit Counselling Service. Through its free national telephone service and eight centres, the Service is able to help people with debt problems throughout the UK . Their specialist skills have already helped thousands of people by providing counselling on personal budgeting, advice on the prudent use of credit and, where appropriate, managing plans to repay debts. You'll find their web site at www.cccs.co.uk or phone them on 0800 138 1111. There's also the National Debtline. This is a confidential, free and totally independent source of debt advice. Visit their web site at www.nationaldebtline.co.uk . On their site you'll find a free information pack with a personal budget section, debt advice and free fact sheets. Alternatively, phone them on 0808 808 4000. Debt Management Plans. If your debts exceed ?5,000 and are spread across three or more creditors, a debt management plan might be for you. But you'll need to be able to allocate at least ?100 per month to help repay the debts. Basically under a Debt Management Plan, you agree to pay off your creditors with a single fixed amount each month. A debt management company then receives this sum and allocates the money between your creditors. In return, your creditors have to agree to freeze the sum you owe so no more interest or charges pile up. Some debt management companies charge a fee for their service but others, including the National Debtline and Consumer Credit Counselling Service, are paid by your creditors. IVA. An Individual Voluntary Arrangement, commonly shortened to IVA, is a formal agreement made through a county court and can cost several thousand pounds to set up. It pays off your debts and in return for your creditors agreeing to write off a percentage of your debts, you pay an agreed monthly sum. The agreement lasts for between 3 and 5 years with periodic reviews to identify whether you can afford to pay off more each month. Lump sum payments can also be made and this will shorten the period you are in the IVA. But an IVA's might not be for you. They're best suited to people who have a reasonably high level of income or a lump sum to contribute. And if you fail to meet the agreed monthly payments, you can quickly be made bankrupt. A specialist Insolvency Practitioner would handle all the negotiations with your creditors regarding the value of your debt to be written off and also administer the process of repaying them. Bankruptcy. This must be the very last step but one which more people are opting for ?bankruptcies have increased by a third during the last twelve months. With a bankruptcy all your assets, including your home, may be sold to repay your creditors. Then after a year, all your debts are totally written off and you're free to rebuild your financial life. But records of your bankruptcy will remain on your credit history for seven years. These are the records kept by the big credit agencies such as Experian and Equifax and they are referred to by all the banks and lending organisations. Bankruptcy will decimate your credit rating and for the first year or two, make it very difficult to obtain a mortgage or any other form of credit. Nevertheless it will give you a clean slate to rebuild from. Scrouge Online specialise in providing access to <a href="http://www.scrouge-online.co.uk">Life Insurance</a>, <a href="http://www.scrouge-online.co.uk/mortgages.php"> Mortgages</a> and <a href="http://www.scrouge-online.co.uk/loans.php">Personal Loans</a>. 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Your credit report says a lot about you Your credit report tells a lender what kind of borrower you are. It tracks late payments, collection requests, and bankruptcies. It also tracks on time payments, loans that are paid off, and accounts that are opened and closed. It is your history and it can affect your future. Too much credit can hurt you It seems silly, but having too many credit card accounts on your credit report can actually hurt you even if you have no late payments and carry a low balance. Lenders worry that because you have the ability to run up high credit card bills, you might accrue a large debt and be unable to pay them back because you have other bills to pay. If you have credit cards in your wallet that you seldom use, close the accounts. Instead of carrying three gas credit cards, trim down to one, or put your gas purchases on a general use credit card. What you don?t know can hurt you Credit reports contain a lot of information about you and with the volume of information they are compiling, it is possible that it contains some mistakes. Perhaps you have closed an account that your credit report states is open or you have paid off a balance that is still listed. Whatever the discrepancy, if you notice an inaccuracy on your credit report, it is up to you to contact the credit bureau and get it corrected. What you don?t do can hurt you Missing credit card payments costs you more than just late fees. Having late payments reported on your credit report can keep you from getting a home loan or even buying a car and once accurate negative information is on your credit report it takes 7 years to get it erased. It is important to make your payments and make them on time and to carefully consider every purchase you place on a credit card. Visit <a href="http://www.abcloanguide.com/freecreditreport.shtml">http://www.abcloanguide.com/freecreditreport.shtml</a> for a list of credit report agencies. View our recommended sources to <a href="http://www.abcloanguide.com/freecreditreport.shtml">check your credit report</a> online. You can link to this article on your web site using the following code: Website Code: Forum Code: CommentsWe're looking for comments that are interesting, substantial or highly amusing. If your comments are excessively self promotional (use your real name, no keywords please), obnoxious, or even worse, boring, you will be banned from commenting. Your comment must be related to the post. Please do not comment on how great or wonderful the post is. All comments are moderated and, if approved, will display in less than 24 hours.
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