debt elimination plan

Posts Tagged ‘debt elimination plan’

Credit-Card Issuers Strike Back!

Sunday, March 15th, 2009

For those counting on relief from the new rules set to constrain credit card lending practices on consumers, a new approach to improve household finances needs to be considered. The Wall Street Journal blog The Wallet has a piece on the strategies that credit card companies hope to use in order to regain their profit-taking from consumers once the new regulations come into effect. Profit-taking from consumers via credit cards is a fancy description of what amounts to a financial setback for anyone trying to fix their finances – with or without a current debt burden.

Some of the eye-popping highlights of lender strategies moving forward:

“• Moving cardholders’ interest rates to a variable index prior to the compliance date,

• Shortening the duration of introductory interest rates.

• Offering higher interest rates for new customers

• Implementing annual service fees for customers who don’t use their cards very much.

The bank also said it is looking at ‘alternative product constructs that maintain low contract APRs, offset with membership fees.’ ”

A variable index spells trouble for someone with precarious finances because it represents an increase in risk due to uncertainty of terms like interest rates. Confusion about exactly what percentage in interest you’re charged from month to month can spoil an otherwise solid debt plan and derail your timeline to emerge from debt completely.

Shortened introductory interest rate periods are also problematic for those in debt. Shorter periods decrease the value of using a balance transfer strategy to keep interest rates on your outstanding debt low when making aggressive debt reduction payments. For some debt profiles, these changes will now take the “zero percent offer” strategy off the table.

Higher interest rates on newly-opened cards represents a clear downside for one’s personal finances: more punishment for the consumer that revolves even a small balance on their plastic from month to month. A better bet: skip the credit cards completely; or, if you suffer an unusually high amount due to a complete lack of a credit history, open a no fee credit card with a very low and fixed credit limit, and cut up the card immediately upon its receipt in the mail: do not use it, not even once.

Annual service fees are an unwelcome addition to the financial environment. Everyone should keep tabs on whether or not annual fees are being added to any of their existing credit cards. Not sure what the status is on your array of plastic? It takes minutes to solve: call the toll-free number on the back of each of your cards, and ask the lender whether or not you have an annual fee on the card right now. Also confirm that no annual fee will be added moving forward.

Membership fees are still fees that eat away at your financial health. With the expected rise of “membership fees” on credit cards, you can double up your questions on your phone call to your credit card lender and ask about these as well. Make sure they are not being added to your account.

Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs. DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

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Tags: credit card debt relief, credit card lender regulations, credit card lender rules, debt elimination, debt elimination plan, Debt Management, debt plan, debt reduction, debt reduction plan, debt relief from new credit card rules, debt strategy, future credit card regulations, future lending industry rules, introductory interest rate problems, new credit card rules, zero percent balance transfer probems
Posted in Credit Card, Credit cards, Debt Management, Lending Industy, credit report, credit score | View Comments

Sliding economy raises questions about credit scores

Friday, March 6th, 2009

Some who carry debt manage to maintain high credit scores. They never miss a payment or never send it in late and they struggle yet are able to make debt payments enough to keep their debt-to-credit-limit in check. But things are changing as Kathy Chu at USA Today writes about new trends in credit scores.

Lenders are aggressively closing credit accounts and reducing credit limits.
Card holders‘ credit scores can decrease as a result of reduced total credit limits, causing other lenders to tighten up the terms of credit for the particular card holder.
Auto insurance rates are affected by credit scores, and for many, a car is the preferred mode of transportation.
The credit scores of job applicants are being checked as a part of the interview process.
Median credit scores are being strongly impacted by the areas in the country with the highest foreclosure rates.
Even with an average or above-average credit score, lenders across the board are tightening up their criteria for getting a variety of loans and the best credit terms.

In short, the economy is causing banks to reassess the credit risk of account holders, and someone with debt can get caught in a cycle of credit score reduction. To guard against this scenario, a clear plan to reduce and eliminate debt is key. Anyone with debt should understand the terms of their debt accounts, organize the debt information, set priorities for debt payment contributions, make a budget, and execute and monitor their progress towards debt elimination.

Tags: banks and credit score reductions, budget set up with debt, credit card limits lowered, credit lines reduced with debt, credit scores and debt, credit scores and employment, debt elimination plan, Debt Management, debt management plan, debt plan, debt reduction plan, debt with high credit scores, decreasing credit scores, low credit scores and debt
Posted in Credit Card, Credit cards, Paying Down Debt, credit score | View Comments

Despite Risks, Workers Guzzle Company Stock

Thursday, March 5th, 2009

Eleanor Laise at The Wall Street Journal writes today on a recent trend of what employees have been doing this past month: loading up on their company’s stock. Hewitt Associates did research and discovered a rare jump in contribution amounts to 401(k) plans while pulling funds out of other investments, including less risky bond funds.

For someone with debt, and generally for someone with financial insecurity, it does not make sense to heavily concentrate one’s investments. Also, the costs of covering basic expenses without enough emergency savings if one were to lose their income – i.e. job for most people – are steep. If one has credit card debt, the most effective strategy for financial health and security is to stop contributions into the retirement account and apply those funds instead to aggressive debt reduction payments. This is true even if there is an enticing employer match to a contribution: eliminating housing debt versus beefing up the retirment account is an interesting question, but filling the retirement account while revolving credit card debt or other high-interest loans is a recipe for a financial headache.

Some employees might argue that concentrating investments in their own company shows confidence in its ability to succeed. This might be true, but even the best-designed organizations, with killer products, well-defined corporate strategies, five star leadership, and juicy target markets can be undermined by factors like unexpected interruptions to supply chains due to political, environmental, or macroeconomic issues. In short, do not bet the entire retirement account on company stock given the uncertainty of the current climate, because if severe losses come, then it will be that much more difficult to reduce debt and keep the personal finances in order.

Tags: 401k matching contributions and debt, debt elimination plan, debt reduction plan, debt retirement account contributions, employee debt management, personal finances in order, retirement accounts versus debt
Posted in Credit Card, Credit cards, Debt Management, Emergency Savings, Paying Down Debt, mortgage | View Comments

Posts Tagged ‘debt elimination plan’

Credit-Card Issuers Strike Back!

Sliding economy raises questions about credit scores

Despite Risks, Workers Guzzle Company Stock

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