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  • Debit card use is closely tied to consumers’ credit scores

    Debit card use is closely tied to consumers' credit scores. A new study has found that the number of times a consumer uses their debit card to make a purchase every month, and how much they spend on them, is closely related to their credit score.

    According to a study from MasterCard, which also cited third-party findings from Lightspeed Research, the lower a consumer’s credit score, the more likely they are to use their debit card more frequently every month in lieu of taking on credit card debt.

    The study said that consumers whose credit score is considered "subprime" – or below 650 – are far more likely to use their debit card to make purchases. These borrowers use their debit card to make an average of 28 purchases per month, and spend $860. This use makes up 73 percent of all their spending on cards.

    Consumers whose credit card companies consider them simply "prime" – those with scores between 650 and 720 – use their debit cards less often, the study found. They make just 20 purchases per month on average, and spend $618.

    The study also found that consumers with the best credit scores – those above 720, which are considered "superprime" – use their debit cards with even less frequency. These borrowers make an average of 11 purchases a month on debit, and spend just $324 on them. Standing in stark contrast to their subprime counterparts, these borrowers use credit to make 72 percent of all their card purchases.

    Despite the wide-ranging disparity in debit card usage per month, however, the study found that the total number of debit transactions has increased considerably, and across the board, over time. Between the fourth quarter of 2008 and the same period a year later, the amount of debit purchases subprime borrowers made per month has increased 10 percent. That number rose 17 percent for prime consumers, and 12 percent for superprime. However, MasterCard found that these increases did not affect credit card usage for the most part, but rather that the rise in debit card spending cut into cash and check payments instead.

    In recent years, as the economy worsened and credit card delinquencies rose, lenders made it more difficult for consumers with lower scores to obtain a line of credit, in some cases shutting them out completely. This trend may be one reason for their low usage among subprime borrowers.

  • Which is better: charge cards or credit cards?

    Which is better: charge cards or credit cards? While they look the same, and many cards bear the logos of major lenders, there is a huge difference between credit cards and charge cards.

    Despite their cosmetic similarities, a charge card works in an entirely different way from their credit counterparts. According to a report on the consumer advice website Mint Life, they don’t have a monthly limit, and consumers can spend as much as they want on them until the card’s issuer cuts them off. Instead, these cards carry what is referred to as a "shadow limit," meaning that the company assesses on a case-by-case basis what a consumer’s upper boundary for spending is.

    The other major difference between the two is that balances on charge cards must be paid off in full every month, allowing consumers to remain debt free, the report said. While this might be a pain for consumers, it is actually beneficial to them in the long-term because it both keeps spending down and never accumulates interest. As a result of this, however, these cards typically come with annual fees.

    Credit cards, on the other hand, do have credit limits, the report said, and common ones for low-end cards typically range from a few hundred to a few thousand dollars. These cards don’t have to be paid off in full every month, but do carry annual interest rates on any debt that is still unpaid on the account’s balance. This type of card, unlike charge cards, typically don’t carry annual fees as a consequence, since consumers are giving the lender plenty of revenues in the form of interest payments.

    Because of these characteristics, both cards have their own benefits and drawbacks, the report said. Because charge cards basically guarantee that a consumer can’t find themselves deeply in debt as a consequence of using them – since it has to be paid off every month – they’re a good way for a consumer to establish a solid credit history. However, with no credit limit, the part of their score that’s governed by how much they can borrow is basically non-existent. Credit cards obviously offer that aspect, but also come with the looming threat of the consumer incurring lots of debt.

    Consumers may find that they benefit from having both types of card, which will allow them greater flexibility in finding a payment method that works for them.

  • MasterCard’s profits make huge leap as consumers increase per-purchase spending

    MasterCard's profits make huge leap as consumers increase per-purchase spending. An increase in consumer spending – not by volume but rather in the value of the things they bought – helped MasterCard post large profits in the second quarter.

    The company, which processes a large percentage of all credit card transactions in the U.S., said that profits rose 31 percent between April and June of this year thanks to decreased operating expenses and an increase in consumer spending on a per-purchase basis. In addition, American consumers spent more overseas in the three-month period.

    "We are pleased with our performance in the second quarter," said MasterCard president and chief executive officer, Ajay Banga. "Solid GDV growth, particularly in markets outside the U.S., continued momentum in worldwide cross-border volumes, and thoughtful expense management all contributed to good financial results this quarter."

    The company’s numbers showed what could be a renewed consumer confidence, because while the company’s profits climbed considerably, the number of total transactions it processed was essentially flat, increasing just 0.1 percent. This is an indicator that while consumers aren’t making more purchases, they are buying more expensive items.

  • Alternatives to Bankruptcy

    Alternatives to Bankruptcy

    With the downturn of our economy, many Americans are finding themselves in a constant battle with a never-ending mound of debt. Pay cuts, reduced hours, lay-offs, medical bills these are just a few reasons why many Americans have turned to rely on credit cards to make ends meet.

    Drowning in a pool of late payments, increasing interest rates, penalty fees, and increasing balances, many consumers begin to consider drastic solutions like filing for bankruptcy.

    However, filing for bankruptcy can be an emotionally tolling process and is often considered the option of last resort, thus an alternative to bankruptcy should be explored before choosing to file for bankruptcy.

    There are two kinds of bankruptcy that are available for consumers to file for: Chapter 7 and Chapter 13. Chapter 7 bankruptcy protection eliminates an individual’s debt completely, although it is difficult to qualify for and can require a consumer to divest some or all of their assets to pay off creditors. Chapter 13 bankruptcy requires an individual to pay back a percentage of their debts, typically over a 3 or 5 year repayment plan, and a trustee distributes those payments back to the individuals creditors. Both of these bankruptcy types can seriously impair an individual’s credit score and credit profile, and make it extremely challenging for an individual to secure any kind of favorable loan for years.

    But what some consumers may not know is that there are alternatives to bankruptcy. One of the most common is debt settlement, also known as debt negotiation. Debt settlement will not only get consumers out of debt quickly, but it can reduce balances by as much as 40 to 60 percent within an average time frame of 24 – 36 months. Consumers in debt might seek out a debt settlement or debt negotiation company that will work with their creditors to structure settlements at a reduced balance. While creditors may not normally consider settling if a consumer inquired directly, debt negotiation firms have relationships with the lenders to help structure these reduced settlements.

    Another alternative to bankruptcy is debt consolidation. Under this method, a lender will issue a new loan that pays off all the consumer’s individual debts. This process is effective because while it doesn’t reduce the debt, it consolidates the number of payments a consumer has to make per month to just one, and typically carries a much lower interest rate than credit cards or other types of debt. One drawback of this solution is that these loans are often difficult to qualify for due to a high credit score requirement.

    Although having the security of credit to fall back on in dire times can be helpful, it can also be detrimental when consumers use the credit to spend more money than they can afford. With interest added onto the increasing balances every month, many consumers end up barely having enough to make minimum payments each month, thus leading them to consider bankruptcy as solution to get out of debt. But an alternative to bankruptcy is usually attainable as long as the consumer does their homework to choose a good company to work with and stays committed to the program.

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  • FHA announces it will introduce minimum credit score for mortgages it insures

    FHA announces it will introduce minimum credit score for mortgages it insures. Because it has been hemorrhaging money for months, the Federal Housing Authority announced it will begin to institute a minimum credit score for the homes it insures.

    According to a report in the Wasington Post, the FHA will no longer insure mortgages for consumers who have faced credit problems and have a rating of less than 500 because it has seen the cash reserves it keeps to pay for "unexpected losses" evaporate to dangerously low levels in recent months.

    The report said that in the past year and a half, the number of FHA-insured loans made up about 30 percent of all new single-family home purchase mortgages, an increase from just 3 percent in 2006. Similarly, about 20 percent of new refinances are also insured by the Authority. However, as the number of loans it insures rose, so too did its default rate, which cost it a significant amount of its reserve money.

    The Post said that if the agency runs out of money, taxpayers will have to foot the bill for all the home loans that go bad. By instituting the minimum credit score of 500 for all borrowers, it is trying to insulate itself against the risk of running out of money while still maintaining its key role: keeping the housing market afloat.

    According to the Post, not only will the FHA introduce a minimum, but it will also require all borrowers with a credit rating under 580 to have a higher down payment on their home than those that don’t. Currently, borrowers only have to put down 3.5 percent of the home’s total cost, but those with a score below 580 will have to pay 10 percent. This protection should help the Authority considerably, as the percentage of borrowers that are "seriously delinquent" was three times higher for those below that mark than those above it in January, the last month data was available.

    However, many mortgage lenders have already been tightening restrictions, the report said. This is one reason that just 1 percent of current FHA-insured borrowers have scores below 580.

    These new restrictions could be one reason that home sales have been so slow in recent months despite record lows in mortgage rates more or less across the board.

  • Credit card companies still finding loopholes in laws

    Credit card companies still finding loopholes in laws. Credit card issuers have lost out on millions in profits as a result of the laws put in place by the Credit Card Accountability, Responsibility and Disclosure Act, which prohibited practices deemed excessive and harmful to consumers.

    According to a report in the Dallas Morning News, however, those companies have made up some of those lost profits by exploiting loopholes in the Credit CARD Act. They are complying with requirements like the necessity of 45 days’ notice before changes to a credit card agreement, any payment made above the minimum be put toward the credit card debt with the highest interest rate, or those eliminating fees for going over a card’s credit limit. But at the same time, they’ve found new ways to drive revenues.

    The report said that the Pew Safe Credit Cards Project has found that companies are still engaging in what it calls questionable practices, including sharp, unannounced rises in penalty interest rates.

    "For the first time, we have seen credit card disclosures warning consumers that interest rates could go up as a penalty for certain actions, but not stating how high those rates could go," Nick Bourke, director of the project, told the paper.

    Pew found that surcharge fees for cash advances also rose sharply between July 2009 and March of this year, the report said. The average increase for these charges rose by one-third, from 3 percent per transaction to 4 percent.

    Consumers should be aware that any new card they sign up for now may come with an attractive introductory interest rate, which then increases significantly when that initial period ends. This practice may seem harmful as well, but because it was spelled out in the credit card’s initial agreement, it is perfectly legal under the new laws.

  • Reduce Your Debt Fast

    Reduce Your Debt Fast

    Many consumers are deeply in debt and probably wondering how they can reduce their debt fast, especially those that are struggling to keep current with their monthly bills.

    Although bankruptcy is an idea that oftencomes to the minds of most consumers first, it is far from being the easiest or the quickest way to reduce your debt fast. In fact there are several alternatives that can be considered better and faster solutions to reducing debt.

    Four Ways to Reduce Your Debt Fast:

    1. Debt settlement is the process of negotiating with creditors to achieve a payoff amount that is a substantial reduction to the current balances that are owed. Creditors are very willing to negotiate on debt balances that are in arrears, because if a consumer were to file bankruptcy, they stand to get nothing. In order to succeed in such a program, consumers need to diligently save the funds that are required to make settlements, which typically run between 40 and 60 percent of the total current balances and last between 12 to 36 months.

    2. Paying more towards your debts each month is an option that may not seem possible for some, but for those of you who are truly committed to reducing your debt fast you may be able to work out a monthly budget that allows you to pay more towards your debt than before. This will not only reduce the principal balances more rapidly, but it will significantly cut down what you would otherwise pay in interest. It is usually best to focus on paying down the creditors with the highest interest rates first, while leaving those with the lowest interest rates for payoff last.

    3. Another way to reduce your debt fast, or at least pay the debt off more quickly, is to simply contact one’s lenders and ask for a lower APR. While this method does not always work, it never hurts to try. Some consumers who have been able to stay current with their monthly payments might be able to talk their way into a more favorable rate. If a creditor knows that you have the opportunity to transfer your balance to another lender, they are likely to try and keep your business.

    4. Speaking to a credit counselor, who can suggest a debt management plan that could help you pay off your debt within four to seven years, is another option. Although this method is not as quick, many counselors make consumers devote considerable time to a financial education process that will also help draw up a sound financial budget and eliminate unnecessary expenditures to further chip away at their debt. In a credit counseling program, consumers will pay back every dollar of the principal they owe, albeit it at a lower interest rate.

    When you are looking for the best way to reduce your debt fast, you should explore all of your options and carefully consider the pros and cons of each process. Always make sure to do your due diligence on the companies offering the various solutions. While no reduction process is going to be easy, there are great companies that can help you get through a tough spot.

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  • Debt Management Relief

    Debt Management Relief

    Many consumers may have found themselves falling deeper into debt with a handful of creditors over the last few years, and a growing number are looking for ways to find some debt management relief. Fortunately, there are a number of ways for consumers looking for debt management relief to approach the problem.

    One common option is to have a consultation with a credit counselor, who will help put together a budget and a payment program for an individual to pay off the debt over a 4-7 year program. While this method won’t actually reduce the principal amount of the debt, it oftentimes reduces the interest rates and the payments that the consumer is making. If a consumer can afford to make the program payment, and keep disciplined throughout the program to make timely payment, this program will achieve results. However, while one is in a consumer credit counseling program, they will have difficulty applying for any new loans, as many lenders consider such a program similar to a bankruptcy filing.

    Debt consolidation is another debt management relief option that consumers may seek. Consumers that are carrying several unsecured debt obligations with high interest rates can apply for a debt consolidation loan, in which a bank issues a new loan for enough money to pay off all their outstanding debt balances at once. However, consolidation loans can be difficult to qualify for because they often require a high credit score and sufficient income levels. For consumers that are approved, they can consolidate their debt into one single monthly payment at a lower interest rate. If consumers choose to pay more towards their principal balance every month than the minimum payment, they can get out of debt more quickly.

    Debt settlement, also known as debt negotiation, is a debt management relief option that has become much more commonplace in recent years. Also known as debt negotiation, debt settlement is the process of negotiating with creditors to achieve a payoff amount that is a substantial reduction to the current balances that are owed. Creditors are very willing to negotiate on debt balances that are in arrears, because if a consumer were to file bankruptcy, they stand to get nothing. In order to succeed in such a program, consumers need to diligently save the funds that are required to make settlements, which typically run between 40 and 60 percent of the total current balances. Consumers can try to negotiate with their lenders on their own or they can hire the help of a professional Company. There are pros and cons to both – but a good debt settlement Company can achieve results for consumers that are more favorable than what they could otherwise arrange on their own.

    Whatever method consumers consider, they should first make sure to research all their debt management relief options and also do their homework on the companies offering the various services. It is important to be confident and disciplined towards the debt management relief method that is chosen to ensure one’s peace of mind and financial health in the long term.

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  • Debt Resolution

    Debt Resolution

    As the recent recession lags on, consumers are finding it harder to make ends meet, and many may have had to take on additional debt through credit cards and personal loans. In doing so, some have seen their monthly payment obligations grow quickly out of their control and have found themselves ina very difficult financial position.

    For those that would like to explore alternative debt resolution options to bankruptcy, there are fortunately several possibilities, each with their benefits and drawbacks.

    Consumer credit counseling (CCC) is a debt resolution program for those who are unable to make their minimum payments and are undergoing financial difficulties. However, CCC programs could take up to 6 years or longer to complete and they require an individual to pay back the full principal balance of the debt that is owed, albeit at a lower interest rate. Consumer Credit Counseling Services, on average, have very high rates of client cancellation, as clients often find that the payment relief is not enough to facilitate their hardship. With that being said, a CCC program may be a viable option for those with under $15,000 in unsecured debt, or those that are able to afford higher monthly payment obligations and are well disciplined to remain in the program.

    Debt consolidation loans can be a great debt resolution option for those that can qualify for a good one. This option typically requires an above average or good credit rating and considerable equity in your home. If you have a very large debt balance and have been late on just one monthly payment, it is likely that your credit may be impaired. Also with this option, one does not realize any reduction in their principal balance. Individual debt accounts are just being rolled up and paid off through a new loan, often one that is secured by a home or other asset. While a debt consolidation loan coupled with a debt resolution program provides a very powerful solution, remember that debt consolidation alone does not reduce or settle your debt; it only shifts your debt from one place to another.

    One of the fastest debt resolution options is called debt negotiation, which aims to settle your debt for less than the original balances owed. Debt settlement programs typically can settle unsecured debt for between 40% and 60% of the balances owed, and they also may enable you to become debt-free from your enrolled accounts in as little as 24 – 36 months. For example, through a debt settlement program, if you owe $30,000 to your creditors, you may be able to reduce your debts by $15,000 or more. While this enables a consumer to save a lot of money, there are also some challenges that clients typically face as well. Consumers will experience heightened collection calls, a negative impact to their credit rating, and risk the possibility of being sued, for example. While it is possible for an individual to pursue this debt resolution strategy on their own, there are many companies that professionally offer this service and can be very effective in achieving positive results.

    Whichever debt resolution option a consumer chooses to pursue, they should be aware that there are risks involved and do their homework on the company that is providing the service. While no debt resolution process is going to be easy, there are good companies offering successful solutions that are worthwhile and have lasting benefits.

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  • Reduce Unsecured Debt

    Reduce Unsecured Debt

    Many consumers across the country are struggling with their large monthly payment obligations, and are having difficulties even affording the necessities they require to live comfortably. Some are unable to continue to pay their bills on time and are falling behind on their payments for their unsecured debt.

    For many consumers, the most difficult types of debt to keep current with are their unsecured debts, mainly their credit cards, medical obligations and personal loans. Unsecured debts are obligations that are not supported by collateral and typically have higher interest rates. Secured debt, on the other hand, is debt that is backed by an asset, such as a home or a car. With secured debt, a creditor can often repossess the collateral if a consumer fails to make payments, and hence the interest rates are lower.

    For consumers that are aiming to reduce how much unsecured debt they carry, there are a number of options. Consumers that are carrying several unsecured debt obligations with high interest rates can apply for a debt consolidation loan, in which a bank issues a new loan for enough money to pay off all their outstanding debt balances at once. However, consolidation loans can be difficult to qualify for because they often require a high credit score and sufficient income levels. For consumers that are approved, they can consolidate their debt into one single monthly payment at a lower interest rate. If consumers choose to pay more towards their principal balance every month than the minimum payment, they can get out of debt more quickly.

    Another alternative for consumers to reduce unsecured debt is to seek a debt settlement or debt negotiation company that will work with their creditors to structure settlements at a reduced balance. While creditors may not normally consider settling if a consumer inquired directly, debt negotiation firms have relationships with the lenders to help structure these reduced settlements. Lenders would rather receive a partial payback of the balance they are due, rather than risk receiving no payment at all.

    Debt negotiation Companies can typically reduce debt by somewhere between 40 and 60 percent of what is owed at the time of settlement. The challenge to this method is that it requires a consumer to have accumulated sufficient savings to make the settlements, which many consumers might not have readily available. Hence, it is very important that individuals find a good debt settlement company that helps them save money from the outset of the program, and thereby represents their best interests.

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