Category: Credit Cards

Major retail chains and credit card issuers alike are boosting their rewards programs to draw consumers into taking on credit card debt with them, according to a report in the Dallas Morning News.

"Name a big chain and you'll find a discount deal," David Robertson, publisher of credit card industry publication The Nilson Report, told the newspaper. "Coming out of the recession, every retailer is holding a hat in hand with a discount."

For example, Target stores now offer consumers a 5 percent discount on all purchases made with its REDcard debit and credit accounts, and Toys R Us will soon add a 10 percent back offer to its loyalty program for purchases up to $500. Similarly, Chase Freedom cards give consumers 5 percent back on all purchases at department stores, supermarkets and movie theaters, up to $1,500, through December 31.

Some chains and lenders are even joining together to offer greater rewards, the report said. U.S. Bank and supermarket chain Kroger recently announced they would introduce a new program for their 1-2-3 Rewards MasterCard or other store-branded credit or debit accounts. Consumers will now earn points, which could be redeemed for free groceries, whenever they take on credit card debt at the supermarket.

Kroger, as well as other grocery store chains it owns, is also offering double points on all purchases made with its credit cards at their locations, and triple points for store-branded items, the report said.

However, the increase in this type of rewards card has had little bearing on the popularity of existing programs, such as airline miles, the Reuters report said. Accounts that give users free miles for every dollar of credit card debt they compile are particularly popular with higher-income consumers, and those who travel a lot for business. Typically, they still use these miles to upgrade their flights and perks.

Many consumers enroll in credit card programs that will give them rewards, but before doing so, it may be a good idea to research a number of comparable offers to determine which will give the best value of rewards per dollar of credit card debt.

Starbucks recently announced the expansion of its Starbucks Card Mobile payment system to nearly 300 locations in New York City and two Long Island counties, according to Trading Markets. With this new program, consumers can use their BlackBerry, iPhone or iPod Touch to not only order coffee, but also to pay for them by taking on credit card debt.

The program allows users to load their Starbucks Card with funds from their credit card, including directly from their phone itself, the report said. The mobile payment program is already being tested in Northern California, Seattle and in Target stores across the U.S.

The company believes that consumers will enjoy the convenience of taking on credit card debt in this way because it could mean they won't have to get out their wallet and search for a card to make a purchase, the report noted.

Many stores are also adding programs that will allow consumers to take on credit card debt with their smartphone as demand for greater ease in payments grows.

Some parents may be co-signing for a college-aged child's credit card account because they want their child to have access to some money in case of emergency, and other parents do it because they want to teach their how to responsibly deal with credit card debt, according to a report from Reuters. But some are taking alternative action.

The report said some parents are now linking their child to their own credit card accounts. This way, they can not only monitor what their kid is racking up credit card debt on, but can also teach lessons about fiscal responsibility.

Many parents believe their child isn't quite ready to begin dealing with credit card debt on their own, the report said. A poll conducted last July by the National Endowment for Financial Education found 61 percent of parents won't co-sign on a child's credit card application, and another 16 percent said they weren't sure whether they would.

"First, they go in with a life jacket – a card linked to my account," James Gallo, a New Jersey father of two, told the news service. "Then, maybe some 'floaties' – a co-signed card. Then, they go in the water by themselves, knowing that I am by the pool ready to throw in a line when they screw up. Finally, after they swallow a little water, they come out with respect for the water but knowing they can swim alone."

However, some experts urge easing children into the world of credit card debt, by giving them a debit card to see if they can handle a finite amount of money, the report said. For this reason, prepaid credit cards are also popular with some parents. However, because these accounts do not allow a user to start their credit history, other parents may avoid it.

Prior to the implementation of the new rules designed to protect those under 21 from the dangers of out of control credit card debt, the average college senior was graduating with several credit card accounts and thousands of dollars of debt in their name.

Unlike people who own medium or large companies, small business owners are personally responsible for all the liabilities of the company they run, according to a report from Forbes. As a result, it may be beneficial for these entrepreneurs to take on credit card debt for their business on their personal credit card.

The protections extended to consumer credit card debt do not apply to business cards, the report said. Since a small business owner is personally responsible for their company's debts anyway, it can't hurt their finances one way or the other to just eschew using a separate business card altogether.

The Credit CARD Act gave consumers protections from predatory lending practices related to everything from rate increases to penalty rates and fees. The Federal Reserve Bank recently said it would not consider extending such protections to business credit card debt because these changes wouldn't help consumers enough to be worth implementing.

Many consumers are now opting to use debit over credit, according to a report from ABC News. Of all consumers polled, 48 percent said debit has become the primary form of payment. Similarly, Visa reported that the last quarter of 2008 saw total dollar volume spent on debit cards surpass the amount of credit card debt consumers took on for the first time ever, and that trend has continued into the third quarter of this year.

With the holidays coming up, experts predict that consumers will use their debit cards even more as they continue their attempts to reduce the amount of credit card debt they carry, the report said.

"That's an important advantage of debit," Josh Frank, senior researcher with the Center for Responsible Lending, told the news source. "A lot of people don't use their credit card because they don't want to get over their head into debt, which is a good concern. With debit, you're spending money that you have, if you haven't opted into an overdraft program."

However, using a debit card to make a purchase presents its own challenges, ABC News noted. While banks are now prevented from allowing consumers to overdraw their accounts, consumers can still opt into such programs, and therefore may face hefty overdraft fees if they extend their spending too far.

The report also said that credit cards often carry better fraud protection plans than their debit counterparts. In addition, some lenders may even help a consumer deal with a stubborn merchant who refuses to refund an unsatisfactory purchase.

Credit cards also offer rewards programs that may give a consumer airline mileage or cash back for dollar of credit card debt they take on, the report said. For those consumers who have a long history of managing their finances properly, many experts say these programs can be a strong incentive to spend on a credit card when the holiday season arrives.

Consumers may be reassured in knowing that the Credit Card Accountability, Responsibility and Disclosure Act, as well as the financial reform bill, have added numerous protections on both types of accounts that could help them handle their finances and credit card debt better.

A balance transfer can help consumers get out of credit card debt more quickly than some other methods of reducing a balance, but also can be tricky for some, according to a report from Birmingham, Alabama television station WBRC.

Consumers may be able to use a balance transfer to save money on interest fees, because many lenders will offer a low or even zero-percent introductory rate, the report said. Because of this, consumers would add little or no debt to their existing balance for up to a year in most cases. In addition, not adding debt for a period of time will help consumers pay down the existing balance on a card more quickly, particularly if they increase the amount they pay to the lender every month while reducing credit card spending.

In some cases, credit card debt may be transferred to a card that not only carries a great introductory rate, but the account might also allow them to earn rewards. However, the report warned that because this requires them to take on additional debt, it may not be the best idea if a person is trying to cut their balance.

But not every balance transfer is beneficial, the report said. Often, a lender will charge a fee to complete such a transaction. As a result, the size of the fee, typically a small percentage of the account's total credit card debt, can be larger than what the consumer would have paid to their old lender in standard interest rates.

In addition, a transferring credit card debt from one lender to another may lower a consumer's credit score if the new account carries a lower credit limit, the report said. This is because a large percentage of a credit rating is comprised of a person's credit utilization ratio, meaning that the more debt they carry versus what they're allowed to borrow will be viewed negatively.

Before making any major financial decision such as a balance transfer, consumers should carefully consider the pros and cons of such a transaction.

There were 1,044 lender agreements in 2009, 40 percent of which were made with colleges themselves, according to a new report from the Federal Reserve Bank. Another 33 percent were made with alumni associations. These agreements are made to both fund school or organization activities and services, while simultaneously increasing the amount of credit card debt lenders handle.

The report said these agreements resulted in about 53,200 new accounts that will result in credit card debt being opened last year. In all, there are about 2 million accounts nationwide thanks to these agreements.

Three major issuers, FIA Card Services, U.S. Bank National Association and Chase Bank, are the most active in these agreements, the report said. However, FIA alone accounted for 87 percent of all of them.

Many college students are now opening a number of accounts, and the average senior graduates with several thousand dollars in credit card debt.

Many credit card offers carry an average of 33 different numbers, each describing a different rate or fee, according to a report from the Center for Responsible Lending. While many of those numbers – 41 percent – currently apply only to descriptions of the APR the card normally carries, 27 percent refer to penalty fees, 24 percent to miscellaneous fees, and 8 percent to "other" fees or rates.

However, the current level of clarity is a result of the Credit Card Accountability, Responsibility and Disclosure Act, the report said. Before that, the offers were often more confusing.

"There is evidence that consumers cannot grasp anything close to 30 dimensions simultaneously when making a decision, with previous research suggesting the number may be closer to seven," the report said.

The Credit CARD Act recently mandated that lenders offer more clarity in their offers, and also reined in the number they could send out to consumers.

Credit card issuers American Express, Visa and MasterCard face uncertain futures after the U.S. Justice Department brought forth lawsuits that accused them of violating antitrust laws, according to the Bedford Report. Visa and MasterCard both opted to settle the lawsuits, which were related to the fees they charged to merchants for every credit card transaction they processed. Now, retailers can offer lower prices to consumers who opt to pay for a purchase without taking on credit card debt.

However, American Express, which makes more from any transaction involving credit card debt than other issuers, has decided to fight the lawsuit, throwing even more doubt over what will become of its policies, the report said. If AmEx were to lose the lawsuit, it's not clear how their new policies would affect consumers.

Prior to the suits, merchants had protested these interchange fees for months, saying that they cost them thousands of dollars a year, even for smaller businesses.

More consumers were able to successfully pay off their delinquent credit card debt last month, according to the latest statistics reported by Moody's Investor Services. As a result, charge offs for all lenders fell by more than apercentage point, from the 10.03 percent observed in August to 8.9 percent in September.

The report said the steep drop signaled what Moody's had predicted: that the slight increase observed in August was only related to seasonal factors, rather than a new trend beginning. Currently, the charge off rate is 2.6 percentage points lower than the peak seen in August 2009. In addition, the company now says charge offs will continue to decline into the first half of next year.

The report said the decline is likely related to the improved quality of consumer credit, as many with bad credit have been flushed from the credit system.

"Borrowers with relatively weak credit profiles have been charged off over the past couple of years, while issuers have tightened underwriting standards," said Moody's analyst Jeffrey Hibbs. "The borrowers that remain tend to be stronger and more resilient to the ongoing weakness in the labor market."

Any changes in charge off rates can typically be traced back to delinquency rates, the report said. The latest delinquency statistics show a slight decline in that area, from 4.7 percent to 4.65 percent between August and September. This marks a drop of more than a percentage point over the last year.

Meanwhile, early-stage delinquency, accounts between 30 and 59 behind, actually increased slightly in September, the report said. The latest rate was 1.23 percent, up from the 1.2 percent seen the month before. However, the second half of the year typically sees higher early-stage delinquency rates for seasonal reasons, and the overall average rate for these problems was lower in the third quarter than it was for the second. That was the first time in a decade this phenomenon was observed.

 Many lenders have also seen reductions in defaults and delinquencies because more consumers are spending less on their cards every month. At the same time, they are also increasing the amount they pay into their debt.