Have You Reached Your Limit?

With the price of almost everything on the rise, consumers are pulling out their credit cards more often in order to “make ends meet”. A recent report said that revolving credit (that includes credit cards), has seen an 8% growth rate in the past few months. This is the fastest growth rate for credit in seven years.

The result of this increased use of credit cards is that individual credit card balances are growing as well. That means that the required minimum monthly payment, which is based on a percentage of the balance, is going up and putting even more strain on that already squeezed monthly budget.

Understandably, this is why more and more consumers are falling behind on their monthly payments. Credit card companies don’t like this because it impacts their bottom line…profit. Late last month, American Express issued a warning that their customers were falling behind on their payments. This got the attention of the Wall Street people who came out with their own warning saying that credit card companies may have to lower their projected earnings for 2008.

What followed was a move by some of the credit card companies to take action to lower their risks. First, they reduced the maximum amount of credit extended to an individual (Washington Mutual and Wells Fargo recently cut credit limits by up to 10%). In addition, they raised credit card interest rates and began cutting back on the number of balance transfers they would allow.

The credit card companies were strategic in the way they approached this because they targeted those individuals who they thought were most at risk for default. For the most part, they focused on individuals who: 1) Recently made large purchases relative to their credit limit, 2) Live in California, Arizona, or Florida (the states hardest hit by the credit crisis), 3) Own a small business in the real estate industry.

Hopefully, you don’t fall into any of those categories and weren’t impacted. Even if that seems to be the case, I suggest you might want to double check your credit card limit before making any big purchases. Credit card companies have thirty days to notify you of any credit limit cuts. That means you might use your credit card for a purchase without realizing your limit has been lowered. You could end up being hit with extra charges and fees for exceeding your limit.

As the credit card companies continue to struggle to maintian their profit margin, you can probably expect to see credit get tighter and more expensive. You’ll proably also see more restrictions placed on the issuing of credit. As you can tell from their latest actions, credit card companies can “change the rules” to protect thtemselves whenever they think they need to. Just keep that in mind the next time you reach in to pull out that plastic.

 

If you are interested in eliminating your debt for good, check out Debra Moore’s Drop Your Debt Fast guide at www.dropyourdebtfast.com.

Tell Them To Take A Hike

A while back, a co-worker confided in me that she was shocked when she opened her monthly credit card statement.  The interest rate on her credit card had jumped to 28%, and she couldn’t understand why.

I asked her if there was any chance that she had recently been late on any of her other payments.  She thought about it for a few minutes, and then said she hadn’t.

The reason I asked her if she had been late on any of her other payments is because of something called universal default.  Universal default is a term used in the credit card industry that can mean big trouble for the consumer who happens to be late with one or more payments.  It doesn’t matter if it is a utility bill, a mortgage payment, or a car payment.  If you are late on a payment, the credit card companies look at you as being at higher risk for default on your obligations, and they can increase your interest rates.

You may wonder how the credit card companies know you are late on one of your other payments.  Well, the fact is, these companies make a habit of reviewing your credit report on a regular basis.

However, my co-worker’s problem wasn’t a result of a late payment.  A few weeks after she told me about the hike in her interest rate, I ran across an article which shed some light on what had happened in her particular situation. The article was entitled, “A Credit Card You Want To Toss”.  The subtitle read, “Bank of America abruptly notified cardholders in good standing their rates would skyrocket if they didn’t opt out fast….”.  The article went on to explain that Bank of America had sent letters telling cardholders that their rates would more than double-to as high as 28%. Some fine print at the end of the letter informed the cardholder that the letter was an amendment to their original credit card agreement, and it gave an 800 number to call.

Sure enough, when I asked my co-worker which company had issued her credit card, she said that it was Bank of America.

Unfortunately, my co-worker didn’t think she had any options, so she kept her Bank of America card with the 28% interest rate. One option would be for her to transfer the balance to a card with a lower interest rate if she couldn’t pay the card off right away.  A better option would be to pay off the card, close the account, and tell the credit card company to take a hike!

Best Wishes for a Debt Free Future,

Debra (www.dropyourdebtfast.com)

If Not Now, Then When?

Getting out of debt is probably more important now than it ever was.  Why?  For one thing, the value of the dollar is falling.  As a consumer, that means it will take more of your hard earned money to just pay for the necessities.  Your dollars aren’t going to go as far.  This affects everything in terms of your finances.  In addition, the price of many things you buy is increasing.  For example, take the price of gas.  When you’re paying more to fill your gas tank, you have less to pay down your debt.  The money that you use to pay those credit card payments, could be going to other things-including savings.

It is easy to put off tackling your debt.  You tell yourself that you’ll start next month, or you’ll start once you get your tax return.  But, I’m here to tell you that there is no better time than right now to make the commitment to begin paying down your debt.  If not now, then when?

Debra Moore has written Drop Your Debt Fast:  A Guide to Getting Rid of Debt and Achieving Fiancial Freedom which gives a step by step system for eliminating debt.  For more information visit www.dropyourdebtfast.com.

Hello world!

Thanks for joining me at the Drop Your Debt Fast blog!  I look forward to hearing what you have to say!