Friday, November 16, 2012
Hurricane Sandy and Credit Cards Payments
As everybody knows at this point, Hurricane Sandy caused an incredible amount of damage to the New York metro area. I have been asked by many of our clients what are the specific policies in regards to missed or late credit card payments. There are as many answers to this question as there are credit cards. Each credit card company has their own internal policy in regards to waiving fees and credit reporting. Although I have seen many creditors post that they have a willingness to cooperate with consumers, I have rarely seen specific policies posted on creditor websites. My suggestion for consumers would be to call your creditors directly and find out what the specific policy of the creditor is regarding the missed or late payment. It would be best to get a copy of the specific policy in writing, but realistically that may not be possible. Many of the creditor policies will be handled on an individual basis. For this reason, it is important for a consumer to make the phone calls to their specific creditors. It would be a mistake to assume that each creditor will waive fees and not report negative information to the credit bureaus. A phone call may be all that is necessary to let the creditor know the details of one's situation. On a positive note, there is a high degree of cooperation on the creditor's side to work with consumers. Remember the creditors will not automatically help a consumer without receiving some information from the consumer first. A small effort on the part of the consumer could be very beneficial in terms of avoiding additional fees and negative credit reporting issues.
Wednesday, October 20, 2010
Understanding Payday Loans
If you look up “payday loans” on Google, the first few dozen hits are all websites offering online payday loans and cash advances. These companies advertise phrases like “instant lender decision” or “get your cash today!” They stress immediacy and convenience, but offer absolutely no information on what the structure of their loan is like, what interest is being applied to the loan or what the penalties are like for missing a payment.
The reason why the cost of this convenience is not advertised is because it is unbelievably high. Payday loans typically range from $100 to $1000 and cost from 380 – 790% APR (annual interest), depending on the length of the loan. The higher interest applies to the shortest-term loans. I think a lot of people wonder how companies can get away with such astronomical interest rates.
To answer this, you need to understand what a payday loans is. Essentially, it is a very short-term loan given to an individual to cover his or her expenses before the next paycheck. The amount of the loan plus interest is withdrawn from his/her checking account on a fixed date, when his/her next paycheck is posted. The individuals who are willing to accept such high rates are likely ones who do not have access to revolving credit and do not have available savings. When there is an urgent need for money and seemingly no accessible alternatives, people can feel pressured to accept what they can get. However, many consumers who find themselves in such a situation (where they do not have savings or revolving credit and are desperate for a loan) will not have the money to repay their loan by the agreed date. If this happens, additional financing fees are accrued. As a result, borrowers are forced to enter repeat borrowing cycles with the lender, which will lead to hundreds of dollars in additional debt accrued in a very short period of time. According to the Consumer Federation of America (CFA), consumers have an average of eight to thirteen loans per year at a single lender.
In the United States, the loan volume in the industry was estimated to be 30.3 billion in 2009, with $4.8 billion paid in loan fees. Of all loans, payday loans are by far the costliest, which is why it is very important to be aware of the alternatives available to you, even in a desperate situation:
• Work with your creditors to have more time for your payment, which will give you the time to apply for a personal loan at a bank
• Ask your employer about the possibility for an advance
• Obtain a line of credit from an FDIC approved lender
• Don’t be afraid to turn to friends and family
The reason why the cost of this convenience is not advertised is because it is unbelievably high. Payday loans typically range from $100 to $1000 and cost from 380 – 790% APR (annual interest), depending on the length of the loan. The higher interest applies to the shortest-term loans. I think a lot of people wonder how companies can get away with such astronomical interest rates.
To answer this, you need to understand what a payday loans is. Essentially, it is a very short-term loan given to an individual to cover his or her expenses before the next paycheck. The amount of the loan plus interest is withdrawn from his/her checking account on a fixed date, when his/her next paycheck is posted. The individuals who are willing to accept such high rates are likely ones who do not have access to revolving credit and do not have available savings. When there is an urgent need for money and seemingly no accessible alternatives, people can feel pressured to accept what they can get. However, many consumers who find themselves in such a situation (where they do not have savings or revolving credit and are desperate for a loan) will not have the money to repay their loan by the agreed date. If this happens, additional financing fees are accrued. As a result, borrowers are forced to enter repeat borrowing cycles with the lender, which will lead to hundreds of dollars in additional debt accrued in a very short period of time. According to the Consumer Federation of America (CFA), consumers have an average of eight to thirteen loans per year at a single lender.
In the United States, the loan volume in the industry was estimated to be 30.3 billion in 2009, with $4.8 billion paid in loan fees. Of all loans, payday loans are by far the costliest, which is why it is very important to be aware of the alternatives available to you, even in a desperate situation:
• Work with your creditors to have more time for your payment, which will give you the time to apply for a personal loan at a bank
• Ask your employer about the possibility for an advance
• Obtain a line of credit from an FDIC approved lender
• Don’t be afraid to turn to friends and family
Wednesday, October 6, 2010
Understanding Secure Credit Cards
Last week I was interviewed for a NY1 segment on secured credit cards, and I realized that a lot of people might not be aware of the conditions and responsibilities that come with opening a secured card, when they hear about it in the context of improving credit.
They are easy to qualify for, and they help establish a credit history that will ultimately help consumers get lower interest rates on their loans. What many people do not know is that they need to contact the issuer and request that their payment history is reported to the three major credit bureaus. Also, there are a lot of secured cards offered to consumers, and the competition among them should serve as a strong incentive to do your homework to find the best deal before signing an agreement.
Although secured cards work much like credit cards, you will be required to submit a substantial deposit, equal to 100-200% of your revolving credit line. It is usually $300-500, so initially the credit line on your card is very low. Depending on your agreement, your credit line might be extended either through additional deposits or because of good payment history. The agreement will also outline the fees and penalties you may be subject to, and it’s important to pay attention to these.
• Sign-up fee
• Monthly maintenance fee
• Annual membership fees range from $20-50
• Late payment fees
• Over limit fees
• Returned item charges
• High APRs, which vary from 10-20+%
• Charges on foreign purchases
Credit.com has a page on secured credit cards offered by major banks and can be a useful tool for comparing rates and fees: http://www.credit.com/products/credit_cards/secure.jsp
Generally, a priority in choosing a secured card should be a relatively low APR, in case you face unexpected hardship and cannot pay your balance off completely. I have seen many clients pay thousands of dollars in interest to credit card companies. Therefore, it might be worthwhile to pay an annual fee, but settle for a relatively low APR.
The biggest take-away here is that as a consumer, you have to be proactive about your personal finances. Be aware of the terms of your cards and always keep track of your expenses to build and maintain a good credit history, which will ultimately pay off when you apply for long-term car and home loans.
They are easy to qualify for, and they help establish a credit history that will ultimately help consumers get lower interest rates on their loans. What many people do not know is that they need to contact the issuer and request that their payment history is reported to the three major credit bureaus. Also, there are a lot of secured cards offered to consumers, and the competition among them should serve as a strong incentive to do your homework to find the best deal before signing an agreement.
Although secured cards work much like credit cards, you will be required to submit a substantial deposit, equal to 100-200% of your revolving credit line. It is usually $300-500, so initially the credit line on your card is very low. Depending on your agreement, your credit line might be extended either through additional deposits or because of good payment history. The agreement will also outline the fees and penalties you may be subject to, and it’s important to pay attention to these.
• Sign-up fee
• Monthly maintenance fee
• Annual membership fees range from $20-50
• Late payment fees
• Over limit fees
• Returned item charges
• High APRs, which vary from 10-20+%
• Charges on foreign purchases
Credit.com has a page on secured credit cards offered by major banks and can be a useful tool for comparing rates and fees: http://www.credit.com/products/credit_cards/secure.jsp
Generally, a priority in choosing a secured card should be a relatively low APR, in case you face unexpected hardship and cannot pay your balance off completely. I have seen many clients pay thousands of dollars in interest to credit card companies. Therefore, it might be worthwhile to pay an annual fee, but settle for a relatively low APR.
The biggest take-away here is that as a consumer, you have to be proactive about your personal finances. Be aware of the terms of your cards and always keep track of your expenses to build and maintain a good credit history, which will ultimately pay off when you apply for long-term car and home loans.
Tuesday, March 9, 2010
Consumer Credit Tips
Whether you’re an established savvy Saver or still a work in progress, the benefits of good credit are far reaching and long lasting. Among other things, a solid credit profile and high credit score makes you less risky to lenders. Why it can even lower your interest rates on credit cards and home loans (and save you money). But how do you go about building good credit – and maintaining it for the rest of your life? It’s hard to believe, but there’s not all that much accurate, readily available information out there to help you figure it out. Luckily, there are just a few really important things you need to keep in mind to create, maintain and enjoy a solid credit profile.
In many ways, less is more. Having too much established credit can make you look too “leveraged” or overextended. It’s better to go for quality over quantity when building your credit profile. Establishing a credit card account with at least one major bank almost guarantees that your payment history will be reported to all 3 credit bureaus and establishes your credit “worthiness” to other creditors. When building credit, make sure to take these things into account: payment history, amounts owed, length of credit history, types of credit in use and newly established credit. All contribute to building a positive credit profile and credit FICO score.
Using credit responsibly. Assuming you’ve established a credit card account, it’s important that you manage that account responsibly. When making a purchase on a credit card, don’t just look at the minimum due each month. The truth is, a single purchase may take months, sometimes years, to repay. You don’t want to carry a balance each month, especially if you don’t have a great credit card rate in the first place.
Traps and pitfalls to avoid. One of the best ways to avoid credit card trouble is to be well informed and organized. Read through your monthly billing statements and review all the charges on your accounts. If you don’t understand the statement, call customer service and review the bill until it’s clear. And remember, the new CARD Act of 2009 means creditors will need to give you 45 days’ notice to raise interest rate changes on a card. This new disclosure will help prevent high interest charges on your account without your prior knowledge. You’ll have the right to “opt out” of a particular change and maintain the current rate. The tradeoff? You’ll need to close the account. Also, the new law means you’ll get lower rates reinstated after 6 consecutive months of timely payments.
Clearly, there’s a movement for increased consumer protection. And it starts by taking personal responsibility for your credit profile. If you haven’t started building one, get started. And take good care of it.
In many ways, less is more. Having too much established credit can make you look too “leveraged” or overextended. It’s better to go for quality over quantity when building your credit profile. Establishing a credit card account with at least one major bank almost guarantees that your payment history will be reported to all 3 credit bureaus and establishes your credit “worthiness” to other creditors. When building credit, make sure to take these things into account: payment history, amounts owed, length of credit history, types of credit in use and newly established credit. All contribute to building a positive credit profile and credit FICO score.
Using credit responsibly. Assuming you’ve established a credit card account, it’s important that you manage that account responsibly. When making a purchase on a credit card, don’t just look at the minimum due each month. The truth is, a single purchase may take months, sometimes years, to repay. You don’t want to carry a balance each month, especially if you don’t have a great credit card rate in the first place.
Traps and pitfalls to avoid. One of the best ways to avoid credit card trouble is to be well informed and organized. Read through your monthly billing statements and review all the charges on your accounts. If you don’t understand the statement, call customer service and review the bill until it’s clear. And remember, the new CARD Act of 2009 means creditors will need to give you 45 days’ notice to raise interest rate changes on a card. This new disclosure will help prevent high interest charges on your account without your prior knowledge. You’ll have the right to “opt out” of a particular change and maintain the current rate. The tradeoff? You’ll need to close the account. Also, the new law means you’ll get lower rates reinstated after 6 consecutive months of timely payments.
Clearly, there’s a movement for increased consumer protection. And it starts by taking personal responsibility for your credit profile. If you haven’t started building one, get started. And take good care of it.
Thursday, December 10, 2009
Debts to Pay Before Credit Cards
In many of the previous articles I spoke on the many ways to remedy credit card debt effectively. It is also important to know what debts should take priority in terms of repayment prior to credit card repayment. Figuring out which debts to pay first can often be a very difficult question, as many creditors may be very proactive in collection procedures. A consumer might not receive as much attention with a late mortgage or car payment. Lets begin to take a look at the debts that need to be addressed prior to the credit card bills.
•Family Necessities – Food, essential medical expenses.
•Housing Related Bills – Mortgage payment, real estate taxes, insurance rent.
•Utilities – Con Ed, gas, oil, and electric bills.
•Car Payments – This is especially important if the car is the only method of getting to one’s place of employment. This would also include car insurance.
•Child Support – (if applicable) Non-payment can result in imprisonment.
•Income Tax Debt – Not paying could cause loss of refund or garnishment.
•Court Judgments – If a judgment has been ordered, it may be wise to make payment a priority, as the risk of seized property or wage garnishment could exist.
•Student Loans – Failure to pay could result in loss of tax refunds. I person may qualify for deferment or forbearance.
•Non-collateral loans – These accounts take on a lesser priority. Credit card debt, debt owed to professionals, open merchant accounts. Accounts still will go to collection agency for non-payment.
Secured debts should be first on the list to be paid. This is because the creditor can take the collateral used to satisfy the outstanding debt. (i.e. car, home.) Priority lists can be made for individual circumstances and situations. Obviously, every consumer's situation is unique but this information to be used as a general guideline to formulate the beginning of a debt repayment plan.
•Family Necessities – Food, essential medical expenses.
•Housing Related Bills – Mortgage payment, real estate taxes, insurance rent.
•Utilities – Con Ed, gas, oil, and electric bills.
•Car Payments – This is especially important if the car is the only method of getting to one’s place of employment. This would also include car insurance.
•Child Support – (if applicable) Non-payment can result in imprisonment.
•Income Tax Debt – Not paying could cause loss of refund or garnishment.
•Court Judgments – If a judgment has been ordered, it may be wise to make payment a priority, as the risk of seized property or wage garnishment could exist.
•Student Loans – Failure to pay could result in loss of tax refunds. I person may qualify for deferment or forbearance.
•Non-collateral loans – These accounts take on a lesser priority. Credit card debt, debt owed to professionals, open merchant accounts. Accounts still will go to collection agency for non-payment.
Secured debts should be first on the list to be paid. This is because the creditor can take the collateral used to satisfy the outstanding debt. (i.e. car, home.) Priority lists can be made for individual circumstances and situations. Obviously, every consumer's situation is unique but this information to be used as a general guideline to formulate the beginning of a debt repayment plan.
Friday, September 11, 2009
Understanding FICO Scores - New Credit
Many aspects of a FICO score can be the balance of various pieces of consumer information. Opening a bunch of new accounts in a short period of time might put up a red flag to a creditor. How many new accounts you open in a given period of time is reviewed by the FICO scoring system. How long it has been since you opened a new account is also factored into the scoring model. Inquiries also impact the credit score. It is not a good idea to have too many third party inquiries generated on a credit report. It is a good idea to monitor your own credit reports. The inquiries generated by an individual do not adversely effect a credit score. However, inquiries generated by 3rd parties could lower a score, should those 3rd party inquiries become excessive.
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