CAPC Debt Management Blog

Most of us have credit cards, yet very few people understand the different types of credit cards available. Before you sign up for another credit card offer, make sure you know what you’re getting yourself into. Here are three common types of credit cards and their important details. Arm yourself with information so you know exactly how your credit cards work.

A revolving credit card is the type you’ll get most often when you apply for a credit card. It can also be called open credit card or an unsecured credit card. Simply put, revolving credit means that you’re allotted a credit limit and are allowed to make charges within that credit limit. Each month, you’ll have a minimum amount due on the credit card but you can pay more if you like.

A revolving credit card will charge interest on your existing balance. The interest charges are added to your balance and need to be paid off as well. This is where a lot of people can get into trouble. High interest rates mean that you’ll be paying more than you actually spend in the long run. The higher the interest rate, the more you’ll end up paying.

Prepaid credit cards are another popular type of credit cards, although they also go by the name secured credit cards. They differ from revolving credit cards in that you need to put up some money to back your purchases. Instead of the credit card company lending you money, you’ll be borrowing against money you’ve already paid. Prepaid cards are common in bad credit situations. It’s low risk for the credit card company. They are a helpful way for you to build your credit rating, since your activity on the card is reported to credit bureaus.

You’ll still need to make monthly payments on your credit card, as you would with a revolving credit card. With timely payments to your prepaid credit card, your credit card company may change the status of your card to a revolving credit card. In this case, they will increase your credit limit beyond the amount that you paid as collateral.

With prepaid cards, you’ll still be subject to the late fees, credit card interest and other features of regular credit cards. Make sure to pay on time and keep your spending low or you’ll end up making your credit score worse. Read the rest of this entry »

Credit card companies want you! If you hold many different credit cards, or have an online merchant account you probably receive new credit card offers each week that promise that you can transfer your balance. Balance transfer offers are just one of the many results of heavy competition between credit card companies. Fortunately, it’s one that helps you out as well as the credit card companies, but only if you (pardon the pun) play your cards right.

It’s important to know that most small businesses can benefit greatly from these types of offers if you know how to use them. This is especially true to those who have an adjustable small business merchant account. However, don’t take this as a license to open as many credit cards as possible. On the contrary, you should make your balance transfer decisions after a careful weighing out of what will be best for you.

There are three reasons that balance transfer offers make good financial sense. If you get an offer in the mail, and if offers you one of the following opportunities, then you should take it if all other signs point to it being a strong financial decision.

Lower Interest Rate - This is the most common reason that people transfer their balances. Most credit card companies offer 0% interest on all balance transfers. However, this rate is normally only for the first six months and then it climbs to a higher rate. If you’re seduced by the 0% and don’t take a look at the regular rate, you’ll be in for some sticker shock when the six months are done with and struggling to make that regular online payment from that point forward.

Having a zero percent interest rate can save you hundreds of dollars over the course of your credit card usage, but only if the higher rate is reasonable. If you’re moving $1,500 from a 17% interest credit card, to a card with six months of 0% and a regular rate of 20%, you’ll end up paying a lot more. The only time this would be a smart move is if you are planning on paying off that balance within those six months.

Rewards programs - If you currently have a large balance on a credit card that has none of the popular “perks,” it may be worth it to move your balance. Although you generally won’t get a whole lot unless you spend on the new card, you may be eligible for discounts and other rewards that your old credit card company wasn’t offering. Make sure to read the fine print on the new credit card so you know exactly what you can earn.

Debt to credit ratio - An important part of your credit score is your debt to credit ratio. This rate compares the amount of credit you have, versus the amount of debt you have racked up. If all of your cards are maxed out, your debt to credit ratio won’t look that great to potential lenders. When you get a balance transfer offer, take a look at the credit limit they are offering you. If you will be getting more credit and keeping your debt the same, you’ll have a better ratio. Just make sure to not spend on the extra credit available.

Balance transfer offers should be viewed carefully if you can get one of the previously mentioned benefits. It’s important to know exactly what you’re getting out of the transfer and if it, in any way, helps your credit rating and financial picture.

Debt problems don’t happen overnight. They are the cumulative result of habits that build up over time. Often times, when people find themselves overwhelmed with debt they wish that they could just turn back the clock and change their ways. Instead of lamenting over past mistakes, why not identify problem-causing habits now and stop them in their tracks? Here are five bad habits that you can stop now and save yourself trouble later on.

Bad Habit #1- Trying to Manage Money without a Budget

Budgeting is one of those terms, like dieting, that makes people cringe. But establishing and working with a budget is one of the best ways to keep yourself out of debt. When you have a budget, you know exactly how much money you’ll be spending and where that spending is going. If you see a great sale or want to splurge on something extra, you’ll either know that you can’t or you’ll spend from an allotted amount. When you work without a budget, you may end up spending money that you should have used to buy groceries, get a hair transplant, or buy that new grandfather clock for your home you have been eyeing.  In turn, you end up using a credit card and building up your debt.

Bad Habit #2- Relying on Credit Cards for Daily Expenses

When you use your credit card to buy gas or groceries, like in the above example, you’re actually paying more than you should for those daily expenses. Most people run up their credit cards and then only pay the minimum balance each month. Instead of only paying what you spent, you’ll end up paying up to twice as much.

Bad Habit #3- Making Late Payments on Your Credit Cards

If you’ve found a credit card with a low interest rate, you may be out of luck when you make a late payment. Most credit card companies switch to a penalty APR if you happen to be late on your payment. The penalty APR makes it more difficult to pay off your debts quickly, which can cause you to pay more on your credit cards than you actually owe. In addition, many credit card companies charge a late fee of $29 or more meaning that every time you are late you are digging yourself deeper into debt. Read the rest of this entry »

As stocks plummet again on Wall Street for the 2^nd straight day among fears that a recession may be closer then originally perceived, I thought it might be interesting to take a contrarian look at what the effect of a recession may have on the average consumer.  Some of you may not know that a recession is actually determined “after the fact” by the National Bureau of Economic Research which means that if we are in a recession, we probably won’t know about it for another couple of months. In simplest terms, a recession is defined as a decline in business activity. This is often defined as two consecutive quarters with a real fall in gross national production.

Last week’s Labor Department report, which showed that the U.S. economy lost jobs in January for the first time in more than four years, was the first major indicator that things might not be rosy with the US economy.  Add that bleak news with today’s release from the Institute of Supply Management that the service sector of the United States (which accounts for about 2/3 of our economy) actually contracted in January for the first time in four and half years and a troubling trend does seem to be developing.

So what does this means for the average consumer?  Well surprisingly, a recession can benefit the average consumer in many ways.  Take a look at these five ways you can benefit from a US economic slowdown:

Cheap Stocks:  Bell weather stocks like Coke (KO), Phillip Morris (MO), McDonalds (MCD) and Proctor & Gamble (PG).  No matter how bad things get, consumers always find the money for their cokes, cigarettes, hamburgers and toothpaste.  All are great recessionary buys for even the novice stock picker.

Homes:  My wife and I just noticed that the homes in our neighborhood have actually fallen back to the level where we originally purchased ours back in January of 2002.  Obviously if you’re trying to sale this is incredibly disappointing news, but for you buyers out there, there has never been a better time to buy a new home or add a 2^nd home for investment purposes.

Mortgage Rates:  Arising out of the incredible drop in home prices, which has precipitated the multiple recent cuts in the Prime rate by the FED, mortgage rates are again nearing history lows.  As of this post, 30-yr. fixed-rate mortgage can be had for as low as 5.42%, a noticeable rollback not seen since June of 2004. Read the rest of this entry »

 If you are anything like me you have done two things this holiday season that may spell doom for you in 2008.  The first is you waited to the last minute to holiday shop and now have nothing but fruit cakes and Christmas Tree air fresheners to give to your loved ones as gifts this year (something they will certainly remember in 2008).  And second, you probably bought the offending fruit cakes and air fresheners on a credit card since you didn’t have the money to buy them in the first place.

According to a recent Associated Press analysis of credit card debt from October and November, the value of accounts at least 30 days late jumped 26% to $17.3 billion in October compared to a year earlier. And some of the nation’s biggest lenders report increases of 50% or more in the value of accounts that were at least 90 days delinquent when compared with the same period a year ago.

For most of us who relied on our favorite plastic shopping companion to fill out our Christmas lists this year that means record balances to look forward to in the New Year.  Record balances that due to mounting mortgage expenses, a weakening job market nationally and 2005 changes to the bankruptcy law (making it more difficult to eliminate consumer credit card debt), may make it almost impossible for consumers to keep on top of it in the months to come.

So what’s the average consumer with $1000’s in credit card debt to do in 2008?  Consider these five suggestions to get your debt under control in the New Year:

1. Stop Using the Cards - seems simple enough? Stop using the cards now and put a kibosh on accumulating more debt on top of the debt you couldn’t afford in the first place. Put the cards away, cut them up completely or make a promise to yourself that they will only be used again in the event of an emergency. And no, new shoes does not an emergency make.
2. Pay more then the minimum - Let’s say you are $5,000 in credit card debt with a 16% interest rate and a minimum monthly payment of $110. Did you know that just paying the minimum means it takes 25 years to pay off your debt and by the way, that $5000 debt ended up costing you $12,000 in total factoring in that extra $7,000 you just paid in interest. Yet DOUBLE your minimum payment to $210 and pay off the card in 28 months, saving you about $6,100 in interest. Read the rest of this entry »