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Why Are Credit Card Companies Lowering Your Credit Limits?

By: Connie Brooks
12/02/2008

Credit card companies have been on a real limit-lowering streak lately. A few weeks ago we ran an article titled “Your Credit Card Company Could Unexpectedly Lower Your Limit.” At the time, I had no idea that this article would touch such a nerve, or that the practice of decreasing credit limits was becoming so widespread.

So, what’s going on? Basically credit card companies are universally re-evaluating their customers and changing limits, interest rates, and fees at will. Honestly, this is a pretty common practice and has been for years. However, due to the current economic crunch the credit card companies are reviewing consumer accounts on a much large scale, and making more changes than normal. Even for people who pay their bills on time, have high credit scores, and don’t max their cards. In other words – their best customers.

We had several readers who left comments to that effect.

This is from a comment left by cfargo:

I was upset with American Express because they had lowered my limit by 75% over the past 3 months and had flat out lied to me trying to justify their actions. As a small business I have used American Express as my working capital over the past 10 years, so their reduction in my working capital was a real slap in the face and really hurt.

At first I took it real personal and thought they were picking on me but have since learned that they are doing this to most of their customers. In September alone they lowered the credit limits of 20% of their card holders and day by day they are doing it to more and more. If you have some extra time and want to be stunned, Google “American Express credit limit” and you too can read horror story after horror story.

Just last night my sister went to use her AMX card at CostCo and it was denied. She got home and called American Express (1/2 hour on hold) to find out that her cards limit was dropped to $600 (just above her balance) from $16,200. This girl has impeccable credit and they did this to her.

And another similar situation from Marsha Carrol:

I have NEVER missed a payment to any creditor, and I am having the same problem with my high credit lines. First they are lowered for bogus reasons (AmEx said it was because Wells Fargo Mortgage holders were a higher risk…I DON’T EVEN HAVE A MORTGAGE WITH WELLS FARGO!!!!) They lowered my credit line from 30,000 to 20,000, initially, and now lower it every few months by a few thousand dollars, which dropped my credit score significantly.

The other companies were not far behind, causing a domino effect…When Bank of America sent me notice that they were lowering my credit line from 20,000 to 6,000 and I called to ask why–they said it was because of my “payment history”. In 15 years of doing business with them I have NEVER missed a payment, but I was told my account was “FLAGGED” because I made a MINIMUM PAYMENT.

One of our readers, Matt, even did a post on his blog, Steadfast Finances, about the limit on his Discover Credit Card being reduced from $7500 to $5000 – and he has a 750 credit score.

So, the biggest question of the day is, why is this happening? Is there a way to prevent it?

Basically, it’s happening because credit card companies are re-assessing their risk tolerance. They are tightening their purse strings a lot. The days of no-fee 0% balance transfers, and regular credit limit increases could be over – at least for now. They’ve been replaced by unexplained credit reductions and higher fees.

But how do the credit card companies decide who’s credit limit gets the axe and who’s doesn’t?

An article from the News Tribune.com shed some eerie light on the subject for me:

Lenders are now increasingly considering factors beyond late or missed payments. Some are looking at geography and shopping behavior as well. If you live in an area with a high foreclosure rate or shop at stores that risky borrowers frequent, don’t be surprised if your line is reduced or your rate goes up.

“Among other factors, we do look at mortgage information and geography where there has been a greater deterioration in home prices. Those are some other factors, but again, we’re looking at the entire credit profile,” Lisa Gonzales, manager of public affairs for American Express, said of credit line reductions.

“We have taken actions such as lowering credit limits, adjusting rates, tightening credit standards and closing inactive accounts, particularly in certain geographies and where we can use mortgage data to enhance our decision-making capabilities,” said Jeanette Volpi, vice president of public affairs for Citi.

So, it’s not enough to pay your bills on time, keep your balances low, and follow the rules. Nope. You’ve got to live in an area where house prices are stable (Someone point me to that neighborhood please…) and shop at high end department stores, apparently.

I think in this instance I’m going to agree with our readers and let out a big ‘ol cry of “Shenanigans!” directed at some of the credit card companies.

The problem with the unexpected credit limit decreases is simple – It wrecks your debt-to-credit ratio if you carry a balance. Your available credit limit makes up almost a third of your FICO score.

Most readers that left comments were carrying well under 30% of their available credit from month to month. Now that their limits have dropped, they look like they are using nearly all of their credit. That alone is enough to drop their credit score.

Some readers are even angry enough to go to court over it!

So, just because I think it will be fun to do, and because you guys suggested it – I am going to have a brief interview with legal expert about the possibility of a class action suit. Now, I highly doubt that will go anywhere, but I think it will be very interesting to have an expert’s opinion on it. So I am going to do that, and share the results with you guys next week. Stay tuned, and don’t forget to grab our RSS feed so that you don’t miss the article.

How about you? Has your credit card company lowered your limit unexpectedly? Are all of your limits the same and you don’t know what everyone is making a fuss about? Tell me about it in the comments!

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Credit Counseling And Bankruptcy

By: Christina
12/01/2008

When the bankruptcy laws changed in 2005 mandatory credit counseling became a prerequisite for bankruptcy.

I have to admit, that when it declared bankruptcy it was the credit counseling sessions that I was most afraid of. What if they told me I shouldn’t declare bankruptcy? What if they were rude? How did I even find a credit counselor, and how much would it cost?

If you’re considering bankruptcy and you are worried about some of the same things, I can honestly tell you that the credit counseling experience was a bit of a joke – it is definitely not something that you need to stress or worry over. In fact, when the credit counseling was all said and done, I was a little sad that it wasn’t more helpful.

This is how it worked for us:

We gathered all of our paperwork together, and visited our lawyer. He agreed to make payment arrangements with us, and told us he could stop the garnishment that was about to go through at my husband’s job.

Our lawyer explained that he was affiliated with a credit counseling agency (most lawyers are now, since it’s a requirement for bankruptcy). He also explained that if we wanted to go through his company we could do our first counseling session that same day.

The cost of the credit counseling sessions we went through was $50. Our lawyer did tell us that there were free agencies out there we could use, but we wanted to get it over with and do it that day, so we added the $50 into our payment arrangement with our lawyer.

As soon as we were done speaking to our lawyer, they led us into a room with a computer, and a phone. We sat down, and logged onto the credit counseling agencies site. My husband and I had to fill out a questionnaire that asked about our debt, our budget, and our income.

Since we had given that information to our lawyer and no longer had it with us, we guessed as closely as we could. Once the questions were complete, the software helpfully concluded that we had too much medical debt…..(Yeah…you think?? That’s why we were declaring bankruptcy in the first place…)

After we filled out the questions we had a five minute phone call with a “credit counselor”. The counselor apparently had access to our survey, and they spoke with us and concluded the same thing. “You have too much medical debt, try to get some insurance!”

So, that was our first credit counseling session. The second counseling session was required after we declared bankruptcy. I don’t remember exactly when we did it, but it was either after our first court date (the 341 meeting of our creditors) or after our court appearance on the day our bankruptcy was discharged.

My husband and I returned home, and logged online together. The second process was very similar to the first, and the credit counseling software really didn’t even do what I hoped it would do – It didn’t give us any clue about how to repair our credit after bankruptcy.

We followed up the second online questionnaire with another phone call to a credit counselor, and then we were finished. The credit counselor gave us a code that we passed on to our lawyer to prove that we had completed the session.

That was that. Completely unstressful, but also completely unhelpful!

So, I guess what I can draw from this experience is pretty simple:

  1. If you are worried about the bankruptcy credit counseling experience, don’t be. It’s an easy process that your lawyer can walk you through, and it will be taken care of with very little effort.
  2. If you are looking for a real credit counselor, instead of someone who is just willing to take $50 to sign off on you, don’t use the credit counselor that your lawyer will provide.
  3. If you are considering credit counseling as an alternative to bankruptcy, you will definitely want to find your own accredited counselor who is trained to help you figure out your debt and what to do.

    For more information on choosing a credit counseling agency, check out these two articles:

    How to Tell if a Credit Counseling Service is Legit

  4. Find your own education materials after bankruptcy. Since the credit counseling experience has pretty much been dumbed down to a joke, it means that if you really want to improve your situation you will have to do some research on your own.

    5. There are a few excellent resources that I can recommend to you. I have read them all since my bankruptcy, and they definitely helped me learn about what I needed to do to get my credit back on track, get my credit report cleaned up, and not make the same types of financial mistakes again.

Have a question for us? Leave a comment below!

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Suze Orman The 9 Steps To Financial Freedom Book Review Part 2

By: Connie Brooks
11/30/2008

Last Sunday I reviewed the first part of The 9 Steps to Financial Freedom by Suze Orman. This week I am continuing that review with the next set of chapters.

Chapter 3: Being Honest With Yourself

Right off the bat Orman suggests something that I completely agree with – she suggests beginning to use cash again.

Orman believes that one reason it is so easy for us to spend money without thinking is because we don’t every actually touch our money. She gives the following example:

May of us do the following things on a regular basis:

So, clearly that is wastefulness, even if we don’t think about it at the time. What Orman says next is interesting though. She asks you to consider ripping up a dollar bill. I don’t know about you, but while I may not bat an eye at stopping for a $3 cup of coffee, or throwing out food that I didn’t eat, it would be very difficult for me to simply rip up a dollar!

So maybe there is something to the tactile sensation of actually holding money in your hand before you spend it. I know that when I take cash to the grocery store I never go over budget – but when I take my debit card instead I frequently run ten to twenty dollars over what I planned. So again, there may be something to the theory that swiping plastic doesn’t reach our conscious minds in quite the same way that physical cash does.

At this point, The 9 Steps to Financial Freedom starts to get really good! Prior to chapter three there were quite a few (mostly sappy) case studies that dealt with childhood money trauma and fears about money. While they were interesting, they didn’t really shed any light on how to actually fix your finances. With this chapter though, Orman comes out swinging.

She encourages you to sit down (separate from your spouse if you have one) and write down how much you think it costs you to live each month. Invariably (according to Orman anyway) we all need about a thousand dollars more a month to live on than we think we do. She says this is because we frequently deceive ourselves about our finances.

We don’t factor in things that we pay yearly, holiday or birthday expenses, etc. By this I think Orman means that if I pay $200 a year for a gym membership I should be breaking that down into a monthly total of $17 rounded, and saving that $17 each month.

That makes sense to me – it’s why I use YNAB. It’s a budgeting program that let’s me do exactly that – break down those yearly expenses and factor them into my monthly income. When I started using a budgeting program that way my finances really did start turning around. It’s difficult to be disciplined enough to do – but it makes all the difference in the world. So I was very, very glad to see Orman give this advice early on within the book. It was the single biggest thing that turned my own financial situation around, and I believe it’s excellent advice.

Orman also advises factoring in seasonal expenses – and not just holiday presents. Things like an increased electric bill when you have the air conditioner running, or Christmas lights up. She includes vet visits for pets, summer camp for your children, lawn and garden maintenance and new clothing.

I think she’s really getting down to the dirt of the matter here – even though personally, having the examples being thrown at me all at once became a little overwhelming. Orman is trying to say that we sabotage ourselves by letting those expenses sneak up on us suddenly, without planning for them.

The rest of the chapter is dedicated to helping us establish a budget. She asks all the right questions, and it’s a pretty simple thing to sit down with the book, answer the questions, and get a good handle on how much money you have coming in, and going out each month.

The next few chapters of the book were even better. They begin a new section of the book – one that focuses on the steps that you need to take to really gain control of your finances. Orman starts with The Big Issue…the one that most of us avoid universally – Being financially responsible to those you love.

Chapter 4: Being Responsible To Those You Love

Ouch, ok, here’s a quote directly from the book:

Have you ever arrived at the scene of an accident on the highway and thought, Oh, God, I’ve really got to get around to doing my will?

Yeah, I told you it was The Big Issue! I don’t know a person alive who looks forward to doing their will, planning their funeral, or setting things up so that their family can go forward without them.

But, the truth is, it’s scary, it’s ugly, and it is 100% absolutely, completely necessary…

I also loved this quote from The 9 Steps To Financial Freedom:

It is not ok when you get sick, or when you die, to leave financial chaos behind you for everyone else to clean up.

That is the ultimate statement of personal responsibility, and I actually wrote it down to refer to it later.

Orman does an excellent job covering what a will is. More importantly she explains the court process that happens after you die – the process of verifying the will, and she explains how property and money is transferred.

Honestly, this book is worth ing just for this chapter. I don’t know about you, but I never really had a problem figuring out how to get a will. The big question for me was, what exactly will happen after I die? How can I be certain that my wishes are carried out the way I want them to be?

Orman also takes an in-dept look at trusts. What they are, how they work, and how they can benefit you. Let’s take a quick look at that:

What is a revocable living trust?

A revocable living trust is a set of documents stating who will control your assets while you are alive and what will happen to them when you are gone.

While a will says where you want your assets to go after your death, with a revocable living trust you take the steps while you are alive to sign the title of your property over to the trust for your own use and benefit while you are alive.

The property is held in the name of the trust – for you while you are alive, and for your beneficiaries, after you’re gone.

When you die the trust passes your property directly to the people you want to have it. The trust lives on even after you’re gone, carrying out your wishes.

Most important, with a trust there is no probate (the verification process that a will has to fo through). The courts are not involved in the transfer of your estate.

Orman also highlights the case study of a man who lost his wife to breast cancer. His wife did have a will, but after she passed he ended up losing their house (which was in her name), deep in medical and credit card debt, and feeling like he had no way out. The credit and medical debt were caused by her cancer treatments, but he lost his house because of problems with her will.

Orman takes the time to walk you through the steps of creating a living trust. She explains the terminology, literally everything that you need to know.

~~~

That’s it for this week’s review of The 9 Steps to Financial Freedom. I’d love it if you came back next week when I review further chapter from the book.

While I was not very impressed with the first few chapters of this book, this section has more than made up for that by dealing directly with the major financial issues that we all need to tackle. I like that Orman takes me through the steps one at a time. She doesn’t assume that I know anything about these topics, but I don’t feel as though I’m being talked down to either. So far, I would say that this is a book I am enjoying and would recommend.

What about you have you read this book? Do you have questions about it? Leave me a comment below!

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Extreme Christmas Shopping

By: Brooke Kaelin
11/29/2008

Now that Thanksgiving is over, we are moving full tilt ahead into the Holiday season.

If you’re like me, you probably have loads of shopping to do for the Holidays – and not just presents either. Every single get-together requires bringing a gift, or a dish. Secret Santas, stocking stuffers – everything adds up in a big way.

So, how can you cut that expense? And I mean really cut that expense?

Well, I’ve got a few secrets to share with you today – secrets that I’ve used the last few years to cut hundreds of dollars off of my Christmas and Holiday budget. Not once have I sacrificed quality, or bought someone a “cheap” gift. I also do not normally off brands or shop at the dollar store!

I call it Extreme Christmas Shopping – in other words Min / Maxing your holiday budget. Basically it involves using the existing sales at grocery and department stores, and combining them with rebates, coupons, programs like Upromise, online codes, and a cash back credit card. I’ll walk you through it, and you can try it out yourself if you like.

In the last week alone I have:

So, my total savings this week was: $170
Total earnings were: $16

Now, that may not seem too extraordinary, but it required very little effort on my part, and I’m going to be able to do it again, and again, as I complete my holiday shopping.

Want to try it out? Here’s the lowdown:


Step 1: Create a junk email address that you can use to sign up for various services.

In order to get the best deals you usually have to give out your email address online. If you create a separate email just for this, then you won’t have tons of spam coming into your normal inbox each day.


Step 2: Sign up for one or both of these services:

Step 3: Visit your favorite stores online and sign up for their email newsletter.

As a special note, make sure that you sign up with Starbucks. If possible, register a gift card with them. In they past I have gotten several free premium coffees and even an oatmeal from them. They are very good to their subscribers, and they don’t spam you either.

Seriously, visit every store that you normally shop at, including your grocery store. I frequently get coupons from Kroger online. They load them right into my Kroger Plus card, and they automatically scan when I check out.

Again, just make sure that you use an email account that is specifically set up for this, or you’ll be drowning in ads. It’s a lot easier to just sort through the ads when you are ready to shop than it is to have them in your normal email account.

Step 4: Online Tools

Now, here are the services that I have found to be most useful. We’ve already covered UPromise and Mr. Rebates. There are three others that you will want to know about.

1) Grab the RSS feed at Money Saving Methods.com. The RSS feed is free, and the site owner regularly posts the best online deals and rebates around. About a week ago she explained how to get $100 worth of Barbie dolls for around $20. You seriously can not beat this site if you’re looking to save some money.

2) The second service is not free, but you can get a trial for one or two dollars. It’s called the Grocery Game. Basically, the site compiles weekly lists of all the sales going on in pretty much every grocery store across the nation. Then they take it a step further and compile all of the current coupons for each area. They tell you which coupon to use, and when, so that you get the best deal possible. You can print out a list of sales at your store, grab the coupon, and your groceries for next to nothing. (As evidenced by my saving $140 on my grocery bill this week!).

If you don’t currently use coupons, and you would like to take advantage of the holiday sales anyway, you can lots of 100 pre-clipped coupons for around $3 all day long on EBay. You also get 1% back on your EBay purchases from UPromise.

3) Get free shipping – Some sites will not let you combine a free shipping code with another type of coupon code, so you may not always be able to take advantage of it. However, if you aren’t using an additional coupon code, you can pretty much always find free shipping codes for most stores at Retail Me Not.com

So, now that you know all of the services you need to begin saving crazy amounts of money, here’s the procedure:


Holiday Shopping

  1. Log into your email account and check out the sales from your favorite stores.
  2. Don’t forget that most of your credit cards have online affiliates too – the last time I ordered flowers I saved 20% by logging into my credit card account and using their link. So check the deals there as well.
  3. Visit UPromise and / or Mr. Rebates before you shop – This gives you a tiny amount of cash back on your purchases, and it’s basically free money back since both services are free to use.
  4. Find an item that you want, and use your coupon or rebate code. If you don’t have a coupon code, then search for one on Google, or at least get free shipping.
  5. Buy the item with a reward credit card or a cash back credit card– Just make very sure that you pay the balance in full each month. Otherwise the interest that you pay on the card is going to outweigh your rewards.
  6. Save your receipt, and mail back any rebates as necessary.

For Groceries:

  1. Get your trial with The Grocery Game
  2. Buy your coupons off of EBay
  3. Print the list of your grocery store’s sales
  4. Pull your coupons
  5. Get your groceries. Again, use a cash back or reward credit card if possible.
  6. Save your receipts and mail back your rebates

So, potentially, you are getting Christmas and holiday food and gifts far below cost, earning money for your child’s college fund, and getting cash back from your credit card as well.

It may sound a little complicated, but I promise you that I spend no more than 30 minutes a week doing these things, and they are getting to be “old hat” by now. After realizing how much money I can save, and sometimes earn by following these steps – I will never do things any other way.

Want even more thrifty and frugal ways to get the most out of the holidays? Check out the articles below!

Get it for Free or Less:

Other articles that are too good to miss:

Carnivals, Festivals and Celebrations:

That’s it for this week’s roundup. I hope you have a wonderful holiday weekend!

Beginning To Earn Rewards

By: Jason Steele
11/28/2008

Yesterday, I received an unusually good question:

“Hi,
Came a cross your site today it’s really great.
I currently have two credit cards a Chase Rewards Visa Signature (3% on gas 1% everything else) and as backup the American Express Cash Rebate Platinum (1%).

Our family of 5 wants to fly to Florida in February. My wife received an offer for the American Express Gold Rewards Plus for the first year free and a credit of 50,000 MR points if we spend 500 on the card by Jan 31. Those 50,000 would score us 2 tickets.

I was wondering if the following is doable : opening up four Amex Starwoods cards – 1 personal and 1 business each for myself and my wife. These cards would give a 10,000 point signup bonus for a total of 40,000. These 40,000 would transfer over as 50,000 in airline miles and score us two more tickets.

Besides for whether this is doable, how could opening up a whole bunch of credit cards affect my credit score and how could I close these accounts or consolidate them after I have my tickets without affecting our credit scores too much. The only card I may be interested in keeping is one Starwoods card.”

Why This Is Such A Good Question

I hate to be patronizing, but this question is good on so many levels. Let’s take it from the top:

First, I am a sucker for compliments! I also see that the reader is using some cash rewards cards, a great place to start earning rewards. He is using one card for gas, and another for most other purchases, a strategy that I practice. I use an Amex Platinum Small Business card that gets 5% on gas, mobile phone bills, and office supplies. Since no travel reward reliably beats 5% cash back, I always use it when the discount applies. The reader could fine tune his cash rewards by getting that card, or perhaps the Amex Blue Cash card, although Blue only works for larger amounts of annual spending.

Starting Travel Rewards Cards

Next, the reader mentions the goal of flying a family of 5 to Florida in February using rewards. Assuming he is talking about February of 2009, this is probably not a good idea. While the Starwood cards he is contemplating are a great deal, the fine print mentions that it may be 6-8 weeks before he receives his sign up bonuses. Even if he were to get them now, he would still be trying to book an award ticket to Florida in the winter only a couple months out, a very difficult task on most airlines.

Consider The Opportunity Costs

Now the reader didn’t mention where he lives, but lately airfares have plummeted with the collapse of world oil prices. I flew from Denver to Florida in July for over $500, while my ticket to visit this January cost me only $200. The standard domestic award on most airlines is 25,000 miles, and that is rarely available during peak travel times, like visiting Florida in the winter. Even if he were to find such an award, it would be a bad use of his miles to book a trip with a low ticket price. If the reader could find a ticket for $200, he would only be getting 1 cent per mile from the 20,000 Starwood points he redeemed for 25,000 miles. Under that scenario, he would have been better off using his cash back card where he could have had a better choice of airlines and travel dates, and have earned interest on his money in the mean time.

An even better use of his Starpoints might be to save them for his hotel room. Unless he is staying with family in Florida, as I often do, there are some great Starwood properties he might consider down there. The first time I redeemed Starpoints was a the Sheraton Safari in Orlando. You can book it online for $124, or redeem a room for only 3,000 Starpoints. This is a value of over 4 cents per Starpoint, a great hotel for kids as well.

On the other hand, if the reader is traveling a great distance from Florida, and the airfares are more expensive, it might be worth it to go for a frequent flier award ticket. You should really hope to get a value beyond 2 cents per mile for this to be worth your effort.

How To Get That First Ticket

Sign up bonuses are great, and I recently employed the same strategy of obtaining both a personal and business card for both my wife and I. I think it causes a short term drop in my otherwise excellent credit score. A home is the only thing that I ever borrow money for, and since I will not be purchasing a new house anytime soon, this is a fair trade off for my situation. If you have less than perfect credit or you will be financing something major soon, I do not recommend this strategy.

Be Realistic

You have to realize that frequent flier programs at most airlines have become unregulated lotteries. Your chances of scoring award tickets at reasonable redemption rates to a popular destination at a peak travel season are slim. Your odds diminish sharply as you get closer to the travel date. If you are willing to plan your vacation now for February 2010, you would have a lot easier task ahead of you. I will be extremely surprised if you manage to pull off this award for February 2009. I would find a discount ticket on carriers such as Southwest, Allegiant, Spirit, Airtran, or Frontier. Hotel rewards are much easier, especially with Starwood. If the bonus strategy works for your credit situation, you can save big money on hotels. With a family of 5, you will want to reserve 2 rooms for 5 nights each, at a rate of 3,000 Starpoints per room. Since Starwood gives you a fifth night free, you would only need a mere 24,000 Starpoints. At $124 a room per night, you would be saving $1,240, over 5 cents per Starpoint, an amazing deal!

Good luck, and enjoy sunny Florida this winter.

Should Teenagers Have Credit Cards?

By: Connie Brooks

Giving credit cards to teenagers is a touchy subject. Some people feel that handing a credit card to a teenager is like giving them permission to go out on a very large spending spree, or advocating that they go into debt.

So, what are the pros and cons of this? Why would anyone give their teenager a credit card?

Cons of Giving Teenagers Credit Cards:

  1. They may begin to see credit card debt as an acceptable thing – If you outright hand your teenager a credit card, that is the same as telling them that’s it’s OK to go into debt.
  2. They will almost certainly use the card improperly at first – Most teens will run right out, and charge up the credit card to the limit. (That’s a generalization, I’m sure some teens would be responsible with a credit card.) It really depends on the kind of debt instruction they have had previously.
  3. It may be difficult for them to handle the responsibility – the teen years are tough, kids are learning to manage a lot of things at that time, and throwing credit into the mix may be difficult.
  4. It teaches them to borrow on credit rather than save for what they want – If they can go right out and by that new game, or outfit, or CD, why would they want to wait?

Pros of Giving Credit Cards to A Teenager:

  1. You are there to guide them, and help them understand how credit works, before they leave your house – This could prevent a lot of pain and heartache for them later – especially since credit card companies regularly stake out college campuses and offer free T-shirts to anyone who applies.
  2. You can be there to teach them about compound interest, why they should pay their bill off every month, and how they can benefit from rewards if they do things correctly – Credit cards are excellent financial tools when used correctly – and by laying down the ground rules while your child is still young it gives them the best chance for success.
  3. There probably is no replacement for actually handing a child a credit card, letting them get into trouble with it, and then making them work to pay back what they borrowed – If you can enforce that rule in your house as early as possible, it would be a valuable, lifelong lesson for your kid. It would also, hopefully, keep them from making the same mistake once they leave your house.
  4. Skills to pay the bills – If your child actually has a credit card that they are managing, you can teach them to mark the due dates on a calendar, to budget so that they can pay the balance in full. You can also show them how much interest they were charged if they do not pay the card off in full each month.
  5. You can help your child build a positive credit history early on – The benefit to this is twofold. As long as your child has a credit card, you can actually monitor your child’s credit report along with them. This opens up a wonderful opportunity to teach them about why credit scores are important, and how they are computed.

    The second benefit is that by making sure they use their cards correctly, you are raising their score a little while they are still at home. This will help them when they go to apply for student loans, a car, or an apartment. It will give them leg up when they are starting out.

The decision about whether or not to give your child a credit card is personal, between you and your child. What do you think? There are some hefty pros and cons to the issue, what do you believe is right?

How can you judge whether or not your child is ready to be responsible with a credit card?

There’s actually a pretty simple way to tell. You can purchase a pre-paid credit card and give it to your child. Tell them it’s for emergencies, and then sit back, and wait for a few months.

If your child does not charge anything, or very little on the pre-paid credit card, they are probably ready to handle the responsibility of having a real credit card.

However, if they come back to you a couple of weeks later and all of the money on the card is gone, then you will know it’s time to sit down and talk to them about credit, and what constitutes an emergency.

How do pre-paid credit cards work?

Prepaid credit cards are a bit like debit cards. You put money onto the card, and the money that you spend comes off of your total balance – just like putting money into the bank.

Some prepaid credit cards offer a “credit builder” program, which means that you pay a small monthly fee on the credit card. That fee is then reported to the credit bureaus as an interest payment, and it will raise your child’s credit score. In that respect, pre-paid credit cards are better than debit cards since debit cards will never help to build your credit score.

If your child manages the pre-paid credit card well enough, you can consider adding them as an authorized user to one of your credit card accounts. If you do this, make sure that your card has a low, or zero revolving balance (meaning that you pay it off every month in full). Also make sure that you never make your payments late because then it would hurt your child’s credit score as well as your own.

Neither of those two options actually involve giving a child a self-directed credit card, which personally, I think is important. That last and final step should really only come when you are certain that your child understands how credit works. When your child has a regular income, and has passed the two tests above, then it is probably safe to let them apply for a student credit card. Or a secured credit card.

Secured credit cards in particular give your child a failsafe if they leave home and get into trouble with their credit card balance, or lose their job. Since the balance on the card is guaranteed with a savings account, you will never have to worry about them defaulting during college and wrecking their credit. The balance on the card would simply be paid out of the savings account, and it would prevent further damage being done to their credit score. Essentially, it would help them get back on their feet that much quicker if they had problems.

There really is no “one right path” for everyone when it comes to children and credit. The most important thing to do is just make sure that we do all teach our children about credit – by any method we feel is right so that they have the tools they need to succeed when they leave home.

What do you think about teens and credit cards? Leave us a comment below!

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Bankruptcy Chapter 13 Explained

By: Christina
11/27/2008

If you are considering declaring bankruptcy, then it helps to understand the difference between the different Chapters. This guide takes a look at Chapter 11 of the Bankruptcy Law, and gives you the important information that you need to know about it.

Chapter 13 Bankruptcy:

If you declare chapter 13 bankruptcy, it means that you are going to attempt to create a repayment plan with some, or all of your creditors. Chapter 13 is often called a “wage earner’s plan” because it depends on the regular income of the person declaring bankruptcy. Under the new repayment plan you will create with your creditors, you normally have your interest rates removed, or frozen, and a set amount of time to catch up past due payments – even on your mortgage.

If you don’t have a regular source of income, you would be best declaring Chapter 7 bankruptcy – that is, bankruptcy without a repayment plan. Some people are forced to declare Chapter 13 bankruptcy instead of Chapter 7 however, because their income is too high to pass the “means test” that Chapter 7 requires.

Who can declare chapter 13 bankruptcy?

Anyone can declare Chapter 13 bankruptcy as long as they meet these qualifications:

How do you file for Chapter 13 Bankruptcy?

The easiest way to file for Chapter 13 bankruptcy is to hire a lawyer to handle things for you. You can take care of everything yourself, but it requires a lot of research, stress, and legal knowledge. The benefit of having a lawyer handle it for you is twofold:

  • Your lawyer will be a professional, already familiar with the bankruptcy laws in your state, and with other legal contacts which could benefit you.
  • Your lawyer is an “outside party” – Declaring bankruptcy is stressful, beyond belief. It is an enormous benefit to have someone there who is not affected by the stress, who can simply walk you through the steps that you need to take to move on and complete the process quickly.

    The cost of Declaring Chapter 13 Bankruptcy:

    If you choose to hire a lawyer, they will have their own set fees that you will need to pay. Most lawyers are open to payment plans. Aside from that, there will likely be a small fee for credit counseling (You will have to have one session before, and one session after) though not all credit counseling companies charge you for counseling. The actual bankruptcy fees for filing Chapter 13 bankruptcy are a $39 administrative fee, and a $235 case filing fee.

    What information should you take to your lawyer?

    When you get everything together to visit your bankruptcy lawyer for the first time, make sure that you take these things with you:

    If you are married, but both spouses are not declaring bankruptcy, you must still gather all of this information together.

    How does Chapter 13 Bankruptcy Work?

    The benefit of a Chapter 13 bankruptcy is that you are essentially setting up a repayment plan with your creditors. You can expect to have between 3-5 years to pay back your debt under favorable terms. This means that you will most likely get to keep your home, and your car, as well as your other assets.

    As soon as you meet with a lawyer to file for bankruptcy you are granted an “automatic stay”. This means that your creditors must stop calling you, or trying to contact you about your debt. If you do receive collection calls from your creditors, make sure that you give them your bankruptcy filing information, and the contact information from your lawyer.

    You and your lawyer will work out a satisfactory repayment plan for all of your debt, and the court will approve it.

    You will be expected to attend what is known as a “341” meeting – a meeting with your creditors. After that, you will also have to attend one more court session. From that point on, you must make your payments as agreed. Once all payments have been made, you will receive a bankruptcy discharge, and your bankruptcy proceedings will be finished.

    Chapter 13 Bankruptcy is the best option for people who earn a regular wage, and who own property that they do not want to lose. The other most common bankruptcy option – Chapter 7 – does not stop foreclosure or repossession of a home or a car. If you want to keep your home and your car, then Chapter 13 is the best way to go.

    A special note about foreclosure though – The bank can still foreclose on your property right up to the point that you get your “automatic stay.” So if you are facing foreclosure, and considering bankruptcy, make sure that you contact a lawyer soon enough to stop the foreclosure – otherwise you could lose your home.

    Have a question for us? Leave a comment below!

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    • 10 Rules Of Credit Cards?

    By: Jason Steele
    11/26/2008

    I was looking at some other personal finance web sites when I came across Gary Fehdrau’s Stopping You web site. The site purports to “help people get through things that stop them from achieving their wants, desires, goals, dreams, and just living the life that they want.”

    His Rules

    In his blog, he has recently offered his “10 Rules Of Credit Cards” I would like critically review his rules for you:

    Rule 1: Never Ever Close A Credit Card

    I find this to be highly dubious advice. A credit card is a relationship with a company, not a life long commitment. While it is true that having a longer relationship with your credit card issuer is better for your credit score, there is no reason to hang on to a credit card that you have had for years and never use. At a certain point, the terms may change, or you may find another credit card that better meets your needs This may be in the form of a better reward, better terms, or a lower interest rate.

    Rule 2: Keep Balance Below 1/3 Of Your Credit Limit

    I can’t argue with this advice. For years, I had kept fewer credit cards thinking that was good for my credit score. Since I always paid off my balance in full every month, I thought my credit should be excellent. Sadly, in the age of credit scoring, merely paying off your balance in full and on time is not enough to ensure the best score. Credit agencies will raise your score if your balance is below 1/3d of your credit limit, so having far more credit than you need helps you.

    Rule 3: No Annual Fees Allowed

    I am going to have to disagree with this statement as well. While no one likes paying an annual fee, there are several situations where the fee is worth it. I spend tens of thousands of dollars a year on my Starwood American Express Card, earning rewards worth hundreds of dollars a year. This card easily earns it’s $45 annual fee. Other examples include various Delta SkyMiles cards that include valuable companion tickets, expensive business lounge memberships, and precious elite qualifying miles. While it is true that I wouldn’t pay an annual fee for a non-rewards card, people who know how to maximize their rewards will find many cards that are worth the fee. To be fair, Gary says that some cards are worth the fee, but they are rare.

    Rule 4: Regularly Call To Get Rates Lowered

    Can’t argue there. It never hurts to ask. I have never done it since I never pay interest.

    Rule 5: Try To Pay Off Your Credit Cards Every Month

    These are words to live by, however, as Yoda says, “Do or Do Not; There is no Try.”

    Rule 6: Only Carry One Credit Card With You, But Have More At Home

    I am going to have to disagree with Gary on this one. First, if having multiple cards in your wallet makes it too tempting for you to overspend, maybe you shouldn’t even have a credit card to begin with. Keep your money in your piggy bank instead. Second, my primary card is an American Express, however not everyone takes Amex, so a Visa or Mastercard is essential. Finally, I want to have additional cards with me in case one is lost, or is compromised by fraud. Also, in the rare event I use up all of my available credit, I don’t want to be charged an “over the limit fee” or be declined. Gary allows a lot of exceptions for this rule, and I think he should reconsider the entire premise of this rule.

    Rule 7: Stay Away From Store Cards

    This is mostly good advice. The exception would be if you are purchasing a large amount from a single store, and the reward is good. If I was ing a $4,000 big screen tv, and I was offered 10% off, I would get the store card. If a store card offered a large reward, and it was at store I would have shopped at anyway, such as my local grocery store, I might also consider it.

    Rule 8: Use Rewards To Pay Off Card

    This would be good advice, however it assumes that you are not managing your credit cards well. If you are paying off a credit card balance, you shouldn’t even have a reward card as they have higher interest rates than non-reward cards. It is hard to imagine a situation where the 1-2% cash back is somehow the difference between paying the balance off in full and carrying a balance. If you are living on such a razor thin edge, you probably have bigger problems than what to do with your reward.

    Rule 9: Don’t Use To pay For Basic Survival

    It is hard to agree with this rule, because I always pay for everything on my credit card. I rarely ever have cash in my wallet. On the other hand, Greg makes an exception for people who pay their balance in full every month (as well as anyone who successfully follows his Rule 5: Try To Pay Off Your Credit Cards Every Month). That is a rather big exception that includes most people I know. This is advice is only good if you carry a balance or are tempted to.

    Rule 10: A Credit Card Is A Tool

    This is a great way to look at credit. He compares it to a hammer, similar to my previous comparison of credit cards to fire. I would be lost without credit, and I haven’t been “burned”, however many people die the financial death of bankruptcy when they let their debt rage out of control.

    In Conclusion

    All in all, I applaud Greg for making the effort, however his rules are a bit inconsistent. People who do not always pay off their balance in full need to play by some of his rules, while always trying to join those who never carry a balance. Those who never carry a balance, like me, will find many of his rules to be less than useful in maximizing their rewards. I imagine these rules work for Gary, however, I am not certain that all of these “rules” will work for you.

    Chapter 7 Bankruptcy Explained

    By: Christina

    What is Chapter 7 Bankruptcy? Chapter 11? Chapter 13? What is the difference, and which one is right for your situation? This series of articles will shed some light on the finer points of Bankruptcy law, and give you an idea of which one might fit your situation.

    Chapter 7 Bankruptcy:

    Filing for Chapter 7 bankruptcy means that you are not going to make a repayment plan with anyone that you owe. Instead, any non exempt assets that you own will be sold, and used to pay the people that you owe.

    What does exempt mean for you?

    You are allowed to keep certain possessions and property when you file Chapter 7 bankruptcy. To find out which exemptions you are allowed to take, you have to look at your individual state’s law. If you are using a bankruptcy lawyer to handle your case, this is something that they will be able to walk you through.

    Common Chapter 7 bankruptcy exemptions include:

    As I said though, exemptions vary by state, so to be sure that your property will be exempt, please ask your lawyer, and look up your state’s bankruptcy code.

    Items that are generally not exempt include:

    Do you get to keep your home when you declare Chapter 7 Bankruptcy?

    I wish that I could give you a straight yes, or no, answer, but the truth is, it depends. Here is the general way to figure out if that might be allowed. Again, remember that your state could be different, and the best thing you can do is contact a lawyer in your area who knows your state’s laws.

    If you are behind on your mortgage when you do to declare bankruptcy, then the bank can foreclose on your home, and a Chapter 7 bankruptcy will not stop them from doing that. If you are current on your mortgage, then whether or not you are eligible to keep your home during a chapter 7 bankruptcy depends on the amount of equity that you have in your home.

    It’s a quick, three step process:

    1. Find out how much equity you have in your home – In other words, what’s it’s market value of your home if you were to sell it today?
    2. Subtract any of the following from that value (if you have them) – A second mortgage, a home equity loan, unpaid taxes, or unpaid child support. There are a few other possible exemptions too – check your state’s laws.
    3. What’s left? – If the remaining value of your home is less than what it would cost to sell your home, then you can usually keep your home through a Chapter 7 Bankruptcy.

    With your home, just like your other assets, if the courts can not sell them for a reasonable profit, they don’t mess with it, and you are permitted to keep it. Every bankruptcy case is different, and will depend on what you own, and what it’s worth.

    Please keep in mind that a qualified lawyer is the best person to have take stock of your assets, and walk you through your state’s applicable laws.

    Which Debts are Discharged in Chapter 7 Bankruptcy?

    First, it should be clear that declaring Chapter 7 Bankruptcy will not stop repossession or foreclosure. It does take care of a long list of other things though.

    Debts that can possibly be discharged in a Chapter 7 Bankruptcy:

    Whether or not these types of debt can be discharged is up to the court at the time that you file for bankruptcy.

    Debts that are not included in a Chapter 7 Bankruptcy:

    Qualifying for Chapter 7 Bankruptcy:

    As of October 17, 2005 anyone wishing to file for bankruptcy must meet the qualifications of a “means test”.

    This means that your income, and your expenses will be examined to make sure that you meet the qualifications set forth under bankruptcy law. This was done to prevent the possible abuse of the bankruptcy laws by people who actually do have the money, or the means, to repay their debt but do not choose to.

    If you do not qualify for Chapter 7 bankruptcy because you fail the means test, you will need to consider declaring Chapter 13 bankruptcy instead. Chapter 13 is basically a bankruptcy with at least a partial repayment plan.

    The means tests vary by state, so you will have to look your state up to see whether or not you qualify.

    The Chapter 7 Bankruptcy Process:

    To begin the Chapter 7 bankruptcy process, the best thing that you can do is to get your paperwork in order. Dig up last year’s tax returns, several months worth of paycheck stubs, all of your bills, copies of any judgments, investment paperwork, mortgage paperwork, etc. Take those with you when you see a lawyer.

    This step can be difficult if you have been avoiding your financial situation, so be sure that you do take the time to get absolutely everything in order. If you miss a bill, or do not give your lawyer all of the information they need, it will come back to bite you later, after your bankruptcy has been discharged.

    Your lawyer will sit down with you, explain the means test, look over your paperwork, and tell you whether or not you are a good candidate for Chapter 7 Bankruptcy. If you are handing your bankruptcy paperwork yourself, you will save money, but you lose the comfort of having an expert guide you through the process.

    Your lawyer can also explain which of your possessions can be considered exempt, and which ones are not exempt. If you do hire a lawyer, they will arrange your court dates, the mandatory credit counseling that is required under the 2005 bankruptcy laws, and take care of everything beyond that point.

    As soon as you officially file for Chapter 7 bankruptcy, collection companies must stop contacting you. This is called an automatic stay, and it means that everything is frozen until the court decides the outcome of your bankruptcy.

    If you do get collection calls after you have filed for bankruptcy, make sure that you give the collection rep your case number, and lawyer’s information. By law they cannot contact you again.

    You are not required to continue paying on any debt that is to be included in your bankruptcy once you file.

    Any assets that were not exempt will be taken from you, sold, and used to pay off some of your creditors.

    You will have to have a session with a credit counselor both before, and after you file for bankruptcy. Most law offices are associated with a credit counseling agency, and they will make the process painless.

    Between 20 and 40 days after your file your bankruptcy petition, you are required to be present for a legal meeting. This is known as a 341 meeting, and it is an official meeting of you and your creditors (who most likely will not show up anyway.) You will be required to verify your income, and financial status, as well as your debts under oath.

    After you have your 341 meeting, your creditors will be given up to 60 days to challenge your right to discharge their debt. Most creditors decline this right, but in a few cases it may happen. It is at this point that you can choose to “re-affirm” your debts with your creditors if you want to.

    Reasons for “re-affirming” a debt would include wishing to keep a car, or credit cards or any portion of your debt after you declare bankruptcy.

    If your creditors do not dispute your right to declare bankruptcy, then about 60 days after your 341 meeting your bankruptcy will be discharged, and you will no longer legally owe money to any creditor who was included in your bankruptcy filing.

    Have a question for us? Leave a comment below!

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    Delta Promotion Gone Sour – When Good Rewards Go Bad

    By: Jason Steele
    11/24/2008

    Last week, I was ecstatically writing about the big new Delta Airlines promotion that offered a 150% mileage bonus on top of all partner activity. According to the word of the promotion, called the Terms and Conditions, all non-airline partner activity was included in this promotion.

    Too Good To Be True?

    The terms and conditions specifically stated that reward card transfers were included in this promotion. Starwood Preferred Guest and Diner’s club were mentioned by name. That would mean that transfer of 20,000 Starwood points and my receipt of 25,000 Delta SkyMiles would earn a bonus of an additional 37,500 SkyMiles, for a total of 62,500 SkyMiles. This deal was incredible, as I and many other travel bloggers wrote on Wednesday and Thrusday of last week.

    On Friday, the registration page for the promotion offered the message: “We’re sorry, this campaign is currently not active”.

    Chaos Ensues

    Immediately, the online world travel aficionados went into chaos speculating what had happened. Did Delta cancel the promotion? Is the cancellation retroactive? Did it even exist in the first place, or was it offered by error? I and others have sent e-mails to Delta, but have received no response. Other have called Delta, and have received conflicting responses.

    Where It Stands Now

    In the absence of any official word from Delta, those of us who were lucky enough to register for the promotion, should receive the extra SkyMiles. As best I can tell from reading hundreds of posts on this subject, Delta has merely cut off new registrations, but has every intent of honoring the promotion for those who had registered while they could.

    There is some indication that Delta may not include the bonus for Starpoints transfers, but there is no written, official word on that. It is all very confusing, and Delta has been extremely uncommunicative. It would be very easy for them to send out an e-mail to those who registered, put a post on it’s blog, or replace the registration page with something a little more informative than ” “We’re sorry, this campaign is currently not active”

    These Things Happen

    Early last year, I ran across a United Airlines promotion (before I swore never to do business with them again). I registered for this promotion that would earn me 25,000 MileagePlus miles for three flights taken within a couple months. Fortunately, I was scheduled to take those free flights. After I had taken them, I never received the miles. I got into many heated discussions with them, but they seemed not just unwilling, but incapable of giving me the miles they promised. They first claimed, I hadn’t registered, then they claimed the flights I took didn’t count, before finally disclosing it wasn’t in their power to grant me the miles for the promotion. With each conversation, and each escallation, I was given 5,000 miles as a courtesy. Ultimately, I didn’t get all the miles, but I got enough for my purposes and gave up on the promotion, and ultimately the whole company.

    What You Should Do

    1. Register Immediately: It seems like those of you who registered on Thursday or Friday will make out like bandits, while the procrastinators will not.

    2. Print everything out. Print out the registration page with all of your info before you hit submit. Print out the confirmation page afterwards. Print out all of the terms and conditions as well. While I don’t imagine they will end up as evidence in a court of law, just having them may be the difference between the company meeting their terms, or just offering you a few miles to go away.

    3. Stand your ground. I once transferred some Starpoints to United. The confirmation screen told me that I would get a certain number of bonus miles, but it didn’t show up in my account. I had a print out of the confirmation message. The Starwood customer service representative explained to me that I was not entitled to the mileage, and that their computer system was in error. I explained to the representative, and later the supervisor, that their system told me I would get the miles before I confirmed the transfer, and that, while I understand the computer program has a bug, they are still obligated to uphold the transaction under the terms I agreed to. They agreed, and credited me with the additional miles. Presumably, they fixed the bug later.

    4. Try To Deal With Reputable Programs. The simple fact is that some programs are better than others. Starwood and American Express will usually stand by you if there is a problem. Other programs are poorly run, and not backed up very well. If you see a great reward credit card offer by a lesser known company, do some Googling to see what others have concluded, before doing anything more than registering for the promotion.

    Every company offers promotions throughout the year. We as customers make decisions based on their terms and conditions. When a company decides they have made a mistake, and offers a promotion that they feel is too generous, they still have an obligation to uphold its terms for those who agreed to them. It is their world, we just live in it.

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