Monthly Archives: April 2007

In a previous posting, I discussed how I managed to run up $11,000 in credit card debt while I was in grad school. Well, I wanted to say a few words about how I managed to pay off the debt.

1) Begging: I complained to my family and asked for help. My mom and other family members sent me $3,000 to help retire the debt. While it’s generally not a good idea to take handouts, at the time I was feeling down and out, so to be honest the help was welcome.

2) Manage the Processes: I owed on three different cards, and had a bank overdraft line that was maxed out and was charging 18%. I sorted the debt by interest rate and the amount owed. I opted to pay off the bank overdraft first, even though the interest rate on other debts was higher. The reason was that I owed only $500 and could pay it off relatively quickly. I knew the debt would take time and sacrifice to retire, so some early success was welcome.

3) Called To Reduce The Interest Rate: On each of the three cards I owed, I called the lender and requested that they reduce my rate. In most cases, this was successful. For example, I remember from one call I was able to reduce my rate from 21.99% to 18.99%. On the particular card I owed $4,000. The rate reduction translated to $120 in lower interest payments over a year. Not bad for 15 minutes of work.

4) Got a Job and Reduced My Expenses: When I got out of school I was able to get a salaried position. However, instead of immediately living the high life, I moved into a basement one bedroom apartment in a rough part of town. My roommate slept on the couch and I took the bedroom in exchange for a larger share of the rent. In retrospect this was helpful because having a job and few lifestyle expenses meant I was paying the cards off with big $400 and $500 dollar chunks.

While these tips don’t apply to everyone, they’ve worked for me and may work for you as well.

Best,

James

1) Know what you owe! Sit down, bite the bullet, and assess what you owe. Use some online calculators and see how long it will take you to pay off your balance if you only pay the minimum. This will often scare the *^%~ out of you enough to get your rear in gear! If it doesn’t scare you, check your pulse, because a dime towards a visa is a dime too much in my opinion.

2) Negotiate with your creditors. This is a big one. First you can work to reduce your interest rate with your current credit card, this is better for your credit rating. Leveraging credit cards against each other is always a good tactic. If this doesn’t work, investigate to find the best interest rate available for the longest period of time. It often costs money to transfer balances to a lower rate card, but if you are serious about paying it off it is likely worth it (do the math so you don’t get screwed though). If you have good enough credit try to get a card with 0% interest for a year and you can challenge yourself to pay it off by then.

3) Know when you owe. Pay very close attention to your payment date. One thing that Elizabeth Warren says is that credit cards are known to switch due dates around, hoping to bring in some more late fees. The introductory rates are based on paying on time, so you must set up a fool proof system to pay on time every time. I would advise to set up an automatic monthly payment of at least the minimum and then make additional payments as well, at least you won’t be late.

4) Pay early, pay often. Another trick credit cards and banks are known for are delays in applying your payment. Elizabeth Warren also points to a trick I hadn’t realized, that banks will make your bill due in some rural place far from where you live so the mail will take it’s time. Make sure you payment is in early so you don’t get penalized. If you owe a balance I would advise making multiple payments, likely one for each pay period, your monthly balance will be lower.

5) Pay attention to your bill. What I really mean is watch it like a hawk. The more charges that credit cards add to your bottom line the longer it takes to pay off. Credit cards could invent fees for just about anything. It is worth it to call and get charges taken off whenever possible. In my year of paying off credit cards I must have had several hundred dollars in bogus charges taken off.

Keep with it!

Miel

Since this is credit card week at the DINKS, we wanted to share some of the major downsides of the consumer lending industry with you. To kick this off, we’re featuring a great interview on National Public Radio with Elizabeth Warren. Miss Warren is a professor at Harvard Law School who has written tons about bankruptcy and family finance. She’s a big opponent of many practices currently used by the credit card industry.

She was interviewed on NPR about a week ago. In the interview, she listed the following abusive tactics utilized by consumer credit companies:

1) Fraud: Many card companies commit outright fraudulent behavior. For example, they may lie when processing payments. So, if one sends money to pay off ones balance, some companies may illegally destroy the check or delay in crediting to your account.

2) Confusing Contract Language: Warren says that confusing wording in credit card contracts camouflages that fact that card companies reserve the right to charge whatever fees they want to.

3) Universal Default: Universal default is a practice which says that if you default on any of your financial obligations, the credit card company may raise your rate. The logic behind universal default is inherently abusive. If someone defaults on their other obligations (say a car or utility bill), then card companies take advantage of that to raise their rates. The reasoning is that people who default have credit problems and therefore will pay more to avoid further damage to their credit score.

4) Arbitrary Billing Dates: Many companies will change the due dates of payments at will. For example, one month the payment will be on the 15th, the next month the payment might be on the 3rd. The objective of doing this, according to Warren, is to harvest late fees.

Here is the link to the interview. Listen to it, you’ll want to cut up your cards afterwords.

Best,

James

If you spend much time reading the news you might get the impression that America is drowning in credit card debt. There’s been a lot of doom and gloom in the media about the level of America’s addiction to easy credit and its potential impact on the economy.

However, hard data suggests this hype is exaggerated. According to the 2004 Survey of Consumer Finance, only about 46% of America has any credit card debt. Of those who have cards, the median amount owed was $2,200. Curiously enough, the 04 survey showed that rich people (e.g. wealthy whites) had higher credit card balances. For the most part, this means that the average American can handle his/her level of debt.

So, when you read about the nation’s problems with credit cards, please remember that not everyone is in dire straits! It would seem that media portrayals of impeding economic meltdown are more likely to be hype rather than an accurate and sober analysis of Americas true credit situation.

Best,

James