Tuesday, October 28, 2008

Who Is Going to Bail You and Me Out?

What are we expecting, and what will actually happen?

1) The banks will get lots of money.
2) The banks will lend it to us, keeping our houses from being foreclosed.
3) The banks will lower credit card finance charges and make it easier to pay off balances without incurring penalties and harsh rate hikes.

Number 1 will come true. Even now, the banks are being given money by the Federal government, in fact, being forced to accept it.

Number 2 will come true for some people, but a lot will somehow not qualify or get caught at the wrong moment. A few people will even fall for yet another housing scam, and find themselves even worse off than before.

Number 3 will only happen if we the public put pressure on legislators to insist that banks who take a bailout also knuckle under and revamp their usurious credit card rates and practices. Banks are living on credit card finance charges and penalties. We are their huge profit center. They won’t give us up easily, and they will lobby not to let us get away with any write-down of our personal debts. Meanwhile, banks will get millions of dollars in write-downs of their own debts.

In this unfair situation, what are we to do? We should press our legislators to reenact usury laws to cap the rates we can be charged. But meanwhile, until Congress finally acts to protect consumers—thus warding off the third, currently unacknowledged but looming credit crisis of our economy—we need to protect ourselves from getting caught in the squeeze. I know someone who missed a payment and then was assessed 67% in finance charges. It could happen to you.

Here are some tips on how to maximize the value of your credit card payments:

1) Currently, credit card bills get mailed very late in the billing cycle, so we have only a few days to put together the money to pay the total on time. It’s getting harder and harder to trust that the credit card companies will admit that a mailed payment arrived on time. The US Mail is not as slow as the credit card companies claim. Fight back by establishing a free online method of moving money directly from your bank to the credit card company. And then check on your running total weekly, so you can begin to gather up the needed funds in advance. As the new total edges higher, seeing it will remind you to slow down your spending, too.

2) If you usually pay in full, pay in pieces during the month. Then you’re always sure of having paid the minimum on time, thus avoiding any late fees or penalties.

3) If you run a balance on the account, use this early-pay method to lower your finance charge total. The charge is calculated based on your average daily balance, which will then be lower as the month progresses, not higher.

4) If the minimum payment is all you can afford, make it work harder for you. As soon as the payment cycle from the previous month closes (your bill due date), make your next minimum payment. It’ll reduce your daily balance every day of the billing cycle. If you don’t have the full minimum that early in the month, pay what you can as you receive it. It’ll still help lower the bite.

The psychological advantage to paying your credit card bill online in pieces is that you will be continuously aware of the coming total long before you receive a mailed bill, and you will be handling it according to your schedule, not the credit card company’s. That puts more power in your hands. The bill is never a surprise, and you have a strategy to ensure that you never make a late or insufficient payment.

1 comment:

Anonymous said...

Unfortunately, so far only number 1 has come true. The banks have gotten lots of money.

Number 2 is something that the legislators who gave the money to the banks should have included as a condition to getting the money. The banks are using the money to buy up their rivals.

Number 3 is so not coming true. Citibank, for about 20% of their customers, has just raised the rates they charge by 3 percentage points. They need to weed out the bad apples and shore up their finances. So what was the federal money for?