In this day and age, access to a credit card is virtually a necessity. It’s very impractical to carry bundles of cash and paying for things is so much more convenient with plastic. But using your debit card also carries a little added risk. Lately, the credit industry has been stifled and getting a credit card has become more difficult. Our recent credit crunch is affecting consumers ability to get credit and the bank’s ability to extend credit. Even if you have a great score, it can be a lot harder to obtain credit today than it was just 3 years ago. In my recent experience, trying to get a large limit increase was nearly impossible and many card companies were slashing limits. So, what if you have a really bad credit history and need a card? Here are some tips on how to get by.

Prepaid Secure Credit Cards

A possible solution to your credit card dilemma is a prepaid debit card (i.e. secured credit cards). A secured card is a newer product that is gaining quick popularity. Prepaid cards have been around since the 80′s, but have seen a huge boom in usage recently as traditional credit cards are harder to come by. These cards are perfect to pay for purchases like groceries, household bills, or utility bills. They basically work like a debit card that would be tied to your bank account except it’s instead only tied to the money you deposit to secure the card. You deposit funds into your card’s account and charge away up to the limit of money you’ve deposited. No one is lending you the money or charging interest, so you can only be charged what is in your account and if your card is lost or stolen your entire checking account isn’t at risk. Prepaid cards can also be used at an ATM to withdraw money. The major advantage of a prepaid debit card (or secured credit card) over a standard bank-issued card is that transactions are reported to all 3 credit agencies. So, if you are being affected by poor credit or don’t have a credit history established yet a  secured card will help you establish and improve your credit score over time. When used responsibly these cards can be the added boost you need to obtain an unsecured card or other type of loan in the future.

Another bonus to secured cards, is that they are extremely easy to obtain. There is very little risk to the bank, so they have about a 95% approval rate with most cards. No credit is involved at all so as far as the bank is concerned, if you are willing to deposit money to back the card they will let you use it. Secured cards are similar to debit cards, but have more advantages like improved fraud protection which is very important if you do a lot of online transactions. Bank-issued debit cards don’t have the same consumer protections that secured cards do. You will usually get credited if fraud takes place, but it may take much longer and in the meantime you could be dealing with an empty bank account. Another way secured cards have an advantage over debit cards is that they may be accepted where debit cards would not. If you want to put down plastic for airline and hotel reservations or car rentals, a traditional debit card may not be accepted, or at the very least, may not be the ideal way to pay.

There are plenty of good things about prepaid debit cards, but this new product is still having some growing pains. The prepaid card industry as of now is mostly unregulated, so there are a few more things to watch out for. Less government oversight means unscrupulous companies may try to squeeze every last red cent out of consumers with hidden fees. Some prepaid cards can be very reasonable, but others will be overwhelming with fees and poor service. Recently, there have been increased regulations on standard credit cards, but prepaid debit cards haven’t quite hit the radar of lawmakers. Depending on which card you choose there can be various  activation fees, transaction fees, inactivity fees, monthly fees, and yearly fees. It is important to read all that fine print before you activate it and deposit your hard-earned cash. There is a tremendous variability between the customer service and the fees in each and every card so it pays to shop around.

One reason that I really like the idea of a prepaid card is that it can help keep vulnerable people out of trouble. These cards are great for people that have struggled with debt in the past since it puts a mandatory limit on how much can be spent while still feeling like a credit card. There’s no interest and no snowballing balance. Unpaid credit card debt can lead to awful things like wage garnishment, liens on homes, and even bankruptcy. Most of us want credit cards for the convenience factor, but unsecured cards just cause trouble for certain people who can’t control their spending or only make the minimum credit card payment each month. If we don’t have to borrow money every month, why do we get stuck in the cycle of doing it? We need to be protected from fraud and have customer service, but increasing debt and high interest rates are best avoided.

What to Look for When Applying for a Secured Card

The main thing you need to watch out are high or unnecessary fees. Some companies can charge up to $50 for a first time activation while others charge absolutely nothing. There might be veiled charges like customer service fees, balance check fees, etc. Things that you think should be free, AREN’T! These minor charges can make your balance dwindle., but if you know what triggers them they can be avoided. The terms and conditions for these cards can vary significantly, so learn about their fee structure before you deposit your cash. Also, make sure that their customer service is up to your satisfaction. If you ever have a problem like fraud, phone support can be very important. Prepaid cards aren’t perfect, but i think the right card can be a good thing for a many Americans. If you are mindful of the fees, these cards are just as helpful as traditional credit cards.

About the author: This column was written by Garrett Driscoll from Debt Eagle. Come visit if you need information on with credit card debts, how to settle debt, or bankruptcy.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

Secured Credit Cards: A Good Alternative in Times of Tight Lending

When it comes to staying on top of your finances there are few things that can have such a lasting impact as your credit history. Many people have heard the terms “credit report” and “credit score” before, but not everyone knows exactly what each means, and few are privy to the important details that make up each. The fact is, having good credit is critical for anyone that would at some point like to get a loan, credit card, buy a house or car, rent an apartment, or even get a job. By keeping on top of your credit history you can rest easy knowing that others view you in a positive light financially.

One of the most confusing aspects for many people is the credit score. While you probably know that it’s important to have a high score you may not know exactly what makes up your score. Put simply, your credit score is a numeric representation of your credit history. While credit history and score are not the same, they are invariably tied to one another. In other words, it is unlikely that someone with bad credit history will have a good credit score or that someone with a great credit history will have a low score.

The FICO Score

The credit score you will typically concern yourself with is the FICO score. Your FICO score will be directly affected by anything that has impact on your credit and your score will fluctuate over time based on the additions and subtractions to your credit history. Everyone starts without credit and it must be built from scratch. Establishing credit can be as simple as taking out a loan or obtaining a credit card. Those are good things for your credit, but unfortunately you can start off on the wrong foot. Make a late utility bill payment or miss a credit card bill and you’re establishing credit, but in a bad way.

As you continue to make payments on time your credit score will increase. But there’s more to your credit score than simply making payments on time. In fact, your credit score is essentially broken down as follows:

• Payment History – 35%
• Total Amounts Owed – 30%
• Length of Credit History – 15%
• New Credit – 10%
• Type of Credit in Use – 10%

While maintaining a good standing with lenders and financial institutions will work to maintain and improve your credit, the opposite is also true. If you get in over your head with loans and credit cards you may find it difficult to make payments on time.

Missing payments can be detrimental to your credit score and this is where the relationship between your score and your report comes into play. Each time you are late or miss a payment, it will generally be reported by your lender to a credit bureau. The neglected payment will then be attached to your credit report, which will cause your score to drop. Even worse, that one missed payment sticks with you for 7 years! So as long as that negative mark is on your credit history it will have a negative impact on your credit score. The impact diminishes over time, but it will be with you for years.

The Importance of Having Good Credit

Some people underestimate the importance of having good credit history mainly because they feel that they don’t need to borrow money at the moment. While this may be the case now, there will almost certainly be a time in your life when you will need to rely on your credit history.

When it comes time to try to get a mortgage on a new home your lender is not going to be all that willing to lend possibly hundreds of thousands of dollars to someone who has no existing credit history or a track record of missed payments. Even if you are able to get a loan in this situation you’ll more than likely be paying a higher interest rate than someone with good credit. This can literally cost you tens of thousands of dollars in extra interest over the life of the loan.

You will also find that if you don’t have existing credit or damaged credit that it’s nearly impossible to get approved for a decent credit card or any other loan. This creates a Catch 22 because you can’t even establish new credit in an effort to improve your past credit. In this situation you’re stuck relying on time to heal what’s already been done. The best way to avoid a bad credit situation is to only take out loans and credit cards that you know you can afford to pay off, make your payments on time, and make more than the minimum credit card payment each month.

Checking Your Credit

If you’ve never checked your credit before there’s never been a better time. In fact, you’re entitled to one free credit report from each of the three main credit reporting bureaus each year at annualcreditreport.com. It’s free, so there’s really no excuse not to be checking up on your credit history each year.

When it comes to checking your credit score it’s a little different. As mentioned earlier, your credit history may be tied together, but they aren’t the same thing. That also means that your free credit reports won’t give you an actual credit score. You can make an educated guess in that if you have a clean credit history then you probably have a pretty high score, but to actually get that score you’ll typically have to apply for that separately. Often for as little as about ten dollars you can obtain a credit score with a company such as myFICO.

Staying on top of your credit can help you in a number of ways. Most importantly, it will allow you to catch mistakes. Mistakes can and do happen, and there could be an inaccurate late payment or other negative mark dragging down your credit. If that’s the case you can spot it and get it removed. Keeping up with your credit will also help you spot possible identity theft, incorrect names or addresses, and help put you ahead of the game if you’re going to be soon shopping around for a loan.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

Credit Score and Credit History Basics

New Credit Card Statements Help You Get Out of Debt

The new laws from the CARD Act have created a number of changes for credit card holders. Teenagers now find it very hard to get a credit card, card companies can’t stick your past balances with a higher interest rate, and new credit card statements make it easier for consumers to see the consequences of their actions. The new statements are something I want to quickly touch on today as most of you should begin seeing something similar hitting your mailboxes this month if you haven’t seen them already.

In the past, credit card statements were not very user friendly. They contained a detailed list of card activity, your balance, minimum payment amount, and the due date. That’s about it. It was then up to you to decide how much to pay, and since most of the time people would see the minimum payment as the amount due, that’s what they paid. Paying the minimum credit card payment is a big mistake. The minimum can literally cost you thousands and take over a decade to get the balance paid off.

Thankfully, the new credit card laws make some important changes to credit card statements that will go a long way in helping people get out of debt. To give you an idea of what you’ll see on the new statements I took a picture of one of our recent card statements:

This is a big box prominently displayed right on the front page of the statement. There’s no way to miss it, and that’s good. There are a few things that make this new box so important. First, it recaps the balance, minimum payment, and the due date right at the top. These are the three most important pieces of information regarding your credit card bill, so it makes sense to highlight them again. But even better is the paragraph just below that, the late payment warning. Here, in very clear terms it tells you exactly what will happen if your payment is late. It tells you how many days you have as a grace period, what the late fee will be, and what will happen to your interest rate. Try getting this information on your old statements! It was impossible because it wasn’t there and you instead had to sift through the fine print of your credit card agreement to find it.

Even better, look at the minimum payment warning. Now instead of making the minimum payment seem like that’s all you should be paying they actually attach a warning to it to hopefully show people how bad of an idea that is. In my case, our balance is $1,600 and if I were to just make the minimum payment each month it would take 13 years to pay it off. That’s right, 13 years! Think about that. If you go out and buy a $1,600 TV and then only make the minimum payment on the card you used the TV will probably have died or gone obsolete years before you’ve ever paid for it.

I like how it also shows you how if you pay a little extra each month you can shave literally a decade off of your repayment and save nearly $1,000 in interest. For this card, the minimum payment right now is $40, so it shows that just by paying $12 more and continuing that payment can yield huge savings. I know at the top it says the minimum payment due is $79, but that’s because I was deliberately late so that I could test some of the new features from the credit card law. I wanted to see if it triggered any additional warnings on the statement and make sure they did not immediately jack up the interest rate, assess fees, etc. So far it looks like everything is working as promised.

Finally, there’s help for those who need it. At the bottom they offer a toll-free number for credit counseling services. In the past, people basically had to see this information out on their own and might not know where to turn. Now, they have a number they can call right on their statement. If they see the numbers and realize they are in over their head, help is just a phone call away.

The New Statements Are a Great Change

If anything good came out of the new credit card laws, it had to be the new statements. No longer are important details hidden within fine print and people don’t have to go and find a credit card payment calculator online just to see how long it will take them to pay off their balance. This information will be right in your face each month, and if seeing that it might take you over a decade and cost thousands to pay off just a small balance doesn’t kick your butt into gear, I don’t think anything will. It will be a while before we begin to see the effects of this statement change, but I’m certain that in the coming years we’re going to see decreasing credit card balances across the board and a group of informed consumers that finally understand how costly credit cards can be.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

The New Credit Card Statements Are Here

How to Keep Your Credit Card Safe Online

Using your credit card to buy something online has become an almost daily habit for most people. Even so, there are many people who are still uncomfortable with submitting their credit card information online. Their fears aren’t completely unfounded. Scams are everywhere and the techniques scammers use are constantly evolving so it’s true that you are taking on a little bit of risk if you punch in your credit card number online.

Luckily, with some common sense on your part and some technological advances it is incredibly safe to shop online. That isn’t to say there aren’t potential dangers out there, but if you are able to follow a few basic tips and procedures you can make sure your credit card information is safe.

1. Just like you should be aware of your surroundings and be on the lookout for suspicious looking characters when withdrawing money from an ATM, you should know how to recognize the warning signs of online scams and take steps to avoid being a victim. Don’t just blindly click on links or emails and keep your eye out for things that just don’t quite seem right.
2. Ensure your browser and operating system are running the latest versions and you have applied all of the recent updates. These online scammers are constantly changing their tactics and companies must update their software over time to combat their attacks. If you’re running a version that’s a year old you may be vulnerable.
3. Watch for the padlock icon on the status bar at the bottom of your browser window, which indicates that the site is secure. You will also want to look for an ‘s’ added to the usual http at the beginning of the web site’s URL when you get ready to submit your purchase information. The https indicates a secure server that is using SSL, which means your information is being encrypted. Without the https or other secure transmission you open yourself up to having your credit card information snagged by a thief during the transaction.
4. Before submitting personal information to a site, read their privacy policy to find out how the information may be used and whether it will be sold or shared with other businesses. If you don’t like what you read, shop somewhere else. Most sites will obviously have a solid privacy policy, but if it’s a site you’ve never used before it is worth double checking.
5. Don’t provide personal information such as address, telephone number, Social Security number, bank account number, or e-mail address unless you know who you’re providing the information to, why it’s being requested, and how it will be used. If an online store is requesting more information than you’re used to, stop and think about why it is asking.
6. Use a credit card, not a debit card, for online purchases. A debit and credit card may look the same, but they aren’t. You have more protection in the event of a fraudulent purchase if you use a credit card. Besides, your debit card is linked to your bank account, so if your information gets stolen you could find your account wiped out!
7. Carefully review your credit card and bank statement each month for unauthorized charges and notify your credit card company or bank immediately if you notice any charges you didn’t authorize. Not only that, but you should be monitoring your credit score and report on a regular basis. Sometimes the goal is to steal your information so that a criminal can create a fake identity, not necessarily steal your money. So looking at your bank statements might not alert you to identity theft.
8. Finally, make sure your computer is secure. If you use a wireless network at home you need to be sure you have it locked down with at least some sort of WEP or WAP protection. Avoid transacting business on wireless networks that are not your own. And make sure your computer’s anti-virus and spyware software is updated and keeping your computer safe. One way scammers can get your information is by loading trojans or other hidden programs on your computer that silently take your personal information even if you don’t realize it.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

8 Tips to Keep Your Credit Card Information Safe When Shopping Online

New Credit Card Law Puts a Hold on Over Limit Charges

As you have probably heard by now, the CARD Act takes effect on February 22nd. Many of these changes are part of the law, but a lot of banks are also making voluntary changes to their programs. There are a lot of changes to help credit card users stay out of trouble and avoid ridiculous fees. Most of these changes happen automatically, but there is one thing you may have to take action on if you’d like some of the services to remain in effect.

If you have ever been in a situation where you charged something on your credit or debit card and gone over the preset limit you may remember that the charge probably still went through anyway. That’s because in the past, most cards automatically turned on features that allowed you to go over your limit rather than be declined outright. Then, you got charged a stiff fee for this feature. Card companies billed this as a convenience since they said it would be better to allow you to purchase what you needed rather than flat out decline that purchases. The problem is that you could literally spend $1 over your limit and then get socked with a $35 over limit fee.

Being over the limit is also bad for your credit score. So, by ensuring you keep your balance under the limit you can effectively improve your credit score, even if by just a few points. That could translate into lower interest rates on other loans in the future that could end up saving you thousands.

You Now Have to Opt-In For This Service

To help curb the excessive fees that credit card companies were raking in off of this service the new law now makes this an opt-in service. Going forward, you will need to call your card company and request the ability to allow overdraft or over limit coverage or charges that go over your credit card limit will be declined. This is good news for the millions of people who unexpectedly get hit with these fees for an innocent mistake, but for those who may want to keep this safety net in place, it’s one more step that needs to be taken if you want to continue to use the feature.

Keep an eye on your mail in the coming weeks if you haven’t received a notice like this from your card company already. I know most people see an envelope with the name of a bank or credit card on it and it goes right to the shredder, but it may contain important information about the features on your account and changes that are important to you.

I just received a notice from Chase regarding the debit card overdraft coverage. It states that I need to call them to turn this feature on since it is no longer offered automatically. It also outlines how it works in plain English, which is surprising considering how confusing the fine print on these things usually are. But basically, it states that:

• It’s free to turn this feature on.
• If I overdraft my checking account with a debit card purchase and make a deposit to cover it the same business day there’s no fee.
• If I overdraft my account and don’t make a deposit there will be a $35 fee for each time I use the card over the limit, up to 3 fees per day.

For me, I don’t see a need for this service, so I don’t think I’m going to bother turning it on. I don’t regularly run my checking account balance that low, but more importantly, I already have true overdraft protection set up with a linked savings account. So, if I do accidentally overdraft the checking the money is automatically pulled from savings to cover the transaction and I’m not charged $35 to do so!

But this did get me thinking about my other credit card accounts and I do think I’m going to enable this feature on our credit card reserved for emergencies. While it’s one of those things we never hope to use, if it’s a true emergency and the only option available is to use a credit card for something I think it would be nice to know that the charge is going to go through if I’m a little over the limit instead of not going through at all. I’ll probably never need it, but it’s a small insurance policy just in case. Between our emergency fund in a high-interest savings account, regular checking and savings, and credit cards, we should be adequately covered in any emergency.

Do You Need This Protection?

I’d argue that most people do not need, and shouldn’t have the option for automatic overdraft and over limit protection on their cards. If you’ve never received an over limit fee before and don’t carry a balance on your credit cards, then it might make sense to have this on one of your cards for a rare emergency like I mentioned above. But if you’re someone who’s all too familiar with overdraft and over limit fees, keeps your checking account balance pretty low, or keeps a high balance on credit cards, then you should almost certainly steer clear. You should be focusing on how you can improve your finances so that you can eliminate the need to go over your limit, not continue to make it easy to go over the limit and get hit with stiff penalties.

Instead, create your own safety net. First, establish an emergency savings account. Use this as a source of funds if there is an emergency or if money gets tight. It won’t cost you anything and your money will actually be working for you and earning interest. Next, set up true overdraft protection on your checking account. You can almost always link a checking account with a savings account to use as protection in the event you go over your account balance. In some cases this may be completely free, but some banks may charge you something like $5 to $10 per overdraft. It’s still far better than the up to $39 they can charge you now. Finally, consider getting a 0% or low-interest credit card that you can transfer one of your balances from or simply keep that card tucked away for emergencies only. This way if you do find yourself in a bind you have a source of funds that’s available and you won’t have to worry about whether or not there’s enough room on the card or worry about getting hit with a big fee for going a few dollars over.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

Credit Card and Debit Cards No Longer Have Automatic Overdraft and Over Limit Protection

To some, credit cards represent everything that is evil. It’s true that credit cards have done their fair share of damage to people’s finances, but they are also a useful tool. But what makes credit cards bad for most people is the minimum payment. That’s it. High interest rates don’t help, but it’s when you are stuck paying just the minimum payment each month where the high interest rates eat you alive.

This is the trap that most people who find themselves in debt fall into. You take a simple purchase and put it on your credit card. Maybe you even have the intention of paying off the balance in full at the end of the month, but if that doesn’t happen, don’t worry. The credit card companies make it incredibly easy to keep the payment affordable and only require to make a minimum payment each month to stay current. That can certainly help your cash flow situation out, but it’s doing far more damage than you might imagine. Credit cards aren’t evil, but it’s the minimum payments that are evil.

Understanding How Minimum Payments Are Calculated

Each card can be different, but generally speaking the minimum payment is simply a set percentage of your balance. Some cards are as low as finance charges plus 1% while others may base the minimum amount upwards of 4-5% of the balance. What you have to realize is that with a typical credit card APR that the minimum payment will generally cover only a little more than that month’s finance charges, meaning at best only half of your payment is going towards paying down the balance.

For a very simple example, let’s take a look at a credit card balance of $1,000 with an APR of 18%. If you break the APR down to a monthly rate you are effectively being assessed a finance charge on the balance of 1.5% per month. Lets also assume that the minimum payment is calculated by using 2.5% of the balance.

This means your minimum payment in the first month is $25, or $1,000 x 2.5%. With the APR at 18% and an effective finance charge of 1.5% that means of that $25 you paid, $15 is simply paying the finance charge leaving only $10 actually applied to the balance.

So the next month your remaining balance is $990, or $1,000 – $10. Your next minimum payment is $24.75. For this payment you will see $14.85 going towards the finance charge and only $9.90 going towards the balance. Your new balance is now $980.10. You have sent the credit card company nearly $50 of your hard earned money and have only reduced your balance by $19.90. That is quite a raw deal for you, but a great deal for the credit card company.

Ultimately, using this example if you continue to only make the minimum payments for the life of the balance it would take you 153 months or 12 years and 9 months to pay off the card and you will have paid $1,115.41 in interest; even more than the original amount you borrowed! In reality, it probably wouldn’t take this long because most card companies have a flat rate minimum if the calculated minimum payment is under say $10 or $5. Even so, it would still take years to pay off a $1,000 balance if you only paid the minimum each month.

Don’t Get Caught in the Payment Mindset

Today you can get financing for anything, from the cheapest electronics to new furniture for your house. All too often we are lured in by commercials that state how low your monthly payments can be. When you look at purchases as monthly payments as opposed to what they really cost you are setting yourself up for a very long payment plan and significant additional costs in the way of interest.

Even if you do use credit responsibly you can still fall into this trap. I see people who have the money available to pay more than the minimum amount each month but they don’t. They want to keep the cash flow available for other things. They end up treating this minimum payment as simply a monthly bill and find themselves just budgeting for it. Once this becomes habit you may find yourself paying the minimum for a long time without realizing how much it is actually costing you.

Try to Pay More Even if it is Only a Little

Understandably, times can get rough and your only option may be to pay the minimum. That’s ok, just try not to make it the norm. Get into the habit of sending a bit more than the minimum each month. If your minimum payment is $25, try sending in $40. If it is $100, send in $150 or something. It may not seem like much or that it makes much of a difference, but it does over the course of time.

Clearly it would be ideal to pay the balance in full every month but that simply isn’t possible for many people. By taking baby steps and applying a little extra it will help. It won’t be instant gratification but doing so can shave years off of the repayment and save literally thousands in finance charges. The faster you can repay the credit cards, the faster you’ll get out of debt and improve your credit score. Remember, just because they give you a minimum amount doesn’t mean you should pay them that amount. Doing so will only cost you far more in the long run.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

Credit Cards and the Minimum Payment – Don’t Fall Into the Minimum Payment Trap

Good or Bad, The New Law Makes it Harder for Teens to Obtain Credit

You may recall that back in May of 2009 the President signed into law the Credit Card Accountability, Responsibility and Disclosure Act of 2009, or CARD. This act was packed with all sorts of new credit card rules and regulations that would hopefully lead to more responsible borrowing. While this was big news back when it was introduced in May, it has somewhat fallen off the radar even though it’s scheduled to take effect on February 22nd.

One of the highlights of the new law has to do with teens and credit cards. We’ve known that over the years college students have been prime targets for credit card companies. They would flood college campuses during the first few weeks of school and run all sorts of promotions and give away freebies in order to get kids to sign up for credit cards. While this may not seem like that big of a deal, a lot of these young people soon received cards in the mail and were granted credit limits of a few thousand dollars. Unfortunately, without a steady source of income and understanding the consequences of racking up a credit card balance these students soon found themselves in trouble as they had minimum payments coming due.

Get a Job or a Co-Signer

In the past the only requirement to qualify for a credit card was to be at least 18 years old and to have a heartbeat. Credit card companies would give a card to just about anyone. Today, lending has already tightened up, but it’s going to get even worse (or better?) for teenagers. When the new laws take effect you will need to be at least 21 years old to get a credit card without a co-signer or verifiable income. Teens will still be able to apply for a credit card once they turn 18, but to qualify they will need to either have their parents or guardian co-sign or have a job earning enough income to qualify for a card. Sorry, kids. Looks like the days of accepting every credit card offer that comes through your dorm room mailbox and having the best spring break ever are over.

Good News / Bad News for Parents

The new credit card law is a mixed bag for parents. First, the bad news. Your teen’s credit problems now become your problem. In the past if your teenager got a credit card and racked up an unpayable balance there was no legal obligation for the parents to step in and help out. Not any more. Now that you’ll have to co-sign your teen’s card you’re on the hook for their mistakes. This could be as benign as having to help them out with payments if they can’t afford them to actually having your credit destroyed if they get into serious trouble, make late payments, default, etc.

There’s also some good news. You now have a little bit of control over your teen’s spending and you don’t have to worry as much about whether or not they are racking up thousands in debt that you don’t know about while they are away at college. Now you can make sure they only have a credit card with a low interest rate, an appropriate credit limit, and keep tabs on how much they spend and their ability to pay the bill each month. Parents should use this as a teaching moment to help their teens learn how credit cards work, the importance of establishing credit, and making those payments on time.

Good News / Bad News for Teens

Even though most teens won’t like it, there is a lot of good that will come from these changes. It will now be a lot harder for teens to carelessly rack up substantial debt and ruin their credit at such an early age. I know firsthand how easy it is to get into credit card trouble while in college. Been there and done that! So, now that you’ll need a job that pays enough to afford credit card payments or put your parents on the card with you it’s far less likely that major credit card problems will arise.

That being said, it’s not all good. If a teen’s parents already have bad credit it might be impossible for them to even qualify for a credit card they can co-sign on. That could mean they are out of luck until they turn 21. Most credit card opponents would say this is still good news. But let’s not forget reality. You need to establish a credit history at some point as it plays a very important role in your life. From getting a mortgage, a car, getting a job, or even renting an apartment, your credit score can make or break you. If you can’t get a credit card until you’re 21 that means you have lost three years of potential credit history. As a 21 year old is graduating college and getting ready to set out on their new life it can be that much harder if you’re trying to also establish credit for the first time.

Strategies for Teens and Parents

If you’re under 21 and currently don’t have a credit card but have been thinking about getting one, you may want to apply for a good 0% rewards card before the February deadline. No, this doesn’t mean all teenagers should rush out and just start applying for credit. But, if you were already thinking about getting a card, be it for emergencies or just to establish some credit history, it might make sense to get one before the new restrictions take effect. If you are thinking about getting a card you should treat it as if the new restrictions were already in effect. Talk to your parents about it and let them know you’re going to get a credit card. They can help you make the right decision and share some wisdom so that you can avoid the mistakes they may have made.

Parents, it’s also time for you to start thinking about how these changes will affect you and your teen. If you already have a teenager or have children that will be turning 18 in the coming years, you better be prepared for them to start asking you about credit cards. Decide what your policy regarding credit cards will be and determine how you’re going to teach your kids how to use them responsibly so that you don’t end up in credit trouble yourself. And while you’re thinking about that, you should probably check your credit score and make sure your credit is good enough that you can help your kids out when the time does come. Have credit trouble? Here are some tips to help you improve your credit score.

Credit Card Offers:

• Chase Freedom^SM
• Slate^SM from Chase
• Chase Sapphire^SM
• Blue Cash® from American Express
• American Express® Preferred Rewards Gold Card

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

New Law Makes it Harder for Teens to Get a Credit Card Starting February 22, 2010

Are you a credit junkie? Millions of Americans are, including our favorite relative, Uncle Sam. We usually think of junkies as drug addicts or drug peddlers, but a junkie is any person who derives inordinate pleasure from or who is dependent on something. For many people, that’s buying things with credit. In other words, spending money on things they can’t afford. Getting addicted to credit is just as easy as becoming addicted to anything else. At first you give it a try and maybe you buy something on a new credit card. Like magic, you just purchased something yet your bank account didn’t go down. What a wonderful feeling! So you buy something else on credit, and then even more stuff gets thrown on the credit card. Hey, it’s like free money, right?

Until the bill comes. Suddenly you get your statement and see just how much you spent, but guess what? You only have to make a minimum payment of $50 for the month. Who can’t afford $50 when you just cleaned up and brought home $2,000 worth of new merchandise? And things usually just get worse from here as the credit card balance increases, the minimum payments go up, and the finance charges take up virtually all of your payment. You’ve now become a credit junkie.

The Credit Junkie Quiz

How can you tell if you’re a credit junkie? Keep track of how many of the following questions you answer with “yes.”

• You have more than two or three credit cards and carry a balance on them.
• You pay the minimum or less on your credit cards.
• You’ve reached the credit limit (or are very close) on your credit cards.
• You juggle other bills in order to pay the minimum monthly payments on credit cards.
• You charge items you used to pay for with cash (food, gas, etc.)
• You incur late fees or over-the-limit fees on credit cards.
• You’ve taken out one or more debt consolidation loans to pay off credit card balances, but then charge to the credit cards again.
• You take out cash advances on your credit card to pay other bills or expenses.
• You use your bank overdraft protection to cover checks you’ve written that you don’t have the money to cover yet.

If you answer yes to any of the questions, you may be a credit junkie. If you answer yes to more than three, you have a confirmed diagnosis. For treatment options, continue reading.

Treatment Plan for Credit Junkies

Now that you know the symptoms of being a credit junkie, it’s important to be aware of the risk factors that can cause this condition or make it worse. The first rule for avoiding any disease is to take precautions to reduce your exposure. For credit junkies, this includes:

• Can the Credit Card Offers – If you were an alcoholic, you wouldn’t keep a bottle of Jim Beam on your kitchen counter where you had to look at it every day, would you? If you’re a credit card junkie, why subject yourself to the temptation to overindulge by allowing yourself to be inundated with credit card solicitations in the mail?Credit card companies send out over three billion credit card solicitations each year, but that doesn’t mean you have to be one of the recipients. Call 1-888-5-OPTOUT (567-8688) toll free to request that the credit reporting bureaus stop selling your name and address to lenders. This request is good for two years. You’ll be asked for personal information, including your name, telephone number, and Social Security number.
• Avoid Shopping Malls – For a credit junkie, cruising the malls without a definite plan in mind is like taking a dieter to a giant smorgasbord and telling them not to eat anything. Limit your exposure by planning your shopping trips ahead of time. The fewer trips you make to the mall or other stores, the less impulse buying you’ll do.
• Cancel the Catalogs – The more you order from catalogs, the more your name gets sold to other catalog companies and the more catalogs you receive. These visual reminders of all the things you could buy (whether you need them or not) is extremely difficult for a credit junkie to resist. Know where to go to just say no. Opt-out of junk mail to reduce the number of catalogs and other unsolicited mail you receive for the next five years by writing to the Direct Marketing Association (DMA), Mail Preference Service, PO Box 643, Carmel, NY 10512, and asking to be removed from their marketing lists, or register online at . If you continue to receive catalogs, call each catalog company and ask to be removed from their mailing list.
• Reduce Visits to Online Stores – Like catalogs, online stores stimulate your desire to buy things you don’t need and didn’t even know you wanted. If you shop online, prepare a list of what you need ahead of time and stick to it.
• Be Aware of Advertising – Our addictions to spending start with the hundreds of advertising messages we’re bombarded with each day from multiple media, from television and radio to billboards and email pop-ups. Awareness is the first line of defense. You may also receive a lot of spam that’s actually email you like to receive. Are you getting weekly emails from Pottery Barn because you signed up for email alerts on new sales? While technically not spam, you’re subjecting yourself to unnecessary advertising. Take a few minutes to go through your inbox and cancel all of those subscriptions.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

Are You a Credit Card Junkie? Learn How to Kick the Habit

I’ve been spending a bit of time lately discussing credit cards and debt because it’s an important issue for many people. Unlike a lot of bloggers I’m not against credit cards completely. They are a financial tool just like any other. They can be a powerful tool when used correctly, but they can also cause you harm if used incorrectly. The problem is that credit cards are designed for failure by default. The features that are built into a card such as high interest rates and low minimum payments mean that even if you make all of your minimum payments on time you’ll still be doing more harm than good.

What happens with many people who get in over their head with credit card debt is they underestimate the impact that making the minimum payment each month has. Think about it. If you borrow $1,000 and your monthly minimum payment is just $25 it’s easy to write that off as an insignificant payment that you can easily afford. This way of thinking is extremely dangerous because it usually leads to racking up more debt and then spending the next ten years paying a ton of interest. So to really get ahead in the debt game you need to break the minimum payment mindset.

Understanding How Minimum Payments Are Calculated

Each card is different, but generally the minimum payment is simply a set percentage of your balance. Some cards are as low as finance charges plus 1% while others may base the minimum amount upwards of 4-5% of the balance. What you have to realize is that with a typical credit card APR the minimum payment will generally cover only a little more than that month’s finance charges, meaning at best only half of your payment is going towards paying down the balance.

For a very simplistic example, let’s take a look at a credit card balance of $1,000 with an APR of 18%. If you break the APR down to a monthly rate you are effectively being assessed a finance charge on the balance of 1.5% per month. Lets also assume that the minimum payment is calculated by using 2.5% of the balance.

This means your minimum payment in the first month is $25, or $1,000 x 2.5%. With the APR at 18% and an effective finance charge of 1.5% that means of that $25 you paid, $15 is simply paying the finance charge leaving only $10 actually applied to the balance.

So the next month your remaining balance is $990, or $1,000 – $10. Your next minimum payment is $24.75. For this payment you will see $14.85 going towards the finance charge and only $9.90 going towards the balance. Your new balance is now $980.10. You have sent the credit card company nearly $50 of your hard earned money and have only reduced your balance by $19.90. That is quite a raw deal for you, but a great deal for the credit card company.

Using this example if you continue to only make the minimum payments for the life of the balance it would take you 153 months or 12 years and 9 months to pay off the card and you will have paid $1,115.41 in interest; even more than the original amount you borrowed! (Of course this assumes the company allows small payments. In some cases they will impose a $10 minimum payment even if the calculated minimum is less than that)

Don’t Get Caught in the Payment Mindset

Today you can get financing for almost anything, from the cheapest electronics to new furniture for your house. All too often we are lured in by commercials that state how low your monthly payments can be. When you look at purchases as monthly payments as opposed to what they really cost you are setting yourself up for a very long payment plan and significant additional costs in the way of interest.

Even if you do use credit responsibly you can still fall into this trap. I see people who have the money available to pay more than the minimum amount each month but they don’t. They want to keep the cash flow available for other things. They end up treating this minimum payment as simply a monthly bill and find themselves just budgeting for it. Once this becomes habit you may find yourself paying the minimum for a long time without realizing how much it is actually costing you.

Try to Pay More Even if it is Only a Small Amount

Understandably, times can get rough and your only option may be to pay the minimum. That’s ok, just try not to make it the norm. Get into the habit of sending a bit more than the minimum each month. If your minimum payment is $25, try sending in $40. If it is $100, send in $150 or something. It may not seem like it makes much of a difference but it does over the course of time. Just applying an extra $20 to a $25 monthly payment can cut the length of time it takes to pay off the balance by more than half and potentially save you hundreds or even thousands in interest.

Clearly it would be ideal to pay the balance in full every month but that simply isn’t possible for many people. By taking baby steps and applying a little extra it will help. It won’t be instant gratification but doing so can shave years off of the repayment and save literally thousands in unnecessary interest. Remember, just because they give you a minimum amount doesn’t mean you should pay them that amount. Doing so will only cost you far more in the long run.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

How to Break the Minimum Credit Card Payment Mindset

When it comes to paying off debt there’s one useful tool that can not only simplify your finances but also reduce the amount of interest you pay. Debt consolidation takes some or all of your small debts and combines them into one loan or line of credit. This results in just one payment and if you can get a lower interest rate, can add up to big savings.

While this is a good idea, there’s also a big problem. Many people will consolidate their credit card debt but then fall back on the habit of using the now open credit lines to make purchases again. This is bad news because now you’re just making your debt problem even worse. What happens is that people have a hard time breaking habits. If they are consolidating debt then there must be a reason there is debt to begin with. So when this consolidation now frees up more available credit these habits can creep back in and make the debt problem even worse.

Be Careful if Using Home Equity to Consolidate Debt

Tapping into home equity has been a common debt consolidation method over the past few years, but you should really think twice before going this route. I don’t need to remind you about the problems right now regarding falling home prices, but there’s another danger when you go this route.

Credit cards are unsecured debt meaning there is no collateral backing the card. If you fail to pay off your credit card you might have to put up with collection calls and damage to your credit score, but that’s about the extent of it in most cases.

If we’re talking about a mortgage or car loan we’re dealing with secured debt. This just means that the underlying asset is used as collateral for the loan. Now if you fail to make payments the bank is going to take your house away. If you can’t repay the home equity loan or line of credit you might be forced to sell the house so the bank can recover the money. If you find that you start racking up more credit card after you’ve tapped the equity in your home to consolidate your existing debt you could be faced with losing your home thanks to your credit card problems.

To Close or Not to Close

You may be thinking that simply closing or canceling the old credit cards will be a great solution so you won’t find yourself tempted to use the card again. Not so fast. Some of the factors in your credit score have to do with the length of time you’ve had accounts and your credit utilization ratio.

When you close out an account you will not only hurt your credit ratio but you may be eliminating years of credit history from your account. Before closing any accounts you should carefully examine your credit report to see what, if any cards should be canceled. If it is a new department store card you opened last Christmas to get a discount and had a limit of $500 it may make sense to just get rid of the card. But the last thing you want to do is cancel a card you’ve had for a few years with a higher credit limit. That may ultimately do more harm than good.

How to Stop Using Old Cards

So, if you don’t want to cancel all of your old cards what can you do to ensure you don’t get into the habit of using them? The simplest and most dramatic thing you can do is to simply get a pair of scissors and cut the card up. Problem solved. The account is still open but you can’t just swipe a new purchase. Of course if this was a card for emergencies that may not be the best idea.

Some people find it useful to lock their cards up in a lock box. If you have one at home you can do that, but an even better way that makes them even harder to get to is to lock them up in a safe deposit box at your local bank. Either way, if they aren’t in your wallet and aren’t easily accessible you are far less likely to use them.

Use Debt Consolidation Wisely

Don’t fall into the endless cycle of debt. If you are thinking about consolidating your debt make sure you stop using the old credit that you are trying to consolidate. Consolidation can be a great step towards getting rid of debt, but simply continuing to use credit will just dig you into a deeper hole. It seems like common sense, but leaving those cards in your wallet or even considering that open credit line as a means for buying something will just perpetuate the cycle.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

If You’re Going to Consolidate Debt Then You Have to Stop Using Credit