Analysis of credit card rates and practices by Pew showed “that credit unions offered much lower APRs, less punitive penalty rates and engaged in far fewer unfair or deceptive practices than their commercial peers.” Further,

Key findings include:

1. 100 percent of credit cards offered online by the leading bank card issuers continue to include practices that will be outlawed once the legislation takes effect
2. Advertised credit card interest rates rose an average of 20 percent in the first two quarters of 2009, even as banks’ cost of lending declined
3. 99.7 percent of bank cards allowed issuers to increase interest rates on outstanding balances – a jump from 93 percent in December
4. 95 percent of bank cards permitted issuers to apply payments in a way the Federal Reserve found likely to cause substantial financial injury to consumers
5. 90 percent of bank cards had penalty rate hikes which for the most part are imposed by “hair triggers” of one or two late payments in a year

The conclusion is:

Although credit unions control only a small portion of credit card outstandings, comparisons between credit union and bank product models illustrate options available to consumers and potential benchmarks for future regulatory rulemaking efforts.

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Ben Bernanke, Chairman of the Federal Reserve, argued against the House Financial Services Committee idea of speeding up the implementation of a bill signed into law last May. He wrote to Congress and stated banks need more time because there won’t be enough time for public opinion.

According to a Huffington Post article:

Bernanke, though, argued in a Tuesday letter to Rep. Spencer Bachus, the senior Republican on the committee, that while moving the effective date up to December “could benefit consumers by providing important protections earlier than scheduled (including protections against applying increased rates to existing credit card balances),” it could lead to problems for credit-card issuers. “Issuers must be afforded sufficient time for implementation to allow for an orderly transition and to avoid unintended consequences, compliance difficulties and potential liabilities.”

Ben Bernanke is correct – if his intention is to make sure banks make lots of money during the holiday season.

How does this influence you?

If you are still using credit cards and you need more evidence to stop using them then Ben Bernanke’s words are important to you. Historically, holiday shopping has been a big financial boon for credit card companies. Therefore, if you have been paying attention and have stopped using credit cards and you’ve learned to pay cash for all new purchases then the banks will need to make adjustments. In contrast, if you haven’t made adjustments to your habits then you are heading for trouble.

Need more convincing?

Consider a $100 purchase placed on a credit card because you don’t have the cash. This purchase could cost over $200 by the time you have paid off the credit card bill. The $200 calculation assumes an annual credit card fee and paying minimums. The amount could be higher if you only paid credit card minimums. Which would you rather pay – $100 or $200?

Now is time for you to act. Start saving money and do not use your credit cards. Save 10% of you income and learn to live within your income.

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If you have credit cards, be careful with the latest news from Bank of America that they will be adding annual fees to credit card accounts. You should expect other banks to follow their lead.

Annual fees are nothing new for some credit card accounts but the wise consumers have avoided them. Now, Bank of America announced they will add an annual fee.

Consumer Reports states fees will increase from $29 to $99:

“Selection was based on individual accounts–not a specific card–and generally was based on risk and profitability of the account,” said spokesperson Betty Riess via email.

If you were questioning the value of the credit card – then now is the time to act. Do not close the account until you have your finances under control. Instead, take the balance to zero and hold until you have enough cash saved so that all of your future purchases are with cash. Do not use your credit card.

Some of us are wondering why we saved these banks. Others are just realizing it is time to dump the credit cards. What are your plans?

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This blog site is not about selling, therefore, I hesitated in publishing this blog entry. However, getting your finances under control requires that you have a means to monitor how you are spending your money. Quicken desktop products have been around for ages – but their online version provides a simple interface to quickly check what bills are coming soon – and how much money you have already spent.

Quicken Online provides a fast and free means to manage spending and monitor your financial goals. If you do not have an account on the Quicken site then simply register, verify your email address, and get started immediately.

After registration, you will enter login information for your accounts. Enter your bank accounts. credit cards, and loans. This allows the site to download transactions from the last 90 days. The site will also refresh transactions every 24 hours (except Wells Fargo accounts). Once you have these accounts entered – the real fun begins.

Categories
One of the pains of the desktop product is assigning categories to transactions. Quicken online will attempt to categorize your spending and income for you. You can change any wrong categories as well as fix unclassified ones. My initial setup only had 15 or so unclassified transactions.

Charts
Once you have the transactions, you can start using the power of Quicken Online. First, check out the tab called trends. The site provides a pie chart as well as a statement regarding your income minus expenses during the time period. You can easily change the time period from 30 days, 60 days, etc. Play around with the dates to see how you have been doing.

Apple iPhone
Maybe you own and use an Apple iPhone. Intuit has a free app for you to download from the iTunes app store which provides you with a quick easy way to monitor your accounts. The only challenge to the iPhone app, is that you cannot tell Quicken Online to refresh any accounts not updated in the last 24 hours – you’ll have to do that from a desktop. Regardless, the iPhone app is a great way to remind yourself how you are doing with your finances.

Now that you know about Quicken Online, please set up an account today and start monitoring your finances. Let me know how it works for you.

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We’ve all been there. The credit card company provides a credit line increase and immediately you start increasing your spending. Suddenly, you receive a notice that your credit card company is raising your interest rates and lowering your credit limit. Now you realize you must become debt free. But you are stuck because you are paying and paying your credit cards but the amount due is not decreasing.

Today’s hint is how to lower your balances on your credit cards so that they eventually remain at zero.

A friend of mine has five credit cards, with three of them sitting at the credit limit. Each card has a limit of $5,000. I’ve been wondering the best advice to give so that he can become credit card free. About 20 years ago, my cousin who earns his living on the stock market told me about the roll down method. The method involves good record-keeping and the will power to no longer use your credit cards.

The roll down method
The roll down method is quite easy to apply. Determine the amount of money you are paying to each credit card company. Decide if you can add a little bit more. Divide this money up so that the lion’s share of the money goes to the credit card with the lowest balance. As soon as that card is paid then apply the money you were using for that credit card to a second one (plus the initial amount). Keep rolling until the total budget of money is used to pay off the last card.

Simple eh?

A roll down example
Let’s use my friend as an example. These are his typical monthly payments:

1. Credit Card A: Payment $150
2. Credit Card B: Payment $150
3. Credit Card C: Payment $150
4. Credit Card D: Payment $100 (second to lowest balance)
5. Credit Card E: Payment $50 (lowest balance)

Now, my friend is paying $600 per month already to the credit card companies. He’s agreed to pay an extra $50 per month. We’ll start with Credit Card E because it has the lowest balance. His new monthly payment will be $100 until that card is zero. Once paid off, the $100 formerly going to Credit Card E is added to Credit Card D payment – creating a new payment of $200. Once paid off, this $200 is added to the payments for Credit Card A; in which the payment increases to $350 per month until the balance is down to zero. Once credit card A reaches zero then the $350 is added to the $150 he spends monthly on credit card B. The new payment for Credit Card B becomes $500 until that credit card is paid in full. Finally, the $650 all goes to the last credit card until the balance is zero.

How long will this take? The payoff time may be calculated with a roll down calculator.

Start using your own roll down method today. Let me know how well it works – and your target date for becoming debt free!

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My grandparents lived through the great depression, thereby greatly influencing their financial decisions. My grandpa used to say that cash was king. In today’s turbulent times, this statement needs to be echoed – Cash is King. Stop using your credit cards now – and start using cash for your new purchases.

People who find themselves in financial hardship usually do not end up there because of a single mistake or a single reason. Reasons abound: plans don’t work out, jobs are lost, emergencies happen, and life sometimes just throws us a curve ball. Regardless of how you ended up strapped, you can get out of the problems you are now facing.

Before you ever get started, try to ease yourself into any adjustments. You’ll need to get used to the changes so you don’t fall back into the same old patterns. For example, the first step to getting out of a financial mess (assuming you have income) is to start saving ten percent of each paycheck. The second step is to start using cash for your new purchases.

The envelope system of budgeting is not new. A quick use of the Google search engine results in millions of webpages. Writers praise the process but very few actually explain how to use the system to your benefit. Today, I’ll show you how to use envelopes of cash to train yourself to stop using credit cards for new purchases.

Specifically, today’s hint is showing you how to use the envelopes to help monitor and curb your spending on food. Once you have food expenses down then you can move forward using the same envelope system with other monthly expenses. Yes, that’s right. This system will work for any of your new purchases (and you will use cash from now on, right?).

Several years ago I required myself to use envelopes. Why? I was not using credit cards well and needed to break myself of the habit. Also, I spent too much money. Finally, my income dropped and expenses were greater than my income. The envelope system helped me focus and kept me from making bigger mistakes.

How the Envelope System Works

First, grab five small envelopes in which cash fits. Clearly label each envelope: week 1, week 2, week 3, week 4, and week 5. Next, decide how much money goes into the envelopes. Finally, you’ll use the first envelope during the first week, the second week’s envelope is used during the second week, and so forth.

How much money is right?

Deciding how much money to put into each envelope is the real trick for getting expenses under control. Some experts suggest figuring out a budget first. I’ll go one easier. Simply find out how much you have been spending on food each month. If you haven’t been keeping track then you may find that your bank’s online system has the expenses organized for you. If your bank doesn’t do this for you then take a piece of paper and start writing down every time you spend money on food. Keep this piece of paper with you at all times. It’s amazing that even simply writing things down on a single sheet of  paper can sometimes stop  you from spending.

How much money belongs in each envelope?

Once you know the amount for the month you have been spending on food then place one-fourth the amount of the total into each envelope. For example, if you were spending $400 per month on food then place $100 into each envelope.

Why the fifth envelope? Some months have five weeks and so you’ll divide your total expenses by five and place that calculated number into each envelope.

Once the envelopes have the cash, store these into a desk drawer. Use the money from the corresponding envelopes for buying food (grocery store, eating out, etc). Be careful because once the money is gone for the week then you are done and you don’t want to starve.

Any money left over should be placed into a money jar (you do have one, right?). The money jar is a great way to collect coins. Now, your money jar also collects the cash left in your envelope.

OK, I survived the month. Now what?

Here comes the real benefit. Now that you know you can survive with the cash in the envelopes then remove 5% for the next month. In this post’s example, I used $100 each week. Therefore, on the second month place $95 into the envelope.

On the third month, you will decrease the amount by 5% again. Keep going each month until you have reached 80% of your initial expenses. If you feel you can cut more (stop eating out !) then keep going. But don’t hurt yourself.

It’s working!

Yes, the envelope system works. Once you are well trained to use the envelopes, expand the process for one other expense. For example, I started with food and next went to gasoline. It’s your choice.

Congratulations on getting your expenses under control. Let me know how you are doing. Let me know if something fails or if you have great success.

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Math is not always easy for everyone. Sometimes, we reach for the calculator before we stop and realize the math is far easier than expected. In the same vein, we tend to reach out for help from experts when we could solve the problem ourselves.

Credit problems are an excellent example of reaching for help after having created the problem. The reality is, though, that if you created the problem then you can solve the problem. And – you can solve the problem through common sense and a very easy math problem.

To illustrate this process, I’ll use a friend of mine. My friend started earning more money than he ever thought possible. He immediately started spending money – without first saving. He also made another mistake, he spent more money than he earned. After months and months of this behavior, the credit problems started to roll in through the mail and email. Imagine his frustration. After all, he was earning more money than previous jobs, so why couldn’t he go on a spending spree?

The Simple Math

Let’s face it. For every dollar you earn, the majority of it goes toward bills. If you have past due bills then the situation is worse because we have a tendency to focus on them first. A simple formula will keep you out of trouble. For every dollar you earn, save 10 cents. Yes, ten percent of your money should go into a savings account. And this money should go right off the top.

My friend could have saved himself a world of trouble. No, he didn’t have a budget. No, he didn’t want one. Instead, saving 10 percent of his income – put away on pay day – would have saved him the pain he deserved.

That my friends is today’s lesson. Always save 10 percent of your income. No excuses.

If you are in credit trouble and facing foreclosure then put 10 percent of your income away. Yes, some experts would tell you to pay off debts or past due bills.  In fact, if you have past due bills then put 10 percent away – regardless of your financial situation. Yes – even if your credit is in perfect health then put 10 percent of your income away.

Never Spend Your 10 Percent Account

This 10 percent must never be touched, never used, never transfered from savings into checking. No – this money is important. It’s the “I’m okay fund.”

No matter how bad things get – you’ll always have the “I’m okay fund.” This is not an emergency fund. This is not a retirement fund. This is simply a keeping sane fund. It’s your comfort food. It’s your sanity.

So – don’t watch that fund increase and increase and expect to spend the money. This 10 percent is to keep you safe and sound.

Best of luck my friends. Use the 10 percent rule immediately and let me know how your emotional health increases.

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