Recently, there has been a major development that changed the way Americans looked at money management. As the US economy struggled to recovery, ordinary citizens have had to cope with the “new normal”. No longer are credit, loans, and credit cards offers as abundant as they used to be. People are being forced to adapt to the new situation characterized by the following:
Long Term Unemployment
In the previous article, we talked about long term unemployment. Well, this phenomenon is still ever present with the jobless rate hovering at about 10 percent. Figures reveal that there is minimal hiring in the private sector. Most of the recent hiring we saw came from the government. The Obama administration said that the problem is cyclical. But economists expect that while unemployment will drop to 8.7% towards the end of next year and that it won’t be an easy target. Credit card holders need to be aware.
Renting Trumps Buying
Dreams of home ownership are being set aside for now. Instead, people are renting to keep a roof over their heads instead of buying. Between the year 2006 and 2009, the S&P/Case-Shiller Home Price Index showed that property value dropped by over 32 percent. This might encourage some people to buy homes at this point because of lower prices.
For the majority though, the property market would never be the same. And buying real estate is no longer perceived as a good investment. In this regard, renting instead of owning will be the preferred alternative for many.
Saving Against Spending
Americans have high credit card balances. This is stabilizing right now; in fact, credit cards’ balances fell by 6 percent or around $4.5 billion last June. At the same time, average savings rose to 6.4 percent (after-tax income). The rate is thrice higher compared to 2007. Over the short term, saving isn’t good for the economy. But over the long term, more responsible consumers mean better economic fundamentals.
Another trend is higher taxes for the country’s top earners. While this may not affect a significant number of people, some experts say that this can slow down an already-weak economy. Whatever the case, it seems that the “new normal” outlined above are here to stay.
Just when you thought things cannot get worse, it did. Millions of Americans who are already struggling with the economic downturn and credit card debt have received notice that their credit card companies are raising interest rates – just in time for the holiday season. Many have seen their rates doubling, some even tripling. Cash-strapped individuals are looking at more debts ahead.
The situation is worse for certain individuals. Those who are used to longtime fixed rate will see their interest rates soar to double-digits because of the shift to variable rates. Most of the activities such as giving consumers lower credit limit, interest rate hikes, and the increase in minimum monthly due are tied to the new federal policies set to start in late February. These measures will hinder banks from continuing their predatory practices.
As a result, the trend these days pose very little options to the ordinary consumers. According to customer surveys, consumers are now faced with unpleasant alternatives ranging from closing accounts to accepting tight credit terms. Rasmussen Reports conducted a survey which also revealed that around 50 percent of its respondents experienced rate hikes in the last six months.
At a time when banks are seen as the villain, these measures are greeted with censure. The legislative director of Consumer Federation of America said that “It seems like they’re hurting the customers they need the most.” Right now, the industry has already lost the trust of clients but they are still coming up with tricks to milk more money from struggling clients.
One method that was uncovered includes making notices of interest-rate hikes look like junk mail. Their purpose is to encourage consumers to throw these letters out without reading them. Everyone is affected by the current trend – whether you have a poor credit rating or the highest.
When it comes to money, no one can make all the right decisions all the time. Most people have done things they later regretted, especially when it comes to credit card debt. It may be a simple thing like getting charged $3 for withdrawing cash from an out-of-network ATM machine or a big mistake like maxing out your cash advance option without any apparent means to pay for it.
Some mistakes are easily resolved while others take years to sort out. Whatever the case, blunders happen when it comes to money management. The important thing is to understand the severity of the transgression. So in this article, we will score common mistakes on a scale of 1 to 10 based on its impact on your finances:
Paying Past Due Date: 5.5
Credit card issuers are never happy with late payers. Because of this, they have severe penalty charges and charge high interest payments for individuals who pay past the due date. In addition, some issuers even report your transgression to the credit bureaus so your credit score will suffer as well. If you’ve been an on-time payer in the past, some companies may let it slide. Just make sure to call them and ask them to waive the interest fee as well.
Paying the Minimum: 5
Generally, credit card companies earn the most from slow payers. Paying only the minimum might not affect your credit score but you might end up paying more on the interest than the principal. This is not a good practice because it keeps you in debt for a lengthier timeframe.
Missing a Payment: 9
This is one of the worst mistakes you can commit if you have a credit card. You will be slammed with high interest rates, penalty fees, and other charges. As if that’s not bad enough, your credit score will also take a huge hit. Because of this, you will need to pay more when you take out a loan next time. In essence, missing a payment is a no-no. Pay the minimum at the very least.
Approximately 34 million Americans were late in making their credit card payment in the past year. As if that’s not bad enough, the default rate in 2009 is at its highest since 1991. It all points to the fact that consumers simply do not have enough money to pay back their debts. These days, missing a payment or two seems inevitable for a variety of reasons.
However, while many consumers recognize that they would need to pay higher interest payment and penalty fees, they fail to realize that they are also damaging their credit card score and even sacrificing their credit card rewards. In the last several months, consumers are heavily preoccupied with asking questions about fees, interest rates, and due date of their bill. One aspect they overlook is the rewards program offered by their card issuer.
Rewards might not be an issue for first-time card holders who don’t know better. But for individuals who had been using it for vacations, household appliances, and special occasions, loosing reward points can come as a big blow to their lifestyle. In a research conducted among major credit card companies like Citibank, Bank of America, American Express, and Capital One, it was revealed that institutions will revoke any points you earn during a billing cycle in which your account was delinquent.
Discover Cards is particularly harsh because it revokes all reward points you earn if your account is delinquent for two months. American Express is likewise strict but it revokes points on a case-by-case basis. The rules may seem harsh but what’s even worse is that all major credit card issuers reserve the right to modify the terms of the agreement at any time, for whatever reason they choose. They can even cancel the program at any time. So while consumers can now avoid the loopholes when it comes to interest payments, they are still at the losing end when it comes to rewards. Some of the new credit card laws will prevent the issuers from making changes to your account without prior notice.