Consumer Debt – How the Federal Reserve Rate Cut Impacts Your Debt

The Federal Reserve’s ¾ point, emergency rate cut appeared to be the shot in the arm that Wall Street needed. After a major sell off in the morning of the cut, there was a significant rebound in the afternoon. This rate cut was good news for banks. The ¾ point cut in the discount rate reduces the rate banks pay to borrow money. This was welcome relief for many. (In case you weren’t aware, many banks are hurting from the recent sub-prime mortgage meltdown. Citigroup alone is writing off some $11 billion in sub-prime mortgage losses.)

Action by the Federal Reserve was later echoed by commercial banks which then cut their prime lending rate by three-quarter of a percent, dropping the rate from 7.25 percent down to 6.50 percent. (The Prime Rate is the benchmark used in establishing most consumer loans, credit card interest rates, etc.)

And this may not be the end for rate cuts! Many experts expect the Federal Reserve to cut rates again at its Jan. 30 meeting. Some are even worried that this emergency action taken before the scheduled meeting may mean the Feds know something we don’t – more bad economic news on the horizon!

But how does all this market volatility and rate cutting affect you and your debt? Is there good news for the average consumer in any of this? The answer for savers is NO! They will face lower returns on their money. For those with debt, the answer is mixed; for some, yes, for others, maybe!

Good News for Home Equity Borrowers – For those with home equity or consolidation loans, you should see a drop in your interest rate by next month. These rates are based on the prime rate so they should mirror the prime rate cut.

Good News for Mortgage Refinance – If you have an adjustable rate mortgage, now may be the time to refinance to a fixed rate. According to Bankrate.com on January 17, the 30 year fixed rate was down to 5.75 percent based on their weekly survey. The Federal Reserve rate cut will most likely drive further cuts in the 30 year rate. Remember, when considering refinancing, you should weigh the mortgage payment savings benefits against the refinance fees. But all in all, it may be the best time to get away from a variable rate that will balloon in say, 5 or less years, especially given the weak housing market.

Mixed News for Credit Card Holders – Some credit card holders could get a break on their interest rates, but it will most likely be limited to those with good credit. It’s important to note that credit card rates don't always track closely with action by the Fed. It could be three months before card holders see the lower rates on their monthly credit card statements. And for those with poor credit, high debt to income ratios, late on payments, etc, you will probably not see any lower rates and those excessive penalty rates are unlikely to change either. Late fees and penalties are big revenue generators for the credit card industry and one of the primary means by which they continue to profit on those in debt in spite of rising credit card defaults.

A Silver Lining for those with high Credit Card Debt – If you have $10,000 or more in credit card debt and have already been late one or more times on your payment, now may be your best time to see if you qualify for debt mediation (or debt settlement). By enrolling in a debt settlement program, you could realistically be out of debt in months instead of years and for less than what you owe!

What is Debt Mediation or Debt Settlement?
Debt Mediation is a program in which a qualified settlement or mediation company works for you with your creditors, to “negotiate” a reduction in your unsecured debt. Under this type of program, each of your creditors agrees to accept a portion of what you owe them, in lump sum payouts, as payment in full, and marks the debt “zero balance”, which is very important and positive for your credit report. You’ll get out of debt for less than what you owe and in a fraction of the time it would take to pay off the debt just making the minimum monthly payments. Because they are settling hundreds of thousands of dollars of debt for hundreds of clients, they have relationships built over time and leverage with your creditors that you don’t have.

Who should you contact? – There is one company than stands out because of their excellent track record (quality service and results) and their unique approach. I recommend that you start with this company for a free debt consultation.The program is Credit Card Relief™.

Nationally Recognized Attorney-Driven Approach - Their program is unique in that Credit Card Relief uses a network of participating program attorneys, local to their clients, and provides a free initial consultation to determine if debt mediation is the best solution. Once enrolled, your creditors are contacted and told that you now have representation in settling your debt. You now have a professional working for you. That’s where your relief starts. The debt is then mediated by a nationally recognized debtor mediation law firm.

Great Track Record - Credit Card Relief has years of experience, settling over $110,000,000 (one-hundred and ten million) of debt for thousands of clients.

Operates in 46 states.

Low Monthly Payment – Credit Card Relief can cut your monthly payment by as much as 50%. They also have reasonable fees that you can live with.

Your Money is Safe - In addition, each Credit Card Relief client is part of a unique Enrolled Member Trust, through which all their funds are deposited into a totally insured, risk-free trust account with a national bank. No money leaves your account without your permission.

Satisfied Clients - Credit Card Relief provides superior service, with on-going support throughout the duration of the program, through their full-time Client Care and Compliance departments. They have Zero open complaints with the more than 400 Better Business Bureaus (BBB’s) and the over 16,000 local, state, and federal regulatory agencies monitoring the industry.

You can obtain a free debt consultation from Credit Card Relief™ by clicking here.

Or call (866) 960-5454

They can help you determine the best solution for getting you free of debt. For more information, click here.

Don’t Delay! Don’t let embarrassment, stigma, or the sense that negotiating your way out is not the moral way to get out of debt. The Credit Card Industry is one of the most profitable industries in the United States with annual earnings around $30 Billion. Citibank alone earns more profit than both Wal-Mart and Microsoft. Yet this industry has more complaints filed against it than any other industry in the U.S. Getting debt free and starting a financial plan to build wealth instead of debt is one of the best things you can do for yourself and your family.

Using Credit Card Cash Advances – Mounting Credit Card Debt Mistake # 4

In this series of blogs, I am discussing 5 of the biggest mistakes people make when faced with mounting debt, especially credit card debt, and providing some ways you can avoid or correct your mistakes. In my three prior blogs I covered the problem with only paying the minimums on your credit card bills, using your home’s equity for credit card debt consolidation and using balance transfer card offers to move debt. Today we will discuss the fourth mistake.

4. Rob Peter to pay Paul: Use credit card cash advances: Cash advances may seem like a way to hold the wolf at bay, but borrowing cash from one credit card to pay on other cards or bills will really cost you and only delay the inevitable. Many people don’t realize that cash advances typically carry both a transaction fee like balance transfers of around 3% and a higher finance charge (interest rate) than applied to other purchases. This means that when you borrow money at, say, 3% fee plus 24% APR to pay on a bill at, say, 12% APR, you’re robbing Peter to pay Paul with money that is costing you more and digging that debt hole you’re already in even deeper.

• Be sure to read your credit card statement each month. You may occasionally find that a charge that you considered a “purchase” was actually treated as a cash advance by the credit card company. If you use an ATM machine for a cash advance, there can be an additional charge by the ATM’s bank.
• Another gotcha occurs when you make a payment toward your balance. Most issuers apply payments to purchases before they apply payments to cash. If you carry a balance on your card, this means that you will continue to pay that higher interest rate on your cash advances until you pay off your entire balance.
• And there is one more legal gotcha on cash advances: If you get into debt and have to consider bankruptcy, cash advances are exempt from Chapter 7 discharge of debts. You will still have to pay back any cash advances.

You’re in serious trouble if you are borrowing more money to make payments on money you already owe. Becoming dependent on cash advances to "make ends meet" can be a sign of serious debt problems.

If You Are In Serious Debt Trouble Do Consider Debt Settlement

If you have credit card debt over $5,000, are struggling to make the minimum payments each month, take out new cards to help pay off old card balances, or seriously thought you might need to file for bankruptcy, you may qualify for Debt Settlement. Debt Settlement is a program in which a qualified settlement or mediation company works for you with your creditors, to “negotiate” a reduction in your unsecured debt. Under this program, each of your creditors agrees to accept a portion of what you owe them, in lump sum payouts, as payment in full. You’re now out of debt for less than what you owe and in a fraction of the time it would have taken to pay off the debt just making the minimum monthly payments.

Background – Debt Settlement, or Debt Negotiation as it is some times called, is a rapidly growing financial service industry that grew out of the exponentially mounting consumer debt and the realization that consumer credit counseling, with its 60-70% dropout rate, just wasn’t working for those seriously in debt.

Who should you contact? – There is one company than stands out because of their excellent track record (quality service and results) and their unique approach. I recommend that you start with this company for a free debt consultation.The program is Credit Card Relief™.

What Makes Them Unique?

Great Track Record - Credit Card Relief has years of experience, settling over $100,000,000 (one-hundred million) of debt for thousands of clients.

Operate in 46 states.

Low Monthly Payment – Credit Card Relief can cut your monthly payment by as much as 50%.Unique Program Approach - Their program is unique in that Credit Card Relief uses a consortium of attorneys. A network of participating program attorneys, local to their clients, provide a free initial consultation to determine if debt settlement is the best solution and once enrolled, offer limited representation. The debt is then mediated by a nationally known debtor mediation law firm.

Your Money is Safe - In addition, each Credit Card Relief client is part of a unique Enrolled Member Trust, through which all their funds are deposited into a totally insured, risk-free trust account with a national bank. No money leaves your account without your permission.

Satisfied Clients - Credit Card Relief provides superior service, with on-going support throughout the duration of the program, through their full-time Client Care and Compliance departments. They have Zero open complaints with the more than 400 Better Business Bureaus (BBB’s) and the over 16,000 local, state, and federal regulatory agencies monitoring the industry.

You can obtain a free debt consultation from Credit Card Relief™ by clicking here. They can help you determine the best solution for getting you free of debt. For more information, read my blog dated September 29, 2006.

Check back tomorrow for my next blog that addresses another all too common mistake and what you can do!

Mounting Credit Card Debt – Biggest Mistakes People Make – Con’t.

In this series of blogs, I am discussing 5 of the biggest mistakes people make when faced with mounting debt, especially credit card debt, and providing some ways you can avoid or correct your mistakes. Yesterday I covered the problem with only paying the minimums on your credit card bills. Today we will discuss the second mistake:

2. Using your home’s equity for credit card debt consolidation: This may seem like a good solution to mounting debt, but it has some potentially serious consequences. By borrowing against the equity you have in your home, you are trading unsecured debt for secured debt. Sure those credit card balances or medical bills are paid off, but now, if you default on what is essentially a second mortgage on your home, the lender can foreclose and you could lose your home. Putting your home at risk is not a good tradeoff, especially for those seriously in debt and already struggling to make monthly payments.

Other Drawbacks

• You could owe more on your house than it is worth - With loans typically spread over 15 – 30 years, if you do have to sell your home for any reason in the short term, you could actually owe more between your mortgage balance and home equity loan than what you make on the sale of your home. In the current real estate market with dropping home prices, this is a real threat!
• Equity loans typically have an adjustable rate. As the prime rate rises, the loan rate rises and with it your monthly loan payment.
• Some people, seeing zero balance credit cards for the first time, suddenly think they have a whole new line of spending power. They somehow forget that they are still paying on that credit card debt! They start charging again and are suddenly faced with both the equity loan and maxed out cards to repay.

What to do Instead:

You may be a candidate for debt settlement. With debt settlement, a qualified settlement or mediation company works for you with your creditors, to “negotiate” a reduction in your unsecured debt. With this approach, you preserve the equity in your home, while getting out of debt for less than what you owe and in a fraction of the time it would have taken to pay off the debt just making the minimum monthly payments. Read yesterday’s blog for further details on this program and who to contact.

Tomorrow I will cover Mistake Number 3.

Relief From Debt - Don't Make One of These Mistakes

Growing consumer debt is a very real problem in this country. While the moguls on Wall Street continue to reap the rewards of a bull market and vehemently assert that ‘the economy is booming’, the average American on Main Street isn’t so sure. A recent Washington report states that 70% of hourly workers are living paycheck to paycheck. They struggle silently each day to make ends meet, just getting by, until the car breaks down, dad gets sick and can’t work, or mom looses her job due to the factory closing and her job moving overseas. Then, in desperation to try to resolve the situation, many make one of the all too common mistakes I discuss below which can actually make matters worse! Here is what you need to know so you don’t end up digging your debt pit even deeper!

Don’t Use Your Home
If you thought about taking out an equity line against your home or refinancing your home to use your existing equity to pay off credit card debt, be very, very careful! While it may seem like a good option since the interest rate on an equity line or a mortgage is typically less than on a credit card, there are some serious drawbacks you must be aware of before you make this choice.

Drawbacks

• Don’t trade unsecured debt for secured - By borrowing against the equity you have in your home, you are trading unsecured debt for secured debt. Sure those credit card balances or medical bills are paid off, but now, if you default on what is essentially a second mortgage on your home, the lender can foreclose and you could lose your home. Putting your home at risk is not a good tradeoff, especially for those seriously in debt and already struggling to make monthly payments.
• You could owe more on your house than it is worth - With loans typically spread over 15 – 30 years, if you do have to sell your home for any reason in the short term, you could actually owe more between your mortgage balance and home equity loan than what you make on the sale of your home. In the current real estate market with dropping home prices, this is a real threat!
• Equity loans typically have an adjustable rate. As the prime rate rises, the loan rate rises and with it your monthly loan payment.
• Some people, seeing zero balance credit cards for the first time, suddenly think they have a whole new line of spending power. They somehow forget that they are still paying on that credit card debt! They start charging again and are suddenly faced with both the equity loan and maxed out cards to repay.

Watch Out for Low Introductory Rate or Balance Transfer Card Offers
While those enticing low introductory, 0% rates look like an easier way to get out from under your mounting debt, if you aren’t careful it can actually end up costing you more. How can this happen?

• First, if you are transferring a balance from another card, there is typically a transfer fee. The average fee is 3% of the amount transferred. Some issuers limit the fees to $75, but a growing number are doing away with the limits. This means that a transfer of $10,000 could cost you $300 in fees alone.
• Second, most issuers only grant a "grace period" on purchases if you have completely paid off your previous balance. If you transferred a balance to take advantage of the low introductory rate and you don’t plan to pay off the balance until the end of the introductory period, say 6 months, interest charges will begin to accrue on each new purchase from the day you buy them.
• Third, issuer terms usually state that 100% of each payment you make is applied to the balance with the lowest interest rate. Since your new purchases are typically subject to a higher interest rate, they will be the last in line to get paid off. Your payments will be applied to that balance you transferred instead of toward your new purchases. So your new purchases will sit there, building up interest at the highest rate, and you can't stop it without paying off the balance transfer in full, the very balance you had hoped to pay off over time. The only way around this is to take out the low introductory rate card and use it exclusively to pay off your old balances. Make all new purchases on another card until the old balance is paid off. Focusing only on the introductory rate without reading all the terms and conditions could leave you paying more in interest and fees than you did on your old card.
• Fourth, if you don’t pay off the balance transferred during the introductory period, once the period ends, they start making higher interest on that left over balance, along with all your new purchases.There is one more potential gotcha buried in the fine print. If you happen to be late on your payment for any reason during the introductory period, your rate will immediately skyrocket, in some cases as high as 30%. Before you sign up, be sure you know what all the terms are for that seemingly wonderful new card offer!

Don’t Assume Bankruptcy Is The Easy Or Only Option
If you thought your best option was to just file bankruptcy and start over…think again! Under the new bankruptcy laws, it is substantially more difficult to file bankruptcy as a means of escaping mounting debt. Under the new laws, before you can file bankruptcy, you must first complete financial counseling. You will have to attend classes and provide detailed records of your income, expenses, and tax records. (Remember, under a “consumer credit counseling” program, you will still be required to pay back the entire debt.) Only if the counseling agency determines that you are financially unable to complete a payment plan will you be able to proceed with filing bankruptcy.

Chapter 7 Bankruptcy discharges (wipes out) your debt. Chapter 7 qualifiers usually have little to no assets. Under Chapter 7, your assets (less those exempt by your state) are sold to pay your creditors as much of the debt you owe as your assets will cover. The remaining “eligible” debt is discharged. However, there is some debt that is not dischargeable and you will still be required to pay in full, such as taxes, spousal and child support, student loans, and certain luxury purchases. Under the new law, items deemed as “luxury” of $500 or more purchased within ninety days of the bankruptcy filing (or $750 within seventy days) are not dischargeable. If your income is too high, you won’t be able to qualify for Chapter 7 and will have to file Chapter 13.

Chapter 13 Bankruptcy is a debt payment plan. You will agree to pay most or all of your debts over a period of time, three to five years. The courts will assign a trustee who will review your finances and determine how much you will pay each month. Again, your Credit Report will show a bankruptcy.

Drawback to Bankruptcy: For many, bankruptcy is the only option, but it isn’t a “get out of debt free” card. It might be a way to stop those harassing phone calls but it is a painful process in and of itself and the wound doesn’t heal quickly. A bankruptcy stays on your credit report for ten years and will stay on your court records for 20 years. Many applications, including those for jobs, loans, or certain types of insurance ask you if you have ever filed for bankruptcy. More and more, companies are conducting background checks on prospective employees and a bankruptcy will show up on the report. Bankruptcy should really be your last resort. There is a better way out!

Do Consider Debt Settlement If You Are In Serious Debt Trouble
If you have credit card debt over $5,000, are struggling to make the minimum payments each month, take out new cards to help pay off old card balances, or seriously thought you might need to file for bankruptcy, you may qualify for Debt Settlement. Debt Settlement is a program in which a qualified settlement or mediation company works for you with your creditors, to “negotiate” a reduction in your unsecured debt. Under this program, each of your creditors agrees to accept a portion of what you owe them, in lump sum payouts, as payment in full. You’re now out of debt for less than what you owe and in a fraction of the time it would have taken to pay off the debt just making the minimum monthly payments.

Background – Debt Settlement, or Debt Negotiation as it is some times called, is a rapidly growing financial service industry that grew out of the exponentially mounting consumer debt and the realization that consumer credit counseling, with its 60-70% dropout rate, just wasn’t working for those seriously in debt.

Who should you contact? – There is one company than stands out because of their excellent track record (quality service and results) and their unique approach. I recommend that you start with this company for a free debt consultation.The program is Credit Card Relief™.

What Makes Them Unique? Great Track Record - Credit Card Relief has years of experience, settling over $100,000,000 (one-hundred million) of debt for thousands of clients.Operate in 46 states.Low Monthly Payment – Credit Card Relief can cut your monthly payment by as much as 50%.

Unique Program Approach - Their program is unique in that Credit Card Relief uses a consortium of attorneys. A network of participating program attorneys, local to their clients, provide a free initial consultation to determine if debt settlement is the best solution and once enrolled, offer limited representation. The debt is then mediated by a nationally known debtor mediation law firm.Your Money is Safe - In addition, each Credit Card Relief client is part of a unique Enrolled Member Trust, through which all their funds are deposited into a totally insured, risk-free trust account with a national bank. No money leaves your account without your permission.Satisfied Clients - Credit Card Relief provides superior service, with on-going support throughout the duration of the program, through their full-time Client Care and Compliance departments. They have Zero open complaints with the more than 400 Better Business Bureaus (BBB’s) and the over 16,000 local, state, and federal regulatory agencies monitoring the industry.You can obtain a free debt consultation from Credit Card Relief™ by clicking here. They can help you determine the best solution for getting you free of debt. For more information, read my blog dated September 29, 2006.

Don’t Be Lured By Too-Good-To-Be-True, Get-Out-Of-Debt Options
Advertisements to get you out of debt for pennies on the dollar are all over television and the radio these days, but if it sounds too good to be true, it probably is! If they’re quoting you 50% or more in debt reduction or 12 months to be debt free, ask them if they will put that in writing! Then listen to them back-peddle. Some of these companies have a list of filed complaints with their local Attorney Generals or the Better Business Bureau that are a mile long and some are being scrutinized quite closely. The reality is, most credit card companies will negotiate the balance owed, but not for a mere pennies on the dollar.