What is a Credit Card Charge-Off? Monday, May 7 2007

Essentially, this is an accounting term used by creditors for a debt that is considered uncollectable because they debtor has not made any payments within a certain period of time (usually 6 months). Although the creditor no longer considers the debt one of their assets, the debtor is not relieved of responsibility for paying the amount.

That would be too easy (and not fair to those of us who do pay off our credit cards on time). A charge-off does not equal a write-off. The creditor will often still try to collect on the debt. Because they have basically eaten your debt, they punish you by placing a serious negative mark on your credit report and often will still try to collect on the debt, or sell it to a debt collection agency.

Debt collection has become a big business in recent years. Collection agencies can often buy old debt for pennies on the dollar or less. Once the debt is in the hands of a collection agency, they get to keep any money collected, and will often use coercive and intimidating tactics to collect the debt. If you are being harassed by a collection agency, make sure you refer to the FTC’s Fair Debt Collection Practices Act to make sure the agency is not violating your rights.

Obviously, a charge-off is serious business and will have a negative effect your credit for many years. Obviously you should make every attempt to repay the debt. Check your state’s statue of limitations to find out how long the debt is considered collectible. Do what you can to work with creditors to come up with a payment plan that will work for you. But don’t be intimidated or bullied by collection agencies into thinking a charge-off is a insurmountable catastrophe.

Related articles: Resetting myths about resetting debt from Birds and Bills

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Stop Using Your Credit Card So Often! Tuesday, May 1 2007

Ahhh, credit cards. They have really made it so, so easy for us to spend, without us even realizing just how much we’re spending. Many of us pull out our Amexs many times over the month without even thinking twice, then look at the bill at the end of the month and sigh as if it’s just another necessary bill. Here’s some quick and relatively painless ways to curb your credit card spending:

• Give your self a cash allowance for the week. Use this for small things you may use your credit card for – lattes, gas, lunch, even happy hour…Using a cash allowance will you allow you to see just how much you are spending weekly on these small creature comforts. Making your allowance stretch all week will also put you on a budget. (Kinda takes you back to being 13 again.)
• Stop shopping so often. Easier said than done, yes; but there are small steps you can take to do this. Many women in particular visit the mall when they have a bit of free time. This usually leads to spending on things you don’t need. Instead, use your free time to start a new hobby, call a friend or relative, or exercise. Say your hobby is interior design, or you have a passion for fashion, and this is your excuse for shopping – subscribe to a design or fashion magazine to get your fix. $15/yr is much cheaper than a weekly shopping trip.
• Look at your bank statement every day. This will give you a constant reminder of just how much money you have (or don’t have) and how much you have recently spent. Get out of the habit of just glancing at your credit card statements when the bills arrive, and coughing it up as another necessity, like your electric bill or phone bill.
• Stop driving so often. I would guess many of us use credit cards to fill up the tank, and I know credit cards are the most common payment for pricey automobile maintenance cost. Riding your bike or using public transportation is not only better for your pocketbook, but also for the environment.
• Freeze your credit cards. Literally. This is kind of extreme, but a cool idea (no pun intended). Place your credit card in a mixing bowl full of water and put in it the freezer. Next time you are tempted to spend, you will be forced to go home and thaw out your card. This will give you some time to really evaluate your potential purchase. Sounds silly, and I have never actually tried it, but I bet it works.

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Credit Card Companies Becoming Big Brother: The Universal Default Clause Sunday, Apr 8 2007

We all know it’s important to pay your credit card bills on time every month. It’s become common knowledge that credit card companies have the authority to raise your interest rates immediately if you are even one day late on a payment. You don’t have to read the fine print to know this – everyone’s already heard the horror stories of interest rates jumping from 11% to 25% overnight because of a minor oversight.

Now credit card companies are exercising their authoritative muscle in an even more extreme way. They have the right to view your credit report monthly and penalize you for ANY late payments – including late phone bills, car payments, mortgages, etc. – thanks to the Universal Default Clause. And we’re not talking about a light increase – rates can be increased to as much as 29.99%. Outrageous. This sounds so completely illegal, but it’s not. Legal, but still evil, in my opinion. The clause is often buried in the fine print of the credit card agreement, and even when consumers do see it, they often don’t fully understand its implications because of the complicated terminology. (To rationalize this nonsense, credit cards execs claim that they are only protecting themselves when they believe that the risk of repayment has been increased by a customers late payments.)

We, as consumers, don’t have to be at the mercy of the credit card companies. Here’s what we can do:

1. Pay your bills on time. This seems obvious, but it’s good to mention. I try to pay my bills once they arrive. That way, they are taken care of immediately, and I’m not tempted to spend money on other things – leaving my budget tight when they are actually due.

2. Read the fineprint. Beware of taking out any new credit cards with the Universal Default Clause, and find out if the cards you currently carry have a universal default clause. Instead of canceling a card altogether, consider transferring your balance to a card without this clause. Canceling credit cards can sometimes negatively effect your credit score. (Seems, ironic, huh?) . Also, if you do apply for a new credit card, make sure the card you receive is the card you applied for. If you don’t qualify for the card your originally applied for, they may send you one with “comparable” terms. Be wary. Keep records of all cards you apply for to compare to cards you receive.

3. Check your statements regularly. This also seems pretty obvious, but it is surprising how many people don’t even look at their statements. If they do, they are often only looking at what charges have been applied, not the interest rate.

3. Check your credit report annually. This is a good practice anyway. It’s good to know what kind of credit you have, what your interest rates are, your credit score, etc. This is also important in preventing identity theft.

Do keep in mind, not all credit card companies are all bad. Kudos to Citibank, who has done away with a universal default clause altogether. Maybe we should all transfer our balances and see how well the other companies do without our business?

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