DebtFREE-Revolution

I’ve been highly critical of the Fed over the past several months in regards to their interest rate cutting spree and what it does to my purchasing power, calling them not-so-nice names of which I can only print bonehead, idiots, and stupid on this blog due to my self-imposed no-cussing rule.  The things I say out loud when reading such news rival my parents’ vitriolic descriptions of former presidents Nixon, Ford, and Carter.

But, yesterday the Fed did something that deserves a solid pat on the back (the harder the better, maybe we can knock some sense into them on other subjects!).  The Federal Reserve has proposed rules to prohibit unfair credit card practices!  This is only a few months after House Representative Carolyn Maloney introduced the “Credit Card Bill of Rights” bill in Congress (pdf summary here).

Needless to say, credit card issuers aren’t happy with either of these proposed rules changes.  Apparently they think they should be the only ones to change the rules of the game.  They claim the proposed new regulation from the Fed and the pending bill in Congress will A) make credit harder to get and B) more expensive.

What’s the down side to this argument?  LOL  Most of y’all know my “extreme” view on credit cards.  I’m not convinced they are necessary, and absolutely detest the practices of credit card companies.

A) “Make credit harder to get.”  Well, that means credit card companies may actually quit sending offers to dead people and dogs … or maybe they’ll quit sending credit offers to dead dogs first!  I would love to get my hands on the envelope Dave Ramsey held up at the FPU tapings last year that was addressed to “Mr. Toby Cocker” with the note scribbled on it: “Dave, this is my dog, Toby the Cocker Spaniel - and he’s been dead for 4 years!”  Heck, my dead ex-2nd-husband still gets credit card offers, and because they are presort standard mailings I can’t seem to have them returned to sender with the note “addressee deceased” on them.  Maybe, just maybe, credit card companies will stop sending card solicitations to underage minor children while they are at it!  Think of the hundreds of thousands of dollars Crapitol One could save on postage…

B) “Credit could get more expensive.”  Hmmm, considering all the recent rate-jackings and the 34.99% max interest rate, I am wondering just how much more expensive credit card companies can get.  Perhaps they are considering moving into payday loan interest rates of 300-800%?

Speaking of those blood-sucking payday loan parasites, they used the exact same argument (and in some cases the exact same words) when they tried to stop Congress from putting a 35% interest rate cap on their active duty military customers.  In fact, they cried about how they would go out of business if Congress put that restriction on them (really, where is the downside to THAT argument?). 

I am sad to say that two weeks ago when I drove up 41A past Fort Campbell, the payday loan places were all still open with signs about tax refund anticipation loans in their windows.  Obviously, the payday loan parasites have figured out how they can stay in business even with the 35% interest rate limit to their military customers. 

I have a feeling the credit card companies are blowing just as much smoke up everyone’s 4th point of contact when it comes to both the Fed’s proposed regulations and Congress’s Credit Card Bill of Rights.  I have just as much sympathy for them as they have shown me in the past (and continue to show their current customers): NONE AT ALL.

It’s not rocket science to realize the credit card companies are going to fight both of these reforms tooth-and-nail, with a powerful multi-million dollar lobby as their weapon of choice.  Do we “little people” stand a chance against this?  If enough of us speak up we do!  That whole “for the people, by the people, and of the people” thing can sometimes work if enough of the people make their opinion known!

Call every representative and senator you have and tell them to support the Credit Card Bill of Rights.  Use the phrase “I am a registered voter, and this is a decisive issue for me,” and make it true.  Make sure the person on the phone with you understands you WILL vote against the politician if s/he caves in to the lobby.  If you have your own story about unfair credit card practices, be sure to throw that in for good measure.

Of course, when it comes to credit cards themselves, the most powerful vote you have against them is with your scissors!  Cut them up, pay them off, and refuse to use them again!  Take your ball and go home, because credit card companies don’t want to play fair and they don’t want anyone to force them to play by set rules.  If enough people voted this way, they would have much more to worry about than the Fed or Congress trying to place fair limits on their unfair practices.

This is a guest post from Randall at Credit Withdrawal, who is pinch-hitting for me as I travel to my cousin’s funeral.  Show him some love, and if you like his writing be sure to subscribe to his anti-debt blog as well!

A recent article on the Consumerist Citicard Exec On Ending Universal Default: “It’s Like Telling People You Stopped Beating Your Wife” caught my attention, as did the link it referenced, News From The Swamp: Liveblogging The Senate Permanent Subcommittee On Investigations Hearing On Arbitrary Credit Card Rate Increases.  Apparently, our wise leaders in Washington have finally decided that the credit card companies might be doing something naughty with their semi-random rate increases, their ever-increasing penalties, and their FICO score finagling.

From the articles (especially the senate subcommittee one) there is an interesting behind-the-scenes struggle going on between Congress and the big credit card companies to come to a decision on whether the card companies are mistreating their customers.  I’m sure it’s fairly apparent to anyone reading this blog what the answer to that question is.

Have You Stopped Beating Your Wife Yet?

From the articles, it appears that Chase and Citicard/Citibank have dropped the Universal Default Clause as a means of sticking it to credit card holders. They are, however, maintaining the magical FICO-triggered rate increase, and the various fees, fines, and penalties.

For those not familiar with a Universal Default Clause, here’s a quick definition.

When a card holder with card A (Visa for instance) fails to pay on time, this is reported on their credit score. This clause allows any other card companies (say card B, MasterCard for instance) that the card holder ALSO has cards with, to raise the interest rate when they do a periodic credit check on the customer, even though they were never late with a payment to card B.

This is one of the worst, and probably most secretive practices of the credit card companies. The fact that a whole domino-chain of credit cards can increase the interest rates for missing ONE payment is bad. For that payment not even being on the card increasing the limits is borderline CRIMINAL.

Why you’re not hearing about Chase and Citicard dropping the rates is because they’re trying to get out of a sticky situation with Congress, by throwing them a bone (dropping the Universal Default clause) but WITHOUT notifying their customers that the clause EVEN EXISTED. That way they won’t get caught with their hands in the cookie jar by their customers.

Even with this concession, there’s a good possibility that Congress won’t be satisfied until some more changes are made. It’s become VERY apparent that the credit card morass that the U.S. is in, is only going to get worse with the existing credit card practices. And with the Subprime bubble, Recession, and other economic problems facing your average consumer nowadays, it’s not healthy for businesses to take advantage of them the way they are used to.

I doubt that even Congress will get the credit card companies to completely reform how they do business, short of an extreme tightening in usury and lending regulations. Other than that, they can grill the CEOs of the various banks and institutions for many less-sweeping changes.

Is THIS a Good Enough Reason to Ditch the Debt?

As if we needed more reasons to dislike credit cards, the hilarious take on the Senate Subcommittee meeting (see above link) illustrates how even the credit card companies can’t always defend their actions. Taken as a whole, credit cards are the albatross around most American’s necks. Getting rid of the cards can put you on a whole new side of life that you probably haven’t seen in a long while. The debt-free side.

Last week I posted about kids and credit cards and asked Who is to blame?  This was in response to a comment left on my post about a reader’s 12 year old daughter getting credit card offers where I was taken to task for blaming the banks and credit card companies for my (our) mistakes.  That’s what I love about blogging with open comments: y’all can make me think and rethink things.  (Just remember the comment policy is still in effect.)

The other beautiful part of blogging is other bloggers can join in, and some have:

• CleverDude wrote a massive post on how he thinks it is first the parents’ responsibility to educate their children, then once the child has reached adulthood it then becomes strictly personal responsibility.
• LJ from Mommy Gets Paid thinks the credit card companies know exactly what they are doing when they raise the college kids’ limits to ridiculous levels.  They did it to her, and her parents helped her out.  (Mine didn’t.)
• Ryan from Millionaire Money Habits says college kids are just too impulsive and truly need a plan before they ever step foot on campus.  While I may not completely agree with his plan, it’s still better than no plan at all.
• CindyS from Oh My Aching Debts supports personal finance classes in the schools, since her parents didn’t teach her about money.  Judging from the economic news nowadays, I’d say a lot of adults in America didn’t get financial education from their parents.

Perhaps the best response to the question I posed can’t be linked to.  Lara92 from MyTMMO board says there is enough “blame” to go around and touch all parties involved.

1. It starts at home.  Parents should include things like budgeting, paying bills, and managing reasonable levels of credit on the list of “must teach” to their children.  I don’t think any parents simply hands a teenager the keys to the family car and says, “Go figure it out on your own,” so why do we do this with money?
2. Once a person is an adult, they have the responsibility to keep learning and discovering better ways (or the tried-and-true ways) of how to manage their personal finances.  No one will look after YOU better than YOU.
3. The banks and credit card companies are not blameless here.  They intentionally target college kids, and some have engaged in kiddie branding tactics.  They intentionally write their terms for credit cards in legal double-speak, so badly that Professor Elizabeth Warren of Harvard Law School said (in the excellent Frontline special about credit cards, part 3) a graduate level contract law class of hers could not agree on what a credit card companies “disclosure” actually said.  They often use dirty tricks to hit you with fees and can change the terms at any time.
4. Schools should teach at least a basic personal finance class.  We teach kids everything else in school, why is this neglected?  Perhaps the most comprehensive suggestion I came across recently was proposed by a college student in a guest post at Blueprint for Financial Prosperity.  I’m not sure that plan will fly, but even just a budgeting and how to deal with credit class would go a long way for future generations.

This post probably doesn’t clear much up for anyone LOL  It doesn’t for me.  This is a massive problem, especially here in America right now.  We have at least three generations of adults who seem to have problems managing their personal finances!  (That’s a generalization, I know there are quite a few individuals who can.)

With so many different factors involved in identifying the cause of the problem, how are we going to figure out and agree on a solution?

Sometimes I get comments on posts that make me stop and do some serious thinking.  If I think long and hard enough, I end up writing a whole ‘nother post on the subject.  Once again, I find myself in this situation, with a statement from first-time commenter klippies on my post about credit card offers for minors:

I read a lot of pf blogs and are always amazed that people blame the banks and the credit card companies for everything. (…) Do not always blame someone else for your bad choices. Nobody is forcing a student or anyone else to apply for credit cards or to use them without being able to pay the balance. Use common sense when dealing with money.

This has made me stop and think: Who is to blame when the combination of college kids and credit cards turns out badly?  Or the combination of military kids and loans turns out ugly and in the first sergeant’s office?  Those two groups are highly targeted by credit card and loan companies to the point it is nauseating. 

• Is it the kids’ (young adults, barely over 18 years old) fault for being naive and uneducated in the ways of handling money and credit? 
• Is it the credit card companies’ and loan places’ fault for taking full advantage of this naivete? 
• Is it the kids’ parents’ fault for not teaching what they might or might NOT know about handling money?
• Is it the schools’ fault for not including sound financial principles in the curriculum?
• Is it the government’s fault for not regulating this?
• Is the blame somewhere in the middle of all these?  With everyone having a share in the fault?
• Is it no one’s fault because (excrement) happens?

This is a really touchy subject, because any time fingers are pointed, someone gets defensive as a knee-jerk reaction.  I know I got a bit defensive when I first read klippies’ final sentence:

Maybe common sense kicked in late for you, but at least you fixed your behaviour (the banks did not change theirs).

Yes, common sense waited until I was almost 34 years old to slap me upside the head.  I knew I didn’t like credit cards, and knew I shouldn’t use them … but I also didn’t know how and what to do to rid myself of them.  I didn’t know any other way other than what I saw on the television and in the ads and what my parents and friends did.

I don’t think I have a straight answer to this.  Maybe I need to think on the subject a bit more.  I am certainly interested in hearing YOUR opinion on this subject!  Who is to blame when kids and credit cards (or loans) turns out to be a very bad situation?

Monday, in response to my post on how credit cards were my biggest money mistake when I was a college freshman, reader blackneto sent me this email:

My 12 year old daughter received an offer for a credit card targeted at HS Seniors from 1st Financial Bank. (emphasis mine. -Ana)

I have a feeling she got it because  she’s been in several programs through the local Community College and they probably sold their enrollments to whomever sends these offers out. Or she entered a contest or drawing at one of the events she’s been to and the list was sold from there.

This is a scary situation!  I have very little doubt colleges are now selling their enrollments to credit card companies.  After all, they let them on campus throughout the school year for money, so selling the enrollment information is the natural progression (anyone have a link for this?).

It’s also extremely likely it came from a contest or giveaway.  Credit card companies are more than profitable enough to hold giveaways worth more than a free pizza, t-shirt, or hat (although that is usually all it takes to rope in the college freshmen).  It could very well be that the giveaway was sponsored by a credit card issuer, and the fine print might have said that you agree to receive solitations.  It wasn’t that long ago my son was 12 years old; I know they don’t read the fine print.

In my email response to blackneto, I suggested two things to help safeguard his daughter against identity theft:

• going to optoutprescreen.com and stopping any future credit cards offers.  I have done this myself for hubby and I.
• If available in his state, putting a freeze on his daughter’s credit report until she reaches the age of 18.  There is absolutely no reason for a 12 year old to have any credit activity, so freezing her credit report is a good step to prevent identity theft for minors.

So with the safety issues taken care of, let’s step back for just one second.  Credit card companies have been targetting college students like nothing else for over a decade … but now they are going after high schoolers?  Are they going to start showing up on our kids’ doorsteps the morning they turn 18 next?  Tapping on their windows as the sun rises, with a huge smile saying: “Good morning!  You are now officially an adult so fill out this credit card application!”

My son starts high school in the fall.  I am beginning to worry that all my admonitions against getting into credit card debt may fall on deaf ears.  There is an unbelievable amount of “peer pressure” out there that says you are somehow magically an adult once you get a little piece of plastic with a magnetic strip … and the debt that comes with it.  Most of this pressure comes from the credit card companies’ marketing departments themselves.  I am glad we just don’t watch much television, with its brainwashing barrages in 30 or 60 second doses during every commercial break (which seem much closer together than when I was younger).

Hey, I’m a mom; I’m allowed to worry needlessly.  Blackneto is also a parent and is allowed to worry about this situation.  If you are a parent, YOU should be worried about credit card companies trying to snare our young people into serious debt!  The idea that college campuses are willing (and bought) accomplices should be a huge warning flag: WE as parents need to counter-brainwash our kids to “JUST SAY NO!” to credit cards.

Colleges across the nation don’t look out for our kids.  They have already sold out, and the credit card companies can easily afford the proverbial “thirty pieces of silver” in each and every college town.  Now it sounds like they are targetting our high schoolers.

Anyone else’s minor children receiving credit card offers in the mail?

Someone on a blogging board made the comment this morning that he has been trying to get through to his son about credit card use and how the son will get nowhere fast making only minimum payments on the balance.  Yes, I cringed at the thought of a young adult making only minimum payments and still using a credit card … mainly because I have been there and done that and had the credit report to prove it.  I blogged about how credit cards were my biggest money mistake when I was that age yesterday.

The thought has also occurred to me that if this person is making only the minimum payment while still using the credit card, he is not just spinning his wheels.  He is going BACKWARDS financially, digging himself deeper into the debt hole each and every month.

I remember last year before I had managed to get hubby to promise not to use the credit cards anymore.  We had made double the minimum payment that month, and hubby used the card to purchase a calling card while in Korea so he could call home and talk to me at zero-dark-stupid in the morning.  When we got the next month’s statement, the balance had actually gone UP.  We had paid about $60 on the balance, and the calling card hubby bought was under $25.  It was the interest and the “currency exchange fee” that made us go backwards.  If we had only made the minimum payment, we would have gone much further in the hole than just $5, but that was enough to get hubby good and mad.  In fact, that was what finally convinced hubby to stop using the credit cards.  (Name and shame: it was American Express Blue card.)

Those of y’all who still have credit cards you are working to pay off:  break out the monthly statements!  I’m not asking for any figures to the penny (although you can be exact if you wish) I want to know about minimum payments versus interest charges.  How much actual principle are you paying when you only pay the minimum payment?  For the math nerds among us: how long will it take to pay off the balance if you ONLY pay minimum payments?

Maybe we can get this dad’s message delivered to his son in a way a young man will listen.  As the mom of a headstrong teenage boy, I know sometimes they will listen to others before they listen to parents.

Millionaire Money Habits has just started up a new contest on his blog called “What’s your biggest money mistake?” and y’all probably know where I am going with this one … CREDIT CARDS!  I know I am in good company with this hideous money misstep.  Credit card companies are expert marketers and have managed to snare so many people …

I’ve blogged about this before, for those of y’all who were reading back at the beginning of the year for my great credit card debate.  For me, the big money mistake started when I was a naive 18 year old college freshman with only a minimum wage part time job at Taco (H)Bell on the weekends.  Citibank, that notorious campus predator, snared me young.  With a 21% interest rate, I ended up working more than just the weekends, since I had very poor money handlng skills … well let’s be honest, I was simply clueless and easy prey.  And it only took one missed payment for my interest rate to get jacked up to 29.9%.

You might think I learned my lesson with my Citibank experience, but I had dug in and fortified my position in the Land of Stupid by getting another credit card, and with this second one “only” having an 18% interest rate I actually thought it was a “good deal.”  Of course, that was the credit card that my ex and I used to buy a horse (no, I am not kidding!) and of course we didn’t read the fine print that said cash advances on the credit card had a 26% interest rate.

Let’s not forget the Bealls card for my 19th birthday, the JC Penney card, and of course the Sears card that I never had the opportunity to use since it always had tires or tools charged to it.  Those store credit cards all start at 21% interest, and it just gets uglier from there if you miss a payment, which we did due to disorganization and inattention (and not having a budget!).

The ironic thing about all this is my grades and IQ tests all claim I am highly intelligent.  When it came to money, I was completely uneducated and DUMB DUMB DUMB!  I was lost in the Land of Stupid and making just about every money mistake in the book.  I didn’t like what was happening with the credit cards, but I had no idea how to fix it.  I finally stopped using those insidious little pieces of plastic, but the bills lingered for another EIGHT YEARS because I was still quite ignorant about how to handle money.

Once the old credit card bills were paid off, I still wandered through life clueless about how to suceed with money.  I didn’t get any new credit cards, but six years later I did something TRULY STUPID: I urged hubby to get a couple credit cards to “build his credit score.”  I wince just typing that.  I didn’t want the things myself, but thought it was a good idea for hubby …  I’m sure I could write a whole ‘nother post on that alone.  But, that was how we got back into credit card debt hell.  It was my idea (and yes I am ashamed of myself, even though I hadn’t found a better way by that time).

Then about ten months into doing another stupid money mistake, I found out about Dave Ramsey.  THIS was what I had been looking for!  This was what I had been needing for fifteen years as I wandered through life making money mistake after dumb money mistake.  I got busy, got myself on a budget, and paid the three credit cards we had off in pretty good time.

I’m never going back into that particular Land of Stupid.  I am never again paying stupid tax in the form of credit card interest or fees.  And just in case anyone hasn’t figured it out yet, I will use this blog to try to prevent others from making the colossal money mistake of using credit cards!

Last month during the Great Credit Card Debate I mentioned “rate-jacking” as one of the evil little ways credit card companies seperate you from your money.  With all of the Congressional attention one would think they might have laid low for a while … but apparently Bank of America isn’t.  In fact, at the same time I was trying to warn people of rate-jacking Bank of America was sending out notice of their latest way to bring in money.  BusinessWeek wrote about it yesterday, and before publishing their two-page expose they tried to get some kind of explanation.

I’ve read the article over twice, trying to find Bank of America’s explanation … and it sounds so vague as to be nonexistant.  This sounds like a classic case of rate-jacking, where the company is jacking up interest rates solely to bring in more money.  And where can they get more money in this new age of credit card defaults and tightening credit?  From their most reliable customers, of course!

Folks, if you have a BoA credit card, go rummage through your mail from the last month to double-check that you haven’t been caught by this latest rate-jack.  Their opt-out standards are:

The so-called “opt-out” letters give borrowers the option of no longer using their card and paying off the balance at the old rate. But they must write Bank of America by later this month if they plan to do so—otherwise their rates on existing and new balances automatically rise.

Of course if you read this particular blog, that shouldn’t be any problem for you since I am all about paying those leeches off and getting them out of your life forever!  But I see absolutely no need to pay them any more money than absolutely necessary, and I am sure you don’t want to indirectly bail out their purchase of the now-infamous subprime mortgage lender Countrywide (who BoA recently purchased).

Rate-jacking is very real, and I expect to hear about it more and more as things get bleaker and bleaker for the credit  industry.  The absolute best defense against such insidious tactics like rate-jacking is to simply pay those credit cards off and never ever carry a balance again!  (Personally I would prefer to hear that you never use them again, but I have become slightly realistic lately.)