Eiik Lanui

http:¡¡en.wikipeuia.oig¡wiki¡Cieuit_(finance)
Cieuit
Cieuit is the piovision of iesouices (such as gianting a loan) by one paity to anothei
paity wheie that seconu paity uoes not ieimbuise the fiist paity immeuiately,
theieby geneiating a uebt, anu insteau aiianges eithei to iepay oi ietuin those
iesouices (oi mateiial(s) of equal value) at a latei uate. The fiist paity is calleu a
cieuitoi, also known as a lenuei, while the seconu paity is calleu a uebtoi, also
known as a boiiowei.
http:¡¡en.wikipeuia.oig¡wiki¡Bebt
Bebt
Bebt is that which is oweu: usually iefeiencing assets oweu, but the teim can covei
othei obligations. In the case of assets, uebt is a means of using futuie puichasing
powei in the piesent befoie a summation has been eaineu. Some companies anu
coipoiations use uebt as a pait of theii oveiall coipoiate finance stiategy.|citation
neeueu]
http:¡¡en.wikipeuia.oig¡wiki¡Subpiime_lenuing
Subpiime lenuing
Subpiime lenuing (neai-piime, non-piime, oi seconu chance lenuing) is a financial
teim that was populaiizeu by the meuia uuiing the "cieuit ciunch" of 2uu7 anu
involves financial institutions pioviuing cieuit to boiioweis ueemeu "subpiime"
(sometimes iefeiieu to as "unuei-bankeu"). Subpiime boiioweis have a heighteneu
peiceiveu iisk of uefault, such as those who have a histoiy of loan uelinquency oi
uefault, those with a iecoiueu bankiuptcy, oi those with limiteu uebt expeiience.
http:¡¡en.wikipeuia.oig¡wiki¡Fannie_Nae
Fannie Nae
The Feueial National Noitgage Association (FNNA) (NYSE: FNN), commonly known
as Fannie Nae, is a stockholuei-owneu coipoiation chaiteieu by Congiess in 1968
as a goveinment sponsoieu enteipiise (uSE), but founueu in 19S8 uuiing the uieat
Bepiession. The coipoiation's puipose is to puichase anu secuiitize moitgages in
oiuei to ensuie that funus aie consistently available to the institutions that lenu
money to home buyeis.
http:¡¡en.wikipeuia.oig¡wiki¡Fieuuie_Nac
Fieuuie Nac
The FBLNC was cieateu in 197u to expanu the seconuaiy maiket foi moitgages in
the 0S. Along with othei uSEs, Fieuuie Nac buys moitgages on the seconuaiy
maiket, pools them, anu sells them as moitgage-backeu secuiities to investois on
the open maiket. This seconuaiy moitgage maiket incieases the supply of money
available foi moitgages lenuing anu incieases the money available foi new home
puichases. The name, "Fieuuie Nac", was a cieative acionym of the company's full
name that hau been auopteu officially foi ease of iuentification (see "uSEs" below foi
othei examples).
http:¡¡money.cnn.com¡magazines¡moneymag¡money1u1¡lesson9¡
Noney 1u1
The aveiage Ameiican householu with at least one cieuit caiu has neaily $9,2uu in
cieuit caiu uebt, accoiuing to CaiuWeb.com, anu the aveiage inteiest iate iuns in
the miu- to high teens at any given time.
Boiiowing foi a home oi college usually makes goou sense. Iust make suie you uon't
boiiow moie than you can affoiu to pay back, anu shop aiounu foi the best iates.
http:¡¡moneycential.msn.com¡content¡SavinganuBebt¡P7uS81.asp
Bow uoes youi uebt compaie
Polonius woulunt have gotten veiy fai in Ameiica touay. Be's the Shakespeaie
chaiactei in Bamlet who waineu, neithei a boiiowei, noi a lenuei be.
http:¡¡www.bankiate.com¡bim¡news¡uebt¡uebtguiue2uu4¡uebt-tiivia1.asp
2S fascinating facts about peisonal uebt
Bebt. It's been a pioblem foi almost eveiyone at some time, fiom the ancient uieeks
to mouein movie stais.
Thioughout histoiy if you uiun't have the uiachma, you liteially coulu be enslaveu by
youi uebt, anu you'u become the piopeity of youi cieuitoi.
About 2uu yeais aftei the fiist 0lympic uames, ancient uieek lawmakei anu
statesman, Solon, changeu that foi his countiymen, outlawing uebt bonuage anu
canceling all outstanuing uebt at that time -- a highly populai move foi those with
iash spenuing habits, even befoie cieuit caius.
http:¡¡www.foibes.com¡peisonalfinance¡2uu7¡11¡27¡cieuit-uebt-caiutiak-pf-
euucation-in_gb_1126investopeuia_inl.html
Escaping Cieuit Caiu Bebt
Being smait about cieuit caiu uebt can help the aveiage investoi bank a guaianteeu
18%. It is a conscious uecision that coulu save the aveiage householu appioximately
$1,Suu a yeai.
So how can you bank these savings.
http:¡¡mwhouges.home.att.net¡nat-uebt¡uebt-nat.htm
uianufathei Economic Repoit seiies
The uianufathei Economic Repoits is a seiies of pictuie iepoits of economic
challenges to the futuie of families anu theii chiluien, compaieu to piioi
geneiations. You aie now at the chaptei on Ameiica's Total Bebt tienus. Welcome.
We hope youi visit will finu useful infoimation to help you anu youi loveu ones
Sam Iiizaiiy
50 Fun Facts About Credit Cards
Historical Nuggets
1. In the beginning, credit cards were just charge accounts, offered by individual
stores and only usable at those stores. The first credit card that could be used at
multiple locations was offered by The Diner’s Club in 1950. (full story)
2. Diners Club issued that first card to only two hundred customers and it could only
be used at twenty seven restaurants in New York City.
American Express History
S. American Express started off as a shipping company in 1850, shipping products
across the United States and capitalizing on the limited reach and slow speed of
the United States Postal Service. Their main customers were banks and they
shipped various financial instruments like stock certificates and other notes. They
began selling money orders and traveler’s checks in 1882 and issued its first credit
card in 1958. (full history)
4. In 1984, American Express billed their Platinum Card as extremely exclusive and
it had an annual fee of $250 ($484.84 in 2006 dollars). Today, the extremely
exclusive card for American Express is their black Centurion card with a $2,500
annual fee! (and requirement to spend $250,000 a year)
MasterCard & Visa History
S. MasterCard and Visa are networks of banks and financial institutions. American
Express is its own company and Discover Card is a subsidiary Morgan Stanley
(who is spinning off the business).
6. Visa was originally called BankAmericard, a card offered by Bank of America in
1958 in California. By 1970, they had created an association, called the National
BankAmericard, Inc., of all the US Banks that issued the BankAmericard. It
wasn’t renamed to Visa until 1976. (full history)
7. Visa actually stands Visa International Service Association.
8. The Visa logo colors were chosen because the blue represented the sky and the
gold represented color of the hills in California where Bank of America was
founded. (from Wikipedia).
9. Originally formed under the name Interbank Card Association and they acquired
the MasterCharge brand and logo in 1969. MasterCharge was originally formed
by four California banks in 1967, who joined together to form the Western States
Bankcard Association to battle the BankAmericard of Bank of America.
MasterCharge was renamed MasterCard in 1979.
1u. In 1984, MasterCard was the first to use a hologram on its cards to deter fraud.
Discover Card History
11. Discover Card was introduced by Sears in 1985 and gained notoriety because it
charged no annual fee.
12. At the time, Sears also owned the brokerage Dean Witter Reynolds Organization
and the Discover brand was integrated into that organization. When Dean Witter
merged with Morgan Stanley in 1997, Discover went along for the ride.
Useful Things That Make You Go Hmmmm…
1S. Wonder why minimum payments are so low? It allows consumer to carry more
debt while keeping to the same low minimum payment. You can give someone
with the ability to pay $100 per month a credit limit as high as $5,000 if they only
had to pay 2% a month. If the minimum payment were 5%, they could only have
a credit limit of $2,000. The lower the minimum payment, the deeper in debt
someone could be in.
14. It is against the merchant agreements of MC, Visa, and AMEX, for a vendor to
require you to provide your phone number, home address, or other personal
information for credit card transactions. In fact, some states make it illegal for
them to require it. (It’s not illegal to ask, but it is if they refuse to process the
transaction without that information)
1S. Under the merchant agreements of MC, Visa, Discover Card and AMEX, you do
not need to present a driver’s license in order to complete a credit card
transaction.
16. Under the merchant agreements of MC, Visa, and Discover Card, vendors may
not require a minimum purchase amount. Under AMEX, it’s more of a hint that
the vendor shouldn’t put up any barriers to use but AMEX also has a
discrimination rule, so if there is no minimum amount for MC/Visa, there cannot
be a minimum amount for AMEX. (Consumerist has all the relevant merchant
agreements consolidated)
17. Under the merchant agreements of MC, Visa, and Discover Card, vendors may
not charge a surcharge for using the card (the anti-discrimination rules still apply
for AMEX). In some states, it is actually illegal to charge a surcharge for credit
card purchases. This rule does not apply to government agencies.
18. On the flip side, offering a discount for cash payment (over credit card payment)
is permitted by all of the card companies (looooophole!).
19. A merchant may, on taking a personal check, require that you offer a credit card
number. It is against merchant agreements to charge a credit card in the event of a
bounced check (and it’s also very dangerous to have all that juicy information on
one little slip of paper, plus this may also be illegal in your state).
2u. You can lower your interest rate with a phone call. Credit card companies are like
cell phone and cable companies, they’re afraid you’ll leave and join with one of
their competitors. Use this to your advantage by comparing offers from other
credit cards and bringing this information to your credit company.
21. When you use your card, you agree to the cardholder agreement, you don’t have
to sign anything. If you get an update to the agreement, you also agree to the
updates once you use your card.
22. A fixed interest rate on a credit card can change with only 15 days of notice.
Fixed is not fixed in the sense that a mortgage loan is fixed, it’s fixed in the sense
that the credit card company can change it with only 15 days notice!
2S. If you have multiple balances with different interest rates on one card, payments
are generally applied to the balance with the lower interest rate. You will have no
choice in the matter and you cannot request it be made to the higher balance. So if
you have a $100 balance at 19.99% and a $5,000 balance at 4.99%, your
payments apply to the $5,000 at 4.99% first. A note about this will be in your
agreement.
24. The credit card sale process works as follows: The vendor sends an authorization
request for the value of the sale. The credit card company checks the card limit
and reduces the credit limit by that amount (it puts a “hold” or a “block”) and
sends the vendor electronic confirmation that the card is good. The vendor sends a
deposit transaction or a sale transaction. The credit card company sends the
money. This process is usually quick and painless… with the following
exceptions:
2S. Hotels and rental car agencies usually send an authorization request for the
estimated cost of your stay or rental and they keep this “block” on your card for
10 to 15 days (independent of how long you actually stay there) even if you pay
with something else.
26. When you use a credit card at a gas pump, the pump authorizes the purchase for
something in the neighborhood of $50 first. So if you have less than $50 left on
your limit, the pump will reject your purchase attempt.
27. Restaurants typically will authorize a credit card purchase for the amount of the
bill plus 25% (for gratuity), so again, if your limit can’t handle the extra 25%, the
purchase transaction will be rejected.
Technobabbliciousness
28. Ever notice all your credit cards are of uniform shape and size? Their dimensions
are governed by the ISO 7810 standard, an international standard for
identification cards. Banking cards, as well as driver’s licenses and retail cards,
follow ID-1 (passports follow ID-3). If your card has a smart chip, it follows ISO
7816, and if it has RFID, it follows ISO 14443.
29. The expiration date on the card is “fake.” You can still use the card after its
expiration date because the card number on your replacement will be the same.
The reason why cards do expire varies from company to company but mostly it’s
because the credit cards take a lot of abuse and just need replacing (they estimate
the magnetic strip is good for only about three or four years of swiping).
Su. Interested to know what’s on the magnetic stripe? Check out this breakdown of
the three tracks on Wikipedia (the rest of the page explains other magnetic
stripes).
S1. There are generally two types of magnetic strips, high-coercivity and low-
coercivity, with the high-coercivity being stronger and more durable (also
requiring more expensive equipment to handle). (from Wikipedia)
S2. Higher-coercivity are usually black and low-coercivity strips are a dark brown,
but there are special cases such as American Express’ patented silver colored
magnetic strip.
SS. Hotel keys and other low-coercivity stripped cards are susceptible to being
scrambled by a weak magnetic force, including cell phones.
S4. Credit card numbers conform to the Luhn algorithm, which is just a simple
checksum test on the number. What you do is start from the right and double each
second digit (1111 becomes 2121), then add them all together, and you should end
with a number evenly divisible by ten. If it doesn’t, it’s not a valid credit card
number.
SS. The first digit of the number is the Major Industry Identifier. 1/2 are for airlines, 3
is for travel/entertainment, 4/5 for banking and financial, 6 for merchandizing and
financial, 7 for petroleum, 8 for telecommunications. 0 and 9 are for other
assignments but you’ll likely never see them. If you look at an American Express
card, you’ll see it starts with a 3, a throwback to their travel/entertainment roots.
S6. The first six digits will correspond to the issuer, including the major industry
identifier. 34xxxx/37xxxx are for American Express, 4xxxxx is for Visa, 51-
55xxxx is for MasterCard, and 6011xx is for Discover.
S7. The rest of the digits (except the last one, which is a checksum digit) is your
account number.
Legal Ways You’ve Been Hosed & Un-Hosed
S8. Minors, those under the age of 18, are not obligated to pay back any charges to
their credit cards (unless a parent co-signs, but then its the parent who is on the
hook) because they are not allowed to enter into a binding contract.
S9. If there are unauthorized charges on your card, you’re on the hook for $50 each,
maximum (unless your agreement says you are responsible for less, you cannot be
responsible for more). If you report your card missing and an unauthorized charge
appears after you’ve reported it, you are liable for $0.
4u. By law, you are only allowed to dispute charges for “unsatisfactory goods or
services” if you made the purchase in your home state or within 100 miles of your
billing address and the purchase was for more than $50. (and if you’ve made a
good faith attempt to resolve it with the vendor) While a credit card company may
not hold you to this, they are protected by the law for purchases outside your
home state/100 mile radius.
41. Credit card companies are prohibited by law from sending you a card that you
didn’t ask for, unless it’s a renewal or a substitute card. If you get a credit card
you didn’t apply for, contact the Federal Trade Commission and file a complaint.
42. A common clause in most user/member agreements is that the cardholder waives
their right to sue the credit card company. The cardholder must instead go through
a binding arbitration hearing with the credit card company and cannot take the
company to court or participate in a class action suit.
4S. Before 1996 and the Supreme Court case Smiley vs. Citibank (517 U.S. 735,
Thanks j), there were restrictions on how much a credit card company could
charge for a late payment. The ruling in Smiley vs. Citibank lifted that restriction
and fees that were once around $5-$10 jumped to $30 or more today.
44. There is no federal law regulating the rate of interest a credit card company can
charge! The federal government use to regulate but repealed those laws during the
Great Depression and never put them back in place, they now rely on the states to
handle usury.
4S. In the Supreme Court case Marquette National Bank v. First of Omaha Service
Corp (439 U.S. 299, Thanks j) in 1978, the Court decided that national banks only
need to follow the usury laws of the state they are headquartered in, not the state
in which their customer resides.
46. Credit card companies are all headquartered in states with high or no cap on
interest rates. American Express is located in Utah (no cap), Bank of America is in
Arizona (36%), Citibank is in South Dakota (no cap), Capital One is in Virginia
(no cap), Providian is in New Hampshire (no cap), and JP Morgan Chase, MBNA
(now Bank of America), Morgan Stanley/Discover, and HSBC are all located in
Delaware (no cap).
Department of Holy Crap They Make A Ton of $$$$$
47. Each American household receives approximately 6 offers a month. The typical
response rate is .33% (one third of one percent). You can opt out of these mailings
via OptOutPrescreen.
48. Each direct mailing acquisition costs approximately $80, according to R.K.
Hammer, bank card advisory firm.
49. Credit card companies earned $90.1B in interest in 2006, up from $89.4B the year
before (according to R.K. Hammer).
Su. Credit card companies earned $55.2B in fees in 2006, up from $54.8B the year
before (according to R.K. Hammer).
Bo's anu Bon'ts
Nost of us aien't boin knowing how to use cieuit caius. Still, it's impoitant to leain
the iules of the cieuit caiu game - piefeiably befoie you stait playing. These uo's
anu uon'ts of cieuit caiu usage encouiage healthy spenuing habits foi new anu
expeiienceu cieuit caiu useis alike.

0se youi cieuit caiu to make eveiyuay puichases. Items like foou, clothing,
anu gas shoulun't be puichaseu with a cieuit caiu. 0sing youi cieuit caiu as a
substitute foi cash is a habit that can quickly leau to uebt. Foi oiuinaiy
puichases, leave youi cieuit caiu in youi wallet anu use cash oi uebit caiu
insteau.
uet into the habit of making minimum-only payments. Naking only the
minimum payment each month incieases the amount of time it will take to
pay off youi uebt. It also incieases the amount of inteiest you enu up paying.
To pay youi uebts off quickei anu cheapei, you shoulu pay as much as you can
on youi balance each month.
Five Reasons to Pay Noie Than the Ninimum
0se youi cieuit caiu to buy things you can't affoiu. Living a boiioweu lifestyle
is the quickest way to get into uebt. If you can't affoiu a puichase touay,
chances aie you won't be able to affoiu it tomoiiow, oi even next month.
Spenuing Babits That Leau To Bebt
Close out a cieuit caiu without knowing how youi cieuit will be impacteu.
Theie aie times when closing a cieuit caiu can huit youi cieuit scoie. Avoiu
closing caius that still have a balance oi those that make up a significant
amount of youi cieuit histoiy.
Five Cieuit Caius You Shoulu Nevei Close

Nake wise uecisions about puichasing items you neeu veisus those you
simply want. We've all useu the woiu "neeu" to uesciibe something we ieally
just wanteu bauly. 0sing youi cieuit caiu iesponsibly means iecognizing
which things you neeu anu which you just want.
Let youi cieuitoi know in auvance if you won't be able to make youi monthly
payment on time. The woist thing you can uo is simply foigo youi cieuit caiu
payment, no mattei the ieason. Nost cieuitois will assist you if you let them
know befoie you miss youi payment. Simply call youi cieuitoi, biiefly explain
the situation, anu ask that any late fees be waiveu.
When You Can't Nake Youi Payment
Stay within Su% of youi cieuit limit. A laige pait of youi cieuit scoie
consiueis the amount of uebt you have. Keeping youi balances low helps you
maintain a goou cieuit scoie. Not only that, lowei balances aie easiei to
manage than those that aie highei.
Bow Youi Cieuit Scoie Is Calculateu
Negotiate a lowei inteiest iate. Especially if youi cuiient iate is highei than
offeis you ieceive. Youi inteiest iate ueteimines how much you pay foi
caiiying a balance on youi cieuit caiu. Evaluate the inteiest iate on youi
cieuit caiu peiiouically to be suie you aie getting the best ueal possible.
Alarming Credit-Card Tricks
CREDIT-CARD COMPANIES ARE finding creative new ways to separate you from
your money.
According to the 2005 Credit Card Survey, released Thursday by Consumer Action, a San
Francisco-based advocacy group, some of the new tricks are among the most aggressive
yet. Companies have begun increasing borrowers' interest rates to 30% or more simply
because they've applied for a mortgage or car loan, or because the company has decided
the borrower has too much available credit. Consumer advocates warn of other trends like
socking people with overseas fees even when their purchases are made with U.S. dollars,
and penalizing them for not using their credit cards.
"It's like a trip wire," says Curtis Arnold, publisher of Cardratings.com, a credit-card
information web site. "If you're not a very diligent, savvy consumer, you're more than
likely to get tripped at some point."
Not surprisingly, consumers are spitting mad. The Better Business Bureau received
17,060 complaints against credit-card issuers in 2004, compared with 15,700 in 2002 and
a scant 4,900 in 1999. Gripes about credit-card companies now rank third in terms of the
volume of complaints the BBB receives. Five years ago, the industry came in at No. 12.
Here are five of the sneakiest tricks that credit-card companies are pulling on
unsuspecting customers.
1. Applying for a Mortgage? We'll Bump Up Your APR.
Creditors often increase your interest rate when they notice negative activity — say, a late
payment or an over-the-limit fee — on any of the accounts that show up on your credit
report. This practice, known as "universal default," has become increasingly prevalent
during the past few years. Today, 45% of credit-card providers engage in this practice,
according to Consumer Action, compared with 39% in 2003.
But while universal default has existed for some time, Consumer Action's 2005 survey
found an alarming new trend: You no longer need to do something wrong to be hit with a
universal default rate.
According to the survey, 43% of creditors who practice universal default would enforce it
if they deemed that a cardholder had too much overall debt. And 33% would do it if they
thought the consumer had too much available credit. Even things like getting a new credit
card (33%) and an inquiry related to a car loan or mortgage (24%) can trigger universal
default.
"It seems the banks are peering a little too closely into our credit reports and picking on
things that we feel are pretty insignificant and could happen to anybody," says Linda
Sherry, a spokeswoman for Consumer Action. It makes sense to treat as high-risk
someone who has repetitively been late with payments and has gone over credit limits,
she says. "But a person going out shopping for a car loan or a new mortgage? Those are
things that anybody does."
The highest default APR — 35% — is now offered by Merrick Bank, a Utah-based issuer
that serves more than 555,000 cardholders. Runners up were Citibank (C), Bank of
America (BAC) and Providian Financial (PVN), with 29.99%. (At a congressional
hearing this May, Citibank said it now notifies consumers before increasing their interest
rate, and allows them to opt out of the increase and continue using the card at the old rate
until the card expires.)
2. Beware Two-Cycle Billing
Two-cycle billing is a sneaky and complicated practice. It affects people who usually pay
off their balance in full each month, but end up in a situation where they have to carry a
balance for one or more months. (This is a likely scenario around the holidays, for
example, when Christmas presents add up and people find themselves unable to pay the
whole bill at once.) A cardholder in this situation will end up paying more in interest than
with a credit card that doesn't have a two-cycle billing.
How does it work? Banks usually calculate monthly interest charges for each billing
period based on the average daily balance. So let's assume that your billing cycle goes
from the first to the 30th of the month, and that you had a balance of zero for the previous
month or months. On July 10, you made a $1,000 purchase, your only purchase for that
month. Your average daily balance for July, then, would be $666.66 ($1,000 times 20,
divided by 30, since you carried that balance 20 days out of your 30-day cycle).
A card with an average daily billing cycle method of computing finance charges wouldn't
charge you any interest on that amount for July, since you started the period with a $0
balance. But a card with two-cycle billing would, since it calculates your average daily
balance for the last two billing cycles. In effect, a two-cycle billing card will assess
interest for the 20 days in July after you made the purchase, namely on $666.66.
Just how much interest you'll pay depends on your interest rate and purchase amounts. In
our example, if we assume your annual percentage rate is 18% (meaning you're charged
1.5% a month), your interest charges for January would be an extra $10. But what if your
purchase was $10,000 — say you paid a medical bill or bought new furniture? Two-cycle
billing would cost you an extra $100.
"That's where it gets you," says Gerri Detweiler, author of "The Ultimate Credit
Handbook" and founder of DebtConsolidationRX.com. "It affects consumers in a limited
number of circumstances, but it can be expensive." Her advice: Avoid credit cards with
two-cycle billing.
Last year, only two providers — Discover and Bank One, which consequently merged
with J.P. Morgan Chase (JPM) — used two-cycle billing, according to Consumer
Action. This year, the number has grown to five: Chase, Discover, Providian, National
City Bank, and First National Bank of Omaha.
David Ciani
1. Cieuit Ciunch Pioject
Exposing the Credit-Card Fine Print - TIME
http://www.time.com/time/magazine/article/0,9171,1715293,00.html
Banks moniter all borrowing behavior
Can trigger universal default
The reason the card industry is free to raise prices on existing customers at
any time and for any reason is tied to deregulation, which began in banking in
the 1970s and effectively eliminated caps both on interest and fees.
"Delinquency and default are nearly always due to loss of job or a 'life event'
such as health problems (and medical bills), death or divorce," wrote analyst
Chris Brendler of Stifel Nicolaus in a January report.
Ruth Owens, 57, understands this first hand. She was living on social security
disability when Discover Bank sued her for breach of contract for failing to
pay $5,564 in fees and interest on a $1,900 debt. In 2004, a Cleveland, Ohio
municipal judge not only barred Discover from collecting any more money
from Owens, but scolded Discover for its "unreasonable, unconscionable and
unjust business practice."
USATODAY.com - Here's a map for dissecting credit card fine print
http://www.usatoday.com/money/perfi/credit/2006-03-02-credit-card_x.htm
Increasingly, different interest rates apply to purchases, cash advances and
balance transfers. On top of that, there are penalty rates that can kick in if
you're an hour late paying your bill or you exceed your credit limit or your
credit score drops.
Want to pay off the highest-rate balance first? You can't. In their card holder
agreements, most issuers state that payments will go toward the lowest-rate
balance before making a dent on the higher-rate one. That keeps revolvers —
customers who carry a balance — in debt longer.
Also, you could have, say, a March 1 date to pay your balance in full without
incurring interest charges, but a later date — say, March 15 — to pay the
minimum to avoid late charges. So even if you paid the balance by March 15,
you could face interest charges, says Robert Manning, finance professor at
Rochester Institute of Technology.
If you refuse the changes, some issuers will let you pay off your balance on
the old terms but won't let you make any new purchases. Others will let you
keep the old terms and continue charging on the card until it expires.
Card holders can get back in Discover's good graces, but it'll take more than
one on-time payment: You must pay on time for nine consecutive billing
periods before Discover will consider reducing the rate on the existing
balance, the amended card holder agreement says.
Nearly half the banks that issue credit cards require you to give up your right
to sue and instead go through arbitration to resolve a complaint, according to
a 2005 Consumer Action survey.
One perk of paying with plastic is that if you're not satisfied with the
merchandise, you can ask your bank to dispute the charge. Pay with cash and
you'll have to rely on the merchant's goodwill to get your money back.
Consequences of ignoring credit card debt
http://www.bankrate.com/brm/news/debt/20051007a1.asp
Make it harder for you to get a job or promotion. Many
employers check credit reports before making hiring or promotion
decisions. A negative mark on your credit report, issued by your
creditor for nonpayment, will raise questions and concerns that may
result in you being a less-attractive employee.
Raise your interest rates. Many credit card issuers have a
penalty interest rate of 25 percent to 30 percent. If you default, you'll
qualify for it and your bills will look like you invited a hungry relative
for dinner. Under a policy called "universal default," if you are
overdue on one card, all other cards will raise your rates. Your credit
score will drop, and a lower credit score means new loans and credit
will cost you more.
Raise your insurance rates. Many insurance companies use
the data in your credit report to generate an "insurance score." Bad-
credit risks pay more for insurance or may fall outside of underwriting
guidelines and may not be offered renewals.
Keep you from getting the apartment you want. Landlords
often check credit before renting. Bad credit can keep you out of the
good places that would impress prospective girlfriends.
Call you till the cows come home. Expect that if you owe
enough, your account will be turned over to collectors, lawyers or be
sold to professional debt buyers. Interest will accrue and fees will be
charged. Your phone will begin to ring more often and you will never
want to talk with the person on the other end of the phone. Although
the Fair Debt Collection Practices Act protects you from abusive
collectors, it does not prevent legitimate collection procedures, which,
even within the law, can ruin an otherwise nice day.
Garnish your wages. You entered a contract with your
creditor and said you would uphold your end of the agreement by
making payments on your account as set forth in the agreement. If you
choose to breach the contract by not paying, the creditor has the right
to sue you in civil court to recover the money it is owed. This includes
liens on assets and attaching your wages through a process called
garnishment. The latter is not a plus with your employer either.
The Simple Dollar » Explaining Simple Interest, Compound Interest, APR, and APY
http://www.thesimpledollar.com/2006/11/28/explaining-simple-interest-compound-
interest-apr-and-apy/
So how else is interest calculated? Many organizations (such as banks and
credit card companies) use compound interest to calculate how large your
finance charges are and how much interest you get. Compound interest is
interest which is added back to the original amount.
Organizations do this on a regular basis and use a method that is most
effective for their business, allowing them to report an interest rate to
consumers that doesn’t actually describe the full situation of the payments.
For example, most organizations use compounded interest, compounded
monthly. This is in line with how most credit cards and many banks calculate
interest. Let’s look again at that $1,000 over a year at 5% interest. If we use
simple interest, the total is just $1,050, as we saw above. But if we compound
the interest each month, our calculation is a bit trickier, as we have to figure
the balance at the end of each month.

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