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10 Reasons to Love Your Credit Card Bank
by Scott Bilker

Scott Bilker is the author of the best-selling book "Credit Card and Debt Management." He is also the Editor and publisher of the FREE DebtSmart® E-mail Newsletter (http://www.debtsmart.com). Sign up today!

Call me an extremist. A few issues ago I wrote to you with "10 Reasons You Should Hate Your Credit Card Bank". In this issue I will point out the other side. Boy, the banks are going to love me for this; too bad they won't be sending me a check!

Love 'em, hate 'em, it's the same old story. Credit cards themselves are not bad. There are advantages and disadvantages. This time I want to take a look at some of those advantages...

By the way, please take the survey when you're finished--thanks!

1. Access to money
By being able to use your credit card you can actually save money! Here's an example from my personal life. My dentist gives a 5% discount if you pay at the time of service. Because I can pay with my credit card I get the 5%. Even if I paid interest on this amount, at 10% APR I can still take 6 months to pay it back and break even!

2. Protection from merchants
When you buy stuff with your credit card you are very protected. For example, if a merchant won't give you a refund for a return you can always contact your credit card bank and dispute the charge. The bank will probably decide in your favor and chargeback the merchant. The merchant would have to take you to court to fight further. On the other hand, if you paid cash instead of using your credit you would have to pursue the matter in court with the merchant.

3. A chance to build a positive credit history.
You must have a good credit history in today's society. Many people look at your credit report to judge you so it's vital that your report is the best it can be! Potential employers, insurance companies, mortgage companies, and many more will try to get an idea of your character from looking at this information. Having a credit card and using it wisely will help create that positive history.

4. Other perks and cash back rewards
There are many cards that actually pay you to use them. They provide a cash-back bonus or other reward. If you can take advantage of that reward then you can actually save money.

5. Warranty protection
Some credit cards will extend the warranty of an item purchased with that card. Contact your credit card companies to learn about these benefits so you know which card to use when purchasing that new computer.

6. Money in an emergency
If your car breaks down late at night you may not be able to get an ATM machine or your personal bank. However, by having a credit card you'll have access to the money you'll need in these tense situations.

7. Better deals than other loans
So many banks, so few good customers. They are fighting for our business! You may be able to get better rates from your credit card bank than from a personal loan or auto loan. Right now I have four, count 'em, four banks that are offering me 0% until near the end of this year!

8. No chance of losing cash
If you lose your wallet you've lost your cash. If you have $100 in there, it's gone. If you carry little cash and use credit, then, if you ever lose it you can call the credit card bank and report the card lost and you won't owe a dime. The bank loses the money, not you, HA HA!

9. Better than a debit card
If someone steals your debit card information they may be able to steal money from your accounts. If that happens, your checks will bounce and you'll have to deal with each place you wrote a check too plus the bouncing fees from your bank. You'll have to fight to get your money back. If someone steals your credit card then you would call the credit card bank and tell them cancel the account and you wouldn't be responsible for the charges that you didn't make. That's the risk banks take for the profit they make. Hey, that rhymes.

10. Customer service 24/7
Most credit card banks have reps there 24/7. That's great because you can deal with them at your convenience. If you pay your bill late Thursday night, and you have a question, you can talk to someone. Granted that you'll be dealing with their voice menu for a while before you speak to a human, but you will eventually speak to one. :-)

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An advance payday loan isn't really the best thing, even if you get behind. What's a better idea for a short term loan is to get a credit card, assuming you have decnt credit. If your credit isn't terrible, you can get a reasonable rate for it, sometimes starting at 0% apr. Then you can charge some of your expenses, and though you'll still be in debt, you won't have to worry about the terrible rate that comes with an advance payday loan.

Those loans can cost you 15 percent or more, and for what? Just to get a few days early the money you'll be getting anyway? Forget it. What a ridiculous idea. If you're starving – I mean, seriously physically starving – I can see the advantage of advance payday loan, but otherwise, it's usually no worse than the alternative. It makes more sense to pay the rent late, or the utilities late. That is, unless you are about to get evicted, or have your utilities shut off. Then of course, get an advance payday loan, and get one now!

advance payday loans are usually the weapon of last resort for the very poor and destitute. If you are almost on the street, down to your last dime, then an advance payday loan could make sense and help you at least stay on your feet a little longer, but really, sometimes things get so bad that there's just no stopping them from getting worse. Of course that attitude is of very little consolation if you are the one who is very broke and about to get your house repossessed or your car auctioned, or even your kids taken away.

If you are broke, before you get an advance payday loan, think of your other options. It is always good to consider your support network – your friends and family, and what they might be able and willing to do for you. Even someone you haven't talked to in years might be more than willing to bail you out rather than see you fall through the cracks. I know it is humiliating to have to ask for help like that. I know, because I have been there, but really, it is much more humilliating to be completely destitute because you lost 15% of your monthly earning using your advance payday loan, and are now out on the street. There's no reason to let yourself fall through the cracks like that, when help is around the corner. Also, you can use food banks and free meal programs to help you save money if you are really broke. Most cities have these programs.

Bankruptcy is a legal declaration of the inability to repay debts. Bankruptcy should be viewed as a last resort. It will have a severe impact on a credit rating and will remain on a credit report for ten years. Furthermore, bankruptcy is not a solution in all cases. Federal student loans, Federal tax debt and child support are all exempt from bankruptcy protection. Bankruptcy agreements vary but there are two types of agreements that most people choose: Chapter 7 and Chapter 13.

For a free debt consolidation counseling session, please fill out the form on the right.

Car Debt or Credit Debt First?
by Scott Bilker

Scott Bilker is the author of the best-selling book "Credit Card and Debt Management." He is also the Editor and publisher of the FREE DebtSmart® E-mail Newsletter (http://www.debtsmart.com). Sign up today!

Scott,
First off great site, very informative.

I've already organized my debt with the highest interest debt to be paid off first. Only thing is, my car loan is up toward the top and it's getting close to the time when I would need to roll over the payments of paid off debt to the next highest interest rate debt, my car loan.

Does it make sense to start increasing my payments on this loan? Isn't it fixed what I will pay on the loan? If this is the case shouldn't I start paying on the next highest interest debt (another credit card) instead? Thanks for any help!
Mike

Answer
Mike,

Thanks your positive comments about DebtSmart!

It's great that you've already set up a payment program that pays the highest-interest-rate debts back first. Many financial "experts" advise to pay off the lowest-balance debt first but that's simply wrong, meaning, more expensive!

Since your car loan is about to become the most expensive debt, highest interest rate, you should "roll" your payments from the last debt into the car loan. This is the most efficient method of repaying your debt.

There are however, a few details you need to check:

1) Are you allowed to pay off your car loan early with larger payments? There are some loans that have pre-payment penalty conditions so call the bank to make sure you can send in more money toward the loan principal.

2) When you send in your payments be sure the bank knows to apply the entire payment toward your balance. There are a few instances when the bank will apply the scheduled payment and hold the extra for the next payment. You don't want that situation.

3) Will you need that extra cash in the near future? If you pay more toward a credit card you can always get that cash back if you need it by using a cash advance or making purchases with the card. When you increase the payment on the car, that money becomes part of the car and cannot be converted back into cash again until the car is sold.

In summary, you are correct. It makes perfect sense to send the extra payment to the car loan because it's the most expensive debt on your list. Just be sure there are no penalties for paying off the loan early. If there are penalties, you'll need to consider if the savings from the interest charges are greater than penalties. Chances are you can pay off the loan early; if there are penalties let me know.

Keep up the good work!

Scott

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We all try to be as responsible as possible with our money by paying our bills on time, spending wisely, and saving whenever we can. But despite our best efforts, we simply can't be prepared for every single emergency or crisis that life throws at us. After all, who would have been able to predict that your car battery would die, your furnace would go out, and your rent would be due all in the same week? Sometimes you need a bit of help making it to your next paycheck. One way to quickly get the money you need is through a cash advance loan from an online source.

There are many websites out there that offer same-day or next-day cash advance loans for amounts between $100 and $500. The process of getting one of getting a cash advance loan from one of these sites is relatively straightforward. The first thing you have to make sure that you meet the minimum requirements as set forth by the company's terms of service. Although each website might have slightly different requirements, in general they will consist of things such as being with the same employer for at least three months, being at least 18 or 21 years old (depending on your state of residence), and having a checking account with direct deposit available. As you can see, these minimum requirements are pretty easily met. It doesn't matter if you have a history of bad credit or bankruptcies; chances are you'll still be able to get a cash advance loan.

The next thing you have to do is hand over some paperwork. What kind of documents do you have to provide? Well, that depends on the specific company that you're working with. Some lenders require all kinds of paperwork, copies of your driver's license, cancelled checks, paycheck stubs, and things of that nature before they will release a loan to you. You can either fax these documents in or drop copies off in person if there is a location near you. Of course, this means you have to have access to a copier and a fax machine. Then there are other lenders that process cash advance loans entirely online. The only thing they require of you is your checking account number and the authority to make a one-time automatic draft or withdrawal for the amount of your loan plus any fees and interest that you've agreed on.

Speaking of fees and interest, you can expect to pay a high price for getting an instant cash advance loan. The specific fee schedule would of course vary from lender to lender, but typical rates start at 20% or more. In other words, you can expect to have to pay back $120 for every $100 that you borrow. But at least with the funds from a cash advance loan in your pocket, you'll be able to keep your car, your job, and/or your home.

If you're in a tough financial position, you should consider applying for a cash advance loan online. The process is fast, easy, and completely confidential. You'll be able to get the money you need to get yourself back on your feet again no matter what your credit history looks like.

In a Chapter 7 agreement, the court resolves most debts by selling assets and property so that the filer is given a fresh financial start. The court takes all assets including cars, homes, furnishings, jewelry or anything else of value. The assets are sold to pay off the debt. There are some debts that a person may wish to repay on their own instead of having the court resolve it. This is called reaffirmation. Reaffirmation is a special payment plan with the court. For example, if a car loan is reaffirmed, the person keeps the car and makes payments under new terms. Chapter 7 bankruptcy will not eliminate debts due to taxes, child support, alimony, student loans, court fines or personal injury caused by driving drunk or under the influence of drugs. A Chapter 7 filing will remain on a credit report for 10 years.

For a free debt consolidation counseling session, please fill out the form on the right.

In a Chapter 13 agreement, the court creates a debt repayment plan that allows the filer to keep their property. In order to file for Chapter 13, a person must have a source of income and promise to pay part of their income to creditors. The court allows the filer to keep any assets that have debts against them if they make payment on them under Chapter 13s. A Chapter 13 filing will remain on a credit report for 10 years. With Chapter 13, there is a better chance of obtaining future loans and credit.

For a free debt consolidation counseling session, please fill out the form on the right.

Generally, any loan or credit sale agreement in which the amounts advanced, plus any finance charges, are expected to be repaid in full over a definite and specified time. Most real estate and automobile loans are closed end agreements.

For a free debt consolidation counseling session, please fill out the form on the right.

Extra requirements other than repayment (such as a ‘structural adjustment’ policies) demanded by the lender before new loans are granted. Conditionality refers to 'conditions' attached to the loan agreement.

For a free debt consolidation counseling session, please fill out the form on the right.

Mortgage Telemarketing--A Personal Story
by José Olivares

This article is brought to you by the FREE DebtSmart® E-mail Newsletter (http://www.debtsmart.com). Sign up today!

Scott, first I would like to thank you for all the good advice you have given me through your NEWSLETTER. In response to your question about our (readers) experience with telemarketers, I would like to share an experience that happened to me recently.

I, like many others out there, am looking to refinance my first mortgage at a lower rate than what I currently have. In my case, the loan is approximately $120,000 at 7.25% and also a second mortgage (home-equity loan) of $10,000 that I have at 12.25%. I decided to call a financial institution after receiving one of those infamous "you have been pre-approved" offers.

I spoke with a lady, who was very friendly, and she asked me if I could read the confirmation number on the right-hand side at the top of the letter. I gave it to her and she asked for some other information including my Social Security number.

I explained that I would be interested in refinancing with her company if they can beat the rates on my current loans. She said she would call me back with an answer.

About an hour later, she calls and tells me she has "good news" for me. They can combine both loans at a great APR of 9.48%. Stunned by what this lady is telling me I paused and asked her to explain how exactly it was that she was coming up with this GREAT deal since I was paying 7.25%.

Her answer was, "But Mr. Olivares you are paying 12.25% on the other one and you will be saving about $20.00 per month." At this time I told her to hold on while I started the DebtSmart Loan Calculator. I told her, and I quote, "How silly her offer sounded." I used the 30-year loan calculator, which I got from Scott, and told her that, yes she was saving me about $20.00 per month on the $10,000 loan. However, she is increasing the amount on the $120,000 loan by about $200.00 per month, and I asked her how it was that this was making any sense for her!

Her answer was that I could not "separate the two loans" the way I was doing it. At this time I knew there were only two possibilities: (1) this lady is not educated enough to have her current job or, the more likely case, (2) she's trying to gouge me by doing some "fuzzy math."

By the way, she was amortizing the loans for 30 years. Just like the original loan without taking into account that my second loan is amortized for only 20 years

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Helping Daughter With Debt
by Scott Bilker

Scott Bilker is the author of the best-selling book "Credit Card and Debt Management." He is also the Editor and publisher of the FREE DebtSmart® E-mail Newsletter (http://www.debtsmart.com). Sign up today!

Our daughter, who is 31 and single, has $15,000 in credit card debt that would we like to help her get out from under. This debt consists of two different maxed out credit card accounts that are both charging very high interest rates, as well as late charges and over the limit fees. We are considering refinancing our mortgage, which currently has a balance of $47,000 and a 5.75% rate. We will continue to make the same payments we're making now, and she will make the additional amount needed to pay off the loan in about 6 years. That way she would not have any debt showing up under her name, and we would be able to take the additional interest off as a tax deduction. Even though there would be closing costs involved on a refinance, I still feel that those charges would be less than the interest on the credit cards over the long term. Is this a good solution or not? By the way, we have had several lengthy discussions with her about how to manage her finances and also purchased your "How to be more credit card and debt smart" manual for her.
--Anna

Anna,

Thanks for writing and getting my book!

Great question especially considering that last issues survey was about lending to family. The good news is that it seems, from those results, that lending to family works out better than lending to friends. Also, I'd like to speculate that lending to your children, in general, could work out well. The last thing anyone would want is a damaged relationship over money.

I do believe that your plan is a good idea. And I believe this for many reasons. First of all you are going to be saving money by refinancing and your going to be saving money for you daughter by reducing her interest rates. Second, because the rate reducing is in the form of a mortgage you get that tax benefit. Third, once her loans are paid off by the refinance they'll be off of your daughters credit report.

Daughter to pay back with interest. Now lets crunch some numbers. If she's going to be paying this loan back in exactly six years than a principal of $15,000 at 5.75% requires a monthly payment of $246.83. However, if you really wanted to work out the numbers there are still other cost considerations. Closing costs for example.

If you were going to refinance anyway then all the costs that involve the property like legal, title work, loan applications, etc. you would have paid regardless of lending to your daughter. However, if there are points involved then your daughter's portions would contribute to increasing that cost. If there is a charge of 2% then your daughter's portion of that charge is $300.

On the other side of charges, you will be receiving a tax refund based on the loan and extra savings because of her additional loan. You could refund that amount to her by simply reducing the rate of the loan based on your tax bracket.

If you're in the 15% tax bracket then reduce the APR by 15% from 5.75% to 4.89%. This reducing in interest represents the amount you'd be receiving as a refund based on your daughter's loan.

The 6-year, monthly payment of $15,000 at 4.89% is $240.81.

Now that your daughter will have no outstanding credit card balances she'll need to be careful when spending. I suggest only using her credit for emergencies and budgeted spending. Managing credit overlaps managing spending.

Hope that helps!

Please let me know how it all works out!

Regards,
Scott

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Make Payments For Son's Car
by Scott Bilker

Scott Bilker is the author of the best-selling book "Credit Card and Debt Management." He is also the Editor and publisher of the FREE DebtSmart® E-mail Newsletter (http://www.debtsmart.com). Sign up today!

Dear Scott,
My son purchased a car for $15,000 at a high rate of interest. He's been paying for 32 months and he still owes $11,000. He has just been laid off and to top it off the car has blown the engine. I would like to help him pay the loan off to keep his credit rating but would like to negotiate the amount down. What are the chances? Would he be better off to let it be repossessed? This would be to nobody's advantage. Please advise.
--Jim

Jim,

Thanks for writing!

The good news, certainly for your son, is that you're willing to help him. And because of that you'll be able to save him some money and keep his credit history clean. Since your son probably has your character, it's a good bet that he'd make sure to repay you when he's back on his feet.

Here are a few ideas to save money, while helping your son at the same time:

1) Buy the car from your son.
Since you are willing to help out financially, you may be able to save money by buying the car from him. That's because you're more likely to be able to get a better rate on a loan for the car.

Check with your credit union or local bank and find out what the deal is for used car loans. The bank will loan you an amount based on the book value of the car, but the rate will most likely be far less than the current rate.

If you cannot get the full $11,000 needed to pay off the original amount you may want to consider using a credit card cash advance if the rate is low. Call your credit card bank and see what they have to offer. Tell them that if they give you a good deal you'll use their line of credit otherwise you'll be calling your other credit cards to see who wants to make a profit. Or, if you have a low rate transfer offer on one of your credit cards, you could cash advance one credit card and immediately transfer the balance to the lower rate card.

So between the bank loan and other financing you can take possession of the car and save money over the current financing.

2) Fix the car.
The car is still worth quite a bit of money. Replace or repair the engine and keep track of that cost.

3) To sell or not to sell.
At this point you have a functioning car that's been refinanced at a lower rate. Your son's credit history looks good because the car has been paid off. Now the question is, "Will your son want the car when he gets on his feet or will he want a less expensive vehicle?"

If he wants to keep the car, then you could sell it back to him for the unpaid balance plus the cost of repairs. Or he could pay you monthly for all the financing.

If he doesn't want to keep the car then sell it. Take that money and pay off as much of the financing as possible. You may not get enough from the sale to repay the entire amount. In that case you'd need to work out how that difference would be paid.

As far as negotiating the amount goes, it's always worth it to give the lender a call and see if they'll reduce the balance. However, in this case, I believe the chances are slim.

The above suggestions are the ideas I would consider. I hope you find them useful.

Good luck and please let me know what happens!

Regards,
Scott

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Revised timetable for loan repayments, usually granting longer repayment periods and often involving new loans to pay old ones.

For a free debt consolidation counseling session, please fill out the form on the right.

Unsecured debt is debt that is not backed up by collateral, such as a car in the case of a car loan, and a house in the case of a mortgage. Examples of unsecured debt are credit cards, most personal loans, and student loans.

For information about consolidating your unsecured debt, fill out the form on the right for a free, no obligation, counseling session.