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Credit Card Companies Are Up To Their Old Tricks

December 22, 2009 By 3 Comments

I decided to google credit cards today and see what kinds of offers came up for individuals with poor credit scores. I was shocked by some of the offers that I saw. These cards won’t help individuals with bad credit improve their credit; these cards will only help their credit to get worse. These are some of the worst offenders.

Next Millennium Mastercard- This is a secured credit card which is supposed to allow individuals to rebuild their credit. I am normally a fan of secured cards for people with bad credit because the savings account keeps you from going over your credit limit. That is not true of the Next Millennium card. Next Millennium charges a $99.00 processing fee to open the account and a $59.00 annual fee. Numbers of people have complained to the Better Business Bureau about being charged the processing fee even though they did they did not fully complete the application. Other people have complained about mailing the company money and receiving no credit for their payments. The company’s contact information is hidden which makes it near impossible to contact them about their fraudulent practices. If you ever do receive the card your interest rate is a minimum of 19.5%. Next Millennium offers no grace period which makes it virtually impossible to pay your balance down to zero. This is probably the worst secured card on the market.

First PREMIER Bank- First PREMIER Bank offers the First PREMIER Bank Gold Credit Card, Centennial Card and the Aventium Card. First PREMIER’s motto is U + Premier are stronger together. So let’s say you believe this and apply for a First PREMIER card. Your initial credit limit is $250 before fees. What are the fees? As soon as you receive the card you are billed for a $95.00 program setup fee, $48.00 annual fee, $29.00 servicing fee, $84.00 monthly servicing fee billed at a rate of $7.00 monthly. Add all these fees up and your available credit is $71. But when you add in the servicing fee over a full year your available credit is actually $-6.00. That’s just the beginning of the fees. If you want to schedule autodraft payments that will cost you $11. If you receive a credit limit increase, you will be charged $25. Do you want to view your account online? That will be an additional $3.95. This card boasts the highest fees of any credit card. Based on all of the fees that First PREMIER Bank charges I am surprised that they do not send the card COD.

Since new credit card regulations are capping fees on these predatory lenders, they are going to lower fees and increase interest. First PREMIER is offering cards with an interest rate close to 80%. That’s just plain ridiculous. I would say its better to have no credit card then these cards.

Filed Under: Managing Debt, Personal Finance Tagged With: ,

Bank Lending Still Down And For Good Reason

June 27, 2009 By Leave a Comment

According to a report by CNN Money, lending is still down at the nation’s largest banks. There has already been a significant decrease in residential borrowing as banks have tightened credit standards and loan demand has decreased. Residential borrowers are overextended and have found it near impossible to get financing without a very good credit score and significant capital reserves. Loan demand has dropped and the personal savings rate has skyrocketed to 6.9%. Now that the residential side appears to be stabilizing, commercial real estate is showing weakness. Commercial and industrial lending has seen a precipitous decline as businesses are looking to get leaner and borrow less money.

Lending activity has been curtailed due to lender concerns over economic stability, involuntary unemployment and credit borrowers defaulting on credit agreements. Many consumers who have defaulted on loans during the economic downturn will find it more difficult to borrow in the future due to having an adverse credit rating. Adverse credit means that a consumer is unlikely to be able to gain access to traditional lines of credit for the purpose of debt consolidation, particularly if a tenant or homeowner has little equity.

Banks are lending less and they have a good reason for it. Many economists estimate that banks are only halfway through the losses that they will suffer over the next few years. While most subprime loans and residential loans have already been accounted for, many commercial loans are just starting to show weakness. Many commercial borrowers are looking to refinance loans that have interest rates that are resetting. These borrowers are unable to obtain financing because the value of their commercial properties has dropped below the principal owed on the property. Even M & A activity has seen a severe decline as banks are looking to lend less.

So what is the next shoe to drop? Credit cards.We are just beginning to see weakness in the credit card market. Credit card lenders American Express and Capital One are seeing increased delinquencies. The monthly charge off rate rose to a record high of 10.6% as consumers continue to grapple with the debt problem. Moody’s expects charge offs to peak at 12% meaning more losses for financial stalwarts such as JP Morgan, Bank of America and Citigroup. Many borrowers, who pay their bills on time, have seen their credit terms changed to cover the growing deficit from increasing charge offs. Individuals with good credit have seen their credit limits slashed and interest rates rise.

While the speed of the economic slowdown is declining; the economy cannot heal until unemployment, foreclosures and defaults stop cascading downward.

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Debt Problems

June 11, 2009 By Leave a Comment

Individuals and small business owners alike have both been hurt by rising unemployment, limited access to capital and a deteriorating economy. These factors have caused many people to lose their jobs and fall behind on their bills. Many people have plunged further and further into debt. How severe is this debt problem?

 

According to the Center for Responsible Lending, there have been over 1 million foreclosures in the United States in 2009 alone. About 12% of all home loans are currently delinquent. Economists expect this number to double over the next 6 months. States such as Oregon have seen foreclosures rise approximately 90% this year. This is just the beginning. The government placed a moratorium on foreclosures last fall that stopped many of the banks from evicting homeowners until the end of March. Now that the moratorium has ended expect to see a major surge in foreclosures. Increasing job losses and decreasing home prices will lead to more foreclosures. 

 

While real estate may be the biggest debt culprit; credit cards are not far behind. I recently read a study that stated that the average American has over $8,000 in credit card debt. Credit card debt is a huge burden that affects most consumers. Credit card companies are in business to make themselves money and not to help out consumers. They typically provide easy access to money at astronomical interest rates. Credit cards make it way too easy to overspend leaving consumers with massive amounts of credit card debt. According to the US Public Interest Research Group,  Between student loans and credit card debt, the average college student owes roughly $20,000 before they graduate and the average college freshmen has $1300 in credit card debt, The average college senior has more than $2,600 in credit card debt. 

 

These debt issues are not only specific to North America. Debt problems have plagued European consumers as well especially in the UK. The average UK citizen has twice the debt of some of their European Union counterparts. 1 out of every 6 UK consumers don’t believe that they have enough money to cover their bills. The foreclosure problem is a global crisis and consumers worldwide are feeling the pinch from the economic contraction, G7 countries France, Italy, Germany and Japan are all dealing with similar issues.

 

So what can you do if you find yourself up to your neck in debt? The process of getting into debt is very simple but getting out of debt can be extremely difficult. The first step is to cut your spending. Next you must develop a plan to get out of debt. This involves contacting lenders and making payment arrangements. If you are behind on your debts or feel that you have no way out of your financial difficulties; a debt counseling agency may be able to help.

Filed Under: Finance Tagged With: , ,

Financial Crisis Affects Borrowers Worldwide

May 29, 2009 By 1 Comment

The current economic recession has taken its toll on homeowners in the United States. Property values for the 1st quarter of 2009 in the US were down an average of 14% over the previous year. This is after a decline of almost 10% last year in median home prices. States such as California, Florida and Nevada have been hit even harder by rising foreclosures and the limited availability of credit. Housing prices have dropped over 25% in these states and continue to plummet with no end in sight. Economists estimate that US home prices will decline another 10 to 15% before bottoming out.

The global financial crisis has hit the UK as well. According to research by PricewaterhouseCoopers (PWC), the credit crisis has wiped £1.9 trillion off the average level of UK wealth since 2007. Whilst the amounts vary considerably, PWC believes that this equates to a reduction of £40,000 for every UK adult over 18. This figure doesn’t even take into account the millions of retired people, not to mention those residing abroad, who no longer receive the income they once did due to falling interest rates. Economists estimate that over 50 trillion dollars of wealth was lost in 2008 alone. That number is staggering! The loss in asset prices was led by the decline in property values.

This is especially troubling because the average person’s wealth is tied up in one major asset, their home. Millions of people rely upon the equity in their homes to maintain their standard of living. Home equity loans are used to finance college educations, automobile purchases, medical costs and etc. As housing prices have declined many people have found themselves unable to borrow money from their homes to purchase needed goods and services. As a matter of fact many individuals that have purchased a home over the past 5 years may be surprised to find themselves “upside down”. This is when you have negative equity in your home and you actually owe the bank more money then you can sell the house for.

As foreclosures are rising, banks are lending less and tightening credit standards which is making capital scarce. Therefore consumers have less disposable income and are shopping less thus resulting in massive layoffs at corporations. These unemployed workers are unable to make their mortgage payments leading to more foreclosures and the cycle continues. Even local governments are feeling the pain of declining home values. State governments are collecting less property tax revenue and are having to layoff employees and cut essential services.

Filed Under: Finance, Managing Debt Tagged With: , , , ,

The future of General Growth Properties

December 11, 2008 By Leave a Comment

Bill Ackerman, hedge fund manager of Pershing Capital, has been raising his stake in distressed mall owner General Growth Properties (GGP). I already commented on General Growth’s financial problems in an earlier post. General Growth is trying to stave off bankruptcy by restructuring debt that is due in the near term. Given its financial position there is no fundamental reason to invest in GGP. The stock is currently trading at $1.60. This might ibe an interesting speculative play if they can find a way to avoid bankruptcy.

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