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Consumer Spending Drives Economic Growth

The economy has been kicking back into gear, and consumer spending plays a big role in driving this upswing, as it accounts for 70% of the economy. With the recent profit increases credit card companies have seen, it seems consumers are back out there using their cards to make purchases instead of cash or debit cards. As card companies report increasing earnings, mailboxes are filling with credit card applications once again.

Increase in Consumer Spending

As mentioned in a previous Credit-Land.com article, after this past holiday season, consumers in all income brackets said they had no intention of putting a hold on their spending this year. The holiday season might remind consumers it can also be fun to shop for ourselves once in a while. Also, with unemployment rates decreasing, consumers who have kept to a strict budget might be letting loose for a change, an maybe filling out a credit card application or two, because they can finally afford to do so. Consumers have more confidence in the slowly improving economy and are less worried about keeping a tight budget and saving money. This is shown in a report by the U.S. Bureau of Economic Analysis, which reported a 4% increase in consumer spending in the fourth quarter of 2010. This is the largest percentage increase in 5 years.

Consumers Not Afraid to Use Their Credit Cards

With a decrease in credit card delinquency in the fourth quarter of 2010, it seems consumers are more confident in their financial position. Because they are making more of their payments on time, cardholders are facing fewer late payment fees and interest rate hikes. This is most likely encouraging to consumers, who feel secure to once again use their credit cards for purchases.

Credit Card Companies See Increases All Across the Board

Of course if people are spending more money, it’s no surprise they are using their credit cards more, too. Credit card companies are seeing an increase in their net income and in card member spending. For instance, American Express reported net income of $1.1 billion in the fourth quarter of 2010, compared with $716 million a year earlier. A large percentage of this gain can be attributed to cardholders charging more to their credit cards.

 

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Wells Fargo and Chase Introduce Microchip Credit Cards in U.S.

It appears the U.S. is finally making an effort to catch up with other countries in the implementation of microchip-embedded credit cards, also known as EMV-chip technology. Wells Fargo & Co. announced Wednesday that they will test EMV chip cards with 15,000 customers who travel abroad frequently. On Thursday, JPMorgan Chase announced that it would add a chip to its high-end Palladium card.

The U.S. has lagged behind countries such as Japan, Mexico, China, Brazil and most European countries that have already made the conversion from magnetic strips to microchip-embedded credit cards. American Express Blue cards originally offered microchip credit cards, but without the necessary payment infrastructure at U.S. ATMs and merchants, the feature was unpopular. Fearing a drop in credit card applications, American Express replaced the chip with RFID, the technology that allows payment by holding the credit card near a reader, in 2005.

Microchip Versus Magnetic Strip Credit Cards

EMV technology has already become the standard throughout Europe and other countries because it provides heightened security and protection against fraudulent charges. It is beneficial to every party involved, including consumers, retailers and credit card issuers. Every in-person transaction requires a PIN. One reason the U.S. has fallen behind is that U.S. issuers have focused on RFID technology — also known as PayPass or Blink — instead, hoping to drive credit card applications.

U.S. Travelers Face Difficulty

Almost 10 million American travelers had trouble using credit cards in 2008, costing about $4 billion in lost transactions and $447 million in lost revenue for card issuers, according to Bloomberg News. In some cases, consumers can show identification to verify the card is indeed theirs, but many European retailers simply refuse to accept credit cards without the microchip. Additionally, travelers have faced difficulty using the ever-growing number of automated kiosks in Europe, many of which only accept microchip-embedded credit cards. As discussed in other Credit-Land.com articles, credit cards are often the most convenient payment method for travelers and it is not the smartest idea to travel with a large amount of cash.

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ABA Reports an Improvement in Most Loan Delinquencies

Consumers are doing a better job of paying their credit card bills on time. According to a recent report by the American Bankers Association, bank-issued credit card delinquencies dropped to their lowest rate of 3.28% in the last quarter of 2010, compared with the 3.64% it had been in the previous three months. A delinquency is defined by the ABA as a payment overdue by 30 days or more. This is the lowest bank-issued credit card delinquency since the first quarter of 2001, nearly ten years, and it is also below the 15-year average of 3.92%.

The rate of unemployment has been falling steadily and dropped to 8.8% in March. Private-sector employers added 216,000 jobs that month. Clearly, our economy is slowly but surely recovering, and consumers are better able to make their credit card payments in a timely manner.

In addition to bank-issued credit card delinquencies, the overall delinquency rate decreased in the final quarter of 2010 from 3.01% to 2.68%. In fact, 9 out of 11 loan categories that the ABA tracks decreased in the fourth quarter. In the category of home improvement loans, ABA reported a slight rise in loan delinquencies to 1.26% from 1.23%. The only other category that did not show a delinquency decrease was housing loans, but these remained unchanged at 4.05%.

ABA chief economist James Chessen believes these figures to be encouraging.  “I’m feeling hopeful about further declines in delinquencies because of continuing job growth, but the unknowns are the impact of higher gas and food prices,” he said in a statement.“The 2% reduction in federal payroll taxes that began in January was intended to boost discretionary income. Unfortunately, rising prices have dashed any chance of that.”

The Associated Press reported in March that food prices in February saw the biggest rise in 36 years. Cold weather was mostly to blame, The AP said, but prices on food commodities have risen sharply over the last year.

The national average gasoline price on April 11 was $3.77, compared with $2.86 a year ago, according to AAA. Instability in oil-producing countries like Libya pushes gas prices up, along with rising demand as Americans travel to work more and once again have money to travel on vacation.

Clothing retailers, too, are raising prices. The price of cotton has more than doubled in the last year, according to The AP, and synthetic fabrics cost nearly 50% more. As shoppers return to stores, steep discounts are no longer needed.

With recent world events and rising gas and food prices, consumers will certainly continue to face challenges. But the fact that unemployment rates are improving seems hopeful. The more money consumers make, the more they will be able to make necessary payments on time. Hopefully, we will continue to see delinquency rates drop throughout 2011.

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Save Money with Credit Cards

One of the best perks to having a credit card is the rewards program many of them offer. Credit card companies use this benefit to attract new customers and keep their current ones. That doesn’t mean credit card reward programs are a free gift to you from the credit card companies; certain restrictions do apply, and it might not be worth it to participate in a rewards program depending on the circumstances. However, rewards benefits from a credit card company can really add up to some substantial benefits, if you approach them the right way. Here are some suggestions on getting the most from the best rewards credit card.

Save Money with Credit Cards

  • Most rewards credit cards require you to pay off your balance every month. If you have a balance that carries over, the benefits may be reduced or you could be ineligible for rewards at all.
  • Typically, credit cards that offer rewards will have a higher APR than ones who don’t. Make sure you shop around to get the best APR you can while still receiving rewards.
  • You might have to do a little bit of math. If you have to spend an obscene amount of money for a $30 gift card, is it really worth it? Probably not.
  • If you travel often, a credit card offering free air miles might seem like a good idea. Keep in mind you’ll have to charge and pay off a lot of purchases before you are able to redeem those miles. There may be blackout dates and expiration dates that prevent you from using earned miles – it’s important to read the fine print of any offers.
  • Speaking of expiration dates, these may occur on travel miles, lodging discounts, points, even merchandise and cash back offers.
  • Fuel rewards are very popular, especially with the soaring fuel prices today. However, most credit cards require you purchase your fuel from specific places in order to earn rewards. Generally, places like supermarkets or smaller stations are not included in the cashback plan.
  • Know the limits placed on earned rewards on credit cards by the company. For instance, some credit cards only allow you to earn up to a certain percentage and then you won’t earn any more. If your credit card company has a rewards program that gives you points up to 1% and not a penny over, you have to decide if it’s worth it.

Credit card reward programs can definitely add a lot to the credit card experience, but you have to know the ins and outs to make the most from rewards credit cards. Do a little homework and compare credit cards and what they have to offer to choose the best one for your lifestyle. Don’t forget to read the fine print, and don’t be afraid to walk away and find a better credit card that better suits you. After all, this is your money you’re spending.

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Big Spender Alert: Credit Card Rewards for High-End Users

If you’re wealthy enough to own an American Express Platinum or Centurion card, you’ve already been enjoying the more than 40 perks of being a cardholder. But your deal just got even better. American Express recently announced three new perks for high-end customers who also happen to be frequent travelers. The first two perks are for both Platinum and Centurion cardholders, and the last is solely for Platinum cardholders. Although both of these cards come with fairly substantial annual fees, these new programs can definitely benefit the right cardholder.

The first new benefit is Priority Pass Select, which involves access to more than 600 lounges in airports all over the world, a perk that typically costs $399 for unlimited access. In the past, cardmembers could already use American Airlines, Delta and US Airways’ lounges. But with this new program, cardmembers will have additional lounges available to them. Also, cardmembers have the option of signing up for a Priority Pass card, which benefits them with complimentary snacks, refreshments and Internet access in more than 300 cities.

The second new perk added for cardholders is Global Entry credit, which offers expedited clearance for pre-approved, low-risk travelers. Before enjoying these credit card rewards, cardmembers must complete an in-depth background check and interview conducted by Customs and Border Protection. They also have to pay a $100 application fee, which covers them for five years. But if cardmembers pay the fee with their Platinum card, they can request reimbursement. Once completing the screening with CBP, cardmembers can save considerable time when traveling – up to 70 percent of the typical wait time involved in international traveling.

That’s not all: American Express has also become one of a few credit card companies to offer cards with no currency exchange fees for its Platinum cardholders. Cardmembers can make international purchases while saving the 2.7% foreign transaction surcharge.

American Express isn’t the only one courting its high-end users. Chase is partnering with British Airways to offer bonus miles for new enrollees to the British Airways Visa Signature Card who apply by May 6. This is the equivalent of 2 free round-trip flights. Cardholders receive 50,000 miles after their first purchase and another 50,000 miles if they spend $2,500 within the first three months. It’s tempting to take advantage of these kinds of offers, and these programs can certainly benefit a frequent international traveler.

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Banks to Reduce Credit Card Interest Rates

The credit card industry has been doing back flips to reach the good graces of the credit consumer. And they have made a step in the right direction.

Since the passage of the Credit CARD Act in 2009, banks have been losing money, and began to charge consumers for services that used to be free. Bank of America began charging credit card users a $59 annual fee, and Chase implemented a $5 ATM fee. Well, these same banks and others, under the guidance of the CARD Act are starting to do something that actually helps pack our wallets – welcome, a decrease in credit interest rates.

Last year, millions of consumers experienced credit card interest hikes, before the passage of the Credit CARD Act due to bank scandals, an unruly economy, and pending reforms. According to Federal Reserve, the average interest rate increased almost a full percent, from 13.57 percent in 2008 to 14.31 in 2009.  Credit-Land.com estimates that between 91 million and 121 million credit cards experienced rate hikes during the recession.

A section of the Credit CARD Act requires credit card companies to review any rate hikes that happened since January 2009. The law explains that if a state’s interest rate was increased due to high credit risk or market conditions, those issues had to be reconsidered every six months. The law then demands that the rates be cut when credit risk declines and market conditions improve.

By law, once the rate has been lowered it can not be raised again, according to Ken Clayton, general counsel for card policy at the American Bankers Association. The law requires banks to warn customers about rate hikes 45 days in advance and limits increases on new purchases.

But any decrease in payment can mean big savings for the consumer. According to www.Credit-Land.com the average balance on a credit card at the end of 2010 was $4,965. At a 19 percent interest rate it would take 13 years, 9 months to pay it off. Interest would be $3,894. If interest rates were cut to even 16 percent it would only take 12 years, 5 months to pay off. Interest would drop to $2,906.

Millions will feel the reprieve. Bank of America said that it will reduce the interest rate on about 1 million of its cards, according to the Associated Press. JP Morgan Chase & Co. , Citigroup Inc., Capital One Financial Corp., Discover Financial Services and American Express haven’t revealed the number of cards affected, but all confirmed that some customers will receive lower rates. If all banks changed rates on 2% of their cards like Bank of America is doing, then over 10.5 million card will be affected.

Consumers will not only see the changes in their pockets, they will also see it on their bank statements. Consumers who saw hikes in interest rates during the recession due to poor payment histories and did not reconcile their debts, will not be eligible for the reducing interest rates.

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Bank of America Implementing New Credit Card Annual Fee

With the CARD Act enforcing credit card regulation, banks have begun fishing for money in a sea of consumer pockets. Bank of America, one of the most popular banks in the United States will be adding a $59 annual fee to consumers’ credit cards. The new changes are set to take place April 11, and set to affect 5% of credit card holders, or approximately 2 million out of 40 million customers.

According to a Bank of America representative, consumers that would not be able to qualify for the card if they were to apply for the credit card today will be the ones being charged in April. The Credit Card Accountability Act, also known as the CARD Act has put some pressure on banks to limit the reasons they change interest rates and fees. In the Act, it states that credit card issuers cannot increase interest rates on an existing credit card unless the card holder is 60 or more days late in making a payment. The act also dictates when credit card issuers can make these moves. By providing consumers with cards that the banks know consumers can’t afford, it effectively allows banks to collect more money from consumers through higher interest rates. If a consumer is using a credit card they can’t afford, they are more likely to be late on payments, and late payments are profitable for banks.

The restrictions laid out in the CARD Act are proving costly to banks, as they must think of new ways to pocket consumer money. It is estimated that the loss of revenues due to the CARD Act will total $25 billion annually for banks across the nation. In order to circumvent this, banks are charging consumers for previously free services, such as new fees for calling customer service representatives and transaction fees. Financial experts agree that the $59 annual fee is driven to increase bank profit. Implementing the annual fee will generate approximately $118 million for Bank of America.

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Why Debt Settlement May NOT Be The Best for You

You’re overwhelmed with credit cards.   You make your minimum monthly payments.  Your balances never decrease.  And you feel trapped in a hole with no end in sight.  Sound familiar?  You’re not alone.  Many people in this situation are looking for the fastest way out.  As they surf the web to look for debt relief options, they will most likely stumble across on an advertisement that says something along the lines of, “Reduce your debt by over 50%, cut your monthly payments in half!”  On the surface, it sounds almost too good to be true.  You decide to call a debt settlement company, and can’t turn down an offer to pay your creditors a fraction of what you actually owe!

Here’s the catch.  Most debt settlement companies fail to tell you in detail all the pitfalls that are associated with the program.  Don’t get me wrong, a debt settlement program is great for those who are suited for it.  I’ve personally seen some creditors negotiate a settlement for as low as .20 on the dollar!  Before you enroll in this type of program, it’s crucial to know what the downsides are.

What you need to know about a Debt Collection Settlement

  1. Collection Calls – Most debt settlement companies will tell you that they can stop creditor calls just by sending them a cease and desist letter.  This is half true.  According to the FDCPA (Fair Debt Collection Practices Act), a collection company must cease communication with the consumer if they sent a cease and desist letter.  However, this only applies to 3rd party collection agencies.  No one can stop the original creditor from calling you.
  2. Increase in balances- I’ve heard this statement way too often.  A debt settlement company will tell you that they will negotiate on the balance at the time of your enrollment.  However, many consumers fail to realize that once you stop making payments, late fees and penalties will be assessed.  If you enroll an account that has a $2,000 balance, don’t be surprised if you see a balance as high as $3,000 at the time of settlement.
  3. Possible Legal Action- This is perhaps the scariest thing a consumer can go through.  A sheriff delivers a court summons to their front door step, and now the creditor wants to sue the consumer.  If a creditor wins a judgment, the court can order wages to be garnished or a lien attached to any personal property.
  4. Taxed on $$ Forgiven- Let’s say you owe $10,000 on a credit card.  Your debt settlement servicer successfully negotiates a settlement at 35%.  The amount saved ($6,500) may be taxable income.  Any debt forgiven above $600 must be reported to the IRS.
  5. Credit Score– I thought I’d throw in the obvious as well.  Enrolling in a debt settlement program will literally destroy your credit.  You will have delinquencies on your credit as well as potential collection accounts.

After reading this, you might think that no one in their right mind should enroll in a debt settlement program.  That’s not necessarily the case.  Potential candidates for this program will have these characteristics:

  1. Judgment Proof- Just because you are judgment proof doesn’t mean a creditor can’t sue you.  Being judgment proof simply means that a creditor cannot garnish your wages due to federal or state guideline and you have no assets.
  2. Insolvency- People who are insolvent (owing more than what they are worth) are good clients for debt settlement because they won’t be liable for the amount forgiven.
  3. Access to Emergency Funds- In case a creditor is willing to give a substantial discount on a card, you should have some kind of emergency funds (friends, relatives, family, etc) who will be able to help you out.
  4. Ability to complete program under 36 months- Anyone who cannot complete a program within 36 months in a debt settlement plan probably shouldn’t enroll.  If it takes you more than 36 months, bankruptcy is probably the best option.

To summarize, each debt relief option has its pros & cons.  It’s important to fully understand the ramifications of each program before you commit yourself.  Debt settlement is a wonderful option for those who need to get out of debt, but only a certain percentage of people are good candidates for this type of program.

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Declining Credit Card Delinquencies Suggest Financial Crisis Recovery

Financial experts and economists have been suggesting that the U.S. economy is in recovery, and now the proof may be in the numbers. American consumers have been making more timely payments to their credit card issuers. In February, the number of delinquent and charged off credit loans and accounts were down. In addition to making their payments on time, consumers are still spending less, which in turn means that credit card companies are earning less money. Have consumers finally learned to live within their means, or is this a temporary trend?

Financial recovery in the works?

Credit Card Spending

The February data for credit card and other consuming spending is not out yet. You can, however, make some observations from January data. For example, credit card balances declined by $4.25 billion in January. This was a 4% decrease when comparing it to the $2.02 increase in spending that took place in December of 2010. Most financial experts attribute the December increase to holiday shopping, however this was the first month that spending had increased since the summer of 2008.

Expectations for spending in February are an increase in consumer spending, especially in the retail sector. The increase is relatively small, only about 1%. When it comes to spending on other types of purchases, though, spending is up in a big way and expected to continue that way.

Types of Purchases

The types of spending consumers seem to be gravitating to is on big-ticket items such as vehicles, boats and vacations. Hybrid vehicle purchases on the Toyota Prius increased by 69.9% in February. Overall, auto sales are up 17%. As consumers search for ways to cut back on gas consumption and to save money at the pump in the process, an increase in purchases of hybrid and good gas mileage vehicles is expected to continue.

Whether or not the U.S. economy is in full recovery mode is yet to be seem. In the meantime, there are some positive signs that this is the case. A decrease in delinquent credit card payments and charge off accounts and an increase in consumer spending are all symptoms that suggest the financial crisis is coming to an end.

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Girl Scouts Now Accept Debit Cards

It’s that time of year— that time when those Girl Scouts dress up in their matching patch-adorned green vests, and go door-to-door peddling Thin Mints and Tagalongs to any one with a dollar. I know they’re little girls, but they turn from sweet to sour in a few minutes when you explain that you’ve got to pay rent, or you spend your last change on parking, or whatever it may be, they change from Priscella to Cruella.

Because who has the dollar has the power, these Buttercups have learned at an early age the benefits of having money. In an attempt to teach the Ohio chapter of the Girl Scouts financial literacy, their branch has begun taking credit cards at various booth locations in Central Ohio. This means that any one 18 and up has no excuse to not succumb to the Girl Scout cookie peer pressure.

Girl Scouts have teamed up with AppNinja’s Swipe Credit Card Terminal for the iPhone in order to accept credit cards at various booth locations in central Ohio during March. Since the beginning of March, credit cards have accounted for over $1,500 in sales.

That’s a big step for both the Girl Scouts and for my sweet tooth. “Our Cookie Program is our largest business literacy program for girls,” said Tammy Wharton, CEO of the Girl Scouts of Ohio’s Heartland Council. “They also are learning to use new technology to market cookies. Customers can use a new smart phone app — the cookie locator app — to find cookie booth sales.”

AppNinjas is the developer of Swipe Credit Card Terminal for iPhone, which changes a merchant’s iPod touch, iPad or iPhone into a credit terminal that is safe and secure. “Swipe Credit Card Terminal for iPhone will teach them even more new technological skills they may likely use in the future,” explained Wharton.

Girl Scouts pride themselves on giving girls business skills that they will use for the rest of their lives. That’s why developing financial literacy is of the utmost importance. The program is designed for girls who are destined to take control of their finances in a digital future through a sustainable income, budgeting, managing credit, investing and being a loyal consumer.