Debt reduction motivation

The average consumer in the US currently has about $8,400 in credit card debt. Remember, this is just the average! There are plenty of people out there with even more credit card debt than this. Not only is carrying this amount of debt expensive, but it is also bad for your credit score and your overall financial well being.

If you have too much credit card debt, start reducing it today. Set a monthly amount you can pay toward your debts as a goal and start with the debt with the highest balance and highest interest rate.  One trick that seems to help people reduce their debts is setting up a blog to track your progress. Some bloggers even keep pie charts of their progress and budget goals posted on their sites. Not only can blogging help you keep on track, but it can also help motivate you when other people post encouraging comments. One blogger who is paying off $11,000 in debt writes:

I am very, very pleased with my progress, and I think I did a pretty good job. There are 177 days between 04-16-2005 and 10-10-2005. In that 177 day period I paid off 8,057.22. That averages to 45.52 PER DAY. Not bad.

Here are some more notable blogs out there for people who are working on their finances:

http://www.fightingdebtblog.com/
http://www.thedebtfreeblog.com/
http://www.ccvictim.com/

Arizona supports credit file freezes

Arizona may be the next state to implement a credit file freeze policy. About a dozen states, including California, Texas, Vermont, New Jersey, Illinois, Nevada and Maine, have already adopted this identity theft stopping method. A "file freeze" allows a consumer who is worried about identity theft to essentially lock their credit files from any access of review. When a customer's credit data is frozen, lenders, creditors and credit report providers must obtain special permission before reviewing their credit files.

A "file freeze" goes far beyond a basic "fraud alert." Fraud alerts are placed on your credit report for an initial 90-day period when you suspect identity theft. During this period, creditors and lenders accessing your data are warned about your fraud status and asked to take extra steps to verify your identity. Once you can document your identity theft case, this alert is extended for 7 years and your name is removed from pre-approved credit offer lists.

In contrast, a file freeze prohibits your credit from being reviewed without your specific permission. When a consumer with frozen credit wants to apply for a new account, they must obtain a special identification number for the creditor at a cost between $5-15. File freezes also make it harder for a consumer to check their own credit reports and credit scores online or to receive instant approval for loans and credit cards. Residents of states that allow this action can request a file freeze by calling the credit bureaus' fraud hotlines.

Watch out for gas station holds

When you swipe your card at the pump, gas stations often block out a certain amount in advance to ensure that you have the funds to pay for a full tank. These “holds” usually range from $25-$75 and can stay on your account for up to a few days. For example: you enter your credit card before starting to pump and the gas station blocks out a $50 amount. Even if you only buy $5 worth of gas, a $50 hold could stay on your account for a while.

This block can cause trouble when you go to make your next purchase, especially if you have a low credit limit or used a debit card. Read more about holds online here. Avoid any issues with this process by using only one credit card for buying gas and keeping more than one credit card in your wallet.

Cheaters never prosper

Misuse of a deceased person's financial accounts is a fairly common identity theft tactic. In this Oregon case, a woman purchased a lottery ticket using a stolen credit card belonging to her deceased mother-in-law.  The ticket turned out to be a $1 million dollar winner. But, if she is convicted of identity theft, she could end up with nothing.

This unfortunate case is a prime example of the importance of closing a deceased relative's accounts and reporting their death to the credit bureaus. A few quick phone calls can help family members protect their deceased relative's accounts from misuse. The credit bureaus can be notified by calling their identity theft hotlines and providing a copy of the death certificate.

Katrina identity theft disaster

It was just a matter of time before we started hearing stories about identity thieves taking advantage of Hurricane Katrina. Today, a Wisconsin man was arrested for a scheme that involved stealing relief checks from policemen and emergency workers in New Orleans. Scott Benson, 47, has been charged with 2,500 counts of false impersonation and 2,500 counts of identity theft.  

His alleged scam? Contacting emergency workers to tell them they would receive $5,000 checks from Viacom as a thank you for their storm recovery work, sometimes posed as a Salvation Army volunteer. All the workers had to do to receive this supposed windfall was to send in their personal information. The $5,000 bonus never arrived and Benson used their personal data to steal disaster assistance checks. Benson and an accomplice in Florida could be sentenced to up to 10 years in prison and $10,000 under Louisiana law.

Banks told to increase online security

The Federal Financial Institutions Examination Council has given the banking industry until the end of 2006 to implement a new security measures designed to protect online banking customers. Called a "two-factor authentication" system, this will require customers to enter their username, pin and a special passcode in order to login. The passcode can either be generated by a keychain-sized device that looks like a small calculator or with the use of scratch off cards.  This partly in response to the increase of phishing and pharming attacks, 85% of which target financial institutions.

But will this make a difference? It can stop some kinds of fraud, but experts say that this is not the perfect solution. Plus, it may deter customers from accessing their accounts online. Most people have more than one bank or financial institution they view online. When you have to keep track of a handful of passcode devices just to see your accounts, you may stop checking online. And this means that people would be less likely to catch someone misusing their account or other signs of identity theft.

Payday loan alternatives

As we discussed yesterday on CreditBloggers, the upcoming holiday season can be very expensive. If you are feeling the holiday spending pinch, you may think about using a payday loan to get extra cash. Payday loan companies advertise cheap and easy access to emergency cash but the costs are very high. The APR on a payday loan is usually in the 500% range and can go as high as 5,000%. Instead of helping you with your financial issues, payday loans often exacerbate the problem and leave you deeper in debt. If you are facing a financial crunch this fall, consider these alternatives to payday loans:

• Borrow money from your savings account
• Ask a relative to lend you the money
• Apply for a traditional small loan
• Ask your creditor for more time to pay a bill
• Use a cash advance on your credit card
• Negotiate a payment plan with the creditor
• Charge the amount to your credit card
• Receive an advance from your employer
• Use your bank’s overdraft protections
• Obtain a line of credit from an FDIC approved lender

If you have evaluated all of your options and decide a payday loan is right for you, be sure to understand all the costs and terms before you apply.

• Shop around for a trusted payday lender that offers lower rates and fees.
• Borrow only as much as you know you can pay back with your next paycheck.
• When you get paid, your first priority should be to pay back the loan immediately.

You can read more information about payday lending in this article: The Truth About Payday Loans

Generation gap includes debt ideas

According to a recent financial survey by Lending Tree printed in Forbes, different generations view and manage their debt in widely varied ways. Seniors above 65 are more cautious about using debt and saving money, largely influenced by past recessions and economic troubles. Young adults 35 and under, have a much larger tolerance for debt and a higher acceptance of credit. While using credit and debt isn't a bad thing, this study indicates that younger generations may be setting themselves up for trouble. Without savings and with rising interest rates buying a home, financing education and paying for retirement may be increasingly difficult for younger generations

We could all stand to put more a little more value in following a "use it up, wear it out, make do or do without" philosophy. It is possible to do so while continuing to use credit responsibly and making the most of our borrowing power. Combining a moderate use of credit with a robust savings plan is the best way to blend modern and old-fashioned financial principles.

Saving for holiday spending

The average American spends between $500 and $700 on gifts alone during the December holiday season. When you add entertaining, holiday cards, decorations, party clothes and candy cane costs, December can start to look pretty expensive.

Whether you celebrate Christmas, Hanukkah or Kwanzaa, you should start thinking about saving early. Prepare for holiday costs by starting to save a little extra money each month as soon as you break out your fall hats and mittens. Building up some cash reserves in October and November can help you avoid expensive credit card bills in January.

Why worry about your credit score?

Radio host and debt-free advocate, Dave Ramsey, appeared on CBS's The Early Show last week and offered some unusual advice. Ramsey recommends not using debt at all, paying for everything with cash and ignoring your credit score. According to the transcript:

"Ramsey calls the FICO score an "I love debt score."  In other words, he says you cannot have a high score unless you carry debt."

This is not exactly true. Even if you have just a couple of credit cards that you use on a regular basis, you can have a high credit score. Carrying small balances on these cards and having loans on your credit report can help your score, but aren't a necessary requirement to good credit. Plus, if you have good credit cards with no annual fees and pay the balance in full each month, you can avoid the costs of "carrying debt" altogether.

Ramsey goes on to advise people to apply for mortgages with lenders who don't require credit checks and to accept paying more for their car insurance because they have low credit scores.  While Ramsey's advice about limiting your debt and increasing your savings is excellent, it doesn't make sense to exclude your credit from this equation.

Moderation is key. Having 2-3 open credit cards that you use regularly and responsibly will help you have a good credit scores. Good credit scores will make it easier for you to obtain loans, car insurance, apartments and jobs. Plus, having access to credit cards can be very helpful in an emergency or when you are faced with unexpected costs.