The Incredible Shrinking Credit Limits

If you're the type to run your credit card debt right up to the limit, now is the time to beware: The credit crunch may be closing in on you. Credit card issuers are scaling back on credit limits, sometimes reducing the amount that consumers can borrow by more than 50 percent, according to the American Bankers Association.

And in some cases, the changes take effect overnight, with no warning. Joseph Lanza works for an investment firm in New Hampshire. When he left home for a weekend in New York City, he had a credit limit of $3,800, he told CNN.com.

By the time he got home, his bank had reduced his limit to $1,000 without informing him. And the charges from his mini-vacation had run his balance up to $970.

“It feels like I'm running up against a bunch of walls,” Lanza told CNN.

Javelin Strategy & Research reports that 62% of credit card issuers have reduced the lines of credit they offer to consumers. One reason for this credit crunch is banks’ growing discomfort over the mortgage crisis on Wall Street and Congress’s failure thus far to pass legislation that would buy up billions of dollars’ worth of banks’ bad debt.

Another reason, however, is that many consumers have proven they can’t afford the limits they do have. In the second quarter of 2008, 1.04 percent of credit card holders were delinquent on one or more of their cards, according to TransUnion, the credit reporting agency. That’s a modest decline in delinquencies since the first quarter, but still higher than average for this decade.

As a result, even consumers with great credit scores may pay a price.

“Credit lending standards are tightening across the board, it doesn't matter how great your credit score is,” Carol Kaplan, a spokeswoman from the bankers association, told CNN. “This is happening everywhere, to everyone.”

So here’s some advice to credit card holders (in other words, just about everybody):

• Monitor your credit like a hawk. Don’t wait for the monthly statement. If you haven’t created an online account with your credit card issuer, do so now so you can track your credit more often.
• Check your credit before you go on trips or make big purchases.
• Consider: Is this really the week you need the giant plasma TV with wrap-around sound?

Financial Bailout Flounders...What's Next?

Now that the bailout plan is floundering, what can we expect?

I just got off the phone with Kathleen Day, one of my heroes in Washington who has been fighting for homeowners with the Center for Responsible Lending, and she tells me that the problem is our legislators are just missing the point. Stopping the tide of foreclosures should be the most immediate effect of this plan, but right now it's way off in the distance. Without stabilizing home values now, we taxpayers (all of us!) get a double whammy:

Higher taxes and lower property values.

Meanwhile, some firms on Wall Street could stand to rake it in sorting out all the complex mortgage backed securities that our government may take over.

What a mess.

But it's not a done deal yet. Get on the horn, and let your Senators and Representative in Washington know how you feel about the bailout.

Financial Recovery Plan, Bailout, Whatever...

The financial rescue plan being considered by Congress today appears to be another failure by our representatives in Washington to effectively turn around the housing crisis that has been the root cause of the financial meltdown on Wall Street.

As currently proposed, this plan will do nothing to help homeowners stay in their homes. While lenders and investors sort through the bad loans on the books, Americans will continue to lose their homes to foreclosure, and this incredibly expensive bailout we all get to pay for does not do a thing to change that.

For some time now, consumer advocates have been calling for reform that would stop the bleeding: Allowing bankruptcy judges the ability to modify toxic mortgage loans for consumers in bankruptcy. Thousands of homes could be saved immediately and that means the values of others will begin to stabilize as they are no longer dragged down by the continuing waves of foreclosure. And that measure costs taxpayers nothing.

It's as if Congress is helping the insurance companies and the doctors, while the patients are left bleeding on the tables.

Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com. Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Stop Debt Collectors: How to Protect Your Rights and Resolve Your Debts

Discover's New Initiative Brightened My Day

By Curtis Arnold, Founder of CardRatings.com


How friendly can a credit card campaign be to the consumer? Consumers are "blitzed and belted" with card ads daily that promise to improve our lives. A new eye-opening campaign appropriately named Brighter Campaign offers a refreshing approach. As a long time consumer advocate for responsible debt management, I had never seen such an ad and was impressed by its unique message when I first viewed it.

Instead of “charge, spend, and charge some more”, Discover’s new campaign promotes responsible, sensible use of credit. This new approach is so distinctive that it had even this very conservative reporter thinking, “Gee, maybe I should consider a Discover Card!”

But even if you have no interest in getting a card, I think every consumer should view this ad at least once to realize that at least one company is taking a proactive approach to assisting consumers.

I had the pleasure of interviewing Discover Card’s Larisa Drake, VP of Brand Communications, concerning their new “Brighter Campaign”. Following is some Q&A related to my interview:

Mike: “This new ‘Brighter’ campaign appears to be a reversal of traditional credit card marketing strategies. Where did the concept develop from and is Discover planning on continuing this path?”

Larisa: “The ’Brighter’ concept stems from our company mission to help people spend smarter, manage debt better and save more so they achieve a brighter financial future. "Brighter" is at the core of everything we do, from the development of our innovative products to the services and features we provide to help card members reach their financial goals.

This concept is especially timely right now, given the financial pressures that consumers are feeling in these challenging economic times, and we intend to continue providing consumers the tools and resources they need to have a brighter financial future.”

Mike: “Discover seems to pride itself on innovative strategies. Can you elaborate on some of Discover's other innovations?”

Larisa: “As the pioneer of cash rewards and 24/7 customer service, Discover is a company that thrives on innovation. Two of our more recent examples include the Discover Motiva Card, which rewards cardmembers for good credit management, and the Paydown Planner, a tool that helps guide cardmembers’ spending and payments by calculating the period of time it may take to pay down a balance. These are both prime examples of how Discover delivers on the “Brighter” commitment.

Mike: “Is there any concern that the "brighter" campaign could result in less profit by advocating responsible card management?”

Larisa: “No. We want consumers to know that we have listened to them and what they want from a credit card. Discover Card offers them innovative products and services to help them achieve their financial goals and achieve a brighter financial future. Hopefully, by knowing that we are on their side, consumers will be further engaged with Discover Card and continue to keep it top of mind and top of wallet.”

Mike: “Do you sense that cardholders feel that Discover is sincerely interested in helping them?”

Larisa: “Consumers consider it unexpected that a credit card company acknowledges the fact that consumers face a balancing act between spending and saving, and actually provides products and services that help them manage it –- whether it’s helping them get the most from the money they spend, making a plan to pay down their balance or budgeting for a future purchase. We offer so many tools and features to help consumers with financial management.

For example, Discover Card members have the ability to earn unlimited rewards on all purchases, and then redeem the Cashback Bonus as a credit to help pay down their balance. The Discover Motiva Card was the first credit card to reward card members not just for their spend, but also for paying their minimum balance on time. The budget planners we developed are customized with card members' unique account information, making it easy for them to calculate what it will take to pay down their balance or make a big purchase. It's counter-intuitive programs, tools and features like these that help demonstrate to consumers that we're on their side.”

Mike: “Would you like to add any additional comments?”

Larisa: “I'd like to reiterate that Discover Card understands the financial pressures people are under, and the balancing act consumers face when it comes to spending versus saving. We are committed to helping consumers spend smarter, manage debt better and save more, and offer the tools and services that allow our card members to make financial progress and in turn, achieve a better quality of life.”

I appreciate Larisa's insights and am encouraged to hear some positive news about the card industry for a change!

Curtis Arnold - Curtis is the CEO/Founder of CardRatings.com and is considered a national expert on consumer issues involving credit cards. He is also the author of How to Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line (FT Press, 2008). Mike Killian assisted with the writing and reporting of this article.

Funny Money Friday: The $700 Billion Bailout

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

“Halloween's still weeks away,
But tricks of finance start today:
Some get gift bags in the billions,
Others, pennies (mere civilians).
Whether treat's insane or small,
Depends if street is Main- or Wall-.”

-- Kevin Pierce, News and Verse

Here’s the way the bailout will work: “A failed president and a failed Congress invest $700 billion of your money in failed businesses,” explains Jay Leno. “Believe me, this can’t fail.”

In care you’re wondering, your share of the $700 billion bailout comes to about $2,300, or as Jon Stewart put it the other night in a segment he called “Debt to America,” $700 billion would “buy every single American 2000 McDonald's apple pies.”

“In $100 bills, it’s about 15 million pounds of money. That’s almost as heavy as all the steel and iron in the Eiffel Tower,” explain Addison Wiggin and Ian Mathias in Agora Financial’s 5 Min. Forecast. “Laid end to end in $1 bills, it’s around 70 million miles… enough to touch Mars most times during its elliptical orbit around the sun each year.”

Slate’s Explainer, Juliet Lapidos, says that “$700 billion is equal to about 12 Bill Gateses.” For you movie-goers, she adds, “Titanic, one of the highest-grossing movies of all time, raked in $1.8 billion from the worldwide box office, so James Cameron would have to make roughly 381 Titanic-sized blockbusters to settle Wall Street's debts.”

In case you’re wondering what else we can do with $700 billion, Ruth Conniff suggests on The Progressive’s Web site that we “compare the bailout with the pricetags on a few other items deemed unaffordable by the Administration and Congress.” Her picks include:

• $100 billion to cover all the health care costs for all the uninsured in the USA.
• $35 billion for universal pre-school.
• $50 billion for free college education for everyone.
• $500 billion for total energy independence, with a shift to renewables within the next ten years.

What would you like to see us do with the $700 billion? What's the best joke you've seen on this subject?

Nancy Castleman – Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 24 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com.

Students Following Paycheck, Not Hearts

It’s a sad comment on the cost of higher education when many students would rather pay off their student loan debt than follow their dreams. But according to a recent study by Experience, Inc., a career services company, fully half of students polled said they would choose a high-paying job that helps them pay off their debt rather than a job that offers greater career satisfaction.
    This rather depressing trend remains largely true after graduation. Forty percent of recent graduates said that their debt had forced them to sacrifice career happiness for a better paying job.
    Student loans are affecting decisions before graduation, as well. Almost a third (27 percent) of the 336 students and graduates polled said that their debt had influenced their decision of which field to enter, and 13 percent are accelerating their graduation date to avoid taking on more debt, the poll found. And almost half – 47 percent – say their debt had a direct impact on the career they chose to pursue.
    For at least some respondents, trading happiness for money has not paid off.
    “I regret choosing a career path that would help me pay off my student loans faster,” one survey taker said. “Although I am thankful for what I have, I wish I followed my heart in my career choice back in college and had not worried about my after-college financial condition.”
    Weighing happiness versus financial responsibility is always a difficult balance. But as a group of slightly less-recent graduates, we at Credit.com have found that people who enjoy their work usually excel at it, while those who hate their jobs tend to show it in their performance. Perhaps by lowering other expenses for a few years – buying a cheaper car, living in a smaller apartment, making do with a smaller TV – more graduates can find job satisfaction and still have money at the end of the month to pay their student loan bill.

How to Request a Lower Credit Card Rate

An excerpt from How YOU Can Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line.


When you've taken a look at the current rates being offered, you can use them as a negotiating tool with your credit card issuer. Trying to bargain down your interest rate might sound like an intimidating, difficult process, but it's actually quite simple and can be very rewarding as it saves you money. Believe it or not, numerous consumers have saved hundreds and even thousands of dollars by simply making a five minute phone call and asking their issuer to lower their rate.

Unless you already have a great rate, it's definitely worth calling your lender to see if you can get a better deal. I've done this myself many times over the years, so I know that it works. However, your chances of succeeding are significantly diminished if you have a poor credit rating or you haven't used your card responsibly (for example, you've had more than one late payment in the past year or you exceed your credit line on a regular basis).

Here are five tips to increase your chances of getting a lower rate when you talk to a customer service rep:

1. Always be courteous and professional.
2. Say that you're keenly aware that there are better offers available to you. Mention specific low-rate offers from other card issuers.
3. Point out your good track record and your good credit score.
4. Explain that you'd like to continue to use the card - and plan on doing so - if your rate is lowered.
5. If the answer is "No," politely ask to speak to a supervisor, and repeat steps 1 through 4.

Talking to a supervisor is often worth it because the customer service reps are more limited in their ability to make account changes. If the supervisor can't help, you next step should be to threaten to stop using the card and to transfer you balance elsewhere. When you call their bluff, you'll probably be transferred to the account retention department. Its sole purpose is to keep customers (hence the name), so this department can often give significant concessions to make you happy.

For more tips on how to negotiate a better rate, and other valuable credit card tips, check out Curtis' new book, How YOU Can Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line.

Curtis Arnold - Curtis is the CEO/Founder of CardRatings.com and is considered a national expert on consumer issues involving credit cards. He is also the author of How to Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line (FT Press, 2008).

Great News! House Approves Credit Cardholders’ Bill of Rights

The U.S. House of Representatives passed the Credit Cardholders’ Bill of Rights yesterday by a vote of 312 to 112. It’s the first time any legislation restricting abusive credit card lending practices has gotten through the House or Senate.

I big "Thank you!" to everyone who took the time to call or write their legislators over the last year in response to pleas from the team here on CreditBloggers.com. I’m 60-years-young today, and I can’t think of a better birthday present … or can I?

“Amidst the financial turmoil on Wall Street … the House took steps to help those on Main Street,” says U.S. Representative Carolyn Maloney, one of the bill’s co-sponsors in the House. “This historic legislation will help working families who face their own credit crunch as a result of what the Federal Reserve itself calls ‘unfair,’ ‘deceptive,’ and ‘anti-competitive’ credit card practices.”

It’s the Senate’s Turn
Maloney is urging Senators to recognize the strong grassroots support for reform, “as evidenced by the margin of victory for this bill today -- and by the 56,000 public comments filed to the credit card rules proposed by the Federal Reserve.”

Taking it one step further, Consumers Union is calling on the Senate to include the reforms as part of the Wall Street bailout package, pointing to the overwhelming vote in favor of the bill in the House. Sure sounds like a good idea to me! The least they can do is add some provisions to get rid of retroactive and "any-time, any reason" interest rate hikes as well as “gotcha” late fees – and to prevent issuers from applying payments only to the lowest interest rate balance.

“Millions of Americans are drowning in debt because of unfair and deceptive credit card lending practices,” says Pamela Banks of Consumers Union. “This bill restores some basic fairness to the market and will help ensure that consumers will be able to better manage their finances in these tough economic times. As Congress shapes a bailout of the financial sector, it should include these credit card protections so consumers won’t continue to be gouged by these unfair lending practices.”

I agree and am going to write my Senators right now, before I goof off for the rest of the day to celebrate my birthday. I ask each of you to please do likewise -- to write your legislators, that is! Consumers Union makes it so easy. All you have to do is click here. Just think, you’ll be performing an important civic duty and giving a terrific birthday present to this grandma of nine, who wants something positive to come out of the Wall Street bailout, not just another huge bill for future generations.

Nancy Castleman – Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 24 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com.

A Hit to the American Pocketbook

If you’re feeling financially strapped this month, you’re not alone. American families are $2 trillion dollars poorer today than they were last year, according to a recent report by the Federal Reserve.

The report, previewed by the Wall Street Journal, showed that household net worth dropped .8 percent in the second quarter of 2008, the third straight quarter of falling wealth.

And most financial analysts believe this is only the beginning. Gary Bigg, an economist at Bank of America, said he expects household net worth will fall another two percent or more this quarter. That could put a crimp in consumer spending, which drives 70 percent of the economy.

"The hit to household balance sheets will certainly have an adverse impact on future consumption spending," Bigg told the Journal.

The informed, objective response to this is: “Well, duh!” It’s no secret that American consumers have spending beyond their means and racking up far too much debt. As Americans’ net worth fell, household debt still increased last quarter at an annual rate of 1.5 percent, according to the Journal. And even with real estate prices in freefall, average family mortgage debt rose last quarter to 55 percent of the home’s value, which means that Americans owned one percent less home equity than they did three months ago.

In the face of all this bad news, here’s some advice that may help:

• Don’t move. Unless you plan to live in a new house for seven years or more, experts say you may lose money to commissions and fees.  Consider staying where you are.
• Be careful with that new credit card. The Federal Reserve shows that people between the ages of 18 and 24 are overly cavalier about charging too much credit card debt. With unemployment rising, don’t charge more than you can afford to pay back.
• Don’t panic. Diversify. There will still be a stock market next year, and someone will still be making money on it. Especially if you’re young, experts advise to stay in the market, but make sure that your stock and mutual fund investments are diversified over a broad stretch of markets and investment types.

Who Is Bailing Out Main Street?

This weekend, our local paper's headline screamed, "$1 Trillion Bailout." In the same weekend, I received a call from a friend facing foreclosure because he can no longer afford his mortgage. No one is bailing him out.

Kathleen Day of the Center for Responsible Lending has been sending emails to reporters pointing out how one sided this bailout really is. It is supposed to be aimed at containing the mess and preventing a further panic and downturn. But it continues to ignore the most obvious facts, as Kathleen points out:

"By forcing taxpayers to buy abusive and reckless loans from irresponsible lenders, taxpayers are funding a multi-billion dollar subsidy to private corporations. Yet the millions of families who have been unfairly pushed to the financial brink by these mortgages get nothing.  Only by preventing the 6.5 million foreclosures expected in the next few years … and the $356 billion drop in surrounding  property values that will result for an additional 46 million families … will the economy begin to recover. "

Working Assets also warns that each taxpayer in America is about to contribute $2000 - $5000 toward this bailout. But we get absolutely nothing in return. No new regulations, no immediate help for homeowners who are losing their homes to foreclosure. We don't even get to share in the profits when these companies bounce back.

There is a better way to handle this. Working Assets has some excellent suggestions, and I encourage you to read them and speak up. You can bet the lobbyist are swarming Capitol Hill to push their agendas. Like it or not, we're going to pay for it (and likely our children will too). We need to make our voices heard too. 

The Center for Responsible Lending has been a leading advocate in all of this and they have been pushing for the most commonsense measure for some time:

Allowing bankruptcy judges to modify bad loans for consumers in bankruptcy. This will go a long way to stopping the bleeding. 

Even if you have no debt and no bad mortgage, this mess will affect you, as the taxpayer bailout demonstrates. When my friend's home goes into foreclosure, it will likely be stripped before it is sold. (I have other acquaintances who have been through foreclosure here in Florida and their a/c units are gone, along with just about everything else that can't be nailed down.) The value will be a fraction of what it was, and the bank will take a big hit. But so will neighbors whose property values keep dropping as the number of foreclosures rise.

Is a $2000 - $5000 "tax" worth an email or phone call to your Senators and Representative? I hope so.