Part 3: Answers to your credit questions

Here’s the third installment of answers to your credit questions. Personal finance experts at Consumer Credit Counseling Service of Greater Atlanta provided the replies.

Please return tomorrow for more answers. Thanks. (By the way, if you missed yesterday’s column with CCCS President Suzanne Boas, here’s the link.)

Q: I recently paid off seven credit cards by refinancing our home. I want to close all but about two of the credit cards, but husband thinks it would be better to keep them open but not use them. Which is better?

A: First, we would never recommend that our clients refinance their home to pay off unsecured credit card debt. Credit card debt should paid off in two to three years at the most, while following a strict written budget.

There are two problems with using your home to finance credit card debt — you put your home at risk unnecessarily and you don’t experience the sacrifice of paying off the credit cards. The second point is important because although you plan not to use your credit cards, the temptation is greater if you haven’t had to go through the difficulty of paying off a large balance over time.

Following a written budget causes a behavior change. So, generally it might help your credit score somewhat if you left all existing accounts open. But in your case, you may want to limit the temptation to use the cards.

Q: I filed for bankruptcy in 2007 and was able to make a few payments on the agreed terms of the bankruptcy. But I lost my job in 2008 and have since not been employed. Finding a job has become difficult because of my poor credit score. My home has been foreclosed on. How do I get back on my feet after I am gainfully employed? I owe on my student loans as well.

A: Make getting a new job your top priority. After you’ve done that, there is an opportunity for a fresh start. Once you are earning income again, the top priority is to get your student loans and your bankruptcy payments caught up. As soon as you are caught up, live on cash and resist the temptation to take on new credit. Over time you will see your credit score slowly improve. Only after about two years of this disciplined way of living should you consider applying for credit again.

Q: Credit card contracts are so terribly complicated. Do they all really come down to this:

1. The credit card company can increase your interest rate to any amount for any or even no reason.

2. The credit card company can increase your minimum payment to any amount for any or even no reason.

3. The credit card company can decrease your grace period by any amount for any or no reason.

4. The credit card holder cannot sue for any reason and can only take disputes to binding arbitration.

A: Credit card contracts can be difficult to read and understanding the terms and conditions of the loan being offered can be a challenge. But it is important to understand the terms before you incur debt. If you have a question about the terms of the credit card, you should call the issuer and ask for clarification. There are credit card agreements that contain some or all of the conditions you mention. A new law taking effect next year will restrict the ability of credit card issuers to impose those terms without clear notification to the consumer.

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40 comments Add your comment

Interior

July 29th, 2009
10:03 am

Don’t get a credit card ever.

Q

July 29th, 2009
10:14 am

I’m 3 months behind on my mortgage. I’ve lived at my house for 8 years and keep falling behind on my payments.This all started with a divorce and I have not recovered.My credit is shot so I can’t refinance and in this economy I’m pretty sure I can’t sell the house.I’ve tried to get a loan modification but my lender won’t do it.Due to all my late payments and because I’ve kept falling behind my balance is now more than it was when I bought the house. What’s the best thing to do? I’m really starting to think I’d be better off just walking away from the home.What do you think is my best option? If they foreclose and sell the home will they come after me for the remaining balance?

ThatGuy

July 29th, 2009
10:47 am

No reason to not have a credit card if you budget and use it wisely. Pay off the balance every month or be smart about using 0% APR credit cards and you can gain some advantages for months or years. Problem is when you “forget” about the balances and those finance charges hit. You just can’t let that happen and time value of money along with some investment ROI will put you ahead by using credit at 0% interest. Easier said than done, I know- but my wife and I are able to do it. It just takes some concious budgeting and fiscal responsibility.

Curious

July 29th, 2009
10:53 am

Can a prepaid Credit Card boost your credit score slowly

Amy

July 29th, 2009
10:54 am

Interior – I agree.. kids, especially those coming out of college, should be better educated about what will happen if you get a credit card. I am still paying off my post-college credit card debt. We would have soooooo much free cash if we didn’t have the stupid debt. We were so close to getting it paid off once and for all and then my salary took a major hit and now the debt is back up to what it was to begin with and on top of that I added a large graduate school loan.. which I only took on because of my previous salary… my only hopes are that once I finish school next month.. I will be able to get a new full time job that will have a better salary and we can get back to our debt paying off plan.. One thing we did do is trade my car in for an older one that cost a lot less and that lowered our car payment by about $50 per month and got a shorter loan term so it will be paid off sooner.

Brian

July 29th, 2009
10:56 am

I don’t really understand the people that say that “no one should ever get a credit card”. Credit cards are wonderful and convenient IF used properly. They afford you protections that cash simply does not have. think about this: Should I tell everyone that they should never have chocolate chip cookies in their house because they are evil and I cannot control myself from eating the whole bag?

Amy

July 29th, 2009
11:04 am

Brian- you do make a good point. Educating people on credit cards is the best solution. We do have one that we pay off at the end of each month. The others we are strictly paying off. We need to use our credit to keep up our good score. Having a good credit score helped us with the car situation. I like my new-to-me car better than my other one too! And makes the monthly budget just a little bit better.

You Can't Afford It

July 29th, 2009
11:05 am

Credit cards are very, very, very dangerous for most people. We live in a society that bombards us with the “buy now” message. We see tv shows where blue collar workers live in half million dollar homes. We see friends and neighbors driving high end cars.

Is it any wonder so many people get sucked in to credit card debt?

For MOST PEOPLE, DO NOT GET A CREDIT CARD! Build a nest egg, use it ONLY for emergencies, then replenish it. IF YOU CAN”T PAY CASH, YOU CAN”T AFFORD IT! If your mortage is more than 24% of your take home pay, YOU CAN”T AFFORD IT.

Step back, find free stuff out there, enjoy the low stress of being debt free.

I do it, have done it for years, and it works.

Amy

July 29th, 2009
11:07 am

I can’t tell you how thankful my hubby and I are that we bought a home we could afford and didn’t try to get one of those stupid mcmansions like a lot of people we know. It may be small but once my salary got cut.. I started to love that small house and small mortgage payment even more!!

Casey

July 29th, 2009
11:09 am

Why have a credit card? If you don’t have the money, don’t spend it! Save me the “It’s for emergencies” excuse.

Casey

July 29th, 2009
11:12 am

p.s. A “savings” should be for emergencies. Most people that have credit card debt, don’t have a savings… and most people that have a savings, don’t have credit card debt. Coincidence??

GaNative

July 29th, 2009
11:12 am

Credit cards are ok only if you have a stable job so that you can pay it off each month. But in today’s economy a stable job is hard to find. Therefore my advice to anyone is to stay away from credit cards. Even if you have a steady job today, tomorrow that job is not promised.

GaNative

July 29th, 2009
11:15 am

I used to carry an American Express card and I was really ego tripping on that slogan of “Don’t Leave Home Without It”. Now that I haven’t had a stable job for the last 4 years, I’m soooo glad to leave home without it.

Southern Bella

July 29th, 2009
11:16 am

Different strokes for different folks. If you are responsible and can manage your money wisely, there is no reason why you can’t have a credit card.

For those of us who use cards wisely, it’s a matter of convenience. For example, I like being able to book a hotel room and a flight in advance and online. (You can’t do that with cash.) Also, I am not keen on keeping a wad of cash on me.

If you can’t handle the responsibility, by all means DO NOT GET A CREDIT CARD!

Bob

July 29th, 2009
11:21 am

In the end it all comes down to this:

STOP WASTING MONEY ON STUPID CRAP YOU DON’T NEED AND CAN’T AFFORD!

GaNative

July 29th, 2009
11:23 am

Handling the card responsibly and being responsible depends on a job for most people. Without a job, you’re going to fall behind. That’s a fact. Take the mortgage crisis for example. Black people were always given bad loans, but as long as they had a job, they paid the loan. So the mortgage disaster happened when the jobs disappeared.

Bob

July 29th, 2009
11:25 am

The real reason there are no $500 or $1,000 bills anymore is that it’d be too convenient. Now the only way to car money conveniently is with a CC. There will be no cash in 20 years. All money will be electronic.

Pickles

July 29th, 2009
11:25 am

I work in the industry, and even being an educated consumer I can tell you that it is still very easy to become tripped up through circumstance.

Speaking for myself, I wouldn’t carry the high debt load I do if I didn’t own my house. I wouldn’t have bought my house if the inspector had done a thorough job and found the problems that had me spending $25K in the first three years I owned the house – while paying for a divorce. Wouldn’t it be nice if home inspectors were required to be licensed? Now I’m in the classic catch 22 – my debt to income ratio is too high to get a loan with a lower interest rate – to get a loan with a lower interest rate, I need to pay down debt and yet all I am doing is paying down interest….ah, the joys of finance.

I pray for a lightening strike!

Pete

July 29th, 2009
11:25 am

I’m just starting out building my credit. I have 2 cards, one has a $300 limit and the other has a $750 limit. I’m responsible and haven’t missed a payment in the two years I’ve had them. Now, after two years, my credit hasn’t grown hardly at all.

What is the best way to raise my credit status? Is there anyway to speed up the process?

Elizabeth

July 29th, 2009
11:29 am

You can book a flight, hotel online as well as buy things online with a DEBIT card. No need for a credit card.

GaNative

July 29th, 2009
11:30 am

Hey Pete, the speed only works in reverse. If you miss a payment, just watch how big and how soon your rating takes a nose dive.

credit cards suck

July 29th, 2009
11:34 am

If you need to book a hotel room, order something online or whatever, you can use a debit card. Credit cards are a waste because the rules constantly change…and never in your favor. I have had cards cancelled because I never carried a balance; the excuse I got is they are “trying to maintain profitability on all accounts”. That means they did make enough money from me. I had another card that I did carry a balance on jacking the intrest rate up everytime I turned around. They apparently wanted to maximize the profitability on this account. I no longer have credit cards or CC debt, don’t miss them at all.

Marie

July 29th, 2009
11:37 am

If you use a debit card online to book a flight, hotel, etc. and your debit card number gets stolen, you ARE liable for any money they take out of your account. It’s gone. If it’s a credit card, you are NOT liable (only up to $50 I think). It is not safe to use a debit card online.

HEDGEPRUNER

July 29th, 2009
11:47 am

its called being responsible and debt free, me & my wife have both been blessed to have good jobs and we bought a house we could afford knowing we had to also finance 2 kids through college, we drove old cars while just about everyone we knew were buying expensive homes & cars and we wondered how they did it until the bottom dropped out last year in our economy.Thank God we lived within our budget and are now able to send both kids to college and barley get by, its been a sacrafice at times but we knew that keeping up with the Jones’s was ill advised as so many now understand as they lost their homes and thier jobs.Americans need to stop buying everything they desire and help their neighbors because the good old GOVERMENT is about to take all our hard earn money and give it to people that wont be responsible for their lives…Lord Help us all…

GaNative

July 29th, 2009
11:56 am

I drive old cars, have been for years. I buy them for $2,000 – $3,000 at car auctions. I have also put 3 kids through college and the last one is a junior in college. But without a job, there have been times when I’ve been riding on maypops (the tire may pop at any given moment) on my old cars. No matter how well you plan and how much you’ve saved and invested. In this economy, without a job you’re going to take a hit. Investments went down, 401K’s went down, and I’ve seen people who thought they were very responsible and well prepared lose it all because the job was lost. Finding a job can now take a year or more, believe me.

credit cards suck

July 29th, 2009
12:15 pm

Marie, you may want to check your facts on debit card liability. I have “zero liability” on my chase debit card for unauthorized purchases. That means I don’t pay $50 or any $$$ for anything that is purchased on my debit card (unauthorized purchases that is!).

THALL

July 29th, 2009
12:16 pm

https://www.naca.com/index_main.jsp

Should help if you are Behind in Mortgage

DECATUR

July 29th, 2009
12:18 pm

I totally agree with YOU CAN’T AFFORD IT. People really need to re-think using credit cards your are at the creditor(preditor’s) command
they make all the decisions, and whether or not you are a good paying
or bad paying credit card holder they can do whatever they want. When the new law goes into effect about what credit card company’s can/cannot
do in raising your APR% rate. They will find a loophole in that law which will allow them to continue milking consumers.

Casey

July 29th, 2009
12:25 pm

Marie, you are not liable if your DEBIT card is stolen. What bank do you use?? I’d switch!

Heath

July 29th, 2009
12:31 pm

Marie,

You are absolutely wrong! You are not liable for unauthorized charges for a debit card. Before you post, know what you are talking about and do some research….information is everywhere…let’s see if you respond to argue, or….do some research…and shut up.

If you use and carry debt…you are a fool..and a fool and it’s money are soon parted.

America needs to wake up, and stop trying to impress people with their fancy car…with payments! The average millionaire drives a Ford F-150..paid for! They don’t have anything to prove.

Proverbs 22:7 The rich rule over the poor, and the borrower is servant to the lender….If you want to continue to be a slave…be my guest.

brandon

July 29th, 2009
12:41 pm

Yeah, times are hard but there are ways around it. My girl friend and I live together (saves money). I am lucky that I have a good job, but we have taken advantage of all the liberal give aways for her. She now gets up to 79 weeks unemployment, she claims to pay the rent (which she really does not, I do) so she can get $200 worth of food stamps per month. I can’t even believe how much is out there just for the asking.
They are now paying 65% of her insurance, which is cheaper than what my employer’s premium is. She also does some baby sitting (she loves kids) and other things, all for cash of course, so not to effect any free benefits.

It is really working out great. She gets to stay at home most of the time, do what ever she wants and discovered that she actually has more money that when she was working, plus she is not as tired and our sex life has gotten even better (and yes, she get free birth control)

Now, all of you can discuss debt, credit cards and the like – we have found that the US and State Governments are our ‘credit cards’ and we don’t have to even pay the bill.

Thanks. Oh, when times get better I am sure she will go back to work, but for now it;s great.

The Dogfighter Returns

July 29th, 2009
12:44 pm

the advantage of refinancing to pay off credit card is that:

1. your interest rate is reduced.

2. the interest is now deductible on your tax return

keep it open and once in a while use it so that it doesn’t get closed for non-activity.

no a prepaid credit card will not boost your credit score.

credit cards are the best. I love them. Whenever I have a problem with a merchant the credit card is always available to investigate. If you use your debit card you do not have this luxury. I do not have to carry cash around.

when savings accounts were paying 5% i would take a cash advance for 0% and earn 5% on $20K after the balance transfer fee of about $150.00 I would have at least $500.00 to $700.00 for the year.

to increase your credit limit simply buy something every month and pay it off by the due date. After five months you will be flooded with pre-approved credit applications.

Brian

July 29th, 2009
1:03 pm

To all the people speakingabout “zero liability” on debit card. You are leaving out a few GIGANTIC gotchas:

1. The bank will not return your cash instantaneously. You have to wait and go through a process to get your money returned

2. Book a hotel room on a debit card and see how long your moneyy is tied up.

Again, CCs are not for everyone, but to have one blanket rule is ignorant.

Heath

July 29th, 2009
1:33 pm

Brian,

Point 1. Many banks will return your money the next day…..

Point 2. Ummm, WOW!! Brian, “YOUR” money is tied up? If you paid for the room..it is no longer…”YOUR” money. It is the hotel’s money. I book rooms all the time….if you can balance a checkbook…it’s not a problem. I am sorry you have problems with that.

Neither one of those are really a GIGANTIC gotcha….keep reaching for straws.

Using a credit card is ignorant.

GaNative

July 29th, 2009
2:21 pm

The Dogfighter Returns, Refinancing your house to pay off credit cards is a very bad idea. Credit Cards are unsecured debt. Basically if you don’t pay them, they have no recourse. Your mortgage on the other hand is secured by the home. You don’t pay your mortgage, they take your house. Never, never, refinance your home to pay off credit cards.

Brian

July 29th, 2009
2:24 pm

If a hotel room is $50.00 per night then hotel puts a “hold” on your debit card for $100. The hold is released 72 hours after checkout

GaNative

July 29th, 2009
2:32 pm

I’ve used my debit card at hotels before and they never put a hold for any amount on it. In fact they didn’t touch my account until I checked out of the hotel and then tool only the amount of the bill.

Heath

July 29th, 2009
2:32 pm

Brian,

You are laughable!

The Answer

July 29th, 2009
3:20 pm

My brother works in a Mariott customer service call center where he handles complaints all day about debit card holds in excess of the room charges. It happens. And if it hasn’t happened to you, hooray for you. Typically, my brother says, it takes at least two business days to remove a hold. The bank is the only party that can remove the hold. He says the hold is typically for about double the room rate.

The Dogfighter Returns

July 29th, 2009
6:21 pm

ganative my strategy reduces interest expense assuming that the person already has a heloc. This is the essence of finance. How is saving money a bad idea?

The interest on a personal vehicle is not deductible for tax purposes however if you use a heloc to pay for it, the interest becomes deductible.

FYI to make that unsecured creditcard secured in the event you default, all the cc has to do is sue you and they will be able to put a lien on all your assets.

Who said you cannot transfer the heloc back to a credit card? helocs have more flexibility. you can pay interest only if you want.