Bankruptcy & Foreclosures

We often talk about the rigors of credit card debt and the logic in avoiding getting caught up in the first place over trying to dig our way out. To reiterate the pitfalls of card-use, let us take a moment to look at how the credit card industry works.

One of the principles of the credit card industry is that a majority of their income comes from finance charges: interest on maintaining a balance and any late payment fees and over-limit charges.

It is a sad reality that credit card issuers actually rely on their cardholding members to not be able to pay off their balance in full each month. This fact alone emphasizes the caution we need to exercise when being courted by card companies initially. Teaser rates and free promotional goodies are often flaunted to lure skeptical consumers in with the implied hope that you’ll become tempted by the card’s spending power. The bottom line is that each of us is being setup to fail. The nature of the industry is that the lender capitalizes on the consumer’s inability to stay afloat.

With this knowledge in mind, especially in the holiday spending season, reserve using the cards unless absolutely necessary. The best advice is to purchase only those items that you can pay off in full when the bill arrives at the end of the month.

It seems like every time I post about credit cards or powerhouse lenders, the theme is be leery as a consumer. For the first time in recent memory, I have some good news to report. JPMorgan Chase & Co, which services more than $600 billion in mortgages, has joined with the government and industry leaders in supporting the interest-rate freeze initiative.

The rate freeze, which intends to help troubled homeowners keep their homes, will help Chase in further streamlining their process to review and approve loan modifications for qualified homeowners.

In addition, beginning March 1st, 2008, Chase will no longer increase credit card interest rates based on consumer credit-bureau score drops (which unfortunately is a widely-accepted industry practice).

What this means is the credit card companies can pull a consumer’s credit report at any time and hike the interest rate on their credit card (even if the consumer has been paying their balance on time each month) based on an unreleated dip in credit score!

Chase has been one of the first companies to step up and eliminate this practice. Whether or not this is directly related to Congress’ recent investiagtion to credit card lending practices is yet to proven.

We often discuss the benefits of budgeting as a means of gaining control of our personal finances. I’ve received a rash of emails of late asking for more detailed information on the subject on account of the fact that so many budgets fail.

After taking a closer look at some of the budgets in question, I can offer some additional tips in effort to iron out the rough spots.

Lifestyle

One of the leading reasons budgets fail is that individuals refuse to be honest with themselves about their spending. Regardless of how much income you show, spending more than you earn equals instantaneous budget doom.
Separate needs from wants and, as hard as it is to do, be prepared to make cuts.

Cash Advances

It’s very easy to borrow a few extra bucks as either a payday loan or a credit card cash advance but these little loans often come bundled with ridiculously high interest rates and extremely short terms of repayment. Don’t confuse money in your hands with financial stability. The debt spiral often starts small then gains momentum.

What if your budget still isn’t coming together even after such precautions?

Lower Your Monthly Bills

As obvious as it sounds, another way to make ends meet is to reduce the amount of outgoing cash flow. If your mortgage is eating up too much of your income, consider refinancing either for a lower rate or longer term. Consider changing car insurance carriers if savings can be guaranteed. If existing credit card debt is dragging you down, check into consolidating multiple balances onto a single low interest card then cut up all of the old cards.

If you can’t increase your income in a snap, flip the coin and reduce your outgoing.