Credit Card Debt Management

So you always hear so much about how good it is to pay off your full credit card balance monthly. Responsible credit card usage is paying your balance off in full each month, right? That’s what everyone you’ve ever known has told you your entire life - your daddy, your mama, your best friend, your best friend’s daddy and mama, your college professors, your girlfriend, your boyfriend, your goldfish - yes, even financial web sites like Banks.com

What’s missing here? You won’t see any credit card companies among this list. I couldn’t have been the only one wondering what credit card companies think of this (seemingly) sound financial advice. Naturally, they think you’re a deadbeat.

Check out this Sept. 16 “Money Talk” column in the L.A. Times. Major enlightenment here. The question asked of column writer Liz Pulliam Weston is why, of the two credit cards owned by a particular reader, was the interest rate increased on the card she paid off each month? Good question.

You just have to read the answer because it is that good. Apparently, this savvy consumer is being penalized and labeled a deadbeat for paying off the credit card balance monthly. Take a lesson from the reader’s determination in threatening to cancel the credit card, refusing to back down and ultimately winning the fight.

Just when I thought I had seen it all. Credit cards offering flight miles, cash back, vacations, interest rebates, new appliances, teeth whitening sessions and shampoos for your dog. Now what? The Canadian city of Vaughan would like to sponsor a credit card offering the reward of paying down property taxes. Is this serious? I mean, really?

Yep. It appears Vaughan will team with Toronto-based Civic Strategies, Inc. to offer the Muni-Card (Municipal Card). While this card will be the first of its kind, the Canadian city of Oshawa hopes to be a close second in adopting the groundbreaking idea.

Analysts are cynical primarily because the credit card industry is already crowded with tons of offers and because consumers tend to be loyal to one, already well-established rewards card. I don’t think this card is entering the game too late or too quietly to make a big splash. I think it has the potential to be a huge success. I also think that is unfortunate.

Apparently, Civic Strategies approached 40 companies in 2002 with the idea and met with no success. This is probably because cities are leery of tying themselves in with the business of issuing credit cards - and justifiably so. Yes, it won’t cost Vaughan anything. Yes, Civic Strategies will be managing the entire project. Yes, it will “put Vaughan on the map.” But does anyone else see potential for this to go terribly awry?

I am also skeptical about how great these rewards will really be. Will one reward point be worth a penny toward property taxes or will it really be a meaty offer? This is a pretty controversial idea that is certainly worth monitoring. If it doesn’t implode, the concept certainly has great potential to become a trend worldwide.

Along the lines of our recent rant on college students and credit, the Wall Street Journal today is carrying an interesting article today. In it, Jonathan Clements states honestly that he ::GASP:: doesn’t want his college-aged daughter to have a credit card.

The dilemma is he also didn’t want her to have bad credit. And as we’ve discussed before, no credit is bad credit. I recommend this article because it offers tips on other ways to build up credit for college students.

No time? I, your ever helpful credit card blogger, will summarize the points here for your convenience:

Check the banks first: Even if your child has no credit record in “the real world, they may have a good record within one particular bank. Use that to your advantage by taking the typical bank offer of a low-limit, fair APR credit card, commonly referred to as a student offer or “student rewards”.

A secured card: Good for those with bad credit. Pony up $300 to $500 cash on the front end to help determine the card’s credit limit. Check for fair terms, reasonable fees and the ultimate goal - that the secured card converts to unsecured credit after a reasonable amount of time and no screw-ups. Remind your college student that their credit is already blemished (thus the need for a secured card), so a screw-up in this case includes charging the balance up past 30 percent of the credit limit. This will potentially hurt their credit record further, making that goal of unsecured credit seem even less attainable.

Co-sign for an auto: Many parents choose their child’s first or second year of college to seek a safe, reliable vehicle for transport to and from school. When parents allow their child to co-sign for the purchase, it builds credit — an added bonus.

Add them as a user: Adding your child as an authorized user on your own credit card account is their one-way fast-track ticket to established credit history. It’s the route Clements chose, and the route chosen by many other parents as well. In fact, it’s so common that there may be some changes on that front, Clements mentions in his article. But that’s another topic for another day.