Credit Card Debt Management

Balance transfers have their place, given the right circumstances. But balance transfers are not some mystical, magical solution to all money woes. A person still has the same amount of debt after the transfer as they did before. Money Safe blog just fielded an interesting question along these lines.

I’m trying to pay off two other credit cards and I want to … be paying off just ONE. Is that possible??? …Currently I am unemployed. I’m late on paying one of the cards. Is there anything I can do?

In this scenario, it appears that a balance transfer would be a temporary fix for the root problem - negative debt to income ratio. It is possible that the monthly payments might be slightly lower for six to 18 months after a balance transfer, during the no-interest period that is so common with such offers. However, the interest will come around again and may even climb higher than the interest rate on the two old credit cards.

Balance transfer options are tempting, particularly if you’re serious about getting out of debt and hate seeing interest charges eating up so much of your monthly payment. But until the new balance transfer card gets some age on it, your credit report will take a small hit for opening a new credit card account.

Presumably, a person would close old credit card accounts after the balance transfer to avoid using them anymore (although people don’t always do that, and instead dig themselves deeper into debt). However, by combining all your debt onto one card, you also run the risk of inching too close to your credit limit. For instance, it’s easier on your credit score to have $2,500 on each of two separate credit cards that each have a $5,000 limit rather than the entire debt of $5,000 on one credit card with a $5,000 limit and an interest-free period.

So in some cases, balance transfers aren’t all their cracked up to be. Whether it’s the right choice for you depends on your credit score, financial situation and self-discipline. If you can get approved for a balance transfer credit card, are in a financial situation to attack the debt hard during the interest-free period and have the self-discipline to do so, go for it. For those who are simply coasting along, planning to continue using their credit cards and may be unemployed as in the case above, all they’re buying is time. The interest charges will return and they’ll come back with a vengeance.

Attack the root problem first before looking at balance transfers. How will you pay down the debt? Should you get a second part-time job? Should you look for a higher-paying job or just ask for a raise? Do you need to get more education? Are you spending too much on dining out? For my family of three, dining out was a shocking $600 monthly expense at one point. Wow, that could pay off a lot of debt! Wise spending, better income and greater self-control, coupled with financial tricks like balance transfers, will treat the disease instead of just the symptom.

If you are thinking about buying a home, do not pass go and do not collect any loan applications until you have printed a recent copy of your credit report. It is always, always better to walk into any loan process armed with knowledge.

David Myers recently fielded a reader question in his news column regarding credit discrepancies. The reader was basically facing the prospect of settling for a higher interest rate or losing the house deal altogether and forfeiting a hefty deposit, all because of a credit report mistake that needed correction. There’s really no way to rush the process of correcting a credit report mistake. And of course, to fix it, you have to find it. You don’t want the lender pointing it out to you in the final stages of the real estate game.

Yes, a mistake on the credit report can have serious consequences. The first step is to bring the mistake to the attention of the appropriate creditor as well as the three major credit bureaus - Equifax, TransUnion and Experian. These agencies will help set the record straight, but it could take more than a month. Always communicate in writing by certified mail, keep solid records and follow up to ensure your request is being processed.

Because fixing your credit report is a lengthy process, it should begin at the same time as the house hunting, if not before. Even better, financial diligence - and perhaps a monthly credit monitoring service - will help keep your credit report up to date so discrepancies aren’t even an issue when loan time rolls around.

There is a near-constant stream of better technology and more organized groups mining for personal identity data. Retailers say it is more than they can handle, despite governmental attempts to force better protection of consumer data. Retailers have long been asking for a lifting of some of their responsibility and liability when it comes to protecting consumer data.

Timothy Phelan, president of the Connecticut Retail Merchants Association, recently told The Hartford Business Journal that the task of protecting consumer data has become enormously difficult.

“It’s become a much bigger issue with advanced technology,” Phelan said. “It’s gone beyond just [information technology] staff. It now involves loss prevention because there are organized groups out there mining to steal information.”

BuyerWall, a new invention by the Delaware-based Electronic Payment Exchange, will lift a lot of the pressure from retailers. It will essentially substitute a code for credit card data, so the retailer no longer sees and no longer has to store the consumer’s credit card information.

BuyerWall alleviates a merchant’s need to store cardholder data, as it issues a BuyerWall Recognized Identification Code (BRIC) to the merchant in place of the data. By itself, the BRIC holds no value; however, it allows the merchant to realize all of the capabilities that previously required the storage of cardholder data without ever having to touch the data. This includes refunds, recurring or return transactions, and historical review.

According to the EPX site’s frequently asked questions, EPX is able to exclusively offer the service because the company already processes transactions on the front end and back end. There is no talk of specific costs, though the company says it is comparable to current payment processing costs and points out that it eliminates consumer data protection costs. That’s not to mention the costs that could be associated with a consumer data security breach and the ensuing negative publicity that could hurt merchant revenues.

BuyerWall is sure to offer consumers and particularly merchants greater peace of mind. However, any skeptic has to wonder how long it will be until this new technology is also hacked into or compromised in some way by ID theft rings. For the present time, the new invention appears to be a giant leap forward in the fight against identity theft. It is not, however, a final solution. Consumers themselves still hold great responsibility in protecting themselves against identity theft.