Credit Card Debt Management

Stimulus checks should be rolling in any day now, and those with direct deposit may even have them already. Of course, $600 isn’t a lot of money, but it’s probably the largest amount of free money you’ve received lately (and of course, skeptics would frown upon referring to the stimulus checks as “free money,” because we’ll probably pay for it in the future).

At any rate, a recent article in the local paper suggested more people are using these checks for necessities like food and gas (imagine that). Some are blowing them on “want” items like fish aquariums, vacations, etc. But here’s an idea — what if, instead of stimulating the economy with our stimulus checks, we stimulated our own budgets by paying down debt? Again, $600 may not go far, but if you can use it to eliminate or significantly reduce even one debt, you could open up a little breathing room in your budget.

Of course, there’s a good chance that your debtor will try to apply your extra payment toward future interest. This means your monthly bill for the next several months could be surprisingly low, as little as $0. Instead, apply the payment on the principal amount and then try to continue making monthly minimum payments, plus a little extra toward the principal, if possible. And quit using the card until you are able to pay off the balance each month!

It’s not every day you get free money, so put this to good use and really make it count. That way, six months down the road, you won’t be scratching your head and wondering where it went. The effects of paying down debt will be seen and felt well into the future.

MasterCard (MA) shareholders are undoubtedly excited to see the stock’s performance this year, an amazing 45% increase thus far. On Friday, the stock hit a record high of $320.30 — more than double its 52-week low of $120 in August 2007 — before settling at $308.65 at the close of Friday trading. The good news came after the company reportedly announced its expectation of double-digit net revenue growth in 2008.

According to Thomson Financial News:

“The Purchase, N.Y.-based company said it continues to see gross dollar volume growth rate slowing in the U.S. in the second quarter, but growing in the rest of the world, according to slides from the company’s investor meeting Thursday. In the long-term, Mastercard said it expects average annual net income growth of 20% to 30% and net revenue growth of 12% to 15%, according to the slides.”

It might not the best entry-level point for newcomers to the MasterCard stock, but Visa (V) might be worth considering. It closed Friday at $86.36, up 1.11% from the day before and almost double its IPO cost of $44 a share in March. That’s remarkable growth and still a relatively reasonable price per share, considering the respectability and stability of the Visa corporation.

Both Visa and MasterCard are considered relatively stable investments for a couple reasons. Other than the fact that we live in a credit-obsessed society and these two companies stand among the industry giants, they also have a great business model. Unlike the banks and competing credit card companies AmEx and Discover, Visa and MasterCard don’t stick their necks out with loans. All they do is collect fees off credit card transactions. Therefore, they have very little exposure to the bad debt so prevalent in these turbulent economic times.

In other credit card news, American Express (AXP) finished last week down 10.9% YTD at $46.35. Discover Financial Services (DFS) finished at $17.15, up 13.73% YTD. Capital One Financial Corp (COF) finished at $48.12, up 1.82% YTD.

The list of corporations signing on to offer Paypal as a payment option for customers is growing ever longer. Over the last year and a half, airlines such as Northwest and Southwest have jumped on board, allowing customers to use Paypal accounts to pay for flights. Now, the almighty Delta Airlines has followed suit as well.

Paypal offers a truly revolutionary service in that it covers a variety of payment options and is truly completely secure. While it may be easier to hack into a merchant’s system records and uncover scores of customers’ payment details, it is probably a bit trickier to hack into Paypal. Simply because financial transactions make up that company’s sole focus, its security is very likely top-notch and on par with a bank web site.

So customers can now use Paypal as the channel to make purchases on several major airlines with a credit card (including frequent flyer rewards cards), debit cards, bank account transfer or Paypal account funds. And it’s about time. With more than 60 million active accounts in 190 markets and 17 currencies around the globe, it appears Paypal is not going anywhere any time soon. And since it’s here to stay, it’s high time these companies stood up and recognized Paypal for the financial giant that it is. And to think it was once primarily regarded only as a side arm of eBay. That’s so late 90’s.