Credit Card Debt Management

The American Chronicle had a fabulous article recently about “The Six Questions Lenders Will Ask You After Your Bankruptcy.” The largely first-person article by Stephen Snyder, founder and president of the After Bankruptcy Foundation, offers sound, common sense advice for those who have undergone the financial nightmare that is bankruptcy. Don’t forget, however — nightmare as it is, bankruptcy is not the end of the world. There is life after bankruptcy, and here are a few of the highlights to help you along:

Pay on time, especially after bankruptcy.

Establish new credit. These are typically going to be high-interest loans and lines of credit. Retail credit cards are a good way to get started. They’re not terribly picky about credit scores, but they are higher interest. Whatever new credit you choose to get back on your feet, use it responsibly or it will be all for nothing.

Know your credit score. Knowing your FICO score is essential to gaining a slight upper hand when going in to talk to a lender. Knowledge truly is power.

Settling your debts provide a nice alternative to bankruptcy, and are considerably easier on your credit record. A bankruptcy usually stays on the credit report about 10 years and can make it extremely difficult to find credit with anyone thereafter. This is particularly true with unsecured debt, which includes most credit cards. The credit industry does, however, offer some options to those with bad credit.

Most bankruptcy filings are going to be Chapter 13, thanks to the 2005 bankruptcy law restructuring. That means you will be put on a payment plan anyway to repay most of your debts, so you might as well look at doing this on your own. Should you decide bankruptcy is not the best option for you, consider looking at debt consolidation or negotiation/settlement instead. You can hire a debt negotiation service, but this too will have a negative effect on your credit record.

The kicker is, you can handle debt negotiation and settlement on your own (and keep credit report damage to a minimum). Stay tuned for more details on how to successfully settle your own debt. In the meantime, Buzzle.com has an interesting article on how debt settlement relates to taxes, just in time for those tax filings.

You bank online, you play games online, you check the weather, the news and sports scores online, some people even work and date online. It makes sense to shop for credit card offers online as well. Just make sure you are using a reputable web site that offers details on the credit card offers along with a side-by-side offer comparison. Banks.com has compiled pretty comprehensive lists of credit card offers under categories like “Business credit cards” and “bad credit credit cards.” Simple to use, easy to read.

If you are eyeing new credit card offers - particularly for the purposes of balance transfers - you will want to read the latest from The Motley Fool. Essentially, a strategy used in 99 percent of credit card offers is to apply monthly payments in a tiered system to pay off lowest-interest debt first. For instance that $140 payment will go first toward interest charges and then toward paying off balance transfer amounts. This holds true even if the card has been used for purchases or cash advances, transactions that carry much larger interest rates. It is a tiered system of repayment. Almost as dirty as the Universal Default Policy so many credit card companies love. The Motley Fool scoured 300 credit card offers and found the four - that’s right, four - that don’t use this system.

Last but not least, the Baltimore Sun is taking notice of the lenders’ new habit of replacing mortgage offers with new and improved, more lenient credit card offers. A recent post in My Two Dollars points out that lenders “have eased their lending standards to be able to grab a bigger share of the credit card market, which the article says is ‘banker-ese for making lots of loans that won’t get paid back.’”

And the lenders will write-off the no-pay customers and in turn be forced to raise interest rates for good-credit customers and find more ways to slip in these mystical, magical fees. I guess they just feel like playing Robin Hood.