Credit Card Debt Management

So maybe you’re about to head overseas. Maybe you’re one of the many soon-to-be honeymooners planning for the upcoming wedding season. Or perhaps you’ve just decided it’s finally time to fulfill that lifelong dream of visiting another country. When it comes to money, there are a few things you should know. Credit or debit cards may seem the easiest route, particularly when you reference those Visa commercials showing globetrotters plunking down their Visa card at exotic locales around the world. But what they don’t show you is all the related fees.

The L.A. Times outlines the fees attached to debit or credit cards:

-2% foreign transaction fee from the credit card issuer

-1% additional foreign transaction fee from Mastercard or Visa

-2% additional foreign transaction fee from American Express

-ATM withdrawal fees of up to $5 or up to 3% of the withdrawal amount, or possibly even both.

So even though there may be fees associated with cash conversion or money orders, the related fees can make credit cards more expensive in the long run. Nevertheless, many international travelers prefer to stick with credit cards for their rewards, convenience and safety. Most travelers would much rather be carting around a credit card or two than a large wad of cash.

Some international shoppers (and this applies to international e-commerce as well) received a surprise related to their foreign transaction fees. A mailing circulated two months ago concerning a class action lawsuit settlement by Visa, Mastercard, their member banks and Diners Club. It seems tons of consumer were entitled to a small refund if they made significant international purchases during February 1996 to November 2006. Allegedly, those companies issued credit cards without clearly stating their foreign transaction fees.

To find cards that fit great with international spending, check out My Money Blog’s list of Best ATM or Credit Cards. Topping the list: HSBC ATM cards, which have nominal fees, and Capital One credit cards, which charge no foreign transaction fees. Apply for one of these cards and never worry about refunds again!

Banks.com’s Weamein Yee posted an interesting personal finance article recently on how consumer spending is slowing across all sectors. One of those sectors, of course, is credit cards. Even despite recent reports that American consumers were prioritizing credit card bills above mortgage payments, it seems the credit card industry is not immune to the current economic pressures. Companies are reporting less consumer credit card spending and more late payments.

Credit card companies are now getting more innovative in their marketing schemes. And we’re not talking about free sandwiches to lure college students off campus so they can fill out credit applications. Capital One’s Card Lab has seen much television commercial airtime recently and is being touted “a winner” by Ron Shevlin’s marketing blog.

Choose your own interest rate, rewards, card design, etc. It’s interactive marketing genius. By the time consumers get to the fourth and final step of “review and apply,” they’re already emotionally invested in this deal. They’ve answered the questions, picked the perfect balance of features and rewards and they’ve carefully selected the perfect picture of their kid, pet, spouse, favorite vacation destination, sports team logo, etc. And consumers feel completely secure because they were “in control” from start to finish in this, the first-ever “do-it-yourself” credit card offer. They are wanting that card in a bad way. I’d take it one step further than Ron Shevlin - this is sheer marketing genius.

Shevlin credits Capital One for being notoriously good at the marketing game and, he says, this Card Lab will only sharpen their efforts. It’s all about the actionable data, he writes.

“Analyzing the usage, trends, clickstream, etc. should help Cap One marketers get a really good understanding of who’s looking for cards online, what their preferences are, which features are most popular, and so on. And knowing Cap One, and what good marketers they are, they’ll use this data to develop and refine their offers and marketing programs.”

Lenders are increasing their reserves in anticipation of more charge-offs in the coming days, according to analysts quoted by MarketWatch.

Capital One expects charge-offs, known to the financially illiterate as extremely past due balances on credit cards, to reach 5.25%, or between $4.9 and $5.2 billion in 2008.

Discover Financial Services expects charge-offs of around 4.25 to 4.75 percent in 2008, or roughly $2 billion. Citigroup is facing plummeting shares, a leadership shake-up and an all around bleak future.

One can only wonder how much worse the charge-offs situation will be following Black Friday, Cyber Monday and the holiday shopping season. Lenders are insisting their charge-offs are mere precautions and, though unusually high, are still manageable. After all, FY 2001-02 saw many large credit card companies stating charge-off levels of 7% and higher, even up into the double digits. However, analysts see lenders’ current increase of their reserves as a sign that further charge-offs are expected, and may even reach historic highs.

Analysts also believe the problem largely stems to the state of the economy, which is, ironically enough, directly tied in part to the health of financial institutions. It is an enigmatic problem indeed.