Credit Card Debt Management

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.”

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.

The Associated Press had an interesting article about how the credit industry has been affected by the Federal Reserve’s recent decision to lower the federal funds rate to 4.75 percent. The federal funds rate is essentially the interest rate banks charge each other for loaning money to each other through the Federal Reserve. The new rate is a welcome relief after a steady climb over the last year, and it no doubt has financial institutions and lenders clicking their heels in delight.

According to the Associated Press, the lower federal funds rate is expected to be “reflected immediately” when commercial banks pass their savings on to consumers through lower prime lending rates.

The credit card companies have enjoyed seeing their stocks climb, largely as a result of the Fed’s decision.

American Express Co. saw a 5.1-percent climb.

Mastercard Inc. saw a 6.7-percent increase.

Capital One saw a 5.3-percent increase.

Discover Financial Services saw a 7-percent climb.

Of even greater interest is the fact that American Express is exiting the international banking business to focus on its core product, credit cards. The times, they are a-changin’. It will be interesting to see how the credit card companies will join in the interest rate free-fall, if they do so at all.