loans and credit

Recently, a Bank of America customer opened her credit card statement only to find that her APR had increased from 12.99% to 29.99%. The customer was so upset that she turned to the Internet and posted a 5 minute video attacking Bank of America and the entire credit card industry. In the scathing video, the woman states that she “could get a better loan from a loan shark.” As a customer with a 14 year history with Bank Of America, she was unable to find anyone willing to negotiate the rate with her.

The video became an internet sensation and has been viewed more than 350,000 times in the last three weeks and led to a senior official with Bank of America calling the woman who posted the video and resetting the rate to 12.99%. It was a happy ending for her, but millions of cardholders with various issuers have seen their rates jump and are hitting a brick wall trying to negotiate them lower again. Here are some things you can do besides posting a video blasting the credit card industry in order to negotiate with your credit card company.

– Gather The Facts: You can strengthen your negotiating position by having offers in hand from other credit card companies. If you can show your card issuer that other companies would allow you to pay back the debt at half the rate of interest, you’re more likely to find the company willing to work with you. These don’t have to be no interest credit card offers, just offers that are substantially better than the rate you’re being given. Showing that you have other options makes you a stronger negotiator.

– Make The Calls: The only way you’re going to be able to arrange for a lower balance is to get a decision maker on the phone from the card company. The first person you talk to usually will not have the authority to lower interest rates and is trained to answer your questions without escalating the call to a supervisor. However, if you’re serious about negotiating a lower rate, ask for a supervisor from the start. This way, the person you’re trying to convince has the power to make a decision if you plead your case effectively. Be firm in what you’re asking for, but also flexible enough to show that you’re willing to work toward a reasonable solution

– Transfer The Balance: If you take the above two steps and you still find yourself unable to get your card issuer to decrease your interest rate, your best bet is probably to apply for another card and initiate a balance transfer. Trying to pay off debt tagged with a 30% interest rate is an incredibly tough battle–getting out of credit card debt is difficult enough with a reasonable interest rate! Make sure that the company you transfer your balance to offers a similar credit line and will clearly state in writing their policies about raising customer interest rates. 

Financial magazines, reports and blogs are abuzz with the resurgence of gold loans possibly replacing personal loans. Gold loans are similar to secure loans in all but three ways:

• Gold translates into money very easily. • Gold does not depreciate; in fact it appreciates every year.

• Gold is accepted around the world without being affected by exchange rate (i.e. gold is worth the same in the U.S. as it is in France.)

What does this mean for personal loans…

Secure a Personal Loan with Gold
In essence, if you have gold, you have money. Unlike other forms of collateral, gold is an actual form of currency. When you get an auto loan, you use the car for collateral. However, cars depreciate over time. The same goes for home loans. It is possible, as many people found out, to actually become upside down (owing more than the object is worth) in your secure loan. This does not happen with gold loans. Since gold does not depreciate, you will always have the collateral to back up your loan.

Gold Loans Offer Better Interest Rates
Unsecured loans have enormous interest rates, even for those with good credit. Interest rates for unsecured loans start around 17% and go up from there. However, gold loans offer a low rate of 12%. While a difference of 5% may not sound like much, it can add up over time and can make the difference between affording the loan and not. When you apply the 5% to a $3,000 dollar personal loan, you get an extra $150 a year. For a three-year loan, this can amount to $450. Therefore, when it comes to a personal loan, every percent counts.

A Real Life Example of a Gold Loan
A gold loan is easier to get than you think. Recently, my friend and neighbor received a gold loan. She wanted to get a new car. Most people would get an auto loan, but my neighbor had heard about gold loans; therefore, she wanted to secure one. Now, my neighbor does not own bars of gold. She does, however, own a lot of gold jewelry. It seems she had $60,000 worth of gold jewelry. Therefore, she was able to get a personal loan based on that jewelry. She got a low interest rate and the car.

While a gold loan will not replace all personal loans, for those with gold, it is a good option. Since gold loans offer low interest rates for the borrower and secure collateral for the bank, it is no surprise they are extremely popular.

On Thursday, May 13, 2010 Richard (RJ) Eskow, a blogger for the Huffington Post, responded to critics after RJ blasted payday and personal loans. Essentially, RJ called the system “evil”, and even admitted such in his defense, and he objects to being called a “Doofus Major du Jour” and a “pig.” Still, you have to wonder if RJ was that far off in his comparisons.

Banks Create the Need for Payday Loans
RJ states that banks freeze out the poor and those with bad credit. He also states that the banks are “deeply embedded” in the payday and personal loan industry. Therefore, the banks intentionally “freeze out” desperate clients, which sends these people to outrageously high payday loan industry shops. Since the banks are the ones that intentionally neglected these people and then effectively drove them to the payday loan industry with whom they are deeply embedded, isn’t that the same as entrapment? After all, the people wouldn’t be paying outrageous rates for cash advance and payday loans if the banks would have given them personal loans to begin with.

Why is it Illegal to Give Military Personnel a Payday Loan?
Many people are not aware, but a law has been past that effectively shut down payday loans to military personnel. It limits how much interest anyone can charge military personnel and that limit is well below the 49% or more interest rate of your average cash advance loan. Additionally, the law puts restrictions on how close a payday loan shop can be to a military base. This is why you won’t see a cash advance or payday loan shop in Hawaii. The law effectively made it impossible to legally set up a shop because you cannot get far enough away from a base.

Do We Care that They Need It?
The major argument for payday loans is that the people need it. Without them, the people would have no way to borrow the money they needed. However, RJ made a valid point. At one time, indentured servitude was legal. Poor people desperately needed money (i.e. a personal loan). They sold themselves to others for a set amount of years in exchange for the money. As a civilized country, we decided this was not fair and that the practice must be stopped.

I am willing to bet that it won’t be long until we will find that a 50% interest rate is unfair and the practice must be stopped as well. As a democratic and civilized country, we must come together and decide if it is morally right to charge poor Americans exorbitant fees just to receive a loan. Until we decide, the war of words and money will continue on.

Are consumers heading toward more debt consolidation loans? A new report from Credit Karma suggests they might be. The report, released in early May, paints a picture of the average U.S. consumer saddled with loads of debt. According to the report, the average U.S. consumer is stuck with large amounts of credit card, home mortgage, auto loan and student loan debt. Combine these large levels of debt with the nation’s still high unemployment rate and shaky economy, and you have the perfect recipe for an increase in debt consolidation loans.

The Bad Numbers

According to Credit Karma, consumers with a credit card had an average of $7,701 in credit card debt. The average U.S. consumer also carried $177,186 in home mortgage loans, $14,873 in auto loans and $27,777 in student loans. On the positive side of the ledger, the average U.S. consumer also boasted $50,889 in home equity. Credit Karma also reported that the average consumer in April of this year had a credit score of 670, up one point since the beginning of this year. There is some good news in these bad numbers. For one thing, consumers with credit cards did shave 4 percent off their revolving debt. In fact, consumer credit card debt stood at its lowest point since the beginning of 2010. Consumers in the San Diego area led the way here, decreasing their credit card debt by an impressive 10 percent. In Miami, consumers also made a dent on their credit card debt, shaving 8 percent off it.

Trouble Looming?

Despite these encouraging signs, there is still plenty of evidence that more consumers will need to turn to debt consolidation loans. For one thing, average consumer credit card debt still stands 16 percent higher than the 2009 low of $6,641. The fact that the nation’s unemployment rate is showing no signs of dropping is also cause for concern. As people struggle to find work, they pay for more necessities with their credit cards. This, again, is a sure path toward debt consolidation loans.

The Debt Consolidation Option

For many consumers who fall too deep into debt, debt consolidation loans offer a financial safety net. These loans combine consumers’ various debts into one monthly payment. The goal, of course, is to set this payment at a level that the consumer can comfortably pay each month. The loans are far from perfect; they negatively impact consumers’ credit scores and come with high interest rates. But when the debt levels rise, a debt consolidation loan may be some consumers’ only option. And with the amount of debt that so many consumers are carrying today, you can bet that debt consolidation will become the only option for many more.

Paying for college is costlier than ever, and now a growing number of students may be unable to take advantage of debt consolidation services. That’s because private lenders who have originated student loans rarely offer to consolidate student debt. This can make life difficult for college students, who, according to CollegeBoard.com, graduate with an average of more than $20,000 in debt. It’s possible for these students to receive debt consolidation help for their federal student loans. Their private loan debt, though, may act as a noose around their necks.

An Economic Reality

Lenders stopped consolidating private loans during the Great Recession’s credit crunch. This is a market that has not returned to life even as the economy begins its slow recovery. Even those few lenders who are offering to consolidate private student loans won’t offer college graduates the best rates. Most of these debt consolidation loans will come with variable interest rates. This means that college students won’t be able to lock in today’s stellar interest rates for the long-term. What options do students graduating with tens of thousands of dollars in student loan debt have? Not many. They’ll have to hope that they can land a job that pays enough to allow them to pay off their private student loans; no easy feat when the nation’s unemployment rate is close to 10 percent.

Credit Card Debt Rising, Too

In addition to their large amounts of student loan debt, college graduates today are also saddled with a rising amount of credit card debt. MSNMoney columnist Liz Pulliam Weston wrote in a recent column that the average college graduate carries $3,262 in credit card debt. Some students feel that this additional debt is of little consequence because they’re already carrying such a huge debt burden from their federal and private student loans. This is flawed thinking, though: credit card debt comes with exorbitant interest rates. It’s debt that has a habit of growing, too.

Debt Consolidation An Option?

It’s far from ideal for college students to graduate and immediately have to resort to debt consolidation loans. But depending on the size of their debt, and their success at landing a high-paying job, college students may have few other options. Yes, debt consolidation loans often come with high interest rates, too. They also can bring down a student’s credit score. But debt consolidation loans can also bring peace of mind: College students who take out debt consolidation loans at least gain some control over the overwhelming levels of debt they face. And until private student loans again become possible to consolidate, debt consolidation loans can at least help them pay down some of their student loan and credit card debt.

If there’s been a silver lining to the Great Recession and its oh-so-slow recovery it’s this: A smaller number of consumers may be heading toward debt consolidation. That’s because the recession might have taught consumers how important it is to save money and pay off debt. The recession also led to the federal government’s Credit CARD Act of 2009, new legislation that placed stricter regulations on the way credit card companies can operate. Both factors have led to a greater number of consumers who are slowly paying their way out of debt, according to a new study by national credit bureau TransUnion.

Cutting Debt

According to TransUnion’s survey, average consumers have lowered their credit card debt by 11 percent. At the same time, the company says, late payments on credit cards and delinquencies of longer than 90 days have also fallen. This is good news for the average consumer: Consumers with lower levels of credit card debt are far less likely to need to take out debt consolidation loans in the future. And while these loans can help struggling consumers get their debt under control, they’re also pricey. They come with high interest rates and, often, origination fees. They also cause consumers’ credit scores to drop. And in today’s world, no one wants to be saddled with low credit scores. Consumers with low scores will pay higher interest rates on any money that they borrow.

Why Consumers Are Saving

Why are consumers suddenly saving more and needing less help from debt consolidation services? Some economists say that the shock of the Great Recession, and the looming threat of unemployment, has encouraged more consumers to pay down their debt and put away money in case of emergency. The Credit CARD Act may be having an impact, too. The act prevents credit cards from raising interest rates without giving consumers proper notice. It also mandates that credit card companies must mail out their bills far enough ahead of payment due dates to give consumers a chance to make their payments on time. This cuts down on costly late fees, which add on to consumer credit card debt.

Permanent Changes?

Are these changes permanent? Have consumers learned their lessons regarding the importance of saving? Or is this just a temporary thing spurred by the struggling economy? These are questions for which financial analysts don’t yet have answers. After all, U.S. consumers have never been known for their frugal ways in the past. Some financial experts are guessing that once the economic recovery really takes off, consumers will return to their old spending habits. That might mean a greater demand in the future, once again, for debt consolidation loans.

As reported by the US Bureau of Labor Statistics recently, unemployment remains at a record high of over 10% for the first quarter of 2010; simultaneously, the number of personal loans continued a steady decline. The decline in personal loans comes at a time when other loan products, including auto loans, home loans, and cash advances, are experiencing growth. The fact that personal lending is on the wane just as other forms of lending are picking up is unusual and has led many financial analysts to wonder just what is behind the trend. Many conclude that the record high of unemployment is directly to blame for the decline in personal lending. Most of the people who are experiencing unemployment now are young people, typically the most “spendy” age group among consumers, and without an income, these consumers cannot afford a personal line of credit.

Why Personal Lending Is Linked to Unemployment

The decline in personal loans can partially be blamed on the economy; as the financial crisis deepened, banks cut back on most lines of credit, and the personal loan was one of the first to go. Because the majority of personal loans are unsecured, meaning they are made without collateral, they pose a greater risk to the lender if the borrower should renege on the deal. Borrowers, who are suddenly without an income, as happens when you are downsized, simply do not have the necessary capital it takes to prove to a bank that you can pay back a loan. That may be why credit cards continue to thrive; most people had a credit card before becoming unemployed and can use them to help pay bills during unemployment. It may also be the reason that cash advances are booming; since they require no credit check and can be used for the same purposes that you would use a personal loan for.

Why the Growth in Other Loan Products?

The growth in other loan products may be linked to two distinct trends. First, the rise in educational loans may be directly linked to the record high of unemployment; many people are not gainfully employed and so they are returning to school. The rise in other forms of lending, such as auto loans and home loans, may be the first tentative signs the economy is turning around. These loans typically pose less risk to the lender as they are long-term secured loans. Banks are more willing to begin lending these kinds of products since they know they will have recourse if the borrowers default. Personal loans, should they ever gain in popularity again, will probably be the last loan product to revive, signaling the end of the recession.

Identity theft can happen to the best of us; even the chairman of the powerful Federal Reserve Board, had his identity stolen in 2008. While credit card theft and the subsequent fraud linked to it is the basic type of identity theft, there are even more sinister forms of information theft leading to identity fraud.

One large scale form is the stealing of electronic records or stored data from data breaches of private businesses and even government agencies. The Privacy Rights Clearinghouse (PRC), a non-profit consumer advocacy organization, has estimated that well over 350 million electronic records containing sensitive, personal information have gotten into the wrong hands since January of 2005. This number is actually a conservative estimate since they do not count records where they have no idea of the scope of the theft and cannot verify numbers.
Visiting their Web site and checking out the chronology of data breaches is enlightening, but also frightening. Two cases involving mass numbers of personal records provide glaring examples of inadequate security for the electronic storage of records.

Heartland Payment Systems lost 130 million card numbers

In January 2009, Heartland Payment Systems, a payment processing company, disclosed that their computer records had been hacked into and millions of personal records had been exposed to cyber theft. This single incident was the result of global cyber-fraud conducted by mastermind Albert Gonzalez, and two Russian conspirators who admitted later in court that they had stolen more than 130 million credit and debit card numbers from Heartland and one other company, the Hannaford Brothers. They had also stolen electronic records from 7-Eleven and two other national retailers. This may have gone undetected by Heartland if it had not been for Visa and MasterCard alerting the company of suspicious activity involved in card transactions that passed through their system.

Health Net Potentially Lost 1.5 million Records of its Members

Health Net, a regional health plan based in Connecticut, had a portable disk drive disappear last spring. The drive included the personal health records, Social Security numbers, and bank account numbers for all of Health Net’s 446,000 Connecticut patients and possibly all 1.5 million patients nationally (specifically in Arizona, New Jersey and New York). In January of this year, the attorney general of Connecticut sued Health Net for failing to adequately secure patient’s private medical records and financial data. He is also seeking a court order demanding that portable hard drives or other electronic devices be strongly encrypted to prevent future theft.
This is quite scary because an individual can do very little to prevent the theft of their information when companies don’t provide adequate security for electronic storage of records.

Blame it on the economy, falling home values and high credit card debt, but one thing is certain: U.S. residents are relying more than ever on debt consolidation loans. These loans, in which consumers work with private companies to turn several debts into one affordable loan payment each month, become more popular as consumers run up ever larger amounts of debt. With unemployment still near 10 percent across the country, U.S. residents have less spare cash. This means that they are relying more on credit cards to pay their bills, a tactic that leads to higher and higher amounts of debt. This is why the head of Prosper.com, which ranks as the world’s largest peer-to-peer lending marketplace, reported in February that debt consolidation loans now make up a higher-than-ever portion of the loans that the company is passing out.

Debt Consolidation on the Rise

Chris Larsen, chief executive officer and co-founder of Prosper, said that debt consolidation loans in January made up 59 percent of the loans that the company provided. This is a significant increase: Larsen said that these loans in normal times make up about 45 percent of the loans that Prosper.com provides. Larsen said, in a written statement, that he expects this to continue with the passage in late February of the Credit CARD Act, which puts new restrictions on the way credit card companies can operate. Larsen said that these companies will raise their interest rates to make up the revenue the Credit CARD Act regulation strips from them. Higher interest rates, then, will lead to even higher amounts of revolving debt for struggling consumers.

Do the Research

Before taking out a debt consolidation loan to deal with your debt, though, it’s important for you to do the research. First, make sure that any company with which you work provides, in writing, its exact fees and interest rates. You don’t want any surprises when that first monthly payment comes due. Make sure, too, that you know exactly how many months it will take you to pay off your accumulated debt. Be aware that taking out a debt consolidation loan will hurt your credit score. If your debt is high enough, though, that may be a risk worth taking.

The trends suggest that debt consolidation loans will become a tool for a greater number of consumers. It’s important, then, for consumers to do all the research necessary to make sure that the debt consolidation loans they take out are actually smart financial moves.

The cost of a college education has increased at a faster pace than the cost of most other goods and services over the past several years. Parents with young children today who plan to fund a four year education during the next twenty years or so can expect to pay in the six-figure range for each child attending college. It used to be that these costs were expected if your child was attending a private institution but there were also public schools that offered tuition at more reasonable rates. A public university is still a more affordable option, but the cost of tuition even at in-state, public schools is expected to skyrocket beginning in 2010.

The average cost of a year of education at a public university this year is expected to be just over $7,000 while the average cost at a private university is now more than $25,000 a year. There are several factors leading to higher college tuition prices for both public and private schools and their impact is going to be felt by college students sooner rather than later. Here are some things to consider.

State Budget Cuts: With the economy just emerging from one of the biggest financial disasters in history, state budgets are a mess. Part of the reason tuition at public universities has been historically cheaper than private universities is that individual states subsidize funding for residents to attend these schools. Budget cuts are looming in most states, and college tuition subsidies are being slashed to make sure that essential programs and services can be maintained. The University Of California, for example, is anticipating tuition rates being between twenty and thirty percent higher this year compared to a year ago because of California’s ongoing budget crisis. States that have been hit the hardest during the most recent recession will probably see their tuition prices increase by the highest amounts but very few universities will be immune from the price hikes.

Financial Aid Eligibility: Another consequence of the downturn is that more students and families are in a position to qualify for financial aid than before the recession. Most students apply for at least some financial aid which makes the effective tuition rates that they pay much lower than the published rates. A recent study showed that public college students received an average of $5,400 a year in financial aid, reducing the out-of-pocket financial obligation for students and their families.

Demand for Education: In spite of rising rates and tuition prices that seem ridiculous at some schools, classrooms remain full and students are still turned away every year from most major universities. A poor job market has students staying in college longer, opting for grad school instead of fighting for the few jobs that are available to recent grads. As long as colleges are filling their open enrollment lists, they’ll continue to raise prices to meet the demand for higher education.