This picture says a thousand words ...
Photo by: Copta (Stock Exchange)

Since the explosion of action on Capital Hill related to credit and Wall Street reform, new regulations continue to go into effect, impacting bottom-line bills for credit card consumers.

As the debate heats up and “Main Street” feels change in the air (and hopefully, in our pockets!) the UWSA financial blog is stepping in to help you stay abreast of current news and make sense of the trends.

Not surprisingly, The Wall Street Journal sides with banks in its latest analysis of the impact of financial regulations on interest rates and credit card options of ordinary consumers. WSJ argues that new rules are harming average credit customers, but consumers may have a contrary opinion: credit card losses are falling more than expected as ordinary people continue to improve their debt management strategies. As of July, delinquencies have reached their lowest level this year and bad loans are also on the decline. This news comes hot on the heels of even more credit card rules which prohibit the raising of interest rates until 12 months after a credit account becomes active, and requires creditors to warn their customers 45 days in advance of rate increases.

Inactivity fees are also on the chopping block this week, as credit card issuers will no longer be able to impose fines based on a lack of credit use. That said, card companies may eliminate accounts that haven’t been used recently at their discretion, so now may be a good time to break out that “emergency” credit card and buy a pack of gum! As regulations click into place, there are concerns from some quarters that a further credit crunch could negatively impact America’s ~9% unemployed; but savvy cardholders should remember that income is not part of your credit score.

Want to know more about the new law behind it all? Check out this overview, but don’t settle for secondhand information: also view the full bill text for yourself. Also of interest, the “granddaddy” of credit consumer protection laws in the United States, the Fair Credit Reporting Act and the lesser-known, but no less important, Fair Credit Billing Act. Our own UWSA blogs also has a variety of previous reform updates and analyses of relevant laws. Browse our archives and you’ll know a lot more about where, when, and how you’re protected from predatory credit and lending practices.

Meanwhile, what’s going on over on Wall Street? The Dodd-Frank Wall Street Reform Bill has already prompted some calls for repeal, while others claim it doesn’t go far enough, or, in fact, addresses the wrong problems. At least one Washington Post writer sounds a confident note about smart reform for bankers, and proponents are pinning their hopes for a more robust reform agenda on “The Woman Wall Street Hates.” And regardless of how you feel about Wall Street reform, everyone is concerned about a double dip recession! The final impact of the White House’s wrangling with big banks is unknown, but you can do your part by staying informed! Hope we’ve helped you do it!

Is your credit score “on target” for prime rates?
Photo by: ilco (Stock Exchange)

Previously on UWSA, we discussed your credit report, the three major credit reporting agencies, and how to obtain your report for free.

For many purposes, the information in your report is enough to gauge the health of your credit history: you’ll be able to pinpoint problem accounts, inaccuracies, and potential fraud, all of which are major sources of trouble with your credit score.

But the credit score itself is a complementary tool, a reflection of the report developed by each agency; and in virtually all cases, it isn’t free.

Before you pay to check your credit score, a little explanation is in order.

How is Your Credit Score Used?

Your credit score is a simple “shorthand” that represents your total credit history. It can be accessed quickly by banks, lenders, and retailers for purposes like extending credit and deciding terms for loans, mortgages, insurance, and other major transactions. The credit score is accessed every you are assessed as a credit risk, and is understood as a measure of how likely it is that you will meet your obligations on time and in full according to the terms of your financial agreements. As a general concept, this measure of your fitness for credit is known as your creditworthiness. With each access or “pull” of your credit score, it is adversely affected; but as we saw before, many other factors have more weight.

What Do Different Credit Scores Mean?

Your credit score can range from 300 to 850, and tends to change every 30 days as your creditors report recent news about your accounts. Though the range and the interval of updates remain constant, different lenders may interpret scores differently: for example, one lender may offer its best interest rates to customers with a 775 rating, while others may require an 800 rating. The criteria for these internal decisions vary and are generally not totally transparent to consumers, but some guidelines can definitely be understood.

Only about 2% of people are on the lowest tier of the credit score, from about 300 to 499. Anyone in this category should seriously consider credit counseling, debt consolidation, and taking a proactive strategy in dealing with creditors. Opportunities for credit are severely restricted for such consumers and they may find themselves targeted by unscrupulous lenders who operate with predatory rates.

On the other side of the range, about 13% of people in the U.S. have scores from 800 to 850. These consumers have exceptional credit and, by definition, can expect to receive the most favorable rates. These consumers shouldn’t hesitate to compare different lenders, become savvy about options, and actively seek out the best rates. From the perspective of the lenders, there is no reason not to offer them.

The median score is about 700, meaning about half of all credit-holders can be found on either side of that divide. This makes 700 the mathematical middle score, “average” for most purposes. Scores below 620 to 640 are considered “sub-prime”, and consumers with these scores are considered serious risks. When analysts refer to “subprime lending”, they mean the trend of extending large amounts of credit to borrowers in this category.

Why Is My Credit Score Low?

Aside from fraud, errors, and delinquency, there are several other reasons why credit scores might be low or lower than expected, leading to rejection when dealing with lenders. Some of these reasons are more technical than others, but it’s important to understand them to optimize your debt management and achieve lower interest rates. In a future post, we’ll discuss the reasons that a particular request for credit might be rejected, what each one means, and how to address them.

Is Washington’s reform push “the end” for big banks’ casino capitalism?
Photo by: Richard Styles (Stock Exchange)

America’s love for its financial elites is at an all-time low. Everywhere you look, ordinary folks are in revolt against abusive debt collectors, becoming savvy about debt refinancing, and “moving their money” – not only to cards with lower interest rates, but to different (and smaller) banks. But there’s arguably no greater sign of a change in the air than the amazing speed with which Wall Street reform has taken shape over the last few weeks. At UWSA, we want to make sure you understand what “Wall Street reform” means for you on Main Street, so here’s an overview of the situation.

On May 21, the Senate passed what many are calling the most significant financial legislation since the New Deal. Passing 59-39, the Senate bill, which required only 51 votes, adds a new layer of oversight for major Wall Street institutions and aims to prevent big bank collapse and the taxpayer bailouts that follow from ever happening again. New rules will be in place for dealing with failing firms and pinpointing the value of “derivatives”, the complex – and some say shady – financial products at the heart of problems that imploded once-mighty players like AIG and Lehman Brothers.

But perhaps the most important change “on the ground” for ordinary citizens is the birth of a new consumer protection agency “inspired” by a vocal Wall Street critic. Naturally, the details behind the new agency are still fluid as reconciliation goes on between House and Senate versions of the legislation. What is clear, however, is that abusive lending practices are in the Obama Administration’s sights: and that means both mortgage lenders and growing rates of credit card debt are likely to be impacted. The Christian Science Monitor has more details on one way debit and credit changes might take shape.

Consumer protection advocates are cautiously optimistic that Wall Street reform might be a big win for ordinary consumers; especially as a follow-up to earlier attempts at consumer credit reform that were largely rendered toothless by creditor maneuvering before key provisions went into effect. But the battle is not over; financial reform carries with it a fair amount of political theater and lobbyist strategizing.

Reform supporters like Rep. Barney Frank (D-MA) are pulling for a final version of the legislation to reach President Obama’s desk by July 4th – but whether it will mark a financial “Independence Day” for taxpayers remains to be seen. UWSA will keep you updated on the latest news in the reform effort, and its impact on you, as events develop.

Photo by: Mark Csabai (Stock Exchange)

In a previous post, we discussed staying out of debt and maximizing your savings by staying aware of the terms, fees, and features your bank offers and, most importantly, moving to a new one if you discover terms that suit you better. This time, we’re going to share a few more resources to help you locate those deals in your region and compare what’s available. Your bank is immensely important in your financial world, and a little part of it goes with you everywhere in the form of your debit card, so it’s worth getting the most out of it. Even if there weren’t many other options when you first started banking, there probably are now — and lots of people are hunting for the best ones.

There’s a name for this phenomenon: “Move Your Money.” Though it started among a widely dispersed group of taxpayers dissatisfied with big banks and bailouts, it has since generated a number of useful, grass-roots sources for getting and comparing information about practical banking matters. As with any “crowdsourced” movement, be sure to corroborate your data with official sources, and don’t be afraid to check several outlets before making a decision. Information is power: use it wisely and your budget will thank you!

The original home of the movement is the website MoveYourMoney. The top contributors here are opposed to the bank bailouts and make no secret of their desire to inform consumers about alternatives to big banks using taxpayer funds. They offer a variety of ways to search for smaller, community-oriented banks and credit unions by area. There’s also a network of supporters you can contact to get more information, and a helpful FAQ to give you context on why “moving your money” makes a difference in the bigger financial picture. With the latest news on Goldman Sachs just starting to make waves, don’t expect this to quiet down any time soon.

Not finding exactly what you want in your local area? All is not lost. Bargaineering has an article on Top Online Banks offering thorough comparisons of interest rates and other crucial factors at a variety of banks with complete online servicing. There are also detailed reviews of a handful of the “best” online banks with links to official information. Remember that, though the trend is toward expanded online features pretty much everywhere, not every small bank or credit union has a full suite of online services just yet. If online banking is important to you, this might provide the answer.

Last, but not least, don’t forget that a credible financial advisor can help you: not only with choosing a new bank, but a whole range of other crucial tasks, including dealing with creditors and reducing credit card balances. They may provide insight into a savings or investment strategy that will color your opinion on the best bank for you.

Photo by: ajajulian (Stock Exchange)

Household savings is one of your first lines of defense against debt, but most people have more experience with credit than they do with saving cash. If you’re having trouble putting money away, use a little psychology and your bank account to help you out. Remember: it takes longer than a day or two to settle into new habits, and though resolving to save more and spend less is a good start, you’ll have to find a way to endure after enthusiasm starts to dry up. That’s where “Keep the Change” comes in.

Out of Sight, Out of Mind – And Into Your Bank Account

Several banks offer programs like “Keep the Change” which allow you to save an extra few cents from every purchase on your debit card; that is, the leftover “change”, rounded up. This amount is deposited into a savings account and you’re never aware of it; some banks even match it to some extent or offer extra incentives over time for leaving that money where it lies. Over a few months, this can amount to hundreds of dollars: enough to reach a small savings goal every year or find “extra” money for a vacation.

Big Things Come in Small Packages

Though this is only one savings tool, it is a powerful one. Since you never “see” that money, you can’t miss it, and it starts working for you right away. It may not seem like much, but think about this: every year the Treasury Department spends millions of dollars minting pennies and nickels – for, on average, more than their face value. Every time a coin is minted, that money adds up; and as taxpayers, we’re well aware of it. You won’t be making millions of debit transactions, of course, but there’s no reason the same principle shouldn’t help you reduce your debt.

Is Your Bank Working For You?

In a world of mounting bills and rabid debt collectors, this might seem like a strange question. But if you want to start saving from scratch, it’s an important one to ask. Take time to re-assess your bank and what it has to offer you. Value-added features like “Keep the Change” are useful, but they’re only one part of ensuring that a bank is really right for you. Look at your account features and things like overdraft fees, maintenance fees, and the quality of customer service. At a time when big banks are often re-instating monthly maintenance fees, smaller regional and local banks, as well as credit unions, are hunting for more business. You’re always entitled to move your money.

A Journey of a Thousand Miles …

Big, sudden changes in spending habits are like New Year’s resolutions: they start with a bang, but they’re not likely to stick. If saving is new to you, look for small things that add up to reasonable, but valuable goals. Most importantly, take action. Reading this blog is a good start, and there are two other things you can do right now: take a hard look at your bank, and take a hard look at the “other guy.” You might be glad you did.

Too Much Credit
Photo by: Andres Rueda (flickr)

Looking through some of our older articles on UWSA I found some on the subject of Debt Stacking. A few people have asked me whether this is a good idea, and whether it does what it says for people. I’ve never used debt stacking myself, though it is really just a high tech way to follow through on making sure you’re not paying a bunch of extra fees and interest to maintain multiple credit lines. That is a pretty common sense part of maintaining your credit rating. Here’s a little on making debt stacking work, and seeing if it’s right for you.

Firstly a little on what debt stacking is. The basic concept is that once you pay off a debt with a monthly payment you continue to apply the money previously allocated to the monthly payment to the payments for other debts. If you’re trying to get out of debt it’s pretty obvious that is a good idea. What is not obvious is which debts to apply the freed up money to.

Mathematically if you want to get out of debt faster there is a relationship between both the amount of a monthly payment, the balance, and the interest rate. No I don’t know the formula off the top of my head, but there are a lot of computer programs that do, and will allow you to input basic information about your debts and spit out the order in which to pay them off or ’stack’ them.

Tip number one would be not paying a lot for a program; if the goal is spending less repaying your debt and getting out of debt faster burning a bunch of money on a program doesn’t make sense. There are free tools out there to figure this information out, and sometimes professionals will offer that information free of charge or at a reduced fee as well.

One thing debt stacking does do is to avoid what is called ‘the shotgun approach’ to repaying debt. This is where one month you put a little extra on one bill, and next month you do another. Using that approach is a great way to maximize how long you stay in debt.

Tip number two, which is true of any debt repayment strategy, is stick to the plan. The benefits of debt stacking can be great, and include very reduced interest on one’s debts. These benefits drop fast though for every month you don’t make the payments in the manner suggested. If you cannot do this by yourself debt consolidation with a credit councilor or debt consolidation service might make more sense.

Debt stacking can be really helpful in repaying debt, and save you a ton of money. It is also usually free and because generally you are not modifying your repayment plan significantly it can help build your credit rating as well. The key is keeping to the plan, and knowing your limits. As always though the plan only works if it works for your.

Too Much Credit Photo by: Andres Rueda (flickr)

Photo by: mangpages (flikr)

Since living through the 1990s economic collapse back home in Russia, I have always preferred using cash instead of credit cards – or even debit cards. I think I just got used to cash.

Since there was no equivalent of the US Federal Deposit Insurance Corporation (FDIC), many people lost all their savings when banks crashed. Forget credit – almost no one could obtain that.

The result? Most of us just came to accept that cash was the only option. The upside is that using cash made it very difficult to run up excessive debt.

Without getting into a discussion about the complexities of post-Soviet banking, I’m feeling a bit of dé ja vu these days. Bank collapses and difficulty getting credit and economic hardships..it’s all so familiar. The time has come to take a closer look at the merits of using cash.

It’s not just the parallels between Russia’s collapse and the one we’re living through now. There are also timeless reasons to use cash instead of a credit or debit card.

The first advantage of using cash is that you know where you stand financially. You don’t have to look at a bank ledger or a checkbook balance or a web page. When you need money, you know right where it is and how much you have. You also don’t have to write down how much you’ve spent in order to know much is left because it’s right there to count. You don’t have to worry about any fees caused by usage, as you might with credit or debit cards. Cash is also pretty much universally accepted; you don’t have to worry what bank’s name is written on it.

The second advantage of cash is that it can help keep you out of debt. There are so many ways that credit and debit cards encourage you to rack up fees, and I’ve seen people get into trouble with too much debt or with overdraft fees. With banks seeing lower profits on their traditional services, they are coming up with new and more complicated ways to recoup those loses through some rather creative fee strategies.

You can avoid those new tricks of the trade by sticking to cash. It reduces the need to consult the fine print in the latest correspondence from your credit card company. And watch out for new rules on checking accounts and debit cards. Cash also keeps you from overdrawing your account, avoiding interest charges and possibly other hidden fees.

Another smart move is to have an emergency fund in cash. While it is not a bad idea to have an emergency credit card, keeping out of debt if you can is a better idea. In Russia, we called cash emergency money “black day’ funds.” A black day is a day when everything seems to go wrong at once. One Sunday morning, a tire blows out and the fridge breaks down. With an emergency cash fund you don’t have to reach for a credit card or worry about whether the bank is open or if you have enough money in your account. Your can pay the car mechanic and the appliance repair person from your emergency fund.

There are some drawbacks to cash. Recovering stolen cash is very difficult so you have to worry a lot more about security. You also can’t do much shopping over the internet. And you need to budget your expenditures well as the only amount you have is the amount that’s in your pocket. If you can’t cover the groceries with what you have, you need to make another trip to the bank and then to the store. But these are obstacles that be overcome. After all, people used cash for centuries, when there was no such thing as a credit or debit card. And, as I said, I’ve gotten used to it myself. And the benefits of using cash for most transactions, having an emergency cash fund, and tossing out the credit or debit card except in case of emergencies.

Chip on Debit Card
Photo by: Declan Jewell (Flickr)

The only thing about as bad as fees you can’t afford to pay due to economic hard times is fees that you don’t even realize you’re paying. Thanks to declining returns on services customers do opt for however that’s exactly the kind of fees banks are starting to love. An easy way to rope you into fees is bank debit cards, and even if you have never had a problem with one you may want to take a look now.

The first way these lock you into fees is you pretty much require overdraft protection to use one. Many argue that if you manage your account well and treat a debit card transaction like a check you won’t get into trouble. Unfortunately this is not true at all. Banks use a number of tricks in how they process transactions that make it impossible to be certain when a charge will take place, or for what amount. One bank manager I talked to said he was frustrated because he honestly couldn’t understand how they process these transactions; he said he always leaves a couple hundred dollars just in case, even though he is very sure of what money comes out of his account. These cards are seriously designed to encourage Non-sufficient funds fees with balances that do not consistently update and a ‘courtesy’ of letting you overdraw your account by hundreds of dollars before they decline a charge. A courtesy that can result in hundreds of dollars worth of fees; a postage stamp could cost you more than forty dollars!

Another hidden debit card fee is annual membership to some ‘rewards’ program. Typically the rewards aren’t amazing, and the ‘points’ earned are no more consistent than the order in which debit card transactions are processed. In almost any situation you’d see a lot more rewards by opting out of this program and just saving the money in a savings account. A similar ‘rewards’ program is to acquire points for ‘being green’. In reality this one is more about saving the bank from paper costs than it is about the environment, but it can also keep you less informed about your account balances.

Frequently also these days there is a charge just to have a debit card, or to use one. If you receive an updated notice in the mail regarding your card make sure to see if there is a new annual or monthly fee, or even a new transaction fee. Careful management of funds can only happen when you know for sure what fees may post to your account. A new 35-cent fee for a specific type of transaction could have you literally seeing a bright red 35-dollar insufficient funds charge!

Many people, especially younger people who have grown up with debit cards, find it hard to manage without them. It does take getting used to but it’s worth the cash saved, and avoiding disastrous NSF fees. Keeping enough money on hand, and keeping a low fee credit card ONLY for emergencies makes a lot more sense then letting the bank borrow your money while you essentially pay THEM interest on it in subtle fees. If you really can’t live without the convince of a card then make sure you always know what fees are charged, opt out of high interest overdraft protection, and keep a safety net of at least a couple hundred dollars in your account in case an unsuspected fee posts to your account.

Piggy BankPhoto by: Marcelo Moura (Stock Exchange)

Piggy Bank #1: The Three Little Piggy Banks

Piggy Bank is a UWSA blog series discussing ways to save small amounts on a regular basis and how the savings add up surprisingly quickly. Please feel free to share your ideas and your stories about how saving “pocket change” added up and helped you and your family reach a meaningful financial goal.

In the grocery store check-out line the other day, I watched a mom struggling to say “no” to her two sons who were begging her to buy them each a little car that the store had strategically placed at their eye level. There were a whole bunch of toys and trinkets there – meant to encourage impulse purchasing in kids – and in parents who instantly decide that a couple of extra bucks is an easy way to make their child happy. Parents beware! These are NOT cheap toys; impulse purchases add up to big bucks very quickly, especially for parents on a budget. Worse, they encourage terrible spending habits in children from the very earliest of ages. We want to teach our kids how to save, not just spend.

The approach I took with my son, who’s two, is the “three piggy banks” system.” The idea is simple and you can make your “three little pigs” system easier or more complex, depending on your child’s age.

The first step is to get three piggy banks for each child. You can purchase inexpensive ones or make your own out of jars or plastic containers. Perhaps you want to let your child pick out the piggy banks or do a craft with them to turn used containers into piggies.

Next, label the piggy banks as follows: “Savings,” “Spending,” and “Sharing.”

The “Savings” piggy bank is for collecting money that your child will keep on adding to over time. One idea is to have the child periodically deposit the money from the “Savings” piggy bank into their very own passbook savings account. This lets them get used to going to the bank and watching the total in their account go up and up — and they’ll see how their money earns interest.

The “Spending” piggy bank is to help your child save for a long-term goal. This depends on age, but with prices nowadays, it’s probably not hard to imagine that even a younger child wants something that will require accumulating enough money. If they choose to purchase something else with this money, like an impulse toy, it means you have a chance to remind them of their other goal and that it will take longer for them to get “the big thing” they’re saving for. This helps children begin to understand the concept of “cost” as opposed to “price.” Their decisions will have real consequences for them – positive and negative. To reach the long-term goal, they will learn to be more patient and not give in to impulse buying and other diversions.

The “Sharing” piggy bank is for donations to a charity that is important to the child or to your family. The satisfaction of helping those in need it is a wonderful feeling to experience at any age. Charitable giving is as American as apple pie. We have the highest level of individual donations in the world year after year after year.

Once the piggy banks are set up, whenever your child receives money, whether it’s allowance, a birthday gift, payment for shoveling the neighbor’s driveway etc., it gets divided evenly among the three piggy banks.

The three piggy banks can teach children to see money in many ways, not just in terms of what it can buy them. They also see that money can grow into more money and that it can help them help other people. It’s never too soon to start.

The three piggy banks is also a way to encourage your child to spend from the “Spending” piggy bank, rather than your wallet. It might not stop a child from asking you to buy them a trinket they spot at the check out counter, but it will give them an understanding of why you say “no” and a true sense of appreciation on the rare occasion that you say “yes.”

Got a great story about saving money? Please share your inspiration! Write to me at: staff@uwsa.com

South African Krugerrands
Photo By Lyudmila Green

The stock market has been as volatile lately as a poker table at Las Vegas casino. Many traditionally conservative investments have seen unheard of volatility. Savers have begun asking the question, “What can I invest in to make sure I at least keep the principle of my investment?” For many investors, gold has come up on the list of options.

Before buying a boat load of gold, one should consider the reasons gold is valuable and what gold is useful for in terms of investments. Gold has industrial value, but there is frankly plenty of gold that is already mined and available for industrial purposes; so much so that you can easily find 30$ gold plated 2 foot S-Video cables at your local electronics supplier. Gold is useful either to preserve an investment, or as a hedge against falling currency. If you feel currency is unsafe, or your portfolio is overexposed to a specific currency, adding gold to your portfolio could be wise.

A wise investment rule has always been to diversify. Many investors wrongly get the impression that this means buy some tech stocks, as well as some utility stocks. A diverse investment portfolio, however, is not simply having a bunch of stocks; it is having a diverse set of investments. Gold is not a bad thing to add to that basket, which should include not simply stocks, but also real estate, material investments, proper insurances, and other assets that are not exposed to currency risk.

A mistake often made with gold is to treat it as a stock. Indeed, many who hear that gold is a great buy, run out and buy stock in a mining company or two. As mentioned above, there’s already tons of gold that’s already been mined; purchasing a mining company’s stock would really be a bet that either there is going to be a ton of gold mined, or a massive shortage of gold on the market.

So what should a gold saver purchase? Low-premium bullion gold. Bullion is a fancy word for coins, or other forms, of a metal that are only valued by the amount of the metal inside. There are coins that are made with gold that are valuable because they are old, or rare. That is not bullion. A bullion coin is one that you can set on a scale and immediately know its value based on daily spot gold prices. Anyone selling you a stock, or a certificate, isn’t really selling you gold. If you cannot hold it in your hand you’ve been sold a different type of investment.

What does low premium mean? Well, for instance, the US Government sells 1-ounce ‘American Eagle’ coins. These contain an ounce of Gold. The South African government also sells 1 ounce gold coins called krugerrands. American eagle coins contain the same gold as a krugerrand but American Eagles cost more; if you’re just looking to buy gold why pay more?

Bottom line? If you’ve decided that you are worried about a falling dollar, or worried about the risk of ‘traditionally conservative’ investments failing to preserve your investment, its time to buy gold. If you’ve determined to buy gold make sure that you buy gold you can hold in your hand, which is not more expensive because there’s a name on it.