Since earlier this year we’ve been talking a lot about the $8000 first time homebuyer tax credit that was passed as a part of the 2009 Economic Stimulus Package. The credit has been available for first time homebuyers since January 1st, and will continue to be available until November 30th. Now that the program is beginning to wind down, the rumblings about trying to get the program extended or modified have begun. A few months ago there was talk about the tax credit being increased to $15,000, but that never got off the ground.  Another bill that was introduced last month also never got out of committee.  So while there is interest in passing an extension, nothing has come to fruition yet.

Many Hope For An Extension Of The First Time Homebuyer Tax Credit

The National Association of Home Builders are saying that they’re already beginning to see new home purchases starting to drop since the program will soon be gone:

In order to create hundreds of thousands of badly needed jobs and move the economy to higher ground, the National Association of Home Builders (NAHB) today called on Congress to extend and expand the $8,000 first-time home buyer tax credit set to expire at the end of next month.

Testifying before the Senate Banking Committee, NAHB Chief Economist David Crowe warned that builders are reporting that business generated by entry-level buyers is already declining because it is now too late to complete a new home sale in time to take advantage of the tax credit.

To spur job growth, help reduce foreclosures and excess housing inventories and stabilize home values, NAHB is calling on Congress to extend the home buyer tax credit for an additional year through Nov. 30, 2010 and make it available to all purchasers of a principal residence.

The drop in business seen by home builders is real.  The number of building permits for new homes dropped significantly in September

Applications for home building permits, a gauge of future construction, fell in September by the largest amount in five months — a discouraging sign for the housing industry.

The decline, in part, reflected uncertainty about whether Congress will extend a tax credit for first-time homebuyers.

The applications for building permits fell 1.2 percent in September. That’s the biggest decline since a 2.5 percent drop in April and underscored worries that the fledgling housing revival could be derailed by rising unemployment, tighter bank lending standards and the expiration on Nov. 30 of the government’s $8,000 tax credit for first-time homebuyers.

Is The Tax Credit A Good Idea? Some Think It Won’t Make Much Of A Difference

Many in the building and real estate industries are clamoring for an extension of the credit, while others aren’t so sure that the cost of extending the program are worth it.

Housing Secretary Shaun Donovan said at a congressional hearing Tuesday that supporting the housing market “can be very expensive, especially at a time of significant budget deficits.”

The administration will make a recommendation on whether to extend the credit in the coming weeks, after studying data on tax filings from the Internal Revenue Service. While there would be some negative effects if it were allowed to expire, Donovan said, “I do not believe that a catastrophic decline would be the result.“

Some analysts and lawmakers are skeptical about extending the credit, arguing that most homebuyers who receive it would have decided to buy anyway. And soaring unemployment is likely to dull the impact of any extension, Mark Vitner, a senior economist with Wells Fargo Securities, wrote in a note to clients.

“Many of the most likely buyers targeted have already taken advantage of the program,” he wrote.

The Newest Tax Credit Bill Piggybacks On Unemployment Benefits

So there is clearly division as to whether the program should be extended.    Other bills to extend the credit and increase the amount it gives to homebuyers have already died a slow death in committee never to again see the light of day.    This week Congress is once again considering another plan that would extend the credit through June of 2010.  Whether this new one will make it out of the committees remains to be seen.

The latest Senate proposal would drop the requirement that the credit be available only to first-time buyers, broadening the reach of the program but also adding to its cost, estimated by congressional analysts at $16.7 billion.

The backers of that idea, Sens. Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn., chairman of the Senate’s banking committee, have suggested that their measure be attached to another pending bill aimed at throwing a lifeline to people hit by the recession, an extension of federal assistance to the millions in danger of exhausting unemployment insurance benefits.

….

The Isakson-Dodd proposal would extend the credit to June 30, 2010. It would also remove the first-time homebuyer requirement and raise the eligibility income limit to $150,000, or $300,000 for a couple. That’s double the current phase-out limits.

Provisions Of The New Proposed Homebuyer Tax Credit

So if this new bill that is piggybacking on an extension of unemployment benefits were passed, it would mean that the tax credit would be extended, and the new provisions would be:

• You would not need to be a first time homebuyer – that provision would be removed.
• It applies to homes purchased through June 30, 2010.
• You must keep the home for three years.
• The credit is refundable.
• The credit is for $8,000 or 10% of the home’s value, whichever is less.
• It phases out for incomes between $75,000 to $150,000 for single and $150,000 to $300,000 for couples.

So while it is still unsure as to whether this particular extension of the first time homebuyer tax credit will be passed, the momentum for an extension to be passed in some form is very real.  I would expect something to be passed at some point this  year.

UPDATE: A new bill has been “agreed to” by Senators, that would extend the credit and add a $6500 Tax Credit for current homeowners.  Details here.

What do you think?  Should the tax credit for homebuyers be expanded to all homebuyers, and extended until June of 2009?  Will the effect it has on our economy be worth it, or will it be just another large expenditure when we are already running huge deficits?  Let us know your thoughts in the comments!

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Lawmakers Push For An Extension Of The $8000 First Time Homebuyers Tax Credit Into 2010 In Proposed Bill

The last few months have seen an increase in home sales to first time homebuyers, as well as a slight improvement in the real estate market as a whole.  A lot of people feel that this is largely due to the first time homebuyer tax credit that the Obama administration passed earlier this year. The measure, which was passed as a part of February’s stimulus package, gives first time homebuyers tax credits of up to $8000 when they buy their first home.  It certainly is an attractive offer if you’re looking for a home anyway – and we have several friends that have bought homes this summer because it was such a great deal.

A couple of weeks ago I wrote about how the time that was available to take advantage of the tax credit was quickly running out.  The credit is only applicable to home purchases that have been completed by December 1st, and since most home closings can take anywhere from 30-60 days,  if you haven’t already put in a purchase agreement on a house by now, you may be out of luck!

For a lot of people that is going to come as a big shock and a disappointment, but all hope is not gone!   Congress is already talking about extending the program, and possibly expanding it to all homeowners and increasing the credit to $15,000.  It is far from a done deal, but it is currently being debated by our legislators.

the National Association of Realtors wants to expand the tax credit to $15,000, and it wants to allow all buyers to be able to qualify, not just those who have been out of the market for three years, according to The New York Times. The $15,000 figure is actually the amount that the credit’s initial sponsor in Congress, Sen. Johnny Isakson, R-Ga., a former real estate agent, had wanted. Now Isakson is introducing a bill that would provide up to a $15,000 tax credit to any buyer who stays in their newly purchased home for a minimum of two years, according to the Times.

So Congress currently has bills that are being put forward that would extend the tax credit, increase it to $15,000 and allow all homebuyers (not just new homebuyers) to take advantage of the credit.  Whether this bill will pass is another matter.  It is currently up for debate, and the president is debating whether continuing it would be a good plan.

Asked about whether the Obama administration would consider extending the credit, White House spokesman Robert Gibbs said the administration’s economic team was evaluating the impact on new home sales and would make a recommendation to the president, according to the Associated Press.

The tax credit has been expensive, but it has arguably been successful in helping the ailing real estate and construction industries survive in recent months. However, like other supposedly temporary tax credits, the First-Time Homebuyer Tax Credit may end up being called the Perennial Homebuyer Tax Credit.

One of the biggest problems the bill faces is the price tag.  Estimates say that it could cost anywhere from $50 billion to $100 billion dollars.   Whether that is worth it right now is debatable.

Only time will tell if Washington will decide to continue the program.  If they do I can already hear all of the people complaining that they “only got $8,000″, or from others who want this credit to become permanent – not just a one-time deal.

UPDATE:  New First Time Homebuyer Tax Credit Bill Extension Introduced

A bill introduced last night after I wrote this post would now extend the tax credit for another 6 months, while not changing the the amount of the credit,  or who is qualified to receive the credit.  From housingwire.com:

A senate bill introduced late Thursday would extend the $8,000 first-time homebuyer tax credit for six months after its current November 30 expiration date.

Maryland Democrat Sen. Benjamin Cardin introduced S.B. 1678, and it is co-sponsored by senators John Ensign (R-Nev.), Johnny Isakson (R-Ga.), Senate majority leader Harry Reid (D-Nev.) and Debbie Stabenow (D-Migh.)…

The bill would not change anything on the tax credit except its expiration date, although at least one housing industry group is calling for an expansion of the credit and another, the National Association of Realtors (NAR), has urged an extension of the tax credit.

So if this were to particular bill were to pass, the tax credit would be extended, but not increased or changed to include all homebuyers.

UPDATE:  11/5/2009

Bill passed by Senate and House to extend the $8000 tax credit. Now only needs to be signed by the president.  Extends the bill to include a $6500 current owner homebuyer tax credit.

What do you think?  Should the tax credit for homebuyers be increased to $15,000 and be expanded to all homebuyers?  Will the effect it has on our economy be worth it, or will it just be another over-reaching expenditure of taxpayer money?  Would you rather they just extend the current program? Let us know your thoughts in the comments!

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First Time Homebuyer Tax Credit May Be Extended To All Homebuyers And Increased to $15,000 Through New Bill

This is a guest post from Jonathan over at MasterYourCard.com where he talks about money, credit cards (what else?) and lots of other finance related topics. Sign up for his RSS feed here.

With a shaky economy and tightening credit terms, it can be easy to be paranoid about your credit score. If you’re planning a major financing or recovering from bad credit, it’s not unsurprising that you’d be as self conscious and mindful about your credit score as a supermodel would be about her (or his) weight. But you can’t let the fear of straying from that ideal number rule your life. Just controlling your waistline is a matter of understanding the effects of diet and exercise on your body, keeping you credit health on the up and up is a matter of understanding what kinds of events affect your credit and which do not. Read on to learn about five things that don’t affect your credit score.

1. Soft Pulls

While looking over your credit report (which you should do once a year – the government gives you a free credit report every 12 months), you may have noticed some unfamiliar inquiries into your account. Even though “number of recent inquiries” does appear on FICO’s list of items that affect your credit score, you shouldn’t worry about the bulk of the inquiries that appear on your credit report. This is because, unless you authorized the inquiry, all retrievals of your credit history are considered “soft pulls” and do not affect your overall credit score. They are simply shown on your credit history for your information. FICO classifies three types of “soft pulls”:

• “Promotional inquiries” that are initiated by lenders to “pre-screen” you to see if you are “pre-approved” for a credit card. If you are, they’ll send you junk mail, but it won’t affect your credit score.
• “Administrative inquiries” that are initiated by lenders with whom you already have an account. These are done just to review your account with them and aren’t a red flag to other companies.
• “Consumer initiated inquiries” are when you retrieve your own credit history and obviously don’t affect your score.

FICO also will not ding you when your employer checks your credit history, as this is standard operating procedure for some pre-employment screening.

So what is FICO referring to when it mentions “recent credit inquiries” and why does anyone care? Basically, this is a gauge of how many loans you actually applied for. If you tried to sign up for 6 credit cards in one year, that’s a bit fishy. It means either (A) you are borrowing irresponsibly or (B) you are getting rejected for credit cards. Note, though, that some utility companies, banks and phone service providers also do hard pulls. But don’t worry – “recent credit inquiries” is only a fraction of the “new credit” piece of the pie that composes 10% of your overall score. If you are still worried, check out this list of companies that initiate hard pulls on your account.

2. Your Age, Race, Creed, Gender or Marital Status

Ever feel like you got snubbed for a loan because you were a 75 year old atheist, Pennsylvanian, polygamist, celibate, hermaphrodite who voted for Kodos? If you did, then it’s probably not true and definitely not because those things showed up on your FICO score. While some lending institutions – that is the banker or loan officer sitting across the desk from you who says “No” based on his or her own judgment – may be guilty of redlining, FICO recognizes that “U.S. law prohibits credit scoring from considering” race, color, sex , religion, national origin, and marital status “as well as any receipt of public assistance, or the exercise of any consumer right under the Consumer Credit Protection Act.” So, know that while people may be prejudiced, your credit score is not.

3. Credit Counseling

If you are in over your head in debt, you may need to seek professional help from a credit counselor. This is a difficult decision as it takes a certain amount of initiative and pride-swallowing. The concession of retaining the services of a credit counselor is nearly akin to declaring bankruptcy in that you are admitting that you are unable to handle your liabilities on your own. But unlike bankruptcy, signing up for credit counseling does not appear on your credit history and does not affect your credit score. This is because you are not receiving any protection from the law or declaring any kind of change in your status. You aren’t liquidating your possessions or formally stating that your liabilities surpass your assets. You are merely seeking advice and guidance from a private party. While hearing that you have had credit counseling may make a loan officer believe that you’ve had problems with debt, this is purely a subjective call on the lender’s part. FICO has no idea whether or not you’ve had counseling, and thus won’t factor it into your credit score.

Note, though, that some of the measures that your credit counselor suggests may indeed affect your score. If they recommend a debt consolidation loan, refinancing or bankruptcy, then these things will very likely affect your score. A reputable credit counselor will fully apprise you of the repercussions before asking you to proceed.

4. Authorized Users

On the topic of debt counselors, one recent change to FICO’s scoring has effectively put the bushel over a common quick fix for bad credit that was commonly employed by disreputable credit repair institutions. Up until August 2009, you could sign up an “authorized user” to your account with a better credit score than yours and your FICO score would see a significant increase. This method of “piggybacking” on the good reputation of another user has since been put to rest by FICO 08. So, if a credit counselor or debt repair whiz suggest the strategy, decline for two good reasons: (1) it’s unethical and (2) it doesn’t work.

5. “Any information that is not proven to be predictive of future credit performance.”

On FICO’s list of “What’s not in your credit score” there’s a catchall item that reads “any information that is not proven to be predictive of future credit performance.” So, what does this mean exactly? It includes quite a few things – all of which won’t appear on your credit report:

• Your employment history and your level of income. This can get reported in government surveys, standardized tests, employment applications, medical forms and more, so it’s easy to feel like “they” might be using this information against you. But fret not – this data is usually collected for statistical analysis and does not affect your credit score. In fact, it’s illegal. That’s not to say that you are entitled to a loan if you’re unemployed – again, that’s the loan officer’s call and has nothing to do with your FICO score.
• Rental agreements. Some people believe that they are stereotyped as low income individuals if they rent rather than own their homes. While a lease is a legal document and some landlords may pull your credit report, the fact that you are a renter doesn’t affect your credit score. Now, if you default on your lease and the items is sent to collections, then you’re busted. But if you are a responsible renter, then fear not.
• State or city of residence. True, your credit report does show your current address. But that has no quantifiable affect on your likelihood of repaying your loans or not. Don’t worry – living in Las Vegas doesn’t flag you as irresponsible.
• Interest rates on your other accounts. Experian, TransUnion and Equifax don’t tell lenders what kind of interest rate you are being charged. FICO doesn’t care either. If all your interest rates seem to be hovering around the same number, it’s likely because your lenders used similar formulas to arrive at the number, not because they are in cahoots.

All in all, it’s better not to be paranoid or overly clever about your credit score. Just like eating in moderation and getting plenty of exercise is the best way to stay slim and fit, controlling your spending and matching your lifestyle to your income is the best way to keep your credit healthy. While FICO’s formula isn’t exactly public knowledge, it’s not quite as mysterious as we all believe it to be. Practice common sense and responsible spending habits and you’ll have little to worry about.

Copyright © Bible Money Matters - please visit biblemoneymatters.com for more great content.


Five Things That Don’t Affect Your Credit Score

This is a guest post by Mr Credit Card from askmrcreditcard.com.  Mr Credit Card reviews credit cards , lots of them!  Today, he would like to share his thoughts on questionable business and marketing practices and how we fall for their hype. You can subscribe to his RSS feed here.

First, I would like to thank Peter for letting me do a guest post here. Being a Christian myself, I have been very impressed with how Peter shares his thoughts about what the bible says about money and other things. I would like to talk about and highlight shady business practices, how many still fall for marketing hype and what we can do to avoid and not get involved in these industries. I would also like to challenge everyone who works in these industries or any industry that has any ethical question marks over them to come up with ways to either not engage in these practices or leave your industry altogether.

But first, I would like to highlight some questionable business and marketing practices by businesses that are pretty much part of our everyday life.

“For the love of money is a root of all kinds of evil, and by craving it, some have wandered away from the faith and pierced themselves with many pains. – Timothy 6:10:”

Shady Mortgage Practices

We all know what happened in the mortgage industry that led to the whole real estate boom and bust. In the good old days, banks were required to hold on to your mortgage on their balance sheet until you paid it off or until it matures. With the innovation of securitization, banks did not really have to check if their mortgage applicants are really creditworthy since they will sell those mortgages off to investors anyway.

Mortgage brokers also knew that since banks did not really care as much about creditworthiness of their borrowers, they too became lax in their lending standards. Since they were paid “commissions” for their sale, all that mattered was the sale!

When “no income docs” was first accepted in the mortgage, it was really meant for small business owners who really did not report their income fully or had better cash flow numbers than their “income” implied. Instead, this got abused by the mortgage industry. But happened will now go down in financial history as one of the great housing bubbles we have ever faced. But aren’t we to a certain extent guilty of our lack of personal responsibilities when we took on loans that we could not have afforded? And to those mortgage brokers who pushed a loan even without proof of income, wasn’t that not really ethical even though the banks accepted no docs (or fake income declarations)?

“Better is the poor who walks in his integrity, than he who is perverse in his ways, and he is rich. Proverbs 28:6″

Get Rich Quick Schemes

You see that all over the internet. Schemes promising “instant riches”. Just follow the “set formula” and you will start earning passive income. Look, ask Peter, it takes effort to build any business. It takes effort for him to write great post so that readers keep coming back to this site. Nothing is easy, anything worth doing requires hard work.

The worst thing is that not only are many of these schemes scams, but they are way overpriced and not appropriate. I remember attending a David Bach “free seminar” that was conducted and there was a lawyer who was talking about reducing taxes. He mentioned the concept of using a variety of techniques like a charitable remainder trust. At the end of his speech, he then proceeded to sell his cookie cutter techniques for $4,000.  What a rip off! How could you sell a cookie cutter “estate type planning” when these sort of things have to be highly customized.

Stock Trading Techniques

Many folks sell their “technical trading systems”. During that same David Bach seminar, one chap stood on the podium telling how his IMO “backward looking” software would have told you not to buy Enron, Worldcom, Ford etc during 2000!

Here’s the deal, if you discovered a secret technique to invest or day trade or an arbitrage opportunity that the financial market has not discovered, why tell the whole world? Why not use it yourself? You can set up a hedge fund, approach institutions and raise money. If you are really that good, you will raise more money and earn the true big bucks like a really good hedge fund manager instead of subscribing to silly stock picking newsletter!

Sub Prime Credit Cards

The segment in the credit card industry (my expertise) where we see the most outrageous practice is in the sub prime sector. Here, there are cards that are specifically issued for folks who have their credit slammed to the low 600s or 500s type score. They also target folks who just come out of bankruptcy.

Using past history as their excuse, they charge a heck of a lot of fees. When you apply for such cards, they will have to pay an upfront application or processing fee. On top top of that, you have to pay an annual fee and in many cases, a monthly “maintenance” fee (whatever that is for). They are not ashamed to charge you rates of 19% or more! Heck, the fees are more expensive than an Amex Gold Charge Card!

I get many emails from my readers asking me to recommend credit cards for people with bad credit. I usually suggest that they consider getting secured credit cards instead because you do not get charged outrageous fees. But still, most end up getting an unsecured sub prime card even though it is more cost effective (fee wise) to get a secured card! Does ego have anything to do with this?

Now, if these cards disclosed their fees openly, that is all good and fine (well, still not really). What what they do is to send junk mails to residents and tell them that “THEY CAN GET A CREDIT CARD EVEN WITH BAD CREDIT” or “NO CREDIT CHECKS”. Unfortunately, most people never ask or even read the fine print if there is any. The FTC has sued a few companies like Compucredit for deceptive marketing!

“Dishonest money dwindles away, but he who gathers money little by little makes it grow. Proverbs 13:11″

Colleges getting paid for credit card sign ups

Nobody really knew about these practices until recently. But credit card companies have been paying “commissions” to colleges whenever a student signs up for student credit cards at campus.

The credit card companies are smart. They “sponsor” different sports teams and groups and make their members get their friends to sign up! Now, none of these is illegal. But if you really think about it, a colleges’ main job is to educate and prepare their students to lead a productive economic life. They really have no business allowing credit cards to be issued at college campus know well that most students will end up lots of credit card debt! But I guess they could use the money, so they close one eye.

When a sale is not a sale

Here’s one last example of questionable business practice. Check out this piece about a grocery flyers. It turns out that many times, items listed there are not on sale at all! Rather, they are “sponsored” by manufacturers. In fact, the article went on to state that when an item is listed on a flyer, sales could increase by a few hundred percent!

Once again, another deceptive practice by folks who are just after the next sale.

How to Guard Against Deceptive Marketing

Yes, folks are out their selling products that do not work or stuff based on unrealistic hype. But we consumers are at fault as well. We fall for things because we blindly follow what others say. We want things instantly. We want success now. We want to lose weight without working out. We want to buy things that we cannot afford. We want to buy that furniture at zero down and 0% for 24 months.

Here are a few things we have to do and be constantly aware of :

Lazy hands make a man poor, but diligent hands bring wealth.” (Proverbs 10: 4)

Wisdom is supreme; therefore get wisdom. Though it cost you all you have, get understanding. (Proverbs 4:7).

The heart of the discerning acquires knowledge; the ears of the wise seek it out. (Proverbs 18:15).

A wise man has great power, and a man of knowledge increases strength.” (Proverbs 24:5).

Conclusion

While businesses are all about profit maximizing, there are opportunities out there that you can pursue without compromising your conscience, and your relationship with God. And for those working at your own business, ask how can you serve your customers better instead of how much money you can make if you implement a particular marketing technique.

Whoever trusts in his riches will fall, but the righteous (i.e., morally right and just) will thrive like a green leaf.” (Proverbs 11:28)

I hope this post has given you some food for thought.

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Examples of Questionable Business And Marketing Practices And How Not to Fall for Them

If you’ve been reading this blog for any period of time, you probably know that I’m not a huge fan of credit cards.  As a Dave Ramsey fan and facilitator for his Financial Peace University class, you’d probably understand why.  In general I think that using debt and credit are just poor ways to get ahead.

I’ve also talked about how Credit Card companies often do things that are unethical, and how they won’t look out for your best interests.  Sometimes they’ll even do things that are downright illegal!  Needless to say, in many respects the credit card industry is in need of some increased regulation.  It looks like that may be happening.

Credit Card Accountability, Responsibility and Disclosure Act (CARD) of 2009

On May 22nd, 2009 Barack Obama signed new legislation into law called the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (Credit CARD Act).  The bill looks to put some limits on what the credit card companies can do in regards to charging fees, upping interest rates,and in theory forces them to be more transparent with customers.  Many believe it will significantly change the face of the credit card industry.   Some of the major provisions include:

• Requires credit card companies to give cardholders 45 days advance notice of an increase in interest rates.
• Prohibits credit card companies from increasing interest rates retroactively on existing balances unless the cardholder is more than 60 days late in making a payment. If the cardholder pays on time for the following six months, the company will have to restore the original rate.
• Prohibits credit card companies from marketing and issuing cards to borrowers under the age of 21.
• Requires balances with higher interest rates to be paid first, instead of lower interest first as many companies do now.
• Permits consumers to set credit limits lower than the limit offered by the credit card company.
• Requires that statements be mailed out at least 21 days before payment is due.

Most of the provisions in the bill will not take effect for another 9 months (February 2010), others slightly longer.

The full language of the bill is available to view here: CARD Act

A Good Idea Or Not? Could There Be Unintended Consequences?

Not everyone is hot on the idea of this credit card legislation saying that it could hurt the industry, and have the unintended consequence of hurting those it is trying to help.  From the Washington Times:

“When you start restricting the price banks can charge to customers, they are going to start cutting back their lending,” said Erik Benrud, finance professor at Drexel University in Philadelphia.

“If the banks know they can’t raise rates on existing balances, that too will restrict their desire to make loans to certain groups,” he said.

In essence he’s saying that the people who might be helped by the provisions in the bill would actually be harmed because they wouldn’t be able to get credit in the first place, or as another person mentioned, the cost of higher risk borrowers would be transferred to responsible borrowers through higher interest rates and fees for everyone.  It could also mean fewer rewards programs.

Consumer advocates disagree that the bill will hurt as some industry experts have mentioned.

“You mean, if they can’t rip us off they are going to give us less credit?” said Gail Hillebrand, financial services campaign manager at Consumers Union. “We’ve been hearing that argument for a long time.

“I don’t think they’re going to give us less credit, but if they can’t rip us off, that’s a good thing,” she said.

Others went on to say that the argument that all borrowers will pay higher interest rates is a moot point – as many responsible borrowers are already seeing rate increases or added fees for no reason other than the companies are trying to make up for losses in other areas.

Personally I can see the law having some unintended consequences, and I fully expect that the credit card companies could in fact restrict access to credit, raise interest rates for all borrowers and cut rewards programs significantly.  We shall see if that actually  happens.

Conclusion

The credit card legislation really isn’t a big issue for me as i don’t use credit very often, and when I do it gets paid off right away (with cash I already have saved).  For borrowers that are responsible and pay off balances quickly, the provisions in this bill will probably have limited effect.

For those that carry a balance from month to month this bill will most likely give some added stability and transparency to their credit card relationships, and keep the companies from completely taking advantage of them.

Personally the only reservations I have about this legislation is that once again it means the government is getting way too involved in another industry, and they’re on their way to controlling pretty much every aspect of our financial lives.  I’d much prefer the free markets take their course, and that the government instead stress personal financial responsibility for average Americans, and help to make credit card use a thing of the past! (yeah right)

What do you think of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD)?  do you think it’s a good idea?  Do you think it will have unintended consequences? Let us know what you think in the comments!

What Others Are Saying

• Credit Card Reform Disputed
• Credit Card Legislation – Winners and Losers
• Credit Card Act Of 2009
• New Credit Card Legislation
• Problems With Credit Card Reform
• Credit Cardholders’ Bill of Rights Act of 2009
• What’s Your Take On The Credit Card Act?

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New Legislation Will Bring Changes To The Credit Card Industry

photo credit: qnr

Over the weekend my wife and I did quite a bit of shopping.  I needed some clothing and a shop vac to clean up in our garage after a long winter.  My wife wanted to get some dishes.  We also needed to stop by the grocery store.

While we were running around town from store to store I noticed something extremely annoying.   The offers for store credit cards seem to be getting more in your face and aggressive.

Accosted By A Roaming Credit Card Salesman

The first store we went to was Kohl’s because I needed to buy some new work shoes, as well as a package of socks.  I found the shoes I was looking for and then started looking at some electronic goods on a shelf in the men’s department.  Out of nowhere appeared a sales associate who promptly asked me if I would like to save 15% today.  Sensing this was a come-on to a Kohl’s charge sales pitch I said, “Nope, I’m not interested”.  She responded, “You seem pretty sure about that, huh?”.  I said, “Oh yeah, I pay for everything in cash, and don’t need any store credit cards.  Thanks though”.    She responded, “Oh, I see.    Well, let me know if I can help you with anything!”

She walked off towards another customer 20 feet away, and I heard “Would you like to save 15% today”?

Later on I was walking around the store trying to find my wife, and walked around the corner, only to bump into the same sales associate.  She started her pitch, then realized she had already talked to me.  “I already asked you if you’d like to save 15% didn’t I?”

“Yes you did, and I wasn’t interested. Thanks though”.

I finally got to the register where the clerk asked me one more time – “Would you like to save 15% today?”.   I refused the offer one final time.   Wow, they sure are persistent aren’t they?

Would You Like To Add A Credit Card To Your Order?

At Target we walked in the door and right by the carts was a display for the Target credit cards – as well as a nice sign telling me how I could save 10% today off of my order just by signing up! No thanks!

We continued on through the store.  I bought my shop vac, and my wife picked up some dishes.  We headed to the checkout.  We stood in a line of 3 or 4 shoppers, waiting as each and every one of them was offered a credit card by the checkout girl.  She wasn’t very into her job of selling the credit card, but it was obvious that she was required to ask everyone in line if they would like to sign up and save 10%.

The stores make millions off of the store credit cards, otherwise they wouldn’t be putting such a huge effort into selling them with the signage, promotions and checkout sales pitches.

Credit Card Sales Pitch While Getting My Deli Meats

We finally ended up at our local grocery store.  When you walk in the door you find yourself in the produce section, and whether you need anything there or not you have to make your way through produce and frozen meats to make your way to the rest of the store.  Right at the choke point before you head into the aisles of boxed goods was a nice young man trying to get people to sign up for a bank credit card and a free checking account.  He was giving away free blankets!

He had a captive audience as people made their way past the deli counter, and whether they liked it or not he gave them his spiel.   He grabbed my attention at which time I promptly told him I already had an account at his bank, and didn’t need a credit card.

After checking out I had to walk by the in-store bank branch, at which time they approached me again to open an account.  Once again, I told them that I already had an account.

Don’t Give In To The Sales Pitch

I would never give in to these sales pitches to sign up for a store credit card for a few reasons:

• Horrible Interest Rates: Many of these in-house store cards carry interest rates in excess of 20% APR.  Does that sound like  a good deal to you?
• Small Savings:  Usually when you’re offered to save 10-15% on these cards you’re making a purchase less than $50.  Do you really want to get a credit card just for $5-10 in savings? Is it worth it?
• Having To Give Personal Information While Standing In Line:  When you say that you’d like to sign up for a card the clerk will ususally ask you for your social security number and name right there while waiting in line.   I  don’t think that’s a good idea.  Who knows who’s standing in line behind you, waiting to hear your personal information?

The only time i would ever even consider giving in to one of these offers is if I was making an extremely large purchase, like on a $2000 television.  In that case I’d be getting a couple of hundred dollars back and it might be worth my while.   I’d get my savings, pay off the card, and then close it!

Have you been noticing an uptick in pushy sales associates offering you store credit cards as well?  Have you given in to any of them?  Tell us about it!

Copyright © Bible Money Matters - please visit biblemoneymatters.com for more great content.


Are In Store Credit Card Offers Becoming More Aggressive?

I was listening to the Dave Ramsey show on my way to work this morning, and Dave was talking to a caller on his show that had just taken the plunge, pledged to go no further into debt and then cut up his credit cards.   He was talking about how it had been extremely hard for him to get out those scissors, and actually cut up the cards, they had just been sitting on his desk for like a week.  The problem was that he had become emotionally invested in his credit card.  Cutting up that card was like saying goodbye to an old friend.

Why Do We Become So Attached To Our  Credit Cards?

There are a lot of reasons why we find it so hard to just get rid of the credit cards, and start living a cash-only lifestyle.  

• Credit cards  help us to create fun and be spontaneous:   It was fun to buy that new big screen TV for the Super Bowl party wasn’t it?  Of course you had to pay off that TV over a few months at 18% interest, but still!
• Credit cards give us a sense of security: It’s nice to know that you have a safety net there in case something were to happen.  Engine goes out?  Don’t worry, credit card to the rescue!  Never mind the fact that setting up an emergency fund would fill the exact same purpose, and not put you into so much debt!
• Credit cards reward us for spending our money:  Hey, we’re going to spend the money anyway, why not get rewarded for all that spending we do?  Problem is, a  2006 survey by GMAC Mortgage and Harris Interactive found that more than 41 percent of reward cardholders either rarely or never even bother to use their rewards.  Add to that the fact that people who use credit cards actually spend up to 18% more than those who use cash, you’re probably spending 12-18% more to get a 1% cash back check!  Does that make sense?
• The credit card company is helping me:  You’ve probably seen all those commercials lately where the credit card companies talk about how they’re helping you to “spend responsibly” and how their credit card bills are just  as good as setting up a budget.   The thing is, they never discourage spending – they just help you figure out where you’re spending so you can spend it in other areas. Remember, the credit card companies are not your friend, and they didn’t become huge multi-billion dollar companies by being “helping” people.
• Credit cards help us be nostalgic:  For some of the cards that you’ve had for the longest amount of time, just taking it out of the wallet can remind you of a simpler time – when you were in college going out with friends.  Or going out on that first date with your spouse – paying with this credit card.    Don’t worry – you won’t lose those memories just by cutting up your old friend – the credit card!

Becoming Emotionally Invested In A Credit Card Is Silly

Instead of becoming all emotionally invested in your credit card because of the things it can provide, try changing things up and living cash only.  You’ll find it much more emotionally satisfying than your relationship with your credit card.  Think of it this way.  The credit card is the one night stand that gives you an STD.  It might be fun for that one night, but you’ll be paying the consequences for a long time.  Saving up and paying cash is much more rewarding.  It’s like an emotionally satisfying relationship with a loved one that always pays dividends, even when times are tough.  

So how can you replace your credit card without feeling that sense of loss?

• Set up an emergency fund:  Set up an emergency fund of 3-6 months of expenses, and you’ll have an even better sense of security than a credit card can give you.
• Set up a fun money category in your budget:  You can be fun and spontaneous without a credit card!  Set up a category in your budget of discretionary money that you can blow or spend at the drop of a hat.   Fun money that you won’t have to pay 18% interest on!
• Reward yourself for NOT spending:  Set up your first budget and reward yourself reaching savings goals.   No need to spend 12-18% more to get those rewards!
• Help yourself:  Instead of  relying on the credit card bill to show you where you’re spending money, set up your own budget and figure it out on your own!
• Reminisce on your own: You don’t need an inanimate object like a credit card to remind you of the good times.  Just call up a loved one and they’ll be happy to reminisce with you!

Just Say Goodbye To Your Credit Card

Don’t become emotionally invested in that credit card.  While it may seem like it’s hard to say goodbye, destroying that card and cancelling that account will be more fun that you could have realized.

Check out this video of how one creative guy destroyed his credit card!

Have you ever found yourself emotionally invested in your credit card – finding it hard to say goodbye? Tell us about it in the comments?

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Are You Emotionally Invested In Your Credit Card?

I’ve noticed lately that the credit card companies are using a new tactic (or at least new to me).  They’re doing things for cardholders that on the surface appear to be helpful in order to make you think that they’re on your side.  They’re you’re friend, and they’re here to help you!

I’ve seen a Discover Card commercial lately where they talk about how we should all use their card because they can help you identify problem spending areas.    By using your credit card, you’re getting a built in easy to do budget and spending tracker!   Budgets are a great idea, but usually are only helpful if you’re the one doing it, and you have a handle on where your money is going.  Most of the time people who are relying on their credit card as their spending tracker are the same ones who have a hard time using a credit card responsibly.

I was opening my mail last night when I found a nice little ad touting the benefits of my Chase Rewards credit card. It was titled:

Here Are 5 Tips To Help You Make The Most Of Every Dollar

(along with a scan of the title):

Wow, isn’t that nice of them?  They’re trying to help me make the most of my money, and in fact, they want to give me free money!  The credit card companies care about helping me save (yeah right)!   Here’s how they plan to help me:

1. Use Your Card Wherever You Go: 1% cash back on all eligible purchases!  No purchase too small! Get cash back on that bag of Doritos you just bought on credit!  Never mind the fact that when you use a credit card you’re very likely to spend more than if you had just paid cash.  There is just something about using cash that hurts more.  Dun and Bradstreet found that on average people end up spending 12-18% more when using a credit card! By way of example, when McDonald’s started taking credit cards for purchases, the average purchase went from $4.50 up to $7.00!  NPR had a  show a while back about why people spend more when using credit. Listen here.
2. Make Chase Rewards Plus Your Favorite Place To Shop:  Get up to 10% bonus cash when you shop at Chase’s online shopping portal!  Hey you were going to buy that basket of fine wine and cheese anyway, right? You may as well save 10% on it too!  While you’re at it buy that pair of new shoes, and that Wii game!   Are they really trying to save me money, or just buy more stuff that I don’t need?
3. Pay Bills Using Your Card:  You’re paying everything else on your credit card, right? You may as well start paying your bills on your credit card too!    You don’t want to miss a payment and get your water turned off do you? Budgeting for regular expenses is for suckers when you can just pay it on credit, and save!
4. Add An Authorized User… At No Extra Cost!:  Adding an authorized user to an account is usually a bad idea (there is reason why they can’t get their own account), and a good way to run up your credit card bills.  Hardly making the most of your every dollar!  This one should be filed under “ways to start going into debt even quicker“.  Shouldn’t adding an authorized user be free anyway?  In fact, they should be paying us to add an authorized user!
5. Feel Secure With Your Upgraded Benefits:  Here’s where they throw in some nice features like price protection, identity theft insurance, rental car insurance, theft and damage protection, extended warranties, etc.   The problem is that most people, even when they’re aware of the extra coverages, never actually use them!   They’re nice features, but not usually something that you’re going to use.  Often,  when you do want to use the extra coverage, the eligibility is defined very narrowly, and you may not be able to make  a claim anyway.  If you do use these features make sure that you know the fine print in case you do end up needing them.

Out of all of those, the only one that really makes any sense to me is the using the extra warranty coverage or theft coverage, but even those benefits are minimal when you take into account the added risk you’re taking on by using the credit cards.  The rest of the company’s ways to “help you make the most of your money” are actually just ways they’re getting you to spend more money with them.  The more you spend, the more they make in interest!

A lot of people think that they can pull one over on the credit card companies, and get ahead by taking advantage of all the cash back schemes and money back cards.  When it comes down to it, though, most won’t win this way.    Credit card companies aren’t stupid, they do these cash back cards for a reason.  These cards make them more money by encouraging debt, and by encouraging the normalization of the use of credit.  When people use rewards and cash back cards, they end up spending more money, and often these cards have higher interest rates wiping out any gains they might have made.

In the past people wouldn’t even dream of using credit for small purchases.  But today we think nothing of using credit cards for everything from a pack of gum to a flat screen TV.  The more we spend  on the cards, the more the credit card companies make.

So next time you get one of those friendly ads that are telling you how to save money, be wary.  The credit card companies are not your friend, they just want your money.

Copyright © Bible Money Matters - please visit biblemoneymatters.com for more great content.


Tip: The Credit Card Companies Are Not Your Friend, They Just Want Your Money

The current economic downturn that we’re experiencing can be quite overwhelming at times. It’s tough to understand, and when people try to explain, it’s easy to get lost in all the details. I found a video online that does a good job of looking at the current credit and housing crunch, and explaining how it happened (although not all details are explained – I know it’s tough to include everything). Click play below to view the video in it’s entirety!

Part 1:

Part 2:

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Video: The Crisis Of Credit Visualized

This is a Guest Post written by Tisha Tolar. Tisha is a freelance writer providing content for CreditCardAssist.com, where she regularly writes about credit cards, rewards programs and general consumer finance issues.

Busy, busy, busy. That is how so many people describe their lives today. There is not always time to truly focus on the important things like family, friends, and finances. Some days it seems near impossible to get it all done in just 24 hours. This is one of the main reasons people in financial trouble don’t often realize they are headed down a dangerous path, where the big bad wolf of debt is waiting to pounce.

photo credit: lemonjenny

Because so many people do not take the time to truly understand their finances or to track their spending, debt disaster can be overwhelming. So how do you know when things are going in the wrong direction? Here is a list of some red-flag warning signals you need to pay attention to or risk your financial well-being:

Do You:

• Make minimum payments, or less than minimum, on most or all of your accounts?
• Have no established budget to refer to for spending?
• Have nothing left of your paycheck after paying your debts?
• Miss payments just to survive from day to day?
• Pay your bills more than 10 days late each month?
• Use your credit cards to sustain basic living expenses?
• Delete several messages from collection agencies each day?
• Seek information about payday loans?
• Apply for more credit cards for balance transfers or cash advances, having spent the limits on all of your other credit cards accounts?

While several of these warning signs may seem outright obvious to some people, the truth is not everyone understands what debt really means. Because some people will never hit rock bottom (ie: losing a home, a car, a job), they may not immediately realize that what they consider to be a normal way of life is in actuality  a train wreck waiting to happen.

There Is No Time for Waiting

In order to prevent further damage to your finances and your credit score, it is imperative you take action now, rather than procrastinate and allow the situation to worsen. Debt can spin quickly out of control and once your feel overwhelmed, your chances of repairing the damage get slimmer. If you have friends or family you can trust, they might be the best source of free advice you will find, provided pride does not get the best of you. If you find you need professional assistance, debt counseling services, provided they are legit and priced right, can be an added resource to help you pay down the debt you already have in a manner you can afford. If worse is really coming to worse, a part time job may be the solution you need to pay down debt faster. Allocate your entire pay from your second income strictly to debts you already have.

One of the most important things to remember when surviving a brush with debt is to not get yourself in the same situation in the future. Make a budget, manage your money, review your statements, and don’t be so quick to use your credit card outside of emergency situations.

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Headed for Debt Disaster? Here’s How to Tell