Parents - It's Time to Speak Up!

In the president’s FY 2010 budget proposal that was unveiled this week, President Obama proposes extraordinary increases in the programs that best serve students, and takes the most important programs out of the appropriations process. It also includes some striking changes in some of the federal student aid programs--most notably, the elimination of the Federal Family Education Loan (FFEL) program--by the beginning of the 2010-11 academic year.

The budget proposal supports a $5,550 Pell Grant maximum award in the 2010-2011 school year. The Administration will index Pell grants to the Consumer Price Index plus 1 percent, in order to account for inflation in this sector. In addition, the Administration proposes to make the Pell Grant program mandatory to provide a regular stream of funding and eliminate the practice of "backfilling" billions of dollars in Pell shortfalls each year.

The FFEL program "needlessly costs taxpayers billions of dollars" and has "subjected students to uncertainty because of turmoil in the financial markets," according to the budget proposal. The president’s budget recommends the elimination of the FFEL program and the origination of all new loans through the Direct Loan program. The budget proposal estimates a savings of more than $4 billion a year, and reinvests it in aid to students. Collections and servicing of loans would be outsourced to multiple private sector contractors.

What the heck? The FFEL program did not “subject students to uncertainty because of turmoil in the financial markets” - the uncertainty came about when the auction rate security markets went in the crapper. Are we to believe that the measly $5,500 FFEL loan maximum causes stress to students and families when the average tuition is over $25,000?

The elimination of the program also means that local entities, like our valued NHHEAF Network, would no longer be handling student loans. All new loans would be originated through the Direct Loan Program. Folks, the Direct Loan Program is administered directly from the Federal Government. Do you really think the Government can handle your child’s student loan effectively and efficiently? This is a nightmare waiting to happen.

One more thing – the idea of having the loans serviced by a number of servicers will create a nightmare for your kids when it comes time to start paying these loans back. How would you like to receive multiple monthly bills for each of the loans you take out (2 per year) for each of the 4 years you went to school? Who gets paid first? Who answers your questions? Ugly, ugly.

And why it is that we continue to talk about Pell Grants, and tax credits, and loan programs, but there is never any discussion about reducing tuition costs? How is it that colleges & universities get a pass on that?

Parents – it’s time to step up and contact your Congressional delegation and make your voice heard.

In Defense of Our Local Banks

What troubles me a little these days is that the doom & gloom from the media and public anger against the “banks” is dragging down the good practice and reputation of your local bank. Are we reaching a point where the local banker will have to wear sunglasses and a baseball cap as a disguise to go to the grocery store?

Much of the crisis in the financial sector can be traced directly to “investment banks.” Oh sure, there have been regular banking institutions that have participated in questionable loan practices, but it’s unfair to paint the entire system with a broad brush. So what is an investment bank? Here’s my definition:

Financial institutions that help corporations issue stocks and bonds in order to raise money. Unlike regular banks, they do not accept deposits or make loans. Examples of investment banks: Merrill Lynch, Goldman Sachs, Morgan Stanley, Lehman Brothers (oh yeah, they’re all gone).

The complex thing here is that the mega banks like Citi, Bank of America, etc. also dabbled in investment bank activity and as such, made a ton of money like everyone else and now many of the investment decisions are being questioned. It also doesn’t help that the greed of the big players is being played out on the world media stage.

Yet, I still maintain that it is unfair to do a tribal hate dance on all of our banks. Here in New Hampshire, our banks and credit unions are very strong and willing to lend money to qualified borrowers. Noticed I said “qualified.” This is how they lend their money. This is how they have always lent their money. In the past few years, because of competition with sub-prime lenders and other non-bank lenders, borrowers demanded that their banks give out loans even though they did not qualify under formal guidelines. Those loans ultimately ended up in the investment market - by investors driven by their own greed.

I’ve been angry about this for over 10 years. And it has created a culture where we have stop saying “No” because we found new ways to say “Yes”. But let’s not lump our local banks into the mix as we, as a nation, look to affix blame and enact change.

It's a Bird! It's a Plane! It's a Gift Card!

Industry analysts say some $9 billion in gift cards sold last year still have not been spent. These days, a lot of people would rather have a few extra bucks in their pocket than a shopping spree at a book store.

Here's the good news: several websites are now offering cash for those unused cards. Sites like www.Giftcardbuyback.com , www.PlasticJungle.com and www.Swapagift.com are just a few sites that will buy your cards. Just punch in the value of your gift card and it will tell you how much you can get for it. You won't get the full value of the card, but it is still money you can spend anyway you like.

Promotional gift cards have had significant appeal to retailers looking to attract new consumers, but one of the major shortcomings about the form of plastic is that most card holders remained anonymous. This made it impossible for merchants to promote to the card holders and drive redemption rates. A new media platform successfully tested with a regional shopping mall could re-write those rules.

Currently in beta testing from a provider called Dukky, the new media platform is expected to deliver redemption rates up to 30% higher than traditional coupons or direct mail promotions, according to Scott Couvillon, president of Dukky.

The new platform allows consumers to choose from a group of targeted gift cards within one direct mail or Internet offer. Consumers are prompted to activate only the offers they plan to use, and direct which future offers they want to receive. Each card includes a unique activation code for individual consumers, which allows the retailer to track interest and redemption. The cards also are printed with the bar codes that correspond with the retailers’ internal POS systems. The retailer gets to know you faster this way.

Click here to list of listing of state laws regarding gift cards. It pays to be informed.

http://www.consumersunion.org/pub/core_financial_services/003889.html

1997

The news reported yesterday that the Dow fell to its lowest point since 1997. So I thought I would go back in time and see what life was like in 1997. Here are some of the things I found:

• Unemployment in the United States was 4.7%
• Over 1.3 million Americans filed bankruptcy that year. (By comparison, over 2 million Americans filed in 2005)
• This year’s college freshmen were 7 years old
• England handed Hong Kong to China
• Scientists cloned Dolly the sheep
• A mass suicide in which 39 members of a "Heaven's Gate Cult" in California killed themselves thinking they would be sent up to a spaceship behind the passing Hale Bopp comet. Strange and sad story.
• OJ Simpsons loses civil suit for wrongful death
• Timothy McVeigh is found guilty of bombing
• Mars Pathfinder lands on Mars
  Princess Diana was killed in an automobile accident
• The comet Hale-Bopp is first spotted. It was considered to be the greatest comet in the 20th century. About 80% of Americans saw it without a telescope.
• 4 New York City police officers assault Haitian immigrant Abner Louima while in custody.
• Fashion designer Gianni Versace was murdered
• Tony Blair becomes prime minister of Great Britain in a landslide election victory ending 18 years of Conservative rule.
• On 2 July, the devaluing of the Thai baht triggered off the currency crisis, which devastated the many Asian countries' economies in ensuing months.
• Titanic opened in 1997 and became the BIGGEST Total Box-Office Film ever in film history with over 1 Billion dollars and also became the movie with most Academy Award totaling 13
• Harry Potter was published in 1997 and written by J.K. Rowling, inspired millions to read.
  Mother Theresa of Calcutta died a week later after Princess Diana, Sept 1997
• Madeleine Albright was sworn in as Secretary of State, becoming the first woman to head the State Department
• Pokemon the major kids’ game was released to the U.S. and swept the Nation with its great gaming fun. Kids still love to play Pokemon games all over the world
• Camel cigarette brand removes Joe Camel from its advertising because opponents claim Jo Camel causes cigarettes.
• Green Bay Packers beat the New England Patriots in the Super Bowl 31-27.
  

Oh yeah, NOW I remember why I hated 1997….

Pain vs. Patience

Over the weekend, I watched an Today show segment that describes available houses for sale around the country that were labeled “real deals” at under $300,000. It struck me that homes less than $300,000 were considered a “deal.” Let me see, a 20% down payment on a $300,000 home is $60,000 for a conventional mortgage loan; leaving a $240,000 mortgage to repay. Hmmm…..

Later on, there was a segment on middle aged children having to move back with their parents because they had lost their jobs and subsequently their home, and had nowhere else to go.

In that story, the parents (the older ones) were thrilled to have “their” family back together – it reminded them of days gone by when their children were young. Over time, however, the house was feeling more cramped with two families squashed inside. The middle aged children remarked that they felt like failures.

As the story went on, it was revealed that the lost home was over 5,000 square feet and the children used to be in the mortgage business and by their own admission, “the money was rolling in.” It’s a story that is being repeated over and over across the United States.

These two stories got me thinking about this current economic crisis and whether we in fact, will actually change our behavior, or are we just waiting out the storm so that we go back to our previous behavior? Once the dark clouds pass, and the money rolls back in, will we go back to 5,000 square feet homes and large mortgage balances? Are we going to learn anything from this mess?

Is it pain or is it just patience?

Caveat Emptor or Bust!

Things continue to change. If you are collecting unemployment benefits in certain states, you won’t be receiving a check – you’ll get a debit card. (Technically, you’re getting a stored-valued card, but that’s post for another day…). Suddenly, the plastic generational behavior kicks in and here I go talking about what you’re getting in to. Yeah – that financial education thing.

The issuance of debit cards can save the state a lot of money – and it’s good business for the financial institution.

Thirty states have struck such deals with banks that include Citigroup Inc., Bank of America Corp., JP Morgan Chase and US Bancorp, an Associated Press review of the agreements found. All the programs carry fees, and in several states the unemployed have no choice but to use the debit cards. Some banks even charge overdraft fees of up to $20 — even though they could decline charges for more than what's on the card. (That’s why they call it a stored-value card dude!)

Another 10 states — including the unemployment hot spots of California, Florida and South Carolina — are considering such programs or have signed contracts. The remainder still uses traditional checks or direct deposit. In 2003, states paid only $4 million of unemployment insurance through debit cards. By 2007, it had ballooned to $2.8 billion, and by 2010 it will likely rise to $10.5 billion, according to a study conducted by Mercator Advisory Group, a financial industry consulting firm.

The banks say their programs offer convenience. They also provide at least one way to tap the money at no charge, such as using a single free withdrawal to get all the cash at once from a bank teller. But the banks benefit from human nature, as people end up treating the cards like all the other plastic in their wallets.

In these times, it’s all about the dollars. And personal responsibility.

Caveat Emptor – Let the Buyer Beware Good article. http://www.msnbc.msn.com/id/29286993/

The Old 28/36

One element of the Homeowner Stability Initiative announced yesterday got me thinking about debt ratios.

One element of the plan calls for a shared effort to reduce monthly payments: For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower's monthly mortgage payment is no more than 38 % of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31%. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification.

Back in the day, the standard underwriting formula for approving mortgage loans was known as the 28/36. Borrowers were qualified for the loan if the proposed new mortgage payment equaled 28% of their gross monthly income and their total monthly payments (including the new mortgage payment) did not exceed 36%. This analysis in effect, controlled the amount borrowers could borrow which translated to the type of property they were buying. Of course, they had to have acceptable credit and a required down payment of at least 20% (10% with PMI insurance).

As we know, for the last 15 years, that type of loan analysis fell by the wayside. If a borrower had a pulse, and a job, he/she could get a mortgage loan by following one of the myriad scoring matrices. This resulted in way too many borrowers buying homes beyond their means and hence the issue we are now stuck with.

It will be interesting to see what the underwriting practices will be in the future. Will we go back to a debt/income ratio analysis or will we create new scoring models that will remain untested until the next cycle. Stay tuned.

Stimulus & Pizza

Under the President's stimulus plan which is expected to be signed today, millions of workers will receive about $13 extra in their weekly paychecks as part of the up to $400 tax credit per worker, and $800 for married couples filing taxes jointly. The money will not come in a check, like last year, but instead it will be distributed weekly in paychecks.

The stimulus plan also includes a $2,500 college tax credit, a sales and excise tax deduction on a new car, and first time home buyers are eligible for $8,000 in tax credits.

Thirteen dollars? Awesome! Now I can finally get back to eating that large stuffed-crust pizza every Friday night…

As long as I have a coupon.

The Foreclosure Deja Vu

Recently, I watched the CNBC special, "House of Cards" which provided a timeline of decisions and actions within the housing financial arena that culminated in the perfect storm of financial chaos we seem to be in right now. If you haven't seen it, take it in. You can see the airing times on their website http://www.msnbc.msn.com/id/29163182/

In the beginning of the special, they show the ugly side of foreclosures - the affected lives, the way properties are left behind, the impact on neighborhoods, etc. It brought me back to the days when foreclosing on homes was my job - back in the mid-80's and the early 90's. It has been almost a 20-year cycle since we have seen (at least here in New England) a large slew of foreclosures compared to the 8-year cycle from the '80's-90's. And in that 20 year period, we have raised a generation of young borrowers who received loans from lenders and a system that did not say no - they found ways & programs to say "yes". And everybody made money.

Here's my question about this current cycle - will there be a consequence to the borrower who has experienced a foreclosure? We know that when the bankruptcy laws changed in 1986 and these new loan programs came out in the mid-90's the consequences of filing bankruptcy went away. You no longer had to wait 7-10 years before you could borrow money again. Will those folks currently having trouble be able to get loans when "the credit markets open"?

If not, then this recession will most likely last a longer than current predictions. If they are able to get loans again in the near term, then can we at least try to protect ourselves from this happening again by emphasizing financial education to our kids?

No Score for You on Valentine's Day!

By now, most of the world has heard of something called a FICO score. For the past few years, kids have heard about the “score” on various MTV shows and such. They may not have understood everything about it, but they know that a bad score affects your ability to but stuff. Apparently tomorrow, on Valentine’s Day, you will no longer be able to get your FICO credit score from Experian, one of the three major credit bureaus.

The company notified Fair Isaac Corp., the firm that created the credit-scoring model most used by lenders, that it is terminating its relationship with MyFICO.com, a Web site that sold FICO credit scores and other information directly to consumers. This means generally that Experian customers will not be able to see the FICO scores that lenders are using in determining their credit levels.

Experian is choosing to use a new scoring model called VantageScore, which has been a work in progress between all three credit repositories – Experian, Equifax & Trans Union. To the best of my knowledge, most lenders are still using FICO predominantly, but this is yet another example on why being financially literate is so important.

If you are applying for a loan or being evaluated for a new job, you should know what scoring model is being used and what the numbers mean. It also means that going forward, you need to stay on top of the scores to make sure the information remains accurate.
Here’s a Washington Post piece that describes this a little more. http://www.washingtonpost.com/wp-dyn/content/article/2009/02/11/AR2009021103621.html?wprss=rss_business/personalfinance

On a lighter side, here’s a clip of a TV show that aired in 1969 – Happy Valentine’s Day!http://www.youtube.com/watch?v=lrBe09SIENA

The Oreo Test

A friend relayed a story about when his son was very young years ago. Tommy developed a real love for Oreo cookies (who doesn’t?) He loved them so much that each time he went to the neighborhood market, he would try and come up with ways to buy the small packets of Oreos that are always near the checkout counters. He learned the cost of the cookies and soon, when presented with an opportunity to purchase something, he would calculate that the value of the item was the equivalent to “X” number of Oreo cookies. From there he made his decision whether the impending purchase was worth it.

His parents soon learned to use the Oreo test when the family was out shopping. When Tommy asked for a particular toy or game, his parents would tell him the cost of the toy and then ask him if it was worth “X” number of Oreo cookies.

A few years ago, Dr. Phil McGraw introduced this idea of a child’s currency as a tool to help parents practice discipline. He explained it this way, "If you control the currency, you control the behavior that currency depends on." Once you understand what your child values, you can withdraw positive things (taking away the toy) or introduce negative things (making them take a time-out) as a form of discipline.” The Family First Workbook by Dr. Phil McGraw; Simon & Schuster Adult Publishing Group, September 2005

What we are really talking about here is behavior. Finding out what your child values will help you connect personal finance concepts and ultimately, help you to shape the behavior you are looking to have your kids follow as it relates to how they handle their money.

A Two-Way Street

Remember, what I am suggesting here becomes a two-way street so pay attention to the road signs! Children will be observing and taking note of your currency too so make sure that you are consistent. Be prepared to explain those impulsive purchases of beer and snacks for Sunday’s game and make sure you connect the dots for your kids so they learn to develop choices.

Stimulus, Bailout, Word Games & Math

Yeah, it’s a big number –whatever the final number will be. And yeah, there’s probably some pork in this stimulus package. It’s always about the dollars – never about changing culture & attitude. And don’t think for one minute that our kids are not listening & watching. They are.

The Washington Post had a decent graph last week about where the money is going. If you like graphs & flowcharts, you’ll like this. I just wish a piece of this money – a small piece – would go to financial education programs to help the next generation change the culture and attitude that we have demonstrated for the last 15-20 years – which just happens to be their entire time on the planet so far.

http://www.washingtonpost.com/wp-dyn/content/graphic/2009/02/01/GR2009020100154.html

The Town Crier is Getting Hoarse

It’s wearing me down. I think I’m in bad need of a cough drop. Yesterday, Dartmouth College announced that they are trimming jobs because of the economy. Just like other businesses and companies we’ve been hearing for the past few months right? But then they also announced that tuition for next year will increase 4.8%. It got me thinking, how many colleges & universities have announced tuition prices for the next academic year? So I went to my friends at Google and here’s what I saw on just the first page:

· Dartmouth College – New Hampshire – increase of 4.8%
· Maryville College – Ohio – increase of 3.4%
· Augustana College – Illinois – increase of 3.9%
· Case Western Reserve University - Ohio – increase of 2.9%
· University of Arizona – Arizona – increase of 3.0% (residents); 12% for non-residents
· Marquette University – Wisconsin – increase of 3.6%

And that was just the first page! The president of the University of North Carolina said he was proud that this year’s tuition increase was the lowest percentage since he’s been there. (nice spin) Only one school – Merrimack College in North Andover, MA reported (on this first page) that they are holding tuition costs steady. They said that they have managed their budgets well and “We wanted to give parents and students a breather in difficult times," said Merrimack President Ronald Champagne. "It was a big decision for us." (finally!)

I can hear it now – “you can’t compare us to other companies – we’re not a business, we prepare young people to have successful futures.” “Look at all of the scholarship programs we offer.” “Our endowments took a nasty hit as well as everyone else last year you know.” (Dartmouth’s endowment is down to $3 billion).

I guess I’m still stuck on that old economic thing called supply & demand. Prices go down if people stop buying goods & services. Seems to me we recently experienced that last summer when gas prices were $5 a gallon. Apparently we reduced consumption and prices fell. Where is the outrage of college costs? We’ll hear about increasing Pell grants and loan programs and such, but we never talk about the actual cost.

I have to go find a cough drop…..

February, Love & Cars

Ah yes, it must be February. The sun is brighter, daylight is longer, 25 degrees seem almost balmy, the stores are decorated in red, and we begin that regional thing we call Presidents Day Sales for automobiles.

For a long time now, auto dealers have used Presidents Day (formerly Washington’s Birthday) to roll out great deals for new cars. Some pundits have said that this tradition began as an effort by dealers to reduce inventory, some have said that dealers started this because they had returned from the auto show in Detroit all fired up to sell cars.

Frankly, I think it all started because dealers got tired of shoveling off the snow from the cars in the lot and having to move them around to plow.

In any event, - in the past anyway, people like to think about a new car around Presidents Day. They are accustomed to visiting dealerships, having the kids romp around with the balloons, clowns & face-painting, eating cherry pies (the old reference to Washington & that cherry tree thing…). It’s a great pastime in the middle of winter, gives you something to look forward to after mud season, and gets you thinking about Spring.

How about this year? With jobless numbers going up, a deterioration in consumer confidence, the continuing growth in foreclosures, etc. etc. – what will this do to auto sales this Presidents Day? Add to the mix the fact that some finance companies have eliminated their leasing programs, and apparently the credit markets are tightening up – are dealers worried? I know I am.

It’s always fun to go see the cars, kick a few tires, and imagine yourself wrapped around that new convertible. Let’s watch and see what the mood is this year – from the buyers and the dealers. Here’s an article from CNN Money: http://money.cnn.com/2009/02/03/autos/finding_deals/index.htm

A New Chapter or a Bad Rerun?

OK, so I admit it. For years, I’ve been pointing fingers at the Fannie – Freddie show relating how their lending threshold revisions in the mid-90’s contributed to the culture change in the U.S. that ultimately created the sub-prime mess. And for the past 16 months or so, I’ve sounded like I knew what I was talking about. To recap, in the mid-90’s:

1. The secondary market, in an effort to increase the percentage of homeownership in this country, loosened their credit standards and collateral guidelines which meant more people bought homes and other people bought homes that were beyond their means.
2. Simultaneously, credit scoring becomes the standard by which loans are made. The thinking is that an empirically-based formula will result in the consistent granting of loans without discrimination. Oh, and it will also help to measure payment risk.
3. Risk-based pricing then becomes the way to grant loans to people with low credit scores and mitigate the higher chance that the loan won’t be repaid. The lower the score, the higher the interest rate & everybody’s happy. The birth and growth of sub-prime lending.
4. At the same time, this thing we call the Internet takes control of our information and daily lives and online commerce becomes an easy way to help us pack in more stuff into our multi-tasking world. Credit card usage explodes. (by the way, credit cards are loans – they use scoring & risk-based pricing too)

So in 2008, it all came crashing down. The party is over and now we have to clean up the mess. Everyone has an opinion on how but the truth is, we are in unchartered waters here.

So then I read this article in Bloomberg and learn that Fannie Mae is reducing credit standards so homeowners can take advantage of historic low interest rates and refinance their mortgage loans. I get the reasoning – saving money on the monthly house payment will free up more cash to buy stuff and stimulate the economy.

But read the article and let me know what you think. Am I wrong to see this as a déjà-vu? http://www.bloomberg.com/apps/news?pid=20601087&sid=aTu9HA5cZgQ4&refer=home

The 3 C’s of College – Cost, Contradiction & Culture

It’s never easy to change a culture is it? Just ask the early boomers who gave birth to the Generation Gap by protesting the Vietnam War and questioning the “establishment”. Today, we are trying to change a culture with the promotion of the green movement in the hopes we can save the planet from environmental harm before we leave it.

What are we going to do about the notion that success for our kids can only be found through college? Now before you take off on me – I am not opposed to a college education. I think the college experience and learning are very important to building the fabric of one’s life experience. The issue I have is at what cost? Is it worth the investment today like it was 25-30 years ago? Are our kids better off with that college degree and carrying a boatload of debt as they get started in life? It’s a question that borders on heresy in many circles – I just wonder if a culture change is about to happen before our eyes.

The answer probably rests with parents – but the students are going to have to step forward and ask, “Do I really want to take on this debt at 22 years old? Is there another way to achieve the same thing without leverage my financial future?”

Here’s a thought-provoking article from Forbes: http://www.forbes.com/forbes/2009/0202/060.html

Let's Watch Wall Street - the Movie

I think we need to rent the movie from the 80’s, “Wall Street” again. Sorry, I didn’t mean rent – I meant download. Remember the main character Warren Gekko played by Michael Douglas? Gekko coined the phrase, “Greed is Good”, which was a rationalization of the ruthlessness of the financial arena in the 80’s to make money. The idea is that the more money you make, the more you spend, the better you feel and the economy grows.

Now where have I heard that recently?

With all the news coming out about companies accepting bailout funds and still spending money on lavish company retreats and stadium names and other such things, one has to wonder about our whole collective greed.

I’m beginning to wonder if the folks running these institutions are younger than 45 years old. If they are, then they may have just graduated from high school the last time unemployment was in double digits (the early 80’s). The reason the populace is wondering why they “don’t get it” is perhaps because they have only known prosperous times in the their career and therefore, trips to Las Vegas and box seats at the Yankees game is just the normal course of business.

Talk about a reality check…..

Dude - You Got Insurance Right?

The next time you hear that crunching sound of metal when you are in your car, you might want to say a little prayer and hope the destructive party has insurance. Apparently, as unemployment rates rise, so do the number of motorists who let their automobile insurance policies lapse.

It does makes sense right? The Insurance Research Council recently released a study that based the prediction on national data that shows the percentage of uninsured motorists tends to increase right along with the unemployment rate. New Hampshire, one of the few states that does not require drivers to carry insurance, saw its unemployment climb to 4.6 percent in December, up from a year earlier.

What we need to remember is that in New Hampshire, an insurance company cannot legally deny coverage unless the person is not a NH resident or is not legally permitted to drive. This really means that you cannot be denied coverage if your income is low or if your credit is toast. In this climate, those folks who are struggling are making decisions everyday between medicine, rent, food and other essential living needs. Insurance is going to be a low priority - which could ultimately affect all of us. Good article from the Nashua Telegraph...



http://www.nashuatelegraph.com/apps/pbcs.dll/article?AID=2009302029936

Gotta Read the Small Print!

For years I've been telling kids to get in the habit of reading those credit card disclosures - yeah right! It's like asking them to read the nutrition label on the Red Bull cans. However, it's becoming clear that we need to do that now more than ever.

Credit card companies are being squeezed in two ways - from upcoming new federal regulations that go into effect in 2010 and from deteriorating portfolio balances with higher delinquencies and defaults. Soon they can expect a larger percentage of borrowers filing bankruptcy.

To address this, they are modifying existing credit card accounts with higher interest rates and fees, lower credit limits, or closing accounts to further advances. After all, they are in the business of making a profit - just like any other business. Sure, we can debate that level of profit, but at then end of the day, nobody is in business to lose money.

Which means that you need to open those envelopes from your credit card company and read the information. I know it can be a beast to get through - it's designed that way. But getting through it and understanding it is the only way you will know what is going on with your account.

Read this article from the NY Times http://www.nytimes.com/2009/01/31/your-money/credit-and-debit-cards/31cards.html