New Federal laws are likely to put a dent in that figure this year.  Banks must now ask their customers whether or not they want to enroll for overdraft protection when using their debit or ATM cards.  Before this new law, enrollment was automatic, considered by banks a “courtesy” to its customers.  It seems like a pricey courtesy when banks charge an average of $35 per overdraft and $5 a day until the account is brought back to a positive status.

Connecting With Customers

I will admit, I was pleasantly surprised to see that Wells Fargo had sent an e-mail and actually tried reaching out to me.  I was somewhat aware that these changes were coming since I do try to keep my finger on the pulse of what’s going on financially, especially with banks and everything in my wallet that’s plastic.  But apparently most Americans have no clue about the upcoming changes.

Last month Harris Interactive conducted a poll where they asked 2,755 adults with bank accounts: Were you aware that regulations were changing with respect to overdrafts on electronic transactions from bank accounts?

More than a third of those polled had no idea about the changes, and only about a quarter were truly knowledgeable about them.  Banks obviously need to do a better job of educating their customers about the new laws.

The “Benefits” Spin

In trying to inform their customers of the change, Wells Fargo took the opportunity to put a sales spin on their e-mail.  Their website lists the benefits of their  as:

• Increased Convenience
• Added Flexibility
• A “Back-Up” Plan
• No Fee

That last benefit is the kicker.  There’s no fee if you never use their “service,” but a $35 fee if you don’t bring your account to a positive balance the same day you overdraft.  Needless to say, spending more than what’s in your bank accounts should be avoided at all costs, but having to pay penalties on top of that can be a financial nightmare.

The benefits don’t seem to be too attractive to customers as, according to a NY Times survey, about 80% of people said “they would rather have the bank deny the transaction than charge them a fee.”  

Don’t Spend More Money Than You Have

Now that I’ve pointed out that I think these “benefits” are pretty ridiculous and the fees associated with them are highway robbery, it should be said that consumers bring this upon themselves.  The bank didn’t go spend all of the money in your accounts, you did. 

If you’re really that detached from your own bank accounts you need to get a better handle of your finances.  Most banks have online account management that should make your life a little easier.  Another valuable website is Mint.com, a budgeting and personal finance site that gets all of your money & accounts in order.

It makes no difference whether you’re hit with an overdraft fee or your purchase is denied; if you’re spending money that’s not even in the bank there’s a bigger problem that needs to be addressed.  There should be a simple rule that you try to live by:  Don’t spend money you don’t have.  So stop blaming the banks, get a financial plan in order and save your money instead of spending it on penalties and fees.

“So what?” you’re thinking. “If they have to pay some fees, maybe the credit card companies will get off my back for a change.”

Though your logic is impeccable, there are quite a few reasons you should care when your neighbor’s house is on fire (so to speak). Here are just a couple:

You’ll Still Wind Up Paying the Fees

Have you noticed that some smaller mom-and-pop shops and gas stations charge a small fee (usually about 35 cents) for using a credit card instead of cash or debit? That’s not because they’re being ornery, they’re just trying to recoup their losses. A percentage of your purchase – no matter how small – goes directly to the credit card company for the privilege of having your credit accepted. For little mom-and-pop shops, those fees cut deeply into their profits, so they simply charge you up front and hope you’ll get the message that plastic isn’t their friend.

Even if you don’t see the fee at the register, it’s still there. Larger companies will raise prices if the credit card fees are cutting into their profits too deeply. Notice how your latte at Starbucks went up about 50 cents? That’s partially because more and more people are buying their morning joe with a credit card, and Starbucks doesn’t want to have to pay for it. If you want to keep prices on your smaller purchases low, the credit card fees are still something you should take an interest in.

Credit Card Fee Abuse is Credit Card Fee Abuse

One of the reasons so many people were seriously damaged during this last credit crisis was because of unfair fees. Credit card companies have had free rein to change their policies for whatever reason – “Hey, that woman’s wearing pink! Let’s raise our fees!” – for years, and while the new Credit CARD Act is working on minimizing those abuses, allowing credit card companies to get away with bad practices anywhere is a bad idea.

Bad business practices are never good for you. If credit card companies think they can get away with it for other businesses, the smart money says they’ll try it on you. After all, you don’t have a team of lawyers to go through your credit card policies and figure out whether a fee is reasonable or not. Companies do, and they’ll put up a fight. Given the choice between fighting a team of lawyers and fighting you, which do you think the creditors are going to pick?

Limits on Using Your Credit Card

Right now, having an American Express card with a decent limit and a long history shows up very well on your credit report. If you use it and pay off the balance in full regularly, you’ll be putting some good work toward building up a good credit history and improving your score.

Which makes it all the more frustrating when you can’t use it.

American Express is one of the creditors that charges other companies the highest fees for use, which is why you often see stores that accept Visa and Mastercard – but not AmEx. If you want to be able to use your card wherever you want without having to hassle with the store owner about whether that card should be accepted, take an interest in the credit card fees companies are charged.

If other kinds of fees are the least of your credit woes, give us a call. We’re good at credit repair, and we are extremely enjoyable to talk to. Everyone wins.

In almost every instance, it is far better to put your extra cash into paying off debt. Though it is a huge advantage to have savings put aside, the more immediate problem is the huge interest rates and fees the credit card is costing you (see this post). Even if you save up several thousand dollars into a savings account and still make the minimum payments on your credit card, you’ll still wind up in the hole. Here’s how.

The minimum payments on your credit card are going to keep you in debt for a very long time. They’re not there to pay off the card with the minimum cost to you as a consumer – they’re to make sure the credit card company makes as much money as possible while still protecting its investment. From the credit card company’s point of view, the more interest they can collect, the better. That means the payments are set up to allow for you to be paying interest as long as possible.

So even though you have several thousand dollars in savings, you may also be paying an equal amount of money in interest. That means you haven’t saved money at all – you’ve only come out even. And that’s if you’re lucky. If your debt is high enough, putting money into your savings can actually mean you spend more money in interest than you put away in savings. Saving money is actually costing you money under those circumstances.

Meanwhile, if you pay off your credit card debt instead of putting the money toward a savings account, you’ll pay far, far less in interest. What’s more, once the debt is fully paid off, you’ll be able to put money toward a savings account without continuing to lose money in interest. So put every penny you save on budget cuts toward paying off that debt, and start saving for a nest egg only after that step is complete.

Great, you say. But if I had the money to pay off the debt, I probably wouldn’t have the debt in the first place, smartypants. How am I supposed to get rid of these bills when I don’t have the money for them right now? 

Fair point. Here’s at least one place to find some extra cash this month, and every month thereafter: your electric bill.

We know you’re all smart people, so we’re not going to be so obvious as to say you should turn off the lights when you’re not using them. However, there are probably a couple of things you could be doing that you haven’t considered – and those things will save you a fair-sized chunk of change every month.

Get Used to the Temperature Outside

Air conditioning uses a ton of energy. Fine. But summer is hot and sticky and it sucks and damned if you’re living without it. Ditto for heat in a below-freezing winter. We’re with you thus far. However.

Most of us don’t use the heat or the AC only when they’re really necessary. What we’re trying to accomplish with these little luxuries is making the inside of our house duplicate the weather in another part of the globe. We are actually trying to create a different climate for our own little house-sized country. Maintaining the temperature of a crisp fall day in New Hampshire when your house actually wants to be the temperature of a melting summer day in LA? Very difficult. Takes a lot of energy. Costs much.

With the AC, use it for as long as it’s necessary to actually cool down the house a notch. You don’t need it to be 60 degrees in there – you just need it to be a little less than the 107 degrees outside in the sun. Often, a plug-in fan will do the trick, and for far less cost. In the winter it’s the same deal. You’re not trying to make it summertime in the house. You’re trying to make it NOT freezing.

So get used to the temperature it is. If your actual health is at stake, as in some very hot or cold areas, by all means use the very handy climate-control devices we have invented so as not to expire. That is why they are there.

They are NOT there to transport your house to another climate entirely. You’d be better off buying a plane ticket to the climate in question and leaving your house’s electricity alone for that amount of time.

Make Smart Decision About New Purchases

Heard this spiel? “If you replace every lightbulb in your house with an energy-saving lightbulb, you can save up to $500 a year in energy costs!”

Brilliant, you think. I’ll just go buy 10 energy-saving lightbulbs. At $15 apiece. Because I totally have that kind of money to spare.

All right, so you don’t have the money to spare right now, so you won’t replace all the lights at once. The next time one of them burns out, though, get the energy-saver one instead of the old kind. You will save money on your electric bill – more than enough to cover the extra cost of the bulb in about two months – they’ll last longer, and while you may not have $150 to blow right now, you can probably find the extra $12. Especially when it’s going to save you that much over the next few month’s worth of bills.

Another good strategy for this one is to replace the light you use most with an energy-saver bulb. So if your garage light burns out, go unscrew the light bulb in the kitchen, stick that one into the garage socket, and replace the kitchen light with an energy-saver. Since you use that one more often, it’ll pay off faster.

Ditto goes for buying new energy-saver appliances. We know you’re not going to replace your stove for an energy-saver right now. If yours breaks and you need a new one, though, shell out the extra cash for the energy saver.

Get the Family On Board

You may be very diligent about turning off appliances, lights, and power cables when you’re not using them, but the rest of your family may not be. If your teenage son wanders through and turns on a light right after you’ve turned it off, you may as well not have been so conscientious.

Stupid kid. What is he thinking?

He’s not thinking. The kid does not see the light bulb and think, “Man, that’s costing my parents money.” Nor would he necessarily care if he did. He doesn’t pay the bills. He doesn’t really get it. He won’t until he gets his own apartment. The kid sees the light, thinks nothing at all about it, and goes into another room to listen to that damned newfangled music.

So get the kids – even the little kids – involved. One brilliant way to do this that I’m almost sure does not actually constitute scandalous parenting practices is through bribery. Offer your kid a percentage of the money you save off the electric bill every month. If you can shave a buck off of your light bill by having just one light in your house off whenever it’s not in use, that’s like found money for your kid.

He’ll see the light, and this time he’ll think, “Sweet, I found a quarter.”

And he’ll click it off.

Yesterday we started a post where we outlined some of the new credit card laws; and how they affect you. Today, we're talking about a couple more of the new laws that you need to know about as well.

Advance Notice on Rate Increases

This one doesn’t seem major, but trust us, it is.

Right now, your credit card is subject to the Truth in Lending Act, and it says that you get a 15-day heads up before your credit card company increases your rate. This is problematic for a couple of reasons.

One of them is that if your credit card company has good timing, they can increase your rate just in time for that new rate to apply to your next bill. Since you only had a 15-day heads up and you’re billed every 30 days, you may have already spent money that month that you would not have spent, had you known your credit card rate was about to go through the roof. Too late. You already spent the money. You can stop using the card after THIS billing period, but you’re stuck with this month’s new and improved bottom line.

With the new Credit CARD Act, they have to give you 45 days notice. That means you have the two weeks you had previously, plus an extra full billing period. If you don’t want to pay the new increase, you can simply stop using the card as soon as you find out about the rate increase.

As we mentioned in this series yesterday, your credit card company can only increase the rate for new balances, not old ones. So even if your company does hike up the rate astronomically, that rate isn’t going to apply to your old balance. Your old balance has the old rate locked in, and you have plenty of time to find out about the increase in advance.

Now, this still means you have to pay attention. You know how you get those letters from your credit card company with the small writing that kind of gives you a headache just looking at it? That’s too bad. Read them anyway. Hidden in that long letter is probably information about rate increases or any other nifty little changes in your agreement. The small print is their way of deterring you from finding out about it. Most of us are lazy enough to take one look at all that small print and chuck it in the junk bin.

Bad idea. Even though the new act is going to give you more time to find out about rate increases, you still need to be paying attention to find out. If you get your information via email, open emails from your credit card company instead of deleting them or sending them to the spam bin. Once they’ve sent you a notice, they’ve done their duty. If you weren’t paying attention, that’s not their fault.

The other downside is that your credit limit can be changed without notification. Ever. Your credit card company can reduce your limit from $3,000 to $1,000 without sending you so much as a carrier pigeon. The only thing they can’t do is charge you a fee for any over-limit spending that happens as a result.

Restrictions on Fees

Seems like creditors live on fees. Fees for everything under the sun. You rarely see them coming and you don’t know how to avoid them, and half the time that’s the idea. In the new Credit CARD Act, a lot of those abusive fees are gone the way of the dinosaur; which is a very good thing. I can't tell you how many people come to us for credit repair due to over-the-limit fees they were unaware of, that have now destroyed their credit scores.

Overlimit Fees

There’s nothing more infuriating than this one. You’ve just used your credit card. It went through fine, everyone’s happy. You come home and go to pay your bill and it says you’ve gone over your limit. You have a big, fat fee for overdrafting your account. Also, they’ve increased your rate.

“If the charge was going to send my card over the limit, why didn’t my credit card company just decline the transaction?” you’re thinking, biting down hard on your belt to keep from having an apoplectic fit. The answer is simple, but it’s not pretty: credit card companies have some seriously shady practices. One of them is allowing you to overdraft by a certain small amount – a hundred bucks, say – which they’re pretty sure you’re going to pay back, but which is going to cost you an overdraft fee.

Sure, they could be nice and keep the transaction from going through, but then they wouldn’t get their $40 in overdraft fees. So a lot of credit card companies do this, and they get millions of dollars in fees by doing so.

Under the new Credit CARD Act, you can’t overdraft your credit card unless you specifically elect to allow the creditor to do so. If you would rather have the card declined when you’re out of cash than suffer the overdraft fee, you have that option.

Payment Fees

Some banks will impose fees for making a payment by telephone or online, which seems counterintuitive in an age where mail is practically obsolete. If your payment is due today, the only way to get a payment in without incurring a fee is by mail – but since the mailed payment won’t arrive for three days, you’ll get a late fee. It’s a Catch-22. Pay the bank or pay the credit card company, but either way you’re out a fee.

Under the new act, banks can’t charge you a fee to pay your credit card debt by telephone or online. You can still get dinged for rush payments, though, so it’s always safer to pay as soon as you get your bill.

Same-Day Fees

Sometimes making a payment on the due date is still counted as late. This is a really sneaky one, since most of us think of the due date as the date the bill is due. Silly us. Apparently, the due date is sometimes the day AFTER the bill is due. It’s the too-late mark.

Not anymore. When you make a payment on the day your statement says it’s due, you won’t get a late fee. You’re also safe if your payment is due on a holiday or a Sunday. Since those payments aren’t generally processes until the next day, those payments also used to qualify as “late”. Under the new act, payments made on the due date will always be counted as on time, even if the luck of the draw means that payment won’t be processed until the next day.

Super-Ridiculous Fees, or Subprime Card Fees

This is a simple cap on fees in general, to keep credit card companies from abusing their right to impose fees. You wouldn’t think they’d need to say this, but your non-penalty fees cannot be more than 25% of your initial card limit.

Seriously. You have a $1,000 credit limit. The law now states that your non-penalty fees must be less than $250. This is still a rather large margin for fees, but let’s look on the bright side: it could be worse. We know this because it was worse, and now it’s not.

The credit card companies aren’t the only ones to blame, though. They got away with their tricky little ways for years largely because the general public didn’t know enough about the way their credit cards worked to keep those abuses from happening. So we’re going to go through the major components of the Credit CARD Act for you, to sort out what exactly is going on with your credit cards right now.

Credit CARD Act: Retroactive Rate Increases

The first item on our list is one of the most important. It used to be that your credit card company could raise your rate anytime they felt like it, for whatever reason. You might have seen this clause in your credit card statement. If you’re anything like me, you thought, “Well, that’s complete bull.” Because it is.

In the best of all possible worlds, your rate would only increase if you were a bad payee. If you were good about paying your bills on time and keeping a low balance, then your interest rate would be low, because you were being so good. If you kept missing payments, your interest rate would go up so the company could recoup their losses. Not fun when you can’t find the money to pay the bills this month, but at least a soupcon of logic is in play there.

That’s not how it worked. You could be the most reliable payer in the world, snatching your bill out of the mailman’s hand just so you could race to your checkbook and pay right this second, and if your credit card company felt like increasing your rate from 10% APR to 14%, they could do that. For no reason.

They could also use your bad practices elsewhere to make up a reason. If you had, say, an American Express card that you were excellent about paying on time, but you also had a car loan for which you’d been late on the payments a few times, American Express could use that as a reason to bump up your interest rate.

And it could stay that way forever. You might be able to negotiate a lower rate, but it wasn’t going to happen automatically.

Under the Credit CARD Act, they can’t do that anymore. Your existing balance is safe from increased rates unless you’re more than 60 days delinquent on that account. Even better, if you are so unlucky as to be unable to pay that bill for 60 days and get the increased rate, the damage is reversible. If you make six consecutive payments on time, they have to give you your old rate back.

This section has a small caveat, since while your old balance is safe from increases, your new balance can still get its rate increased if the credit card company feels like it. The plus side is that they have to give you 45 days advance notice, which means that if you don’t want to deal with the increased rate, you can choose not to use that card in the future and simply pay off the old balance.

There are also a few time limits that didn’t used to be standard: they can’t raise your rates during the first year you have the card (unless, of course, you’re delinquent by the aforementioned 60 days), and any promotional rates have to last at least six months.

That’s to avoid promotions like this: 0% APR (small print: for the first twenty seconds you have the card. After that, we’re hiking it up to 24%. Sucker.)

Tune in tomorrow for more on the new Credit CARD Act and why you should care. (You should care because it’s how you’re going to avoid credit messes in the future.)

And if we divorce, I promise to continue paying my share of the credit cards. 

Wait, what? 

When we meet that one perfect person, the one we plan on spending the rest of our lives with, none of us are thinking about who’s going to pay the credit card bills when we divorce. 

Divorce is a fact of life, and a large number of our clients come to us after a marriage has gone south and with it – credit scores. Below is a question we received last week from one of our clients. We should have addressed this a long time ago, because it is a question we see ALL THE TIME. But we didn’t so we are now. 

“My Wife and I divorced last year. Together we had a few credit cards and an auto loan. The divorce decree states that she pay for our Discover payments and the car payments.  

The day before yesterday, I got a call from Discover and they were saying that the payments hadn’t been paid in two months and that if they weren’t caught up, my credit could be damaged too. 

Why should I be responsible if we made an agreement in court that she would take full responsibility for that card? Is there anything that can be done about this? 

Thanks John” 

MyCreditGroup’s Answer: John, you’re going to want to check the laws in your particular state. However, we do deal with this scenario a lot and I can tell you, typically the original contract (the one you signed when married) takes precedence over a newly written divorce decree.

The credit card company’s view is that they don’t care what has happened after the fact. What they do care about is the fact that you signed a contract, married or not, and that’s the contract they’ll use to collect their money. 

I’m sorry, but chances are they can come after you. 

If you are on good terms with your ex-wife, give her a call and see if you can’t work something out. It may not be your debt anymore (per your divorce), but at the end of the day, it’s your credit and your responsibility to protect it.

Also, you mentioned Discover said it had been 60 days since the last payment. I suggest you go to http://www.annualcreditreport.com/ and check your credit. There’s a good chance you already have late pays showing.

Okay, that was soft-pedaling. Your credit sucks. It’s seriously in the hole. You have a handful of credit cards that are all maxed out, you can’t pay your mortgage, you have student loan providers who are pissed at you. You also filled out one of those magazine cards that said “Bill me later” and now they’re mad at you about the $11 for an issue of Vanity Fair and sending the hounds of credit collection after you.

It’s bad. It’s really, really bad. And you’re feeling like there’s nothing anyone can do to make it any better.

You’re not alone.

There are thousands of people across this country and on into the next who are feeling the same way you are. Their credit just got out of control, and now it’s broken forever. It will never be okay again. Everyone is feeling this way. Everyone. You are not alone.

This is important to remember when you’re feeling like it was stupid of you to get into this situation. You have to remember that everyone was doing it. It made sense. It seemed to be working out okay for everyone else. You did not get here because you are the only one to fall for a credit promise that didn’t pan out.

You have to really look at it.

Most people, when they’re confronted with a situation they know is bad, get ostrich syndrome. Stick your head in the sand. Don’t look directly at it. If you’re very, very quiet, maybe the bad credit will just go away and bother someone else.

Remember that old adage, “Know thy enemy”? Yeah, it’s time to dust that one off. The only way to get rid of your bad credit is to know why it’s bad. When you know why it’s bad, then you’ll know how you can make it good again.

Here’s what we bet you’re thinking right now: “Whatever. It’s bad, and the only thing I can do is make payments, and I don’t have any money to make payments, and I really don’t want to know exactly how much money I know when I’m dead certain that whatever the total is, I can’t afford it.”

Sound about right?

Here’s a newsflash for you: even if there is no way to make this problem go away completely, there are still probably ways to make it better.

The only way to figure out what those ways are is to get out all of the bills. All of them. Spread them out on the table. And see what the damage is. Look at your agreements. Figure out loopholes. We know it’s rough. We know it really sucks to see how terrible it’s gotten. But it’s the only way to get it better.

Speaking of which.

You can make it better.

This is true. We know it doesn’t feel true, but it is. It will take time, and effort, and energy, and we get that you don’t really feel like you have those things right now. It takes a lot of courage to get all the credit reports out and take a good, hard look at the situation.

There are lots of things you can do without making minimum payments. You can challenge your creditors on errors they’ve made in your account, which may actually help repair your credit. You can increase your card limits – not to spend them, but to make your credit better by increasing your limit to balance ratio. You can open secured credit cards. You can negotiate a lower payment rate. There may be pieces of your agreement that make allowances if you are unemployed.

If you’re really stuck, and you don’t know how to make it better, and you wish someone would just do it for you, that’s also an option. That’s what we do. We know a couple of other really quality companies who can help. There are financial planners and money managers. Almost every one of those people, if you find a good one, can help. They will pay for themselves in the space of a month.

And you won’t have to feel quite so helpless anymore.

If you want to talk about what you can do right now, hit us up for a free consult and we’ll help you sort through everything. Trust us. If you man up and confront the problem head-on, you will feel much better. Before it was this amorphous thing. Now it’s got a shape and a name and you know what to do about it. You’ll know your enemy.

Then you can go out and dispatch the bastard. Doesn’t that sound like fun?

It’s a shame that her math skills seem to be so sadly wanting.

A few weeks ago, we got this link to her latest flip-flop regarding paying off debt. If you haven’t been paying attention to Suze Orman on the topic, you are probably less confused about this than those who have. Those who have been paying attention to us (and that’s very nice of you, since our hair isn’t nearly as pretty is Orman’s) know that we’ve always said the same thing.

Pay off your credit debt. Now. Yesterday. Do it.

Orman’s waxed back and forth on this, and now, in the midst of a financial crisis, she’s decided that the smartest thing you can do is sock away money into a savings fund. Her logic goes that when you’re in serious financial trouble, you’re going to need that emergency fund more than you need good credit.

Sounds fine. Except for the part where you’ll have a hell of a lot more money to put into that savings account if you pay off the credit cards first.

This is the part where we do the math for you.

Let’s say you’ve got a $20,000 balance on your credit card. Your minimum payment is $500. We’re using CNNMoney credit card calculator for this one to calculate what happens APR-wise to that debt as we go along. 

On Suze’s plan, here’s what happens.

You pay your minimum payment of $500 every month. Your credit card company keeps charging you the APR rate. In 30 years and 9 months, you’ll have paid it off. Meanwhile, you set aside $150 every month, instead of putting it toward your credit card, into a savings account.

30 YEARS, okay? that’s the time it’s going to take you to have a kid, watch it grow up, go to college, get married, and have a kid of their OWN. And you will STILL be paying off that credit card.

Not to mention the fact that by the time you pay it off, you’ll have paid $27,466 in interest.

Pay attention to that.

Your credit card was $20,000. Your interest paid was $27,466.

You just paid OVER TWICE THE ORIGINAL DEBT.

Now do it our way. Instead of your minimum payment, pay just an extra $150.

Got that? Instead of $500, pay $650. This is not that extreme.

Guess what happens?

You pay off the credit card in only 3 years and 5 months.

You only pay $6,477 in interest.

Let us compare where you are in 30 years.

In 30 years under Suze’s plan, you have JUST paid off the credit card. You have paid a grand total of $47,466. And you have put $54,000 in a savings account.

In 30 years under our plan, you have paid off the credit card long ago. You have paid a grand total of $26,477. And since from the 3 year, 5 month mark onward, you put $650 in your savings account (because you didn’t have to put it toward a credit card anymore), your savings has $207,350 in it.

Let’s compare again.

Suze’s plan: You spend $47,466. You save $54,000.
Our plan: You spend $26,477. You save $207,350.

Why on earth would you not pay off your credit card sooner?

Tune in for the next post, where we’ll tell you where that $150 is coming from, anyway.