We negotiated another great settlement for one of our clients from California, who enrolled in August,2009. The original balance was $18,396.96, and we settled it for $5897.00 This is a savings of 63%!
What are the key measures of financial health? Is it how much money you make? Is it how much money you spend? Or is it a combination of the two things? While attempting to get at your financial health, you can’t measure just income or expenses you have to measure them both as they relate to one another.
Loan officers or mortgage brokers commonly refer to your debt to income ratio or DTI. Credit card companies and counselors also talk about debt to income ratio which begs the question what is it? And why is it so important?
In short your debt to income ratio compares how much you make to how much you owe. The purpose of the calculation is for lenders to be able to determine how much more debt you can take on without overextending yourself. To do the math, take all of your fixed monthly expenses and divide the total by your gross monthly income. Why is this information important to lenders?
Lenders want to figure out what type of risk they are taking when they are lending you money, your risk factor to the banks is manifested in your interest rate if they approve you for a loan; the higher the rate the more risk the bank assumes it is taking when it is lending you money. Mitigating risk is important for banks, but understanding how you should be managing your finances is critical to you… Here are some general guidelines:
Your DTI should be under 36% when shopping for a mortgage
Your total housing expenses should be less than 29%
FHA & VA loans allow up to 40% when evaluating loans
Paying off your debt is always a good idea. If you’ve found yourself in a position where your debt has started to get out of control look into your options…. Ultimately, you’re looking for the best debt elimination tool that you can find. Eliminating credit card debt should almost always be your top priority. There are lots of services that offer you the ability to resolve your debts effectively.
Debt consolidation services like consumer credit counseling may work for some people, while debt settlement may work best for others. Consumer finance is complicated; there are lots of questions you need to ask. Preferred Financial Services offers a debt settlement service that helps reduce your debt quickly and effectively. Keep all options open and above all keep your eye on the amount of debt you are taking on.
If you’ve ever wondered why finance charges on a credit card accrue so quickly, look no further than your card holder agreement. Credit card companies have come up with a series of elaborate ways to bill finance charges adding to their bottom lines, while taking away from yours. The double billing cycle method is one of six complex ways credit card companies tabulate interest.
Double cycle billing is a method of calculating finance charges based on the average balance owed over the past two billing cycles. Credit card companies use this method of billing to increase revenues billed to card holders that pay off their balances quickly, but has been scrutinized as a result of fees billed on balances that may have been already paid off.
The Math:
Standard interest rate calculation:
Average daily balance * Annual Percentage Rate * Days in Billing Cycle/Days in year
$1,000 * .135 * 25/365 = $9.24
Double Cycle Billing:
Two-cycle average daily balance * Annual Percentage Rate * Days in Billing Cycle/Days in year
$1,500 * .135 * 25/365 = $13.87
The example is based on a cardholder with a $1,000 balance currently due, that held a $1,500 balance but made a $500 payment. In this case the credit card company made an additional 50% in interest for the period even though a third of the balance had already been paid. The disadvantage to consumers is obvious; even if you already paid your bill they are still billing you interest as if you still owe them.
The Impact:
If you follow the math you’ll notice that tabulating interest in this manner puts consumers at a significant disadvantage. The math detailed in the example above speaks for itself, paying interest on money borrowed that is already paid seems intrinsically wrong. That being said the impact on cardholders that carry similar balances on a month to month basis isn’t very significant, the greatest impact is felt by consumers that pay their debts off aggressively. The double cycle bill method looks as if it was designed to get greater interest payments from those consumers looking to eliminate their debt quickly.
Overall this billing scheme puts consumers behind the eight ball when it comes to reducing or eliminating their debts. Credit card companies under this billing structure have an advantage that consumers may not be able to overcome, putting them in a position where they are consistently getting behind with their credit card debts.
Information on ‘Double Cycle Billing’ is available on the Federal Reserve’s website: www.federalreserve.gov, there you’ll find a complete overview of consumer debt trends and an overview of new credit card rules and how they may apply to you. For more help on understanding your creditors or eliminating your credit card debt, feel free to contact Preferred Financial Services.
ANDOVER, Massachusetts, U.S.A. – Preferred Financial Services of Andover, Massachusetts has been accredited by the U.S. Organization for Bankruptcy Alternatives. Lingering economic problems across the U.S. have forced many of our citizens into dire economic straits, and many who have defaulted on their credit card payments are beginning to look towards bankruptcy protection as their only alternative. However, bankruptcy and its lingering effects can affect an individual’s credit record adversely for many years to come. The good news is there are less drastic alternatives including debt consolidation and debt reduction assistance, but choosing an accredited firm to help in these matters is critical.
Debt consolidation is a process where an individual works with a credit counseling firm to reorganize their various unsecured debts (most often credit cards) into a single, lump sum debt with a more favorable interest rate than the high interest rates charged by the card issuers. Note, however, that while this tactic is helpful in reducing the total monthly payments due to a lower interest rate, the total amount of debt is not reduced. This often means that it can take upwards of 20 years to pay off the total debt.
Debt reduction firms such as Preferred Financial Services, on the other hand, reduce the total amount of debt owed to the credit card companies by negotiating settlements with those firms on the client’s behalf. Consumers that have defaulted on their credit card payments who enroll in a program with a reputable and accredited debt reduction firm benefit from negotiated settlements that often result in a reduction of 50% or more of what was originally owed. This effectively cuts the total balance by half or more, significantly reduces monthly debt payments, and helps reduce the time to reconcile the debt by many years.
However, consumers need to be aware that many ‘fly-by-night’ debt reduction firms have popped up on the scene. To avoid getting tied-up with one of these unscrupulous firms, consumers should work only with firms that are accredited by the United States Organizations for Bankruptcy Alternatives (U.S.O.B.A.). Preferred Financial Services (www.PFShelp.com) is one of a small handful of firms that have received this accreditation. To become accredited by this body, each organization is required to pass an annual, on-premises audit conducted by the U.S.O.B.A. Having a U.S.O.B.A. accreditation provides assurance that the firm adheres to the highest industry standards and has compliance with each state’s rules and regulations.
Anyone who has defaulted on their unsecured credit card debt and believes that bankruptcy is the only solution should seriously consider contacting a U.S.O.B. A. accredited firm.
About Preferred Financial Services:
Preferred Financial Services is a debt reduction firm certified by the CFC (Center for Financial Certifications) and accredited by U.S.O.B.A. (United States Organizations for Bankruptcy Alternatives). Headquartered in Andover, Massachusetts, Preferred Financial Services has been a leader in the debt reduction industry since 2003. Preferred Financial Services has some of the most experience in the industry over the past 7 years. In 2009 alone Preferred Financial Services reduced over $16.5 million worth of consumer debt in 2009 for just over $6.4 million, for a savings of about 60% – and over 2,900 accounts were settled on behalf of their clients.
For more information, visit: www.PFShelp.com
Creative New Fees Escape CARD Act Rules, Surprise Consumers
by Tamara E. Holmes
Tuesday, December 29, 2009
New report highlights ways issuers have gotten around new law
While the Credit CARD Act of 2009 puts an end to abusive tactics card issuers have long used to boost their profits, consumers need only to look at their card statements to know there’s no reason to celebrate.
In the past year, card issuers have rolled out or expanded their use of other ways to collect millions more in fees each year, many of which are hidden to consumers, according to the Durham, N.C.-based Center for Responsible Lending’s Dec. 10 report, “Dodging Reform: As Some Credit Card Abuses Are Outlawed, New Ones Proliferate.”
“Credit card issuers are going to more than ever try to find ways to make extra profits,” says Joshua M. Frank, a senior researcher with the Center and author of the report. New charges and changes to the way fees are calculated are adding to the balances of a growing number of cardholders. While some of the practices were instituted after the Credit CARD Act was approved in May, others were quietly being put in place earlier as a result of the recession. The one thing they have in common, says Frank, is that “none of them are explicitly prohibited by the Credit CARD Act.”
Hidden rate changes
Consumers with fixed rate credit cards won’t have to worry about interest rate changes to current balances if they pay on time, under the Credit CARD Act. The vast majority of cardholders, however, carry variable rate cards, in which the interest rate is determined by adding a fixed percentage to the rate of an index such as the prime rate. For them, things get a little murkier.
In the past, issuers would generally use the highest prime rate in a cardholder’s current billing cycle as the starting point for determining a credit card’s rate for the month. However, a number of issuers have amended their terms this year so that they now can select the highest prime rate in the previous 90-day cycle, a move that costs consumers $720 million a year, the Center for Responsible Lending estimates. As a result, the interest rate paid by cardholders may not go down in a given month even if the prime rate goes down. “It’s so hidden and obscure that it can’t be interpreted as anything other than a way to extract money from people in ways they don’t understand,” says Frank.
Variable rate cardholders are also impacted by another pricing strategy, as many issuers have begun setting “floors” — limits to how low a cardholder’s variable rate can go. While the rate will rise with the prime rate, it won’t go any lower than the flooreven if the prime rate goes beneath that point. As of December 2009, the prime rate is at the historically low level of 3.25 percent. But “if you get a card in the future and the prime rate is, say 6 percent, then you wouldn’t get the benefits of a decrease in the rate that would likely occur,” Frank says.
New and expanded fees
Changes to interest rate calculations aren’t the only ways issuers are mounting charges on consumers. A number of fees have become more prevalent this year, according to the center’s study.
• Minimum finance charges can be greater than the amount of interest owed. As a result, if a consumer owes only $0.50 in interest, he may have to pay $2 because that’s the minimum interest fee.
• Card issuers charge late fees that vary according to the card balance, so those who owe the most pay the highest fees. “But right now almost nine out of 10 people are in the top late fee category,” says Frank. Though issuers often tout the lowest late fees, “the average fee that people pay has gotten higher and higher.”
• Cardholders who don’t incur regular charges risk being hit with inactivity fees. This strategy is even applied to cardholders who’ve opted out of a change of terms to the account and can no longer charge new items. Although their inactivity is forced, they may end up paying an additional $36 per year.
• Foreign transaction fees, which cardholders pay when a currency exchange takes place, are nothing new. But this year, more card issuers redefined “foreign” more broadly to include any transaction that at any point touched a foreign bank, even if the exchange took place in U.S. dollars. Likewise, the fee has inched upward with a majority of issuers charging 3 percent in 2009, compared with 2 percent in 2004.
• Card issuers are also cashing in on cardholders’ use of balance transfer offers and cash advances. Not only are the fees for these transactions rising, but many card issuers are implementing minimum charges and removing caps they once had in place to keep the costs from surpassing a certain level. For example, a card issuer may implement a 4 percent transaction fee on cash advances with a $20 minimum. If a cardholder borrows $100, the 4 percent transaction fee would be $4. However, because of the minimum rule, the cardholder would pay an additional $16.
An exercise of choice
Consumers have more control over some charges than others, such as the ability to use a card to avoid an inactivity fee, but they need to keep a close eye on credit card statements. “We are seeing a lot of changes in the agreements so it’s something for people to be really aware of in the next three to six months,” says Sarah Fouquart. Those who don’t understand the changes should ask their issuers about them, Fouquart adds.
While many of the top credit card issuers are embracing these new fees, consumers might also look to smaller regional banks or credit unions to avoid paying some of these additional costs, suggests Frank. “Usually you’ll find that these organizations care more about the relationship with the customer than making a quick profit on one product,” Frank says.
New fees and charges are unlikely to disappear anytime soon, but consumers still have options. “There’s no harm in shopping around a little bit,” says Fouquart.
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Preferred Financial Services is a member of the United States Organization For Bankruptcy Alternatives (USOBA) and accredited through the Center For Financial Certifications (CFC). Preferred Financial Services specializes in reducing credit card debt by over 50% and slashing monthly payments to get consumers out from underneath their debt in 24-36 months.
NEW YORK (AP) — It’s no mistake. This credit card’s interest rate is 79.9 percent.
The bloated APR is how First Premier Bank, a sub-prime credit card issuer, is skirting new regulations intended to curb abusive practices in the industry. It’s a strategy other subprime card issuers could start adopting to get around the new rules.
Typically, the First Premier card comes with a minimum of $256 in fees in the first year for a credit line of $250. Starting in February, however, a new law will cap such fees at 25 percent of a card’s credit line.
In a recent mailing for a pre-approved card, First Premier lowers fees to just that limit — $75 in the first year for a credit line of $300. But the new law doesn’t set a cap on interest rates. Hence the 79.9 APR, up from the previous 9.9 percent.
“It’s the highest on the market. It’s the highest we’ve ever seen,” said Anuj Shahani, an analyst with Synovate, a research firm that tracks credit card mailings.
The terms are eyebrow raising, but First Premier targets people with bad credit who likely can’t get approved for cards elsewhere. It’s a group that tends to lean heavily on credit too, meaning they’ll likely incur the steep financing charges.
So for a $300 balance, a cardholder would pay about $20 a month in interest.
First Premier said the 79.9 APR offer is a test and that it’s too early to tell whether it will be continued, according to an e-mailed statement. To comply with the new law, the bank said it will no longer offer the card that has $256 in first-year fees as of Feb. 21, 2010. However, customers will still be able to use their existing cards. The bank said “no final decisions” have been made regarding any rate changes for those cards.
First Premier noted that it needed to “price our product based on the risk associated with this market.”
The bank declined to specify how many people were offered the 79.9 APR card.
According to First Premier’s Web site, the credit cards are serviced by its sister organization Premier Bankcard. The company, based in Sioux Falls, S.D., says Premier Bankcard is the 10th largest issuer of MasterCard and Visa cards in the country, with more than 3.5 million customers.
In a mailing sent to prospective customers in October with the revamped terms, First Premier writes “…you might have less-than-perfect credit and we’re OK with that.” The letter notes that an online application or phone call is still required, but guarantees a 60-second status confirmation.
The letter also states there are no hidden fees that aren’t disclosed in the attached form. That’s where the 79.9 percent interest rate and $75 annual fee are listed. There’s also $29 penalty if you pay late or go over your $300 credit limit.
Even if First Premier doesn’t stick with the 79.9 APR, it will likely hike rates considerably from the current 9.9 percent to offset the lower fees, said Shahani of Synovate.
The revamped terms may not be the only changes; First Premier also appears to be moving away from the riskiest borrowers.
The bank typically mails offers to sub-prime households, meaning those with credit scores below 700. In the third quarter, however, 84 percent of its offers were sent to subprime households, down from 91 percent the same period last year, according to Synovate.
First Premier could be cleaning up its credit card portfolio since the new regulations will limit its ability to raise interest rates. That could mean First Premier won’t issue cards as liberally to those with bad credit.
As harsh as First Premier’s terms seem, that could be a blow to those who rely on the card, said Odysseas Papadimitriou, CEO of CardHub.com.
“Even when the cost of credit is astronomical, for people in true emergencies, it’s much better than not having access to credit,” said Papadimitriou.
Until Feb. 21, First Premier is still offering its even-higher-fee card online. So the price for credit the bank charges is at least $256 in first-year fees.
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By Candice Choi, AP Personal Finance Writer
Wednesday, Dec 2, 2009
By Jennifer Hewitt – Bills.com
Fitch Ratings reports that though credit card defaults dropped for the month, the number of accounts that were 60 or more days delinquent saw an increase of 19 basis points and came in at 4.41 percent. On the other hand, defaults dropped 66 basis points for the monthto rest at 10.09 percent.
Both delinquencies and defaults are still much higher than levels seen in 2008. Late-stage delinquencies are 31 percent higher than at the same time last year, while defaults are 55 percent above 2008’s levels.
An increase in delinquencies may be an indication that defaults are going to climb in the coming months.
“Credit card delinquencies are on the rise again and cardholder defaults will re-test recent highs as we head into the new year,” Michael Dean, managing director with Fitch Ratings, said.
One of the major factors that may play into an increase in loan defaults is the fact that people are having a hard time finding a job. Recently, the unemployment rate climbed from 9.8 to 10.2 percent from September to December. Many analysts expect that it will remain above 10 percent for much of next year.
