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Financial Conversations with Fitz #52 - Changes in Credit Card Rules - 02/09/2010

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We are enjoying another snow fall.   So far it is just slowly and quietly adding to the pile.   I see a lot of schools changed from two hours late to cancelled since 8:00.  I know the highway 18 was a slippery mess yesterday afternoon from Algona to Forest City about 4:00.  Dow looks to open flat.   Maybe a little higher.    Grains traded a little higher overnight.  Grains are waiting for gov’t  stocks report tomorrow.    Funds holding a lot of contracts could be some selling off this week.

I don’t know if you remember my conversation in about a year ago and again in December about  the expensive way to hold a high balance with your credit card.    There have been major changes in credit cards since a new law goes into effect on Feb 22nd.   They are still going to be quite expensive, but they have to give you more notice.    The majors have changed from a low fixed rate to a higher variable based off the prime rate which is low right now.    It will really jump when the prime starts to raise.  Prime now is 3.25 with an add on of 7-8 points.   American have $900 billion in credit cards debt.   Some of the new rules dropped their earnings by about $12 billion, but it doesn’t take much with the size to make up for the drop.  The key is in the fees.   The companies are adding more fees to make up the changes.  They can change your limit now without warning.   If you owe more than half of your limit they can charge you an extra fee.   If they change it and you go over they can charge you an extra fee for that also.   I don’t know if you remember my discussion on how hard it was for a client to get ahead in his balance.    I had a customer in to visit about their $7,000 Discover card.  Seemed they just couldn’t get ahead with it.   Here is what was happening:  The minimum payment was $181/month.  The interest on the balance was $149  (21.9%).  They had two charges for ID insurance, which we have for our customers at no charge, and one for some form of credit life.  The total for that was about $53.00.  I figured our bill for credit life and disability and it was $8.90.   Not sure what else they had.   With no purchases this month and $181 payment his new balance was $21 higher than last month.  It would never pay off.     They never would have paid off the credit card.  Be sure you read your flyers that come with your statement announcing changes.    We have a TSB card with a fee but it is fixed rate.  
Say, TSB was just approved for a new SBA Express and SBA Patriot this month.   It is a quick way to advance business loans for veterans and small business.

Remember that you should deal with people in community banks and organizations. That when they put something together for you that they will  be sitting with them at ball games, church or community events.  So, if in doubt give us a call.