Nightly Business Report & a Question About Credit Cards

My appearance on Nightly Business Report went well: I took credit card companies to task for their arbitrary rate hikes and challenged the notion that they're good for the bottom line over the long-term, especially if consumer confidence is damaged.

I couldn't embed the video, but click here and scroll to the 22:30 mark to watch my commentary.

In the meantime, my twitfam had questions sparked by the commentary. @futurechefbelle asked, "What do you recommend a student to do as far as credit cards are concerned? Should we wait for the economy to bounce back?"

Answer: Most people should have a card for STRICTLY emergencies or when you absolutely need one. Even some discretionary activities like renting a car or a hotel room or even getting an airline ticket are hard to do without a card.

Keep in mind that credit cards in and of themselves aren't evil, (although @grahamesq tweeted me this gem: "My dad has been preaching to me since I was about 8 that credit cards are 'economic suicide' "). What is evil is the abusive relationship most of us have with our cards, buying things we know we can't afford under terms we know are to our disadvantage using money we borrow from modern day corporate shylocks.

You can, and probably should have a card, but like insurance, it's something you want to have but rarely, if ever need to use.

Jacked up rates: Reason #1 to pay off that credit card

When I decided to challenge you to get rid of all your credit card debt, I had no idea that the banks would hand all of us a built-in motivator. But they have: jacking your interest rates up sky high for no reason.

Months ago, a few stories warned that these kinds of rate hikes were coming but at that time I didn't know anyone it'd happened to. But now? Just this morning, I asked the question on Twitter and within three minutes, three of my followers said that their card issuers had jacked up their rates without warning and with little explanation.

That's not counting the real-life people I know: one whose rate was kicked up 14 percentage points though he's paid on time for four years; another with a FICO score above 800 who got a note saying her rate was climbing to a whopping 37 percent. Yes, 37.

I point all this out to answer the question I got from friend who wanted to know if he should pay off his $1,300 Citibank Visa balance. Though he recently lost his job, he and his wife have significant savings. Should he pay the balance off completely or pay half of it?

In most cases, I'd argue pay just the half: the balance isn't that high and being unemployed, you want to preserve cash. But with banks killing cardholders with rate hikes, keeping any credit card balance that you can otherwise pay off is too risky, especially if you have enough cash on hand to pay it off and still have significant savings left over. Since your wife is still working, cut back on other kinds of discretionary spending and make the single income work for as long as you can while looking for a job, but pay that balance off!

And that goes for the rest of you: this is NO time to be keeping a credit card balance. The banks have shown that their bottom line is the bottom line. They've taken all the bailout money we gave them from our taxes and paid us back by taxing us more via higher interest rates. They ain't playin', nor should you be.

Today on Nightly Business Report

Today I'm taping a commentary for Nightly Business Report, which airs nationally on PBS (click here to find out your local airtime).

I'll let you know when it's scheduled to run, but until then, you can read what I have to say below:

I've got a deal for you: I'll buy you whatever you want, no questions asked. Just pay me back over time, plus a little extra for my trouble.

Make that a lot extra. American consumers are saving a decent percentage of our incomes for the first time in decades but those savings could be overtaken by payments on our consumer debt given the arbitrary interest rate hikes being imposed by our friends, the credit card industry. I say "friends" because taxpayers have given credit card issuers billions in bailout money and I tend not to give money to people I don't like. You'd think they would be decent enough to let us off the hook for some of what we owe them.

Instead, they're slapping around people like the guy who emailed my blog complaining that he hadn't missed a payment in four years but still wound up with a 14 percentage point rate hike on his Visa card.

Not that consumers are innocent; I just finished paying off a $9,000 credit card bill from stuff I bought too long ago to remember. Still card issuers need to consider whether slamming already strapped consumers is really good for business. The economy wont fully recover until consumers are confident enough to spend, which fuels the credit card business. I don't know about you, but having a card in my pocket and an anvil over my head doesn't make me feel all that confident.

I'm Keith Reed.

Uptown magazine publisher talks about getting what you want

I believe in learning from everything, particularly my own mistakes. But when it comes to accomplishing my vision for my own professional and financial life,nothing quite puts my experiences in context like hearing from people you admire or who have done things that you haven't.

So as you head into this weekend, check out this video where my mentor, Sakina Spruell (on twitter) and Uptown Magazine publisher Jocelyn Taylor about being smart and getting what you want. (Note: embed link for this video wasn't working, so to watch, visit www.northstarnews.com. I'll fix later.)

Have a great one and see you next week.

It's Payday!

Not literally, but that's the name of a radio show I taped last week. The host, Zachary Rinkins (on twitter here) is a phenomenal young business journalist who's hustled enough to get his own show on air. We talked for about an hour about how the recession has affected young professionals and young people should be doing to find the best opportunities in a continued downturn. Check it out.

Should I use a student loan refund to pay off my credit card?

Today a credit card debt question from @miss_mielle on twitter:

There are a lot of personnel changes at my job, so I'm getting back in school ASAP. I've been putting it off to pay off some cc debt but it's gonna take a while and I don't want to wait anymore. A friend of mine suggested taking the max on an edu. loan and paying off my debt with the refund checks. It sounds viable, esp. since my debt isn't extravagant(<$7500). What do you think?
I'm on payment plans on both cards, but they will still take a while, and I'm unable to get some things I REALLY need meanwhile

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First, thanks for the question. I'm glad you're committed to paying off you debt and for being proactive about the situation at your job by seeking more education. (MESSAGE: Learn to feel which way the wind is blowing at your job and never wait for a layoff to be looking for new opportunities!)
Still, I have to challenge some things you said. First, I can't tell what your debt-to-income ratio is because I don't know how much you make but I'm not sure I'd say $7500 on credit cards "isn't extravagant". I had about that much last year and I was stressed as all hell trying to pay it off. True, it might not be as much as may others have, but you're not paying their bills, you're paying yours, right? Can you even remember everything you bought with that $7,500? I say all this not to berate you but to get you to rethink you habits after you've paid this debt off.
As far as the debt payment strategy your friend suggested, I think you need to consider a multitude of factors. On the surface it looks like that would be the simplest thing to do: by paying the credit card debt with your student loan, you're basically consolidating all that debt into one payment. But will that payment be less than you'd pay with a separate student loan and credit card payment? What's the interest rate on the loan compared with the rate you're paying on your card (it's almost certain to be lower than the card rate, but still, check).

Also, are you getting a federal student loan or one from a private lender. Private lender loans tend to come with higher rates and tougher repayment terms than ones given or backed by the US Department of Education.

Lastly, whether you take the larger loan or not, how are you going to make the payments if you're not working (or working less) to accommodate school?

Think about all those things before making a decision.

A freeze on credit card rate hikes?

How would you like it if your credit card rates were frozen so that your card issuer couldn't raise them for a few months? Most of you would love it, I'm sure, especially if you're taking the Zero Balance Challenge or if you're like the guy who wrote me last week about his credit card jacking up his rates:

I'm usually good about knowing how much interest I've accrued on a credit card in a given month. So when the balance of a card I've been furiously paying down was about $6 more than I expected, I wondered what was going on. It was too much for it to be simply that an introductory rate had disappeared.
Come to find out my APR had been increased. That one went from 15.40 to 21.74. According to HSBC, which holds the card: "Your interest rate structure is changing because everyone that has your current interest rate structure is being increased to the pricing terms listed below."
I can exercise my right to reject the changes before 12/09/09, but, as of my last statement, they're there.
I have another card that I've now been told had an introductory rate of 9.9, then went up to 16.99 after that intro rate was done. I don't keep a high balance, so I didn't really notice.
Then I put a big purchase on it. I figured what the hell, right?
Yeah, til I got like 35 bucks in interest added to my account. The new APR for that account is 23.74% The lady in India who answered my call -- this is a Chase account -- said I'd been sent a notice in the mail in late June-early July. I never got it as I was in the middle of moving.

Damn. there's a lot that bothers me about this story on both sides: someone who's carrying a balance on his credit cards absolutely needs to pay attention to the notices they get in the mail from the card issuer to avoid missing fine print about rate increases and other new fees and tricks the companies play. I'm also a little astonished that the writer would add a new, major purchase to a card that already had a balance on it with such a cavalier, "what the hell" attitude. That's simply ASKING for it from your credit card company. Whatever you bought, did you really need it that bad that you were willing to make installment payments on it at a high interest rate? So many people talk about going on debt diets when what we really need is debt rehab. Get off the card!
On the other hand, if what the writer is saying is true (and for the record, I haven't called HSBC or Chase for their take), the card issuers don't deserve any slack here, either. Since credit card reform was passed earlier this year, credit card issuers have been using any excuse (and sometimes none at all) to jack up customers' rates, add new fees and in some cases cancel cards altogether before the new law takes effect.
Which brings me back to the proposal in Washington of a moratorium on new rate hikes until credit card reform takes effect next year. The proposal, from Sen. Chris Dodd, isn't supposed to have much chance of passing.

How many of you think it's a good enough idea that you'd be willing to call your own Senator to make your voice heard?

image: freedigitalphotos.net