Monday, November 29, 2010

What You Need to Know about the New Credit Card Laws!

The Credit Card Accountability, Responsibility and Disclosure Act 2009 went into effect February 22, 2010. Basically it improves customer disclosures but doesn’t help with those high interest rates.

What we are seeing now is credit card companies increasing rates on existing customers (they can do this with just a 15-day notice) even if you have never had any lates!

The credit card companies are also lowering your approved limit on cards regardless if you had a great payment record.

When the credit card companies lower your approved limit on your card(s) it lowers your ratio of open debt to available credit, known as the “Revolving Debt ratio”. This can affect 30% of your score so it has an impact if they are eliminating some of your credit line.

Here are some of the “wins” for consumers:
  • Fee Restrictions – Starting on October 22, 2010 unless you give the credit card company permission they can’t charge you “over the limit fees” and if they do, they cannot exceed $25 or, if you are chronically late, $35. (This is a 50-80 billion dollar lose to the banks.)
       They also cannot charge you for making a payment over the
       phone or internet (they can, though, if you want the
       payment expedited).

       Limits fees on “subprime” cards, so always make sure you read
       all the terms and conditions.  (Less than 4% of consumers read
       terms and conditions).
  • Bans Double Cycle Billing – some credit card companies were billing for current and previous balances.
  • Credit Card Companies now has a mandatory 21-day grace period - statements must be sent 21 days before they are due – used to be 14 days.  If you were late you probably paid the high daily interest rates!  This took effect Aug 2009.  So make sure you pay by due date!
  • Gift Card – You gift card won’t expire for 5 years, so if you got one for Christmas or you Birthday and you stuck it in a drawer, it still might be good. Also card issuers cannot charge inactivity fees unless the card has not been used for 12 months.
  • Student Credit Cards – If you are under 21 you will have to provide a co-signer or be able to prove financial independence.  Otherwise, you will be unable to get a credit card.
  • Your Payments will be applied to the balance with the highest interest rate first.
  • You get a 45 day notice of interest rate hikes (used to be 15 days) – Any changes to terms and conditions must give a 45-day notice and if you don’t like the new terms you can “opt out”. Beware if you Opt-Out, they may be able to charge you 2-5%, up your rate to 29% and close your account!
  • Retroactive Rate Increases – you will have to read your cards terms and conditions but basically rates can’t be raised until after the first year of issuance and if offered a promotional rate it’s good for 6 months. I want to add that there are a few exceptions to the rule- so read the fine print.
The bottom line?  Since the banks are losing big bucks with the new guidelines, the average rate on new cards is 14.4% plus higher fees! (Hey they have to make it up somewhere, right?) Watch for them to raise rates in other areas.  And of course the worse your credit score is the higher your rates and fees.

Monday, November 22, 2010

Should I Refinance Now?

Mortgage rates on 30-year, fixed rate loans are hovering near the lowest level on record since 1951. While some home buyers are putting their home purchases on hold hoping rates will go even lower, many industry experts are advising homeowners with rates in the upper 4 percent range to refinance.

  • Homeowners with rates in the upper four percent range are likely to benefit from refinancing, according to Peter Ogilvie, president of First Residential Mortgage Corp. in Santa Cruz, Calif. He says refinancing to a lower rate often produces monthly savings, as long as the borrower can qualify under today’s industry credit guidelines and loan-to-value underwriting standards.
  • Some homeowners also may be good candidates for no-cost refinancing, where the title, escrow, and lender closing charges either are added to the mortgage principal balance or paid for over time with a slightly higher rate. The upsides to this option are reduced monthly payments, improved cash flow, and no outset of dollars at settlement.
  • Borrowers who want to become debt-free faster and can afford it, ought to consider refinancing out of a 30-year term loan into a 15-year term. Fifteen-year mortgages carry lower rates than 30-year loans, but their faster amortization schedules require higher monthly payments.
  • When considering whether refinancing is the best option, consumers are advised to take into account all of the fees associated with the refinance and decide if the money saved is worth the cost of the refinance.

Tuesday, November 2, 2010

The Largest Tax Increase in U.S. History Will Occur in less than 65 Days!

Will the White House and Congress take action between now and December 31, 2010 to prevent the biggest tax increase in US History? That is yet to be seen, but going into the November 2nd Mid-Term election the White House has reaffirmed its position that it will allow the automatic tax increase to occur for the “rich.” There is suggestion that the “rich” are not paying enough. Let’s see who is “rich” and what the “rich” are really paying. Odds are you are one of the “rich.” If you earned above $113,799 (Adjusted Gross Income) in 2008, you were in the top 10% of all income tax earners – you were “rich.” How much did the “rich” pay according to the latest IRS statistics (the 2008 numbers were just released):

  • The top 10% of income tax payers are everyone that has an AGI above $113,799 – you paid 69.9% of all federal income taxes
  • The top 5% of income tax payers are everyone that has an AGI above $159,610 – you paid 58.7% of all federal income taxes
  • The top 1% of income tax payers are everyone that has an AGI above $380,354 – you paid 38% of all federal income taxes
The Tax Increases
The tax increase that will automatically come to pass on January 1, 2011 will hit you at virtually every level:

Increased Income Taxes
  • The 10% bracket rises to an expanded 15%
  • The 25% bracket rises to 28%
  • The 28% bracket rises to 31%
  • The 33% bracket rises to 36%
  • The 35% bracket rises to 39.6%
  • The child tax credit will be cut in half from $1000 to $500 per child.
Increased Capital Gains Taxes
  • The 15% bracket becomes 20%
Increased Dividend Taxes
  • The 15% bracket rises to 39.6%
Increased Estate/Death and Transfer Taxes
  • The death tax goes from 0% to 55% for estates over $1 million
  • The gift tax goes from 35% to 55%
Increased Alternative Minimum Tax
  • Will jump from 4 million taxpayers to over 28 million taxpayers