After graduating college several years ago I opened my first credit card and fell in love. When the shiny plastic came in the mail, I read over the terms and conditions and quickly realized that almost none of it would apply to me: interest rate hikes, the grace period, cash advance fees and rules, minimum payments, etc.

And fortunately I knew myself well; in the last four years I have paid a total of $39 in finance charges—because of accidentally shutting down a bank account with an automatic payment to my credit card linked to it, and believe me I tried to fight it—and have reaped over $1,000 in gift cards as well as three free flights.  In other words, my relationship with my credit card companies has been totally to my advantage because I choose to use the cards solely to gain credit card rewards.

Fortunately I have not found myself in financial situations where I start charging more to my credit cards, nor do I have a shopping habit that has caused me to run up my limit. With all of the rules and tit-for-tat that goes on between credit card companies and consumers, if I had slipped up even once, I might have been headed down a long road of interest charges, fees, and rate hikes.

And now, with the recent passing of the Credit Card Accountability, Responsibility, and Disclosure Act that is due to come into effect on February 22, 2010, consumers who find themselves in bad financial situations will have more protection against lawyer-level language and conditions that lead to confusion, poor decisions in terms of how to get out of debt, and more money lost to interest payments.

Here are some highlights of the new legislation, and how this will protect you, the Consumer:

Protection against Random Interest Rate Hikes

Many of us, even if we were on-time with payments, received letters in the mail that our interest rates would increase within the last year.  While it is still within the power of credit card companies to make these increases, cardholders now have ways to opt-out before they are affected.

• Cardholders must be given a 45 day notice
• Credit card companies are now prohibited from making an interest rate increase retroactive on an existing balance
• Cardholders now have the right to cancel their card and have 5 years to pay off the existing balance at the old interest rate if they decide to cancel

Cardholders Can Set Their Own Limits

In the last year alone, I was given three increased limits on my credit cards without my permission. Sure, I now have more money to spend if I desire, but it made me feel unsettled because I was never asked before this decision was made. This new act of legislation fixes this problem.

• Credit Card Companies must now offer consumers the option of setting their own fixed credit limit that cannot be extended

Limits on Fees

• Prohibits double cycle billing (which allowed interest charges on two full cycles of card balances)
• Prohibits charging more than 3 over-the-limit fees
• Prohibits charging interest on credit card transaction fees
• Limits fee that can be charged for method of payment (such as over the phone, by mail, etc.)

Restrictions on Fraud-like Practices Centered Around Due Dates

• Cardholders must be mailed their billing statements at a minimum 21 days before they are due (currently the minimum is 14 days)
• Payments made before 5:00 p.m. EST on the due date are no longer considered late
• Due date must fall on the same date each month

Helps you Pay off Debt Faster

• Requires card payments to be applied to the debt with the highest interest rate first (after minimum payment)

While I am sure that credit card companies will find loopholes around some of these new laws, as well as think up innovative ways to charge fees, I think this list is a great start in helping to protect consumers who may have gotten themselves into a bad situation, but who should not continue to be penalized for it while they are trying to pay down their debts.

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This week the popular Chase Freedom credit card is offering another great reason to become a cardholder: a $50 sign-up bonus. It’s our Free Money Friday offer this week!

How to Get Your Sign Up Bonus

1. Register for the Chase Freedom card. Keep in mind that only first-time card members with new accounts are eligible for the sign-up bonus.
2. Use your card. This can mean making a purchase, making a balance transfer or checks that are used to access your account but it does not include cash advances.
3. 6-8 weeks after you first use your card, you will receive bonus points worth $50. You can then redeem them for a check.

Chase Terms and Conditions

• 0% Intro APR – The length of your introductory period will be either 12 billing cycles from account opening for purchases or 6 billing cycles from account opening for purchases.
• Quarterly Cash Back Bonus – You will be eligible for quarterly bonus rewards offers as long as your account is in good standing and your statements are sent to a US address.

Perks

Zero Liability Protection. For US-issued cards, Chase reimburses users for any unauthorized card transactions made at stores, ATMs, on the phone or online when reported promptly.

Cash Back. The Chase Freedom card offers 1% cash back on all purchases as well as the opportunity to earn 3% cash back in rotating categories on a quarterly basis. If you time some of your purchases right, this can be a great addition to a cash back strategy. Also, you can earn additional points/cash through a travel booking system that Chase has. And, there is no maximum number of rebates that you can accumulate in the program.

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I love cash back credit cards. If you pay in full every month, it’s a great reward. I’ve been shopping credit cards lately, and found the Schwab Bank Invest First card is a very appealing cash back card. It offers 2% cash back on everything. It’s our Free Money Friday deal of the week!

Update: Schwab won’t be taking applications for this credit card after March 2010. You can still open an account using this Schwab link.

Update September 2011: We just received a letter that our Schwab card is being replaced by a Bank of America card. It looks like the end of the Schwab card is near. We plan to switch most of our purchases to the American Express 6% Cash Back Credit Card.

How to Get Your 2% Cash Back

1. Open a new Schwab Bank Invest First card and a Schwab One Brokerage Account.
2. Once approved for both accounts, link them together. You can call or go online to link them.
3. Cash back will be credited to your brokerage account monthly.
4. Invest the proceeds, or access your cash back by check or debit card.

Credit Card Details

• No annual fee.
• 2% cash back on everything, with no cap.
• Card is issued by FIA, which is part of Bank of America.

Brokerage Account Details

Brokerage Minimum. When you open the Schwab credit card (or a high yield investor checking), there is no minimum on the brokerage account. Otherwise the minimum is $1,000.

Fees. There are no monthly fees for the brokerage account.

Accessing Cash. According to Schwab, you can “Access your money easily with fee-free checking, a Visa check card, online bill pay and fund transfers.” I plan to move my money directly to our checking account with Schwab, which is our primary checking account.

Action Plan

Even though we have an old 2% cash back credit card that deposits into our 529 plan, I’m planning to apply for this card. It’s always good to have a back up with the rapidly changing credit card environment.

In addition, it’ll be a nice way to transfer money since we already have our checking account at Schwab, and a portion of my Roth IRA since they announced the lower expense ratios.

Here are even more cash back credit cards for you to check out.

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The Senate passed the new Credit Cardholders’ Bill of Rights Act of 2009 yesterday. After the new credit card bill is worked out with the house, and the President signs it, the changes take effect in one year.

Credit Card Bill of Rights

Here is a summary of the changes included in the new credit card bill:

• Bills can be paid online or over the phone without incurring a processing fee.
• Customers must be over 60 days late on payments before their interest rate can be raised on balances; if the rate is raised, it will go back to the lower rate if customers make the minimum payment on time for six months in a row.
• Overlimit fees can’t be charged unless cardholders are told that the purchase will put them over their limit and they authorize it to go through anyway.
• If your card has more than one interest rate on balances, then payments must be applied to the highest interest rate first.
• Gift cards can’t expire for five years, and issuers can’t charge dormancy fees for unused amounts left on the card.
• Credit card statements must be mailed out 21 days before they’re due.
• Individuals under 21 will need a co-signer on their cards unless they can prove that they have the means to make payments on their own.
• Credit card agreements will have to be posted on the internet.

There is a lot of speculation about what this will do to rewards cards, and other credit card perks. I think we’ll have to wait and see!

In the meantime, you can read the full text of H.R. 627: Credit Cardholders’ Bill of Rights Act of 2009.

Source: Consumer Reports

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American Express is offering $100 – $250 gift cards for new cardholders.

The Starwood Preferred Guest® Credit Card from American Express from American Express is the featured Free Money Friday offer this week!

How to Get Your Gift Card

1. Open a new Starwood Preferred Guest® Credit Card from American Express.
2. Earn 10,000 Starpoints with your first purchase within one year.
3. Earn an additional 15,000 Starpoints if you spend $15,000 in 6 months.
4. Bonus points will be credited to your account 8-12 weeks after your first purchase and after you meet the spending threshold.
5. Redeem 9,500 points for a $100 Amazon gift card; 23,500 points for a $250 Amazon gift card (see below for more options).

Tips and Tricks

Gift Card Choices. While I’m a big fan of Amazon, and it’s always my first choice, there are many other redemption options. You can choose free hotel stays, frequent flier tickets, and various gift cards.

Earning Starpoints. In addition to the bonus Starpoints, you earn one Starpoint for each dollar spent on your guest card.

Annual Fee Waived. The card does have an annual fee of $45. However, with this offer the fee is waived the first year.

For more information on the card, check out the Starwood Preferred Guest® Credit Card from American Express information page.

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With our newly planned venture into real estate investing, I had to make sure Scott’s credit reports and scores were ready for lenders to see.

I remembered an old service I used about a year ago from American Express, called CreditSecure, where you can get your free credit reports and scores. Free Money Friday, here we come!

How to Get Your Free Credit Reports and Scores

1. Log into your American Express credit card account online.
2. Make the following selections from within your account:
• Personal Cards
• Additional Products & Services
• CreditSecure
3. Enroll in the 30 day trial to get immediate access to your scores and reports.

CreditSecure Service

The 30 day review is for first time users. As long as you cancel within 30 days, your credit reports and scores will be free. I used my free trial over a year ago, so it won’t let me do another one, but if you haven’t used yours yet, it’s a good service.

After the 30 days, they offer unlimited access, at $11.99 per month, which was actually a pretty cheap way to get daily access. If you want to have the unlimited access immediately, you can cancel and reenroll if you don’t want to wait the 30 days.

American Express CreditSecure Details

Credit Reports. You get access to all 3 credit bureau reports.

Credit Scores. The scores are “PLUS” scores, which were close to our
FICO scores.

CreditSecure. The program that obtains your reports is run by an Experian company.

Credit Monitoring. The service also provided email alerts for changes that were posted to our credit reports.

How to Cancel

After the 30 day trial, they will bill your American Express credit card. To cancel the service, call 1-866-617-1893.

American Express Cards

To be a member, you just need to use your American Express card to enroll. If you don’t have one, here are some reader favorites:

• Blue Cash Everyday® Card from American Express
• TrueEarnings® Card from Costco and American Express
• American Express® Premier Rewards Gold Card

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Finding creative and inspirational ways to help you repay your debt can keep you motivated and moving the the right direction.

One of the sad things I found when helping my brother-in-law get out of debt, was that he couldn’t even remember where he spent most of the money. Without knowing where the money went, it’s hard to make the connection to your daily life and your debt.

Emotional Debt Payoff

In How to Pay off Credit Card Debt, we discussed some common methods to pay off debt, including paying the highest interest first or the smallest balance first.

Here’s a different approach, one that helps you make the emotional connection to your debt.

1. Itemize. Go through your debt to find out exactly what you purchased.
2. List Amounts. Make a list of each item with the amount.
3. Rank Your List. The first item should be the one that bothers you the most. Now that you know you’re paying 15% interest to sit on your new living room couch each day, how does it make you feel? If it’s lousy, pay it off first. Or if you have $100 worth of charges from dining out, and it kills you to know you’re in debt for food that is gone, make that first on your list.

   Here’s an example of what your list might look like:

• Dining out: $100
• Lawn Mower: $200
• Furniture: $900
• Kids Toys: $50
• Clothes: $600
• Interest and Late Charges: $250
4. Print Your List. Hang it where you will see it often.
5. Pay It Off by Item. Here’s where we skip the traditional payment methods and get creative. Attack the debt with the biggest emotional impact first (the item ranked first on your list).
6. Brainstorm Strategies. Find ways to pay off each category faster. For example, don’t allow yourself to purchase any more kids toys until you’ve paid off the ones on your debt list first. Or put a freeze on dining out until you’ve paid off that category. Could you sell the lawnmower on craigslist and buy a cheaper one to get the job done? The more connections you make between your debt and daily activities, the more you’ll succeed.
7. Celebrate. As you pay off each item, you’ll be able to celebrate the victories, both in terms of money and emotional attachment.
8. Follow Up. Mark a date on your calendar three months out. Compare how far you’ve come, and rerank your list if necessary.

My Story

I actually used this strategy when I took money out of savings to cover my last maternity leave. I wanted to build back up the savings, but just looking at a $10,000 number wasn’t very motivating.

When I put it into the perspective of purchases, I was able to work much harder to build back up our savings. You can see how the strategy would work for either replenishing a savings account or paying down debt.

Emotional Attachment

While we can all say that it’s purely math and money, the truth is that debt takes an emotional toll on your life; especially now, when many people are feeling the effects of the current economy. The more emotional baggage you can shed, the better. By dividing your debt into individual purchases and paying off the debt that disturbs you the most, you’ll be happier.

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UPDATE: This offer has expired but check out the $250 bonus offer on the American Express Premier Rewards Gold Card.

It’s Friday! So let’s get right to our Free Money offer for the week!

American Express is offering a $100 gift card for using the American Express Gold Card.

How to Get Your Gift Card

1. Open a new American Express Gold Card and enroll in the Membership Rewards program.
2. Spend $500 in 3 months to get 10,000 Membership Rewards bonus points.
3. The bonus points will be credited to your account 6-8 weeks after your first purchase.
4. Redeem points for a $100 Gift Card.

Tips and Tricks

Gift Card Choices. I took a look at all the gift cards available. There are too many to list, but they had lots of hotels, restaurants, shopping, and various other choices. We have a new Ruth’s Chris Steak House, so I think that’s what we’d redeem it for!

Annual Fee Waived. The card does have an annual fee of $125 (plus $35 for additional cards). However, with this offer the fee is waived the first year for the basic card and for up to five additional cards.

For more information on the card, check out the American Express Gold Card information page.

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I recently got an email from a reader, Brenda. She’s worried about her family members who found themselves under a mountain of credit card debt.

Originally they were able to keep them current and had good credit ratings. Unfortunately, when the husband lost his job last summer, they fell behind on the credit cards and the penalties are piling up. Now they are considering bankruptcy. Brenda wants to help, but doesn’t know how.

Meet My Brother-in-Law

I thought this would be a great time to share with you the story of my brother-in-law. He was in a similar situation, racking up credit card debt.

When he found himself without a job, he stopped paying on the cards. Collection agencies, phone calls, sky high penalties and interest made it almost impossible for him to recover, even when he found a new job.

Back in 2004, he called me for some help. After a very open and frank discussion about how we would need to handle this, he gave me power of attorney and access to all his accounts.

Getting Out of Debt

Once I took over, here’s what I did:

• Get organized. The first step was to try and figure out how much he even owed and to whom. He gave me a box of papers and unopened mail, and I pieced together his financial world for the first time.
• Make a list. I listed every credit card and debt, the amount owed, if it was past due (or in collections), and the interest rate.
• Figure out a budget. I put my brother-in-law on a strict budget, giving him only enough money each week to keep food in his stomach. Until we could get things under control, there wasn’t any money for entertainment or frivolous spending. It was rather harsh, but it was temporary. The rest of his incoming money was earmarked for getting the debts under control.
• Keep paying on current cards. Any card or loan which was current, keep it that way. It’s one less account that will have a negative history on your credit report. If all the cards are current, you can use How to Pay off Credit Card Debt as a resource.
• Call on past due accounts. For the accounts that hadn’t gone into collections, but were a month or two late, I called to find out how much it would take to bring the account current and paid it immediately, if he had enough money. If he didn’t have enough I asked how many days we had before it would be turned over to collections.
• Forget about bankruptcy. He wanted to declare bankruptcy, and even saw a lawyer. I told him that wasn’t going to happen, so forget about it. The long term repercussions from declaring bankruptcy would be much more harmful; in addition, it wouldn’t have taught him anything about the responsibility for his actions.

Dealing with Collections

Once an account went into collections, it seemed I was playing a whole new game. Here’s how I handled that part.

• Do your research. I spent a lot of time doing research at the Credit Boards forum, specifically the beginner index (you need to register to access the index). The transcripts are a little difficult to follow, but there is a “Cliff notes” for each transcript that helped summarize the information. Since I hadn’t ever been in a similar situation myself, I needed all the help I could get.
• Calculate Actual Charges. For each debt that was in collections, I calculated the actual charges versus the interest, late fees, and over-limit fees. He felt that he was responsible for paying what he actually bought. What I found was that many times the actual purchase was less than half the total debt. It was sad to see that a $900 purchase could turn into a debt over $2,000 in just a few months.
• Save Up. Each month I took all his leftover money after paying the current accounts and put it into a savings account at ING Direct. Once I had saved enough to cover the actual charges, I called the company and offered to pay that amount in full that day to settle the account. Every single time, they were more than willing to accept it. One by one, we settled each account.
• Wait it Out. It takes time. A lot of time. It took time to build up the debt, and it takes time to repay it. At the end of the year, when I turned his accounts back over to him, we’d made a huge dent, but he still had a long way to go.

Taxes and Retirement

Taxes. Taxes are a big part of settling debts because the forgiven debt is considered taxable income. It’s something a lot of people don’t realize when they settle accounts.

Retirement. I felt is was very important that my brother-in-law not only pay off his debts, but begin saving for his retirement. At the same time that he was aggressively paying off the debt, I enrolled him in the government TSP program and opened a Roth IRA.

The contributions to the retirement accounts allowed him to lower his tax bill substantially, because he was able to qualify for the the saver’s credit.

Next Steps

I’ll be back later with Gettin’ Out of Debt: Part II in my brother-in-law’s gettin’ out of debt story!

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With credit card companies cracking down on unused accounts, it’s a good time to review our credit card accounts. We’ve gotten a few letters lately of closed accounts, from Chase and Citibank, for unused cards.

Usually, I’m pretty diligent about using each card once per year, but I guess I got a little lazy! Sometimes it’s hard when the card has a low limit, the 0% balance transfer offer is used, and there is no cash rewards program. Those cards just fall to the bottom of my priority list.

Current Credit Cards

After the closures, and opening up some other great new cards last year, we have 93 open credit lines right now; up 4 from the 89 accounts we had a year ago.

I’m pretty diligent about using our oldest cards (those 10-15 years old) to make sure those never get canceled.

The four that were canceled had relatively low credit limits as the result of reallocating credit limits, and were opened in the last 3-5 years; I don’t expect much of an impact on our credit score from the closures.

However, if the trend continues, a lot of closed accounts could impact our credit… I’ll be working hard in the next couple weeks to make charges on our inactive cards.

Keeping Credit Cards Active

I pulled out my old spreadsheet to plan my attack. When I’m trying to make sure to use our cards once per year, here’s how I manage it:

1. Make a list of all your cards (easy to do if you have a list in MS Money.)
2. Find all the cards you haven’t used in the last 11 months.
3. Rank the list of unused cards. I give a higher ranking to the oldest cards and those with high credit limits.
4. If you are into credit card arbitrage, double check that you aren’t using a 0% balance transfer on those cards, just to make absolutely sure you wouldn’t accidentally hurt one of the balance transfers with a purchase.
5. Pull all the cards, and put a sticky note on each one with the rank, rubber band them and put them in your purse or wallet.
6. Next time you need to make a small purchase, use the one with the highest rank.
7. After using it, put the card back in storage. I only regularly carry my preferred cash back credit cards.
8. Put a note on your bill pay list that you’ll have to pay that bill.
9. Monitor your credit report and score with Free FICO Scores & Credit Reports.

Of course, it’s not really that scientific if you only have a few cards. But if you have a lot like I do, you want to be able to get through them quickly, without sacrificing much of your cash back opportunities. In addition, if it’s not realistic to get through them all, at least you are using the most important cards, those that affect your credit score the most, first.

What’s your strategy to remind yourself to use old credit cards once per year?

More Canceled Credit Cards

• Credit Card Closed My Account
• Another Credit Card Account Canceled
• More Inactive Credit Cards Being Closed
• Why Are My Credit Cards Being Canceled?

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