Banking and CC questions

[KellyC]

I have two separate issues with my banks.

1) Bank of America right now is charging its customers 10 dollars a month for a "monthly service fee" for anyone who has under 750 dollars in their account. This is obviously another scheme to milk poor people's money because there's no way people like me, college student doing work study that pays peanuts, can have a balance over 750 dollars all the time in my account. I talked to the customer rep. over the phone and he said there's nothing he can do about it. I'd like a second opinion before I close my account with this Bank. The only hesitation I have about closing my account with this bank is it's very convenient to do banking with BOA. They have ATMs every where so I don't have to worry about 2-4, some times 5 dollar service fee for using other banks' ATMs or those I see in convenient stores.


2) I only have ONE credit card in my entire adult life. It comes as a pre-approved card with a credit line of 7,500. At first I've been able to pay off my balance when I was in CA working full time. But ever since I came back to WA I've been stupid. As I continue to make payments on the card, they continue to expand my credit line, it's now up to 15,000. Not knowing this was a trick I kept on spending and spending and has accumulated over 6,000 dollars on that one card (a portion of that goes to tuition). I've still been able to make at least minimum payment every month but the damn thing doesn't seem to go down. My dad had the same card as I do, same interest rate of 10.9%, and got it at the same time. His interest rate has gone down since I last checked. Mine, however, remains the same since the day I got it. 10.9% interest rate on a 6,000 debt is a lot to handle for me at this moment. I talked to the customer service rep. about lowering the interest rate down but they told me the same thing every time: "We don't do requests. We review our customers' account every year and will award them with lower interest rate accordingly" or something like that. I'm tired of that line and I don't believe it any more. There's gotta be something I can do about it.

The issuer is BECU, a supposedly "nonprofit" credit union. But here they are employing the same tricks as the commercial banks so I'm having some serious doubts about them. I'm also contemplating about closing my account with this bank as well once I paid off all my debt.

And can any one recommend to me a good bank that won't screw me over? Pleasseeee?

[Martian]

Regarding the credit card, the reps are likely telling the truth. Your dad presumably has a much stronger credit rating than you do, so his interest rate went down.

Minimum payments are often as low as 1% of the balance. You're paying $650 in interest per year, and if your minimum payment is 1% of the balance each month you're paying a grand total of $720, meaning that of your minimum payments a meager $70 per year (around $6 per month) is going to the actual balance. If you don't start making bigger payments, you'll be carrying that balance for the rest of your life.

Although you don't have any control over the interest rate, you can request your credit limit be reduced, and that will usually be honoured. It's up to you -- if you think you have the self-control to avoid building that balance up further, having the additional credit available won't hurt you that much, but if you're uncomfortable with it usually a quick phone call can get it down. Be aware that there may be an administrative fee associated with this.

I have no idea what your spending habits are like, but you may want to cut back on non-essentials in order to start putting more towards the card. Cut down on nights out at the bar, start cooking your own meals if you can, and so on.

Banking fees like the one you described are SOP in Canada. Aside from maintaining the required minimum balance, I can't really tell you how to avoid it.

[GreyWolf]

Unfortunately, I'm not terribly familiar with American banking regulations or banks, so I can't help with your OP question. What follows is a bit of generic advice.

In Canada, a chartered bank, MUST, by law, offer an account which has no fee associated with holding the money. It may charge you a modest fee for withdrawals, but there may not be a fee for having the account, nor any minimum amount. They pay no interest. They do not advertise those accounts, and will only offer them to you if you specifically ask about them. There may be similar accounts with US banks, I honestly don't know.

As for your credit card debt... once you have found a bank you want to deal with, see if you can borrow the money from them to pay off the credit card. It will likely have a lower interest rate (but probably a higher monthly payment). If you have someone to co-sign the loan, you may get an even lower interest rate.

When I did financial counseling, I always gave a half-hour talk on the appropriate use of a credit card. They are deadly, and you should learn to use them only for emergencies. Among other things, if you are going to use them, you should only do so if you actually already have the money in your pocket at that time (if you want to buy a $50 shirt, you must have the $50 in your wallet when you buy the shirt with the credit card). Never spend the same money twice. The talk went into a lot more detail, but there was one thing I soon learned. People who were concerned about their credit card usage seldom got into nearly as much trouble as those who didn't worry about them. It sounds like you at least understand the risks.

[Xerxys]

Bank of America huh? Go in and ask them about a campus Edge checking account. Bank of America are so damn convenient, their online banking is to die for! Their amenities are just FANTASTIC ... but their goddamned services?? SHIT MAN!!

[wooÐs]

Walkalloverya {Wachovia} I've had no issues with them since I opened my account 6 years ago.
Or you can also try a community bank. More perks with them just by smilin purty.

[Craven Morehead]

You almost can never pay off credit card debt by paying the minimum due. Seriously, this is a much bigger issue for you than the $10/month checking account service fee. Do not use your credit card until you pay down the balance. CC companies are raising all rates now in advance of sweeping regulation changes that will take place in 2010. Your rate will most likely increase. IF you think 10.9% is difficult now, you may get a terrible surprise shortly. I just saw a news report about an unemployed person who had made every payment but Chase raised his rate to 24.99% No one in their right mind would ever take out a loan at those rates. But people do without knowing by getting in over their heads with credit cards. Good luck.

[KellyC]

Originally Posted by Martian

Minimum payments are often as low as 1% of the balance. You're paying $650 in interest per year, and if your minimum payment is 1% of the balance each month you're paying a grand total of $720, meaning that of your minimum payments a meager $70 per year (around $6 per month) is going to the actual balance. If you don't start making bigger payments, you'll be carrying that balance for the rest of your life.

Ok, I definitely did not know about this.

Originally Posted by Craven Morehead

You almost can never pay off credit card debt by paying the minimum due. Seriously, this is a much bigger issue for you than the $10/month checking account service fee. Do not use your credit card until you pay down the balance. CC companies are raising all rates now in advance of sweeping regulation changes that will take place in 2010. Your rate will most likely increase. IF you think 10.9% is difficult now, you may get a terrible surprise shortly. I just saw a news report about an unemployed person who had made every payment but Chase raised his rate to 24.99% No one in their right mind would ever take out a loan at those rates. But people do without knowing by getting in over their heads with credit cards. Good luck.

According to the infos above....I'm so screwed

I'm fine with not using my CC, I can just use my debit card, which is what I've been doing. But for those pesky online purchases, like books from Amazon, the CC offers some protection should someone got a hold of my ID. Can debit cards do that?

And my friend says if I close my credit card then I will lose my credit history? Is that true?

And is there anything wrong with Wellsfargo? I'm thinking about joining that bank since it's close to my house. I have no idea where Wachovia is in my area. *off to Google it*

[Martian]

You can't lose your credit history. What will happen if you close your line of credit is that it will show up as such on your report, and if you have nothing else contributing you won't continue to build your rating. Building your rating in your early twenties is important so that you can get that mortgage or whatever in your late twenties or early thirties.

Negative things will only appear on your credit history for seven years, but there's no such limit on items that impact your score positively that I'm aware of. On the other hand, if you do try for a loan or line of credit and you don't have any recent activity that could make things more difficult for you.

You can still shop online, just make sure you have the cash available when you do it. If you're going to spend $80 on a textbook, have the $80 first. Then you can use the card to buy the book and pay off the book on the card.

You don't have to wait until you receive your statement to make payments on your card, either. Buy the book, head over to your bank's website and pay the book off. I would imagine that you can set up your credit card as a biller on the BoA website so that you can do the whole thing in a few clicks.

Rules For Credit Cards:

Only use it in emergencies, always try to have the cash on hand. Make payments well before the due date, and pay more than the minimum. And never, ever take cash advances. The rates on those are often over 20%, especially on an introductory card like the one I assume you have.

[Craven Morehead]

BTW, if you can find free checking in your area, by all means do it. Google free checking and see what pops up. I just did and received several responses but I have no idea what banks are close to you. Then take that extra $10 each month and increase your credit card payment by that amount, at least.

[ShaniFaye]

Im with BofA, we get around the service charge because my paycheck is direct deposited into my account every month

[Glory's Sun]

while BofA is convenient, check out credit unions... they usually offer much better service as well as lower fees if any at all.

In regards to the cc, don't close it. Make the minimum until you can afford to make more payments and keep the line open. With you only having one line of credit to your name, closing the account will make it more difficult for you in terms of credit purchases such as cars or houses. One CC isn't terribly difficult to manage if you can control the spending and maintain on time payments. It never hurts to try calling the company again and asking for a lower rate. Sometimes it helps to mention that there is another company that is offering you a much lower rate and you are thinking about transferring your balance to that company because of the lower rate. They may be more inclined to offer you a lower rate because of it.

Also, just because you have maintained good payments and such, doesn't mean your rate can't go UP. A lot of companies such as Capital One and Citi Card raised rates on cards for everyone due to "hardships in the economy". For instance, I had a Capital One card with a moderate limit that had never had one missed payment, and I had paid at least double the minimum payments every month. They took me from 7% to 28% due to the "hardships in the economy". I wasn't the only one, many people had massive rate hikes. Make sure you read the TOA and if it doesn't say fixed for life, find a card that offers you a great fixed rate for life and consider moving the balance over to that company.

[Baraka_Guru]

Contact the credit card people and ask them to freeze your limit increases. I would do that before asking them to reduce the limit. Reducing your limit can reflect badly, albeit temporarily, on your credit score.

[yournamehere]

At your current balance, interest rate, and minimum payment, your balance will still be around $4,300 after thirty years - by which time you will have paid them approximately $22, 800 to lower your balance by a measly $1,700. That's assuming you never use the card again. At $60/month, only $5.50 is going toward the principal. It will take you 91 years to pay off a $6,000 balance at $5.50/month. All the rest is interest.

Even if you double your payment and pay them 2% ($120) each month, it will take you 24 years and 5 months to pay off the balance, by which time you will have paid them $10,800. You really need to start making $300-$400 payments each month if you want to pay off that card before you have grandchildren.

I would cut up the card with a pair of scissors, and use every spare dollar available to pay down the balance every month. And I mean every spare dollar. Whenever you get a bit of money (tax return, sell something, etc.) use it to pay off that card. Remember that every dollar you give them this month will save you twenty in the long run.

Fucking banks - this is how they repay taxpayers for the $750B blowjob we gave them.
(Not that they haven't been doing it for years before that, though . . .)

[KellyC]

Oh god, this is all very depressing to learn. If I had know about this I wouldn't have spent so much. Ok, a few more questions.

Regarding all those agencies/organizations that offer to help you lower your CC debt, do they work? I hear nightmare stories about them. But with all this new info, I'm starting to really worry. Should I contact one? If so, which is a good one?

Guccilvr, my CC issuer is Boeing Employee Credit Union (BECU), the largest "nonprofit" credit union in WA and they're fucking me up the ass. (P.S. I already called to freeze my limit).

I'm trying to save up so I can study in Japan in the upcoming Spring quarter but looks like it's not gonna be possible anymore.

[Craven Morehead]

Originally Posted by KellyC

Oh god, this is all very depressing to learn. If I had know about this I wouldn't have spent so much. Ok, a few more questions.

Regarding all those agencies/organizations that offer to help you lower your CC debt, do they work? I hear nightmare stories about them. But with all this new info, I'm starting to really worry. Should I contact one? If so, which is a good one?

Guccilvr, my CC issuer is Boeing Employee Credit Union (BECU), the largest "nonprofit" credit union in WA and they're fucking me up the ass. (P.S. I already called to freeze my limit).

I'm trying to save up so I can study in Japan in the upcoming Spring quarter but looks like it's not gonna be possible anymore.

You SHOULD have known about this. Look carefully at your credit card statements. See how little your balance is reduced each month after paying only the minimum payment. Do the math, take the monthly balance reduction and determine how long it will take to pay off your loan at that rate.

One reason credit card interest rates are so high is that this is unsecured debt. Meaning there is no collateral to back it up if the customer defaults on payment. If you default, this is a complete loss to the CC company, unlike a car loan or a mortgage. Most consumers do not read their account terms when they sign up for a credit card. Read yours now, it will scare the shit out of you. Not to stick up for CC companies though, once they have a someone on the hook, they'll increase the credit limit. Just like drug dealers giving away free samples to get users hooked, they make it easy to get credit. And easier to continue getting it. Then you're hooked on it and it takes a long, long time to get out from under it.

Be careful of your credit rating. Once it gets impaired it will effect you for years. You may not be able to get a loan, or if you do it will certainly be at a higher rate than consumers with a good rating.

good luck

[Plan9]

Originally Posted by Martian

Only use it in emergencies, always try to have the cash on hand.

As an aside, there is nothing wrong with floating everything on your credit card if you actually have the cash available to pay for it 100% of the time. This is how I've been living for the last 5+ years. My credit rating is fantastic, I've never paid a dime to any credit card company service or through interest, and I get cash back rewards. The credit card company is actually giving me money for my activity. Overall, I'm using them instead of them using me.

...

My philosophy has been to never use a credit card for credit purposes. Pretend it's a debit card and it'll serve you well.

[Glory's Sun]

Originally Posted by KellyC

Oh god, this is all very depressing to learn. If I had know about this I wouldn't have spent so much. Ok, a few more questions.

Regarding all those agencies/organizations that offer to help you lower your CC debt, do they work? I hear nightmare stories about them. But with all this new info, I'm starting to really worry. Should I contact one? If so, which is a good one?

Guccilvr, my CC issuer is Boeing Employee Credit Union (BECU), the largest "nonprofit" credit union in WA and they're fucking me up the ass. (P.S. I already called to freeze my limit).

I'm trying to save up so I can study in Japan in the upcoming Spring quarter but looks like it's not gonna be possible anymore.

My credit union suggestion was geared towards the banking side of things, not the credit side. I've never dealt with a union on the credit side, but have only good things to say about their regular banking services. Of course, every credit union is different so a little research would need to be done.

If you are managing your minimum payments at the very least, DO NOT, I repeat DO NOT call a debt management solution company. That will negatively affect your credit ratings and you will be seen as non-trustworthy in the eyes of most lenders. IMO debt management solution companies are the last step before bankruptcy. On top of that, you have to wade through a ton of BS companies before you find one that actually does what it says and won't ping you like crazy.

You have 1 CC. It has a high limit and purchases on it right now, but just sacrifice some things for now and at least maintain the minimum balance. It's not ideal, but it will help you out in the long run to maintain that balance until you find a better solution in terms of paying more or transferring the balance to a better card. Find your TOA and read it about 10 times and find out what it really says. TOA's can be tricky.. you'll just need to set aside some time and really dig into it.

The more you know..

[Martian]

Originally Posted by Plan9

As an aside, there is nothing wrong with floating everything on your credit card if you actually have the cash available to pay for it 100% of the time. This is how I've been living for the last 5+ years. My credit rating is fantastic, I've never paid a dime to any credit card company service or through interest, and I get cash back rewards. The credit card company is actually giving me money for my activity. Overall, I'm using them instead of them using me.

...

My philosophy has been to never use a credit card for credit purposes. Pretend it's a debit card and it'll serve you well.

This is a good strategy if you're organized enough to do so. Mags and I have one credit card between us, and most of our retail-type purchases are made on it. Same deal -- we don't spend money we don't have, so we don't pay interest. In selecting the card we chose the one with a higher APR and no annual fee because we knew that unless we encountered a dire financial emergency there'd be no reason for us to pay interest.

Back to the OP.

This is not something you need to get in a panic about, and you don't need credit counseling as long as you're making the payments on time. What you do need is a plan.

Sit down and look at your budget (you do have a budget, right?) for any additional expenses. Find the stuff that's non-essential. If you're a smoker, now's a good time to quit. If you go out with the lads every Saturday, cut that down to once a month. Find the wiggle room and move some of that money over to the card.

If you have no wiggle room, you might have to consider alternative solutions. A bank loan will typically carry a lower APR, and if you make your payments on time you will pay it off over the term of the loan. Alternatively, you can ask your parents if they can float you some money until you're done college. Even if it isn't $6000, if you pay down part of the balance and then continue to make your $60 per month payment, you'll start seeing the balance decrease.

If none of the above are options for you, you might just have to resign yourself to maintaining the debt until college is over and you have more disposable income.

No matter what you do, you're going to have to make some sacrifices. Such is the nature of life. Let This Be A Lesson To You.

[Glory's Sun]

with only one open line of credit and I'm assuming no real credit history, it's doubtful that a bank will give a consolidation loan which is what this would file under.

I would take martians advice and just chill out, cut some things out and push a little extra to the card. You'd be surprised how much even an extra $10/month can help.

[Latenter]

Like Plan9 and Martian have said, the credit line itself is not evil, and can be great if you pay it off completely every single month, and don't ever spend money you don't already have. Don't cancel the line either, a fairly significant part of your credit score comes from the average age of open account - closing your oldest (or only) account really hurts. I have an old credit card I never use (doesn't give me points) except to buy lunch or something once every few months just to keep the account open just for that reason.

You can create and track your budget pretty easily with a spreadsheet, but I highly recommend Mint.com. It will automatically pull in the latest activity on each of your accounts, show you spending trends and warnings, cash vs debt, etc. Once you have a few months of history there it's pretty easy to predict how much your cashflow/expenses are and where you can save. It's free and very highly rated by third parties. Just make sure you keep on top of it.

[KellyC]

Yeah, I've been cutting back a lot lately. I do an hour of commuting on bus every day to school instead of renting with my friends like last year. Saves me sooooooo much money. I'm working on cutting down on going out but it's not so easy...but I'm trying! Thanks for all the awesome advice so far.

Per the Mint.com suggestion, I actually signed up a while ago but they're asking me for my bank account number and such, and me being (overly) cautious about online security closed my account with them. Is privacy guaranteed? Their service is all free so I'm having a hard time believing there's no catch.

[Latenter]

I'd be concerned about Mint.com too except that's it's pretty high profile, not some guy who set up his own site in his basement. Here's their security/privacy page, and they're TRUSTe and VeriSign certified. Not that you should ever not be cautious.

Mint makes its money by getting commissions on recommending financial products that will save you money, ie, bank X has a savings account with higher interest, Mint refers you, and the bank pays Mint $35 or something. I and several people I know have been using it a long time, but it's up to you whether you want to try it or if you think it'll help.

[yournamehere]

I've given you the depressing side of your situation; I might as well give you the optimistic side, too.

First of all, you've only got one credit card with a balance. A lot of people have a half-dozen or so, so don't feel like all is lost!

Secondly, your interest rate is not that bad for a credit card. I've heard of CC interest rates in the 30% range.

And finally, you're still in school. Take this as a good lesson learned early, pay what you can until you've started your career, and pay it off ASAP once you're making some real money. If you're wise, once you pay off the card, you'll keep making the same payment to an IRA or 401K plan. Let compound interest work for you, instead of against you!

Remember the Rule of 72 - compound interest will double your money every X years, where X=72/interest rate. For instance, at 5% interest, your money will double every 72/5 or 14.4 years. That $300 you put in your IRA every month will double 3 times in 43.2 years, giving you a monthly retirement income of $2400. And that's only at 5%. Most 401Ks make a lot more than that (despite the last two years) And an employer-matched 401K, if you're lucky enough to get one, will double it at the beginning again, giving you $4,800 at retirement for that $300 you put in.

I wish someone would have sat me down and taught me that when I was your age.

Compound Interest is some pretty powerful stuff - that's why the banks like to use it against you.

[KellyC]

I suppose you are right. 'tis a (painful) lesson to learn, but better now than later.

Thank you all for the advice.

[Halanna]

Originally Posted by KellyC

And can any one recommend to me a good bank that won't screw me over? Pleasseeee?

I would like to, but almost all banks are the same.

It used to be that you could call your bank/credit card issuer/loan provider and negotiate (possibly) better terms, lower rates and things that may make your life easier.

Because of the credit/credit card reforms all lenders are rushing to find ways to squeeze fees and anything else they can from you.

A guide to the reforms and new laws can be found here: A comprehensive guide to the Credit CARD Act of 2009

It's not good, helpful or even YAY! - most of the damage has already been done.

For now it's too little too late. 10 years from now it will be helpful.