Credit Card Companies are Certainly Out to get You During This Crisis

By Dr. Boyce Watkins

www.DrBoyceMoney.com

In case you weren’t sure, credit card companies are not out to help you. If you are financially illiterate and uninformed, they are going to exploit you. If you are worried about the financial crisis, they are going to prey on your fear to get money out of you. They are also doing exactly what the rest of us are doing: trying to remain protected in a fragile economy.

The stimulus is stymied. The bailout is a failout. The stock market has consistently given a “thumbs down” to every piece of legislation passed in response to this crisis. Our economy is like the sick man who won’t respond to antibiotics. While the results of the latest package are yet to be seen, the truth is that no one is sure what will work. Every company is out to protect their assets and hold on to their cash, which means they no longer have much interest in loaning money to you.

Yes, this is true even if you have a good credit score, which is the ironic part.

Customers are opening their monthly statements to find that credit card companies have started to either ration credit (give less of it) or raise the interest rate being paid on outstanding debt. This doesn’t even count all the dirty tactics used, like using your payments to pay off low interest debt first, quietly getting rid of the grace period or charging interest on your balance from the prior two months vs. the current one. Even when you’ve been making payments on time for years, banks keep raising the bar to maximize shareholder wealth. When liquidity is scarce, those giving out water demand a higher cost per bottle. Additionally, higher default rates have justified the increase in interest rates, but higher interest rates increase the likelihood of default. It’s a nasty cycle, really.

Lawmakers are trying to intervene. Congressional hearings have taken place. Banks are being scolded by senators who keep telling them that this form of business practice is unethical and that they are gouging the American consumer. All this might be true, but what is also true is that you can’t force banks to loan you money. Also, it is very difficult, if not impossible, to legislate a strong economy.

If you have a less than stellar financial history, there is an even greater opportunity for your credit card company to raise your interest rates. If you have defaulted on other loans or are a slow payer in other areas, then they have no problem telling you to pay up or ship out. The days of easy money are long behind us, and companies are dramatically shifting their business practices.

The bottom line is that THEY’VE GOT YOU. They know that you’ve become addicted to the debt they so readily offered in the past, and this debt has become the lifeblood for the lifestyle to which you’ve chosen to become accustomed. They know that they can charge you a higher interest rate because you can’t do anything about it. Like a drug addict who is angry about paying more for his product, you really don’t have any other choice.

Well, maybe you do.

Here is one solution: tighten your economic belt. That means putting together a financial fitness plan today that consists of getting rid of as much debt as possible. I’ve mentioned in prior articles and on our website that paying off debt can be one of the best investments you make with your money. This is especially true if you have a stable job and are paying a high rate of interest to your credit card company.

So, the Dr. Boyce Challenge for this month is simple: Create a budget which includes the steady elimination of credit card debt. That means you should list every single expense you have for the entire month on one piece of paper or a spreadsheet. Don’t leave anything out. Count the money you want to use for getting your hair done, your nails, paying your mortgage, car note, whatever. Count everything. That will be your first step toward obtaining financial fitness.

As you create the budget, allocate at least 10% of your monthly after tax income toward reducing credit card debt. So, if you earn $3,000 per month after taxes,$300 per month should be allocated toward removing credit card debt, not including interest. So, if you owe $5,000 in credit card debt, you can remove this debt in roughly a year and a half. While $300 may seem like a lot of money to find in your budget, it’s there if you look hard enough. In fact, if you spend $10 per day on lunch and/or coffee, you can find the bulk of the money by taking your lunch to work. Make this one of the first bills you pay, not the last. The last bill is the one that only gets paid half the time. It’s easier to negotiate with creditors if you don’t need them so much. Take small steps toward finding your financial freedom.

Next month, we will move to step 2 of the Dr. Boyce Financial Challenge. While I confess that this change won’t be easy, I can promise that it will be worth it in the end. Be strong and remain focused, this is your opportunity to shine.

Dr Boyce Watkins is a Finance Professor at Syracuse University and author of “Financial Lipo 101: From financial fat to fitness”, to be released in April, 2009. For more information, please visit www.DrBoyceMoney.com.

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Personal Email I want Everyone to See

I wanted to share an email conversation I had today. I get a lot of emails from supporters every day, but this conversation has a message and theme I wanted to share with others. The general theme is that you always have to move forward in life, and optimism always pays off. I've always been amazed at how some people will look at what a child has done before the age of 18 and use that to define what they can do for the rest of their lives. If you really think about it, any 25 year old garbage man who studies 6 hours a day for the next 10 years could be a college professor. What happens is that the mistakes of our past can be a cancer that spreads to our future, keeping us from ever reaching our goals.

For example, I had a friend who was 28 and always complained about how he'd wasted his life. He felt that if he'd only gone to college, he'd have a better job and be in a better position. I told him that he should drop everything and go to school. He didn't. Instead, he chose to continue complaining and doing nothing.

5 years later, he was 33. Still complaining. I told him that if he had started going to school when he first brought the issue to me at the age of 28, he'd have a masters degree by now. I told him that he should pick up his sh*t and get moving down his educational path. He did nothing. He chose to keep complaining.

5 years later, my friend was 38. His life had not changed since he was 28. I told him that if he had started going to school at 28, he would have a bachelors degree, a masters, and either a PhD, JD, or MD degree by now. But instead, he was 38 years old, working on the same job that he had at 28. His depression over wasting the past had become a cancer that caused him to waste his future.

My friend is now 46 years old. Nothing has changed. He still complains. He still argues about how he is just as smart as his friends who went to college, and how he should be in a better place. I agree with him, he is every bit as smart as my students at Syracuse University. The difference is that they are in school and he is not.

Don't let your past be a cancer to your future. You made some mistakes, get over it and get crackin. Life is too short for BS.

My email conversation with the young man is below. I hope this helps someone.




I am a 26yr old african american male and I am a very BIG fan of yours of just recently being exposed to you.
I read up on your blog about music and the responsibility that Lil Wayne has that he isnt taking. I totally agree with you and I believe that he should use his voice and star power to ignite the intellect of our youth. Tupac did it, he made you think and was not afraid to speak out about the social injustice in America. I'm no scholar, nor GED grad for that matter...but I know what is right & whats wrong. My lack of proper schooling if you will, allows so many to look down on me and at the same time I am answering questions that even they do not know. My motivation for self-education is not in money, but to survive in this messed up economy. I know the streets, and I know the ins and outs of formal business. The thing now a day is that no one wants to do what they have to do to make it, and embarrassingly enough...I was (am) one of those people. I wonder what type of difference would be made if I obtained a GED? The satisfaction of personal achievement would suffice to some extent, but would that be enough to survive? I was presented with obstacles in my youth that allowed me to lose focus of my goals, another "broken home" story.

I would like to acknowledge you as a positive light that gives me hope of what a GED could do for me.. So many times in the past I sulked and moaned about what I didnt have, and not what I do have. I made excuses, but I know that I have it in me.. Thank you for succeeding where I have not, and for that I applaud you. My diligence is of importance when it comes to exceeding expectations, and in my own right I believe that I have managed pretty well with the circumstances that was given. Thank you, for representing for Brothers without the voices.

You are the man, but then again.....you already know that.



Here is my response



Thanks for the kind words brother. Here are my thoughts:

1) Yes, I am the man, and so are you. You are no different from me, we just have differences in some of our choices and our ages. If you work hard every single day, you can be right where I am when you are 37 like me.

2) Yes, the GED is critical....get that damn thing no matter what it takes. Then, go to college or community college, then get a masters, and then get a law degree, MD or PhD. I promise - if you study 4 - 5 hours a day, 6 or 7 days a week, you can be a damn neurosurgeon. Don't let where you are determine where you can go, it's just a matter of picking up the damn book and reading it.

3) Never be negative. Never look down. Never look back. You are a young man and how you spend the next 50 years is up to you. It would be a waste to allow the first few years of your young life to determine all the rest of the years you still have left. You are early in the game brother, study hard, every single day, like your life depended on it. That's what I do.

Good luck man, nice to meet you.

B

Dr. Boyce Thought of the Day: What it means to be educated

I recently gave a speech at Stanford University for the Black Student Union. We were going to talk about educational empowerment and “black people stuff”. The Stanford University campus possesses, as expected, some of the more brilliant minds in America. It also has its share of stuffiness and elitism, as many such campuses do. I have personally been a believer that education is what you make of it. A person at a community college who studies for 10 hours a day is, in my opinion, far more capable than a student at Harvard who studies for 4 hours a day. The key to your greatness lies inside your heart, not in the walls of the institution you attend.