For those of you shopping around for a new stock broker, there’s some good news I’d like to share. Not only are the investment markets performing better lately, but there have also been some attractive promotions that a handful of our favorite online stock brokers have decided to offer to new account holders. Here’s a quick list of ongoing offers and promotions I’m familiar with. Some of them are only available for a limited time, so you may want to check them out before they expire.

Online Stock Trading Promotions From Top Brokers

1. TradeKing is offering a $50 cash bonus for anyone who opens an account between now and November 30. This ongoing promo will only be good till the end of this month. To be eligible for the bonus, you’ll have to fund your account with $2,500 and make your first trade. After meeting these requirements, you’ll get the money deposited into your account.

Other benefits of using TradeKing include:

• Flat, very low cost stock trading fees of $4.95 a trade.
• Transfer fees are reimbursed up to $150.
• Referral program that gives you $50 for each new customer you refer (to TradeKing).
• Award winning broker for top customer service, trading tools and social media features.

2. OptionsHouse is giving away 100 commission free trades for all new accounts that are opened between now and December 31. Ordinarily, this broker’s stock trades are at $2.95 a transaction, one of the cheapest rates you’ll find in the industry. Also, you can receive a reimbursement that’s worth up to a $100 if you switch your broker account to OptionsHouse (although you may have to inquire whether this rebate can be used in conjunction with their ongoing free trades promotion).

Aside from the very low trading commissions, OptionsHouse has also been acknowledged as a top broker by Barron’s, in their 2009 Online Broker Survey. The recognition that this brokerage house received was for “Trading Experience”. They’ve also got a virtual trading environment for those who are interested in learning how to trade and invest in the stock market without having to risk any money in the process.

3. E*Trade also offers up to 100 commission-free trades for new investors who open new Power E*Trade or IRA accounts. You’re required to deposit at least $1,000 to be eligible for the free trades. It works as follows: for each trade you make within 30 days of account open, you’ll initially be charged a $9.99 commission fee. But within 8 weeks of qualifying for the free trades, you’ll be credited back the charges you’ve paid, minus options contract fees.

Pricing for E*Trade is on the higher side, ranging from $7.99 to $12.99 per trade based on the number of trades you make per quarter. But you’ll get what you pay for since ETrade has been recognized as the best discount broker by Smart Money for three years in a row, and has also scored very well in other broker surveys. Their tools, mobile trading platform, trading environment and investment resources give them the extra edge over their competition.

What’s great about Zecco is that they give you free stock trades on an ongoing basis. As a permanent feature of being a Zecco customer, you can qualify for 10 free stock trades each month if you keep at least $25,000 in your investment account OR if you trade frequently (and make at least 25 trades per month). If you don’t qualify for the free trades, the regular cost at Zecco is a cheap $4.50 per trade.

Zecco also has a few features you are not likely to find in many other online stock brokers. Here are a few extras they offer beyond the standard trading tools and features:

• An online community of investors and traders who readily share information.
• A virtual trading environment called Zecco Zimulator where you can trade without risking your funds.
• A Forex trading platform.

There are some other notable online brokers out there, but if you’re looking for some good reasons to sway your decision about joining a particular brokerage, then hopefully some of these broker promotions and features may provide you with just the motivation you need.

Online Stock Trading Promotions From Top Brokers

I’ve discussed how to avoid foreclosure and how to avoid bankruptcy in the past, but in some cases, things don’t work out too well, and there are people who end up becoming casualties of the real estate bust, credit crisis and weak job market.

Lots of people have been forced into homelessness due to a variety of reasons. Many cases of homelessness are because of mistakes and choices people make in their lives. There are those who fall into substance abuse and become stuck in this kind of existence. But there are other cases — particularly in recent years — that are not from bad choices. In some situations, it may be due to poor planning.

But this is not the entire story because there are those who fall into homelessness even with reasonable planning. Sometimes, even when you think you’re sufficiently ready for any kind of emergency, the sky does fall on you and you find yourself reeling from an unrecoverable financial predicament. Bad health can do it. Extended job loss can do it as well. Sheer bad luck and misfortune can just be in the cards for a while.

I used to think that with enough savings and preparation, nothing is insurmountable. Well, I’m halfway through my life now and I’ve seen enough to think otherwise. Sometimes, it’s about crossing your fingers too, and hoping that you never have to face a financial tsunami in your lifetime.

On that note, I’d like to share this CNN video that I found quite surprising in many ways. It’s about “tunnel dwellers” in Las Vegas; not everything is what it seems…

Steve Dommer and his girlfriend, Kathryn, live in the depths below the Vegas Strip. They created an elaborate 400-square-foot space, complete with a living room, bedroom, kitchen and workshop to fix bicycles. Everything is elevated off the floor with wooden pallets or milk crates because of potential flooding.

The guy in the video does not look homeless, yet he is. He’s coping, somehow. I guess this is the type of story that reminds us that homelessness can befall anyone, and why public awareness of programs like Help USA is important.

Personal Finance Articles

• Credit Karma Blog: Annoyed By Ridiculous Overdraft Fees?
• Free Money Finance: Ten Ways to Make Your Boss Love You
• Bargaineering: Will Your Recession Changes Stick?
• One Mint: What is an ETF?
• Plugged In Finance: On No/Low Cost DRIPs
• Gen X Finance: The Good, The Bad, And Ugly of Annuities
• Lazy Man and Money: Amazon Friday Sale: L.A. Clippers For the Win Edition
• Gather Little By Little: Are you preparing for the worst?
• Budgets Are Sexy: Try Working On Finances When You’re In The Mood
• Sun’s Financial Diary: October 2009 Score Card — Part I: Net Worth
• Brip Blap: How Working Overseas Helps Your Career
• Financial Samurai: Never Call In Sick On Friday, Slacker!
• Million Dollar Journey: Why Canadians Don’t Redeem Coupons

Recent Carnivals

• Carnival of Personal Finance
• Carnival of Debt Reduction

How One Homeless Person Lives: Coping With Homelessness

Here’s a reminder to those of you who’ve been contemplating on getting your finances in order. Ramit Sethi, the blogger and New York best selling author behind “I Will Teach You To Be Rich” is offering a personal finance boot camp — or interactive online course, if you will — that will run from November 9 through December 20. It will cover all topics from debt and credit management, to budgeting, saving, investing and entrepreneurship, and promises to help you get yourself financially organized.

I’ve written about this boot camp in detail here, so if you’re thinking of registering, this is the final day to get signed up. The regular cost is $199, but I am offering a $50 rebate if you complete the course and register through this link. To those who’ve already signed up, this offer extends to you as well.

Personal Finance Boot Camp: Last Call To Register

Investing simply means putting your money to good use with the expectation that you’ll receive a return or reward for doing so.

A lot of us don’t have much money to spare. Sometimes you may find yourself with an extra $100; maybe someone finally paid you back for a long-forgotten debt (it’s happened to me!) or your mom sent you over a cash gift for your birthday. Or chances are, it’s just an extra $100 rattling around in your bank account that could find better use somewhere else.

A few days ago, I published a guest post on where to invest extra cash and savings. Well that post inspired me to reflect on how I’d personally make use of a little extra money.

Got $100? Best Ways To Invest Small Amounts of Money

1. Set up an automatic investment program.
I started an automatic investment program at a discount broker around a couple of decades ago. If my memory serves me right, I committed to placing $50 a month in a few mutual funds that represented diversified asset classes. I figured that I could afford to spare at least $50 a month on building a portfolio, and I found the process of choosing funds, deciding my allocation and finally starting an investment program pretty fulfilling.

While I’m not totally sure how much I’ve put into my investments through the years, I do know that my net worth has grown over a hundred times since I started investing. A lot of this I’d attribute to just “automated investing and saving”. This is something you can definitely do yourself by contacting online brokers, mutual fund companies and banks, and then setting up such programs at these institutions. If you’re not so sure how to go about doing this, you can take a look at this “automation boot camp”, which I’ll cover more in my next point.

2. Invest in yourself.
Here’s one more way I’d gladly spend $100: on myself. Of course, our opinions of “how to spend on oneself” can all vary greatly. You may think of investing in yourself as spending to improve your health, your looks or your well being, which are all quite important to maintain your happiness and health. But what I mean here is that I would use $100 to invest in my “money generating” potential. For instance, investing in one’s education or in trying to improve your finances through this kind of financial boot camp would be money well spent.

3. Invest in a small business.
While I started an online business pretty much by accident, I realize now that if I had actually planned to become an entrepreneur, I would have looked into which businesses had the smallest outlay while promising to yield some reasonable returns down the road. Interestingly, there are still great ideas out there that you can pursue for a mere $100. Here’s a tip: online business ideas are notoriously cheap to start.

For instance, you can try to make money blogging. The stories of many bloggers (including my own) are testaments to how this can be done. I actually spent $0 when I first started blogging. It’s been several years now and my hobby has evolved into an online business: I got a few domains, hunted for the best web host and invested in a web design. The rest is sweat equity. The good news is that it took me 1.5 years to take the leap and quit my day job, and I’ve been blogging full time now for another 1.5 years. That’s 3 years as an accidental online entrepreneur and it’s been a fun and rewarding ride.

In addition, this change also spurred a lifestyle change for me which improved my health tremendously. All these results for less than $100!

4. Pay down your bad debt.
If you are carrying any amount of bad debt — whether it be credit card debt or other installment loans, you should funnel any extra money you have towards these obligations. Paying down debt which charges you X% in interest is like “earning” X% interest on that money you apply to the debt. If you carry a credit card balance, tossing $100 at it is always a fantastic idea.

These are some of my favorite $100 investment ideas. I’d love to find out how you’d spend, use or invest $100. If you’ve got some great ideas on where you’d invest small amounts of money, please feel free to share!

Best Ways To Invest Small Amounts of Money

Should I get a personal loan? At any given point in time, that’s what a whole lot of us are pondering. Taking on consumer debt has become one hard habit (or vice) to break.

One of the most eye-opening profiles on consumer debt that I’ve seen was one from the New York Times, where they presented a whole bunch of articles and multimedia elements to answer the question: how the heck did America get in the current financial mess it’s in right now? How did we fall into such a deep debt hole?

9 Decades of Consumer Debt: How Our Debt Problems Got Out Of Control

There’s a lot we can discuss about in this series (aptly called The Debt Trap) but I wanted to focus a bit on the interactive feature that gives us a look at consumer debt throughout the years (nicely illustrated by Amy Schoenfeld and Matthew Bloch). The graphic is entitled “The American Way Of Debt” and shows the average household debt and annual savings in today’s dollars, throughout nine decades (1920 – present). It’s pretty incredible to see just how much our love affair with personal loans, 0% APR credit cards and mortgages has caused our household debt to balloon to unprecedented levels (click on the image to enlarge it):

Image from the NY Times

This pic shows the history of our consumer debt (in blue) and our savings (in orange). There are a few notable aspects here, such as how the annual savings rate during our current decade is the lowest it’s ever been — rivaling only the savings rate during the depression years (1920s – 1930s). Then during wartime years in the 1940s, there seemed to be a peak in savings, with American households saving up to $12,800 a year (wow); this situation was credited to wartime restrictions on credit, but by the end of this period, people went back to borrowing more and saving less.

Over time, we see how various debt instruments and products are introduced to the general population. Adjustable rate mortgages pop up in the 70’s, along with Sallie Mae, the largest lender for student debt. The 70’s was also the time when credit card debt began to pick up traction.

Then in the 80’s, we see how debt shifts to mortgages, and this seems to be the turning point for mortgage-backed securities — when lenders began to transfer some of the risk they were bearing onto investors. And things get progressively worse (debt-wise) all the way to the present time, where we now face these sobering facts:

In the 2000s, debts soar with rising home prices, historically low rates and increased access to credit. Only a quarter of households have no debts.

• Mortgages: Home ownership rises to nearly 70%. 31% of homeowners have no mortgage debt.
• Installment Debt: Two thirds of college students have student loan debt, up from half in the 1990s.
• Credit Card Debt: 40% of households carry a credit card balance, up from 6% in 1970. The average household carries 13 cards.

I believe that our collective household finances have never been worse than in recent years: savings have pretty much evaporated with families saving an average of $300 to $400 a year, while dealing with a debt load that’s as immense as ever. The graph shows that all types of debt are up — from credit card debt and installment loans to home equity loans and mortgages. The average debt load has blown past $100,000 and that’s where we are today. The scary thing is that this happens to be the state of consumer debt and savings today, which is only one aspect of the big picture. If you take a bird’s eye view of our nation’s financial situation — the economy as a whole, how our business and government sectors have been operating, the budget deficit — the future seems far from uplifting.

So when are we going to get our act together?

If you’re in debt, here are a few thoughts on how to manage your financial situation:

• How To Pay Off Credit Card Debt
• Get Rid Of Your Debt With These Debt Defying Strategies
• Debt Elimination Tips: How To Reduce Debt With These Dos and Don’ts
• How To Lower Your Credit Card Interest Rates

How Our Consumer Debt Problems Got Out of Control

Did you love the book “I Will Teach You To Be Rich”? Even if you haven’t had a chance to read it, I’m hoping that you’ll find this post helpful.

This is a time sensitive post and you’ll know why in a second. You may have noticed the new prominent banner I have on my sidebar, advertising the first of its kind personal finance boot camp. This interesting online course is courtesy of Ramit Sethi, the top financial blogger behind the blog, I Will Teach You To Be Rich.com.

Well here’s what this is about. I’m one of several bloggers who’s helping Ramit get the word out on an interactive online personal finance course which will be offered from November 9 through December 20. You can consider it to be the natural offshoot of his New York best selling book “I Will Teach You To Be Rich”, where he covers a lot of ground on key topics such as banking, saving, budgeting, investing and earning more. Here are some particulars about the boot camp:

I Will Teach You To Be Rich Boot Camp Details

Who: Ramit Sethi will be hosting and will be guiding you to take action on your finances. He will be answering your questions over the course of the event.
What: 6-week online boot camp to help people take ACTION and manage their money. Includes coursework on credit cards, debt, automating money, picking the right accounts, investments, and day-to-day money questions.
Guest speakers: Also includes guest speakers who are tops in their respective fields (online marketing, entrepreneurship, financial services, job coaching). They’ll be speaking about entrepreneurship, earning more, finding a mentor, landing your dream job, etc.
Cost: $199 $149 only after $50 rebate
No Risk: There’s a 30 day money back guarantee associated with this program, no questions asked.

For those interested, you can only register between now and Saturday, November 7 at 12 AM PST. Also, attendance is limited and may close prior to Friday once the boot camp fills up.

Why I Think This Boot Camp Rocks

Ramit is a highly visible blogger and writer in the personal finance space. He’s highly regarded in the financial blogosphere and has written a New York Times best selling book on finance (you can check it out here). He’s a pretty energetic and passionate guy who’d like to see you achieve results. I actually find his energy (and conviction) contagious: you can see him in action in this video, where he dishes out some financial tips on how to get paid what you’re worth:

As for the boot camp, here’s one simple reason for attending it: maybe it’s not enough that we simply read about what to do through blogs, books and newsletters. If you’d like to give your finances higher priority, then why not take action and start making things happen? You can do this in the context of a guided process in a peer setting, where you’ll be in the company of some strong financial advocates.

I think that the $199 cost of the program will pay for itself many times over when you realize that by its end, you’ll have applied certain tips and put financial plans in action (finally) that you wouldn’t have done otherwise. Remember that time is money, so the sooner you implement your financial plans and take control of your money, the better off you’ll be.

Personal Finance Boot Camp Agenda and Schedule

As far as what you can expect from the boot camp, let me try to list them here. Here is the course schedule:

And if you’re curious about how a sample week will run, here is a course outline for Week 1, where you’ll be focusing on how to optimize the use of your credit cards:

• Homework Assignment: Make a list of credit cards, balances, interest rates. (This will be collected and checked off by IWT assistants.)
• Group and Forum Discussion Topics with Support Materials: Six Commandments of Credit Cards, Common Mistakes to Avoid, Credit Card Tips, Card Negotiation Scripts
• Ramit’s Tuesday Live Cast: Ramit talks about big wins with your credit cards, how to find the best deals and takes member’s questions.
• Live Guest Speaker Thursday: Andy Jolls from VideoCreditScore.com talks about easy ways to improve your credit score and answers member’s questions.
• Check Lists: Find out your credit score and check your credit report, set up your credit cards, make sure you’re handling your card effectively, develop a debt plan.

As you can see, it’s a pretty comprehensive course and so there is one thing that this boot camp will require of you: a time commitment. Since it will be running for 6 weeks, with each week dedicated to a given financial topic, you’ll need to set aside some time to tackle this. The estimated amount of time you’ll need to get the most out of this program? Around 5 to 10 hours per week.

Final Words

A lot of us have been harping about the fact that “personal finance is not being taught in high schooI”. Well if we missed the boat on finance during our school days, then perhaps a crash course may help spur us on the right track or may serve as a reality check to help validate the financial moves we’ve been making. I really think that this boot camp is pretty valuable. It’s something that I wish had been available to me when I was in my 20’s; while there’s no substitute for experience, I do think that something like this would have helped expedite my learning and would have confirmed whether I was on the right track. If I had this kind of opportunity back then, I believe that I could have avoided some missteps that ended up costing me big in my earlier years.

Not only do I expect this boot camp to be inspiring as you work with others who can serve as mentors, but it’s also a program that promises you results — if you do the work involved. It’s one that will make you accountable, which will work especially well in a group setting. There won’t be any excuses this time, right?

I Will Teach You To Be Rich Boot Camp: Improve Your Financial IQ

Have you got some extra cash you’ve squirreled away, waiting to be put to good use? If you’ve got your debt paid down and your emergency fund taken care of, and you’re fortunate enough to have additional disposable income or a windfall to work with, then here are a few ideas about where to put that cash.

Savings account rates are not exactly where we want them right now. Even the best online savings accounts these days are yielding relatively lower returns; Bankrate surveys show that the best cd rates aren’t too exciting, with the average yield for a three-month CD lingering at 0.86 percent. There is an understandable fear to invest in stocks and the mattress is no longer an acceptable option (has it ever been?). How can one obtain some decent returns in this close to zero prime rate environment?

Image from ColoradoEnergyNews.com

Where To Invest Extra Cash and Savings Today

1. Invest In A Checking Account

Recently, I discovered quite by accident, a regional high yield checking account (also known as a rewards checking account) that was returning up to 4.25% APY if certain qualifications are met. For example, the bank asks that you:

• Have no more than $25,000 in the account to earn that interest rate (.95% will be paid on any amount above that limit).
• Make a minimum of 10 debit card purchases per month. ATM withdrawals do not count.
• Sign in to your online account at least once a month.
• Manage your account electronically. The bank won’t be sending out paper statements with everything done electronically.

The great aspects of this offer are that it requires no minimum balance, and offers a free ATM and debit card, FDIC insurance, $500 overdraft privilege and free online banking. If you don’t comply with the requirements, your APY drops precipitously to 0.10 %. For more details, check out CheckingFinder.com.

2. Consider The Stock Market Carefully

If you don’t feel comfortable about opening a free high yield checking account in a distant bank, there are still other options. You could look into investing in the stock market in a prudent fashion. If you haven’t done so already, consider index funds.

For instance, popular personal finance guru, Suze Orman, recommends a couple of great index funds: the Vanguard Total Stock Market ETF (VTI) or its mutual fund cousin, Vanguard Total Stock Market Index Fund (VTSMX). These highly diversified funds can represent the core of any long term investor’s portfolio. Of course, invest only what you don’t need for an emergency and be prepared to wait (patiently) for solid returns on your investments.

3. Increase Your 401K Contributions

How to become a millionaire? You can become one over time, by increasing the savings in your 401K. If you increase your savings rate by just a couple more percentage points, you may achieve your savings goals and grow your nest egg much more quickly. Check out the lessons from this CNN Money article:

Say you’re 30, make $70,000 a year and contribute 10% of your pay, which grows 3% annually. If your 401(k) investments earn 7% a year, you’d have about $1.4 million by 65. Not bad. But if you increased your savings rate by just two percentage points, to 12%, you could have a nest egg of $1.7 million. Boost it to 15% and you’d have more than $2.1 million.

4. Cash In On The Wind

Image from TreeHugger

If you’re willing to “gamble” just a little, and you’re comfortable about putting your money into a more concentrated stock play, then consider investing in the future based on the trends. In particular, you may have heard President Obama placing great emphasis and federal money on three areas: health, education and energy. So what about betting on “Obama” stocks? As this article suggests: His plan to spend $150 billion over 10 years on alternative energy bodes well for funds like PowerShares WilderHill Clean Energy Portfolio (symbol PBW) and Market Vectors Global Alternative Energy (GEX). Again, this money must be set aside for a minimum of 5 years, unless these companies tank all of a sudden due to mismanagement. Just don’t forget about them completely; make sure you keep track of how your investments are doing. Also, if you go this route, don’t rely on these funds to pay for your short or near term financial goals, though if luck is on your side, these investments may very well pay for your kids’ college education.

Break (Out) the Piggy Bank

Having money sitting in a very low yielding account in your local bank is a total waste. If you are under 40, it’s downright “criminal”, since you can afford to take some risks. If you are over 50, some of these options are still very attractive and very safe. So smash your piggy banks and start making some much needed capital!

Where To Invest Extra Cash and Savings Today

If you’re a borrower who’s looking to get a personal loan that’s potentially cheaper than at banks or loan companies, or if you’re an investor who’s interested in a new way to invest in short term instruments, you may be interested to know that there’s a particular service that allows both borrowers and investors to help each other out via a special network, called a peer to peer lending network.

The idea is to match borrowers and lenders/investors without the need for a “middleman”. We’ve covered this type of service in a lot of past articles, such as in this Lending Club review. But I’d like to mention another well known company in this space that is offering some cash bonuses for its members: Prosper has a few ongoing promotions right now.

There are three ways to earn cash bonuses with Prosper:

1. Prosper.com: $50 Cash Bonus To Open A New Account

While you can open an account with Prosper as a borrower or lender, only lenders (or investors) qualify for the $50 sign up bonus. All it takes is that you sign up for a Prosper lending account and fulfill two bids on Prosper loans, after which they’ll deposit $50 in your account. Here’s are some basic requirements to get you going:

• Provide your driver’s license.
• Provide your bank account information.
• You have to reside in one of these states: California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Maine, Minnesota, Missouri, Montana, Nevada, New Hampshire, New York, Oregon, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin and Wyoming

At this time, investing in peer to peer lending is only available in certain states as it is a regulated investment activity and requires scrutiny by the state government before it’s permitted. In due time, it is expected that residents from all the states will eventually be able to participate in this form of investing.

Historically, returns through Prosper have been attractive, where you may earn from 7% (for lower risk loans) to 13% (for higher risk portfolios) annually. Note of course that there are risks associated with all investments, including this one, so do your due diligence before participating in the network.

2. Earn a Cash Rebate Based On Your Investment Amount

As a lender you can also earn a cash rebate between October 12, 2009 and November 15, 2009. You’ll need to successfully bid on loan listings that result in funded loans. Once you’ve made your investments in these loans, you’ll receive the following rebates based on the amount you invest:

• Investing $1,000 to $4,999 will get you a 1% cash rebate deposited into your account.
• Investing $5,000 or more will get you a 2% cash rebate deposited into your account.

These deposits will take place by December 4, 2009.

3. Earn a $100 Referral Fee

There’s also a “refer a friend” program wherein you can receive a cash bonus of $100 for any new borrower you refer to Prosper. Any Prosper member, whether you’re a borrower or lender, can participate in this program.

For more information on the topic of peer to peer lending and other companies involved in this space, here are a few articles for your perusal:

• $25 Lending Club Sign Up Bonus
• Lending Club Return On Investment
• Personal Loan Interest Rates from Lending Club

Prosper.com: $50 Bonus For A New Account

This gave me the giggles, especially since this dance style seems so utterly familiar (I know too many people who move this way…. ). The music used in the video was playing non-stop at my kids’ school yesterday, where I spent a lot of the afternoon, attending their Halloween party. So now it’s engraved in my head (arrrgh).

Have a great Halloween! I’m going to be manning the house today, handing out the treats while the rest of the family goes on the prowl with the rest of the neighborhood.

 
By the way, it’s too late for this year, but I’m getting this bubble fogger machine for next year’s occasion. It’s easily the most awesome Halloween item (toy?) I’ve seen in action in a while. It works like a bubble machine, except when the opaque bubbles burst, they release a mist.

Happy Halloween! This Pumpkin Dance Is Classic

What should you do when your credit card company raises your interest rate? Here are some thoughts on credit card reform from our contributing writer, Jacques Sprenger.

I thought I had the best credit card around. But then getting a sudden rate hike on your credit card for no reason whatsoever is like an icy shower when you expected warm water. My issuer just hit me with such a raise which didn’t improve my mood in spite of their friendly accompanying letter: “Your history as a preferred customer has nothing to do with the interest hike which was caused by the economy’s present circumstances. You may reject the raise by paying off your credit card balance.” Right, like we have $4,000 lying around just for that purpose. The average American family owes more than $10,000 on credit cards which used to be given in cereal boxes (a little hyperbole!). Now you have to show that you make as much as Bill Gates to be approved (yes, another hyperbole).

The Government Intervenes With New Credit Card Rules

Check out the following image by Make Them Accountable. Left panel says — “before strict new credit card rules”. Right panel says — “After: Warning. Largest unsecured piano”.

President Obama would get a lot of kudos if he can convince the credit card companies to play fair: it’s actually good to see some inroads made on this matter, where the credit card industry has been made to face the “new rules of the road”. The President is apparently very much committed to leveling the playing field: “The days of any time, any reason rate hikes and late fee traps have to end,” Obama said. Chris Dodd, a long time senator who has been embroiled in lobbying controversies, is trying to burnish his image by going after the credit card companies full blast; you may have seen him make the news a lot recently. Sen. Dodd wants the new credit card rules enforced immediately and has demanded a freeze on interest rates on all existing credit cards debts. In fact, he’s introduced a bill on this recently.

What About a Credit Card Bail Out For Families?

What we also need is a plan to help those families who face a financial crisis because of illness or lay-offs. Why should we bail out all these banks, many of which own the credit card companies, if all they can think of is to lower your credit limits and raise your payments? For the life of me I can’t figure out how punishing people is going to allow them to pay their debts. And yet, banks routinely smack us with humongous interest rates because we are late ONE day. While the Fed has lowered rates to almost zero, predator credit card companies charge up to 39% for making a late payment. They should talk to some insurance companies which offer first accident forgiveness. Being late on one payment happens to all of us due to oversight or simply a slow post office. Forget the deadbeats and irresponsible people who max out their credit cards knowing they will never pay them. We are talking about upstanding people who have been paying religiously for 10 years and who’ve made these companies (and CEOs) rich.

Should You Opt Out of Interest Rate Increases?

Some people have felt the pinch: here’s someone who tells us his own story about paying 8.9% on his credit card bill, and he’s never missed a payment. He mentions how his interest rate “.. would change to a variable rate of 14.65% annually.” His card issuer is BofA — “the fine folks at Bank of America, who’ve spent the last few years buying up failed institutions like Countrywide and Merrill Lynch and taking some $163 billion in taxpayer bailout pledges..” So while BofA has screwed up and received billions of bail out money, they’re not exactly giving their customers much leeway. Here’s what this customer tells us:

The credit card interest rate hike is an offer I’m allowed to refuse. I can reject the increase and pay off the balance at the current terms, but that means I would no longer be able to use the card. If I reject the increase, it also means my credit line on that account would effectively shrink to the current balance, which could hurt my credit score.

Whether or not you decide to opt out of your interest rate hikes, you may be up the creek either way. But then again, we shouldn’t forget that using credit cards is simply a privilege. I’m crossing my fingers that existing 0% APR credit cards and balance transfer cards avoid going the way of the Dodo bird.

What Are Your Options?

Is there something we can do? My opinion here is that unless you have no choice (the new card terms and conditions are unacceptable), then keep the card, pay the least amount possible above the minimum and DO NOT use your card again. It will preserve your credit and will allow you to sign up for a new low interest rate credit card… as soon as you can find one. If you have to pay off the card, make sure you don’t close your account; simply stop using your card, again to keep your credit rating intact.

New Credit Card Rules, Opting Out of Interest Rate Increases