Credit card debt

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DROM CREDIT CARD DEBT[edit]

CREDIT CARD DEBT: THE PLASTIC SAFETY NET[edit]

Although American workers continue to lead the world in productivity, we haven't had a raise since the early 1970s. Over the last four decades, we've been working longer and longer, trying to keep up with the rising costs of living- housing, healthcare, education. Yet we haven't actually managed to keep up without plastic. In the early 1980s, U.S. household debt as a share of income was 60%. By the time of the 2008 financial crisis, that share had grown to exceed 100%. So, despite all our exertions over the last four decades, the 99% have only gone deeper into the red, in debt to the 1%. The reason is clear: we're in debt because we're not paid enough in the first place and there's barely any "welfare state" left to pick up the slack. This setup is called financialization.

Credit cardholders are one of the many categories of debtors being asked to pay for Wall Street's disaster. Although fewer Americans continue to hold credit cards than before the crisis, most still do-and some hold lots of them. One in seven Americans had ten or more, according to one recent survey. With nearly 700 million credit cards in circulation, it's fair to say that having a wallet full of plastic has now become one of the defining features of American life-our plastic safety net. Another defining feature is debt, almost $1 trillion of it being credit card debt. The average American household with at least one credit card owes nearly $16,000 in credit card debt.

This doesn't mean we should be grateful to the credit card industry for throwing us "lifelines." These lines of credit aren't designed to save us, but to reel us in. The standard practices of today's credit card industry come closer to pimping or drug dealing than old-fashioned prudential lending. Credit card companies make most of their money from people who are "disconnected"-socially, emotionally, residentially, etc.-and lack social support. In a financial system characterized by lack of transparency, credit cards are the most complicated and perhaps the most hazardous product of all. Whereas auto loans, student loans, closed-end bank loans and most mortgages have one or two price terms (fixed or tied to an index), credit cards feature a multiplicity of complicated fees. Adam Levitin, a legal scholar and leading expert on bankruptcy, warns that in addition to these explicit price points there are many hidden fees in the form of credit card billings. Added up, these "gotcha" fees cost American families over $12 billion a year.1

Think about it. That's $12 billion stolen from struggling American families through trickery. And where does that money go? To banks, to the financial sector. Money that could have been used to improve the quality of people's lives, to purchase goods and services in local, real economies is going instead to service debt, which means it's going to Wall Street, to the 1%.

Although total national credit card debt is small in comparison with mortgage debt, effective APRs (annual percentage rates) are at least five times as high. The moment consumers get into trouble, the card companies pounce, imposing penalties, even retroactively. These practices are clearly unfair and abusive. And there's considerable doubt that the regulations specified in the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 will be able to stop them.

HISTORY IN REVERSE[edit]

The credit card industry used to make its money on interest rates, but that never amounted to much. When they were first introduced in the 1960s, universal credit cards such as Visa and MasterCard were offered as loyalty rewards only to banks' best customers. This group was limited to upper-middle-class and upper-class white men, who typically paid off their monthly balances. The appeal of the cards was convenience and prestige, not a need for credit. Banks lost money on the product, but the idea was to build loyalty in order to do even bigger business down the road. The banks got something in return as well: the wealthiest, most powerful men served as walking advertisements for the cards every time they used one. A series of legal changes (effectively eliminating usury laws by allowing all lenders to register in South Dakota, where no such laws existed) and the growth of computer networks that could trace credit ratings led to an explosion of credit card use in the 1980s. Interest-rate deregulation helped transform credit cards from banks' loss leaders into profit engines. New programs made it possible to unearth the most lucrative "revolvers," those who often carry high balances but are unlikely to default. Card companies figured out how to use so-called "risk-based pricing" to charge women and people of color more to use their cards.

In the 1970s, it was difficult for a woman to get a credit card without her husband's signature-even harder if she were single or divorced.2 According to the National Council of La Raza, Latino/as are more likely to have higher interest credit cards.3 Card companies claim that interest rate charges are based on "risk." But there is an abundance of evidence that risk ratings are largely determined by where you live. This is just a continuation of "redlining" (assigning risk on the basis of location). In the past, redlining was used to deny residents and businesses in predominantly Black neighborhoods access to credit, without using explicitly racial/ethnic criteria. Today, high risk ratings are no longer used to deny credit but to charge more for it, which sets up a self-fulfilling prophecy: being designated financially "risky" actually further exposes one to unfair and abusive financial practices.

As more people acquired credit cards throughout the 1980s and '90s, the "free" credit used by the wealthiest households was subsidized by the high rates and fees paid by the most financially distressed households. This is sometimes called "risk pooling," although typically pooling involves those with more subsidizing those with less; here, it's exactly the reverse. According to Robert D. Manning, founder of the Responsible Debt Relief Institute and author of Credit Card Nation, "A carefully guarded secret of the industry is that about a quarter of cardholders have accounted for almost two-thirds of interest and penalty-fee revenues. Nearly half of all credit card accounts do not generate finance and fee revenues."[4]

Today there are more than five thousand credit card issuers, but a majority of these (and the debt they manage) are owned by-you guessed it-the big banks. The top three-Citigroup, Bank of America and JPMorgan Chase- control more than 60% of outstanding credit card debt.[5] We're talking about the same giant "too-big-to-fail" institutions that ruined the economy through their own irresponsible financial machinations. In the years before the financial crash, the industry grew exponentially, starting in the '90s when credit card companies first figured out that they made more money lending to people who carried monthly balances on their cards than to customers who promptly paid them off. From 1993 to 2007, the amount charged to U.S. credit cards went from $475 billion to more than $1.9 trillion. Late fees have risen an average of 160%, and over-limit fees have risen an average of 115% over a similar period (1990-2005).[6] American households have been swimming in debt and losing a significant portion of their total income to penalties and fees. Adam Levitin calculates that a single repricing due to a billing trick can cost a family between an eighth and a quarter of its discretionary income.

After the crash, families scrambled to get out of debt. Some were helped by the useful, if limited, regulatory reforms prescribed by the CARD Act of 2009. Credit card debt is down by perhaps 15% overall and cardholders are on to the industry's old tricks. The problem is, card companies are busy devising new tricks. The total amount of credit card debt remains staggeringly high, and card issuers are still free to charge whatever rates of interest they like (only nonprofit credit unions are required by Congress to abide by an interest rate ceiling of 15%). In the nine months between the passage and implementation of the CARD Act, credit card issuers did their best to jack up interest rates, reduce lines of credit, increase fees and water down rewards programs. For millions of unemployed and underemployed Americans it may be too late. Their credit scores are already shot and their borrowing costs are through the roof. And now that credit scores are widely used as a screening tool for job applicants, these workers face even greater challenges in finding employment.

THE TRICKS OF THE TRADE[edit]

From risk rating to pricing to credit limit determination, industry policies are extremely opaque and seem designed to keep cardholders in the dark. Analysts at the website Credit Karma, however, were able to analyze a sample of over 200,000 credit cards. An examination of the relationship between credit scores, income and credit limits indicated that higher credit scores get you higher credit limits, regardless of income. Low credit scores, no matter your income, keep credit limits low.[7] A history of compliance with minimum payments is more important to issuers than current ability to repay.

Credit card companies don't mind if you're late paying your bill or if you maintain a balance, as long as you go on paying your monthly minimum. Cardholders who never carry balances on their cards have long been known inside the industry as "deadbeats," money-losers. Since almost all of the industry's profits come from late fees and interest rate penalties, it depends on your slipping up. This is why monthly statements are intentionally designed to be confusing. If they change the design of your statement-say, by moving a box to the left, or making the print a little smaller-in such a way as to cause even one cardholder out of a thousand to misunderstand and miss a payment, that's millions of dollars in additional profit for them. In the past they would trip up consumers by intentionally making the due date fall on a Sunday or a holiday. This enabled them to extract even more from late fees, the whole time insisting it was all your fault.

The CARD Act outlawed several predatory practices that companies used to trick you into paying more. For instance, in the past, companies needed to give you only fifteen days notice before upping rates or making other changes to your contract, leaving little time to negotiate. Now companies are required to notify you forty-five days in advance.8 However, this notification will most likely be mailed to you, so make sure you read everything your credit card company sends you.

Since the 1990s, credit card pricing has been a "game of three-card monte," according to Adam Levitin. "Pricing has been shifted away from the upfront, attention grabbing price points, like annual fees and base interest rates, and shifted to back-end fees that consumers are likely to ignore or underestimate."[9] If consumers are unable to gauge the true price of products, how can we be expected to use them efficiently and responsibly?

For a credit card company, the perfect customer is one who charges up a very large amount of debt impulsively, sits on it for a year or two so as to build up maximum high-rate interest charges, finally feels guilty and pays it all back without asking any questions. That's why they used to besiege high school and college students with free card offers: credit card companies calculated that students were likely to spend impulsively, attempt to avoid the problem and eventually call their parents to foot the bill. The CARD Act restricts extensions of credit to those under twenty-one unless they have a cosigner or a proven means of income. Credit card companies are no longer allowed to hand out free gifts at or near colleges or college-sponsored events.[10] Since credit card companies make so much of their profits from binge behavior, for them to lecture consumers on the moral duty to repay is a bit like drug dealers chiding their customers for becoming addicted to heroin. Goading you to sin while trying to make you feel guilty for giving in is the industry's modus operandi.

Of course, the overwhelming bulk of credit card debt isn't driven by impulse spending at all, but by the predicaments of people trying to make ends meet. That's why the average carded household owes nearly $16,000 on their card(s). For example, one survey found that 86% of people who lose their jobs report having to live, to at least some degree, off of their credit cards until they find new jobs. Similarly, nearly half of American households owed money on out-of-pocket medical expenses on their credit cards. According to a recent survey, medical bills are a leading contributor to credit card debt, affecting nearly half of lowto middle-income households; the average amount of medical debt on credit cards is $1,678 per household.[20] The examples are endless, and they reveal textbook predatory behavior. Banks, card issuers and collectors exploit our precarity. They take our money any way they can, often using unethical, illegal and extra-legal means-mafia-style.

WHAT CAN YOU DO?[edit]

Obviously, no one wants to sit on a huge pile of "revolving" credit card debt accruing interest at usurious rates every month. Unfortunately credit cards are the double-edged sword of the credit score world. If you have cards with high balances, your score goes down. If you have no credit card, your score goes down. Having a low credit score can keep you from receiving things like a mortgage loan. Do you see the Catch-22? If you don't buy on credit, then banks will see you as "risky," and will not loan to you. On the other hand, if you have a credit card but you spend too much, then you will be denied a loan. If you can't avoid having the cards, you can sidestep the traps they set for you by actually reading the fine print.

Websites such as Card Hub (cardhub.com) and Credit Karma (creditkarma.com) offer free tools to help you understand and navigate credit reports and credit scores, and to compare credit cards; Card Hub even provides customized disclosures for different cards.

Think about how important your credit score is to you, and how strongly you are committed to preserving it. Consider the risks. This involves looking into the future, which always makes things more complicated and multiplies the "unknowns." Start by finding out where you currently stand. Get your free credit report (see Chapter I) and make sure it's accurate.

So what can you do? There are a number of options, ranging from legal action to bankruptcy to simply refusing to pay.

GOING TO COURT[edit]

You may have seen those lawyers who appear on late night TV promising they can get you out of debt. Surprisingly-since the world is full of scam artists-some of them actually can. This is how the honest ones do it:

What most people don't realize is that legally, there's nothing special about owing money. A debt is just a promise and, contractually, no promise is more or less sacrosanct than any other. If you sign with a credit card company, both you and the company are agreeing to abide by a contract that is equally binding on both of you. The small print applies to both sides, so if American Express has failed to fulfill any of its contractual obligations, for instance its obligation to alert you promptly of a change of policy, that's just as much a violation of contract as your failure to pay the agreed-on sum. Knowing how this industry works, any skilled lawyer with a copy of the contract and access to all relevant correspondence is likely to discover half a dozen ways the company has violated its contractual obligations to you. In the eyes of the law, both parties are guilty; therefore, you need to renegotiate the terms of the relationship. This usually means the judge will knock off half or even three-quarters of the total sum owed.

The fact is, this process is riddled with fraud on a scale that is only now beginning to be revealed. "The same problems that plagued the foreclosure process-and prompted a multibillion-dollar settlement with big banks-are now emerging in the debt collection practices of credit card companies," the New York Times recently reported. "As they work through a glut of bad loans, companies like American Express, Citigroup and Discover Financial are going to court to recoup their money. But many of the lawsuits rely on erroneous robo-signed documents, incomplete records and generic testimony from witnesses, according to judges who oversee the cases." Lenders are "churning out lawsuits without regard for accuracy, and improperly collecting debts from consumers." One judge told the paper that he suspected a full 90% of lawsuits brought by credit card companies were "flawed and can't prove the person owes the debt."[11]

In some cases banks have sold credit card receivables known to be inaccurate or already paid. In a series of 2009 and 2010 transactions, Bank of America sold credit card receivables to an outfit called CACH, LLC, based in Denver, Colorado. Each month CACH bought debts with a face value of as much as $65 million for 1.8 cents on the dollar.12 The cut-rate pricing suggests the accounts' questionable quality, but what is remarkable is that the bank would even try to sell them and that it could make money from them. Over the last two years, Bank of America has charged off $20 billion in delinquent card debt. An undisclosed portion of the delinquent debt gets passed along to collectors. Once sold, rights to such accounts are often resold within the industry multiple times over several years. Other banks have also admitted that their debt sale contracts may be riddled with inaccuracies.

The lesson is, always keep copies of everything. Always keep the option of legal action open and make sure the credit card companies know that you're doing so.

WHAT HAPPENS IF YOU JUST DON'T PAY?[edit]

After ninety days, your account goes into default and the credit card company has the option of sending it off to a debt collection agency. They don't really like this option, because they will be taking a huge loss. That's how debt collection agencies make their money. They buy up the debt at pennies on the dollar, often through brokers, and then try to collect the whole thing, plus fees for the cost of collection. The original lender takes a loss. No doubt they can get some of it back through tax accounting and no doubt they figure a certain percentage of that loss into their business model, but ultimately, they would rather this didn't happen.

Obviously this is a bad thing for you as well: it means you will be hounded by a collection agency and your credit score will take a major hit. If you want to borrow in the future, it might not be possible. If you are able to borrow, you will be charged much higher interest rates. If that isn't a concern, then go ahead, default: it's free money! But for most of us, it is a problem, so we must turn to other expedients.

NEGOTIATING WITH YOUR CREDIT CARD COMPANY[edit]

Since credit card companies don't want you to default, you can usually negotiate. They will often offer a substantial reduction on what you owe them if they think your defaulting is the only other option. Remember: even if you offer them ten cents on the dollar, that's more than they would be getting if they sold it to a collection agency. On the other hand, they don't want to set a precedent-they know that if everyone just held out and negotiated a 90% reduction their business would be ruined. So they are being pulled in two different directions. This is important to bear in mind when you negotiate. If you're seriously thinking about negotiating, see carreonandassociates.com for the exact sequence of procedures for how to do it.

DEFAULT VS BANKRUPTCY[edit]

If you declare bankruptcy, your credit card debts may be wiped out or lessened; however, it is a complex process which can very well backfire. If you are thinking of declaring bankruptcy, please refer to Chapter X of this manual.

In addition, bankruptcy will affect your credit rating for the next seven to ten years. The statute of limitations on defaults-the amount of time creditors or collectors have after you default to try to get it back legally-differs from state to state, from as little as three years to as many as ten. But after it's over, you're entirely off the hook and it's easy to wipe the default off your record. Which option to choose will vary with circumstances. Try to get all information about the different possibilities in your state of residence before you decide.

WHAT ABOUT THOSE PEOPLE WHO USE ONE CREDIT CARD TO PAY INTEREST ON ANOTHER?[edit]

There definitely are people who have figured out the ropes-the way that your credit score interacts with multiple credit card accounts, and so forth- so well that they can live off their credit cards for years before defaulting. It can be done. The major proviso we would offer is: this is basically a scam, and scams like this tend to be extremely time-consuming. Making your living this way is not all that much easier than making a living in a more conventional way and it has the disadvantage of ensuring you have to think about credit cards all the time. If you don't mind that, and have figured out all the possible legal ramifications and accept them, then go ahead. But going "off the financial grid" is probably easier.

RESOURCES[edit]

WEBSITES[edit]

Card Hub (cardhub.com) Carreon and Associates (carreonandassociates.com) Credit Karma (creditkarma.com) Credit Slips (creditslips.org)

ARTICLES[edit]

Kimberly Amadeo, "Consumer Debt Statistics: Consumer Debt's Role in the U.S. Economy," About.com, July 19, 2012 (tinyurl.com/DROMAmadeo). "Landmines in the Credit Card Landscape: Hazards for Latino Families," National Council of La Raza, February 20, 2009 (tinyurl.com/DROMNCLR). Leslie McFadden, "8 Major Benefits of New Credit Card Law," Bankrate, August 20, 2009 (tinyurl.com/DROMMcFadden). Jessica Silver-Greenberg, "Problems Riddle Moves to Collect Credit Card Debt," New York Times, August 12, 2012 (tinyurl.com/DROMSilver4). Amy Traub and Catherine Ruetschlin, "The Plastic Safety Net: Findings from the 2012 National Survey on Credit Card Debt of Lowand Middle-Income Households," Dēmos, 2012 (tinyurl.com/DROMTraub).

NOTES[edit]

1. Senate Committee on Banking, Housing and Urban Affairs, Enhanced Consumer Financial Protection After the Financial Crisis, testimony of Adam J. Levitin before the Committee on Banking, Housing and Urban Affairs, July 19, 2011 (tinyurl.com/ DROMLevitin). 2. Bryce Covert, "The Double-Edged Sword of Credit Cards for Women and Minorities," Huffington Post, March 16, 2011 (tinyurl.com/DROMCovert). 3. Landmines in the Credit Card Landscape: Hazards for Latino Families (Washington, D.C.:National Council of La Raza, 2009) (tinyurl.com/DROMNCLR). 4. Robert D. Manning, "Five Myths About America's Credit Card Debt," Washington Post, January 31, 2010 (tinyurl.com/DROMManning). 5. Manning, "Five Myths." 6. U.S. Government Accountability Office, Credit Cards: Increased Complexity in Rates and Fees Heightens Need for More Effective Disclosures to Consumers, (Washington, D.C.: GPO, 2006) (tinyurl.com/DROMGAO). 7. "How a Credit Card Limit is Determined," Credit Karma, September 23, 2008 (tinyurl.com/DROMCK). 8. Leslie McFadden, "8 Major Benefits of New Credit Card Law," Bankrate, August 20, 2009 (tinyurl.com/DROMMcFadden).

KNOW YOUR DEBT - Credit Card Debt[edit]

https://knowyourdebt.debtcollective.org/credit-cards

Introduction[edit]

Creditors have created stereotype of folks who struggle to pay credit card debt. They say these folks are “irresponsible” and “spending beyond their means”. It’s a lie. Most people get into credit card debt just trying to get by. The rich have stopped sharing the wealth: they cut our wages, they cut our public services, and they charge more for essentials like healthcare and housing. Credit card debt is just a way for them to take even more money from us when we can’t pay for our medical bills, car repairs, or groceries.

And creditors use credit cards to make a lot of money off of our hardship. Credit card departments are often the most profitable departments in banks.

How are credit cards so profitable? See for yourself:

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(source: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2330942)

As you can see, credit card issuers make most of their profit on credit cards from folks with credit scores below 600. In other words, they make their money from folks who are struggling.

How? They use sophisticated statistical analyses of credit scores to find people who are unlikely to pay off their full balances each month and to push other people to pay less than the full balance. Then they charge these credit card users high interest rates and encourage them to pay back that money as slowly as possible. That way, banks make a huge amount of money on interest. If a bank can get you to only pay interest, then you will keep paying indefinitely, since you never lessen the principal (see INTRODUCTION TO DEBT). This is called “revolving” a debt.

Oh, and then banks figured out that they could hide additional fees in the fine print. Pure profit!

Credit Cards vs. Debit Cards vs. Prepaid Cards[edit]

Debit cards, prepaid cards, and credit cards all look the same. So it’s easy to make the mistake that they work the same way. But they don’t. Creditors want to confuse you, because they make huge amounts of money by getting you to use credit cards in a way that puts you into debt. That’s why credit cards come with rewards, for example.

You can only have a debit card from a bank where you have an account (they also serve as ATM cards). And you have to have money in the account. That’s because when you pay with a debit card, the money comes from your bank account. Your bank account is “debited” (i.e. the amount you paid is taken out) and sent over to the bank of the business you paid with your debit card.

If you don’t have money in your account when you try to pay with a debit card, your card is either declined or the bank that has your account fronts the money in an “overdraft”. Generally, banks charge fees for overdrafts, and sometimes interest too. So it’s better to only use a debt card if you know you have money in your account.

But, as long as you keep money in your account, a debit card is the safest and easiest way to pay.

Prepaid cards and payroll cards work like debit cards in that you have to have the money before you spend it. But you don’t have to have an account with a bank. Instead, you pay or your employer pays the card issuer in advance (you “prepay”) and the card issuer loads up the card with the money you put on it. Usually prepaid card issuers charge fees for using the card, so it’s usually more expensive than a debit card plus a bank account.

When you pay with a credit card, on the other hand, technically the credit card issuer pays the business you used the card at directly. It fronts you the money and then has you pay it back later. You do not need to have an account with bank that issues your credit card, nor do you have to pay it money in advance. This is because every time you use a credit card, you are technically going into debt to your issuer.

As long as you pay the debt back when your next monthly bill comes due, credit card issuers do not charge you any interest. This is one of the advantages of credit cards: it’s an interest-free short-term loan. But if you pay less than the full amount on your monthly bill, the balance you don’t pay immediately become a high-interest loan.

The way creditors make so much money on credit cards is by encouraging you to pay less than the full monthly balance. Then they can charge you high interest and tack on fees as well. They actually hate people that pay off their balances every month. They call them “deadbeats”.

How Credit Cards Work and How They Get You[edit]

When a bank or other creditor gives you a credit card (after you’ve signed a contract), they are telling you they will pay for any purchase you make with the card. But not out of the goodness of their hearts. They have conditions:

They will only pay for purchases up to a certain amount each month. They call this the credit limit. Generally your credit limit is higher if you have a high credit score and high income. But creditors play with it all the time, since they want you to go over your credit limit so they can charge you fees (although not so far over that you can’t pay them!). They will bill you every month. IF YOU CAN AFFORD THE FULL BALANCE, YOU SHOULD ALWAYS PAY IT AND PAY IT ON TIME.

If you don’t pay the full amount, they will start to charge you interest on the amount you don’t pay. They want you to pay interest, because that’s how they make money. That’s why they put a “minimum payment” on your bill. They want you to pay the minimum payment so they can charge you interest on the rest. Ignore the minimum payment. Think about how much you can pay and pay it. If you pay late, they will charge a late fee. They might charge you other fees. Look carefully on your bill. If you find a charge you don’t recognize, you might be able to contest it. They can cancel your card at any time. So can you (although this won’t remove your balance).

Choosing Credit Cards[edit]

You probably don’t need a credit card. Nowadays anything you can pay for with a credit card you can also pay for with a debit card. In fact, in most countries almost everybody uses debit cards.

The main advantage of a debit card is that you pay for it in advance, so credit card issuers can’t manipulate you into going into debt that you can’t pay off.

There are some advantages to a credit card over a debit card.

If you need to improve your credit score, paying for things on a credit card and regularly paying the monthly balance can help you do so. It’s easier to dispute a charge on a credit card. Check out the DISPUTING A CHARGE section Many credit cards have rewards programs. These programs tend to be more lucrative if you have a high credit score, though. You can use them to borrow money if you really need it and can’t get the money anywhere else. But credit cards have high interest rates, especially if you have a low credit score. So you should only use them to borrow if you have ruled out other options. Here is a good source on shopping for small-dollar loans: https://www.nerdwallet.com/blog/loans/small-dollar-loans/ When you’re considering getting a credit card, remember:

Don’t just go for the credit card with the rewards that sound best. Credit card issuers want you to pay attention to the flashy rewards and ignore the fine print. If a credit card says something that sounds too good to be true, it probably is. If it looks like a really low interest rate, check and see if it changes over time or if there are hidden fees. If it says there is none of a certain type of fee, check and see what other types of fees they have. The best credit cards are reserved for the rich. With that in mind, here are a couple resources that might help you comparison shop and navigate the fine print: https://www.nerdwallet.com/blog/credit-cards/how-to-pick-the-best-credit-card-for-you-4-easy-steps/ https://wallethub.com/credit-cards/ http://cardtrak.com/popular-us-credit-cards https://www.creditkarma.com/credit-cards

Disputing a Charge on a Credit Card[edit]

If there’s a charge on your credit card bill that you don’t recognize or that you think is incorrect, you have a right to dispute it. All credit card issuers have relatively easy to navigate dispute processes. And, perhaps surprisingly, credit card issuers will often refund your money. They will do this because they usually don’t have to pay for it: they can pass the charge back to the business that overcharged you or the person who stole your card.

Most credit card issuers now have an online tool to dispute a charge. If you cannot find it, call your credit card issuer and ask them how to dispute.

What to do if a Credit Card Issuer Screwed You Over[edit]

The first thing to do is to complain directly to the credit card company. They’d usually rather keep you as a customer, so you may be able to get them to remove a hidden fee or knock down the interest rate if you tell them you’re going to stop doing business with them otherwise.

If that doesn’t work, you might be able to sue a credit card company for failing to disclose information, discriminating, or something else. Credit regulations aren’t great, but it’s possible. The best thing to do is contact a consumer lawyer in your area.

You can also complain to the CFPB (https://www.consumerfinance.gov/complaint/#credit-card) and the FTC (https://www.ftccomplaintassistant.gov/#&panel1-1). They will not represent you directly, but if they get other similar complaints they may go after the creditor.

What to do if You Can’t Afford the Payments[edit]

If you fall behind on payments and find yourself unable to pay (or you’re just sick of paying those warts on humanity), you have a few options.

If you stop paying altogether:

You will likely get increasingly aggressive letters, calls, and emails from your credit card issuer They will ding your credit report quickly and repeatedly. If you monitor your credit score (see the CREDIT REPORTS section for more), you can see how much this is damaging your credit. Rather than panicking, know what you’re facing. Lower credit isn’t the end of the world. Unless you owe a lot of debt (something approaching ten thousands dollars or more), they likely won’t sue you. But they do have the right to sue you. Make sure to keep a file with all your documents, including your promissory note (see INTRODUCTION TO DEBT for more on promissory notes) in case you have to defend yourself. Once you haven’t paid for 90 days, the credit card issuer is likely to sell your debt to a debt collector or to hire a debt collector. For more on how to deal with debt collectors see DEBT COLLECTORS. After 180 days, the credit card issuer has to “charge off” your debt, which means they have to mark it on their books as a loss. They might still come after you for the debt, but more likely they’ll sell it to a debt collector. They still have the right to collect on it until the statute of limitations runs out, but they’ll surely be more willing to negotiate. You can bargain for lower payments. Credit card issuers would rather have you pay something than nothing. Tips for bargaining:

The credit card issuer will probably try to scare you into paying and tell you that they don’t bargain. Remain calm and be insistent. They’d rather scare you into paying the full amount than bargain, but they’d also rather bargain than have to charge off your debt. You’re more likely to get them to bargain and to get a better deal if you convince them you really aren’t going to pay unless they bring the cost down. Get any deal in writing, and make sure the deal takes care of the whole debt. That way they can’t go back on the deal later. Credit card debts have high interest rates. You might be better off getting a loan from somewhere else with a lower interest rate (a bank, for example, or an online lender, or a line of credit on your house, or even a better credit card) and use that to pay off the principal of the credit card debt. If you do that, make sure to close your credit card account afterwards.

If they sue you, you can defend yourself. Although it’s always better to have a lawyer. Check out the DEBT COLLECTORS page for more information.

Prepaid Cards and Payroll Cards[edit]

Generally having an account at a credit union or a local bank (which would come with debit cards) is better than having a prepaid card. But prepaid cards can be a second-best option.

Prepaid cards tend to come with all kinds of fees. They charge you money to get access to your money. Before you get one, you should check the terms and conditions and think about how much it will cost to have the card and to use it. The CFPB has a helpful list of common fees: https://www.consumerfinance.gov/askcfpb/2053/what-types-fees-do-prepaid-cards-typically-charge.html

Payroll cards are a type of prepaid card that employers use to pay employees. Your employer cannot force you to accept payments on a payroll card. Generally, it is better to be paid via direct deposit in an account at a credit union or a local bank than via a credit card.