Excerpt from the East Valley Tribune December 7, 2008. By Edward Gately, Tribune

Banks cutting back when needed most.

The $700 billion bailout for banks is moving along, but you wouldn’t know it. I thought - my mistake - that the bailout money was not just to prop up failing or financially troubled banks, but to also get credit flowing in a restricted credit market. Obviously not.

Michael Sullivan, director of education at Take Charge America, a Valley-based (Phoenix), nonprofit credit counseling agency said, “It’s obvious already from the record number of calls we’re getting that consumers are feeling the impact of tighter credit, and when combined with job losses, it’s forcing many, many people over the edge. Sullivan continued, “The credit crunch for consumers is probably really just getting under way now and, as banks tighten things, it will get worse.”

American Express, siting a “challenging economic environment,” raised it regular interest rates by 2 to 3 percentage points on certain groups of cardholders, said spokeswoman Desiree Fish. It is also raising rates on cash advances, late payments and defaults as well as increasing the charge for transactions involving foreign currency from 2 percent to 2.7 percent.  At Bank of America and Wells Fargo customers that get notice of rate increases are allowed to close their accounts and repay the balances under the original terms if the customers opt out. Citibank allows customers who opt out of rate increases to continue using their Citicards until they expire, and then pay off the remaining balances under the old pricing terms.

Who gets hit the hardest with the increased interest rates and fee increases?  Jim Pierpoint of Bank of America said, “We definitely take into account both how a customer has performed with us - and we’ll also consider external risk factors, such as taking out numerous loans(,) using substantially all of the credit available to them or defaulting on loans to other lenders.”

According to Take Charge America’s Sullivan, those concerned about increase bank fees probably shouldn’t be using credit cards at all. He goes on to say, “That will eliminate the interest and it will eliminate all of the fear,” he said. “Of course, it will also eliminate a lot of the profits to banks, but that’s fine. People need to look out for themselves right now.” One couple living in Phoenix, AZ , said their solution is to skip credit cards and pay as they go. “Its hard still because (Sebastian) just go laid off so our budgets are tight, but we just live that way, not on credit. We had some (credit cards) before, but it ended up hurting us in the end so we just got rid of them.

So what does all this tell us. Well for one, if you prudently use and manage your credit, you probably won’t fall into the risk category that will get your rates increased, fees added or accounts closed. If you are maxing out your credit limits on cards and lines, past due with creditors or taking out too many loans, you will likely get notifications of rate and fee increases or having you credit lines closed.

What I do find interesting, is that I still receive 2-3 pre-approved credit card offers weekly and offers from existing card issuers to use the checks they send me; all of these offers I dutifully shred. I use one card, which I use for normal monthly purchases and expenses and pay off the card each month without incurring any interest. This way I get the rewards, which I use for airline travel, and maintain optimal cash flow. In addition I owe less than $1000 on another card that has zero interest and will be paid off before incurring any interest. I made the decision that money in my pocket is something that I can use to my advantage, instead of the bank’s pocket.

Too much debt is a major problem for Americans. We see it every day in mortgage foreclosures, bankruptcies and, likely as a factor in many divorces. Debt is a stressor. No doubt about it.
I made the decision to reduce my debt, pay off my mortgage early and have more disposable income to give me financial freedom by using the Money Merge Account system, and you can too.

Jeff Polhill

Tags: American Express, Bank of America, Citicards, credit cards, debt, mortgage foreclosures, Wells Fargo