Credit Cards & Unfair Interest Rate Increases

Posted: December 12, 2007 
Filed Under: Observations

In the past couple of weeks it’s been in the news that the U.S. Senate is looking into the practices of certain credit card companies. The 2 senators leading this latest investigation are Carl Levin of Michigan and Norm Coleman of Minnesota.

Specifically, they’re investigating the practice of credit card companies raising the interest rate on a cardholder even though that cardholder is paying on time. In other words, one month a person’s interest rate on an outstanding credit card debt might be something manageable like 10%, 12% or 14% then all of a sudden the interest rate jumps up to 25% or 30% even though that person never missed a payment.

Having worked in this industry for over a decade, here’s what I see going on. The credit card companies are constantly monitoring a cardholder’s credit score, the most popular of which is called a FICO score. The moment a person’s FICO score drops, the credit card companies pounce on that opportunity to raise the person’s interest rate.

The credit card company’s argument is that “because a person’s FICO score went down, that person now represents a greater credit risk to the credit card company, therefore they have to raise that person’s interest rate to compensate for the greater credit risk the cardholder now poses”.

If you ask me, I think it’s kind of a sleazy way to justify jacking up someone’s interest rate. But unfortunately this type of thing has been going on for a few years now.

But you might be asking, “How can a person’s credit score go down if they’re paying on time?” Easy. The payment history is only one component of a FICO score.

Another major component of a FICO score is the amount that you owe. So as a person starts to rack up more debt, their increased debt total alone can cause a FICO score to drop — even if that person continues to make their payments on time.

Yes, credit card companies are in business to make a profit and I have no problem with that. But I also believe that any reasonable person would agree that if you pay at least the minimum amount listed on your monthly statement, you are fulfilling your monthly obligation and your credit card company should not be allowed to use obsure “reasons” to justify interest rate hikes. That’s all we’re talking about here.

We’ll continue to follow this story and as soon as there are any further developments we’ll post them here for you.

For more information on topics discussed in this article, please visit the following links:

http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

http://levin.senate.gov/newsroom/release.cfm?id=288169

http://www.msnbc.msn.com/id/22090817

Hoffman Brinker Roberts & The Drudge Report

Posted: December 5, 2007 
Filed Under: Observations

While perusing The Drudge Report this morning, I see the following:

Interestingly enough, the Hoffman Brinker website had it’s busiest month ever in November 2007 as well. Admittedly, we did not have 455 million hits last month, but the traffic to our website has increased 408% in just the past 9 months alone!

I guess we must be doing something right.

 :-)

And The Meltdown Continues …

Posted: November 6, 2007 
Filed Under: Observations

The news headlines from the past few days include:

And on and on. 

I think for a while now most of us have felt that things were not quite as rosy (financially, anyway) as people in the government and media wanted us to believe. You just had that uneasy feeling in your gut that our financial system was weezing and gasping, and it was just a matter of time before the system finally gave out and started to implode.

I think we’re there right now, quite frankly, and I believe this downward spiral is going to continue on for a while. And things might get even worse before they get better. But if you look at this honestly and objectively you understand that this financial meltdown was absolutely necessary to bring things back to a state of balance and sanity. There simply was no way that we could have sustained the previous pace.

So while we’re going through this period of instability and uncertainty, I believe that it will be wise to …

  1. Be conservative. Don’t be making stupid, frivolous purchases. Don’t worry about keeping up with the Jones’. You don’t need to follow them off the cliff like a lemming.
  2. Reduce your debt burden. If you lose your job or your hours at work get cut back, you don’t want to be a nervous wreck trying to figure out how you’re going to manage. Once you rid yourself of excessive debt you’ll find that you can live just fine with a reduced income.
  3. Remain calm and patient. I think we’ll be fine in the end, it’s just going to take some time (perhaps even a few years) to get through this. As financial problems intensify it might look as if the world has gone completely crazy. That’s when you just need to pull back from the madness, shut off the TV, take a deep breath and remind yourself that you’re going to be ok.

Why It’s A Bad Idea To Use “Cease And Desist” Letters

Posted: October 28, 2007 
Filed Under: Observations

If you’d like to increase the odds of getting sued by one or more of your creditors, I can help you. Go ahead and send them a “cease and desist” letter. That’ll get the job done. They’re readily available at say, oh about a thousand different websites.

I was recently speaking with my good friend, Charles Phelan (of zipdebt.com), and he and I were rolling our eyes at how many so-called experts and pundits still are advocating the use of “cease and desist” letters to get creditors to stop calling you.

Newsflash: It’s well-known in the collection industry that the use of a “cease and desist” letter will usually trigger a lawsuit. Bill collectors despise cease and desist letters.

This was further confirmed during a recent conversation I had with a friend of mine that’s a paralegal at a large collection law firm. She jokingly made reference to the anti-collection “militia” on the Internet whose goal is to help consumers “do battle” with the evil bill collector.

 ”What people don’t realize”, she said, “is that we’re out here just trying to do our jobs like everybody else, and in most cases we’re willing to work with debtors as long as they conduct themselves professionally and what they’re proposing is reasonable. But when they start using all these petty little tactics promoted by the anti-collection militia we usually just fast-track those people for litigation.”

So there you have it. The moral to the story? Think. Be smart and use your head, and don’t do foolish things that are going to make matters even worse for yourself.

The # 1 Reason Why People Wish To Avoid Bankruptcy … The Answer Might Surprise You

Posted: October 21, 2007 
Filed Under: Observations, Answers To FAQ

Since 1995 I’ve done several thousand one-on-one phone consultations with people in all stages of financial distress, many of whom were desperately attempting to resolve their financial challenges without resorting to bankruptcy.

What do you think is the # 1 reason why people wish to avoid filing bankruptcy? Do you think it’s because bankruptcy would …

If you guessed any of these you would be wrong. Without a doubt, the # 1 reason why people wish to avoid filing bankruptcy is because they acknowledge that they owe the money and they want to (attempt to) pay it back.

Whether it’s because of their religious beliefs or just their personal moral convictions, the vast majority of people that I’ve spoken with over the years acknowledge that they owe the money and feel very badly about their inability to pay it back as originally intended. In other words, even though they now find themselves in a difficult financial predicament they still want to do the right thing and pay back what they can, even it’s for less than full balance.

I mentioned this to my wife the other day, and even she was genuinely surprised that this was the # 1 reason. But it’s the God’s honest truth.

Sure, there are the so-called “professional deadbeats” and scam artists that don’t pay their bills, but these people are the small minority. My experience has been that the overwhelming majority of people in difficult financial situations are good, honest people that acknowledge their financial obligations. But because of certain events that have transpired in their lives it might be extremely difficult, if not mathematically impossible, for them to repay their debts.

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