Everybody needs credit at some point or another in their lives. If you use it responsibly, it can be one of your greatest assets. While balance transfers can sometimes save you from a horrible credit situation, it can also be a convenient ally if you understand how to capitalize on its benefits.

The Pitch

Many credit card companies offer low introductory APR on balance transfers to entice you to opening an account with their bank. While you might not be considering a new account presently, you should know that this could be wise move on your behalf. That’s because consolidating your credit on one card can not only save you a lot of money, but time and heartache too. With all of your credit in one place, you should be able to make more significant payments, more often, which can, in turn, pay your balance down faster than expected. Typically, these offers are introductory, meaning that you open an account with a variable rate that starts as low as 0% but adjusts to something higher after 6, 9, or 12 months. If you manage your money properly, though, you can pay these balances off before the adjustment settles.

The Promise

By consolidating your credit card balances on one account, you immediately reduce your interest rates. Since you likely had multiple cards, you were probably paying more than one interest rate, and none of them were even close to 0% APR. These add up quickly and can cost you thousands of dollars by the time you finally pay off the accounts. However, under one rate, you will know exactly how much to pay and you can more easily calculate how long it will take to pay it off. This gives you the power to make payments according to a schedule that you determine.

Also, when you consolidate your credit, you decrease the likelihood of encountering a fee. Although you are responsible with your payments, sometimes things come up and you have to miss a payment. If you miss all of your credit card payments, you get hit with as many fees, which can quickly send you spiraling out of control. However, consolidating cuts your payments down into something that should be much more affordable, and if you hit a snag in your budget, you end up with only one fee. This won’t set you back so much that you can never catch up, and within a month or two you will be back on track.

The Progress

There have been some significant changes to credit card policies this past year. One of the most important is how your payments are applied to your account. Credit cards carry multiple interest rates for the three basic types of activity: purchases, cash advances, and balance transfers. Before 2010, your payments were being applied to the accounts with the lowest interest rates, leaving your high-yield accounts to fester and keep you in debt longer. The new laws, however, force credit card companies to use the excess of your payments to pay down your highest-interest balances first.

The Possibilities

When you have credit, you are held by the bank as a liability. The more credit you use, the more likely it will be that you will default. Unfortunately, that’s the way that they think. The more consistently you make payments and the longer you do so, the less they view you as a liability and the more likely they are to reward you with more credit if you need it. By consolidating your debts into one account, you manage your budget better and commit to more responsible activity on your account. You also open yourself up to a better credit standing. By leaving your old accounts open after you transfer money, you will immediately appear more attractive because it will appear that you have a better credit-to-debit ratio.

The Payoff

In the end, all of this should result in an improvement in your credit score. Reducing the amount of your overall minimum payment allows you to make more substantial payments and decreases the likelihood that you will default. By keeping your credit limit high and increasing your available credit through regular payments, you will appear responsible and trustworthy. While there are many factors that go into determining your credit score, the ability and likelihood of making payments bear the most weight. Keeping this in check will keep you in the clear.

Check out our latest feature piece titled “Hong Kong Phooey: How I Survived Without Cash in Hong Kong for Three Days” and then let us know what you think.

Do YOU have any humorous stories or words of advice for those traveling with a credit card, cash, or other type of payment?

Unfortunately for consumers, many of the new credit card regulations do nothing to protect consumers but have the opposite effect of decreasing the options available to consumers when looking for credit.

There are certainly some great things in the CARD Act and it’s ridiculous to say that no oversight or regulation at all is needed but since when is it the government’s job to coddle all of it’s citizens and deprive them of the right to pick and choose the products and services that they want to use or not use?

The most recent example of some of the adverse consequences of government intervention into the credit card and banking business is cited in the Wall Street Journal and it’s twofold:

1. It’s Harder to Get a Credit Card – The new burdensome regulations in the CARD Act make it harder for credit card companies and banks to accurately price risk when issuing credit cards (i.e. the regulations prohibit certain types of fees like universal default, double cycle billing, etc.) so many banks are just saying, “OK, if we can’t make any money off of those consumers then we will just say thanks but no thanks and tell them to get lost.” This then leaves many consumers in the position of having less options for credit – do some of them then turn to even worse options than high fee credit cards like payday loans?
2. Consumers are Getting Soaked with New Fees – Even consumers with great credit who have managed their finances impeccably for many years are still getting hit with new bank fees. From monthly maintenance fees on a checking account to inactivity fees on a credit card the new fees are just piling up. Why all the new fees? Simple. If banks are not allowed to single out those who are high credit risks and charge them higher fees than the average consumer (i.e. universal default, etc.) then guess what? We all get charged the higher equilibrium fees.

In the great attempted equalization of American consumers where those who make poor financial decisions are bailed out by those who make responsible financial decisions then guess what – we all lose.*

*But hey, why don’t we just keep giving more power to Uncle Sam without addressing the root cause of any of the problems…

The boy is accused of copying credit card numbers from gas station customers (without their knowledge of course) and then turning around and selling the credit card numbers to the mob who would then use those stolen credit card numbers to make online purchases.

The Mounties estimate the fraud to be in the millions but after a 6 month investigation the boy will appear in court on August 18th and will likely be facing charges of unauthorized possession of credit card data and possessing a credit card forging instrument.

Check out the below video that gives a demonstration in skit form of how this type of credit card skimming could potentially take place at a gas station or other similar location (the video is set to auto play at 2:30 where the demonstration is just about to begin but feel free to watch the entire video as well).

The average American household receives a credit card offer every 10 days. (If you’re on Capital One’s mailing list, more like every 10 hours.) That average American household accepts a lot of those offers, and carries a balance of about $10,000 on an average of 12 cards, which is at least 10 too many. The average interest rate on credit cards is around 18%. Twenty percent of those cards are maxed out, and 35% of their holders pay a monthly late charge.

A helpful rule in your economic life is to think about every transaction from the other party’s perspective. In this case, look at the handsome annuity that your credit card balance becomes in the eyes of the card issuer. And if you can find an investment that pays a consistent 18%, let me know. Not only will I refund you the price of my book, I’ll retire from creating personal finance books and put all my money in that investment instead.

If you couldn’t pay your bills in 18th century England, you didn’t get to “call and work something out,” nor could you sue in civil court because your bank made its credit card application so pretty and the envelope so easy to open that you couldn’t say no. Instead, you went to debtor’s prison. Sometimes it seems as though the threat of incarceration might be the only way to get modern Americans to spend with discretion. You’re carrying more debt now than when you were 15 and working at Hot Dog On A Stick. Ever wonder why?

Money is a commodity, but it’s also a tool. A tool that can help you build a house, a career, a life. Lose control of your money, and it’s the credit card issuer that’ll determine how hard your nails will be hammered and how frequently. So when you get a mailer that reads:

“Instead of 18.9%, apply now and we’ll give you a fabulously low rate of 14.9%!”

understand that means

“We’d like an investment that pays 18.9%, but then we’d also like it to rain beer. An investment that pays 14.9% is still fantastic, though. Almost no investment in the world can guarantee that, besides the atrocious saving habits of the American public.”

Never carry a credit card balance. Sacrifice a month’s groceries and beg for orange peels if you have to. Regard paying your bill in full every month as an imperative no less important than locking your door every time you leave home. Depending on what neighborhood you live in, doing the former could save you more money than doing the latter.

If you carry no balance, it costs the issuer to keep you around. You’re a low-revenue customer. (Or better yet, a non-revenue customer.) Let the irresponsible borrowers with the $25,000 balances pay the salary of the MasterCard CEO and put the fuel in VISA’s corporate jets.

With a zero balance, you can look at the issuer/borrower relationship in a new light. You’ll notice that credit card companies plug their low interest rates and balance transfer rates like they’re being eleemosynary bighearts. “Act now, and pay just 9.9% on balance transfers!”

In other words, if you’re irresponsible enough to have rung up debt on a competitor’s card, come to us. You’ve proven yourself to be a juicy fish. You’re actually far better than that, because a 50-pound chinook salmon can only be eaten once. We can feed off your bloated carcass again and again. The issuer is saying, “Hooked on cocaine? That’s for losers. Instead, give our pure crystal meth a taste and you’ll never go back.”

If you pay in full, annual percentage rates and interest-free introductory periods become meaningless. The credit card company has to profit off someone. Let it be the ill-prepared next person, not you.

The longer your record of paying your balance in full, the bigger the limits your issuer should allow. Most introductory credit cards will only let you charge up to, say, $3,000. After you’ve paid in full for a few months, they’ll increase your limits. This isn’t to reward you for being a profitable customer, as you’re anything but. It’s in the hope you’ll slip up, charge more than you can afford, and that’s when they’ve got you. Another debtor on the hook.

This is not a condemnation of credit cards, says a man who would use his Hilton Honors AmEx at the neighbor girl’s lemonade stand if she’d only accept it (62,760 points and counting!) Credit cards are wonderful. They’re convenient, discreet, trackable, replaceable and inconspicuous in ways cash can never be. But if you use them without regard to their possible consequences, you’re the equivalent of a parent who thinks her baby’s nursery has just the right mix of temperature and humidity for storing loaded firearms.

Editor’s Note: Check out the True Cost of Credit Calculator to see just how much carrying a credit card balance will really cost you (and then check out the Cash Back Credit Card Calculator to see just how much money you can earn in cash back rewards with responsible credit card use!)

As we mentioned in an earlier post about some of the negatives of the CARD Act and how the CARD Act will likely leave many people in even worse position than they were prior to the CARD Act it’s very rare to see any type of arbitrary outside regulations help consumers without hurting them in some way, shape, or form at the same time.

One example would be that if there were more intensive caps placed on credit card interest rates then of course we all know what would happen:

A) Credit cards would be harder to get approved for

B) Credit card limits would be decreased for many

C) Credit card rewards would be reduced

And on it goes – thanks to many well meaning (sometimes) politicians that want to exert more control over every situation they come across rather than simply getting out of the way to allow people to make their own choices and live with the consequences of their actions (oh, the horror!) – both good and bad.

I am 100% for getting rid of abusive and deceptive marketing practices but as mentioned in negatives of the CARD Act article:

CARD Act Regulations for Transparency in Credit Cards = Clear Understanding of Credit Card Features and Options = GOOD!

CARD Regulations for Forcing Companies to Cap Fees/Interest Rates and Underwrite Credit in a Certain Way = Less Options for Consumers = BAD!

What do YOU think?

Leaving those two issues aside for this post there is one other thing about Dave Ramsey’s advice that “sticks in my craw” maybe even more than his ridiculous view of credit cards and that is his advice when it comes to debt negotiation and debt settlement (side note: I have no idea what “craw” really means as I have never used that expression before but it just sounds funny so why not – for all of you know-it-all’s out there please do not attempt to describe for everyone what exactly you think a “craw” is as I would rather not know – definitely a Google search that probably falls in the “don’t even go there” category).

All talk of “craws” aside my major issue with Dave Ramsey is that his advice is marketed as being Christian financial advice and yet in the area of debt negotiation and debt settlement Dave Ramsey gets this one so wrong according to Biblical principles that it should bring about some cause for concern.

Dave Ramsey: “Reduce debt by directly negotiating with your lenders.”

If you have ever listened to Ramsey’s TV show on the FOX Business Channel or his call in radio program then you have no doubt heard him counsel many many people to avoid debt consolidation companies, debt negotiation companies, debt settlement companies, etc. (which for the most part is actually really smart advice as the legitimate companies that are out there are few and far between as we illustrate in our feature piece on debt counseling).

This is great advice because there are many scam artist debt negotiation companies out there BUT Dave Ramsey’s solution is just to go directly to your credit card companies and other lenders and get them to reduce the amount of money that you owe.

HOWEVER, Christians can respectfully disagree about many different areas of finances that the Bible addresses in more of a principle form rather than a direct and specific command BUT one area that is crystal clear in the Bible is that if you owe someone money then you should pay it all back.

The wicked borrows, and pays not again: but the righteous shows mercy, and gives. – Psalm 37:21 (NKJV)

Why Does Dave Ramsey Advocate an Un-Biblical Approach to Debt?

If the Bible states that we should pay back all of the money that we owe and not try to weasel out of debts by negotiating or settling with a lender to repay less than what we originally promised to pay then why does Dave Ramsey in no uncertain terms advocate this approach?

The 7 Year Israelite Debt Release

No doubt some Dave Ramsey fans will point to the passage of scripture in Deuteronomy that mentions a release of debt every 7 years for the Israelites:

At the end of every seven years you shall make a release. And this is the manner of the release: Every creditor that lends ought to his neighbor shall release it; he shall not exact it of his neighbor, or of his brother; because it is called the LORD’s release. – Deuteronomy 15:1,2 (NKJV)

While the above verse does mention the release of debts it is important to note that all of the Bible applies to everyone but not all of the Bible is specifically directed towards everyone (i.e. certain Old Testament passages are directed specifically towards procedural regulations for the nation of Israel and we can all gain practical application today but that does not mean of course that we should trim our beards a certain way or sacrifice goats in a certain manner, etc.).

Additionally, the above verse is directed towards lenders and not towards borrowers. Nowhere in the above verse does the Bible promote backing out of debt that one owes but rather the Bible promotes the principle of mercy and leniency on the part of the lender (i.e. the lender initiates a forgiveness of a debt rather than a borrower attempting to hardball a lender into reducing the debt that is owed by threat of non payment).

Although I love about 90% of what Dave Ramsey says on his show this debt settlement/debt negotiation issue is a big issue that I have with Ramsey as he markets his financial advice as being Christian personal finance advice that is based on Biblical principles.

Ouch the Cognitive Dissonance Has Gotta Hurt!

To go so very wrong in this area is even more unsettling because of the truck load of cognitive dissonance that he brings to the table when Ramsey on one hand preaches the importance of personal responsibility and on the other hand preaches that “it’s the credit cards and evil credit card company’s fault for your debt” as if an inanimate object like a piece of plastic forces people to spend more than they should (this is akin to an obese person blaming their lack of self control at the dinner table on their fork and setting out to “cut up all forks” and say mean things about fork making companies instead of getting to the root of the problem which is of course discipline, self control, wise nutritional choices, etc.)

What do YOU Think?

What do you think about Dave Ramsey’s advice to reduce debt by directly negotiating with credit card companies?

Do you think that Ramsey’s do it yourself debt negotiation advice is in line with Biblical teaching? If so, in what ways? If no, should Ramsey retract certain statements or change the marketing of his financial planning programs?

(NOTE: If you would like to address some of the Dave Ramsey’s statements about credit cards rather than debt negotiation/debt settlement then head on over to the Dave Ramsey and credit cards post to leave a comment there as well)

The American Express Delta credit card recently announced that beginning June 1, 2010 cardholders will be able to check one bag free on all Delta flights. This extends to up to 9 people on the same reservation so if you have a large family or even if you fly Delta frequently then the Delta credit card, although it has an annual fee, may end up well worth your while.

The standard Delta baggage fee is $25 so at a savings of $50 for every round trip Delta flight the savings could be quite useful to some. Or, you could just fly Southwest