Revolving Debt

Balance Transfers: The Good, The Bad and the Ugly

By | Credit Cards, Debt, Revolving Debt

Banks and credit card companies always make balance transfers sound so attractive. But, there is something that those flyers and applications leave out. Depending on your situation a balance transfer may hurt – not help – your credit score.

The Good

There is some truth to the advertising. Balance transfers can be good and they can improve your credit score. Thirty-percent of your FICO score is determined by your “credit utilization rate” or how much of your credit card limits you are using. The less debt, compared to your limit, the better (using $2,000 on a $10,000 card is good, while using $7,000 on a $10,000 card is bad).

There are a few ways to use a balance transfer to lower your credit utilization rate and therefore, improve your FICO score. One strategy is to open a new card and spread out your debt among your credit cards. For example, if you have a total of $6,000 in credit card debt on two cards, each with a credit limit of $5,000 per card and a balance of $3,000 on each card – your credit utilization rate is 60%.  If you open a new card, with a $5,000 credit limit, and spread out your debt to $2,000 per card, your credit utilization rate will drop to 40% ($6,000 of debt versus $15,000 credit limit).  That’s a good thing.

Another scenario that could help your score is to simply transfer your entire balance from one card to a new card, if the new card has a higher credit limit. Keep in mind that any time you apply for new credit, your FICO score will be negatively impacted. However, these inquiry “hits” to your score will quickly rebound and may be worth it in the long-run.

The Bad

If you carry a balance of $2,000 on a credit card with a credit limit of $5,000, your credit utilization rate is 40%. If however, you transfer that balance to a new card that only has a credit limit of $3,000, than your credit utilization rate will jump to 66% – and that’s not good. The savings in interest will not be worth the hit to your credit rating.

You may consider a balance transfer to help improve the credit score of your spouse. Perhaps moving some of their debt to one of your cards could help lower the credit utilization rate for your spouse and for the two of you as a couple. However, assuming someone else’s debt is risky and once the transfer is made into your account, you become solely liable. To protect yourself, consider making your spouse a joint account holder to ensure that they remain legally responsible for some of the debt.

The Ugly

It is possible that the balance transfer may not actually work. There have been several stories in the media about banks failing to complete a balance transfer, renegotiatng the original offer and/or re-evaluating the borrower’s current credit limits. Not only can you end up wasting too much time on the phone trying to sort out the issue, but some banks may take the opportunity to review your credit and make decisions that are not in your favor, like reducing your credit limit, therefore raising your credit utilization rate.

Also, if you transfer the full balance of one card onto a new card, don’t immediately close your old accounts. Keeping those older credit limits will help your overall credit score because it will lower your credit utilization rate.  Plus, long-standing accounts reflect well on your credit.

Bottom line, before you call that 1-800 number to secure a 0% APR on a balance transfer, study your current credit card balances to determine if the offer will help you, or hurt you in the long run. If properly researched, a strategic balance transfer can be good for your credit, but if you rush in, it might get ugly.

You Put Christmas on Credit – Now What?

By | Revolving Debt, Your Credit

The holidays are here! ‘Tis the season to gather in joyous celebration and give to all those you love. Most people will use their credit card to make their holiday purchases this year. Credit cards can offer many benefits during the holiday season, such as secure online shopping. You can even earn point or cash back benefits from your credit card. Come New Year’s day, however, you’ll have more than just a hangover from the champagne; you’ll be left with the holiday hangover – your credit card bill.

You won’t be alone. More than half of the population in the U.S. relies on credit cards for Christmas shopping. Rather than worry about what you’ve already spent, take the time now to plan your recovery. You can put get rid of the debt quickly and prepare better for next year’s holiday fun.

Pay off the debt as soon as possible. If you can pay it off before the next statement, you can avoid much of the interest; if you need longer, try splitting payments to pay off the debt over the next two billing cycles. Those great Black Friday deals are not so great when you are paying interest on them month after month. Earmark any holiday money, tax refund, or post-holiday bonus you might receive toward paying off debt. It might be more fun to have another shopping spree, but you’ll be rewarding yourself in the long run by reducing your credit debt.

Stop using your credit card now. Continuing to add to your credit card balance will put you in a never-ending cycle of barely affording minimum payments and increasing your debt. If you can’t afford your purchase with the money you have right now, you can’t afford it at all.

Talk to your creditors. If you’re worried you might not be able to make payments, or if something happens to your job or your health that impacts your ability to repay, don’t wait. Try to negotiate a lower interest rate or transfer balances to other cards to lower the interest rate.

Set up automatic payments. To help reduce your balance quickly and avoid late fees, set up automatic payments with your credit card companies. You can use Ovation tools to create a plan to have your credit cards paid off sooner.

Once you have your holiday debt paid off, start saving for next year. Make and stick to a budget to avoid the strain of mounting debt. A Christmas savings account can get you through the next holiday season with ease. The holidays should be a time of laughter and celebration, not stress and mounting debt. No gift is worth the anxiety you feel when you see your next credit card bill.

Have You Made Your New Year’s Credit Resolutions Yet?

By | Budgeting, Debt, Revolving Debt

Did you know that only about 40 percent of people who make New Year’s resolutions actually stick to them?

Often, many people don’t stick to resolutions because they have chosen ones that are incredibly difficult to attain, such as extreme weight loss or winning the lottery. But one of the most common resolutions – and one  resolution that you really can attain – is to improve your financial situation. Improving your credit score can make you a more powerful consumer, because you will have access to lower interest rates and more purchasing power.

Take our multi-pronged approach to improving your finances in 2013 with a better credit score.

Step 1 – Be happy with what you have

First, begin by putting an end to the never-ending inquiries on your report. Stop applying for miscellaneous credit cards, mortgage financing and car loans until you have done enough research to make sure you are ready for that kind of purchase. Apply for credit only when it is needed. It is easy to give a car dealer permission to take a look at your credit when he or she is promising a sweet deal on a new ride. Remember that every time you allow a company to check your credit, your credit score is lowered, and these inquiries make up 10 percent of your overall credit score.

Step 2 – Skip the morning latte

If you are making only the minimum payments on your credit card debt, or worse, if you have missed payments, your credit score is going to head in the wrong direction. Make a commitment to making every payment on time, and pay more than the minimum payment. Even if you can only pay $5 more (about the price of a latte), it can make a difference, both in how much you’ll pay in interest to pay off the card and on your credit score.

Step 3 – Get Balanced

One of the most useful things you can do is employ a budget so that you are not relying on credit to meet your monthly obligations. Stick to your budget. If you use your card, pay it off. Using your card can be good for your credit score if you pay off what you spend.

Step 4 – Alleviate Old Problems

Simply, clean up your credit. Request a copy of your credit reports and carefully review them for errors. Many mistakes are often made on credit reports, so check your credit reports at least once a year for mistakes and dispute errors you find.

Step 5 – Sit Back and Reap the Rewards of another Year Past

Should old bills be forgot
and hurt your credit score no more
Should past due bills and late fees clear
from days of long ago!

With another year past comes another year of credit history for you, which is wonderful news. Credit history makes up 35 percent of your total credit score, so the longer you have your accounts, the more they work for you.

Go ahead and eat the cheesecake. Let this year’s resolutions be all about making yourself a more powerful consumer.

Are Christmas Club Accounts a Good Idea?

By | Ask a Credit Expert, Featured, Revolving Debt, Save Money

A Christmas club savings account is a special account you can set up to help fund Christmas gift purchases. Many employers offer these accounts, making it easy to have the money automatically withdrawn from your paycheck, while many banks have stopped offering Christmas club accounts. It is possible that the lack of profitability in offering such an option to consumers has come into play. Why offer a way for consumers to save money to fund Christmas when you really want them to use their credit cards?

Fortunately, credit unions still believe in the Christmas club account – and so do we, especially if it means you’ll set aside cash to pay for Christmas instead of charging everything you buy.

While Christmas club accounts will not earn you a lot of interest, they do provide the discipline that most of us are lacking, because you typically cannot withdraw the money from the account before the holiday season begins. Whether you set aside $5 a week or $100 a month, putting money into a Christmas club account might be a good idea. If you have existing credit card debt, however, you’ll be further ahead in the long run if you take the money you would have set aside in a Christmas club account and pay it toward the balances on your credit cards instead.

Christmas club accounts earn little, if any, interest, so if you are paying 14 to 28 percent interest on your credit card balances, you save a lot more by paying down that debt. The question is: Can you pay down your credit card debt and still have the discipline to avoid using credit cards to fund your holiday spending?

If discipline is an issue (and don’t feel bad, it is for most of us during the holiday season!), then opening a Christmas club account might be a New Year’s Resolution you want to make. But if you choose to pay off your credit debt and can keep from maxing out your credit cards again, you may be giving yourself the best Christmas gift of all: better credit scores and less of your monthly income earmarked for making credit card payments

If you are looking for the best way to pay off your credit card debt and give yourself the gift of more available income each month, check out Ovation’s credit card payoff tools. We have tools to help you achieve your goals, whether you need to get rid of high-balance cards, cards with high interest rates, or a combination of the two.

Federal Reserve’s Role with Your Interest Rates

By | Credit Cards, Featured, Revolving Debt

Although it may seem as if creditors are cruelly manipulating your interest rates, they are not entirely responsible. The Federal Reserve plays a major role in determining how much you pay in interest, and there are several factors that are taken into consideration. Keeping a balance is critical, because the decisions they make concerning interest directly affects your pocket book.

The Federal Reserve influences the direction of interest rates in two ways. First, they can either raise or lower the discount rate, which is the interest rate banks are charged for borrowing from the Federal Reserve. This means that when banks are charged more, you get charged more as well. The discount rate is typically higher than others simply because the government would rather have banks borrowing from each other.

Second, the Federal Reserve can directly influence the direction of the federal funds rate, which is the rate at which banks borrow from each other. Due to the fact that banks have to comply with certain regulations, the consumer often catches the backlash of incurred expenses. However, this can also benefit the consumer. Banks have to meet their regulatory reserve requirement, providing an opportunity for those banks with a surplus to maximize their return. The more money banks have available, the more they are willing to loan out.

Overall, the Federal Reserve can only go in two directions. When interest rates are lowered it typically spurs economic development, which makes it less expensive for banks to lend money and allows more money to flow back into the market. However, when the Federal Reserve raises interest rates, spending slows drastically due to the consequent rise in prices.

Generally, what this information means for the consumer is that acquiring loans and other debt is less detrimental when interest rates are low, compared to when interest rates are high. Low interest rates promote spending, which is exactly the boost our economy needs in light of the recession.

Rumor has it that the Federal Reserve has pledged not to raise interest rates until approximately 2015. Although the goal is to increase household spending, this is not an excuse to start flinging plastic at the cash register. This is the time to get your finances in order, taking advantage of the low interest rates that limit the amount of extra expenses you incur. With the Federal Reserve limiting interest rates, smart spending will keep you out of the clutches of debt.

Making Progress as You Pay Down Debt with Ovation Tools

By | Ask a Credit Expert, Debt, Revolving Debt

Making consistent monthly payments is a great step towards eliminating debt, but it can be a dreadfully slow process. Without the right payment schedule you, could be paying off whatever you charged long after the item is actually of any use to you. Unless you want to accumulate an amount of interest that would equal the price of a new car, it’s time to switch things up with one of our favorite tools.

Split Discretionary Evenly is an Ovation tool that lets you create a payment schedule designed to dwindle your debts faster than by simply meeting the minimum obligations of your creditors. What is unique about this payment plan is that it utilizes discretionary funds, which are monies used in addition to your monthly payments. The goal is to set aside an amount, separate from what you already pay, and then split that amount evenly among all your debts.

Using this payment schedule, what will eventually happen is that one debt will be paid off with the extra payments made. Then, the money that initially went toward the monthly payment for that debt can be placed in the discretionary fund pool. This can again be split evenly between the remaining debts, paying off your balances at an even higher rate than before. This trend continues until all debts have been successfully paid off.

One benefit of Split Discretionary Evenly is that payments are continuously being administered to every debt held. When payments are not being made, interest rates soar to unnecessary levels, making it even more difficult to pay off what is owed. An even split is also much easier to keep track of, so you won’t have to worry as much about what amount of money should be going where.

Setting aside funds in addition to your monthly payments may seem overwhelming, but it is completely possible. As always, do not go beyond your financial capabilities. Instead, consider ways in which you can reduce spending elsewhere. You would be surprised at how fast that morning coffee adds up. The less you spend on beverages, fast food and other frivolous items, the more you can contribute to ridding yourself of debt.

You may be making monthly payments, but if you truly want to escape debt, the bare minimum isn’t enough. A conscious effort must be made to live frugally. By doing so, payment schedules such as Split Discretionary Evenly are remarkably effective. Of course, this payment schedule is only one of the many Ovation Financial Tools available to pay off debt sooner. Find the one that meets your financial needs, and start on the path to debt recovery.

5 Things you Need to Know about Transferring Credit Card Debt

By | Credit Cards, MasterCard, Personal Finance, Revolving Debt

Everyone has received at least one credit card offer in the mail, sometimes several in the same week. Banks and financial companies are relentless in their attempts to get your business (occasionally they even want your dog to have a credit card). The offers usually include a great starting interest rate – sometimes 0% – and an option for you to transfer the balance of your existing credit cards to the new card. It seems like a great way to save money on interest and an affordable way to pay down your existing credit card debt. But you know what they say about things that sound too good to be true.

Here are five things you should know about balance transfers:

1. How it Works

When you apply for a new credit card, you will usually be able to indicate what other credit cards you have and how much you owe on those cards. When your card is approved, the new credit card company will then pay those other debts, or they will send you credit card checks for you to pay off those balances. Sometimes the balance transfer transaction can take weeks to complete, so don’t assume that you are done paying into your other cards. Keep an eye on the statements for your old cards, or you could miss a payment and incur late fees.

2. Do the Math

To take full advantage of these offers, you need to pay off the amount transferred to the new card within the low-interest-rate period. If you are looking at an offer that will give you 0% interest for 12 months, divide your debt by 12; that is your new monthly payment. If that is not affordable, than the balance transfer may do more harm than good. After the low-interest period, your rates will go up, and the interest will be calculated based on the date the transfer was made. That could mean 12 months of interest at the new, higher rate.

3. Balance Transfer Fees

Take a look at the “Terms and Conditions” portion of the application to see if there will be a “Balance Transfer Fee.” If so, you need to add that amount to your calculation above to determine your monthly payment. This fee is usually three or four percent of the balance ($150 fee for a transfer of $5,000). However, this amount may be insignificant based on the amount of interest you will be saving.

4. You May Need a Great Credit Score

Study the fine print, and see if that 0% introductory rate will actually apply to you. Many times that great interest rate is for approved credit ratings only – meaning a FICO score around 750. Also, after what may be a six- or twelve-month introductory period, the interest rate will go up, and the new rate could be higher than your existing credit card rates, if your credit score is less than ideal.

5. Shelve the New Card

It is common for balance transfer interest rates to apply only to the balance transfer. That means any purchases you make on the new card will be subject to interest (usually the rate that you will be charged once the low-interest period is over). If your goal with the balance transfer card is to take advantage of a low-interest rate to pay off your debt, you won’t be doing yourself any favors by racking up new debt on your new card. Your best bet is to shelve the new card entirely and not use it for any purchases, until your balance transfer debt is gone.

Always read the fine print, and learn all the rules for your new card. If used properly, a balance transfer offer could mean freedom from interest rates and your existing credit card debt.

Back to College: Resist Maxing Out the Credit Card

By | Credit Cards, Credit Scores, Featured, Revolving Debt, Your Credit

It’s that time again: summer is drawing to a close, and students are gearing up for a return to college. At the beginning of each semester, students often have money from summer jobs, left over funds from financial aid, and other sources of cash (i.e., Mom and Dad).

Unfortunately, as the semester progresses, funds dwindle at lightning speed. Students strapped for cash are targeted with unrelenting credit card offers that are often too tempting to resist. Once you are buried in student loans, what’s a little bit of credit card debt, right?

The Credit Card Act of 2009 prohibits credit card companies from advertising on college campuses. Enacted to protect the susceptible wallets of college students, credit card companies have found a loophole in the form of the U.S. postal service. With promises of rewards, 0% APR for the first several months, and other incentives, these offers seem like a dream come true to those who have exhausted their money supply (or are truly desperate for a pizza). What students often fail to realize is how easy it can be to become overwhelmed by debt.

Maintaining good credit takes a lot of discipline, but college campuses are not arenas for frugal living. Rather than treat it as a tool for building credit, students often make unnecessary purchases, with the idea that they will be able to pay it off “eventually.” A few late night snacks here, a college sweatshirt there, and that new electronic device that just couldn’t wait all lead to a maxed-out credit card.

To avoid overspending, college students should understand the basic responsibilities of having a credit card. First of all, purchases should not be made if you can’t pay them off the same month. A credit card is not “free money,” and with the added interest, items will cost much more than they originally would have if you had paid cash. You should be aware of your billing cycle, knowing when the payment is due each month and how to make the payments (online, through the mail, automatic withdrawal from your checking account). Most importantly, moderation is the key to surviving credit card debt.

Although recent legislation prohibits those consumers under 21 years of age from gaining a credit card without substantial income, those without the proper resources are still finding credit cards in their hands. Student credit cards are designed to be easy for students to get their hands on, and with offers soaring in through the mail, it is hard not to accept at least one. It is important that college students are educated not only on how to use a credit card but the dangers of irresponsible use as well. Without the right spending strategies, a credit card can easily destroy a student’s credit long before graduation day.

College Students: Textbooks and Pizza don’t belong on Your Credit Card

By | Personal Finance, Revolving Debt

It’s back to school time, and we can almost hear the collective groan of college students around the country who have been enjoying a much-deserved break. Almost a year ago, we wrote about the pitfalls and advantages associated with establishing credit as a college student, highlighting the importance of building a credit history while avoiding the use of a credit card for frivolous expenditures. According to Sallie Mae,  while some students use credit cards for necessities associated with completing their education, a large number of students end up using their credit cards for items such as textbooks, food and even cosmetics.

Recent data shows that on the average, over $1,100 is spent on textbooks and supplies per student annually. The same report illustrates that one pizza a week over the duration of a four-year program will cost a student approximately $2,000. If you’re using a credit card to buy books and pizza, interest rates increase the real cost considerably. When you’re already borrowing money to pay tuition, your graduation celebration can turn downright depressing under a heavy load of debt.

Although textbooks are indeed a necessity, there are a number of ways you can save money each semester. Campus bookstores often have used textbooks for sale or will rent textbooks to you for the duration of the semester. As well, campus bulletin boards are utilized by other students who wish to sell their used books, often at a lower cost than the bookstore charges. You may even be able to get fellow students to loan you books for a semester if they don’t want to sell them.

Campus bookstores aren’t always the least expensive option. has a textbook department in which you can purchase new or used textbooks, rent textbooks or purchase e-textbooks, all at a considerable savings. Other sites offering textbooks rentals (at a considerable savings over purchasing books) include,, and

With some planning on your part, you can compile a list of textbooks you need for the coming semester (professors are often willing to provide a list of the ISBNs they will be requiring). With some comparative shopping, you can find the textbooks you need inexpensively, thereby avoiding the use of your credit card. With the money you save, you won’t have to use your credit card for pizzas either.

Should I Get a Secured Credit Card?

By | Credit Cards, Credit Repair, Revolving Debt

It is not uncommon to lack credit or have bad credit. Either way, pre-approved credit card offers tease you, promising and then denying you credit, ironically because you don’t have sufficient credit. You are in a catch-22, because a good credit rating is often obtained through the use of a credit card. So how do you establish or reestablish credit if creditors won’t give you the time of day?

If you’re having a difficult time establishing a good credit rating, it might be time to consider a secure credit card. A secure credit card is similar to a traditional credit card, except that you’re required to make a deposit. This deposit ensures that if you default on your payments, the creditors do not incur a total loss. Although a secure credit card acts like other credit cards, there are pros and cons to consider.

The most obvious positive about a secure credit card is that it can be obtained when other credit cards can’t. Due to the required deposit, approval is not entirely based on your credit rating, making it less likely that your application will be rejected. Through a secure credit card, you can finally establish or reestablish credit when you wouldn’t have been able to before. All payments are included on your credit report, and consistently paying on time will improve your credit score, as if it were a traditional credit card.

There are other positives of a secure credit card not consistent with other cards. The required security deposit serves as a safety net, not just for the creditor but for you as well. If you do default on your payments, your deposit is simply withheld, a great alternative to the debt collectors that would have otherwise been at your door.

However, the requirement of a deposit is also a negative in itself when considering whether you should apply for a secure credit card. The deposit can range from hundreds to thousands of dollars, which is not always an affordable endeavor, particularly if you are in debt. As well, this deposit does not include any fees that might be included in the application process, nor the cost of actually having the card once you have been approved.

If you’re considering applying for a secure credit card, be certain that it’s right for you. A secure credit card is great for establishing a good credit rating if you’re in a position to make payments on time consistently. However, if you’re already struggling with debt, the costs associated with acquiring and maintaining a secure credit card could only make matters worse. Also keep in mind that a secure credit card isn’t the only way to establish good credit. Simple lifestyle changes, such as monitoring your spending, can often do more to repair your credit than another piece of plastic.

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