The Whiteboard: How credit cards become asset-backed bonds [Marketplace]

AMEX just sent out some new changes to terms of service for some customers, and one of them has us scratching our heads in particular. There's various increases in APRs and fees, but then under "In Case of Errors or Questions About Your Transactions" they're now adding "You authorize us or an agent to debit your Bank Account for this amount." What scenarios would qualify under "errors" or "questions"? Don't like the sound of agreeing to let anyone make withdrawals on my bank account without myself pulling the lever. The notice of TOS changes, inside...

Notice of Changes to Your Account

The terms of your Account are subject to change in accordance with the American Express Cardmember Agreement ("Agreement") governing your Account (including increasing rates and fees, changing fixed rates to variable rates, and adding new terms). Any language in your Agreement contrary to or conflicting with terms amended herein is replaced fully and completely. All terms of the Agreement not amended herein remain in full force and effect. These changes apply to existing balances and future balances on your Account. We urge you and any Additional Cardmembers on your Account to read this notice carefully and file it along with your Agreement in a safe place for future reference.

APR for Flexible Payment Features
For billing periods that begin on or after December 2, 2008, we are replacing the third sentence of subsection B of the Finance Charges section of your Agreement with the following:
- "Except as provided below, the APR is the Prime Rate plus 11.99%."
This is a variable rate. As of October 13, 2008, the Prime Rate plus 11.99% is an APR of 16.49% and a DPR of 0.0452%.

APR for Default
For billing periods that begin on or after December 2, 2008, the last sentence of subsection D of the Finance Charges section of your Agreement is replaced with the following:
- "The Default Rate is a DPR which corresponds to an APR equal to the Prime Rate plus 23.99%."
This is a variable rate. As of October 13, 2008, the Prime Rate plus 23.99% is an APR of 28.49% and a DPR 0.0781%.

Late Fees
We are changing the day upon which late fees may first be assessed as a result of late payment. If you have not paid the Amount Due on this statement before the 10th day after the Closing Date of your next statement, you will be assessed a $35 late fee (Iowa $15). For billing periods that begin on or after December 2, 2008, we are replacing the Late Fees section of your Agreement with the following:
- "If any portion of the Amount Due on a billing statement is not credited to your Account before the 10th day after the next Closing Date, we may assess a fee of $35 (Iowa $15). In addition, if any portion of that Amount Due is not credited by the following Closing Date, we may assess an additional fee in that same billing period of the greater of $35 or 2.99% of any amount past due (Iowa $15). If any amount past due is not credited to your Account by successive Closing Dates, we may assess a fee equal to the greater of $35 or 2.99% of any amount past due (Iowa $15)."

Transactions Made in Foreign Currencies
Effective January 11, 2009, the bolded clause in the Transactions Made in Foreign Currencies section of your Agreement is replaced with the following:
- "in each instance increased by 2.7%."

Electronic Funds Transfer (EFT) Agreement
Effective December 2, 2008, we are adding a sentence to the last paragraph of the "In Case of Errors or Questions About Your Transactions" section of your EFT Agreement. The following is added after the third sentence:
- "You authorize us or an agent to debit your Bank Account for this amount."

(Photo: TheTruthAbout...)

"the dictionary defines refinance as:

1. When a business or person revises their payment schedule for repaying debt.

2. Replacing an older loan with a new loan offering better terms.

Unfortunately the word refinance does not exist over at Capital One. After spending the better part of several hours being transfered back and forth between the loan customer service dept and the new loan dept I finally wrote the to the president of Capital One, Richard Fairbanks. here is what I wrote:

My wife and I have owned a capital one credit card for several years now. We also have the loan referenced above. It was originally for 25K and it is now down to 20K. Due to some unexpected hardships we find ourselves with a credit card bill of $6000 as well as some other smaller debts. We have decided it would be in our best interests to roll of these into one new loan. We want to do this with Capital One. The term for this is refinancing, a term which apparently doesn't exist in the capital one vocabulary. When I called to try to do this I was told that loan can't be refinanced, we must apply for a brand new loan. When we spoke with the loan dept we were told that unless we were solicited by Capital One recently, we could not take out a loan. Forget for a moment, the fact that my wife has in fact received such offers in the past 2-3 months, this policy is ridiculous. Even if, because of the credit crisis I've read so much about lately, you aren't loaning out money to new customers, we are NOT new customers.

We are an existing customer who you make money off of every month. We simply want to restructure the loan.

After speaking with numerous depts, being transferred multiple times between the new loan dept and the existing loan dept we are convinced that Capital One doesn't want our money. If Capital One can't assist us in restructuring this loan then we will get a loan thru Chase, where we have our checking and savings. We will use that money to pay off the loan and pay off the Capital One credit card and Capital one will stop making money off us. If Capital One isn't interested in our business, fine. I accept that. I just want to hear someone say it. I want someone to tell me "Capital One is sorry to lose your business and all the interest we are making off your loan and credit card." I don't want to be given BS reasons about this and that, I just want you to tell me to my face "Your money is no good here"

Regardless of whether you do or do not respond or whether you can or can't help me, this loan and credit card will be paid off. The only question is what company will loan us the money and thus make interest off us? If you can give us a loan for 27K over 60 months, then let's talk. If not, I still want someone to call or respond back and tell me that you don't want our money. If you can't do this, there is no other logical explanation. You (or someone you designate) can call us at XXX XXX-XXXX. We have already applied to Chase for a loan and will have an answer within 24-48 hrs. You still have the opportunity to retain our business, but the window for that is closing quickly.

Unfortunately for Mr Fairbanks, he has completely lost us as a customer before he even had a chance to rectify things. My loan installment is due today. If you pay on their website it takes 5 days for processing and yes, you'll be hit with a late fee even if you made the payment on or before the payment date. If you go into a branch and pay it takes 2-3 days for processing. My wife wanted to make the payment over the phone with our credit union debit card. She was told she could do so over the phone and that if it took too long to process that the fee would be waived. Only problem is I had the card with me. When I came home I called in and was told you can't pay with a credit or debit card over the phone." This, despite the fact that earlier my wife had been assured that we could. I said I would go to the website and pay there. Did the man warn me that you can't pay at the website with a credit or debit card? Noooo.....

So I go to their website. You used to login by putting in your account # and last four of your SS#. Now it wants an account number. I'm baffled so I call us customer service. My wife had previously today told them to permanently note the account that they had permission to speak to me (she's the primary, I'm the co-signer). Tech support tells me there is no such note and he can't help me. I speak to a manager who sees the note in question and is happy to help. He tells me to go the capitalone.com, click on personal loans and that I should then see a tab marked access account. Nope, no such tab. After 5 minutes of going back and forth, he asks "Are you at capitalone.com?" No, I'm at kissmyass.com! I tell him to stop asking stupid questions or get me someone who can help me. This MANAGER transfers me back into queue for the same dept. That's right the manager can't help me, so he's going to have a subordinate help me! The person who answers explains that the process has in fact changed and I have to click on enroll in online banking. Apparently the manager is a moron.

I finally create an account... and discover you can't pay with a credit or debit card online.

I call up and ask if this is true and the representative happily confirms this to be true.

Did I mention that in calling them yesterday and today I was cutoff at least a half dozen times by their VRU? When you enter your account #, password, mother's maiden name, shoe size and penis size, you finally have to hit zero to speak to someone. At that point, the VRU transfers you internally and someone at Capitalone screwed up the VRU programmed because they transfer you to a nonexistent number and you get that annoying local telco "do-do-DOOO! The number you have dialed is invalid..." recording. So at this point after the incompetent management, the inability of the people to know their job well enough to tell me how I can and can't pay my bill, and the fact that oh yea —I CAN'T PAY MY BILL WITH A CREDIT CARD! What is this? 1987?— I am done with Cap One. I am dumbfounded by the ineptitude on both the frontline level as well as their policy towards customers.

as a a famous man once said "They are the suckiest bunch of sucks who ever sucked."

I guess they really don't want my money after all. And even if they did it wouldn't matter. I don't want them to have my business. Once I get my new loan I'll pay off the loan and their CC and cancel the CC and they can keep their miles. Yes they had the best rewards program, but honestly, who cares about rewards when you get such crappy service?

-Mr Bill'

(Photo: yksin)

UPDATE: Bill would like to add the following clarification: "I was attempting to make a payment using a debit card linked to a credit union savings acct purposely established for emergencies. Since there is no checking account # I can't pay via check. I could have gone to the credit union, gotten a check deposited it in my bank and waited a few days for it to clear, then made the payment via my checking account. I couldn't do any of that that day since the credit union was closed. Sorry for the confusion, but I wasn't trying to pay with another credit card. I've had a car loan where I could pay using a debit or credit card, so I naturally assumed I would have the same option. Not to mention that their representatives told me I could pay that way. I would not have been so mad if they had told me up front "no you can't pay that way". I would've been annoyed but not hyper angry.

As for the idea of restructuring or refinancing I realize I may get a new, possibly higher interest rate. I never stated I expect a lower one. I have no issue if the interest is higher as my monthly obligations will be less overall. My issue is their poor service, their broken VRU and the fact that they were uninterested in maintaining me as a customer. ""

From the New York Times:

Citigroup cardholders will then have until the end of January to turn down the higher interest rates. If they decline the rate increase, they will pay down the balances on their accounts under the old pricing terms and will be able to continue to make charges until their credit cards expire.

After that, however, customers will have to reapply for a card or find a different lender.

If you receive your statement online, a separate rate increase letter will be mailed to you. LowCards.com points out that you should pay close attention to your mail because such notices are easy to overlook:

They often come in nondescript white envelopes that are easy to miss and toss before reading. However, if you don't respond, you are stuck with the rate increase.

If you decline the offer, send a letter to your issuer by certified mail.
Keep a copy of the letter for your records.

"Despite Pledge, Citigroup to Raise Credit Card Rates, Blaming ‘Difficult’ Environment" [New York Times]
(Photo: Spencer E Holtaway)

So recently the APR for my Citicard, which I have had for years at the still-crappy yet manageable APR of 10.99% increased to a whopping 16.99%.

Holy cow, you may be thinking. You must be some kind of deadbeat!

Nope! I have never missed a payment on this card. I have kept a substantial balance on it for years, which I'm sure credit card companies like. It seems that Citibank was just randomly screwing me. Of course, I could always refuse to accept the increase—and then close one of my oldest credit lines and hurt my credit report. Nyuh-uh.

I immediately responded by bailing: I transferred a huge chunk of the balance to my Bank of America card, which is no good for purchases as it offers no rewards, but oftentimes has promotional rates on balance transfers. I also called Citi today. It was a marginally successful call, only because I did not get jerked around as much as anticipated.

The customer service rep was a girl named Angel with no marked accent; surprising, being as all of my contact with Citi so far has been with heavily-accented men who try to wheedle me into buying account protection. "But ma'am you may cancel at any time." But I digress.

I was polite yet slightly crazed. I told Angel 16.99% was the most ridiculous APR EVER. I told her that my first credit card that I applied for when I was 18 without any credit history offered me a lower APR than that. I told her I had several cards with lower APRs that hadn't raised them because of some vague "financial market" excuse. I told her I didn't want to use a card that would charge me 16.99%. I have options.

Angel fumbled politely for a bit, and quickly transferred me to her manager, which was a pleasant surprise.

The manager was understanding and also polite. After giving me more vague "financial market" excuses, she said she could review the card and POSSIBLY give me a lower APR. I then got to use my favorite phrase when speaking to customer service (in bold):

"I just don't see how I can continue to use a card that has such a high APR, especially when all of my other card like my Discover card offer me 9.99% or better. I'm sure you understand."

"Oh yes," she said. And she agreed that affective today, my APR would by 11.99. Not back to where it was, still crappy, but sure as hell better than 16.99. I am proud of my response:

"Well, I will accept the 11.99 APR, but I will probably still won't use this card ever again."

Cool like ice!

"Citicard: PremierPass to a high APR" [nicolestanfield.vox.com]

I just wanted to write and say thank you for all the information that you and your team post on The Consumerist. Today my wife and I called up all our credit card companies to negotiate. Most either lowered slightly or nothing at all, except for Citi. Citi had the highest interest rate and we carried the highest balance on that card. One quick phone call and they dropped our rate from 26.99% down to 6.74%. I couldn't believe it. If it wasn't for The Consumerist I would have never known I could have negotiated the rate. Thank you all so much.

Yeah, I'd say we're helping people. Here's a sample script you can use to get it lowered. If it doesn't work, shop around, then call back and threaten to cancel for someone with a lower rate. If they still won't, then go ahead and do a balance transfer to a card with more favorable terms.

(Photo: Ben Popken)

The Office of the Comptroller of the Currency, which regulates national banks, said no to the plan. The sticking point was a clause that would let banks defer paying income tax on the forgiven debt until the rest of the debt was paid off.

From Yahoo:

The agency "does not consider any plan that defers the timely recognition of loss as prudent, and any such proposal cannot be viewed favorably by us," Timothy Long, senior deputy comptroller for bank supervision policy, said in a letter to the two groups dated Monday and made public Wednesday.

"The timely identification, reporting and management of credit losses, along with adequate loan-loss reserves and capital levels, provide the public with ... confidence" in the banking system, Long wrote.

Credit card charge-offs are up 48% from last year.

Regulators nix credit card debt forgiveness plan [Yahoo!] (Thanks, J.D.!)
(Photo: afagen )

As I understand it, security escorted each ex-worker back to his/her desk, where they collected their keys and pocketbook, etc. They were not allowed to get anything else, and must return at a later time when the building is primarily empty to collect the rest of their belongings.

We suppose that's how it goes when you work in a huge vat of jewelry.

The layoffs are being blamed on QVC's credit card division, which is experiencing more defaults.

In late October, Liberty Media said third-quarter profits dropped at its QVC home-shopping unit as the credit crunch slowed consumer spending and more customers missed payments on QVC-issued credit cards.

Some 27 percent of QVC sales are paid for with the company-issued credit cards, George said.

"People are struggling," [Mike George, QVC's president and CEO] said. "QVC will be more careful, more conservative when opening up new Q-Card accounts."

QVC to lay off 910 [Daily Local]

This is where the story takes a turn for idiotic. I also have a card with credit company B that I applied for a few months back on the suggestion of the wife. Their interest rates were lower than my current card and offered cash back on any purchases. I received my card in the mail, activated, and never used it (it too sits in my dresser drawer–it’s like a credit card social club in there). Yesterday, I received a duplicate card in the mail. Same exact card down to expiration date. I called the company to ask if this was a computer glitch, or did someone request a duplicate card, or what the hell is going on and am I going to have to go underground?

The credit card rep told me that it wasn’t a request and no one contacted them but they noticed I hadn’t made a purchase on the card yet and they sent me another card to ‘encourage me’ to use the card for purchases.

What. the. Fark.

How about a phone call? Or an email? You contact me for every other damn promotion running. I get at least one sales call a week. I don’t have a house phone because the only people calling me were telemarketers and credit card companies.

This is how credit card theft happens. Stupid ideas like this from the company I trusted in the first place to open a line of credit with. They send me duplicate cards, blanks checks in my name, and every other piece of junk mail that could be swiped from my mailbox and filled out in my name.

Ugh.

Credit card companies to blame for majority of theft [PhillyBurbs]
(Photo: frankieleon )

From the Wall Street Journal:

While retailers, car companies and others hit by the slowdown in consumer spending haven't gotten the government money, financial firms of all kinds are getting federal bailouts.

It isn't clear if the application under the Troubled Asset Relief Program came before or after the credit- and charge-card giant got Federal Reserve approval Monday to become a bank-holding company.

Amex's shares are down 57% this year as even affluent consumers keep their plastic in their wallets. The WSJ says that it is unclear how Amex would use the money — and that it's clear that $3.5 billion won't help with the consumer spending slump.

Notoriously slime-filled credit card issuer Capital One has already received approval for $3.5 billion in bailout cash.

AmEx Said to Request $3.5 Billion in U.S. Aid [WSJ] (Thanks, Jameson!)
American Express Wins Fed Approval to Become Bank (Update1) [Bloomberg]

I decided to give it a shot to try to reduce our interest rates. It worked. Thirteen lenders bid on my $3,500 loan request and they reduced my interest rate from 13% to 9.9%. Another note about Prosper loans - they have a fixed interest rate! No more worrying about that interest rate magically increasing.

See, she used her Prosper loan to pay offer her credit card, swapping her interest rate for a lower, locked-in one. This can be a good tactic for the indebted to use, especially since credit card companies have become much more reluctant to reduce interest rates (and, in fact, for some time, many have been boosting interest rates on perfectly good accounts).

Seven Things We Did to Slash Our Finance Charges from $400/month to $0/month [Blogging Away Debt]
Prosper.com [Official Site]
PREVIOUSLY: Make And Take Person To Person Loans With Prosper

Sean writes:

1) The e-mail I sent to customer service did nothing. They replied that they could do nothing.

2) The store manager called me back the next day to tell me the district manager had given approval to have the store contact the original purchaser, explain the mistake, and ask if they could recharge his card. Once this was completed, they would issue me a gift card for the original amount. She did "apologize for all he craziness" at the store the night of the incident.

3) About a week later I received a call from the district manager asking if everything had been resolved. I said I hadn't heard any updates. He told me that everything had been taken care of (the original purchaser's card had been re-charged) and that my gift card was waiting at the store. I could either pick it up, or they could mail it to me. I asked him to mail it to me.

4) A few days later I received the gift card in the mail. I called the number on the card to check the balance, and it said it couldn't because the card wasn't active. This concerned me, but I thought it could be due to the circumstances it was issued, etc.

5) A few days later, I went to the store to use my gift card. I first stopped at the customer service desk to have them check the balance on the card. They said it wasn't active, and asked if I'd already used it. I said no and that it was a long story, and they went to get the manager. She came out a few moments later (it was the same manager from the night of the original incident) and issued me a new card, which I used immediately.

So, in the end, it all turned out. I was a bit surprised that they didn't offer me anything for the trouble or at least a more sincere apology. But, I guess I should just be happy that they took responsibility and corrected the mistake.

In the future, I'll be much more explicit when making exchanges or returns as to what I want before I hand over the product. And, even though I don't think I should have to, I'll no longer assume the clerk will understand that I'm not the original purchaser if I'm using a gift receipt.

PREVIOUSLY: Circuit City Credits Wrong Card For $130 Return, Sends You Away With Nothing
(Photo: qnr - Gone for a while)

Alison Prezler, from the BBB, told MSNBC's Consumer Man columnist, Herb Weisbaum, “They have made taking advantage of people who are locked out of their house or car part of their business model."

Sadly, this is the exact scenario recently faced by reader Kaitlin. She was locked out of her car and used Google 411 to find a locksmith, and would like to share her story as a warning to others:

I locked my keys in my car Monday afternoon. It was in the parking lot of a bank/grocery store. i waited a couple hours for my boyfriend to bring me an extra key. when he couldn't find it, my dad came to try to break into my car. No go. My 2005 Focus cannot be slim-jimmed. So, after almost 4 hours, I decide to call a locksmith. I used google 411, and picked a locksmith that was supposedly on a road nearby, because i thought it would be quick. The two I called before I got this one didn't answer their phones. A1 24 hr Locksmith answers and tells me $39.99 + about a $19 service charge. I tell him the kind of car, the address, etc. They say 25-30 mins.

I start to think things might be weird when I get two calls from two different people to confirm the address, my name, etc. The "locksmith" shows up over an hour later, in an unmarked car, with no uniform. I show him my car and he decides that my 2005 ford focus is VERY hard to break into, and that the labor charge is gonna go up to $125, for a total of $177 after tax. About $19 does not = $125. I'm sure he saw 20 year old female college student and thought $$$$$. He is very intimidating. He tells me he's charged people $260 to get into their cars, and that he is giving me a deal, it is late at night, what am I gonna do. He insists that I have to pay him for the service charge anyways. It's almost 9, I've been locked out of my car for almost 5 hours with only a sweatshirt, and I'm cold (live in the seattle area). We argue awhile. I, on the verge of tears, agree to pay him. It takes him all of 2 minutes to unlock my car. I give him my credit card, and ask him if he has a business card, invoice, etc as I was planning on reporting them to the BBB. He could not give me anything that linked him to a business of any sort. This all seems way too suspicious. I drive home, seething.

When I woke up and won't to work the next morning, I noticed that the door of my car was all bent up. I didn't see it in the dark the night before. I decided to call the company back and ask for a partial refund, due to the bait and switch, the late locksmith, and especially the damage to my car. The manager lies, saying that he didn't even have an appt with me. I said "well, I have the license plate number of the car. I will just call the cops to report it, and cancel my credit card." He suddenly "remembers" me. Refuses to discuss the damage to my car or a partial refund. He just kept repeating that it wasn't a scam since the driver told me the price before he did the work. I told him if he wouldn't help me, that I would file a charge-back and report him to the bbb, etc.

I called my bank and they were very helpful. They canceled the card so it could not be used again, and began the charge-back process. When I researched online, there were all kinds of stories about a couple companies back east who have local numbers with made up addresses and ads all over the country. People have lost $300 and more. They dispatch the calls in their main offices, and send out local contractors. They do this all the time- there are hundreds of horror stories, and some of them are about A1 24 hr locksmith. Hopefully the charge-back works. These people lie, and kick you when you are down. Its really hard to google the business name or check out it's reputation when you're locked out of your car in a parking lot. I shudder t think what the charge (and intimidation) would have been like if my dad hadn't been there with me.

Is there anyone else I can file complaints with? I want to get them in trouble and I want to keep this from happening to other people. Businesses should not be able to get away with this. From reading the stories, I doubt they were even licensed, etc. Out of curiosity, I contacted more locksmiths and got the same sort of response. Finally, I got one who seemed reputable. He told me it would be $60 flat no possibility for change, etc, and said he had helped an old woman who was charged $200 to be let into her car

You've already done the right thing and reported this shady company to your credit card company. Be sure to keep following up with them and file any paperwork request in a timely fashion.

Next, report the locksmith company to the BBB, because they like to keep an eye on this sort of thing. Finally, file an official report with your state's attorney general and/or department of consumer affairs.

And, now that you know what its like to be taken advantage of by a shady locksmith, check your credit cards to see if they offer roadside assistance for when you're away from home — and find a local locksmith that's dependable for when you're not.

(Photo: mullenite )

The biggest problem created by reward chasing (which I do, by the way, and heartily endorse) is that you can wind up hurting your credit scores if you chew up a big chunk of your credit limit—even if you play the game right, by paying balances off in full. I try not to use more than 30% of any card's limit (the lower the better; under 10% is ideal). If your issuer won't raise your limit, you can make two payments: one a few days before the statement closes, to reduce the balance reported to the credit bureaus, and another right before the due date to pay off any remaining charges.

PREVIOUSLY: Is It OK To Use Credit Cards For Everything, If You Pay Them Off Every Month? (Photo: crazyBobcat)

Rebekah asks:

I was wondering about Credit Cards. Specifically having to do with keeping multiple with no balance vs. none at all. How much does your credit rating get hit when you open a credit card, even if it is a store card? My husband & I pay off our credit cards every month but put everything on them for points reasons & to track our spending. We like to take advantage of the credit card offers with points attached to them since its an actual reward you can use, but is it really worth it?

Would we better off in the long run paying for the reward to ourselves?

First of all, congratulations on paying off your balances every month! Now, as far as having multiple credit cards open with no balance, I'll assume that we're talking about a few credit cards — and not some crazy high amount. Sound fair? Ok.

There are several factors that go into your credit score. You're asking about two of them: Recent credit inquiries, and total available credit.

Credit inquiries fall in a section of your credit score called "New Credit." This section makes up 10% of your total score. When you apply for new credit, (like a store card, or a credit card) a note is made on your credit report and it is figured into the "New Credit" portion of your score. Everyone's credit is different. Here's how Fair Isaac, the company that issues FICO scores, explains the situation:

Inquiries are a subset of the "new credit" category shown above, which accounts for 10% of the total FICO score. Their importance depends on the overall information in your credit report. For some people, a given factor may be more important than for someone else with a different credit history.
...
For many people, one additional credit inquiry (voluntary and initiated by an application for credit) may not affect their FICO score at all. For most people, a credit inquiry will only decrease their FICO score by a few points.

Inquiries can have a greater impact, however, if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk: People with six inquiries or more on their credit reports are eight times more likely to declare bankruptcy than people with no inquiries on their reports.

So unless you've applied for six credit cards in the last few months, you should be OK, which is why for the sake of this answer we're assuming that you're not a compulsive credit card collector.

Now, on to the second part of your question. Is it OK to have multiple credit cards with no balances? Yep, that's just fine. Having multiple cards affects your "credit utilization ratio." Only you know how many cards we're talking about here, but the basic idea is that your credit score is affected by how much of your total available credit you've used.

Think of all of your credit cards as a big pizza. When you borrow money, that's like eating a slice of the pizza. The FICO score reflects how much pizza you have left. When you close an account — you're starting with a smaller pizza!

Now, this doesn't mean you should go out and apply for 90 million credit cards, but it also means that you shouldn't worry about having more than one card.

Here's how Fair Isaac explains it:

Say you have 3 credit cards. Credit card 1 has a $500 balance and a $2000 credit limit. Credit card 2 is an unused card with a zero balance and a $3000 limit. Credit card 3 has a $1,500 balance and a $1,500 limit. In this scenario your credit utilization ratio looks like this:

Total balances = $2,000 ($500 + $1,500)
Total available credit = $6,500 ($2,000 + $3,000 + $1,500)
Credit utilization ratio = 30% (2,000 divided by 6,500)

Now, if you decide to close credit card 2 because it's an old card that you never use, your credit utilization ratio looks like this:

Total balances = $2,000 ($500 + $1,500)
Total available credit = $3,500 ($2,000 + $1,500)
Credit utilization ratio = 57% (2,000 divided by 3,500)

You can see that your utilization ratio rose from 30% to 57% by closing the unused credit card.

And finally, are credit card reward points worth it?

If you follow a budget and are not spending more in order to "earn" points — then yes. There's nothing wrong with using a credit card to collect points on things you would have bought anyway. The trouble is that many people don't actually do this.

Reward points are there to get you to spend more, and if you're worrying about it enough that you're writing in to us, perhaps you should take a look at your budget and decide if you're really getting a good deal.

Will closing a credit card account help my FICO score? [MyFICO]
Credit Inquires [MyFICO]
(Photo: ChrisB in SEA )

Last time this happened, during the dotcom bust, the companies just raised fees to compensate for all the defaults. The trouble is, they're probably not going to be able to get away with it again.

In previous downturns, banks could make up the missing profits by raising fees. This time, there may be less room to maneuver.

“The last time credit costs spiked, the late fees were much lower, so card issuers could turn to that and reprice more nimbly,” a Morgan Stanley analyst, Betsy Graseck, said. “There is just more scrutiny now, and coming after the subprime mortgage crisis, the world is more sensitive to the way lenders behave.”

There is an upside to all of this, of course, the number of pieces of junk mail the average American receives has fallen dramatically.

Consumers Feel the Next Crisis: It’s Credit Cards [NYT]
(Photo: Jeff Keen ) (Thanks, LoquaciousMusic!)

Last March, Capital One's credit card operations became regulated by the Office of the Comptroller of the Currency (OCC) in an effort to consolidate our major subsidiaries under the same Regulator. Prior to March, we were regulated by the Federal Reserve or the Office of Thrift Supervision. The OCC has different minimum payment calculation requirements than the Fed and OTS.

I hope this context is helpful.

Got it. Remember folks, if you can't pay off your balance in full every month, please make more than the minimum payments otherwise you'll be debt forever and ever. This chart shows what I'm talking about.

PREVIOUSLY: Capital One Changes Minimum Balance Calculations (Photo: taberandrew)

The Americans would beg and plead with the Filipinos to not unblock the account, and over and over again they would. Says our insider, "if US security had been able to intervene from the get-go, he would never have been able to do so much financial damage. For the rest of his life, the true owner of that account will be dealing with the effects of this crime." It's not the outsourced place's fault, though. They're just following orders. It's whoever designed the laminated binder they were blindly following that should really be held accountable. Read the whole messed-up story below.

Our insider writes:

A guy calls up on the direct number, his voice is distinctive: deep, but nasal, like he has a cold. I ask for his name and account number. He tells me his name but says he doesn't have his card with him. Step two: I ask for his social security number. He "ums" and "uhs" for a second and I'm certain I hear a faint rustling of papers in the background. The number he gives me isn't linked to any account on file. As soon as I tell him this, he hangs up. It was odd, but I wrote it off. Calls came at a snails pace and it wasn't unusual to have 20 minutes in between them. So when a couple of minutes later I got another one, it was strange. Once again it was a call from the direct number. I ask for name and number and the voice is strikingly similar. The name he gives is different but again he has no number. I ask for the SSN and again I can hear papers rustling while he stalls. This time an account pops up. He fails verification of the mother's maiden name and immediately hangs up. By this point I'm laughing about it with my co-workers because he seems such an inept thief. As the nights go on, we start to get more calls from him. I say "we" because this was the only call center that the phone number goes to and there were only about 15 of us on staff at any given time. He had the same mannerisms for every interaction and it became such that as soon as any of us got one of these calls we immediately put him on hold (usually making up some innocent sounding excuse) and tried to put him through to security. The problem with the Philippine security department quickly became apparent.

The US security department had access to LexisNexis. If you're not familiar with it, it's basically a encyclopedia of everybody's life. Previous addresses, family member's names, jobs, schools, anything and everything that could be linked to your name and/or social security number. As an example of how incredibly (and frighteningly) thorough it is, when my now 30 year old brother was a tot, he liked to respond to junk mail with a fake name; this fake name came up as a former occupant of my parent's address when I got a chance once to do a search on myself (we had it in collections). Chase didn't trust the Philippine department to have it though. In fact, the only information they had the ability to verify was what was on the account: name, social security number, mother's maiden name, and recent purchases if they felt like being that diligent.

Here's the part of the story where some poor guy's account get's completely f-ed. This thief had been bounced to the out-sourced to security so often that he must have made a check list of any possible questions they would ask him. Through whatever means, he managed to get the answers to these questions. Now when he called, he could give us the information we were asking for, but by this point we knew his voice so well that we still tried to get him to security. It worked like this: We put him on hold and dial the extension for security. We get a security rep and start to explain the situation; we tell them he was able to give the right information, but that we know is the same guy that's been calling for weeks and we are certain he is not the account holder. They begrudgingly take the call. Minutes later another one of us gets a call from a security rep saying they are giving us a customer who has been cleared by them. And here the thief was back in our department. For those of us who had come to know him, the fight waged on night after night.

Chase is a revolving door. If you work there longer than a year, you're considered to have seniority. The few of us who knew this account was being raped could do nothing to protect it. Some newbie wouldn't know about the situation and would let the thief have his way with the account. The US security department became aware of the issue and put blocks on the account as well as incredibly long notes that explicitly said to not remove the block for any reason at any time. But sure enough, over and over, the guy would call in overnight, talk to the out-sourced security, and the block would be removed. Again, they were only able to verify with him with information that he was already known to have, yet that never seemed to deter them from clearing him.

Things got quiet for a while, and we thought maybe he'd finally been stopped from unblocking the account. Turns out that he'd actually been caught, but only after more than $40,000 in fraudulent charges on this one account. I cannot stress enough that if US security had been able to intervene from the get-go, he would never have been able to do so much financial damage. For the rest of his life, the true owner of that account will be dealing with the effects of this crime.

I wish I could this was the only time I saw the security department failing at securing an account. There was a consistent problem with the overt cultural difference. A man calls in and says he's the cardholder "Angela" and you find yourself trying to explain to security that Angela isn't a man's name and the odds of it really being his name are slim. And they just see it as cut and dry: He says he's Angela, so he must be.

To be fairer than Chase deserves, I'll note that I've been out of there for almost two years, so it's quite possible that it's all ponies and rainbows now. I'm gonna go ahead and assume though that it's run as poorly as ever.

(Photo: brycej)

A few readers have reported receiving letters from Capital One announcing that they credit card company is going to change how it calculates the minimum payment due amount. It used to be 3% of the balance, now it's going to be 1% of the balance, plus new interest, plus new late fees, or $15, whichever is greater. The change will be effective December, 2008. Most likely, Cap One saw more people not sending in their monthly payments so they changed it so that more people could afford to at least make their minimums. Maybe it's also a way to encourage people to be more loose with the plastic for Christmas. However, having a lower minimum monthly payment also encourages debtors to take longer paying off their debt, increasing their total cost in the long run. What's interesting though is the letter says the change is required by "federal banking regulators." Not sure what rule change they're referring to there. Scan of the letter inside.

(Thanks to Nathan and Jason!) (Photo: thivierr)

Chris says:

According to comments allegedly made by Howard Cox, a US Department of Justice official in a closed-door meeting last week, after being frustrated with the disk encryption employed by Yastremskiy, Turkish law enforcement may have resorted to physical violence to force the password out of the Ukrainian suspect.

Mr Cox's revelation came in the context of a joke made during his speech. While the exact words were not recorded, multiple sources have verified that Cox quipped about leaving a stubborn suspect alone with Turkish police for a week as a way to get them to voluntarily reveal their password. The specifics of the interrogation techniques were not revealed, but all four people I spoke to stated that it was clear that physical coercion was the implied method.

The Turkish interrogation seemed to have worked as Mr Cox was even able to share Yastremskiy's encryption password with the audience.

Eek.

Turkish police may have beaten encryption key out of TJ Maxx suspect [CNet]

Here's M's letter:

This is a strange one. Citibank keeps trying to foist hundreds of dollars on my wife. And not in a good Robert Redford-Demi Moore sort of way.

This was her go-to credit card for a while, since before we met. Around the time of our wedding last year, she charged a couple hundred bucks worth of gifts on what was an otherwise zero-balance card. She went to pay it off a few weeks later, but, lo and behold, it said *they* owed *us* a couple hundred bucks, after some magnificent benefactor credited our account with $600. High times in Fat City, right?

Well, being the mensch my wife is, she called Citibank and told them that somehow their Intertubes were crossed. They transferred her to the fraud department, which promised they'd look into it. Sure enough, a month or two later, we got a letter saying, "We're on to you, suckers, and we're taking our money back. Nice try, though." (I'm paraphrasing.) They debited our account and we went back to the drudgery and monotony of our lives.

Of course, Citibank, being the warm-hearted blokes we all know them to be, never uncrossed their Intertubes and kept wiring money into my wife's otherwise unused account. A few hundred bucks here, a few hundred there (always in even increments), eventually we had a balance over $1,000 in our favor. It was like the Hannukah miracle, except on a credit card.

So, sure enough, my wife calls back. Sure enough, she's transferred to the fraud department. Sure enough, they promise to look into it, and sure enough they eventually take their money back. And, this being consumerist, sure enough, they start depositing money into her account again. Always a couple hundred bucks, every few weeks.

What to do? "That's all well and good, we thought I mean, we don't use the card, so we figured we could live to ignore it and let them deal with it. "Ha ha," we'd say to our friends. "That crazy Citibank! Always trying to give us money. What will they think of next?"

Only as of today, they've started sending us CHECKS. Just today, I went down to our mailbox and found a fat, juicy check for $600, that said it represents the balance in our account. I mean, it's like they're SCREAMING at us: "TAKE OUR MONEY! YOU LOOK LIKE LOVELY PEOPLE! WE DON'T WANT IT!"

Only I can just as loudly hear, like, 800 Consumerist commenters tut-tutting, "You can't spend it. It's not your money. You are NOT lovely people; you're obviously scammers of some sort and you have this coming."

So the question is, what the hell do we do now? We've asked them, PLEADED with them to stop sending us money that doesn't belong to us. They're not listening. What now? How do we make them listen? What do we do with this check?

Save us, Consumerist; you're our only hope!

-M+C

Well, you clearly are not scammers. If you are, you are the worst scammers in the history of scams and you should go back to scam school and take scam 101.

We're going to be honest with you here and say we have no idea what you should do, other than you should not spend the money. This is what we have learned from several years of summarizing those "Bank makes $100,000 mistake, man spends it, and has life ruined" stories that show up every few months. Once the bank realizes what they are doing, they will want their money back.

If we were you, we'd start by writing an EECB to Citibank. Perhaps you can attract the attention of someone who realizes that, while, as a bank, they are supposed to loan money, it is supposed to be a bit more organized than this. Send them a detailed account of everything that has happened, and tell them to cut it out. (Keep a copy of this letter for your records, too.) It sounds like the "fraud" department might not be equipped to handle this sort of problem.

For more information about launching an EECB, click here. Here's some executive customer service contact info for Citibank.

Anyone out there have any advice for M & C?

(Photo: cmorran123 )

Citibank Executive Responsive Office in NYC
(718) 248-6433

Citibank Executive Response Unit
Rudy Guerrerro
(210) 677-7284 direct line

Remember to be nice, professional, and succinct. In customer service, karma happens very fast and you get what you give. (Photo: thecornballer)

Scam Pre-Recorded Telemarketing Calls Being Made To Region: "We're from BBB – Because of bailout, we can offer you a low-rate credit card." [Spokane.net] (Photo: tj scenes)

I have a card with one bank (that I am trying my hardest to pay off ASAP) that is 24% APR. It is killing me. A week or two ago, you had an article about a woman who paid off all her credit card debt over the course of 20 months or so. Good for her and it was a good story. One thing about it had me wondering though. She said that she negotiated with her lenders to get lower interest rates on her cards. How do you suggest I do that?

Here's what:

24%?! Good god man, get the heck out of there. You tell them to lower it or you're transferring the balance to another card with a better rate and canceling the account. Find a better credit rate at billshrink or bankrate. You may even qualify for an 0% balance transfer.

Here's what you say:

"I think I've been a good customer. I'd like to stay with you, but I really want you to lower the rate on my card. Can you help me?"

If they say no, ask to speak to a supervisor and say the same thing. If they still say no, plug in your research into the following statement:

"____ and ____ and ______ credit card companies are offering me rates of ____ and _____ and _____. Can you match them or do better? Otherwise, I think I might have to take my business there. I really want to pay off this debt, but it's hard to get ahead with the interest rate you're charging."

Skeptical? CBS News approached 10 random shoppers in a mall and had them read the first script. 6 of them were able to get their rates lowered right on the spot.

(Photo: Getty)

So it all began when Dan's father-in-law died recently . Now AMEX is hounding the mother-in-law for the $15,000 due, apparently because they don't want to have to go through the estate lawyer.

His mom was listed as an authorized user on the credit card. Under Alabama state law, authorized users are not responsible for the debt. Ah, but you're the sole account holder says AMEX. When the family checked his credit report, they see that its listed that the father-in-law closed the account in September '08. During all of September, the father-in law was in a coma.

Then on the mother-in-law's credit report, there's now an AMEX account that says it was opened in 1982...but not reported on the credit until September '08.

It seems that so they could pursue the mother-in-law for the money and avoid dealing with the estate, AMEX closed the father-in-law's account, then made a new account where the mother was solely responsible, and then transferred all the debt over to her. Now the aggressive and bullying collection calls have started.

"Isn’t this illegal and how should we proceed?" asks Dan.

(Photo: Clemson)

Sean writes:

I returned a product [yesterday] to the Appleton, WI Circuit City with a gift receipt. The clerk accepted the returned product, but mistakenly credited the original purchaser's credit card (I am not the original purchaser) for the return. After informing me of this, I told her that I did not purchase this product, it was given to me (thus, the gift receipt) and that I intended to return it for store credit so I could purchase a different product. I was told that since the return had been processed and credited to the original purchaser's credit card, nothing could be done. I was advised to contact the original purchaser and try to collect the money myself.

After much debate with the clerk, the supervisor, and the operations manager, I was told there was nothing that could be done, and the only option I had was to go back to the person who bought it, and ask for the money. This is unacceptable.

I entered the store in possession of a product (my property, I was the owner). I gave the product and gift receipt to the clerk to process a return. The clerk accepted my return and gave my money (the monetary value of the product - the original purchase price) to the wrong person (someone other than me). I left the store without my property or the monetary value of the property.

I would like either my property (the original product - a Logitech Harmony remote control) returned to me or store credit (gift card) for the orignal purchase price (approximately $130) of the product.

That's the letter Sean sent to Circuit City's customer service department, although Seans says he has yet to hear back from them. He adds, "What can I do? Isn't this illegal? They accept my returned product and mistakenly give the money to someone else, and then refuse to give me either the product or the money (store credit)? Isn't this theft of some sort? Should I contact the police?"

What do you guys think? Will the police take his report seriously? This certainly sounds like the definition of theft to us.

In the meantime, Sean, you may want to send that same letter to these Circuit City executive email addresses. What happened to you sounds to us like a fireable offense for that supervisor, and you need to make sure your story reaches the people who can see to it that you're compensated.

(Photo: Getty Images)

From The Red Tape Chronicles:

The report by the research firm Innovest Strategic Value Advisors, titled "Credit Cards at the Tipping Point," predicts that fallout from the credit crunch will lead to a sharp increase in credit card defaults in the coming year, making $1 out of every $10 owed on credit cards impossible to collect. That will force banks to write off nearly $100 billion in credit card debt, it said.

"A long build-up in consumer indebtedness, deteriorating economic conditions and a potential 'sudden stop' in credit availability could cause charge-offs to rise dramatically into 2009," the report says.

Misleading practices by credit card issuers will come back to bite them, say report author Gregory Larkin and Laura Nishikawa, as uninformed consumers who wind up facing surprise interest rate hikes and fees will be more likely to default on their loans. The report concludes that Capital One is most at risk, due in part to its aggressive marketing and "fee-trapping" strategies.

"The data points to an unsustainable business model based on penalty pricing, and the company is worst-in-class by Innovest standards," the report said.

Some more troubling details from the Red Tape Chronicles:

• Outstanding credit card debt has grown by more than 75 percent since 1999.
• More than 50 percent of Capital One's cards are "low-limit" cards, which Innovest said are designed as fee traps — consumers with low limits are more likely to surpass those limits and face penalty charges. (CEO Fairbank maintains that low-limit cards are simply a smart way to manage risk)
• Risky borrowers with low credit scores — subprime borrowers — account for roughly 30% of outstanding credit-card debt.

CREDIT CARDS AT THE TIPPING POINT? [Red Tape Chronicles] (Thanks, Doug!)

12. UNCLEAR ABOUT YOUR FINANCES
Not knowing account balances, monthly expenses, loan interest rates, fees, fines, or contractual obligations.

11. ALWAYS "BORROWING" STUFF
Such as books, pens, or small amounts of money from friends and others, and failing to return them.

10. Poor saving habits
Not planning for taxes, retirement or other not-recurring but predictable items, and then feeling surprised when they come due; a "live for today, don't worry about tomorrow" attitude."

9. SHOP TILL YOU DROP
"Good deals" are literally irresistible; making impulsive purchases; leaving price tags on clothes so they can be returned; not using items you've purchased.

8. HARD TO MAKE BASIC FINANCIAL OBLIGATIONS
or personal ones, and/or an inordinate sense of accomplishment when such obligations are met.

7. BUYING ON CREDIT FEELS DIFFERENT
than when paying cash, a feeling of being in the club, of being accepted, of being grown up.

6. LIVING IN DRAMA ABOUT YOUR DOLLAR
Using one credit card to pay another; bouncing checks; always having a financial crisis to contend with.

5. LIVING ON THE EDGE
Living paycheck to paycheck; taking risks with health and car insurance coverage; writing checks hoping money will appear to cover them.

4. INORDINATELY INHIBITED AND EMBARRASSED
in what should be a normal discussion of money.

3. OVERWORKING OR UNDEREARNING
Working extra hours to earn money to pay creditors; using time inefficiently; taking jobs below your skill and education level.

2. RELUCTANT TO CARE AND VALUE YOURSELF
Living in self-imposed deprivation; denying your basic needs in order to pay your creditors.

1. HOPING THAT A WHITE KNIGHT IS JUST GOING TO SWOOP IN AND SAVE YOUR BROKE ASS
A feeling or hope that someone will take care of you if necessary, so that you won't really get into serious financial trouble, that there will always be someone you can turn to.

How did you do? Remember, these are all a question of degree. If you can say definitely, yes, that's me, to seven or more of these, you could have a serious problem.

Signs of Compulsive Debting [Debtor's Anonymous]

MSNBC says that a consumer whose spending limit on his Platinum Card was reduced shared the letter that Amex sent explaining their decision. Here were their reasons:

“Our credit experience with customers who have made purchases at establishments where you have recently used your card.”
“Our analysis of the credit risk associated with customers who have residential loans from the creditor(s) indicated in your credit report.”

MSNBC says the the experts they contacted confirmed that this is the first time they've seen these criteria as justification for a limit reduction. An American Express spokesperson said:

“We are looking at some other factors, too, in light of the economy. We are looking at consumers holding subprime mortgages (and) those living in areas where there has been a greater deterioration in home prices.”

The consumer profiled in the story says his mortgage is a fixed rate loan from Countrywide (now Bank of America) and that he uses the card to to charge travel expenses that are then billed to the clients of his consulting firm.

AmEx rates credit risk by where you live, shop [MSNBC](Thanks, Andrew!)
(Photo: damageinc86 )

1) They won't let you charge anything on the account the whole time
2) They decrease your credit limit.

Specifically, they decrease your credit limit by the amount you pay over the minimum, plus the 10% they toss you.

Assuming you could get one, seems like doing a 0% balance transfer to another card would be a better option. But if you can't get that and you've got a balance on your Citicard you need help with, it could work for you.

Have you tried the Citi Payment Program? Let us know how it went for you in the comments.

Full scan of the mailer below.

ELSEWHERE:
Citi Cards Payment Partner Program Gives One More Reason To Try 0% APR Balance Transfer [PFblogs]
Super Deal !! Citi cards Payment partner program Get back up to $550 [Fat Wallet]

(Thanks to Santos!)

She writes: "This morning I made my very last payment on $14,300 in credit card debt and a personal line of credit for a home improvement project that was completed a few years ago. I paid it off over the last 20 months thanks to applying some of the stuff I learned at consumerist.com. It was tough. It took discipline, but I did it!

Instead of making a bunch of changes at once, I did things a little over time. It looked something like this. It's maybe not in the order that makes the most sense to a financial planner or in the order that someone else would do things; I just know that it worked for me.

MONTH 1: NEGOTIATING BETTER CREDIT CARDS RATES:
I called every single credit card company and tried to negotiate for a lower rate. I was successful with a lot of them. In once case the rate went from 14% to 7.99%. If they would not lower the interest rate, I politely thanked them and then transferred those balances onto lower rate cards. I canceled each card as it was paid off.

RELATED CONSUMERIST POST: Sample Script To Get Your Credit Card Rate Lowered

MONTH 2: GO CASH-ONLY:
I cut up every single card except one for emergencies. I actually put my remaining credit card in a big plastic cup full of water and stuck it in the freezer. That way, I'd really have to work at it to get that card. Cash only was the rule. If I did not have the cash, I did not need it. It's still in the freezer 20 months later.

RELATED CONSUMERIST POST: Paying Cash-Only, Family Spends $1,800 Less

MONTH 3: START DEBT-SNOWBALL:
It really works. I first heard about this method on consumerist and set myself up to pay off the lowest balances first. I used an Excel spreadsheet I downloaded here. I liked this one because it was easy to add extra one-time payments. I know that it would probably save me more money to pay off the higher interest rates first, but it was very, very satisfying to get stuff paid and DONE with. I cannot even begin to explain how highly motivating it was to finally pay something off. It was worth whatever little amount extra it cost me extra to pay the smallest balances off first. It makes for that good "light at the end of the tunnel" feeling. I also set up automatic payments on payday through the online bill pay to make this a seamless process. For the first couple of months, I just started off with just $50 extra because that's all I could afford. Once I started living more frugally, I applied more to the snowball.

Make extra payments to the snowball. They really do help, no matter how small. Every single extra penny that came my way went toward paying down the debt. At the end of the month, if I had anything left over in any of the budget categories, I immediately applied that as an extra payment. The nice thing about online bill pay is that it's just so easy to make as many payments as you want. Sometimes it was $100, sometimes it was $10 or even $3 one month, but every little bit helps. I purchased a printer that was almost free after rebate and applied the rebate to the debt. I did a few side jobs helping a caterer do some prep work; I sold some books on half.com, cleaned out my garage and made $300 from a yard sale, grandma sent me money for my birthday and Christmas, you get the idea. The point is, every single extra penny went right to the debt.

RELATED CONSUMERIST POST: Use Snowball Method Spreadsheet To Pay Off Debts

MONTH 4: SET UP BUDGET:
I made a budget and figured out where exactly my money was going.

RELATED CONSUMERIST POST: On The Money's Budget Calculator Helps Guide Your Monthly Spending

MONTH 5: CUT BACK EXPENSES:
I figured out what I could cut back on or go without. Not only did I figure out what I was giving up would save me I also diligently applied that amount to the snowball. It also really helps to figure out what something is costing you per year. I had no idea I was spending $600 a year just on manicures!

Here's what I gave up:

Cable TV. Got a cheap netflix plan and a roku player instead. Savings: $17/month, $204 a year
Land line phone. Savings: $27/month, $324/year
Gardener. Savings: $40/month, $480/year
Got slower DSL. Savings: $10/month, $120/year
Manicures. Did my own. Savings: $50/month, $600/year
Public Radio Membership. Sorry KQED and KALW, but I have to come first right now. I'll continue to support you later. Savings: $11/month, $132/year
Gym Membership. Savings: $30/month, $360/year
Lunches at work. Savings: $120 month, $1440/year
Starbucks. Savings: $60/month, $720/year

Total extra towards snowball: $365/month, $4,380/year.
Just like that.

RELATED CONSUMERIST POST: 5 Expenses You Can't Afford If You Have Credit Card Debt

MONTH 6:
I worked on cutting my spending in other ways.

I am an avid reader and I realized one of my biggest expenditures was new books. I gave up my Amazon habit and switched to the library. My local library allows you to browse the catalog online and request books be sent to the branch of your choice. I work 2 blocks from a branch so I just picked up things there. I also used paperbackswap.com, bookmooch.com and swaptree.com to give books I no longer wanted and in return get books I wanted. It only cost me the price of shipping books to other users via media mail. I saved unknown hundreds and hundreds of dollars by making this simple switch.

For example, in September, I spent $36 on postage to send out used books, books that would otherwise just be sitting around and in return I received about $300 worth of books had I bought them new at retail price. For those who are into DVDs and CDs, swapadvd.com and swapacd.com are also awesome sites. (Other than being a member, I'm not affiliated with any of those sites)

I stopped buying anything new. If I really, really needed something, I would ask first on freecycle http://www.freecycle.org/ and search craigslist for used items for sale. For example, my hairdryer stopped working about 6 months ago. Instead of running out to buy a new one, I posted an "Item Wanted" listing on the yahoo group and had a new and FREE hair dryer within 24 hours.

Food Budget: I ate the kind of things I normally eat; I just made some simple substitutions. I ate at home instead of eating out. I brought my lunch to work instead of eating out, but I did let myself eat out on Payday Friday. I used coupons and only bought very small amounts of perishable items so there was no waste. I stocked up on items like toilet paper when there was a really good sale, but was careful not to buy too many perishables. Nothing went to waste. I gave up paper towels and used rags instead. I shopped at the grocery outlet instead of Whole Foods (aka Whole Paycheck)

Instead of buying new clothes (except for bras, panties and socks) I shopped for things at thrift and consignment stores.

I know it sounds like I gave a lot of stuff up, but I don't see it that way - I kept thinking about what I was GETTING instead, which is freedom from debt. I still gave myself a small budget for entertainment and frugal dining out once in awhile, and please, nothing could induce me to give up my hairdresser!

You'd be surprised how much you can actually do for FREE if you just look around.

Free Theatre: Lots of theatres need volunteer ushers. You work in the theatre for an hour or so before the show, maybe stuffing envelopes or something. You help seat people before the show and then you get to see the show for free. You often get good seats too. I saw 3 or 4 free show a month this way. You often have to wear black
slacks or skirt and a white shirt, but that's a small price to pay for free theatre.

Artist's receptions: You get to mingle and talk with people, see some (hopefully) lovely and interesting art, plus get fed wine and cheese.

I also used squidlist to find cheap and free things to do.

HOW IT FEELS
I was disciplined and determined and I did it! Thank you consumerist! As of today I am debt free (except for my thankfully low fixed-rate mortgage) and I feel like a huge weight has been lifted from my mind. My spirit feels lighter. I am FREE. I am doing a happy dance! My plan is to continue to live frugally and start building up a savings
now. I will never, ever be in that much debt again. I never want to feel the stress an anxiety of owing so much.

Oh yeah, all during this time, I also put just $40 per month away into a savings account (ING) which I set up as an automatic $20 deduction every payday. I now have $800 to spend guilt-free and after 20 months I'm ready for a vacation. So, as my prize for getting debt free, I just booked a $295 flight to Cancun a bit later in October. I really deserve this vacation for a job well done and best of all? It's NOT going on a credit card.

Thanks, consumerist!

-trixare4kids"

Excellent work! We're proud of you, trixare. You really buckled down and make the right decisions to aggressively attack your debt. For anyone who's in debt, even if you just adopt a few things, there's a lot in here to get you further down the path towards true financial freedom.

(Photo: lemonjenny)

Credit card companies know that cash-strapped consumers are likely to start tapping their unused credit cards, and possibly default on the payments, so they're cutting off lines of credit for inactive accounts. Cynthia and her husband, who say they both have "excellent credit scores" and "use their credit wisely," came back from vacation to find three Citicards canceled due to inactivity. The last time they used them was last holiday season, and the cards had $14,500 in credit available on them.

While the credit card companies are completely within their rights, cutting off lines of credit can bring down people's credit scores because it decreases their amount of available credit, a factor in your FICO. And while closing inactive cards has always happened, the pace and scope has greatly increased in response to economic downturn. "I had read in the news that this would be a tactic credit card companies would be using, but I was surprised at how quick it actually happened," said Cynthia.

(Photo: yksin)