Here's Version 1.1 of the Credit Cards FAQ6/16/99I've included answers to some of the frequently asked questions here on the Credit Card board. I've taken information from many many posters and thank them all for their posts. I certainly don't know this by myself. I'll repost with more answers as I get to them.If you need more answers now, check out the search function of the message boards. "Search" is on the tab across the top of the page.-Megan(NaggingFool)-------------What's a Happy Dance?Happy dances are the best part of the credit card board.Each of us does a happy dance when we pay off a card or successfully lower an interest rate. When we share our successes on this board, others join our happiness, and some of the success of others rubs off on us.------------- How can I lower my credit card rates? All of the companies will (now, even Discover). If you don't get a lower rate with one step, continue with the next step.1. Call your credit card company and ask them to lower your rate.2. Persist. Call again, ask for a supervisor.3. Persist some more, and explain you'll be cancelling the account if they can't help you.4. Transfer the balances to another account. When that clears, call them and cancel the account. Demand that they send you written confirmation that the account was "closed at the customer's request".------------What's two-cycle billing?courtesy of TMF2Aruba:The two-cycle billing method means that the average daily balance is calculatedfrom 2 billing cycles. As opposed to just one billing cycle which most customersare accustomed to, this method takes away the grace period for people who carry a balance. Not paying the bill in full results in the interest accruing retroactively to thepurchase date, and this becomes more costly for the consumer.------------ Is there any way I can get old accounts or late payments "erased" from my credit history? courtesy of Feorlen:There is no way to remove legitimate negative information from your credit report, except wait. Eventually it will go away, but it takes a while. If I recall correctly, it's seven years for most things. The good part is some lenders will look favorably on your recent improvement. It won't be the same as having perfect credit, but it will help. If someone tries to tell you they can remove legitimate negative information (for a fee, of course) they are only trying to take your money. Also, it is quite illegal to attempt to create a new credit history by applying for a new social security number or employer identification number. These offers should be reported to your state attorney general or consumer affairs office, not acted upon.For more on this theme: <http://boards.fool.com/registered/Message.asp?id=1040004001367000&sort=id>-------------I'm having trouble with my payments. Should I use a credit counseling agency?Many people find them helpful. They can negotiate lower interest rates and monthly payments with the credit card companies. But your use of the agency is noted on your credit report as being in debt counseling, which some lenders consider as bad as Chapter 13 bankruptcy. Most posters agree you should only use a non-profit agency.For a personal response, check out:<http://boards.fool.com/registered/Message.asp?id=1040004001345000&sort=id>------------- Which credit card should I pay off first? There are two schools of thought. Which you pick depends on what motivates you.Purely Financial Answer: Pay off the card with the highest interest rate first.Emotional Answer: Pay off the smallest debt first, so you can quickly get a sense of accomplishment from each card biting the dust.In either case, put all the money available (after minimum payments) toward the targeted account to consolidate your efforts. Paying off one debt seems managable. Paying off 11 seems overwhelming.-------------Should extra cash go to paying down CC or investing?Short answer: Pay off the cards! It's risk free.Contrary answer: pay some money to investing so you feel like you're getting somewhere.Long answer: courtesy of synchronicityThe U.S. stock market has historically (over the last 70 years) returned an average of 10% per year, albeit with a lot of volatility. That's why a general rule of thumb mentioned here is paying off all debts with interest over about 8-8.5% before investing in the market. Obviously, your situation may lend itself to bending that rule.It's easy to get excited when you see a hot sector returning 50% plus and thinkyou're missing something. Don't fall for it, unless you have a time machine and goback to get those 50%+ returns. Paying off credit card debt is a guaranteed15% (or whatever) rate of return. When you're debt free you can invest yoursavings in the market, and there will be great opportunities then if you take yourtime and do your homework. The market is not going away anytime soon.If you haven't already, check out the fool's school:<http://www.fool.com/School/13Steps/13Steps.htm>------------- Should I consider a home equity loan (HEL) to pay off my outstanding debts?Probably not, but like much of this advice, it depends on you personally.HEL's do have some advantages: deductible interest, consolidated payments, and a potentially lower interest rate. But they have some serious drawbacks. Credit Card loans are unsecured. If you don't pay them, they can't take your house.Home equity loans are, by definition, secured loans. If you default on this loan you could lose your house.Don't take a home equity loan to pay off your credit card debt unless you're absolutely sure you won't be running up additional credit card bills. The lower interest rate isn't worth losing your home. Only you know yourself well enough to make this decision. If you're not sure, then consider an unsecured loan from a credit union or bank.------------- Should I borrow from my 401k to pay off my credit cards?Generally you don't want to touch a 401k (and give up its tax-free growth) unless there are no investment options in the plan that give you a better rate of return than the loan, and you can't get a lower interest rate elsewhere.In most cases, your plan manager will call your loan if you leave the company. This could be a serious blow at a time you can ill afford it. Taking a loan against your 401k also reduces some of the tax advantages of the 401k (since you're repaying the plan with after-tax dollars).You probably want to limit your 401k deduction to the amount matched by your employer. You may also want to consider an unsecured loan from a bank or credit union.-------------Where can I find a list of credit cards that give cash back or points?My favorite site for cash back cards is Peter Flur's "Credit Card Goodies":<http://flur.com/cards>-------------What's credit scoring and how does it affect me?For a critical look, check out Greg Fisher's site: <http://creditscoring.com>To see what the company that sells scores says, check out Fair, Isaac's web site: <http://www.fairisaac.com/servlet/SiteDriver/Content/397>-------------
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