A couple of items about Credit Card Use and Users

10 lies that got you (and keep you) in credit card debt
Posted Mar 18 2009, 2:21 AM by Karen Datko

This post comes from partner blog The Dough Roller.
While we don't have any credit card debt now, except for 0% APR balance transfers, there was a time when we did. While we never let our credit cards get completely out of control, we did build up several thousand dollars on our credit cards when I first got out of college.
So having gotten into card debt and then climbed out of it, we've learned many of the causes of this financial pain. The fact is, we can talk ourselves into using our credit cards in ways that will hurt our finances down the road.
So here are 10 lies we tell ourselves that get us in credit card debt and keep us there. It's an emergency. Often we go into debt by convincing ourselves that we have an emergency. Certainly there are times when a true emergency arises. Medical expenses are a good example of a real crisis. But many times what we call an emergency isn't really an emergency. Whether it's a second car that needs repair, or even our child's college education, we can often go without addressing what at first seems like an urgent expense. If life or liberty isn't at stake, it's probably not a true emergency.
We deserve it. This one has snagged us more than once. After working so hard to save money and spend wisely, sometimes we let our guard down under the guise of a reward. Perhaps you've had a hard week at work, and spending $150 on a fancy dinner that you can't really afford seems like a good idea and something you've earned. The problem is that it's like taking one step forward, two steps back. The "reward" just digs you deeper and deeper into debt.
We all need a break now and again. But if you are fighting credit card debt, don't go into more debt as a reward. Find some other way to reward yourself that doesn't make your financial problems more severe.
It's a bargain. Bargains are great, but they shouldn't be used as an excuse to spend more than we have. Great deals also shouldn't be used to buy more than we need. The one thing I've learned is that great deals generally come and go pretty regularly. Regardless, it's not a great deal if you spend a ton of money on credit card interest paying off the debt over months or even years.
It's not much money. It's so easy to spend money we don't have if we spend it in small amounts. Here's a factoid: Last year the Bush stimulus bill sent out stimulus payments to those taxpayers who qualified. Under the 2009 stimulus plan, payments will not be sent in lump-sum checks. Instead, those taxpayers who qualify for a stimulus payment will see their take-home pay increased each month by about $7 to $13. Why? Because we are more likely to spend an extra $10 or so each month than we are a lump-sum $400 to $800.
The same is true with "small" credit card debt. Enough small charges on the card over time can grow into a mountain of debt. If you are fighting your way out of credit card debt, there is no such thing as a small credit card charge.
The payment is small. Let's be honest. How many have justified a purchase based on the monthly finance cost? We all do that when we buy a home, asking ourselves if we can afford the payments. But with credit cards, it can be a real problem. Because most cards calculate the monthly payment at about 2% of the outstanding balance, payments are extremely small compared with the amount owed.
For example, you can nab a $1,000 TV and pay "only" about $20 to $30 a month for it. The small credit card payments have probably caused more financial turmoil for many consumers than any other factor. Remember, the payment may be small and manageable at first, but buy enough on credit and the payments grow substantially. On top of that, you still have to pay back the borrowed amount with interest.
The card rewards make it worth it. We take advantage of many travel reward credit card offers and cash-back rewards. But if the allure of these awards is putting you deeper and deeper into debt, they just aren't worth it. If you pay off your card each month, the rewards are great. But if you don't, stay away from them. In fact, if the rewards are tempting you into credit card debt, get a card without rewards or just use your debit card.
Offers of 0% APR on purchases. The 0% APR and low-interest credit cards can be like a drug dealer giving away his product for free -- at first. Once you're hooked, prices go up, way up. In the case of credit cards, once the 0% APR introductory rate expires, interest rates can easily soar into the double digits. To avoid this, I've often turned down 0% APR deals, particularly those offered by furniture stores and other retailers. If you are going to use a 0% APR deal on purchases, make sure you can pay off the balance in full before the offer expires.
Offers of 0% APR on balance transfers. We've saved a ton of money with balance-transfer credit cards. We transferred home-equity debt from a home remodeling to 0% APR cards and have saved literally thousands of dollars in interest. But we also make sure to pay off the balance transfer before the 0% APR rate expires. We also make sure not to use the card for anything else while we still have a balance on the transfer deal.
Balance-transfer offers can be great, but just like 0% APR purchase offers, make sure you can pay off the debt before the 0% APR offer expires.
It's for my business. A business credit card, particularly for small companies, can serve many important roles. Business cards can be used by employees to easily track their expenses. They can also help keep your business expenses separate from personal expenses, which is particularly important at tax time. But like all credit cards, business cards can also cause you to spend more than you should. It's easy to justify the expense as necessary when you may be able to do without. All small-business owners have to decide for themselves, of course, just how necessary an expense is, but with business credit cards, it can be easy to spend more than you should.
I'll pay it off after graduation. This is perhaps the most insidious credit card lie of all. Study after study shows that the outstanding credit card balance for college students increases as they near graduation. There are a lot of reasons for this, but one reason is that they convince themselves that they can handle the debt once they graduate and get a job. The problem is that they start out in the workforce already in the hole. Credit card debt of $10,000 or more is not uncommon for college graduates. Add to that school loans, and debt can be overwhelming even before they get started.
So if you are a high school or college student, avoid revolving credit card debt like the plague.

================================================================

Susan Woodward isn’t renewing the lease on her music boutique and internet cafe in Jackson Hole, Wyoming, after nine years. The reason: doubling interest rates on her credit cards.
“My business is seasonal, so we count on credit to stock the store at the end of the slow season and prepare for the busy season,” said Woodward, who canceled her Citibank and Capital One credit cards in February after learning that rates would climb to 19 percent from 10 percent. She said she always made timely payments and kept low balances.
Almost three-quarters of U.S. companies with fewer than 500 employees are experiencing a deterioration in credit or credit- card terms at a time when half of them depend on credit cards as a primary source of financing, according to a December survey of 250 firms by the National Small Business Association, a trade group with more than 150,000 members.
The increase in credit-card costs has forced some business owners to stop using their cards, and at the same time declining credit limits are cutting their access to cash, said Todd McCracken, president of the Washington-based NSBA. Twenty-eight percent of small businesses in NSBA’s December survey said they had their card limits or lines of credit lowered in the second half of 2008.
There were about 27 million companies with fewer than 500 employees in 2007, according to estimates by the Small Business Administration’s Office of Advocacy.
Loans Drying Up
Bank loans are drying up as an estimated 70 percent of U.S. banks have tightened standards for small-business loans, based on a Federal Reserve January survey of senior loan officers.
Financial institutions may slash $2.7 trillion in credit- card lines by the end of 2010, according to a report published last week by Meredith Whitney, chief executive officer of Meredith Whitney Advisory Group LLC in New York. Small-business owners often use business and personal credit cards, with 41 percent relying on a combination of both, based on data compiled by the NSBA.
“Small businesses in particular are getting squeezed on multiple credit fronts,” said Alan Blinder, an economics professor at Princeton University and former vice chairman of the Federal Reserve. “Some businesses are forced to turn to very expensive forms of credit or not get credit at all.”
Independent businesses with fewer than 500 employees created 60 to 80 percent of new jobs annually in the U.S. during the last decade, according to the Washington-based Small Business Administration’s Web site.
Credit Plan
President Barack Obama and Treasury Secretary Timothy Geithner said yesterday the U.S. will free up credit for small businesses by raising federal loan guarantees on Small Business Administration lending and increasing bank liquidity.
“Small businesses are the heart of the American economy,” Obama told a gathering of small-business owners, community banking executives and lawmakers at the White House. He said the measures announced yesterday are a “first step” of a continuing effort to help small business.
The Fed plans to start disbursing funds on March 25 from its Term Asset-Backed Securities Loan Facility program, or TALF, to prop up the market for consumer and small-business loans.
“If it succeeds, the TALF can be an important step in both preserving what’s left of consumer and small business lending and restoring those markets,” Blinder said.
Decrease Balances
If card limits are slashed or interest rates are increased, small-business owners should try to decrease the balances on all of their cards, not just one, so the ratio of debt to available credit is lower, a key in determining credit scores, said Jeff Van Winkle, an attorney in Grand Rapids, Michigan who represents small-businesses owners.
Borrowers should also ask vendors if they will extend credit so they can defer payment to the vendor, without penalty, instead of to the credit-card company, Van Winkle said.
Vendor financing may not be an option for Ralph Soto, who owns a construction company in Lutz, Florida. Twenty percent of the suppliers he uses won’t extend credit or are reducing credit lines, which has prevented him from bidding on certain projects that require up-front funding. Soto, 41, said the rate on his card issued by Capital One Financial Corp. has tripled, forcing him to cancel the card.
“If lenders don’t manage risk, they won’t have the funds to lend to anyone else,” said Ken Clayton, senior vice president of card policy at the Washington-based American Bankers Association. One significant way to manage risk in these economic circumstances is to reduce credit lines, Clayton said.
Risk Environment
Charge-offs, which are loans the banks don’t expect to be repaid, were 7.1 percent on average in January compared with 4.6 percent a year earlier, according to data compiled by Bloomberg. Consumers are falling behind on credit-card payments as U.S. unemployment reached 8.1 percent in February, the highest level in more than a quarter century.
American Express Co., the largest credit-card company by purchases, said yesterday net charge-offs rose to 8.7 percent of loans in February from 8.3 percent the previous month.
New York-based Citigroup Inc. may cut credit lines by $600 billion and Charlotte, North Carolina-based Bank of America Corp. by $500 billion, according to Whitney. She estimated New York-based JPMorgan Chase & Co. and American Express would decrease lines by $300 billion and $100 billion, respectively.
Rate Increase
Some customers will have their interest rates increased to reflect the current risk environment, said Pam Girardo, a spokeswoman for McLean, Virginia-based Capital One. Customers were notified in writing with a minimum 45-day notice and can opt to decline the changes and close the account, she said. A Citigroup spokesman, Samuel Wang, declined to comment on the specifics of Woodward’s case.
Woodward, 41, said three other stores along the main square in Jackson Hole are already empty, an unprecedented sight in her more than 20 years living there.
Since American Express reduced Jim MacRae’s credit limit from $25,000 to $1,500 and San Francisco-based Wells Fargo & Co. almost halved his business line of credit, he has been forced to require more than a 50 percent deposit from customers who buy office furniture from him. He can no longer afford to keep inventory in stock and sales have dropped by about 80 percent, he said.
“The stimulus package isn’t giving the companies I sell to the feeling that everything is going to be okay,” said MacRae, 59, who lives in Newport Beach, California. “Instead of buying office furniture, they’re laying people off.”
To contact the reporter on this story: Alexis Leondis in New York aleondis@bloomberg.net.