This week has seen the government introduce proposals to change the way credit cards operate. Changes are proposed in the way payments are applied, what the minimum payments should be and preventing the credit card company raising credit limits without consulting customers first.

The changes suggested as to how payments are applied to the account mean that the most expensive portion of the debt should be paid off first. This is the complete opposite of what is currently normal practice whereby the lowest interest bearing debt is cleared first while the high debts continue to rack up interest for the credit card company. This is a sensible change of benefit to all consumers who use credit cards.

The raising of credit limits whenever the credit card company wants to has always been a controversial practice. Sometimes it may be helpful to a customer who has a temporary need of credit but it has often enabled people to get into more debt than they can comfortably manage because it was all too easy to use up the additional credit.
It would be no bad thing to require credit card companies to consult their customers before raising limits and inaction by the customer would, presumably, mean their credit limit would stay the same. This seems like another good proposal as anything that requires you to think about your financial situation has to be a positive thing, enabling people to better understand if they are using more credit than they can comfortably afford.

The proposed change in minimum payments is, at first glance, to be welcomed. Credit card debt is expensive debt and the longer it runs the more it costs you. Credit cards are not the right financial tools for long term debt and a personal loan is far cheaper and more suitable for that purpose. For new credit card debt I think this would be a good thing. I do have concerns that it could be bad for some people and actually make their financial situation worse.

For anyone who already has credit card debt and may be struggling to meet the current repayments, raising the minimum payment could be disastrous. It could lead to failure to pay the minimum payments which, in turn, would lead to additional charges and push these people into even greater debt with little hope of digging themselves out again.
It could ultimately lead to them ending up in bankruptcy if month after month they are unable to make their repayments. If this change is to be applied it would seem wiser to apply it to new credit card debt and leave old debts on the previous level.
Increased minimum payments on credit cards is a sensible move but should only apply to new debt or new credit cards to avoid making some consumers suffer even more from their spending in the past.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

This looks like a bit of fun to relieve the stress of worrying about money.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

We are frequently told that banks and other financial companies try to help their customers avoid financial problems and we are also told they charge customers on the basis of how the company views the financial risk that the customer presents. The logic of that seems clear but it puzzles me that the banks seem so eager to push their customers into a far riskier financial situation as soon as they have any financial difficulty.

It should be obvious to any normal person that if someone has had difficulty in any one month they need even more money the following month to get back on track. Most people have a regular and fairly stable income and most of us would have regular expenses that we balance with our income.

The majority of people do everything they can to avoid these debt problems but the reaction of banks to this difficult situation for their customer is invariably to reduce their available cash by imposing charges which are then taken from the account without any opportunity for the account holder to manage the situation and avoid further financial difficulties.

The situation is then that, invariably, the customer has even less money available the following month to cover their expenses, to pay bills and make a payment to catch up for the previous missed payment. It is hard to see how the banks could see this as helping their customer overcome their difficulties.

This slippery slope is one many of us will have experienced with the result that as each month goes by more and more charges are applied and it gets ever harder to balance the budget and get the account back in credit.

With every additional charge it becomes more and more difficult and it can feel like you will never get straight again.You pump whatever money you can find into the account to get straight but charges just swallow it all up and still you owe more. It doesn’t take too many months like this to find yourself in a financial hole that feels like you can never climb out of.

We all live a fine line between comfortably affording our lifestyle and financial disaster. For many people, it wouldn’t take much to push them over the edge and the Bank’s way of  ‘helping’ their customers who hit a difficult patch seems to be just about the worst possible help you could have. The phrase that comes to mind is, ‘”With friends like that, who needs enemies”.

Everything may seem rosy today but none of us know what is around the corner. Financial circumstances can change and it doesn’t always have to be a big change to have a large impact on your financial situation. If you do not have significant savings to give you a comfort zone and your expenses are broadly in-line with your income, you could be at risk of financial problems if anything changes.

Many of us buy a lottery ticket with the hope that maybe this time we might be lucky and gain from a big win. The reality is that it is far more likely that something will happen which leads you towards financial disaster than it is that you will be one of the big winners on the lottery.

We need to prepare for the worst and by doing so we may avoid it ever happening. Take some simple steps to get your monthly budget in reasonable shape.

1. Build up a readily available cash reserve for any financial emergencies.
2. Avoid using credit cards for long term debt.
3. Make sure there is always enough money in your account to cover any payments and if there is not then at least cancel the direct debits which will lead to charges if the payment fails to clear. Find another way to make the payments.
4. Carry out an analysis of your financial situation which looks at income and expenditure to see just how well off you really are.
5. Prepare a budget that covers all your outgoings and expenses and has at least a little surplus in reserve. If your budget doesn’t balance do what you can to reduce your spending and get your budget back under control.

Remember that you need the money far more than your bank does but if you lose control they will take advantage of your situation and rip you off left, right and centre. They do not care about you. All you are is a cash cow to them and they will make your financial situation far worse. They will increase your financial riskiness and you will find your interest rates on debts rising as the financial industry does everything they can to, apparently,  try to bankrupt you.

Don’t let it happen to you.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)