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Tip 1

Save - Start on the right path by learning how to spend less than you make.
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Tip 2

Pay Yourself First - take an amount out of each paycheck and put it in a savings account.
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Tip 3

Big Purchases - save the money first to avoid credit card debt.
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Answers to 11 Common Question about Credit Cards

1. How can the credit card companies raise my interest rate if I've paid my bills on time? What can I do about it?

It used to be that credit card issuers could raise your rate, even on existing balances, at any time and for any reason. Thanks to the Credit CARD Act, a federal law, they can no longer do this. They can, however, raise your rate on your outstanding balance if you are more than 60 days late with a payment and they can increase the interest rate on new purchases, but only if they give you 45 days advance notice so you can cancel your account.

As for what you can do, the best thing is to try to negotiate a lower rate. Call your card issuer and suggest you will take your business elsewhere if you can't get a better deal. This works best if you have other credit cards with available credit lines, since the issuer will no doubt review your credit report to decide whether or not to work with you. It's always worth a try, though. As author Marc Eisenson says, "Not asking is an automatic no!"

If you can't negotiate a better rate, try transferring your balance to another card -- either one you already have, or a new one.


2. A debt collector has contacted me about an old debt. Do I have to pay it?


Maybe; maybe not. Every state has a statute of limitations, which governs how long the creditor or collector has to sue you. If this debt is too old, and they try to sue you to collect, you can raise the statute of limitations as a defense. That means they don't have much leverage in terms of forcing you to pay. And that gives you more leverage to negotiate a settlement -- or just to tell them to leave you alone. For more information, and to fully understand your rights, check with your state attorney general's office or a local consumer attorney.

If the debt is too old, you can simply write to the collection agency, indicate that you believe the debt is outside the statute of limitations, and instruct it to stop contacting you. Send your letter via certified mail and keep a copy for your records.

If you are worried about your credit report, keep in mind that collection items may only be reported for up to 7 1/2 years from the date you fell behind with the original lender, regardless of whether they are paid or not.

3. What is the ideal number of credit cards to carry?

It depends on what you mean by "ideal." Most people will be just fine with two major credit cards. One should be a low-rate card for times when you must carry a balance, and the other should be a card with a grace period. No annual fee is ideal, unless you plan to use the card heavily to earn some type of reward. If that's the case, weigh the cost of the annual fee against the freebies you will earn.

If you are asking about the ideal number of credit cards to obtain a strong credit score, two is a good number as well, though you can have many more and still maintain a strong credit rating. Generally, it's a good idea to have at least four credit accounts of different types (for example, a mortgage, car loan, a major credit card and a retail card). Keep your credit cards active by using them periodically. It's good to pay your bill in full each month to avoid finance charges.

Finally, if you have a lot of credit cards already, don't close them in the hopes that it will boost your credit score. Your score may actually drop if you close old accounts.

4. My child has a lot of debt. What is the best way to help?

The best way to help your child is to give him or her some financial literacy materials to learn about how to manage debt.

But my guess is that you may be writing because he or she is asking you for a consolidation loan to help pay off the debt and, while you want to be helpful, you are not sure that's the route to go.

First, trust your instincts. If you think your child has trouble handling money, then it is likely you will just be enabling him or her to go a bit longer without having to shape up. Even if your child is truly in deep straits, your loan is unlikely to solve the problem. He or she needs crisis intervention, not a loan.

If you simply can't say no, then do one of two things:

Give a gift rather than a loan. You'll never have to worry about whether you will get paid back and there will be no hard feelings if you aren't.

Agree to lend the money only if your child will agree to sign an official loan agreement. It would also be a good idea to have them set up automatic transfer of the payments to your checking or savings account from your child's. There will be no wondering about whether a check has been mailed.

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