Credit Card Debt Management

I just read a story that was fascinating and troubling at the same time.
Voiceprint – anybody heard of it?

Discovery Channel News reports that a British company is in talks with 52 banks worldwide to allow voice-activated payment in lieu of swiping a credit card. At first blush, this sounds intriguing. It is highly technical, apparently loads better than the somewhat unreliable voice-activated dialing or voice-activated phone tree commands.

Voiceprint requires users to create an account by repeating random numbers, which the company records by phone. The company claims that the recording session during setup is so intricate that a person’s voice cannot possibly be mimicked even by the best impersonator. Thus, this new technology is expected to cut down on identity theft.

Awesome, right? Apparently, 200,000 pre-subscribers think so.
They’re all waiting for the technology to hit the banks.

But, wait just a nanosecond there – what happens if I’m hoarse, depressed, or my voice sounds drastically different for any reason? What happens if I lose my voice?

And who’s to say identity thieves can’t just call Voiceprint and set up their own accounts, fraudulently using the information of others? If this is possible, how much more difficult will it be for identity theft victims to put their affairs back in order (a process that can already take up to three years) when they can’t even deactivate their own fraudulent Voiceprint account?

My biggest concern is the growing control that highly-touted computers are exerting over daily human life, because we all know technology will fail from time to time. This new technology has a huge potential to be much more of an inconvenience than a convenience.

Consider this paragraph from the news article:
“Authentication happens at the time of purchase … If it matches, the credit card can be billed. But if it doesn’t match, no purchase is made.”

Does anyone remember HAL?

It is no secret that medical costs are skyrocketing.

In fact, those costs are escalating faster than the rate of inflation and wage increase in the United States. Healthcare now makes up 16 percent of America’s Gross Domestic Product, a nearly three percent increase over the last seven years, according to a study published in January.

The solution for astronomical healthcare costs? You guessed it – credit cards.

“Borrowing to Stay Healthy,” the January study conducted by Demos and The Access Project, is a fascinating read that names medical debt as one of the leading causes of credit card debt in the United States.

In a telephone survey of 1,150 households with income levels between 50 percent and 120 percent of the local median, the study found that 29 percent of respondents felt medical expenses had contributed to their credit card debt.

This percentage will probably increase as health service providers in more states begin partnering with financial service companies to offer patients lines of credit, according to a January article in The Boston Globe. This is a convenient way for patients to cover the often-mandatory upfront costs for elective procedures, while enabling health service providers to avoid expensive and time-consuming medical billing and debt collection practices. The Globe reports that these credit lines typically offer patients a choice between low monthly repayment plans with interest or higher monthly repayment plans without interest.

The Demos study, however, expresses concern that the practice will “transform the patient/provider relationship into a debtor/creditor relationship,” and that patients may feel pressured to accept the credit lines without fully understanding the terms.

An article written by Steve Case in 2004, shortly after federal legislation authorized Health Savings Accounts, touted the health insurance option as a viable way to put consumers back in the driver’s seat of healthcare.

HSAs are essentially savings accounts stocked with tax-free money, earning tax-free interest, solely for the purpose of medical spending. These plans come with much lower monthly premiums and the money rolls over year-to-year, which Forbes calls “the antithesis” of use-it-or-lose-it Flex Spending Accounts offered by many employers.

There are two catches:
• HSAs are high-deductible, up to $2,600/person & $5,150/family.
• The HSAs must be stocked. The Demos study states that most families in high-deductible plans take advantage of the low monthly premium, but do not open and fund HSAs.

From a psychological point of view, fear of loss of insurance coverage may be a stronger catalyst for action than the need to proactively stock a “rainy day fund” for healthcare needs. In other words, families may find it easier to live on smaller paychecks or scrape together money to make higher monthly premiums for more comprehensive, lower-deductible insurance coverage since it is a tangible they stand to lose. The need to stock an HSA for that X-Ray they may or may not need some day probably won’t weigh as heavily when it’s time to allocate monthly household spending.

Of course, Forbes has a solution for that, too. The company gives its employees $2,000 each year to stock the HSA. If medical expenses exceed that and the employee’s financial obligation, then regular health insurance helps with the remaining tab.

“Our premiums last year went up only a fraction of the national average,” Forbes writes. “Now that employees will have ‘skin in the game,’ employers rightly figure that those dollars will be spent more carefully, more wisely. For instance, why get an MRI when, in certain situations, an X-Ray would be just as good?”

For employees at companies somewhat less generous than Forbes, HSAs can now be stocked with lines of credit. The essential fact is that medical expenses are inevitable and high-deducible, low-premium plans aren’t necessarily all they’re cracked up to be – with or without an HSA.

The Demos study points out that “92 percent of people in high-deductible plans spent more than 5 percent of income on out-of-pocket expenses and premiums, while 34 percent of those with comprehensive insurance did so.”

The study recommends methods other than HSAs to alleviate the possible consequences of rising dependence on credit cards for medical debts.

These include:

• Tax-deductible interest on medical debt, just like with mortgages.

• Set standards mandating adequate insurance coverage for employees

• Keep employee cost-sharing level proportional to household income.

• Do not report delinquent medical debt to credit bureaus

• “More oversight” in a “deregulated … burgeoning industry.” Ah, another topic for another day.

Teens can get exclusive access to MTV events – all they need is the MTV Citibank credit card.

The Baby Phat RushCard, a Visa prepaid capitalizing on a popular clothing brand, claims users can tell the world they are “just as savvy about money as they are about clothes.”

Wow, I thought financial savvy was more elusive than that. Where do I sign?

MTV and Baby Phat are just two of countless companies jumping on board the credit train to seize the day with an ever-younger audience – the one Visa USA has lovingly dubbed “Generation Plastic” (Chicago Sun-Times).

There are some differences between the MTV and Baby Phat examples:

• Visa’s Baby Phat is prepaid. In theory, a prepaid card works more like a debit card, preventing someone from spending more money than has been previously loaded on the card. Cards can be loaded with money via the Internet, telephone, bank or even the cash registers of participating merchants.
• No credit check with prepaid cards. Decent credit is not a prerequisite of owning a prepaid card, as is the case with a credit card (or opening a bank account/debit card, for that matter).
• Whereas credit cards usually have annual fees and interest, prepaid cards usually have monthly fees and transaction fees, so read the fine print.

These prepaid cards are absolutely the hottest thing going for teens. By co-signing, parents can get one for kids who are (typically) as young as 13. Parental message boards suggest that parents like these for the security they offer in case of card theft or loss, the convenience for globetrotting teens and the ability to track teen spending.

Some speculate – and I tend to agree – that these prepaid cards are being heavily marketed toward teens to acclimate them to credit card use. For the Visas and Citibanks of the world, there is a ton of money to be had from prepaid card fees now, but even more money can come later when the baby spenders graduate to credit cards.

Here’s an idea: Why not help a teen set up a checking account with a debit card? It offers all the same convenience of a credit card, the same ability to shop online and the same security in case of theft or loss. Bonus: parents can help teens learn the dying art of balancing a checkbook.

There are those parents who choose to add their teen as an authorized user on the family credit card account. This does not help the teen build their credit rating at all, but can be used as educational insight into the credit process. Some parents choose to set ground rules like paying off the balance at each month’s end and submitting all purchase receipts to undergo parental scrutiny.

About.com has some interesting information on the topic, including a poll showing parents overwhelmingly in favor of teen credit cards, but only when subject to parental control. Also worth viewing is About.com guide Mike Hardcastle’s list of teen credit card pros and cons.

Now, if you’ll excuse me, I have to go help my 13-year-old design his new PAYjr. Visa Buxx card.