Credit Card Debt Management

During this, the busiest shopping time of year, it can be tempting to take advantage of discounts available from various retailers through the acceptance of a store credit card offer. Not only will you get a discount, but these retail credit cards generally have very liberal acceptance policies and can help you build or rebuild a strong credit rating.

However, it is very true that people spend more liberally with plastic. According to the Motley Fool:

Studies show that people spend more — and more stupidly — when no actual cash changes hands. We succumb to impulse buys (an estimated 59% of grocery store purchases are not planned) and even tip more at restaurants when we put the tab on plastic.

Why Apply for a Department Store Credit Card? 

The phenomenon of buying bigger now and paying more later (in interest fees) may be manifested in the form of an extra special holiday gift for someone else. It may be a little reward for yourself to celebrate the three miles you’ve walked around the mall in search of the perfect gift. It may be manifested four months down the road with a spring wardrobe overhaul that you really can’t afford. Either way, there is no immediate pain so it’s very appealing - especially when you are a member of the store’s “VIP Club” and receive notices of all the exclusive special offers and sales.

Another thing to beware of with credit cards from department stores and other retailers is the “High-Flying APRs.” Weigh the pros and cons in each individual situation such as:

• What is the APR on this card?
• Is this a store you shop frequently?
• Do you have good spending self-control?

Reasons Not to Apply For A Department Store Credit Card

Merely accepting a card to get the discount is a bad idea because it goes on your credit history regardless. The more credit cards held simultaneously, the worse off you are. At least make it worthwhile and make sure the card and all extra perks like exclusive offers will benefit you often. Otherwise, you’re better off just getting a regular credit card if you are able.

Good Reason to Get a Retail Credit Card

Again, if your credit rating is preventing you from getting a decent offer on a regular credit card, retail credit cards can be a good way to rebuild that rating. They also typically have lower credit limits, so can be a good way to test the waters of self-discipline before moving up to regular credit cards.

Lenders are increasing their reserves in anticipation of more charge-offs in the coming days, according to analysts quoted by MarketWatch.

Capital One expects charge-offs, known to the financially illiterate as extremely past due balances on credit cards, to reach 5.25%, or between $4.9 and $5.2 billion in 2008.

Discover Financial Services expects charge-offs of around 4.25 to 4.75 percent in 2008, or roughly $2 billion. Citigroup is facing plummeting shares, a leadership shake-up and an all around bleak future.

One can only wonder how much worse the charge-offs situation will be following Black Friday, Cyber Monday and the holiday shopping season. Lenders are insisting their charge-offs are mere precautions and, though unusually high, are still manageable. After all, FY 2001-02 saw many large credit card companies stating charge-off levels of 7% and higher, even up into the double digits. However, analysts see lenders’ current increase of their reserves as a sign that further charge-offs are expected, and may even reach historic highs.

Analysts also believe the problem largely stems to the state of the economy, which is, ironically enough, directly tied in part to the health of financial institutions. It is an enigmatic problem indeed.

There has been a small amount of controversy over the new RFID-enabled credit cards that allow contactless payment processing. Old cards will soon be obsolete as card issuers began passing around cards like MasterCard’s Paypass, Visa’s payWave and American Express’ Express Pay. Just a quick swipe and you go.

But how secure are these devices? As with all new technology, there will undoubtedly be some glitches to work out. For instance, a Marquette University Law School study cited a security incident with the ExxonMobil Speedpass key fob:

“The Texas Instruments Digital Signature Transponder (DST) used in the ExxonMobil Speedpass key fob features a forty-bit, unpublished, proprietary key that a research team cracked and used to clone a device capable of completing fraudulent gasoline purchase transactions at ExxonMobil stores.”

Proponents of cards issued by major creditors say that security is much higher on the newer devices. They have a cryptogram that changes with each transaction and security measures to prevent other radio frequency ID readers from picking up on the code inside credit cards. For instance, the radio frequency embedded in the cards is very low frequency and cannot be read from further than 4 to 6 inches away.

The Marquette University report questions whether this security is enough. For instance, even though the credit card devices may be nearly impossible to clone, how easy might it be for one to swipe the credit card number? This wouldn’t be through the storage of that information on any one computer system, because there won’t be any such storage. Instead, the credit card numbers might be swiped through an RFID reader, one would suppose. One thing is for sure, the world will be a much more secure place for a certain amount of time until the identity thieves figure this one out!