Credit Card Debt Management

It’s no secret that credit card fraud is a major problem in the U.S. The tricks and techniques thieves are using to get credit card information — or the actual credit cards themselves — are getting ever more clever and savvy. So how do we, mere consumers, keep up?

Fraud Sciences was working to make a way, according to CNET.com. But that was before they were acquired by Paypal/eBay, Inc. in January. I suppose they’re still working to make a way, but under a different name. According to CNET, Fraud Sciences had developed the SpotLight transaction verification system, which inexplicably is able to determine whether a person using a credit card on a computer is indeed the real cardholder. According to CNET:

“The system cuts down on fraudulent transactions, but also lets merchants accept transactions that seem to be a bit suspicious, but in fact are genuine.”

The article goes on to state that the SpotLight verification system relies on “behavioral analytics” and “real-time fraud intelligence tools,” whatever those are. Apparently, eBay and Paypal thought it was quite a lot, because they bought it. For $169 million. Cash.

Some of the expert staff members from Fraud Sciences will also come on board the eBay/Paypal ship to help with the technology and fraud management teams. Fraud Sciences, based in Palo Alto, Calif. but originating in Israel, had built up quite an extensive client list of online merchants. The company’s policy stated that it would refund the full amount of any purchase that was approved, but later proved to be fraudulent. So that kind of guarantee coupled with a $169 million acquisition and I’m thinking this system must work really well. That’s one small leap for identity theft victims, one giant leap for mankind.

Zero APR offers can be awfully enticing, especially when you’re staring at a frighteningly high APR on your current card. But really think this through before you jump at the offer. There are some pros and cons to consider:

PROS

1) It allows you to pay off your debt faster. Transfer your old debt to the new card, and without throwing all that money at interest, you can pay more toward principal. However, make sure you have a workable plan beforehand to get out of debt, and more importantly, that you stick to the plan!

2) It frees up money to go elsewhere. True, but the wisest use of a zero APR card is to put the extra money toward your credit card’s principal balance and get the thing paid off.

3) It’s a chance for a fresh start. You swear you’re going to do it right this time. Well, it’s going to take an enormous amount of self-discipline and you will need to change your prior spending habits. This new card may offer cashback rewards or frequent flyer miles or some other perk, but don’t go use that as an excuse to go overboard on the spending!

CONS

1) After the introductory period (typically 3 months or more), the interest rate can be relatively high. If possible, you’re probably better off going with a low-APR card. Either way, make sure to pay your bill on time so your interest rate won’t jump up to a high default rate.

2) Having too many open credit cards can hurt your credit score, especially when the cards are newly opened.

Credit card companies are experts in marketing. They will throw in all kinds of perks and gimmicks to draw in applications. So next time you’re staring at an enticing credit card offer, remember to think before you leap.

Are credit cards good debt or bad debt? It’s really all in the eye of the beholder… er, the cardholder. The Depression-era generation was probably onto something:

“My grandma used to say that if you’re going to buy something that doesn’t go up in value, and you can’t afford to pay cash, then you can’t afford it,” David Bach, CEO of Finish Rich, Inc. told MSN Money.

It’s true that emergencies arise, but it’s amazing how when you’re budgeting strictly and buying only what you can afford to pay for in cash, you have enough money for the emergencies. Somewhere along the way, the old-time mentality got lost. Now, debt is divided into “good debt” and “bad debt.” In today’s world, the FICO score rules with an iron fist and separates the haves from the have-nots. Even though FICO rules are about to become a tad less stringent, you still better eat your Wheaties and study up.

Good debt

No matter what the credit card companies would have you believe, “good debt” means wealth-building debt. And credit cards are generally not wealth-building. But gone are the days when you can save up to buy a house with cash. It’s just not going to happen in most cases, unless the property is a “handyman special” or in the ghetto. So home loans are great and, when done correctly and reasonably and with the proper downpayment, they are a wealth-building tool. A home loan is an example of debt incurred to buy something that will increase in value. It’s basically an investment. Bonus: home loans come with all kinds of tax breaks.

Student loans could also be considered good debt, because it’s an investment in an education that will help you earn a living (fine arts majors aside).

Bad debt

Car loans can help you pick up chicks, but they won’t help you pay for dinner. My now-husband was a perfect example of this when we met. Shiny red Ford Mustang convertible, but we sure did go Dutch on the dinner bill. OK, but I still married him so maybe car loans are a good investment?

Bottom line: It’s a known fact that automobile values drop like a rock as soon as you drive them, so don’t knock your debt-to-income ratio out of whack over a possession that will hold a mere fraction of its value within six months. Not to mention you’re going to have to pay for the vehicle’s gas, upkeep and maintenance.

And that’s where credit cards come in. Credit cards are undeniably handy when emergency situations arise and you don’t have the funds in place to deal. A credit card could also be used to finance investments like a college education (although that would just be stupid when there are student loans available at lower interest).

So all that to say credit cards are not necessarily “bad debt.” But they’re not necessarily “good debt,” either. It’s all in how you use them, and many people use them to purchase items that lose value very quickly. And really, even if you pay on time every month, credit card companies can still pull out a “gotcha” from the fine print terms and conditions. And they will. So there you have it, the good, the bad and the ugly of the wiley world of debt.