Credit Card Debt Management

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.

Here’s a novel idea - use your credit card rewards points to directly pay off your student loans. To my knowledge, Citi is the only company offering this service, which is part of its Thank You Rewards Network. Of course, a person could take the cashback rewards offered by any other credit card company and apply it toward student loans, but this seems better because it will make a person pay off the loan.

It is a perfect solution for those who lack self-discipline or are merely forgetful, like myself. You can use a Citi credit card to buy groceries, gas, Expedia.com travel packages or merchandise from a large array of participating merchants. Then, you get up to five rewards points for every dollar spent, a generous offer that lasts only 12 to 24 months after card initiation, with one point per dollar thereafter. Those rewards translate to a penny per point toward student loans. My understanding is that Citi sends you a check made out to the lender and you are then responsible for mailing it to the lender. 100,000 points equals $1,000.

Citi’s Thank You Rewards Network has come under fire from some critics for what they view as stingy rewards, but you can’t please all the people all the time. Hustlerama has a great post on Citi’s Rewards Network and the best way to utilize it, including paying off student loans. From my perspective, this seems like a smart way to buy what you need to purchase anyway (groceries and gas) while still socking away money to pay down debt. Of course, as with any rewards program, this isn’t license to a shopping free-for-all in the name of debt reduction. And of course, paying off the bill each month is the smartest thing you can do. Otherwise, you’re just shooting yourself in the foot. But for savvy consumers or even those trying to restore good credit, this is a fine example of financial multi-tasking.

For most of us, the holidays mean travel. Don’t be a grumbling grinch about it. Use your credit card travel rewards to make the most out of that 300-mile trip to see Great-Aunt Bertha. Jason Giacchino has several tips on how to spend wisely during the holidays, one of which is to “develop a buying strategy.”

It’s a great idea. Gas purchases and hotel stays can rack up rewards to help you enjoy a little post-holiday stress release. Check out Mr. Credit Card’s post on Kiplinger’s recommended list of credit cards for various categories.

The Capital One Platinum Plus MasterCard came out on top in the travel card category, according to Kiplinger’s. Mr. Credit Card agreed with this choice, as well as the magazine’s choice on best gas card, the BP Rewards Visa. That card offers 5% rebates on BP purchases and 2% on other travel and dining expenses. But Mr. Credit Card makes a good point - not everyone uses BP to fill up. I certainly don’t; I think their gas tends to cost more than competitors.

For non-BP users, Mr. Credit Card recommends the American Express Simply Cash Card. It is a business credit card that pays 5% rebates on gasoline and certain types of business expenses. The site mentions that a person can obtain a business credit card without actually owning a business; they will simply be treated as a sole proprietor. It’s worth a try!

For those who will need to fly instead of drive, Kiplinger’s has a recommendation on that too. Here’s what Mr. Credit Card had to say about the magazine’s choice, the Citi Premierpass Card Elite Level.

While this is a very good card, I think there are just too many types of travel reward cards to simply pick one. What they failed to mention is that this card will only suit those who travel a lot because you can earn points from the dollars you spend and also from the miles you fly. For those of us who are not really frequent flyers, then this card may not be suitable. Plus, Citi’s ThankYou Network airline reward system could get complicated as they have “fixed options” and “flexible options” for redeeming points for airline tickets. Check out our review of Citi’s Rewards for more details.

Something else to keep in mind is that the Platinum Plus MC (best travel card) is for consumers with “excellent credit,” according to MasterCard’s web site. If you can get it, go for it - and happy traveling!