We've Got Money To Lend

How new credit card law affects you now

Most of the significant provisions of the new credit card legislation signed into law in May by President Barack Obama don't kick in until Feb. 2010, but some new provisions kick in now (USA Today Aug. 20).

As of Aug. 20, credit card issuers must give you 45 days notice before they change your interest rate or fees. And that notice has to include a brief statement telling you about your right to cancel the account.

In addition, credit card issuers and creditors that offer other open-end credit must mail your statement 21 days before the due date, or they won't be able to count your payment as late.

More extensive changes are coming in February, including rate increase restrictions on existing credit card debt, how issuers apply your credit card payments, and how issuers market cards to college students.

Be advised, though, that the new law does not require issuers to warn you about rate increases if your payment is 60 days or more late, or about credit-line reductions.

A study released Aug. 20 by Fair Isaac reveals that 8.5 million consumers' credit scores dropped from October 2008 through April as a result of an average reduction of $5,100 in available credit. When a lender lowers your credit limit, your overall use rate increases, thereby lowering your credit score. Your credit score is used to determine your interest rate.

Still Time to Find Money for College

If you're in the process of packing up your son or daughter for college and worried about how you're going to pay for it, here's good news: There are still sources of funding available (USA Today Aug. 11).

The bad news: College prices continue to rise. The average cost of attending a public four-year university for the 2008-2009 school year was $6,585 - up 6.4% from the previous year. And if you're attending a private school, expect an average price tag of $25,143 (collegeboard.com). If you multiply those numbers by four years and figure in inflation, you're laying a lot of money on the table.

Consider these options for financial assistance:

• Federal student loans. This should be the first place you look for loans. To apply for a federal student loan for the 2009-2010 school year, you must submit a federal application for financial aid (FAFSA) by June 30, 2010 at midnight. (Note: the deadlines for your state or college may be different from the federal deadline - check fafsa.ed.gov/before003a.htm for details.) You can receive grants that do not have to be repaid, work-study, or Stafford loans - either subsidized or unsubsidized, or both. Full-time dependent students can receive up to $5,500 in loans their first year, and the amount increases for second- and third-year students. You can find the FAFSA form, as well as more information, at fafsa.ed.gov.
• PLUS loans. Parent PLUS loans are federally guaranteed loans carrying a fixed rate of 8.5% - a little higher rate than some private loans, but you won't have to worry about the interest rate rising. Securing a PLUS loan does not require a high credit score; however, a foreclosure, bankruptcy, or debt more than 90 days overdue could disqualify you.
• Private loans. Although many lenders have tightened their standards, private loans are still available for students--after you've exhausted all other sources of aid. Credit unions generally offer loans at lower rates than for-profit lenders--ask your credit union loan professionals for more information. Further, a group called Credit Union Student Choice works with more than 80 credit unions to make private loans available for college students. Visit studentchoice.org for details and to view a list of participating credit unions and colleges.
• Financial aid. Although most financial aid packages are awarded in the spring, if you have suffered any financial setbacks - such as a job lay-off - you may be able to appeal to the university's financial aid office. Most colleges can take the current year's income and assets into consideration.

Your university's financial aid office also may let you set up an extended-payment plan. With this option, you can pay your tuition bill in monthly installments, instead of one large payment. To set up a plan, you may have to pay a fee of $50 to $100.

Word to the Wise Taxpayer

Recent successful federal prosecutions should serve as a warning to all taxpayers: Hiring someone to prepare your tax return does not absolve you of responsibility for its accuracy and truth.

Last month the Internal Revenue Service (IRS) made an example of James Otto Price III, a Jacksonville, Fla.-tax preparer who pleaded guilty to claiming a first-time homebuyer tax credit for a client who was not eligible. Price could receive a sentence of up to three years in jail and/or a fine of up to $250,000.

"The kicker here is that this guy's client is not off the hook," pointed out Jim Hanson, vice president of the Credit Union National Association's Center for Personal Finance. "Whether you prepare your own tax return or hire someone else to do it, you are personally responsible for the information you provide. And false claims can make you liable for penalties and interest in addition to back taxes."

CUNA's Center for Personal Finance editors offered these tips for getting sound tax preparation assistance:

• Hire a professional with a proven track record. Look for an enrolled agent, certified public accountant (CPA), or tax attorney. Only these professionals are empowered to represent you before the IRS in all matters, not just audits that they prepared and signed. Another indication of competency is affiliation with a professional organization requiring members to meet continuing education standards and follow a code of ethics. Check with the Better Business Bureau, your state's board of CPA accountancy, your state's bar association, or the IRS Office of Professional Responsibility to see if there is any record of problems with tax preparers you're considering.
• Shun preparers who promise to get you a larger refund than their competitors can. Tax returns done correctly should arrive at roughly the same results, no matter who does the calculations.
• Review the preparer's work thoroughly before signing your return. Make sure that your identifying information is correct and that nothing is left blank. Never sign a return before it's filled in and then sign only in nonerasable ink.
• Take advantage of free assistance only from trained volunteers. You can receive free tax preparation assistance through the Volunteer Income Tax Assistance Program (VITA, for taxpayers with "low- to moderate-income," which is generally $49,000 and less), Tax Counseling for the Elderly (TCE, for those aged 60 or older), and the Armed Forces Tax Council (AFTC, for members of the military and their families). Qualified volunteers with these programs are trained to help taxpayers identify and legitimately claim special credits, such as Earned Income Tax Credit. (Bear in mind that only paid tax preparers are required by law to sign returns that they have worked on.)

Cash for Clunkers to Keep on Rolling

Buyer response to the Cash for Clunkers program exceeded expectations - the appropriated $1 billion disappeared in just a few weeks - and legislators have just approved an additional $2 billion to keep the program rolling. The refueled funds are expected to last through Labor Day (Washington Post Aug. 7).

Cash for Clunkers, the government-funded Car Allowance Rebate System (CARS), began July 1, and funds were expected to last until Nov. 1. Under the program, consumers can trade in old cars for new - not used - more fuel-efficient models and receive a $3,500 or $4,500 voucher. The value depends on the mileage improvement of the new vehicle. To participate, your trade-in must meet specific requirements. You can find the most detailed requirements at cars.gov, the only official government site for the CARS program.

July new-car sales were the highest the industry has seen since August 2008 (msnbc.com Aug. 3). Car dealers, sitting on piles of inventory, are thrilled consumers are reacting to the program. The vouchers offer a good deal to many, but consumer advocates are encouraging potential buyers to think carefully about the costs of owning new car. Ask yourself several questions before buying:

• Can you afford the new-car payments? Because of the recession and high unemployment, some buyers may sign a contract they don't have the money for.
• Will your insurance costs change? Keep in mind that they may go up or down, depending on the new model.
• Do you know whether the new car you're considering is reliable? ConsumerReports.org has a section dedicated to the Cash for Clunkers program. Find a list on its site of "Recommended cars that qualify for a voucher"--models that meet program requirements and also score well in safety and reliability testing.
• Are you dealing with a reputable CARS program dealer? Scam artists already have created bogus websites to take advantage of unsuspecting consumers. A site requesting your name, address, account details, Social Security number, or other personal information for voucher registration is likely a fraud. The CARS program requires no pre-registration and will never request information from individual consumers--all transactions go through the dealer (FTC July 28). Find registered dealers in your area using the dealer locator at cars.gov.
• What is the trade-in value of your old car? If the trade-in value is more than the CARS voucher amount, take that instead. You cannot receive both the voucher and the trade-in value for your vehicle. Edmunds.com has a list of cars with values less than $4,500--check if your trade-in is on the list.
• Have you done your car-buying research? You can find new car-buying advice on ConsumerReports.org and by searching other auto sites, such as Edmunds.com, kbb.com, or JDPower.com. If you decide to make a purchase, gather pricing information before hitting the dealerships. And, see the professionals at your credit union for assistance. They can help you evaluate your financial situation, pre-approve you for a car loan, and answer any questions you may have.

Have "The Talk" Before Your Students Leave For College

If you know some college students heading back to the dorms this month, do them a favor: Tell them now what they probably will wish they'd known when they left home. Make sure they understand how to track their spending and manage their finances before setting foot on campus, say Credit Union National Association Center for Personal Finance editors.

College life comes with many extra expenses - books, tuition, room and board, bills, groceries, parking, and entertainment costs - and some students turn to credit cards as a way to spend now and pay later. According to Sallie Mae's 2009 National Study of Usage Rates and Trends, college students are swiping credit cards more than ever before. Consider these statistics:

• Undergraduates carry an average of $3,173 in credit card debt;
• Eighty-four percent of students had at least one credit card, and half had four or more; and
• Ninety-two percent of students charged textbooks, school supplies, or other education expenses; 84% charged food; and 70% charged clothing.

Although data suggest that many students spend outside their means, there is good news: A large majority of those surveyed expressed interest in more financial literacy education either before or during college.

"The biggest surprise was how fast expenses add up in college," says Hannah Gaskins, a student at the University of Wisconsin-Madison. "I never had to worry about money before getting to college. Learning how to balance a checkbook, use credit, or manage spending would all have been useful skills to know."

Use these tips to help returning students put personal finances in order:

• Make a spending plan. After accounting for all the big expenses--such as tuition, books, and room and board--you will find the small daily purchases can add up quickly. If you buy a $4 latte before class five days a week, that's $80 a month. Then there's dining out with friends, going out on the weekends and other entertainment expenses. Know your income stream each month and align that with your spending. If lattes are important to you, plan for them in your budget.
• Go easy on credit. While credit cards are an important financial tool, they are best saved for emergencies or big-ticket items, not groceries or clothing. If you must use one, try to pay off the balance at the end of the month. Credit union cards typically carry the best rates--don't give in to campus credit card solicitors.
• Keep credit healthy. You need good credit to get car loans, a mortgage, the lowest interest rates--and a job. Roughly 50% of employers now check the credit of possible hires, according to the Society for Human Resource Management (MarketWatch July 30). To keep a good score while in college, pay all bills on time, keep low balances on credit cards, regularly check accounts for unusual activity, and pay parking tickets and library fines. Also, order a free credit report from annualcreditreport.com to track your credit history and check for errors.
• Visit your credit union. The professionals there are available to help you set up accounts or offer personal finance advice, so stop by with any questions.

Tax-Free Weekend

Don't forget that the Tennessee Sales Tax Holiday is this weekend, August 7 - 9. Click here for all the details!