Message from CFP Board

-Eleanor Blayney, CFP^® Consumer Advocate, CFP Board

If you think the recent Credit CARD Act of 2009 means an end to your credit card problems, think again. The Act certainly does put a lid on some unfair practices by credit card issuers. Between August 20, 2009, when the first phase of the legislation went into effect and August 2010, issuers will be scrambling to change their methods of assessing interest on unpaid balances, notifying their customers of their credit policies, and promoting new programs. But unless you, as a consumer, make just as many changes in the way you use your card and credit, the new legislation will not necessarily improve your personal financial situation. In fact, you could be worse off than ever.

First of all, although the law aims to put a stop to the most egregious practices, it does not make credit cheaper or more available. Second, many of the provisions of the law do not come into effect for six months. This spells trouble for those individuals who now depend on every dollar of their current credit limit. Until February 2010, card companies can still raise the interest rates on existing balances to compensate for their loss of revenue from the economic contraction and the rise of bankruptcies and delinquent accounts. They are also cancelling accounts, and cutting credit limits, both of which have the effect of damaging consumers' FICO scores. That, in turn makes them targets for rate increases. The debt-burdened consumer will become the proverbial turnip further squeezed for blood.

Even consumers who are not credit-limit dependent can expect to pay more, especially next year when the provisions of the Act come fully into effect. Fees will take over from rate increases as the means for credit card companies to stay profitable, and even good credit risks who pay in full every month will need to be on the lookout for the instances when these fees will be charged. Expect to pay extra for cash advances, service calls to a credit card company employee, paper statements, or balance transfers.

For the next several months, while the credit card companies are busy changing their contracts and billing systems, here's what consumers should do to make sure the new legislation works in their favor:

• Keep using your cards (so they don't get cancelled) but keep your balances low relative to your credit limit. Starting now, credit card companies must give you longer lead time between billing you and the date you have to pay. Use that extra time to get extra funds to pay down that balance.
• Start actually reading those statements before you pay and shred them. They will become the vehicle to inform you of any changes in your credit limit or rates.
• Get out your Blackberry or daytimer: time periods and dates become more important than ever under this new law. Make sure you pay your bill on time to avoid increased late fees; if you are late with a payment, make sure it is no more than 60 days late; if you get an interest increase because you go beyond that 60 days, make an extra effort to be on time for the next six months. If you meet that time requirement, the credit card companies are required to restore the lower rate you paid before you were delinquent.

The Act is a maze of time-bound provisions and phase-ins, and credit card companies will certainly be scrambling to find ways out of and around the new restrictions. Consumers, too, need to be positioning themselves to come out ahead. Best advice in this regard: use your credit card for the simple, original reason it was invented: as a more convenient form of cash. Do not use it because you do not have the cash in the first place. Think of it only as a very short-term loan between the time of purchase and the time you pay your bills. Forget about airline tickets and redeemable points: your greatest reward will be a more financially secure life.


CFP Board is holding a free Financial Planning Clinic at the Westin Southfield Detroit in Southfield, Mich., from 11 a.m. to 4 p.m. Saturday, Sept. 19. The clinics are designed to give consumers the chance to experience the benefits of competent, unbiased financial planning in a friendly, relaxed setting—free of charge.

More than 50 CERTIFIED FINANCIAL PLANNER™ professionals have already volunteered their time. Visitors to the Clinics can consult one-on-one with CFP^® certificants regarding financial planning questions or address their specific financial inquiries.

Now in its fourth year, the Clinic outreach program offer consumers in selected cities an opportunity to address their specific financial questions with CFP^® professionals who volunteer their time and expertise for the event. Upon registering, consumers receive an information package and take part in a 15-minute orientation session, during which some background on financial planning topics and examples of questions are provided. They can then enter the Clinic, where volunteer CFP^® professionals are seated at tables designated for specific financial planning topics, including:

• General Financial Planning (Purchasing a Home, Debt Management, Building a College Fund, Savings Goals)
• Special Circumstances (Job Loss and Job Change, Foreclosure Assistance, Change in Marital Status)
• Investment Planning (Investment Strategies, Asset Accumulation, Generating Investment Income)
• Retirement Planning (Building a Retirement Fund, 401(k) and 403(b) Plans, IRA Accounts, Social Security)
• Income Tax Planning (Tax Reduction Strategies, Charitable Contributions, Small Business Taxation)
• Estate Planning (Building an Inheritance, Wills and Trusts, Estate Tax Strategies)
• Insurance Planning (Life Insurance Coverage, Disability Insurance, Long-term Care Planning)
• Employee Benefits (Managing Health Insurance, Health Savings Accounts, Pension Benefits)

Volunteer CFP^® professionals meet with only one individual, couple or family at a time, but there is no limit to the number of CFP^® professionals that participants can meet.

In addition, the Clinic will include 50-minute workshops on a variety of timely topics, including:

• Managing Money in Hard Times: Dealing with Credit Cards, Foreclosure and Unemployment
• Planning for Your Financial Goals
• Estate Planning Basics and How to Implement Them
• Financial Planning for Small Business
• Young Professionals: Launching Your Financial Plan
• Investment Planning for Retirement Assets
• Managing Your Employee Benefits: From Pensions to Severance Packages
• Living Beyond Paycheck to Paycheck

What separates the CFP Board’s Financial Planning Clinics from other events is that the volunteers provide objective advice with no strings attached. There are no products sold at the Clinics, and financial planners are not allowed to give out business cards. So consumers know they will get the best advice for them, with no obligation to do something with that person afterwards.

Any attendee who wishes to follow up with a specific volunteer at a later time will have access to that volunteer’s name and contact information in the information package provided at registration.

While walk-ins to the Clinics are welcome, large crowds are expected and admission will be granted first to those who have registered online. So CFP Board recommends taking a few moments to register online. Information and registration details about the Washington event can be found here. Information and registration details about the Miami event can be found here. A list of Frequently Asked Questions is available to help answer any additional queries about the Clinics. Other inquiries can be sent by email to clinic@CFPBoard.org.

Free registration for the Financial Planning Clinic is quick and easy. Simply complete the online registration form. We will not sell your e-mail address or use it for any purpose other than communications about the 2009 Financial Planning Clinic in Detroit.

Top News Stories

Blank Credit Card Checks Can Be Risky, According to FDIC
Ventura County Star (CA) (08/15/09) Buck, Claudia

"Convenience checks" issued by credit card companies give account holders easy access to extra cash, but the Federal Deposit Insurance Corp. (FDIC) is warning that they also can be an expensive way of managing money. Convenience checks that are filled out and redeemed are handled as a cash advance against the borrower's credit card, which in turn triggers a transaction fee as well as interest rates that can be as much as twice the card's usual annual percentage rate. The FDIC's Luke W. Reynolds also points out that convenience checks carry hidden costs, including returned-check fees if sent to a utility or retailer that does not accept that form of payment or overdrafts if deposited into a checking account by a customer who has exceeded the card's cash-advance limit. Moreover, convenience checks do not enjoy the same protections that a simple credit card purchase does under the Fair Credit Billing Act; they also do not earn the customer any points or other card-based rewards.

Personal Finance News

When It Comes to College, Many Are Paying in Advance
Pottstown Mercury (PA) (08/25/09) Choi, Candice

Some parents are looking at alternatives to 529 college savings plans in the wake of a weaker market. Unlike 529 savings plans, prepaid plans are less subject to the market's volatility. Families pay a fixed price for tuition credits that can be applied to any in-state, public college. It is the plan administrator's responsibility to invest the money to cover costs, but it is still important for buyers to check to see if any guarantees are included. The timeframe in which prepaid plans can be purchased usually lasts only a few months. This is intended to provide administrators with sufficient time to figure out the numbers needed for adequate cash reserves. In addition, the pricing and terms vary with prepaid plans based on such factors as where a person lives, the child's age, the kind of school chosen (community college or university), and the duration of the payment plan. In Virginia, for example, a lump sum, four-year university contract for an infant would cost roughly $45,000. The contract would cover tuition for any of the state's public universities.


Premium Opportunities
Wall Street Journal (08/24/09) Todorova, Aleksandra

Parents should review their insurance policies before sending their children to college, both for protection and for the chance to save money. If the campus is at least 100 miles from home and the student does not have a car at school, the auto-insurance premium should qualify for a discount. A homeowner's insurance policy covers all items that a child keeps in the dorm room, which can qualify as an additional room in the family home. As long as they are students full time, children can be covered on their parents' health insurance as dependents until the age of 23, or even longer in some cases. Parents should also consider buying life insurance if they don't have any already--at least enough to cover tuition payments in case of an unexpected family tragedy.


Teaching Teens About (Credit) History
Wall Street Journal (08/24/09) Todorova, Aleksandra

In February 2010, a new law will take effect that will require some students to have a parent as a credit card co-signer. People under age 21 must prove that they have "independent means" to repay their debts, otherwise they will need to get a parent to co-sign. Parents who are reluctant to be a co-signer but feel their child is sufficiently responsible might consider a secured credit card. This type of card requires a consumer to make a deposit with the issuer; the deposit also serves as the card's credit limit. Some secured cards pay interest on the deposit, but may also charge annual fees, account setup fees, or offer no grace period. To help build up their child's credit history, parents can also opt to make their child an authorized user of one or more of their credit cards and simply not give them an actual card.


Recession Alters Financial Outlooks, Spurs New Questions
Chicago Tribune (08/23/09) Ambrose, Eileen

The collapse of the real estate market and federal bailouts of U.S. automakers have financial planners fielding new questions about safety, retirement management, and protection of investments. For safety, planners say investors should consider money market funds or insured certificates of deposit. Those who can handle more risk may want to try high-quality municipal bonds or short-term bond funds. Stay away from long-term bonds, even if the rates are right, urges CFP^® professional, Rob Williams. In 2010, the $100,000 income cap to convert a standard IRA or 401(k) to a Roth will vanish, giving high-earning households a way to transition money into a Roth, where the earnings can be removed without a tax penalty. Generally, investors do well to switch to a Roth if they anticipate moving into a higher income bracket.


The Secrets to Finding a Student Loan
U.S. News & World Report (08/18/09) Clark, Kim

Finding the least expensive student loans in today's turbulent economy is challenging, but not impossible. As a first option to explore, students should fill out the Free Application for Federal Student Aid (FAFSA). All full-time students who complete a FAFSA and a federal loan agreement supplied by their school's financial aid office can borrow a minimum of $5,500 a year via the Stafford student loan program, while students who are at least 24 or whose parents have poor credit can get Stafford loans of up to $9,500 to $12,500, depending on their year. Other sources students can tap for loans include charities such as Maryland's Central Scholarship Bureau and the Scholarship Foundation of St. Louis, and colleges like the University of Minnesota-Twin Cities. Meanwhile, cheap alternative loans such as Virgin Money's Student Payback program can be secured if borrowers can persuade lenders that they are responsible and capable of repaying. Parents seeking student loans for their children have a number of options open to them, including home equity loans, nonprofits and colleges, and banks and private lenders. For the third option, it pays to check interest rates, and Web tools such as studentlendinganalytics.com and SimpleTuition.com can help parents compare a spectrum of loan rates. Federal loans for parents can be more costly than for students, but discounts are available.


How to Choose a Financial Adviser
U.S. News & World Report (08/17/09) Moeller, Philip

A number of factors must be taken into consideration when selecting a financial adviser, writes Philip Moeller. Queries must be made into the potential adviser's previous work experience and philosophy, and how it relates to the adviser's practice. Potential advisers also should be asked what qualifies them to offer financial planning advice and whether they are a CERTIFIED FINANCIAL PLANNER™ professional, a Certified Public Accountant-Personal Financial Specialist, or a Chartered Financial Consultant. Prospective clients should ask advisers what service they offer, what their approach to financial planning is, and whether they will be the only person working with the client. Clients should additionally inquire into the adviser's fee model, which range from fee-only to commissions to salary. The amount of money the adviser typically charges to clients should be determined, along with whether the adviser's recommendations will work to the advantage of anyone else besides the client. A query should be made as to whether the adviser has been publicly reprimanded for any illegal or unethical actions through a check on Certified Financial Planner Board of Standards' Web site, while the adviser's registration with the state or the Securities and Exchange Commission must be verified. Finally, clients should ask planners if they can have a written agreement detailing the services that will be delivered.


As CDs Slide, Search Is On for Safe Haven
Chicago Tribune (08/16/09) MarksJarvis, Gail

With 12-month certificates of deposit (CDs) coming due, risk-averse shareholders are at an impasse as to where they should put the money when CDs' yields are so paltry. Many 12-month CDs are paying less than 2 percent, and five-year CDs are unlikely to yield much higher than 3 percent. Martha Pomerantz, portfolio manager with wealth-management firm Lowry Hill, recommends establishing a five-year ladder of securities that mature at different times as a way to avoid being rigidly connected to current rates in CDs and Treasuries. Five CDs would be included in this ladder, so that a shareholder would have the opportunity to exchange a low-interest CD for a higher-paying one if interest rates climb. Northern Trust portfolio manager William Dennehy advises against locking up low-interest bond investments for many years, and suggests that conservative investors hold bonds that will mature in about five years or less. He recommends Treasury inflation-protected securities, which boast government backing and are designed to yield more interest when inflation increases. Northern Trust short-term government bond fund manager Daniel Personette holds mostly Treasuries but adds government-supported mortgage-backed securities and Fannie Mae and Freddie Mac debt securities so as to diversify portfolios and deliver some additional yield. These investments are currently safe bets with government backing, but some backing is set to expire at the end of 2009, and there are lingering issues about what to do about Fannie and Freddie.


Losing Fear of Budgeting Will Set You Free
Chicago Tribune (08/16/09) Karp, Gregory

People have such a negative association with the word “budget” that many personal financial advisors will not even use the word, instead calling it a “spending plan” or other euphemism. But whatever it is called, budgets are essential for people to understand where their money has been going and plan where it should go moving forward. People think a budget will restrict their freedom, but in fact it offers freedom, in the form of removing guilt about spending and worry about the future. Budgets allow people to be in control of where their money is going, and the best budgets allow flexibility for revision, because most people tend to give up on budgets if they are too restrictive. Some advisers tell their clients that a good way to get a picture of spending is to initially use a credit card for everything, because the monthly bill will detail expenditures and give a sense if the client is spending smart or on whims. Identifying any purchases that cause guilt is a surefire way to identify spending that should be eliminated. But before any of the details can be hammered out, clients must first get over their fear of the word budget.


Take Social Security Early? Points to Consider
New York Times (08/06/09)

The later that a person claims Social Security, the larger his or her monthly benefits check will be. But it is important to consider such things as longevity and spouse's age and health when considering whether to take benefits early, says Richard Rosso, a planner and financial consultant for Charles Schwab & Co. The Schwab Center for Financial Research says it may be better for individuals to take Social Security benefits earlier if they are no longer working and cannot make ends meet without the benefits; have poor health and do not expect average life expectancy; or if they are the lower-earning spouse and the higher-earning spouse can wait longer to claim benefits. The center says people should wait longer to take benefits if they are still working and earn enough to affect the taxability of their benefits; they are in good health and expect to go beyond average life expectancy; or are the higher-earning spouse.


Is Now a Good Time to Refinance?
Lafayette Daily Advertiser (LA) (08/04/09) Singleton, Stacey

Interest rates frequently decline during economic downturns, which may benefit homeowners seeking to lower their monthly mortgage payments. Refinancing is where a homeowner takes out a new, less expensive loan and uses the proceeds to pay off the old mortgage. However, whenever money is borrowed, costs are incurred in the form of points--a percentage of the loan amount--that would have to be paid to the bank or other mortgage holder. Other potential fees include attorney costs, so it is important to identify fees. To determine if refinancing will result in savings, homeowners need to estimate how long they plan to live in their current home. The refinancing needs to pay for itself as well as provide additional savings. For instance, if a loan's closing cost totals $2,400 and the new mortgage reduces monthly costs by $200 per month, this means that it will take about 12 months before the loan pays for itself. It is at this point that the homeowner starts to benefit from the monthly savings.

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