In what is turning out to be the worst recession since the Great Depression, many Americans are struggling to pay their bills as companies continue to shed jobs and the economy continues to contract.

In this recession, costly expenses like medical bills are taking a backseat to daily expenses like water, electricity, food, car, and mortgage payments. Now, as with credit cards, consumers are struggling to keep up with their medical bills and increasingly letting more and more of their bills go unpaid.

The Commonwealth Fund, a healthcare research foundation, reports that in 2007, 41 percent of adults were struggling to pay their healthcare bills, up from 34 percent in 2005 (“When Medical Bills Outpace Your Means, Seize Control Swiftly,” The New York Times, April 25, 2009). And it’s not just the uninsured who have fallen behind on their payments, nearly two-thirds of people with medical debt actually have health insurance.

Experts say, however, that there are ways to manage your medical debt even if you aren’t capable of paying it off right away.

1. Communicate with your creditor.

If you know you’re going to be late on one or more of your medical bills, let your creditors know. Just talking with them won’t obligate you to make a payment, but if your creditor is aware that you’re trying to stay on top of your debt you may be able to avoid collections, at least temporarily, and protect your credit.

2. Review your bills.

Keep a running tab of your doctor visits and medical procedures to accurately review your bills when they come in. Errors in medical billing can occur often, so if you find a discrepancy call your provider for an explanation. And remember that it can never hurt to resubmit bills to your insurer if you’ve been denied coverage.

3. Bring in extra help.

Try negotiating with your provider for a discount or for some leeway on repayment. If your creditor still won’t work with you, consider hiring a billing specialist who may be able to help you find errors in your medical bills and better understand the often-complex language of medical billing.

4. Avoid the plastic.

Don’t react with panic when you receive a late-payment notice by transferring your medical bill debt onto your credit card. Chances are if you can’t pay your medical bill now, you’re not going to be able to pay the credit card bill when it comes in later. And medical bill charges that stay on your credit card will immediately start earning interest, not to mention that charging a large sum to your credit card could negatively affect your credit score, if you’re carrying too high a debt load.

5. Know your rights.

Just because a medical bill goes to collections, doesn’t mean creditors have free rein to hassle you into paying; they have guidelines and rules to abide by — they can only call between 8 a.m. and 9 p.m. and they can’t scare you into paying the debt. Ask for the caller’s name and request that they send you the name of the creditor and the amount you owe in writing. Visit the Privacy Rights Clearinghouse for a guide to debt collection.

Popularity: 10% [?]

In response to the rising number of mortgage scams in his state, Missouri Attorney General Chris Koster announced a “zero tolerance” policy for companies engaging in misleading mortgage refinancing practices, according to press release from Koster’s office (“Attorney General Koster declares ‘Zero tolerance’ on Mortgage Scams,” April 20, 2009).

“This Attorney General’s office will have zero tolerance for any mortgage broker or refinancing lender that uses deception to lure consumers into doing business with them,” Koster said. “The Attorney General’s office will use all its powers to investigate and prosecute businesses that use deception and fraud in advertisements to Missouri consumers.”

Under the new campaign, Koster has already sued two businesses, Goldstar Home Mortgage and Oxford Lending Group, for sending misleading direct mail advertisements to consumers that encouraged homeowners to refinance their home loans.

Goldstar’s mail piece included the name of the homeowner’s bank at the top of the letter, which Koster argues made the homeowner’s own bank appear that it was encouraging homeowners to refinance with Goldstar. The company also marketed loans that were “inappropriate” for homeowners — loans that, in at least one case, would have left the homeowner with a mortgage worth more than the home itself.

Oxford Lending’s direct mail pieces stated that homeowners had a special opportunity to refinance under the “Economic Stimulus Act of 2008.” Oxford also used the U.S. Department of Housing and Urban Development’s label and name to suggest that the letter was coming from the government and not Oxford.

Koster warned Missouri homeowners to be cautious of any mail having to do with mortgage refinancing, loan consolidation, mortgage modification, and foreclosure relief. With interest rates at historic lows and foreclosures at record highs, Koster says homeowners, seniors in particular, who looking to save their homes are particularly vulnerable to these mortgage scams.

“Increasingly, mortgage brokers are using deceptive ploys to draw Missourians back into the refinancing game,” Koster warned. “Our goal is to alert consumers that these scams are out there and to sue every mortgage broker who crosses the line.”

Popularity: 7% [?]

California’s unemployment rate hit a record 11.2 percent in March, leaving 2.1 million people jobless — the highest level since World War II, according to a report released last week (“State Unemployment Rate Highest Since 1941,” San Francisco Chronicle, April 18, 2009).

The March figure surpasses the 11 percent unemployment rate the state reached during the early 1980’s recession, says Patti Roberts, spokeswoman for the state’s Employment Development Department. The March unemployment rate approaches the 11.7 percent unemployment rate the state had in January 1941.

While last month’s unemployment rate for the state was significantly higher than the national figure of 8.5 percent for March, California had the 4th highest rate of unemployment in the country, perhaps due to the decline in real estate.

“California’s higher rate of job loss is primarily the result of greater exposure to the housing downturn,” said Stephen Levy, director and senior economist at the Center for the Continuing Study of the California Economy in Palo Alto.

Forecasters Vary on Outlook

The unemployment rate is grim and many Californians have been affected by job losses, “But on the other hand things are not really as bad as you might think,” said Chris Thornberg of Beacon Economics, a California real estate and economic forecasting firm.

Thornberg believes that these job losses can be attributed to the slump in consumer spending over the last year, and sees spending starting to stabilize in the near future along with the job market.

But Jerry Nickelsburg, an economist with the UCLA Anderson Forecast, believes that in all likelihood, the job market will continue to get worse before it gets better. He predicts California’s jobless rate will reach a high of 12 percent before it begins to decline sometime in 2010.

“Unemployment will likely creep up through the end of the year,” Nickelsburg said, “because employers will want to see that the increase in demand is strong before they hire.”

Popularity: 5% [?]

The credit crisis has taken its toll on many consumers’ immediate ability to borrow and pay down their debt as, over the last year, banks and other lending institutions have slashed credit limits and hiked interest rates in an effort to protect themselves from rising consumer defaults. But economists predict that this vastly altered consumer credit market won’t be a fleeting change.

“In the previous two decades, our credit scores have become more important over time,” said personal finances expert Liz Pulliam Weston (“Rules Have Changed for Consumer Credit,” Chicago Tribune, April 19, 2009). “Then in the past year, it’s suddenly become critical.”

She warns that if consumers don’t pay attention to these recent credit developments they could make some costly mistakes that could negatively affect their personal finances.

1. Credit Scores

The overhauled credit markets have polarized the world of credit scores: now there’s good credit and bad credit and relatively little in between. Consumers with good credit have seen little to no effect on their financial lives, while consumers with less than stellar credit are increasingly facing higher interest rates, more stringent loan terms, and disqualification from all types of loans — home, auto, student, etc.

The Recommendation: Don’t take on any more debt and start paying off your existing debt.

2. Credit Benchmarks

The qualifications for good credit and bad credit have also shifted. About a year ago a 700 to a 720 FICO credit score — the most widely used credit score formula — was considered acceptable for most consumer loans, and a 620 FICO score was considered subprime and subject to less favorable terms. Today, consumers need a 740 to a 760 credit score to get the most consumer-friendly loan and credit card terms, and consumers with a 660 to 680 score are considered subprime.

The Recommendation: Pull your credit report to see if there are any unforeseen blips or mistakes that could have dinged your score. You can get a free copy of your credit report from each of the major reporting bureaus once a year at annualcreditreport.com. For a free estimate of your credit score, you can use some of the new credit simulators at Bankrate.com, Quizzle.com, or Credit.com to get an idea of where you stand, but if you’re considering taking out any new loan you may want to use a site like MyFICO.com to pull your actual credit score and see where you really fall on the new scale.

3. Credit Limits

Consumers with lower credit scores are having their credit limits slashed by credit card companies, which can severely throw off your credit utilization ratio — the ratio of your available credit to how much you’ve borrowed — and consequently, lower your credit score.

The Recommendation: Consumers with good credit scores, 750 and above, can try negotiating with their creditors to reinstate lines of credit, if need be. Creditors are more willing to accommodate consumers with good credit since they are harder to come by in this recession.

4. Card Cancellations

In addition to lowering limits, credit card companies are shutting down lines of credit due to low use, which may be one of the few credit changes to hurt consumers with good credit.

The Recommendation: Make sure to occasionally use the cards that you keep in the “back of your wallet” — charging some purchases at least a few times a year — and promptly pay off the balances on these cards in full.

5. FICO Score Formula Changes

One of the three major credit reporting bureaus, TransUnion, has begun using Fair Isaac’s new FICO score formula, which places more emphasis on your credit utilization and ignores overdue balances of less than $100. It’s unknown when or if the other credit bureaus, Equifax and Experian, will follow suit.

The Recommendation: Keep balances to below 30 percent of your available credit, and if possible, try to bring your credit utilization down to 10 percent to get better interest rates and more favorable borrowing terms on consumer loans.

Popularity: 15% [?]

After receiving hundreds of consumer complaints regarding questionable debt collection companies, Oregon’s legislature has passed a bill that gives the state attorney general new authority to sue any U.S. debt collection agency engaged in unjust collection tactics with an Oregon resident, InsideARM reports (“Oregon Passes Bill Allowing State AG to Sue Debt Collection Agencies,” April 6, 2009).

The bill, which was sanctioned by current attorney general, John Kroger, will allow the attorney general’s office to address Oregon residents’ repeated complaints that collectors were calling them in the middle of the night, harassing them at work, threatening them with arrests, and using racial epithets in their calls.

“All of these [practices] are unlawful under the Unlawful Debt Collection Practices Act [sic]; however the state had no power to enforce it on behalf of the injured consumer,” said Tony Green, spokesman for the Oregon Department of Justice.

Senate Bill 328 gives the state’s attorney general authority where it formerly didn’t exist. Prior to the bill, Oregon’s attorney general could only request that collection agencies comply with fair debt collection practices under the Unlawful Trade Protection Act, Green said. However, a loophole in the UTPA essentially exempted collection agencies from the act, even though the act applied to many other industries in the state.

If the governor signs the bill into law the UTPA loophole will be closed, giving Oregon’s attorney general the needed authority to prosecute collectors who violate the law beginning Jan. 1, 2010.

Critics Question Effectiveness of Bill

Some collection agency representatives have said the bill won’t likely affect them and that it will do little to stop illegal collection tactics.

And David Cherner, the legislative director of state government affairs at ACA International, an association of credit and collection professionals, said the bill may not live up to legislators’ expectations.

“I’m not convinced that this type of authority that’s now given to the [attorney general] is going to result in complaints decreasing,” he said. “I think there are other ways to address the rise in complaints, and unfortunately I don’t believe that this proposal is going to necessarily do that.”

Industry insiders, including collection agency owners, tend to agree with Cherner’s assessment.

“The bill is not going to give [the Oregon attorney general] the power to take away unlawful debt collectors’ licenses in the state of Oregon to stop them from continued operation,” one owner said. “[The attorney general] hasn’t accomplished anything.”

Popularity: 4% [?]

After some 10 million consumers with poor credit saw their credit lines reduced earlier last year, responsible consumers with good credit are now seeing the same credit card limit reductions as credit card issuers move to insulate themselves from defaults, reports USA Today (“Lenders Slash Credit for Responsible Borrowers,” April 2, 2009).

Approximately 22 million cardholders — all of them consumers who have kept up on their credit card payments, have paid their bills on time, and have maintained their credit — have had their accounts closed or credit limits cut, according to a recent report by Fair Isaac, the creator of the FICO credit score.

Typically, lenders have targeted those with poor credit but as the economy has continued to unravel, lenders have changed their definition of risk, says Josh Lauer, a professor at the University of New Hampshire who is writing a book on credit reporting.

Consumers who have high credit scores tend to use their credit cards less and carry low balances, says Fair Isaac’s Careen Foster, which may be why they’re now being targeted by lenders.

And consumers who pay their bills on time aren’t a very profitable demographic for lenders since these consumers tend to pay few credit card fees, adds John Ulzheimer, president of consumer education for Credit.com. Even though these cardholders are less likely to default, lenders must still set aside reserves in case consumers stop making payments on their loans.

When credit card companies close a consumer’s accounts or reduce a consumer’s credit limit, it can increase the proportion of available credit a consumer is using and bring down his or her credit score, making it harder to qualify for any type of loan in the future, especially for a consumer who already has bad credit.

The good news for those who have been responsible with their credit is that, according to the Fair Isaac report, card companies’ recent credit line reductions have had very little impact on these consumers’ credit scores, perhaps because these consumers have had their credit limits cut by only 5 percent.

Bank analyst Meredith Whitney estimates that by 2010 banks will have slashed another $2.7 trillion of available credit on consumer cards. With lenders continuing to tighten their credit standards, Ulzheimer says cardholders, even those with good credit, can’t afford to be complacent about their credit scores.

Popularity: 6% [?]

After you’ve packed away all your winter coats, scarves, and turtlenecks and dusted off all your t-shirts, shorts, and flip-flops for spring, keep that spring-cleaning momentum going and tackle your bills, your financial files, and your debts. By taking better hold of your finances, you may be able to find ways to save throughout the rest of the year. (more…)

Popularity: 6% [?]

Lawmakers are attempting to resurrect the Credit Cardholders’ Bill of Rights legislation that died in the Senate last year in an attempt to provide relief for indebted credit card holders, reports Inside ARM (“Credit Cardholders’ Bill of Rights Gets New Life in Congress,” March 25, 2009).

Introduced by Sen. Sheldon Whitehouse, D-R.I., and Sen. Richard J. Durbin, D-Ill., H.R. 627 would protect consumers from credit card companies’ predatory lending practices by limiting their exorbitant interest rate increases.

“The standard credit card agreement gives the lender the power to bleed their customer through evolving and ever more crafty tricks and traps,” Sen. Whitehouse said in a Senate hearing last week (“Debating a Ceiling On Credit Card Fees,” The Washington Post, March 25, 2009). “Under this business model, the lender focuses on squeezing out as much revenue as possible in penalty rates and fees, pushing the customer closer and closer to the edge of bankruptcy.”

The proposed legislation would apply to those companies that raise card rates higher than 15 percent plus the current yield of a 30-year treasury bond, which is currently set at 18.5 percent.

Federal Reserve regulations set to go into effect in 2010 that will target predatory lending practices by credit card issuers would be expanded under the new Credit Cardholders’ Bill of Rights:

• Prevent credit card companies from arbitrarily increasing interest rates on existing card balances

• End the practice of “double cycle” billing that currently allows creditors to charge interest on debt that consumers have already paid on time

• Prohibit lenders from advertising “fixed” rates unless the rates aren’t subject to change, or unless the fixed-rate period is clearly disclosed to the consumer

• Forbid lenders from applying cardholder payments to higher interest rate debts last

• Force creditors to accept payments made the following business day when the bills’ due date is a Sunday or a holiday

• Require creditors to offer more reasonable cut-off times for on-time mailed payments

While banking industry advocates admit that some card issuers have engaged in harmful practices , they say the industry as a whole has not overstepped its bounds and that cardholders issuers could be hurt rather than helped by the new legislation.

If the bill passes, “the market response would simply be to restrict credit, raise interest rates and fees or both,” said Kenneth Clayton, senior vice president and general counsel of the American Bankers Association’s Card Policy Council, in a letter to the Senate subcommittee. “This would significantly hurt tens of millions of Americans at the very time they can least afford it.”

Popularity: 5% [?]

In order to offset record delinquencies and rising charge-offs, credit card companies are continuing to hike up penalties and, in many cases, double fee amounts for certain cardholders, reports USA Today (“Bank Credit Card Fees Keep Going Up,” March 15, 2009).

By the end of 2008, almost 6 percent of all credit card accounts were at least 30 days late, the highest percentage of delinquent accounts the Federal Reserve has recorded since it began tracking credit card defaults in 1991.

These defaults are forcing card issuers to incur significant expenses both at the time of collection on delinquent accounts and later when the companies have to write off these accounts due to non-payment. To recover a portion of their projected losses before they occur, these companies are choosing to pass the buck to at-risk cardholders through higher fees and penalties.

Consumers may not see relief for penalty rates or for late or missed payments until 2010 when new Federal regulations go into effect that will alter the way credit card companies do business, The Washington Post reports (“Accelerating Debt,” March 22, 2009).

Currently, credit card issuers are getting away with charging an average late-payment penalty rate of almost 27 percent, according to a 2008 survey by advocacy group Consumer Action, and may end up collecting as much as $21 billion from cardholders as a result of these higher penalty fees, estimates Robert Hammer, chairman of the consulting firm R.K. Hammer.

Elevated fees “are a recognition of risk going up,” Hammer says. Financial institutions “are not going to watch their costs go up and take no action.”

Fees Double For Some

Earlier this year, American Express raised its late fees from $29 to $39 for corporate cardholders who were 45 days late on their payments, USA Today reports.

Wells Fargo customers who withdraw funds from their credit cards inside the bank branch have seen their fees double from $10 to $20, and likewise those who withdraw credit card funds from the Wells Fargo ATM have seen their fees double from $5 to $10.

In January, JPMorgan Chase levied a $10-a-month fee on about 400,000 cardholders who had carried a high balance for more than two years and who had made little effort to pay it off. Minimum payment requirements for these customers jumped from 2 percent of their account balance to 5 percent, forcing cardholders to pay more than double what they owe on their accounts each month.

“[Card issuers] have been very much damaged by this economic downturn and tightening of credit and all the losses that their banks have faced,” said Bill Hardekopf, chief executive of LowCards.com, a credit card review site. “If you as a consumer do anything to increase your risk, you will probably very quickly be hit.”

Popularity: 5% [?]

Forget the mattress. The nation’s 8,000 credit unions, which currently offer lower interest rates on loans and higher returns on savings accounts than most commercial banks, may be the new safest place to stash your cash.

Credit unions have largely avoided the troubles of the commercial banking industry by sticking to the basics; they take in members’ deposits and lend back to them at reasonable rates, charging an average of 4.41 percent for a home-equity line of credit compared to the 4.77-percent rate charged by banks (“Safe Havens: Credit Unions Earn Some Interest,” The Wall Street Journal, March 15, 2009). And credit unions have produced, on average, 2.29-percent returns on one-year certificates of deposit, unlike the 1.74-percent returns banks currently pay their customers.

Not only have credit unions’ safe banking practices proved fruitful for their books — they held $575 billion in loans in 2008, up from $539 billion in 2007 — their financial security and customer service appeals have contributed to a significant jump in membership. In 2008, credit union membership rose to almost 90 million, up from 85 million in 2004.

“Community First [Credit Union] not only had the best rate,” said Stephen Birkelbach about his Florida credit union. “I was so impressed with the customer service and the up-front attitude I moved everything over to them.” Not only did Birkelbach switch over his personal and business accounts to Community First, he also used the credit union to refinance his mortgage at 4.25 percent in January and to finance his truck.

Of course credit unions haven’t been completely immune to the effects of the economy; 15 credit unions were liquidated last year and two credit unions closed their doors this year. And credit unions’ delinquency rates have doubled from 0.68 percent in 2006 to an estimated 1.45 percent this year due in large part to high foreclosure rates. But the average delinquency rate for banks, currently at 2.93 percent, is still more than a full percentage point higher than the delinquency numbers credit unions have seen.

Comparatively, credit unions are “solid,” says Karen Dorway, president and director of research for BauerFinancial, a firm that analyzes banks and credit unions.

What to Know Before You Switch

Credit unions’ services and operations aren’t much different from those at commercial banks:

• Membership requirements: You will most likely need to have either your neighborhood, school, workplace, or church in common with a credit union to become a member. Search www.findacreditunion.com to find one near you.
• Service features: Most large credit unions offer the same range of services as banks, including checking and savings accounts and consumer loans. Some credit unions only require a $25 deposit to open up a savings account.
• Deposit insurance: All federal credit unions, as well as most state credit unions, are regulated by The National Credit Union Administration, and credit unions are federally-insured through the National Credit Union Share Insurance Fund and have the same insurance limits as banks.

You can compare your local credit unions and banks at Bankrate.com/brm/safesound/ss_home.asp and at Bauerfinancial.com/btc_ratings.asp, where you can review a credit union’s financial health based on its capital ratio, loan delinquency, and liquidity numbers.

Popularity: 9% [?]