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The Ravages of Plastic

Courting co-eds
I work for a community college. The credit card vendors you referred to inThe Kids Aren't Alright reminded me of a ritual at our college at the beginning of every quarter. Like sharks at a feeding frenzy, banks give away cheap, huge chocolate bars and stuffed animals as come-ons to students to get them to sign up for their cards. After watching this courting dance for a few quarters, I decided enough was enough. I instituted a new policy. We now have a vending policy which excludes credit card vendors or consumer banks from offering credit cards to students.

I know that students can get credit cards from other sources, but at least I know they did not get into a usury relationship here at school. Makes me feel like I am making a dent (small) and promoting fiscal responsibility and health with the millenniums.

-- Laura Morris, Skagit Valley College, Mount Vernon, WA

Laura,

I got goose bumps reading your note. "Small" dent? Feh. You have potentially saved countless students from starting post-college life mired in debt.

Handing out candy bars and toys as enticements makes the acquisition of credit seem like an innocent game. Plastic is not a toy. (OK, some toys are plastic -- just not the ones that have magnetic strips and the power to mar your credit record.) At least now when your students make the decision to apply for a line of credit, they'll have to do it in a more sober and adult manner.

Schools educate and protect against all kinds of dangers -- alcohol, drugs, gambling, unplanned pregnancy. Fiscal missteps like willy-nilly use of credit are proven to be hazardous to your long-term wealth. The least a college can do is to be more selective about vendors they allow (and appear to endorse) to solicit students on campus.

Kudos to you for cleaning up your turf. Hopefully, others in academia will read this and take a stand on their students' behalf.

If there any doubts about the dangers of debt, read on...

Pay Peter, Paul, or Visa?
Visa has told me because I am a high risk (too much debt, but I pay the minimums on time) that they are raising my interest rate to 19% from the current 9% unless I close the account and pay it off at the 9% rate over time.

My work owes me $3,000 for travel expenses. I was thinking that I should take $1,000 of that and start a savings account so I can avoid charging anything in an emergency.

I take in a little less than $3,000 a month and pay out $1,100 on my debts, which covers a little more than the minimum payments. After rent and other expenses, I have about $200 left over for food and entertainment. Should I transfer my American Express balance ($4,000) to this Visa and then close both accounts? -- Jim, Washington, D.C.

Jim,

It sounds like Visa is telling you something. And that something is that it's time to pay the piper.

Let's tackle this one item at a time. You should probably take up Visa on its 9% offer. Nine percent is always better than 19% when it comes to paying interest. Still, there are better balance-transfer deals out there for good boys and girls, so shop around. If you don't qualify for one now, it may just be a matter of time before the lending world comes courting again.

Next, clarify a few things with your friendly customer-service representative at Visa. Does the 9% APR last for the life of the loan -- meaning, is that the interest you will pay until your balance is paid off? You want the answer to be "yes."

Moving your American Express (NYSE: AXP  ) card balance over to the Visa makes sense if your Amex interest rate is higher. But before you consolidate your debts on this card, find out if you are even allowed to transfer an additional balance onto the card. You also need to make sure it is subject to the same agreement as your current balance (9% for the life of the loan). And take care to remain within your credit limit with the balance transfer.

Finally, promise that you will pay this bill on time, every time, and break none of their rules. (Don't even jaywalk. I'm not joking.) The moment you flub up, Visa can hike up your interest rate, and it could go much higher than 19%.

This may sound counterintuitive, but keep your Amex account open. And then forget about it. Put it in a block of ice in your neighbor's or mother-in-law's freezer and do not touch the thing. (Having to get dressed, comb hair, and defrost does wonders to curb sudden spending cravings.)

Your idea to start an emergency stash of cash is a good one. But in your situation -- only able to afford minimum payments -- I would use the entire windfall to make a major dent in your debt. If a true emergency arises, you can use the aforementioned soon-to-be-zero-balance Amex card. That's why I suggested that you keep the line of credit open.

Right now, we want to see major progress on paying down the debt. If you haven't already, take a gander at our free Get Out of Debt online seminar. It will do wonders for the psyche and inspire penny-pinching and visions of zero-dollar balances dancing in your head.

Three against one
I am in the process of cleaning up my credit report. For over three years now, I have had a spot-free record of timely payments to my creditor. I have also addressed discrepancies on my credit reports. Still, there is one unresolved issue -- one piece of information reported by one credit bureau differs from that reported by the other two major bureaus. This was an instance where a debt was charged off and the other two report it as bought by another lender and paid. I asked the one credit-reporting agency to correct their records (as the loan was indeed bought by another lender and paid in full), but the bureau has failed to make the change, saying that the information they got from the creditor was up-to-date.

Do I have any other options other than asking the credit-reporting agency to add a statement of my own to my credit report? -- Rudy

Interesting conundrum. And terribly common, I'm afraid. Depending on whom you believe, anywhere from one half of one percent to up to 33% of credit files contain errors. The truth is probably somewhere in between. That's why we recommend you check your file with all three bureaus at least once a year -- and most definitely before undertaking any major financial move.

Unfortunately, in matters of credit-reporting accuracy, the onus is on the individual consumer to make sure things are right. While the credit-reporting agency will conduct an investigation into a dispute, it may not be able to confirm the accuracy of the information they receive from the creditor. So, if the information is just plain wrong, then your report will reflect the same error.

So, Rudy, get ready to roll up your shirtsleeves and fix the boo-boos.

What's interesting is that the disputed item is reported correctly on your other two reports. That being the case, your best course of action is to contact the reporting lender directly, with your credit reports and proof of the loan payment in hand. Lenders do not always consistently report to each credit bureau, so perhaps this is an overdue reporting error.

Regardless of the reason, you'll need to have the lender report the new and corrected information directly to credit reporting agency that has it wrong. You can also have a note put in your credit file if the matter isn't handled in the way you want it to be. But I've heard that these notations are rarely viewed in the impersonal credit-granting process.

Hopefully, with a bit of patience and elbow grease, the matter will be resolved.

Dayana Yochim is the author ofThe Motley Fool's Guide to Couples & Cash. She never drinks and charges.


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