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YOUR BOTTOM LINE

New Credit Card Rules Effective Monday: Are You Ready for the Changes?; The Dos and Don'ts of Remodeling; Generic Versus Brand Name

Aired February 20, 2010 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


GERRI WILLIS, CNN HOST: Good morning. I'm Gerri Willis. And this is YOUR BOTTOM LINE. Coming up, new credit card rules take effect in just two days. Are you ready for the changes? We'll tell you everything you need to know.

Plus, the dos and don'ts of remodeling, a look at projects that really pay and those that are simply a waste of your money.

And generic versus brand name, from quality to safety to saving you money. What you need to know before making the choice. The show that saves you money starts right now.

Well, starting Monday credit cards will be playing by new rules. Now, that's good news, but what has happened before the deadline has consumers fuming. Take a look.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Consumers have had it with their credit cards.

KATHLEEN DILLON, FACES INTEREST RATE HIKES: I paid my bills on time. I've been penalized for no reason.

REV. ROGER GENCH, FACES INTEREST RATE HIKES: They don't care that I've been with them for 30 years. And then I might have a history with them. That is the bottom line.

WILLIS: Kathleen Dillon and Reverend Roger Gench are dealing with the unintended consequences of credit card reform. Facing tighter regulations, credit card issuers have been changing polices before the law goes into effect on Monday.

Among the new credit card rules: interest rates can't be raised on existing balances or on accounts that are less than a year old and above the minimum payments must be applied to highest rate balances first. Those changes will cost banks money, $11 billion each year, and lenders are looking for new sources of revenue.

NESSA FEDDIS, AMERICAN BANKERS ASSN: Interest rates will be a little bit higher across the board, it'll be harder for people to limits cards, limits will be lower. And beyond that, credit card companies are looking at annual fees. A reduction in the promotional rates, maybe a reduction in rewards programs. WILLIS: That's already happening. Roger found out his Citibank credit card was raising his interest rate for future purchases from 18.99 percent to 29.99 percent.

GENCH: They said it was due to no fault of my own.

WILLIS: He was late with two payments in his 30-year history, before he received the notice of his future increase.

(on camera): So, what was it like opening that letter from a lender you had worked with for 30 years and they're telling you they're going to jack up your interest rate?

GENCH: You know, I think this now, it is a faceless, compassionateless, exploitive institution.

WILLIS (voice-over): For its part, citi bank says, "Price increases are necessary given the doubling of credit card losses and regulatory changes."

Kathleen has had to opt out of three credit cards because of impending interest rate hikes.

DILLON: It was scary for me because I worked two jobs, I don't have a lot of money, and that left me with very little access to emergency fundage if need.

WILLIS: But, consumer experts say the card act does level the playing field.

GREG MCBRIDE, BAKERATE.COM: There are unequivocal wins for consumers in the new credit card legislation.

WILLIS: It's estimated consumers will save at least $10 billion a year because of the new law. But for Kathleen, this is one relationship that's already soured.

DILLON: I'm just paying them down, and I won't use those companies again.

(END VIDEOTAPE)

WILLIS: Well, credit card reform is here, so what does it mean for YOUR BOTTOM LINE? Let's get straight to our panel of experts. John Ulzheimer is president of consumer education at Credit.com and Lynnette Khalfani-Cox is a personal finance author.

Welcome to you both. Let's get straight to it. This credit card legislation it's probably the biggest thing ever for credit cards. And we're hearing now that consumers will save $10 billion. To start with, I just want to go over, hey, what are the big changes here, especially when it comes to billing -- John.

JOHN ULZHEIMER, CREDIT.COM: The with respect to billing, consumers will now see the due date on their credit cards the same exact date every single month, no more of this moving it around. You'll also see a 21-day grace period, which is great because now you have 21 days to pay your bills, you don't have the 14 days, you have an additional seven days to pay your bill on time.

And if you find yourself in a pinch where you have to make a payment on the last second on the last day, pay at a branch without incurring an kind of additional fee for doing so.

WILLIS: Love that. OK, interest rates another big thing here obviously. No retroactive interest rate hikes, everybody loves that. They've got to give you 45 days notice when you are making a change. As a result, the lenders are all saying, hey, this is money out of our pockets, we're losing $12 billion, very big number out there. Lynnette, what are the unintended consequences of this, do you think?

LYNNETTE KHALFANI-COX, PERSONAL FINANCE EXPERT: I think the short-term impact has been obvious to consumers. They've already started to see some of the unintended consequences. Higher fees and before February, obviously before now, some people already had rate hikes.

The fees are the big open question. You know, we were talking about this obviously just before we went on. That a lot of banks are going to get creative in this regard. They're going to impose inactivity fees.

WILLIS: We've already seen that.

KHALFANI-COX: Exactly.

WILLIS: It's not a thing coming in the future, we're dealing with that now.

KHALFANI-COX: We can't predict, they'll create and dream up some things. All in, though, I still think it's going to be a great thing for consumers in the long run. In the short-term, yes, we're going to see very creative fees and expenses leveled against consumers.

But I think competitive forces in the long run will ultimately rule the day and those lenders, those credit card issuers who impose so many fees or so many kooky fees, will start to lose market share and when they see their customers go elsewhere, they'll stop.

WILLIAMS: So John, though, to Lynnette's point here, she believes the credit card act ultimately is a good thing, really leveling the playing field. But, you know, I'm already seeing the world change so much, and for the negative for me, do you believe this bill ultimately is a good thing?

ULZHEIMER: I think the bill is a solid C-plus.

WILLIS: Wow.

ULZHEIMER: And I'm being generous. We are about to get juiced. Seriously, seriously juiced. Credit card insurers are about to lose $15 billion of revenue in over-limit fees. That's a $39 fee every time you go over your limit. Gerri, they're not going to simply forget about that money and say, oh, shucks, we better move on. They are going to want to make that up.

Not only are they going to get creative with new fees, they're going to increase fees. People who are not close to the limit and bouncing against that limit, incurring those fees, are going to subsidize that revenue that the consumers who had high balances were paying for many, many years.

Look, with all due respect to consumers who have high balances and find themselves going over the limit, they have bigger issues with respect to credit management skills versus just that single fee. Why should I, as someone who does not carry a balance, who does not max out my cards, does not go over the limit, why should I pay an annual fee, just to subsidize that $15 billion a year loss.

WILLIS: I bet Lynnette has an answer, here.

KHALFANI-COX: Well, he shouldn't, frankly, is the short answer, but to speak to that issue, to dovetail off of his point, two things that aren't change in the laws that credit card issuers can still cut your limits at any time for any reason, which speaks to the issue that some people might, in fact, go over the limit and they can also close out your accounts, pretty much. That's the...

(CROSSTALK)

WILLIS: Right, the world is going to change. That's the one thing that's clear that we know. All right, John, Lynnette, don't go anywhere. You've sent in such good questions about the card act. We're going to get you answers, next.

(COMMERCIAL BREAK)

WILLIS: You've got lots of questions on your credit cards and how the new laws affect you, so let's get you some answers. Back with us now, John Ulzheimer and Lynnette Khalfani-Cox.

OK, let's get right to it. The first question is this: "My credit card retroactively hiked my rate prior to the card act going into effect." A lot of people felt this. "Is there anything I can do about it?" -- John.

ULZHEIMER: Well, yeah, there's something you can do about it, you take your business elsewhere. It's unlikely -- this is one of the reason there is a card act, because of the retroactive rate hikes. You can't do that now with the card act.

You have two options, you can open up a new card, transfer your balance and then stop using the other card or you can accelerate your payment and pay it off and then either leave the card dormant or just use it sparingly and not revolve a balance. But, that's the issue. There's really not much -- you can plead your case with the credit card issuer, but they certainly don't have to change the interest rate.

WILLIS: They are so frustrated out there. OK, Percy asks, "Will banks still be able to raise the interest rate on one card because you were late on another?" -- Lynnette.

KHALFANI-COX: No, they won't be able to do that. That's the process known as universal default. Frankly, a lot of banks actually stopped doing that in mid to late 2009 anyway in advance of knowing this was going to happen February 2010. But, no, they can't raise interest rates on one card simply because you were late paying another card.

WILLIS: Can I say that's cold comfort. That's cold comfort. Edward asks, "If I pay my credit card bill in full on time every month, is there anything bad my credit card company can do to me?" So John, this is, if I handle my credit responsibly, am I still going to get socked?

ULZHEIMER: Five years ago you were a great credit card risk, today you are a dead beat because you're not generating any revenue for the bank. And right now, this isn't just a risk issue, this is a revenue issue. So, can they do something bad for you? Of course, they can. Institute an annual fee, they can institute inactivity fees.

But, if they do institute an annual fee they have to give you the 45-day in advance disclosure. So, if you're one of the 97 percent of the people in the country who don't read those, then you won't know about it, but if you actually read the stuff you get in the mail from your bank, then you'll know, hey look, I have an annual fee coming.

WILLIS: You know, Citi just announced they're having a $60 annual fee.

KHALFANI-COX: Right, obviously, they can also close your account or lower your credit limit, both of which can have an impact, potentially, on your credit score.

ULZHEIMER: With no notice.

KHALFANI-COX: With no notice.

WILLIS: OK, so there's no way out. Mary asks -- Mary Jane, that is, asks: "I plan on paying off my credit card in the next couple months. I'm going to keep one card for emergencies and cut up the other others. I heard there will be fees on credit cards that aren't being used. Should I close the cards I'm cutting up? I heard closing accounts isn't good for your credit." Lynnette, how many times have we answered this question? It's a tough one.

KHALFANI-COX: Yeah, right, there is some dispute about the potential impact. I usually tell consumers, no, don't -- if you want to not use the cards, cut them up or put them to the side, them in the freezer, or whatever, don't necessarily have to use them, but recognize that if you close out those accounts, for a whole host of reasons, it could potentially have a negative impact on your credit score.

ULZHEIMER: I'd suggest kind of a different strategy. I would pay them off, but I would not close them and I would certainly not cut them up. What I would do is I would use them all sparingly, put them on kind of a revolving door strategy.

Because if you are generating not only a little bit of revenue because, remember, when you use your card at the merchant, the merchant pays a fee to the credit card issuer, not you. So, if you can do that and generate a little bit of revenue, then they're less likely to do things like institute new fees or close the card out from underneath you.

WILLIS: It used to be so easy. OK, guys. Great, great job. We really appreciate having you here.

Thinking of remodeling? Well, don't do a thing until you see this next segment. What you need to know to make sure your next project pays off, next.

(COMMERCIAL BREAK)

WILLIS: Not long ago, it was a good bet that you would get your money back on pretty much any home improvement project you took on, but that is not the case today. Here with some tips to ensure that your next remodeling project pays off big time is Donna Risato, she's senior writer at "Money" magazine.

Donna, great to see you.

DONNA ROSATO, MONEY MAGAZINE: You too, Gerri.

All right, so, let's start out with this idea, we're spending $110 billion every year on home improvements and you say the best way to start is to really keep your home in good repair.

ROSATO: That's right. You know, I mean, the rules of renovation have really changed these days. And it's not as exciting or as sexy as putting in a subzero refrigerator, adding a Jacuzzi tub, but you've got to focus on maintaining your home.

So, if that means you've got a leaky roof, you've got to repair that. You know, make sure you have electrical in shape, plumbing, all that kind of stuff. That's really going to give you the biggest return on your investment, these days.

WILLIS: You say the McMansion is over and that if you're thinking of e expansions, put those plans on hold.

ROSATO: That's right, people really want smaller homes and the space they can use. So, instead of adding on an additional room, a really smart way to -- is to remodel instead of renovate. What you want to do is take existing space and turn it into something that's going to be -- that's going to give you more. It's not going to cost you as much either.

So, maybe you turn an attic into a bedroom, take the family room or take the basement and turn it into a family room. If you want an eat-in kitchen, take out the wall between the kitchen and the dining room. It's going to save you money and it's going to be a lot nicer space for folks. WILLIS: You say green upgrades are a good idea, but which ones? I mean, some of the stuff is really expensive.

ROSATO: Oh, you're so right, green can be very expensive, but there are many things you can do to make your home more energy efficient that are going to save you money now and increase the value of your home later on. So, things like adding insulation, double paned windows. There are a lot of energy efficient appliances that you can add to your home that not only will save you money on your bills, but also you can qualify for up to $1,500 in federal tax rebates. So those are worth checking out.

WILLIS: I know. We're going to talk about that. You know, one idea you have, though, that I think is so telling and so important is you say don't be the trendsetter in your neighborhood. You've really got to make your tastes fit in.

ROSATO: That's right. You know, it's something that people have said, you don't want to have the nicest home on the block, but you also don't want to have the worst home on the block, either. So what you want to do is be in line with your neighbors.

That means, if your neighbors have, you know, a kitchen -- most neighbors have a kitchen with granite marble top counters, you probably want that. Or if they have 2-1/2 bathrooms and you only have one, you probably want to add. But, if you add extra things, you're never going to see the return on that kind of investment.

WILLIS: And that's what it is, all about. Donna Rosato, thank you so much.

ROSATO: Thanks, Gerri.

WILLIS: Well, remember Cash for Clunkers? Well, now, there is Cash for Appliances. The federal government is offering consumers rebates for upgrading their tired old appliances like refrigerators, washers and dryers for new, energy efficient models.

Now, the money, some 300 million bucks, comes from the stimulus program and is being operated by each and every state, each one deciding what they're willing to give you money for. The good news, unlike Cash for Clunkers, you don't have to trade in your old appliance. You'll however have to fill out paperwork and keep your original receipt to prove your purchase.

Look for the Energy Star logo when shopping and don't rely on salespeople to tell your which products qualify. Successful applicants can get anywhere from 50 bucks to 250 bucks. For details, go to doe.gov.

Next, brand names to generic, from quality to safety to saving you money, what you need to know before making the choice.

(COMMERCIAL BREAK)

WILLIS: Well, you may have seen the headlines about Wal-Mart removing some popular brands products from its shelves to make way for cheaper store versions. So, when is it smart to buy generic versus name brand? Who better to answer the question than your friends at "Consumer Reports." Tod Marks is a senior editor with them, and he joins us from Yonkers, New York.

Great to see you, Tod.

TOD MARKS, CONSUMER REPORTS: You, too, Gerri.

WILLIS: All right, well, let's start with idea of Wal-Mart removing, you know, a lot of these brands that people love. What do you make of that?

MARKS: Well, you know, store brands have been growing in popularity steadily now for over 10 years and it's no secret that retailers can make more money selling their own brands than they can selling national brands. They don't have the extent of costs that are associated with building a national brand name, the research and development, the advertising...

WILLIS: Right, right.

MARKS: ...the promotion costs.

WILLIS: You know, Tod, a lot of people out there, out there, they're obviously all about the cheapest product out there.

MARKS: Sure.

WILLIS: But is it always smart to buy the store brand? Is that always the best deal?

MARKS: Well, there's no such thing as always, but when you can save on average 20 percent or more by switching to comparable store brand, you know, in tough times people really have to think about that. So, you know, the great thing about store brands and supermarket everyday products, in general, is that it's not a sweaty palm issue to just try the product. The worst that can happen is you try it, it doesn't live up to your expectations.

WILLIS: Right.

MARKS: You go back. But, the beauty is that almost every retail chain out there today offers a money-back satisfaction guarantee. If you don't like it, we'll give you your money back. There are chains out there that will even give you double your money back. So they're standing behind their products.

WILLIS: Glad, they're very confident. And I got to tell you, I'm a big fan of some of these products. I like them better than the branded name. but, are there times it makes sense to pay up and buy the more expensive brand?

MARKS: Well, that's a question only you as a consumer can answer. There are people who would never dream of buying a store- brand soft drink. It's coke or Pepsi or nothing else. They feel strong loyalty about that. At a time when, let's face it, brand loyalty is on the wane.

There are other people who say, you know what, I love my Cheerios, there's not a store brand that can match that. And in those instances where you have those strong brand preferences, it's okay to stick with what you like. But in areas that you don't, give it a shot.

WILLIS: OK, but there are other issues. It's not just a matter of taste, like I like Coke better than the store branded. What if you're buying medicine? Does it matter not to use that unbranded name that you may not feel that comfortable with?

MARKS: No, it's not a big risk their either but for different reasons. When you're talking about over-the-counter remedies, cold, cough and cold relievers, you know, acetaminophen, products like that, it's the efficacy of the active ingredient that has been tested and proven, you know, certified by the FDA, the Food and Drug Administration. They're saying if this product is in there it has to do what it's supposed to.

So, it doesn't matter. If it's in the same -- if you have the same active ingredients and you have the same percentage of active ingredients, it should work as well as the name brand.

WILLIS: Great advice. Tod Marks, thanks for your help today. We appreciate it.

MARKS: Always glad to be with you, Gerri.

WILLIS: Health care can come at a steep price. How to score free stuff and stay healthy at the same time.

(COMMERCIAL BREAK)

WILLIS: Health care can come at a hefty price, but there are a few things you can do right now to keep yourself healthy for free. Dr. Roshini Raj is a physician at NYU Medical Center and a contributor to "Health" magazine.

Welcome Rochini, great to see you again.

DR. ROSHINI RAJAPAKSA, NYU MEDICAL CENTER: Thank you.

WILLIS: First thing you say is go to the library. The library's always free, but what am I going to get there that's going to keep me healthy?

RAJAPAKSA: Sure, well, other than books, you can actually get workout DVDs. AND This is a great way, for fee, to stay fit. You can actually change it up whenever you want because it's free. You can change your routine, you'll get more motivated that way, and you can do that in the privacy of your own home. Some people don't like working out in a gym. This is a great way to get fit and do it by yourself.

WILLIS: Now, about a million people every year find out they have skin cancer. But, there's a great way to check to see if you do have it.

RAJAPAKSA: Well, the Skin Cancer Foundation this year, from April to September is offering free skin screenings all throughout the country. You have to go to skincancer.org and you can find out where near by your home you can get it free. Because it's so important, skin cancer is on the rise, it's a deadly form of cancer and it's not really easy to check yourself. You should check yourself, but you should also get it done by a professional.

WILLIS: No, it's not easy to check yourself.

RAJAPAKSA: Yes.

WILLIS: You say you can negotiate with your gym on price. Now, I haven't found this, but clearly you have some kind of tactic, way of doing it.

RAJAPAKSA: Well, you know, these are hard times for all of us and gyms realize that. A lot of people are actually opting out of the gyms so the managers now are more negotiable and there really is some leeway, there. They may give you a month...

WILLIS: How do you say it? What's the opening gambit in the conversation?

RAJAPAKSA: Well, the opening gambit is, you know, if I don't get a good deal I'm not signing up with this gym and the gym down the street is offering a deal, so what can you do for me -- whether it's a free personal trainer for a couple months or a free months off the gym. You know, you're going to get something.

WILLIS: Well, I love that. OK. You say you can save 170 bucks in the shower turning down the heat, hot water. And you say it's good for you. How?

RAJAPAKSA: Yeah, as tempting as it is for that long hot shower, it's actually not good for you skin. It really dries your skin out and it costs you money on the water bill. So, taking a short shower, five minutes or less and keeping the water lukewarm is a much better way to keep your skin healthy and save a little money, too.

WILLIS: Of course, you want to know something about your family tree, your genealogy, if you want to know what you are susceptible to down the road. What's the best way to do that? The free way to do that?

RAJAPAKSA: The free way is to, first of all, ask your relatives. You know, a lot of people don't like to talk about health problems, but it's crucial to know for your own health to know what you're at most risk for. And then you go to familyhistory.hhs.gov, which is a free tool to help you plan a whole family tree and it will actually tell you if your family has this disease, this is when you should be screened for this disease.

WILLIS: That's fantastic. OK, iPhone apps, there's an app for that. You can find out if you've got some kind of physical problem developing or you can get some help. Tell me about the iPhone app.

RAJAPAKSA: There are apps for everything, but there are also to help you stay healthy. So, there's one for keeping fit and counting your calories. It helps you keep a food diary. There's a GPS for runners, so they can count their calories and see how many steps they've taken.

And there are also apps for things like a massage, you know, a vibrating massage -- your phone is actually going to vibrate and you can get a free little massage. I would don't it for too long, you know, we don't know how great these...

WILLIS: It turns your iPhone into a massage tool, right?

RAJAPAKSA: It does.

WILLIS: Awesome.

RAJAPAKSA: For free.

WILLIS: I want one of those. All right, let's talk about Twitter for a second, because every company in the world is Twittering and you can get good deals out there by following your favorite retailers on Twitter.

RAJAPAKSA: Right, so you can follow stores like Target, Wallgreens who have great health-related products, you know, cosmetic products as well as vitamin supplements. You'll get a Tweet every time they have a good deal, then you'll know to go to the store and pick it up.

WILLIS: Dr. Roshini Raj, thanks for your help today. We appreciate it.

RAJAPAKSA: Thanks, Gerri.

WILLIS: As always, we thank you for spending part of your Saturday with us. We'll see you right back here next week. And hear much more about the impact of this week's news on your money on YOUR MONEY with Christine Romans and Ali Velshi today at 1:00 p.m. Eastern and tomorrow at 3:00, right here on CNN.

Don't go anywhere, your top stories are next in the CNN NEWSROOM. Have a great weekend.