Tag Archives: credit cards

Do You Have a 50% Credit Card Rate?

If that sounds insane, it really isn’t. Millions of Canadians have it – they just don’t know it!

Numerous surveys over the past few years show that one quarter of Canadians are cashing in some of their RRSPs before retirement. That’s more than 1.8 million people. Say it ain’t so as the old expression goes.

Two of the most common reasons for you to consider cashing in all or part of a retirement plan are to purchase a home or to pay off debts. Let’s assume you want to cash in $5,000 to pay off a credit card. The first thing you pay is a 10% penalty right off the top. So you’re actually getting $4,500. Then this amount is taxed, as if you made that money as income. In a 30% tax bracket, that’s another $1,350. So the bottom line is that the $5,000 you cashed in is really only $3,150 of net money going on your credit card. Sure, it’ll save you 20% interest on the card, but that’s not the whole story.

That money is no longer growing in your RRSP (or your Tax Free Savings Account). At a 10% return, that $5,000 would have doubled every seven years. If you’re in your 30s, you’re now missing around $160,000 at retirement. If you’re in your 50s, that $5,000 still would have doubled three more times, which is $40,000 now gone.

While you’ve now been able to pay just over $3,000 on your credit card, it likely didn’t pay off the balance. That’s bad enough with what it’s cost you in foregone investment income. Now to make things worse, the majority of people keep using that credit card again! Odds are, you’re in the majority where you’ll be back to an average $7,000 balance within two years.

That puts you back to paying 20% on your card while you’re out at least $40,000 in savings for the next 20 years. The bottom line: Your credit card is then costing you more than 48% interest. While you were hoping to make things better – they got worse – a lot worse.

On the plus side, how would you like a zero risk 28% return on your money? It’s easy: Just pay off your credit card. The 20% interest rate you pay is with after-tax money. So the real rate is over 28% if you carry a balance. That’s the biggest reason trying to save at the same time you’re trying to become debt free doesn’t work!

Broke People Can’t Stimulate the Economy

At the risk of stating the obvious: Broke people can’t help stimulate the economy. Just ask the U.S. what 2008 to 2011 was like. When both Canada and the U.S. have about 75% of the economic activity being consumer spending – when you and I cut down our spending, there’s trouble.

While we may avoid a recession, our consumer spending is going to slow down. Lots of people are still using COVID savings, but credit card debt is rising and every year millions of people are needing to get or renew a mortgage at rates of four to five percent higher and inflation has made almost everything a whole lot more expensive. That has to create a slowdown of some kind, in some ways, at some point in time. Less consumer spending leads to less retail sales, less manufacturing and less economic activity everywhere. The next wave is less hiring or layoffs, and the vicious cycle escalates.

But it’s not your job to stimulate the economy with borrowed money. That’s a financial suicidal pyramid scheme. At some point, you’re out of money, out of room on your credit card, and can barely pay the payments  you already have. But that’s what the government needs you to do in order to keep the economy growing. So, on the one hand they’re tightening up mortgage rules to cool down the market and warning that our debt to income ratio is over 160%. On the other hand, they really need us to keep spending so the economy picks up. Yup, it’s a vicious cycle with totally mixed messages: On the one hand they kept lowering interest rates to make borrowing easier and cheaper, on the other hand they hit the brakes with more mortgage restrictions to not overheat the housing market.

I talked to a lady last week that was really concerned that her husband’s hours would be cut back. They really need to keep earning their $70,000 family income or they’re in real trouble. In other words, they’re buried in debt from previously helping out the economy so much. Now they’re out of the spending business because they “need” every dollar of earnings to just keep their head above water. And that story applies to millions of Canadians. It was fun while it lasted – but they’re now in the middle of one giant hangover.

For teenagers, the number one favourite activity is going to the mall. Teenagers help the economy. They’ll spend $10 or maybe even fifty bucks. But when they’re out of money – they’re out of money. They don’t have access to credit cards. While teenagers are a big part of economic activity, it’s all with real money and not borrowed funds.

That’s why tons of teenagers are richer than their parents. Sure, the parents have a lot more money each payday. But within 48 hours, that’s all spent and gone…and then some… on credit cards or lines of credit. Teenagers don’t have that curse or opportunity.

I’m all in favour of helping the economy – right after you help yourself and get to be debt free. Then you’re contributing to the economy with real money!

Credit Card Fraud? Issuers Don’t Really Care

If that headline doesn’t sound right or logical, you’re correct. Unfortunately, it’s true. For card issuers having to absorb fraudulent charges is just a cost of doing business and built into their 20% interest rates.

My Mastercard had fraudulent activity in October last year. The card was cancelled and re-issued and the charge was taken off my account. The same card had ANOTHER fraud charge in January of this year. Same thing: card cancelled, re-issued and charge taken off. The first time was a charge around $900 or so and the fraudsters second charge got the issuer to block the card and email me for confirmation it was my activity. It wasn’t and that triggered the cancellation.

The second time it was a $400 or so charge and, again, a second charge attempt triggered the fraud block. That got me to pull my statements from October to January. Surely, there had to be something easily traced.

My credit cards do not leave my possession. Nobody has the number, expiry and/or security number and it hasn’t been used on an email. It had been used at physical places like Walmart, Rona, etc. (card present transactions) and online at one small retailers, Air Canada and Westjet. That’s it. But there HAD to be a common denominator AFTER the card was replaced in October (new number and security code) and AGAIN replaced in January.

It took me less than five minutes to find that small retailer in Ontario who had my card information just before the first fraud and again in December with the new number and security number. As it was the ONLY common transaction and the card never left my wallet or home, that was the place (or a hack or employee) where the fraudsters got my information. All other online charges were once and not with both new numbers!

I immediately sent a letter personally addressed to the Senior Consumer Card Fraud Manager. A form letter two weeks later just stated ‘we’ve received your inquiry and will get back to you.’ Totally useless, but it meant the manager received my letter.

The investigation should have taken about five minutes: Check the computer if George is correct that it’s the only common retailer with his (two different) cards from October to January. Then punch in the retailers name and check if there have been any other frauds from their millions of other card holders where there had been a charge from that retailer.

It’s doubtful they did – and it’s doubtful I’ll ever hear from them again. That’s as sad as it is true…

Zig When Others Are Zagging

We’ve talked about that logic a number of times over the years when it comes to financial tools. These days – right now – it’s really critical that you think about doing the opposite of what financial institutions, mortgage lenders and utility companies want you to do.

With the high utility rates last fall, the marketing was to get you to lock in your rates “before they go higher.” The pitch was to have you think you’re getting a good deal at the time. Well – maybe. And I certainly know people who took a long term locked-in contract. Fast forward six to nine months and the rates are down significantly from those “good deal” fixed rates that large numbers of people are now stuck with.

What you will not see or hear in any bank advertising is any campaign to get you to lock in your savings. Term deposits, CDs, whatever are at a pretty good rate compared to what they were before the last two years of rate increases. Are rates going down as early as this winter? Depends on which economist you ask. Are they close to peaking and will at least stabilize? That’s a pretty reasonable bet, according to most economists. So, at this point, the fixed savings investments are about as high in rate as can reasonably be predicted. That’s why the last thing financial institutions want you to do is to now lock in those high/higher rates. That would mean they’re out a lot of interest payments to customers when they drop.

Since their profit is the spread from what they pay out to depositors to what they lend out, they obviously want tiny savings rates and high lending rates.

Who are the credit card issuers that have “won” the rate battle so far? The ones who sold variable rate cards. Why? Because they go up with every prime rate increase. What are they going to market to you now? Take that variable card and consider locking it in for a fixed rate. Why? Because rates are or should be close to the max right now. Your zagging would be their winning!

Mortgages work the same way. What you WILL see right now are ads to get you to lock in today’s rates. We’ve talked about that around a month ago or so – how long a term should you take on a mortgage renewal to be ‘up’ again when rates will/have/start to come down? If mortgage lenders have their way, everyone would take another five-year term right now.

Zig when they want you to zag: Lock in savings at a high rate – consider a fixed-rate gas or utility plan (if you must) at low rates and have your mortgage term land in the sweet spot when rates are down (again).

Would You Be Willing to Cancel Christmas This Year?

Well, maybe that’s a little extreme – but I’m just talking about the excess spending part of the holidays.

Whether it’s Covid, lockdowns, inflation or recession, on average, we spend more than $700 on gifts. But we’re already spending over 165% of our household income each year, and our savings rate is barely four percent. That means most of our holiday spending will need to go on credit cards. Ouch!

When asked, the average person claimed it took two months to pay off their holiday shopping. Yet the actual time was over six months! Let’s face it – July is NOT when you want to deal with last years’ holidays!

And it’s not just the gifts we buy, but also the added spending for trips, the tree, decorations, cards, postage, concerts, clothes, hairdressers, all that food, and the total amount quickly adds up.

So here are five tips to financial survival this years’ holidays:

 Cash is king – when you’re paying, there’s a very different feeling to laying a bunch of $20 bills on the counter instead of using a credit card. With a number of cards, there’s no reason to stop, and merchants know that the average purchase is much higher when customers pay with by credit card!

 Get realistic – make some kind of simple budget, stay within it, and practice the four most powerful words nobody ever wants to say: “I can’t afford it.”

 Know what’s important – resolve to make this holiday season less about money. Focus on the difference between the meaningful and the meaningless. This might be time with your family, a donation to your favourite charity, your faith, or many other things.

 Speed kills – it’s not just a traffic rule, but also includes your impulse purchases.  It will almost always cost you more money if you don’t take the time to shop around.

 Make a list and check it twice – it works for Santa, so discipline yourself as well. Don’t leave the house without a list and a good idea of what you’re looking for, as well as a price range. Cruising the stores is frustrating and many people tend to just buy something – anything – just to get on with it, and that’s never a budget smart way to make purchase decisions.

Happy 2022 – Financially Speaking

The good news: It’s a new year! The chance to start over, to resolve to do better, to do more, or in the case of your payments and all that interest – to do a lot less.

The bad news? You’re already broke! How is that? Well, our debts are more than 173% of our disposable income now, half of us have no savings at all (thanks in large part to the never-ending pandemic but now-ended government support), and almost 70% of us don’t make RRSP contributions. Why? Because every dollar we earn goes to make a long list of lenders really rich and there’s simply nothing left at the end of the month.

So when it comes to making some commitments about our debt, credit and all those bills, perhaps we should think small to make sure we set ourselves up for a win, and not a sure-fire let-down. But small doesn’t mean pointless, small just means some little steps you can actually keep, that’ll pay off big for 2022. These five are over and above the chapter in the Money Tools & Rules book “Do you have half an hour” – small things that you can change immediately:

 First – Annual bills kill your budget, but they’re not surprises. We know they’re coming – but we haven’t got the money to pay them. If it doesn’t cost you a bunch of interest or fees, set them up on a monthly payment plan. Whether it’s your property tax, car or home insurance, a monthly payment plan is a whole lot less painful than paying them by credit card or off your line of credit over the next few years.

 Second – Set yourself a credit limit. Pick a dollar figure below which you’ll pay by debit card or cash. Maybe $20 or $30 bucks – that’s it. But anything below that, you’ll spend with real money, instead of running up debts. It’ll become a great habit and will cut down your credit card balance in huge ways. After all, look at your statement. Almost all the charges are for pretty mickey mouse amounts that add up in huge debts – twenty bucks at a time..

 Third – Keep your vehicle for another year. If you believe a cool car is a status symbol and a must-have, you’re doomed to be in debt for decades to come. Not to mention that almost 50% of people trade their vehicle and STILL owe more than it’s worth – that’s financial suicide. The goal should be to drive a reliable vehicle that doesn’t have payments with it . Imagine a couple of years without car payments and the huge financial advantage you’ll create for yourself. And remember: Those $400 car payments are really over $600 in gross earnings. If you can’t get a $600 raise – here’s a way to get it – you’ll just be giving it to yourself!

 Fourth – Close your overdraft. I know – it’s like being hooked on drugs. It’s so convenient and always there and you can’t live without it any more. Well, that’s what the banks were counting on, and where they make a huge amount of their profit. But it’s killing you. Just a $1,000 overdraft will cost you between $200 and $300 in interest and fees. It’s a one-time pain to cancel the overdraft, but it’s worth it. Then zero in your account is actually zero instead of minus $1,000 or more.

 Fifth – Change to a credit card that isn’t a credit card.
For those with a card balance, it isn’t the $600 charges, it’s the dozens of $20 or $30 charges that really add up. Sure, you want to pay it off, but it isn’t a priority each month and you keep sinking deeper into debt at 20% plus. Get yourself an American Express Green card. That’s not a credit card – it’s a charge card. At the end of the month, there are no payments to make – the balance has to be paid off in full. Oh sure, the first month that’ll be painful. But after that, you’ll watch what you’re charging pretty carefully, and you’ll never ever have a credit card balance again. What’s that kind of financial freedom worth in knowing for a fact you will never have a credit card balance again?

And maybe you can have a detox for January? How about no shopping of anything for any reason that isn’t an absolute necessity such as food and gas?

Bonus Points On Your Credit Card…Maybe

Wow, you’d think that after 15 years and almost 700 of our radio segments we’d have talked about everything by now. Not true – not even close – never in the world of money and finance!

Pop quiz: Is hiring a company for a $20,000 job to finish your basement considered a home improvement? Nope – probably not.

Is buying gum and hand cream at Lowe’s considered a home improvement purchase? Yup.

See – and you thought you knew!

On Monday, the Royal Bank Westjet MasterCard (MC) started a double points (Westjet dollars) promotion on “eligible” electronics and home improvement purchases. Just after I bought $200 of treated lumber – it never fails…

Almost every card will have these promotions from time to time. But it’s buyer beware because the key word is “eligible” purchases. The hundreds of thousands of retailers and companies who accept credit cards all have a merchant category code (MCC) that identifies their primary type of business. My company is consulting – so it’s coded as professional services. That’s the same for accountants, dentists and the likes. So if you buy some lumber from your lawyer, or an “I love George Wednesday mornings” T-shirt, it’s still a charge in the category of professional services and not home improvements or clothing.

It is not what you buy that matters. It’s a charge in the right category that determines whether you get your bonus points for any promotion. A contractor won’t be coded correctly so your $20,000 charge won’t get you bonus points. But Home Depot, Lowe’s, Rona, Home Hardware, General Paint, or the likes are always coded home improvements. So whether you buy gum, lumber, paint, or appliances there, you’ll get the points.

Here is the full disclosure on the bonus point offer. It took me almost half an hour and comes from three different places. Thank you Royal for the details, but would you look a half hour to find these when your card offers them?

-Your bonus points won’t show up on your statement for 6 to 8 weeks. By that time, any promotion is probably over and you won’t know if you actually got them.

-You can’t get the MCC code in advance to know if you’re buying the right stuff from the right merchant with the right code.

If you stick to the “obvious” retailers, you’re safe – but never sure. Here’s the disclosure. It’s the same for every points promotion but I bet you’ve never heard of seen it:

Home Improvement Purchase means a net purchase made at a merchant that is classified, by such merchant, as hardware stores, home supply warehouse stores, building materials, hardware equipment and supplies, plumbing and heating equipment, lawn and garden supplies, paints and varnishes, contractors and other home improvement supplies under MCCs 0780, 1520, 1711, 1731, 1740, 1750, 1761, 1771, 1799, 5072, 5074, 5193, 5198, 5199, 5200, 5211, 5231, 5251, 5261, 5996 and 7692.

Costco is considered a discount club with MCC5300 –Walmart is typically MCC5310 (discount store) or MCC5311 (department store) but they may also have a code set up under MCC5541 (groceries) – but that’s unlikely. So no bonus points there for any promotion from anyone – ever.

You could:

-Call your card issuer and ask for the MCC code for a specific retailer – but I doubt you’d get it.

-Check your old statements in case they’ve had the same promotion in the past where you can see what qualified.

-If you get an annual summary of charges (not with Royal Westjet) that will give you the spending under specific categories and you’ll be sure those stores qualify

Or do what most everyone does: Get excited about the promotion and charge away and hope you might get the points in the MCC code crap shoot.

Lastly, if any bonus offer ever has you buying from a more expensive retailer just to get the points, you’re tripping over dime to pick up a penny. You REALLY need to read the “what are your points really worth” on page 139 of the Money Tools book.

City and Town Credit Cards?

How would you like to have a City of Kelowna credit card? Imagine the Visa logo and maybe a nice picture of Hwy 97 heading into Kelowna with all those billboards and the bridge in the background? If you think that’s a joke – well, it isn’t.

Late last year, the town of Gibbons, Alberta (just north-east of Edmonton) started the process of having a town credit card. It’ll take provincial and federal legislation but they’re studying it. You have them, or have seen them from Starbucks, Walmart, Costco and tons of others. Now towns and cities want them as a money maker for the town or city. The card will actually be in the name of the town and they’ll give you a so-called supplemental card with your name on it. Use it like a normal Visa or Mastercard. But the bill, because it’s in the name of the town, will go to them, and the town will pay it in full to make sure there’s never any interest cost.

You, however, then pay the town whatever you want. The town can borrow at the Bank of Canada overnight rate, which is currently 1.75%. Since half of cardholders don’t pay in full, the town will then collect the 13% interest on a low-rate card, and that’s the towns’ income. If there’s a default, they’ll be able to put a lien against your property, just like they do now when you’re in arrears on your property tax.

Gibbons has a population of only around 3,000 people. But their numbers crunching show they could make between about a million and $1.8 million a year in extra income.

Good idea or a minefield of potential problems?

Yes, Your Credit Card Terms Can & Will Change

A recent email from Barb reminded me of something we haven’t talked about for some time.

Her husband received a call from TD advising them that their credit card would now be charged an annual fee. Apparently, that should have been the case all along, but didn’t get charged for the first two years.

Needless to say, she was a little choked and thought they should be honouring the terms that they originally signed up for. She’s right, but she’s also totally wrong.

Card issuers don’t have any morals – they have profit margins to meet. She also, mistakenly thought that her business mattered to the card issuer – it doesn’t. They have a million plus accounts and one person being mad or leaving isn’t going to register on their financial results.

Annual fees are pure profit and it’s something they wish they could charge every cardholder for an ever-increasing amount each year. It’s kind of like bank service charge in their world.

But before you tell them to stuff it, you need to stop and think. If you do, your credit score will go down, and that will impact your line of credit rate and other borrowing. It’s not hard to understand if you read the credit score chapter in the Money Tools book, because your score impacts so much of your life.

If you have one or two credit cards, first apply for another card that’s more to your liking, lower rate, better perks, lower or no annual fee. That card issuer looks at your credit report with this other card you want to cancel still in existence. Once it arrives, then call the card issuer to cancel the one you want to get rid of.

Your credit score factors in the length of time you’ve had your cards. So if you’ve had one card for 10 years, and the other for two years, the average time is six years. If you cancel the 10-year card first, the average time drops to only two and that’ll drop your score. That’s also the reason to often consider keeping your 10-year card even if you don’t want to use it anymore…it has a big positive impact on your credit score. You can cut it up so you’re not tempted to use it, but don’t call to cancel it. Now, that’s assuming it doesn’t have an annual fee. If it does, take the small credit score drop for the big savings on the annual fees!

George Boelcke – Money Tools & Rules book – yourmoneybook.com

Three Grad-Year Resolutions That’ll Last a Lifetime

Happy Wednesday, especially to all grads, whether it’s high school or University. On a personal note, that includes my stepsister Brigitte McKenzie in Victoria, now Pastor Brigitte, who just graduated as a Minister in the Evangelical Lutheran Church this week. I’m so incredibly proud of her!

Her aside, for the 18 to 25 year old grads, it’s unlikely you’ll believe me or your parents. But one day – years from now – hopefully you’ll remember these three resolutions or heads-up before it’s too late:

Go vote in every election: Every level of government politicians make financial decisions for you that YOU have to pay for over many decades. You are the most impacted by their spending (or not spending) priorities. But your 18-24 age group won’t invest the half hour: Less than 38% of you vote. Compare that to the over 65 age group where 75% vote. Easy math: Which group gets their way? Which groups gets the most benefits? But also which group will pay the most and the longest?

Keep using your debit card: If you’re 18 or so, you always have because you couldn’t get a credit card. If you’re graduating from University, you’ve probably been using one for most of your purchases. Keep it up. It’s the best way to stay out of 20% credit card debt. Stats say you’ll change over to credit cards by your early 30s. It’s the powerful credit card marketing making you think you’re getting a lot of free points or perks. Maybe you will…but it’ll cost you 10 to 50 times what you’re getting through the fees and interest.

Fight the attempts of retailers to make you stupid: For a few years now, almost every advertised payment is weekly or bi-weekly – for expensive vehicles, I’ve also heard payments per day. It’s just stupid and designed to make the payment for whatever it is sound so tiny you’ll want to buy it and finance it.

In Red Deer, off gasoline alley, a large new apartment building has a huge poster on the front: Rent for $295 per week. The stupidity continues. Who rents an apartment for a week? That’s called a hotel! But the dummy-down marketing continues to expand. Better something stupid like $295 a week than the reality of actually paying $1300 a month.

Stop and think: Pull your phone calculator out and multiply it by 52 weeks and divide by 12 to get the real payment!