Tag Archives: credit cards

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!

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!

Paying Down Your Credit Cards

When I was at Mosaic last month, there were some common themes of questions from listeners who stopped by to say hello.

I’m trying to pay off three credit cards and then I’ll be debt free. I’m paying extra on all three of them.

OK, firstly, stop saying that you’re trying! It gives your brain permission to fail and just shrug your shoulders. Say I AM paying them off – it doesn’t sound like much, but it’s way more powerful when you say it and believe it!

Secondly, that shotgun approach has proven to not work that well. Paying a little extra here and there is the least effective way of getting it done.

The Money Tools book walks you through the step-up plan to pay off a sample $25,000 in debt in around half the time it should take. What you need to do is pay everything extra on the smallest one. In this person’s case, it was a $500 Visa. Make the minimum payments on the other two – every dollar extra on the smallest one. It was going to take until May or so – now it’ll be done by February. Then take the next smallest. Every dollar of the first card is now just re-directed to this 2nd card along with the minimum payments that have been paid all the way along.

Happy 2017 – 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 165% of our disposable income, half of us have no savings at all, 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 2017. 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?

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.

On average, we’re going to spend more than $700 on gifts this year. 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!

Last year, credit card purchases during the holiday season increased over 21%, and it’s a sure bet that this trend will continue.

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.

Borrowing Doesn’t Come With Warnings Or Permission Slips

When we borrow money, get the student loans, two or three credit cards, or line of credit that won’t be paid off for an average of 16 years, we just need a decent credit score and a paycheck. Nobody talks us through it first, nobody (especially the lender) gives us any warnings, and we sure don’t need a permission slip to jump headlong into debt.

To explain that, I want to play a TV commercial for you. This is an ad for Cymbalta. I’m not picking on them – these commercials are all pretty typical by law. But I want you to really listen to it. I want you to count how many warnings there are embedded in this one minute ad. Are you ready? (You can click this youtube.com link for the ad:

What did you come up with? In total there are more than 25 pretty serious warnings in this ad. I used one for an anti-depressant because that seemed appropriate when our debt levels keep rising, almost half the population couldn’t find $400 for an emergency, and two-thirds couldn’t miss one week of pay without serious financial trouble.

The point is that this is an ad for a prescription. You cannot even get it filled without first seeing a doctor. A professional with at least six years of medical training has to examine you, explain it, and then – maybe – write the prescription.

Do you see the irony of this? You cannot just go get this medication. Yet, in the world of borrowing, there are way more than 25 warnings that you really should know. But nobody does – few people asks, because they don’t really know what to ask, what to avoid, how to negotiate, etc.

THAT is the reason the Money Tools and Fighting Back book is so critical. It’s the medical warning equivalent for every type of borrowing and then the part of paying it off. Lenders have no obligation and no interest in having you financially educated – none!

Whether you’re 18 or 80, the book is THE best present you will ever get for yourself, or gift to someone. The $20 for the book turns into tens of thousands of dollars. It’s a must-have and must-read until lenders have to provide the same warnings as drug companies do.

80% of teenagers never take a class on financial literacy, then we set them loose to sign for student loans, then their first credit card, then they sign for a bad cell phone contract, and not long after that, for a car loan with no financial knowledge. At some point, they may get a mortgage, and the 70% chance they’ll sign up for a line of credit, too. By the time they’re 40, they’re broke, have no idea how to dig themselves out, or what to do. Then, they have kids and pass zero financial knowledge onto them. It’s true: 80% of parents do not talk to their kids about money and finances.

Keeping Your Credit Alive During the Postal Strike

The postal strike starting Friday is the most common way vast numbers of people destroy their credit. You have to remember that every debt that you signed for has a clause that states that the company is not responsible for sending you bills or statements. It’s YOU that’s responsible for paying every month by the due date!

Yes, most do send statements, but they don’t have to. Yes, many of your bills may be automatic payment from your account. But you have to get a list together of the bills that are not auto pay.

That’ll include your credit cards, maybe your cell bill, utilities, etc. In fact, credit card issuers love a postal strike. It’ll have a massive impact on their profits because they’ll charge you $30 to $40 the day after you missed a payment.

Call the 800 number on your credit card to get the date your payment is due and the balance, or minimum payment amount.

Make sure your cell bill is paid. The report to the credit bureau and can destroy your credit over a $40 or $50 issue. You can pay it at your bank or pay it at one of their retail locations.

Pay your utility bills, property tax installments, or insurance at your financial institutions as well. You just need the account number and they’ll be able to process it that day.

If you manually pay your vehicle payment to Ford, Honda, or whoever, you can drop it off at a dealership. They have a courier going to Ford Credit, Honda Credit or whoever once a day. Just make sure you get a receipt that you did drop it off. If it doesn’t get to your loan, you need proof you did pay it or you’ll never get your late charges reversed or your credit rating restored!

It’ll take you five minutes to list the bills you need to pay. If you don’t, saving that five minutes can cost you five to seven years of problems with your credit ratings! You should have this list and a plan on how to pay your bills anyway. In the Money Tools book, it’s one of the top 20 things that actually make you a financial adult!

Broke People Can’t Stimulate the Economy

 

The Bank of Canada issued a statement last week that our debt loads are killing any kind of economic growth. Well, that’s 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.

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!

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!