Tag Archives: credit cards

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.

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!

Graduating to Financial Adulthood

In most places, when you’re 18 you’re an adult. In BC, the age of majority is 19 and by 21 you can do anything anywhere. You’re done with high school and can drive, drink, vote, borrow or invest, and live on your own. However, for the majority of the population, that doesn’t make them a financial adult. That can happen soon after, or it might not happen until your 30s or 40s – if ever…

This week and next, I want to go through a list of what I believe makes you a financial adult. It doesn’t mean you have to be debt free or take a university course. The essence of it is that you need to be in control of your finances and money, instead of it being in control of you. You’re pro-active versus reactive and out of control. If you do these, or know how to do these, congratulations! You’ve graduated! Some are easier than others, but all are really important.

1..You have at least one-week of income as basic emergency fund and are working towards a full three to six months of all your expenses.

2..You have two credit cards and a debit card. Your credit card balances are less than 30% of your limit (or are lowering your balances every month in order to get there) and you do not have or use an overdraft on your chequing account.

3.. In the last two years you have checked your credit report and credit score at least once and your credit report is accurate. In other words: You’ve disputed and had them fix any errors. (Go to Equifax.ca and purchase ‘score power’ which is your credit report and score.

4..You have opened an RRSP account and/or Tax Free Savings Account and make a regular monthly contribution. No matter how small – at least you’ve started and have traction.

5..You have basic insurance. Car and home coverage is obvious. But if you’re a renter, you have a tenant fire insurance policy and if you have a child, or a partner, you have a term life insurance policy.

6..Whether you’re single or married, rich or broke, you have a properly completed will. It can be a $20 do it yourself kit if you’re single, or a lawyer-prepared one if it’s more complex and you have kids. But you (or you and your partner) do have a will.

7..You know the actual amount of your net take-home pay every month. You can’t control your money if you don’t even know the exact amount you net and keep talking about your gross pay as if that were what you could spend each month.

8..You have done at least a one-time budget, or have a system of tracking your spending.

9..Your monthly spending is less than your monthly take-home pay. You may have ten cents left or $1,000 – but you’re not spending more than you earn. Financial adults figure out how to pay for something and then buy it. Others buy it and then figure out how to pay for it later.

10..You know your net worth. At least once a year you figure out what your total assets are (what you own) less your total debts (what you owe) and whether you’re growing it by savings, or whether it’s shrinking by going into debt.

11..You have a system for paying your bills every month. Waiting for the mail is not a system! Whether it’s an app on your phone, setting up automatic payments, a calendar, an on-line program or a simple check list you look at every month – it needs to be a specific system.

Waiting for the bill in the mail isn’t a plan. If the statement doesn’t come and you forget, your credit rating plummets. Blaming the post office won’t work. It’s your fault that you don’t have a system for staying ahead of the game and on top of your bills.

12..You have a proper filing system for your financial stuff. It can be six large envelopes for each of the last six years, or a ton of file folders, if you’re an organizational nerd. Kids get to say ‘I lost it.’ Financial adults don’t have that option. The graduating test will be whether you can find your tax return from 2011, or a bank statement from February within 10 minutes.

13..You are taking specific steps every month to pay off your existing debt, excluding your mortgage. You are paying more than minimum payments and your total debt is shrinking each month. You have a specific month and year that you’re working towards when you will be debt free except your home.

14..In the past year you have made at least one call to dispute a charge, ask for a lower rate, or comparison shop. If you don’t know how to stand up for your money – others will gladly keep taking it from you.

15..If you’re in a committed relationship, you and your partner spend at least an hour each month without the TV or kids discussing your money, savings, bills, purchases and budget. Kids spend – financial adults have a plan and communicate.

16..You have at least two specific and measurable financial goals. Saving more in my RRSPs, or paying off my credit card isn’t a financial goal – it’s a dream. It needs to be specific: Saving $150 a month in RRSPs is specific and measurable. Reducing my credit card balance by $200 or more every month until it’s paid off is a measurable and specific goal.

17..At least once each month you have the self-confidence to say no to an expense. It may be at work, to your kid, or to yourself. If you don’t know (or don’t want to) say no or say that you can’t afford it, or don’t need it you’re doomed to have your money continue to control your life, instead of the other way around. Setting boundaries is what financial adults do.

18..On anything expensive you shop around before committing to a debt or a bill. That includes interest rate shopping, your insurance, cell phone contract, and your credit card interest rate if you always carry a balance. Kids impulse buy until they’re out of money – financial adults don’t spend until they’re broke. If you do – you can skip the other items and save a bunch of time and effort – you’re doomed to be broke for years to come.

While You Weren’t Looking Your Credit Card Charges & Rates Went Up!

As I keep saying: What happens in the U.S. will come to Canada. This time, it’s a massive increase in credit card penalty interest rates. It was announced last week by the CIBC and TD that, if you get behind on your credit card, they’ll jump the rate – a lot!

It’ll increase by up to 15%. That’ll put a low rate credit card of 12% or so to upwards of 27%. And it used to be for six months – now you’ll be in the penalty box for a year at that insane rate. If you play with fire, you’re going to get burned. Credit cards are a great convenience but they’re not your friend. If you carry a balance, low rate 12% cards are a bad rate, 20% normal cards even worse – but 27% is insane. And who pays them? The people who can least afford the penalty rates, because they have a hard time making the minimum payments. Don’t charge today what you can’t pay off by the end of the month. Whatever you’ve bought on your credit card isn’t worth paying for years at close to 30%.

The second bank change, this one on lines of credits and credit cards, also has to do with your credit rating – your credit score. You’ll see a ton of rates that are now “prime plus.” When rates go up, your rates will go up right with it the following month. On the TD website, their Emerald credit card is now prime plus 1.5% to prime plus 12.75%. If you apply, you don’t know what your rate will be when you get the card in the mail. It might be low or insane. That totally depends on your credit rating. Reason number 238 to go to equifax.ca and purchase your credit score. If you don’t understand it, email it to me and I’ll explain it, or go to yourmoneybook.com for the US Fighting Back! book. It has a huge section on credit scores…something Americans all know and live and die with. Us Canadians better get to learn it, too – it’s coming to Canada right now!

Four One-Off Financial Tips You Should Test Drive

Last week we started talking about some financial goals for 2015. All of them are meant to be specific, measurable, and easy to get started – if you choose to. Last week’s were half hour, tops. Here are a few more suggestions that are one-offs to kind of test drive. All of these will have a significant impact on your finances for this year, and years to come.

Do a seven day no-spending week. We talked about that a few years ago, and I did it for two weeks – twice. I’ll link the story from back then, all of which are always on the yourmoneybook.com site. Essentially, gas up, fill up the fridge, and then spend no money at all for seven days. Pay your normal bills, but nothing else. I learned a ton about where my money leaks out. It’s well worth it, and not hard to do for just a week.  http://moneybookcdn.myblogspace.ca/?p=35

Try an envelope system for any 30-day period. Take the amount of money that you will need for groceries, and for money you spend on yourself for stuff like haircuts, coffee, lunch out, and the likes. Take two envelopes and put that amount of cash into the envelopes. For that one month, you’re only spending on groceries and “me” stuff out of those envelopes, in cash. You’ll learn a lot about yourself and your spending habits. And when the envelope is empty – you’re done spending – and you’ll spend way less than you have been.

Put all your credit cards away for 30 days. No, I’m not asking you to stop breathing. I’m just asking you to see if you can break your stupid spending habits and addiction to credit cards – just for a month. Take your cards, put them in a plastic Ziploc bag, add some water, and put them in the freezer. Or put them in a sealed envelope and give them to a friend or relative that you trust. You’ll be amazed that you’ll spend a lot less money in that month. Plus, your credit card balance will love you for it.

Write down a list of all your debts from the smallest balance to the largest amount, in order. Pay minimum payments on everything but the smallest bill and attack that one with every dollar you can spare. Because it’s the smallest debt, it’ll take only a few months to pay that off in full. Then you’ve freed up all that money to attack the next smallest. It’s a debt snowball that gets traction really quickly. It really is that simple, and it’s a chapter in the It’s Your Money book.

Advertisements: What You Hear & What You Need to Know

I actually enjoy good ads. Not only do they keep all media outlets in business, they support a ton of local businesses, and can also inform, and be memorable. Who doesn’t enjoy the U.S. Superbowl ads? Even the Canadian ones are well done.

But not all ads are created equal and some of them really need you to think and ask questions before buying. Do you only see the large print and never the ‘up to’? Up to triple the reward points…1% introductory rate? No payment for six months?

The largest credit card marketing is for reward cards because they have an annual fee. When you see any ad with triple reward points, that’s not the time to apply, but to get a magnifying glass and check the fine print first. Your triple rewards will be on one or two categories such as restaurants or drug stores. It’ll likely be for places with the biggest markups where they have the “room” to give you the triple points, or restaurants where you’ll earn maybe an extra 5 or 10 points, because you’re probably going out to dinner two or three times a month, tops. On the rest of your charges, the 90% or more, the points aren’t tripled. Hear me really clearly: Nobody ever became financially successful because of their reward points. People become financially successful paying cash or debit!

One of my favourite shows is the Amazing Race. This year, Scotiabank is the main sponsor with their American Express card and they have two very cute ads in the show. This is not a real charge card that you ought to have (and the only one I use) where you have to pay the balance in full. It’s a regular Amex card that allows you to make minimum payments versus having to pay it off each month.

Scotiabank’s main slogan is that you’re richer than you think. In fact, it’s the opposite: You’re poorer than you think. 50% of us can’t live without one paycheque, 70% can’t write a cheque for a $3,000 emergency, the percentage of seniors taking debt into retirement is exploding, and a CBC report last night showed 48% of us will rely on CPP for our entire retirement income. But remember that the main business of banks is to lend money. That’s how they make a profit. If the slogan were that you’re poorer than you think, you may borrow and spend less and save more. That’s how banks would lose money. However, if you have a ton of borrowed money, you’re richer than you think…for a while…until you have to pay it back from the same income you had BEFORE the line of credit, car loan, or new credit card.

It’s the old saying of buyer beware. Enjoy the ads, get the information, and then start asking yourself the right questions before signing. It’s a jungle out there – be careful.

The World of Reward Points Is Changing

The average Canadian has five reward programs of one kind or another. It might be a 10th free haircut, frequent flyer miles, 10% off if you spend over a certain amount, or rewards on your credit card.

Whatever you’ve figured out about them will be all different in the next few years. In short, the programs will be converting from volume to profitability and the opposite for credit card rewards. Right now, you’re getting rewards on your visits or spending totals. Down the road it’ll be whether you buy something profitable. No more points (or very few) to buy something at a discount, but now big rewards when you buy something way overpriced or at full retail price.

In the airline business, Air Canada has done three quiet changes to their reward programs already. Cheap seat-sale tickets now get you 25% of the miles versus full price so-called Flex tickets. Delta Airlines is already the process of fully converting their frequent flyer program. If you collect miles you need to know this. It will become the norm with every other airline. You’ll no longer earn miles based on distance flown, but on the amount you spent. It’s turning frequent flyer programs upside down. So, a last minute ticket to Vancouver at a big price will get you more miles than a discount flight to Europe.

The programs will be based on your profitability with the airline. If you make them a ton of profit – you’ll get a ton of miles. The biggest losers will be those of us who are price sensitive and bargain shop for flights. In the next few months I’m cashing out all my miles for gift cards or cash – better safe than sorry. When this comes to other airlines, you’ll be way better off getting a points reward card that lets you accumulate points for gas and other purchases – you’ll end up getting a lot more rewards than from an airline!

In the credit card world, the change will be to quantity of transactions. American Express has now introduced a new credit card that will increase your reward points by 20% once you reach 20 transactions in a month. For Amex that makes sense because their average client spends four times as much per transaction, and has a much higher average income. It’s just maximizing their transaction fees.

There was a recent study that found over a third of all reward programs are never claimed. In the airline world, according to Consumer Report, over 75% of miles are never claimed. Stop chasing and start cashing out. You won’t be a prisoner to one company or another and will become a free agent that can get the best deal from any company. I’ve started cashing out my Aeroplan miles by getting $2,000 in Esso gift cards. Check what you can redeem for the least amount of points or miles. With Aeroplan, chasing a free ticket can be a fools game. Gift cards tend to be a good deal on redemptions. Amex gift cards cost 7500 points for a $50 card whereas the Esso gift cards cost me 6500 points each.

Adult Graduation – To Financial Success

We’ve talked about graduating high school and graduating out of college in the last few weeks. Today, let’s talk about adult graduation. It’s not about school – it’s about graduating to financial success. You may be 30 or 55 and haven’t really gotten to the point of managing your money and finances – instead of your money running your life. When you graduate is up to you – the sooner the better. There’s a great Chinese proverb: The best time to plant a tree was 20 years ago. The second best time is right now.

Adult graduates make a financial plan and follow it. Kids do what feels good in the moment. It’s called delayed gratification.

Adult graduates have discipline in choosing between what you want now, and what you want the most.

Adult graduates actually practice what they teach their kids or tell coworkers at lunch that they ought to do. News flash: Your kids emulate what you do and not what you say and have you ever noticed it’s all the broke people that want to give you financial advice?

Adult graduates don’t just focus on the immediacy. They don’t get conned by the 0% headline.

Financially successful grads live on less money than they earn. That’s Money 101 – if not – they’ll never graduate. They have a game plan and serious goal of getting out of debt, starting with their smallest bill and working their way up. These graduates slowly start changing over from paying everything on the planet by credit card to moving over to a debit card. That’s changing their life from living on debt to living off their chequing account balance.

An adult graduate will have read at least two books on credit, finance and investing. It’ll make them more money-smart than 95% of the population and yes – smarter than most bank employees – honestly!

And a small group will graduate with their financial PHD: They’ll have at least one week of net pay in an emergency account, and set aside one-twelfth of their annual bills for Christmas, property tax, car insurance and the likes in a separate savings account.

Are you graduating one financial class or a bunch of them? Is this the year you want to get your financial PHD? I’ll never know how many adults will graduate sometime this year. I hope it’s you – you’re worth it – it’s worth it. But I can’t fight harder for you than you’re prepared to fight for yourself…