Tag Archives: credit card charges

A Common Financial Trap We Do to Ourselves

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At least three times in the past few weeks I’ve heard a common financial strategy from people with a bunch of debt: I’m going to transfer it from my credit card to my line of credit because the rate is so much less.

Yes, but no: If you believe that the interest rate matters a lot, and that your debt is about math, you’re sort of right. Sure, transferring something from 20% to 6% might be a good idea. But getting into debt, and out of it is, not about math. It’s almost all about psychology. If it were about math we wouldn’t use a 20% credit card, or buy a new vehicle that has dropped $3,000 to $5,000 in value before we get it home!

Remember that transferring your debt around is NOT the same as paying it off. All you’re doing is shuffling it from one place to another, none of which accomplishes a thing in the total amount you owe.

If you owe the money on your credit card, you’ll be way more motivated to pay it off, exactly because of the high rate. If it’s transferred to a line of credit, that motivation goes down the drain. If you do it – fine. But in two years, look back on the math and add up what you’ve paid in total. I’d bet, for most people, it’ll actually cost more since we stretch out the repayment forever.

When we transfer this $1,000 or so, it also pays down our credit card. Hurray – now we have another excuse to use our credit card again because the balance is gone. We tell ourselves the balance is paid off, but forget that it’s just owing in a different place. But six months down the road, the credit card is run up again and we STILL owe the transfer on the line of credit. That makes things worse – way worse than leaving it on the credit card and focusing on paying it off.

I’m not even dealing with the fact that we still think debt is our friend and haven’t wanted to separate our wants from our needs. That has to be true, or we wouldn’t have charged this amount, but saved the money first. Then we can buy whatever it is and actually afford it!

It’s a vicious cycle that credit card companies and our line of credit lender love to assist us with, and keep us in forever. And we’re more than willing to play the game. But it comes at a very high cost in a number of ways.

Break the cycle. Buy it when you can afford it. And if you ignore that advice, which you will, leave it where it’s owing, and get on with paying it off as quickly as possible. That will be quicker, less costly, less likely to run up the credit card again, and less stressful.

Three Short Insights You Should Know

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J.D. Power Fall 2009 Credit Card Satisfaction Survey

Each fall J.D. Powers conducts a very comprehensive credit card survey. It rates overall satisfaction, along with how happy cardholders are with their rewards, payment processing, problem resolution, customer service, and fees.

This year, American Express rated five stars, head and shoulders above other national card issuers in all categories. At the bottom of the bottom, with the worst score on customer’s satisfaction with their credit cards were Capital One, along with GE Money. GE is a surprise, as they handle the Wal Mart cards, and Wal Mart prides itself on great customer service! As to Capital One – what’s in your wallet? I hope it’s not one of their cards!

But the scary response to the survey was that 53% of us did not know the interest rate on their card, even though it is printed on every statement. Not knowing that we are paying around 20% on our credit cards is not good news!

Scotiabank can’t be happy with a bunch of national press recently. But there’s a great lesson for anyone over age 59 to learn! All banks offer seniors a no charge service banking packages, or greatly reduced service charges at various ages, but for most it’s at age 59. Barry Ashpole, a 66-year old college teacher, had the TD and Royal automatically lower his fees, because all the banks have your birth date on file. But Scotia kept charging him the full service charges for seven more years! When he discovered the huge overcharges, he hit a wall of no help to get this reversed, and fought it all the way to their Ombudsman’s office. At that point, he received a six month refund of $71. They wouldn’t refund the other six and a half years! You need to make sure you know when you are entitled to a break of the huge service charges, or you’ll get taken, as Barry Ashpole found out the VERY expensive way.

And a final update on your credit cards: Time and time again, I point out how critical it is to check your credit card statement line by line. Stuff shows up that’s not yours, merchants who accidentally, or because of a kinky staff member, charge things twice, and all kinds of errors can and do happen. But less than 10% of us look at our statement items – and that number is way lower if you get your statement on-line!

There is a phrase you need to know. It’s called post transactional marketing. You buy something from a retailer on-line, or join a web site. Often you’ll get a pop-up asking you to join a loyalty program for deals, alerts, or whatever. Be careful, because in many instances, these pages look like they come from the retailer, but they’re third parties, and deeply buried in the fine print is a note that you’re actually going to have a monthly fee charged to your credit card! And it’s not small business, but the 1-800 Flowers, Barnes & Noble, airlines, Priceline and buy.com sites!

Be careful, as these marketers have scammed people out of over $1.5 billion so far, Facebook has now been hit with a class action lawsuit, alleging that they allow, promote, or profit from these post transactional marketing, and the U.S. Congress is holding hearings on the issue.

Buying Gas At 20 Cents a Gallon On Your Credit Card

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Yes, you can get a 95 percent discount on the high price of gas just by using your credit card… sort of.

The vast majority of people are buried in credit card debt and monthly payments that make every lender rich, leave nothing for savings, and have the average family working most of the month just to pay bills. That’s surviving and not thriving, and it’s a horrible way to go through life.

As a result, every small increase in food prices, the cost of a gallon of gas, or any price increases become very painful. And what do most of us do right now? We charge our gas on credit cards.

The good news, next month we only have to pay around a five percent payment on our ballooning balances. So really, that $50 fill up hasn’t cost us anything when we charge it on our credit card since we’re not parting with any actual money at the time. Then, next month, when the credit card statement arrives, millions of people can only afford the minimum payment. That three to five percent payment puts $2.50 towards that fill up, tops. OK, it puts nothing towards it since almost the whole payment is getting sucked up by interest charges, but you understand the sick logic and financial nightmare so many people find themselves in.

Making minimum payments buys us the right to use the card for another month. Nothing more. It’s treading water and making a huge number of card issuers very very rich.

One of the most dangerous things we do in our financial lives is to charge consumable items to our credit cards. The restaurant charges, groceries and gas are used up and consumed way before the credit card statement even arrives! In other words – we have nothing to show for all those charges and that huge balance.

Could you set yourself a credit limit below which you won’t use your credit card? Can you decide to pay by cash or debit card for anything you’ll use up before the week is up? You’d be amazed at how quickly your debts will turn around when you no longer have those ten or twenty charges on your card, because they were paid in cash. Your statement will start looking weird with some payments on it, but very few new charges.

The price increases of gas and food impact us so heavily, and hits us so hard, because most of our money is already spent way before the next month even starts. In the big picture, if we were debt free, would we really notice that a fill up costs another $8 or $10? No, because most of our pay would be staying in our accounts! THAT is debt freedom. Until then, it hurts disproportionately, because we just don’t have that $8 or $10 left right now.

Right now, credit card companies have millions of families exactly were they want them: Carrying huge balances and no hope of paying much more than minimum payments. What’s in your wallet? A financial nightmare, waiting to explode – sooner or later. Or changing around that old American Express ad: Don’t leave home with it!