Tag Archives: credit card rates

Have Some Mattress Money?

While GIC rates are still pretty high, but dropping, it might be a good idea to consider what to do if you have any money under your mattress, too much in your checking account, or sitting in a bank savings account.

No, that wouldn’t and shouldn’t be investment money. That’s your retirement investment. But that definition is for any money you will not need or touch for over five years. The money you’re saving for a down-payment, a newer vehicle, home renovations, or other things is money you should not be investing as you’ll want access to it in less than five years.

The most effective way to have this money earn some returns is to ladder five GICs. Let’s use $10,000 as an example: Get five GICs for $2,000 each. A one year, two year, three year, four year and a five year one. That way you have access to a fifth of it every year. Right now, a five year GIC is still about 3.75% and a one year (if you look around) still gets you around 5%. Just make absolutely sure that you have it in writing that the maturing GIC does NOT automatically get renewed. No, them telling you doesn’t count. No, their comment that they “never auto renew” is a lie and doesn’t count. You need it in writing that the maturing GIC will be deposited into your checking or savings account. If it’s not in writing it does not count. On two previous occasions I’ve had to get a lawyer involved when GICs for a relative and acting as an executor were auto renewed and the bank attempted to tell me that I was out of luck. And that was WITH written instructions, dated and noted as to who it was given to!

Oh, and none of this matters or applies if you have a credit card balance! Hunting for an extra quarter percent return when you have a 20% credit card rate is crazy! See the Money Tools book chapter on credit cards: How to get a guaranteed 50% return (by paying off your cards).

Save or Pay Off Debts?

Ah, just four days left in this year’s RRSP season, and the scramble is on. I was in three different financial institutions in the past few days, and three buddies all whispered that they HATE this time of the year. It’s all the stress and last minute scrambling. If you HAVE money, but haven’t gotten your savings act together all year – you have a problem. Investing isn’t just dumping some money into whatever in February, just hoping it’ll grown into something by the time a decade or two goes by. Go to yourmoneybook.com and read a couple of stories of the massive return difference between one-shot investing and a monthly contribution. That dollar cost averaging every month will get you more than twice the return.

If you don’t have money – you’ve got a problem, too – it’s just a different problem. The question is whether you should contribute or pay off your debt. I believe you need to have a game plan and a focus. Trying to do a little debt payment, a little savings, etc. doesn’t get it done, or at best it’ll take a lot longer. Take a year or two of no saving or investing and focus on getting to be debt free on everything but the house. Then go back with all that saved money no longer going towards payments and catch up your investments. It’s worth it, because it’ll only be a year or so if you actually get focused and intense.

Here’s another reason to make that worthwhile: Want a guaranteed 27% return on your money totally risk free? Pay off your credit card! All the payments you make are with after-tax money. So in a 30% tax bracket, for example, your 19% credit card is actually a 27.1% rate. Even that 6% car loan is actually 8.6%, and that’s not a bad return, either.

If you’re carrying a bunch of debt, don’t hear this to be permission to never save for retirement. It’s critical that you do. But it’s the second step after getting to be payment free. Nothing gets you a bigger return than NOT making monthly payments and paying out all that interest. Just the savings in that alone will let you immediately redirect them into retirement investments. It’s a half a step back to be able to take two steps forward. Not forever, but for a year or two it can be the best financial decision you’ll ever make.

I Didn’t Know – But You Need To!

I would bet that the two fastest changing industries are probably the medical field and the world of finance and credit. What was true one month gets changed, amended, legislated, or moved around, in one way or another.

Over the last couple of days I came across a number of things that are brand new, and that we all need to know:

-Scotiabank has changed their credit card agreement. That means others have, or will, follow soon. Starting in September, if you miss, or are late, on three payments in any 12 month period, your rate will go through the roof. The statement I saw jumps it by 7%.

-The two-tier interest rate charges started in the U.S. and is now here. Along with that, you will no longer receive credit limit increases automatically. You will now actually have to OK them. And that’s a good thing. Almost none of us NEED a bigger limit. The card issuers will send you the limit offer and you can accept or decline. Of course, you can still contact them to request one, if you need to.

-Scam phone calls are something that happens to millions of people. But you can no longer rely on call display for the accuracy of the number popping up. With internet calling, fraudsters can now spoof phone numbers being displayed to read almost anything they choose. You THINK you’re getting a call from your bank, because that’s what it reads on the call display, but it’s not. Always, always, get their name and department, hang up, and call the number on the back of your credit or debit card. It is the ONLY way you know you are actually reaching your bank.

Millions of us deal with Shaw, as do I. But I found out two days ago how nasty they get with one month past due. My company pays the bill, but there wasn’t a statement in April. May got paid, June got paid, July got paid, but it was always dragging by a month. My fault – no doubt. But they simply went in to disconnect my internet one morning.

All companies love you when you pay – and I’ve paid them close to $30,000 over the years, but don’t care when there’s a slight problem – no matter what the reason. Media relations chose not to respond to my inquiry, but their computers can only tell I’ve dealt with them since September 2008, instead of April 1995. Whether it’s Shaw, your bank, or your mortgage company – they’re ruthless on any past due amount, no matter what the reason, track record, etc. So, as the kids say: Don’t go there.

The Good News: Interest Rates Came Down this Week

The better news: Sit tight – they’re coming down lots more. There’s no guarantee, because even weather forecasters can’t get it straight a week out, but with the huge drops in the U.S. and the slowdown in the economy, this one is kind of a no-brainer.

The bad news: It’s only a rate drop and all those bills you have still need to get paid. Kind of like gas prices dropping a couple of cents – real exciting, but not that big a deal in the big picture. But every bit helps…

If you’ve got debts ranging from mortgage loans to cars, lines of credits to credit cards, some will be affected, some won’t.

We’ll talk about mortgages and what to do if you’re in the middle of a fixed term in a couple of months when they come down some more. Yes, there is help and hope for you. But If you have a variable rate, or floating rate right now, your payment is coming down. If you’re mulling changing it to a fixed rate one – hang in there for the next couple of rate decreases before you lock it in.

Anyone considering borrowing when the rate goes down – your payments will be lower, and that’ll save you money – a little bit. But it’d be great if you held off a little longer for a few more rate decreases. Drive your car a little longer, get that line of credit a little later (if at all), or if you’re in the market for a home get the pre-approval in place now (it’s good for 60 to 90 days) to lock in the rate and lenders WILL give you the lower rate at the time you’re closing approaches.

If you’re looking to buy a new vehicle make sure to get the price from the dealer using either the rebate OR the cool rate they may offer. That cool rate just got less attractive so take the net price after the cash rebate and get a quote from a credit union. Very often the rebate and prime rate financing is better than the 1.9 or 2.9 the dealer has! But you’ll never know if you don’t do the comparison shopping!

Your credit cards won’t change at all – sorry. They’re around 19% average, they’re a rip off, and they ain’t moving – there’s way too much profit in the high rates they charge and you’re paying it so there’s no way they’re coming down. But until you really really believe they’re a rip-off, you’re not likely to get angry enough to change to a debit card and stop using credit cards altogether.

Lines of credit, however are all based on the prime interest rate. If it’s secured by your home, the payments are interest only, or if it’s an unsecured line it’s generally three percent payments. Those will drop. But why do you have the line of credit in the first place? If it was for an emergency, you’ll have a zero balance and it won’t matter.

If you do have a balance, don’t lower your payments with this interest drop. Keep paying what you’ve been paying. This is a huge opportunity to be able to pay the same amount of money but more of it will go to principal and you’ll have it paid off faster.

That applies to all of your borrowing. Is it to tread water and pay as little as possible or is it to use this rate decrease to step up to the chance to pay it off quicker? Only you can decide but there’s nothing like financial freedom with NO debts and monthly payments.