Tag Archives: credit cards

Can You Really Sign Away Your Credit Card Rights?

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Capital One made social media sites explode a few weeks ago. Their new U.S. credit card contract contains a collection clause that states they can suppress or change caller ID when calling you. In other words, they can spoof the caller ID to make it look like it’s one of your relatives so you’ll answer. It’s really easy to do, and something most scamsters already use when they try to con you.

The Capital One new agreement also states they can do personal collection visits at your work or home. I haven’t found the Canadian master agreement. If you have a brand new Capital One credit card, get in touch with me as I’d love to see a copy to find that text.

What’s in your wallet? In the U.S., at least for now, I hope it’s not a Capital One card!

Consolidation Loans – Don’t Do It

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What are the first three letters in consolidation? It’s con – and that’s how you should think of it. The most important factor is that you need to change your thinking from percentage rate to dollars of interest! You get sold (or sell yourself on the idea) that you’ll have a lower payment, pay less interest, and get out of debt faster. Right – wrong – wrong…

If I borrow five dollars from you and you charge me 80% interest for two days, I’m going to owe you the $5 and two cents interest on Friday. Big deal – who cares, right? OK, but if I borrow $5,000 at 80% interest and owe it to you for a year, and not just two days, that interest is $4,000. Now it’s a big deal: $4,000 interest on a $5,000 loan!

What matters is always how much you owe and the length of time you owe the debt. The rate is only the third most important factor. What do banks push in their ads? It’s the rate, and never the term or amount. That’s like the magician who has you looking over there while they trick you over here.

On the surface a consolidation is really easy to sell to you and seems like a win-win: One payment, combining all the debts and at a better interest rate. But since it’s not the rate that matters, you will almost always pay:

-more in total interest

-over a much longer term

-and be in debt a whole lot longer

-and in debt for a whole lot more money, too.

If you owe $3,000 on a credit card at 20%: If you want out of that rate trap and consolidate, it stretches it to five or ten years. That option will cost you a lot more in interest – not in interest rate but in interest dollars! Or just pay $250 a month and get rid of it in a year, at a cost of $600 interest.

Your car loan may have three or four years left. Make the payments and you know the end comes sooner, rather than later. A consolidation won’t get you a much better rate, but will trap you into stretching the loan another five, seven, or ten years. It quickly doubles the interest you’ll pay, not to mention you aren’t going to own the same car for t10 or 15 years!

But those aren’t even the biggest drawbacks and traps. The biggest one is that 90% of the time you will now be putting up your house for collateral. Everything up until the consolidation was either no security, such as credit cards, or was borrowing that only had something specific for collateral, such as a car. Now, in combining it all, you’re changing all that and putting up your home for security. Right now, the worst that could happen is that the credit cards will write off what you owe them and your car may be repossessed. After the consolidation – you’ll lose your home.

And the worst trap: Over 80% of people who consolidate run up their credit cards again within two years! No, you’re not the exception. Stop kidding yourself unless you cut up all the cards that got you to the edge of the cliff in the first place or you’ll be in debt for twice as much as you started with. After that, the next step is bankruptcy.

Any ‘con’ solidation should only be done as a very last resort…and even then, there are better alternatives. What seems like an ‘easy’ way out makes things worse – much worse. Don’t do it – list your debts smallest to largest and attack the smallest one with every dollar you can free up. Then move onto the next smallest. That do it yourself plan will save you thousands of dollars and a lot of years!

Happy New Year – But Will This Year Be Any Different?

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If you haven’t made many or any New Year’s resolutions – congratulations. There’s a good chance that those who have, are half way done breaking them in the first week anyway. It’s a bad time to make them based on societal pressure. But you do need some goals, at least for your financial life.

Write down some financial goals for this year. Whether you start them this week or next month is up to you. They’re goals and a game plan and not throw-away New Year’s resolutions. However, your goals have to be in writing. To paraphrase a quote from Larry Wiget: Nobody ever wrote down a plan to be broke, overweight, or lazy. Those things are what happens when you do not have a plan.

This year, write at least five benefits with each -that’s the part which will motivate you to stay on track. For instance, if your goal is to be credit card debt free, it’ll be pretty easy to come up with five huge benefits that’ll come as a result: No more monthly payments, it’ll be like getting a $300 raise in not making those payments. It’ll save you x amount of interest a month. It’ll boost your credit rating that’ll get you lower interest rates on other borrowing, frees up all that money to now go into savings or towards another debt that’ll get cleared off a lot faster now. That’s six easy blessings right there.

Things only change when you change, and not when the year and the calendar changes.

A huge 2014 gift to give to yourself is to set up a savings account for your annual bills: Add up your property tax, insurance, what you spend on Christmas, your vacation and whatever bills you only have once a year. Have your credit union take one-twelfth of it out of your chequing account automatically and transfer it to this new savings account. You can’t imagine how much financial and debt stress that’ll relieve when you’ve always got the money for these.

The gift of not being stupid and thinking before buying or signing: That so-called free cell phone is over $1,000 when you’re forced into a two-year contract. Get a free TV if you just sign this three year contract. Stop and think that the ad should say: Get a $290 TV when you spend over $3,000.

A gift that will keep on giving for more than 60 years: Teaching your kids about money and savings. But it’s about what you do, not what you say. Start today away and give them three jars or piggybanks: Whatever money the receive goes equally into the three jars: One for saving, one for giving, and one for spending. As they get older you can change the distribution, but start somewhere and sometime soon!

You’ll only achieve your goals if you have a written and specific plan, and if your drive to achieve these goals is stronger than your excuses or thoughts of failure.

What I wish you for 2014 is that you choose to opt out of the North American way of life: Spending money you don’t have, buying stuff you can’t afford, to impress people you don’t really like.

We’re Going Broke At a Slower Pace

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Newly released averages from TransUnion, one of the credit bureaus shows what we talked about recently. We’re increasing our borrowing, but at a slower pace. Great. Kind of like someone on a diet just having three pieces of cake, instead of four. We’re still growing our debts which are already significantly too high.

On average we owe $3,600 on our credit cards. But remember that about half of Canadians pay their balance in full – hurray. So the rest of us owe over $7,200 – and that should be a concern.

Lines of credit are now over $35,000 on average. But think back not that many years ago. We used to get a personal loan if we wanted to borrow $10,000 for renovations or $15,000 for a motorcycle. Well, making a loan costs the bank about $200 to $300 in setups, credit reports, etc. So they moved us to lines of credit. Now a loan had a three, four, or five-year term of fixed payments. Make all the payments and you were done with this debt. Yet, a line of credit makes us the loans officer. We can pay as little as interest only (newsflash: Most do) or as much as we want. We were sold on convenience and hardly anybody gets an actual loan these days, with the exception of vehicles. Now we can pay as little as we want and the banks don’t have to keep making new loans.

The downside is that now, on average, we take more than a decade to pay off our lines of credit. That’s assuming we don’t just roll them into a mortgage refinance. It used to be four years of loan interest, now it’s a decade or more of payments. Great for the lenders, very bad for us. Without much of a rise in incomes and all the other monthly payments, it’s just natural to fall back on the least amount we can pay – and we do.

Banks really do have the brightest marketing minds in the country. They’re so great at selling us something that they make a profit on and helping us with our going-broke plans.

More of Getting Financially Fit for 2013

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Last week I promised that we’d talk about some specific small steps you can take to change your finances around. Why small steps? If it’s too big, your sub-conscious mind will revolt against huge goals which seem impossible to reach.

You’re not going to lose 60 lbs, but you can lose a pound a week. You won’t run the marathon this summer, but you can go for a 15 minute walk each day. You also won’t be debt free by March, but you can start on that journey with one step at a time.

Resolve to say no: Whether it’s to yourself when it comes to spending, to your kids, people at work, or anywhere else. It’s the one word that’ll change your financial life and overspending.

Set yourself a credit limit for the next month. Pick a dollar figure below which you’ll pay by debit card or cash. Maybe $20 or $30 bucks – that’s it. Anything below that, you’ll pay 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.

Take your credit cards out of your wallet for two weeks. You don’t need them just to go to work and home. That way the temptation and impulse spending is gone. Take a $20 bill and hide it in your wallet or purse for an emergency. If it’s really for an emergency you’ll still have it in there in six months. With credit cards we spend 12 to 18% more than paying by debit card or cash. When you don’t have them on you, you can’t overspend.

Keep your car 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. The goal should be to drive a reliable vehicle that doesn’t have payments with it, which are killing your chances to save, or to get ahead financially.

Annual bills kill your budget, but they’re not a surprise. You know they’re coming – but you don’t have the money to pay them. Open a savings account and add up what you’ll need for next years’ Christmas bills, your property tax and car or home insurance. Divide it by 12, and put that amount away monthly. A small amount each month is doable, a huge bill sets you back months.

Pay off one bill. Minimum payments buy you another month – nothing more, and it’s treading water. Credit cards and debts are not your friend. They’re financial dream killers, suck money out of your pocket, and add a ton of stress to your life and your relationship. Take your smallest bill and put every dollar you can towards it while paying minimum payments on everything else. When it’s gone, you know it’s not coming back. If you want – and you should – take the next smallest and focus only on it. This step-up plan will get you debt free in less than half the time. It’s an entire section of the It’s Your Money book and will change your financial life forever.

Test drive these six suggestions for the next two weeks or the rest of the month. It’s not overwhelming and it’ll be easier than you think. Then you can choose to carry on with some or all of them for another month. By that time, it’ll be habit and part of your life. If nothing else, at least resolve to make this the year where you spend more time planning your finances than your vacation.

Change Of Plans: Your Bank Wants To See You Again

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With new credit card legislation a couple of years ago, card issuers can’t increase your credit limit without your consent. Remember that their main goal is to have you owing the most amount of money and making the smallest payments. THAT is how they maximize their interest income.

These days, you’ll get a notice on your statement that you qualify for a limit increase – you just need to call. Or they’ll send you a separate mailer, and may even phone you from their call centre. Don’t do it – unless your limit is really low, it generally becomes more temptation.

The trend of getting you out of the bank and to the ATM machines is changing. Think about it: They can’t solicit or sell you very well if they can’t see you!

When I was at one of the big no-service banks last week, I overheard the teller next to me tell people: My screen just showed that you qualify for a limit increase on your card. Want me to go ahead and put that through? Is that clever or what? And in the few minutes I was there, this teller was three for three. She converted all three people she asked to a higher limit. Great for the bank…often not so great for the person thinking they’re being flattered. Scotiabank does it through their ATM machines. If you’re up to bat, they’ll have a screen that advises you that you qualify for a Visa limit increase and just click here. However, it’s not as effective as seeing you in person.

What the banks want to do is to make you sticky. That’s bank slang for having you deal with them on as many products as possible. The more diverse business they get from you, the lower the odds are that you’ll ever leave them. If you have an RRSP, your mortgage, savings, a term deposit, your checking account, and a credit card, they’re betting you’ll never go through the hassle of shopping around and moving somewhere else.

Three Things I Didn’t Know

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Wal-Mart, the world’s largest retailer has their own MasterCard. That’s something probably everybody knows as we keep getting pitched at the cash register. But I didn’t know that it is handled by Wal-Mart Canada Bank. Yes, Wal-Mart is a bank, something they got approval for in 2010. As of now, it isn’t a deposit taking institution but I wonder if they’re still working on that.

Virgin Money is Sir Richard Branson’s bank. Branson is best known for Virgin Air, Virgin phone, etc. He isn’t in Canada, but keeps talking about it, mostly because our pathetically small number of banks that automatically mean zero competition and huge fees and interest charges. I would love to have him come to Canada.

The one thing you know about Bronson is that he enters industries and everyone gets very nervous. Because Bronson is a huge believer in customer service and always approaches businesses from a totally different business model perspective. One of the features of Virgin Money is that it has facilities to quarterback family and friends’ loans. If you’re making a loan to a family member or someone you know, Virgin Money will do all the set up, paperwork, contracts, filing, signing and collections. I am absolutely dead set against family loans, but anyone who ignores me would have a great formalized way of doing it.

With new credit card legislation a couple of years ago, card issuers can’t increase your credit limit without your consent. Remember that their main goal is to have you owing the most amount of money and making the smallest payments. THAT is how they maximize their interest income.

These days, you’ll get a notice on your statement that you qualify for a limit increase – you just need to call. Or they’ll send you a separate mailer, and may even phone you from their call centre. Don’t do it – unless your limit is really low, it generally becomes more temptation.

What I didn’t know is that the trend of getting you out of the bank and to the ATM machines is changing. Think about it: They can’t solicit or sell you if they can’t see you!

When I was at one of the big no-service banks last week, I overheard the teller next to me tell people: My screen just showed that you qualify for a limit increase on your card. Want me to go ahead and put that through? Is that clever or what? And in the few minutes I was there, this teller was three for three. She converted all three people she asked to a higher limit. Great for the bank…often not so great for the person thinking they’re being flattered.

Are Those Temporary Great Credit Card Rates Worth It?

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The spring wave of special temporary rate offers from credit card issuers has sprung.

But, as I keep saying, what happens in the US comes to Canada – and here’s another example of that. To transfer any balances to that cool temporary rate now comes with a fee. You’ll now pay at least a one percent transfer fee to take advantage of the special rate offer.

The one I have in front of me is from the Royal and from Scotia. The Scotia one is a 1% six month rate offer. But you have see the little asterisk and read down on page two of the fine print. You’ll pay a 1% fee for this temporary cool rate.

That 1% is enough of a fee for them to still be profitable, since banks borrow money at less than 1.5%, and I would suggest it’s not much of a deal for you.

This Scotia basic card has a 12% rate – it used to be 9.9% and they jumped it 20% when rates are still at the lowest ever – but that’s another story.

If you transfer $5,000 onto this card, the 1% six month rate will add that fee of $50. So you’re really paying a 4% effective rate: 1% interest on $5,000 anyway, and a 1% fee on top of that. If you transfer $8,000 onto the card you’re paying a total rate that’s actually 3%.

By the way, and this is something most people never realize, the cool rate is only on new transfer balances, and not on your existing balance. The only way to get the cool rate on your whole balance is to pay off the current amount in full, wait a day for it to be processed, then transfer the entire balance back, but now adding that 1% fee.

Whether the saving of a few hundred dollars is worth it is up to you. If you use it, the card issuer has won already. They’re still profitable and have accomplished their number one goal of getting your balance way up there.

What are the odds, though, that you’ll pay off this huge balance inside the six months, before the rate goes back up to the 12% or 20%? According to studies, it’s less than a quarter of all people. Then it’s a double win for the card issuer because you’re right back to the full rate the day after the temporary offer. At that point the shell game has to start again, if you can find another rate offer.

Instead of saving a few hundred dollars, there’s a guaranteed way to pay zero percent interest: Pay the current balance off and don’t spend the time and energy in transfers. You’re just kidding yourself that you’re making progress – you’re not. You’re moving your debt from one place to another. Sure, it’s a temporary interest saving, but if you spend that same time and energy just focusing on paying off your balance, you’ll be way ahead of the game for the long term.

And by the way: US transfer fees to take advantage of temporary rates are now up to 5%. What do you want to be it’ll be that amount in Canada inside the next year or two?

The Money’s All Spent – Now What?

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Now that it’s the week after Christmas I’m reminded of an old Irish Rover Song called: Wasn’t that a party, and then talks about the hangover.

That’s kind of like our financial lives, having just spent over $22 billion on Christmas, mostly with borrowed money, and including lots of presents for ourselves. I know, I know, we work hard, it’s our money, we deserve something, it was on sale, we really needed it, etc. Well, if we were to be honest with ourselves, that’s all nonsense. Broke people can’t afford to buy stuff, and it’s almost always a “want” and not a “need.” That’s how we get to spending over $4.2 billion on impulse purchases in a year, according to one Canadian study. And, to be honest, that number is way low, because it’s the last thing we’ll admit to.

Yes, we work hard, and yes it’s our money. But do you want to keep working hard forever? Freedom 77 doesn’t have the same ring to it as that old commercial campaign of Freedom 55, does it? At some point in time, we do have to get away from the spending party and focus on paying off the hangover and saving something for someday down the road. Intellectually, we know that, but when are we actually going to get around to it is the big question that will change your entire financial life.

Right now, let’s be honest: We spend more time planning our vacation than we do our financial situation. Make 2012 the year that you’ll actually turn that around. Here are a couple of suggestions that are small enough where you’ll do it, but big enough to have a significant impact. Why small steps? Because our sub-conscious mind will revolt against huge goals that seem impossible to reach.

You’re not going to lose 60 lbs, but you can lose a pound a week. You won’t run the marathon this summer, but you can go for a 15 minute walk each day. You also won’t be debt free by February, but you can start on that journey with one step at a time.

Resolve to say no: Whether it’s to yourself when it comes to spending, to your kids, people at work, or anywhere else. It’s the one word that’ll change your financial life.

Take your credit cards out of your wallet: At least for January, leave the cards at home. If you have an emergency, you’re one call away from getting help. But going to the mall or charging this or that isn’t an emergency – honestly.

Set a cash limit: Pick an amount below which you’ll always always pay by cash or debit. The higher the limit, the better – if you make it $50, gas, small grocery purchases, lunch, etc., will all be paid cash. That alone will drastically reduce the charges on your credit card. When we use a credit card we spend 12 to 18% more – period. Whether you pay it in full or not, it’s still a ton of extra spending that isn’t helping.

Stop being financially stupid for 2012: You know exactly what that means. They are different things for all of us, but make the New Year one where you’ll stop doing the top two things that get you further in debt, or don’t grow your savings.

And finally, here’s a great post from Facebook this morning that kind of says it all: Do something today that your future self will thank you for.

The Money’s All Spent – Now What?

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Now that it’s the week after Christmas I’m reminded of an old Irish Rover Song called: Wasn’t that a party, and then talks about the hangover.

That’s kind of like our financial lives, having just spent over $22 billion on Christmas, mostly with borrowed money, and including lots of presents for ourselves. I know, I know, we work hard, it’s our money, we deserve something, it was on sale, we really needed it, etc. Well, if we were to be honest with ourselves, that’s all nonsense. Broke people can’t afford to buy stuff, and it’s almost always a “want” and not a “need.” That’s how we get to spending over $4.2 billion on impulse purchases in a year, according to one Canadian study. And, to be honest, that number is way low, because it’s the last thing we’ll admit to.

Yes, we work hard, and yes it’s our money. But do you want to keep working hard forever? Freedom 77 doesn’t have the same ring to it as that old commercial campaign of Freedom 55, does it? At some point in time, we do have to get away from the spending party and focus on paying off the hangover and saving something for someday down the road. Intellectually, we know that, but when are we actually going to get around to it is the big question that will change your entire financial life.

Right now, let’s be honest: We spend more time planning our vacation than we do our financial situation. Make 2012 the year that you’ll actually turn that around. Here are a couple of suggestions that are small enough where you’ll do it, but big enough to have a significant impact. Why small steps? Because our sub-conscious mind will revolt against huge goals that seem impossible to reach.

You’re not going to lose 60 lbs, but you can lose a pound a week. You won’t run the marathon this summer, but you can go for a 15 minute walk each day. You also won’t be debt free by February, but you can start on that journey with one step at a time.

Resolve to say no: Whether it’s to yourself when it comes to spending, to your kids, people at work, or anywhere else. It’s the one word that’ll change your financial life.

Take your credit cards out of your wallet: At least for January, leave the cards at home. If you have an emergency, you’re one call away from getting help. But going to the mall or charging this or that isn’t an emergency – honestly.

Set a cash limit: Pick an amount below which you’ll always always pay by cash or debit. The higher the limit, the better – if you make it $50, gas, small grocery purchases, lunch, etc., will all be paid cash. That alone will drastically reduce the charges on your credit card. When we use a credit card we spend 12 to 18% more – period. Whether you pay it in full or not, it’s still a ton of extra spending that isn’t helping.

Stop being financially stupid for 2012: You know exactly what that means. They are different things for all of us, but make the New Year one where you’ll stop doing the top two things that get you further in debt, or don’t grow your savings.

And finally, here’s a great post from Facebook this morning that kind of says it all: Do something today that your future self will thank you for.