alancleaver 2000/Flickr
My friends at AOL’s Lemondrop blog (I blog for AOL’s WalletPop) wrote a helpful article about how exactly to pay off high-interest credit card debt. I don’t carry a balance and I found this article fascinating. The story offers five approaches to paying off the debt, some of which might help you.
Her sitch: In June 2008, Tiffany owed $14,611.47. She’s managed to chip away at the balance by using gift money, tax refunds and watching her spending, but she still owes close to $8,000, and she’s not sure what else to do.
“I don’t have any real system,” she says. “I tried fun Excel spreadsheets and advice from friends, but nothing really panned out. In the end, I just kept throwing any money I could at it, from $50 to $200, as often as I could. But I’m hoping to move in the upcoming months, so I won’t be able to set much aside to pay off the debt. Help!”
How’d she rack it up? Tiffany lives in a college town and has had trouble committing to long leases, so she’s moved five times in as many years. “Every time I moved, I would put extraneous costs on the credit card, telling myself I’d pay it off right away,” she says. “But one new thing always leads to another when you move into a new place.” On her expense list: paint, shower curtains, rugs, cleaning supplies and lots of takeout food. “It always caught me off guard when it added up,” she says.
The glitch: Tiffany has plans to move to New York City in May, where she’ll look for another nonprofit job. Currently she works for a women’s transitional home and brings home about $1,750 a month after taxes. She expects to make $35,000 to $45,000 in a similar position in New York. “What I make now is barely anything, and in general the pay isn’t great for nonprofit work,” she says. “Having a salary that can just wipe the debt away is unlikely. What do I do?”
The expert’s take: First of all, the fact that Tiffany has shaved more than $6,000 from her balance in less than two years is fantastic. But her plan to move to the Big Apple with $8,000 still hanging over her head raises th e eyebrow of Boston financial planner Cheryl Costa. “I would suggest she look long and hard at whether she can afford the move to New York,” Costa says. “Does she have an appreciation for how much it will cost her to live there? If she makes this move, it may take forever to pay down her debt.”
Keep reading to see what five steps the expert recommends for Tiffany.
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I was not the only one who regretted making a particular credit card purchase last month. Readers had plenty of regrets themselves. Post your own regret as a comment to be automatically entered to win a hot pink BargainBabe.com T-shirt. The contest ends Thursday at 11:59 p.m. PST so leave a comment today. The winner will be announced Friday!
Becki can’t say no to flowers:
I not only bought flowers I didn’t need, it is too cold to plant! I love pansies, and they were only 67 cents apiece, but now they will sit till it gets warmer, and then they will die when it’s hot…if only I had bought them last fall…It’s an addiction I have, I have to stay out of the nurseries!!!!! Someone please help!
ChrisM is kicking herself for paying shipping:
My 17 year old daughter wanted a pair of TOM’S shoes for her birthday in February, so I went on line, ordered them, paid for shipping. $17 for shipping–only to realize they came from Valencia and —we live in Sylmar.
Wish I’d looked into shipping fees first.
Tami regrets her hasty purchase:
Our microwave suddenly ceased to work after having it for about 6 years. We thought we couldn’t live without one, so we rushed out and bought a generic microwave oven at Target for $80. Fast forward to a week later and we noticed one for $20 at the local Goodwill shop. Goodwill stands behind their products and will refund purchases if you bring in the product/receipt, so by being hasty, we wasted $65. Next time we’ll comparison shop.
Blakely fell victim to a sale for something she doesn’t need:
I purchased a waffle iron at Kohl’s. It was only $25.00 with a $10.00 mail in rebate. I haven’t used it yet and I haven’t found anywhere to store it. It was something I wanted, but not something I needed.
Have you ever been laid off? Then you know what a blow it can be financially and emotionally. On BargainBabe.com I mostly deal with surviving financially, so I welcomed Harlan Kidwell, Jr.’s book on the emotional fallout of job loss. Harlan’s self-published Creative Unemployment: How To Transcend Job Loss
With so many personal stories, Creative Unemployment is cathartic.
This book offers a positive look at the potentially damaging psychological aspects of underemployment. This book is not about finding a job. It is a book about finding yourself…When you find yourself, you will find employment – a vocation – a life purpose. The issues in this book can also be useful to people who are aware or alive and still employed who want to gain the benefits of increased self-awareness before the trauma of rejection and loss of income.
Each chapter of the 284-page book begins with a 1-3 sentence description of what you’ll get out of that chapter and ends with a 1-3 page review of the major points. Chapters 1-8 are about recognizing and accepting the emotional journey that follows unemployment. Chapters 9-15 are about moving forward and taking action.
In chapter 10, Harlan breaks down the emotional journey of unemployment into six practical steps you can take to move forward.
1. Become self-aware.
2. Decide what you want.
3. Write your goals down.
4. Imagine or visualize your achieved goal. (emphasis his)
5. Take action.
6. Reflect and select.
The book’s introduction lacks sources for the statistics cited, which makes me uncomfortable. However, the point of the book is to help one heal emotionally, not provide economic figures. The nut of this touchy-feely (and I don’t mean that in a bad way) book is that it is okay to to feel how you feel, you should believe in yourself, and definitely go for it!
Leave a comment on this post by the end of Thursday, March 4 to win my review copy of Creative Unemployment: How To Transcend Job Loss
Just got some interesting economic factoids from the website BillShrink.com. Are you part of the savings trend?
- 46% of credit card holders paid their bill in full each month in Feb. 2009
- 59% of credit card holders paid their bill in full each month in Feb. 2010
- The average American family had $2,000 in unexpected expenses last year
- Americans have reduced their debt by $101.2 billion in the past 14 months ($1,874 per household)
- We are currently saving at record rates, setting a 15-year high (Check out BillShrink’s super cool graphic about American’s personal savings and debt, which goes back to 1960).
- We still over pay for lots of stuff, including ATM fees, credit card late fees, and dealership auto maintenance (though I’m seeing coupons from dealers these days)
To get this data BillShrink surveyed 154,000 users on its site from February 2009-January 2010. The pay off rate has been steadily increasing each month, according to the responses below.
Yes, I pay off balance each month No, I don’t pay off balance each month
02-09 46.03% 53.97%
03-09 45.92% 54.08%
04-09 41.75% 58.25%
05-09 43.19% 56.81%
06-09 46.28% 53.72%
07-09 46.92% 53.08%
08-09 48.72% 51.28%
09-09 51.21% 48.79%
10-09 51.99% 48.01%
11-09 54.73% 45.27%
12-09 57.25% 42.75%
01-10 58.63% 41.37%
I’m curious how BargainBabe.com readers compare to the national average.
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I talked to Laura Rowley, author of “Money and Happiness”
1. “Female” versions of products are often more expensive. Consumer Reports did a study and found that products with his/her versions, like shaving cream, deodorant, and razors, perform the same but cost $1-2 more for the version targeting women, Laura said. All that pink packaging is cute, but not worth an extra dime.
2. A coupon toolbar saves time. Research shows more people do at least two online searches before they buy. First to find the product and then to find coupons for the product. Laura likes the coupon toolbar at Dealio.com, which automatically finds coupons when you search for products on Yahoo, Bing, or Google. Having a toolbar helps you get more value out of a single search.
3. Certain debit cards earn cash rebates. Laura says she earns 3-4 percent on the account tied to her debit card. To earn this high interest rate, you generally have to do five things. One, swipe your debit card 10-12 times a month. Two, set up direct deposit into the account. Three, use the bank’s online banking program. Four, get statements by email not snail mail. Five, bank locally. You aren’t going to see any of the major banks offering this perk.
But do the benefits of using a high-interest debit card surpass credit card perks? “Totally,” Laura said. “It’s way better to get 3-4 percent interest than credit rewards.” What about not building your credit history by using a debit card? “The people with the best credit scores only use 8-10 percent of their credit capacity every month. By using a debit card 10 times, you are getting the best of both worlds.”
Still interested? Go to CheckingFinder.com, plug in your zip code to find a local bank, and compare offers. The banks can afford to give you this interest rate because they are making money on the interchange fee. Every time you swipe your debit card, retailers pay about 2 percent of the sale, Laura said.
This deal works best for people who are comfortable banking online. Laura recommends using a high-interest debit card for small purchases between $10-$50 and a credit card for bigger charges. She makes the most of this deal by transferring 3-4 months of savings into her high-interest account. But only do this if you can stop yourself from spending your savings!
I just checked for my zip code and one bank is offering 4.09 percent interest on balances up to $25,000. That’s a far cry from the 1.25 percent interest rate ING Direct is offering for a 18-month CD.
chiningilles/Flickr
The LA Times recently had a story suggesting 10 simple ways to save. I boiled it down to the best tips and added two of my own. Add yours to the mix!
1. Disconnect your land line. Or find a cheaper plan and call your current provider and ask them to match it.
2. Shop around for home and auto insurance policies. Spend an hour once a year checking if you can get a better price on your home and auto insurance. Do them together so you qualify for a bulk discount. Before you go for the absolute lowest price, check the insurer’s complaint ratio, which will indicate how happy their current customers are.
3. Pay cash (only if you really can’t control your credit spending because you are giving up a lot of perks and cash-back rebates).
4. Adjust your withholdings. The LAT says 70 percent of tax payers get a refund – which means we are letting Uncle Sam keep our money for a year, interest free! Instead, you could be earning interest or paying down debt.
5. Pay off high-interest debt. Focus on paying off your credit cards. It’s hard to get ahead when you’re paying 15-30 percent in interest.
6. Pay into your 401 (k). Making a $100 contribution costs you $70 because of the tax benefits, and if your company matches you are making even more for the same $70.
7. Set up an automatic savings deduction. It will force you to stash cash for a rainy day (which, in Los Angeles, is today).
8. Take care of yourself. Preventive health care really does pay off. Some health plans will reduce your premium if you quit smoking and if you reinvest that money on doctor’s bills and cigarette into your 401 (k), you stand to be $250,000 richer at retirement, the LAT story says.
9. Volunteer. Seeing how others live will no doubt making you feel better about what you have in life.
10. Budget! Check out my simple 15-minute budget. It really does work.
11. Exercise. Going for a walk, run, or bike ride is a cheap activity that can energize you and save you trips to the mall$.
Looking for a good scare? Check out the United States debt clock, courtesy of USDebtClock.org, a group that is devoted to educating people about the country’s debt. A disclaimer at the bottom of their About page says the group is not affiliated with any government, political group, or organization. And yet it doesn’t say who is behind the site, which makes me skeptical…
But onto the numbers. The site shows figures for more than our nearly $12 trillion debt load, so it gives a holistic scare. Also listed are state debt, private debt (like mortgages), social security liability and many other debts, all in red. Positive numbers are listed in green, including gross domestic product, federal tax revenue, small business assets, household assets, and more.
The site is constantly updating the figures, though it doesn’t explain how it does that. Are the figures projected? I can’t image every source for every number in the debt clock is updated so frequently. It’s possible that each number is pro-rated based on yearly growth or decline.
There are so many figures it’s possible to come to more than one conclusion about the financial health of the U.S. What do you make of our debt?
Thanks, Dave!
If you are not convinced that saving is the best path to financial prosperity, TheSmartestWay to Save: Why You Can’t Hang on to Money and What to Do About It wants to convince you. The 205-page book persuades with facts, quotes, and lessons that are down-to-earth and basic. Following all their advice is the hard part.
TheSmartestWay has 23 chapters broken into three sections: your money and you; your money and others; and your money and the world. The book starts with the basics of why credit card debt is bad, how to develop spending and saving discipline and asks 19 questions to gauge your current spending savvy.
It offers advice on creating money harmony at home, including showing the other person they are more important than money, getting consent for major purchases, and being honest about money.
TheSmartestWay also has tips on bargain shopping, where to find good deals, and shares a list of 10 questions you should ask yourself before you try on a piece of clothing. They are so useful I’m sharing them here.
1. Do I really need this item?
2. Is it priced well for the value?
3. Can I afford the expense right now?
4. Would I wear it lots of places often?
5. Is it the right size?
6. Does it fit the image I’m trying to project?
7. Does it coordinate with my other clothes?
8. Is it made well enough to last several years?
9. Would I wear it several years from now?
10. Would I regret not buying it?
I recommend this book if you lack motivation but want to start budgeting or spending less. TheSmartestWay covers a lot of ground but is not overly technical. Amazon sells it for $13.25.
Leave a comment on this post by Friday for a chance to win my review copy!
Reader Tamara shared her Canadian perspective about debit cards. Instead of credit card companies issuing them, banks do!
All this debit stuff in the US is so foreign to me. I was in Chicago recently and most places we went said “we take debit,” but really that means, “we take credit cards, but it’s okay if they are hooked up to your bank account and are kind of like debit.”
In Canada NO ONE carries cash because we all have actual debit cards that are issued by our banks and the money comes right out of our bank accounts. They are not VISA, or MC debit cards, they are *just* bank debit cards. And there is little to no fee to use them, and if there isn’t money in your account, and you haven’t previously set up an overdraft, your transaction is declined and your purchase doesn’t go through.
Also, debit cards are accepted EVERYWHERE from major retailers to 7-11 to the dollar store.
Who wants to move to Canada with me?
I learned about this video through SpendLessTV, which shares clips about saving money from all sorts of stations.
This 4:29 video follows filmmaker and director Karney Hatch as he fights Bank of America over his overdraft fees, something I’ve been writing about. I highly recommend it!
Related:
Debit cards are a cash cow for banks
Banks agree to lower/eliminate bank fees
Remember my post about debit cards being a cash cow for banks? Well the NY Times story that inspired the post caused major change. The paper reports today that Chase and Bank of America plan to “drastically overhaul their debit card programs…changing the way they credit transactions and allowing customers to opt out of overdraft protection.”
B of A is going to let customers turn off the overdraft protection, which can lead to enormous fees, starting Oct. 19. In Jun
e, the bank plans to limit the number of times a customer can use their overdraw on their account. And customers can choose to have overdraft protection or not when they open an account.
Chase is going to start crediting transactions chronologically instead of ringing up the biggest withdrawals first, which can lead to extra fees. Chase is also going to limit the number of overdraft fees to three per day and will not charge when accounts are overdrawn by less than $5.
Let’s hope these changes lead to other banks changing their debit card policies to benefit consumers. Because it’s about time!
UPDATE: This comment from reader Tamara makes me want to move to Canadia!
All this debit stuff in the US is so foreign to me. I was in Chicago recently and most places we went said “we take debit”, but really that means, “we take credit cards, but it’s okay if they are hooked up to your bank account and are kind of like debit”.
In Canada NO ONE carries cash because we all have actual debit cards that are issued by our banks and the money comes right out of our bank accounts. They are not VISA, or MC debit cards, they are *just* bank debit cards. And there is little to no fee to use them, and if there isn’t money in your account, and you haven’t previously set up an overdraft, your transaction is declined and your purchase doesn’t go through.
Also, debit cards are accepted EVERYWHERE from major retailers to 7-11 to the dollar store.
Banks earn more money from debit card fees than credit card fees and they often manipulate usage patterns to maximize their profit – and our pain, says a front page story in today’s NY Times.
“Banks will let you overspend on your debit card in a way that is much, much more expensive than almost any credit card,” said Eric Halperin, director of the Washington office of the Center for Responsible Lending.
The problem is that banks charge you an overdraft fee when you spend more than what is in your account, instead of denying the purchase. Three-quarters of the largest American banks automatically give consumers overdraft coverage, excepting Citigroup and INGDirect.
By calling this service overdraft “protection,” banks emphasize the benefit to consumers (being able to spend more than you have), while de-emphasizing their gain (charging outrageous fees for lending you what you the moolah).
Regulators and lawmakers are working to help consumers, but in the meantime, ahem, here are seven things you can do to reduce your debit card fees, the story says.
- Call your bank and ask them to turn off the overdraft protection on card transactions. Ask if this step will also disallow checks, ATM withdrawals and automatic bill pays to go through if they take your balance below zero. These are additional ways you can incur fees.
- Create a cushion, be it $100, $500 or $1,000, if your bank does not let you turn off overdraft protection. Some, like Bank of America or Wells Fargo, “generally won’t let you switch” it off, the story says. My Mom used to keep $300 extra in her checking account that was not reflected in the balance on her check ledger. So when she went negative $15, say, she actually had $285 left.
- Find a new bank that allows you to NOT have overdraft coverage. Try a smaller bank or credit union, and be sure to ask more than one person at the new institution to make sure they don’t have overdraft coverage.
- Get a line of credit at your bank that will kick in if you go below zero, instead of overdraft coverage. With a bank line of credit you will pay an interest rate on whatever you borrow beyond zero, instead of a $30 or $35 fee whenever you dip below zero.
- Connect a back up savings account to your checking account. If you overspend, the bank will take money from your savings to make up the difference. PNC Bank’s Virtual Wallet lets you link two accounts to your main account, the story says.
- Set an alert so you know when your balance is getting low.
- Consider a credit card – if you weren’t running away from credit in the first place!
Read the whole story here.
The Internet has made many things free and thanks to Credit Karma that now includes credit score. I spoke to Credit Karma founder Ken Lin about how he makes money, the $6,818 credit card debt each average American carries, and failing grades.
When was Credit Karma started? Credit Karma is a site that has been around for about 15 months. We came into the business with hopefully a new take on it. Why don’t we simply sell advertising on the site and give consumers their credit score any time they want? We think fundamentally this is a better thing given the economic climate we are in.
The average consumer debt decreased by $120 in July. That seems like nothing. Well when you put it against 180 million consumers, it’s a pretty big debt load. Two percent on a monthly basis is compelling and if the trend holds, will it annualize to 24 percent? Probably not, but on a monthly basis 2 percent is meaningful if not compelling.
So people are paying down their credit card bills, their mortgage, and they are not buying much? Consumer debt has been dropping across all verticals. We think it’s a confluence of two things. One is the economy. Consumer income is down. Consumer spending is down. The second component is really a function of tighter credit markets. Two years ago…there was so much liquidity. It was easy to get credit. There’s been a major pull back of that in the past six months.
We expected that, right? The tighter credit is not the expectation. The government is trying to spur on consumer spending by encouraging mortgage lenders to be a little more free with their lending. The credit card holders bill of rights will help tighten the market. People won’t have access to credit quite as easily anymore. It used to be 650 and you could get credit. Today your score needs to be 700 or higher to get that same type of card.
What is special about Credit Karma? We boil it down to the top seven metrics that affect your credit score and we give you an A to F grade. We give you great metrics but we also put it into perspective. Everything on our site is free. We think this is a better way of doing business.
How does Credit Karma make money? We sell advertising.
The site also makes money through offers? Advertisers are willing to give you a compelling offer based on your credit score. We don’t sell consumer information so the only way companies can reach you is through advertising. As a consumer you can look at it if you want to. You can click on it if you want to. It is completely up to the consumer.
Give me an example of a typical offer. Lending Club is a P-P lender. Small loans, people to people. So both parties save by cutting out the middleman bank. An offer would be save 10 percent on registration fees.
A reader named Fred wrote in with this important question:
Can I get a mortgage if I do not have a job? There are so many factors to consider. Would you be kind enough as to give me some pointers as what to look for or avoid? Please help me. Thank you.
Fred, my short answer is not likely. The long answer is maybe, because getting a loan depends on many factors. Lenders look at your whole financial picture when deciding if you are a good risk, i.e., someone who is likely to pay them back.
Maybe you are a trust fund baby and has never worked a day but still has plenty of moolah to make good on a loan. If you are a regular working Joe, however, your chances are not as good because job stability is a factor lenders consider, so not having a job hurts you. Do you have any evidence of how soon you will get a job and how stable that job will be? How do you plan to pay your mortgage with no income?
Ultimately, the best way to answer your question is to prepare a loan application and submit it.
Start by figuring out what you can afford to buy using this calculator from the American Bankers Association, which recently shared tips to get a loan in this tight market.
Next, gather and organize your information, including pay stubs, tax returns, financial statements, and paperwork showing your monthly payments on your car, credit card, and student loans. Lenders will want recent statements going back three to 24 months.
To strength your application, include any additional information that proves additional income or wealth. Depending on your credit score and other factors, lenders will want to see that you have many months of PITI (principal, interest, taxes and insurance) on hand. Here’s a PITI calculator.
ABA also recommends you use a trusted institution, pay down other loans, read the fine print, and take into account the myriad costs of home ownership like insurance, maintenance, closing costs and taxes.
Good luck!
I like this site, FindABetterBank.com. It looks at where you live, the features you want, and your banking habits to suggest a checking account with the lowest fees.
For my preferences it spit out a list of about a dozen accounts with annual fees from $0 (ING Direct) to $334 (Citibank). Funny thing is, I currently bank with both these companies. The list of suggested banks tells me what percentage of my requested features each account has, how far away the nearest branch is and the number of locations within five miles.
The site is run by two guys who believed if it was easier to switch banks the best banks would win. FindABetterBank.com has a great FAQ page that tells you the site makes money – through fees collected from participating banks and credit unions. They say these fees do not influence their presentation of each bank, but more details about how they collect the fees would strengthen this argument. (Sites like this typically make money through referral fees when a person clicks through to a bank and opens an account.)
FindABetterBank.com updates their info every 3-6 months and currently includes 85 major banks across the country.
