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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.
This guest post is brought to you by Earl Fischer, who writes for The Digerati Life, a site that covers all things personal finance, from investing to budgeting and money management. Check out the site’s reviews of online brokers and the best credit card programs that are available today.
Know what the world’s oldest profession is? Well what about the world’s oldest business? That would be a bank, I believe. No condescension intended by the analogy. In fact, I like banks. I am a client of at least four of them. Banks have a way of sustaining an economy just as much as it can take one down.
What I dislike about some of these large financial institutions — aside from the fact that quite a number of them have siphoned my tax dollars, no thanks to government bailouts — is how they tend to resort to deception in trying to entice one to become a client. Take my recent experiences with two such banks whose names I’d rather not mention right now.
Extra Bank Offers That I Don’t Care For
1. The Upsell
From one bank, I received a replacement card in the mail recently. The instruction they gave me was for me to call a toll free number in order to activate my card. Pretty standard stuff. Well, I followed the instruction and after going through the entire rigmarole of entering my card’s last four digits to giving the names of my first dog’s offspring, I was informed that my card was now activated and ready for use.
Just as I was about to wish the phone representative to have a pleasant day, she tells me that I am entitled to an additional service which would give me fraud and identity theft protection, credit monitoring services and other security features. The use of the word “entitled” can be very deceptive. Does this mean it’s like a gift that I just need to accept? Or will it cost me something? Remember, this is a bank and nothing ever comes free. So the fact was…. there was going to be a monthly charge of $6.95 (not the true amount). I told her I was going to think about it and will give them a call when I was ready for this. But she was insistent. She told me that it would be better for me to avail of the service right away because should I later change my mind, I can cancel it within a certain period and get a refund of the fees paid.
Wait. Hold it right there! It’s obvious what the bank was trying to do. They are capitalizing on the fact that people like me might not read the account information that they send and that I would become too busy to call them to cancel so in the long run, the bank makes a fortune. Of course, $6.95 a month is hardly a fortune. But think of 5,000 busy credit card holders and that’s a lot of money. So just like with drugs, I just said NO!
2. Does “no maintenance fee” really mean there are no fees?
My other experience involved this online ad which I came across while paying my credit card bill. In some cases, to encourage you to open a high interest savings account online, a bank may offer you a cash bonus for the effort. I caught on to one such offer lately, especially when I noticed the big bold letters on the ad that said the words “No maintenance fee.” I decided to fill out a savings account application online. Just as I was about to hit the final key to submit my application, I decided to confirm the terms and conditions of being an account holder one more time.
Lo and behold! Upon a second review, that’s when I noticed that the account would carry a monthly service fee. In fact, because of this fee, my initial deposit would have been exhausted after just three months. To make a long story short, I didn’t like how this bank would dangle a carrot by promoting their “no maintenance fee” account, but in the end, would turn around and still charge me a monthly service fee. Sneaky! I had two choices at that point –- hit SUBMIT APPLICATION or hit CANCEL. And so did I hit cancel? Well, does a zebra have stripes?
This post is brought to you by CouponCactus.com, a great source of online coupon codes for taxes, groceries, and more.
BargainBabe.com readers are above average – way above! A whopping 75 percent of readers pay off their balance every statement, according to a recent poll in which 161 readers voted. Wow! The national average is 59 percent.
Just a smidge – 22 percent – of BargainBabe.com readers carry a balance. That is half the national average of 41.37 percent of Americans who carry a credit card balance. Another 3 percent of readers chose the ambiguous “other” option, including Danielle, who said “I can’t get a credit card, because I don’t have a credit card.” Hmm, really?
These impressive stats got me thinking…are BargainBabe.com readers above average savers?
Vote first then I’ll tell you how you compare to the national average on the next page!
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This post is brought to you by CouponCactus.com, a great source of online coupon codes for taxes, groceries, and more.
My spending has gone crazy over the past few months. A new set of gears for my bike ($90), yards of brown suede for new curtains ($88), two new outfits for a trip to NYC ($152), and a pricey sushi lunch ($34).
Sure, I have reasons behind each purchase (I’m doing a race in May that requires additional gears, buying fabric is cheaper than buying curtains, I had a gift card and a rare coupon for the clothing store, and I hadn’t seen my friend in months), but this kind of spending is not sustainable.
My credit card bill, which I pay off in full each month, has risen on average by a few hundred dollars. Not good. Here are two things I’m doing to shift my habits downward.
1. I only buy groceries on Wednesday. I started this two weeks ago and it has made me more aware of how much money I’m spending on food because it is easier to remember my total purchases from one day. Two weeks ago I spent $92 at Trader Joe’s, which included many staple items, beer, and wine. Last week I spent $27 on groceries. My target weekly grocery spending is $25.
Toward the end of the cycle I challenge myself to create tasty meals with what is left and finish off the last vegetables before they go bad. There is a lot you can do with beans, onions, and garlic!
2. I single out an item on my credit card statement that I didn’t have to buy. This month the dubious honor goes to an $8.10 purchase at Stamps.com. I got sucked into their $100 offer for newbies: sign up and get a $5 supplies kit, $45 in free postage (which is strung out over four months), and a free $50 postage scale (which actually sells for about $20 and is useless after my 30-day trial period unless I join Stamps.com for $16 a month).
I don’t buy enough business postage to make it worthwhile to join Stamps.com for $16 a month. So when I read the fine print the $100 sign-up package evaporated into nothing. At that point, I had already spent $8.10 to get the “free” scale mailed to me. Blerg!
I wish I had been more skeptical of the $100 intro offer, which really was too good to be true. Being greedy cost me $8.10.
What do you wish you hadn’t bought in the past month? Leave a comment and the reader with the best story wins a hot pink BargainBabe.com T-shirt, above. There are only about a dozen left!
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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Yesterday I spoke to the guy who writes AskMrCreditCard.com about cutting our grocery bills, buying premium gas, and splurging. In case you missed it you can listen here.
One idea Mr. Credit Card shared (he doesn’t use his real name on his site) was to make a grocery list for your wardrobe. He thinks his wife would buy fewer clothes if she stuck to her list. Hehehe. Not a bad idea.
I talked most of the show but I made sure to ask Mr. Credit Card for his best credit card tip. Here’s what he said.
Unless you travel frequently for work and your company lets you put the airline miles on your personal credit card, get a cash back credit card. “Some pay more than 1 percent for gas or groceries,” he said. Last year his credit card sent him a check for $400.
Some credit card companies have formed partnerships with online merchants that can earn you automatic rebates – if you know about it. Instead of going directly to a retailer, say LandsEnd.com, and buying clothes, you log into your credit card account and use their shopping portal to get to LandsEnd.com. Many credit card companies have these type of shopping portals (also known as affiliate marketing agreements) that give shoppers who make purchases with their card rebates of up to 25 percent.
“If you’re not making use of these cash rebate cards or online shopping rewards you’re really leaving a lot of money on the table,” Mr. Credit Card said.
SpendLessTV, a website that has clips of TV segments on saving money from a variety of channels, has a video about credit card perks you rarely use. It’s worth watching.
Caveats: not all credit cards have the perks mentioned.
Bargaineering tells you how to claim your $250 Social Security Stimulus check
Cash Money Life separates the wheat from the chaff: credit card offers
Did you miss ABC’s special “Unbroke” Friday night? Here’s a recap from Free From Broke.
Sephora is giving away 6 free MP3 downloads (out of 13 choices) when you use code BEAUTYBEAT (Coupon Cravings)
Recession Wire has a handy update with all the headlines you need to know about the recession
Frugal Dad says screw staycations, I want a real vacation!
Plus, two important travel links:
AOL’s travel page has five low-budget vacations for families.
Get an automatic 3 percent cash rebate from eBates.com when you book a vacation package on Southwest airlines. eBates also offers 1 percent back on Air France and 2 percent back on Priceline or Hotwire!
Thanks, Dad!
Jim at Bargaineering had a really interesting post about the reports you can get on yourself. He takes it a big step past getting a free annual credit history check! Read his post here.
This is one of the coolest things I have seen in a long time. A blog called Scavenging has step-by-step directions to turn your credit card into a bracelet, ring, or earrings. Check it out! Below is one of their creations.
Welcome back! I had a fantastic weekend and hope you did, too. I’ve got a deadline this morning and a speaking gig this afternoon so blog posts will be light today. Here are links to a few recent personal finance stories of note.
Debit cards are becoming more popular, but have two major drawbacks compared to credit cards, says Tightwad Tod.
Well-educated professionals are taking “survival jobs” earning $8 an hour, reports NPR.
Fake coupons from major manufacterers like Reynolds and Kraft are popping up on the Web, according to the LA Times.
Wise Bread suggestions 10 things to land a job online that covers the basics, like use a plain black type font, not a 16-point turquoise one.
Ordering flowers for Mothers Day this Sunday? CashMoneyLife has a bouquet of ideas to keep floral costs down.
I wrote a fabulous post about why we overspend and rack up monstrous credit card debt for a blog called Man V Debt. Read my post here.
If that’s not enough to get you to click on the link, I’ll tease you with this. In the post I reveal what food I have ZERO ability to say no to. Hmmm…is it chocolate? Carnitas tacos? Pancakes made from scratch??? Find the answer here.
I recently discovered a new personal finance blog called Man V Debt. The author is a guy named Baker who, along with his wife, is waging a personal war on debt. One of his first steps was getting rid of all his credit cards. GASP?! I guess you can tell which side of the war I am on. Here is a guest post from him.
There are two extremes when introducing the concept between using cash (or debit) and using credit. In the one corner, you have those crazy people (a.k.a. me) who live completely without credit cards altogether. Not only do they cut-up their credit cards, but they tend to go as far as canceling the accounts. In the other corner, you have the credit card “gamers.” They are constantly juggling specialty credit cards, in-store charge cards, and 0% balance transfers. They are mixing and matching specific purchases with specific credit lines in order to maximize cash-back, airline miles, or gift cards to the mall. The average person, however, finds themselves wandering somewhere between these two extremes.
Before we get into the details of why my wife and I have actually embraced one of the extremes, let’s review some of the basics:
Benefits of Cash
- Increased Emotional Attachment – You’ve probably heard the different studies about how the average person spends more when using credit cards. Some say 8%-10%, but I’ve heard others claim as high as 12%-18%. At the end of the day, I couldn’t care less about some university study. What matters most is how it affects me. As I’ll explain later, using cash/debit triggers different reactions in my brain that I know help curve my impulse spending.
- Tangible Budgeting – There’s nothing like looking into an envelope marked “FOOD,” which holds exactly $82 and seeing the cashier ring up $90.74 in groceries. That’s the kind of in-your-face budgeting that credit cards are great at detaching you from. Sure, we are only talking about $8 in this example. But if you are like me, you love hunting for a deal, utilizing coupons, and would surely bend over to pick up a quarter in the parking lot. What’s the point of budgeting if not to save that $8 from vanishing.
- Simpler Financial Accounts – Although cash often times takes more effort to track effectively… (more…)
Time Magazine had a brief history of credit cards that I’ve turned into a TRUE or FALSE quiz.
1. In the 1920s gas stations, department stores and hotels offered the first charge cards to drivers who did not want to zip back to the bank for cash.
2. Credit cards became popular in the 1950s post-war boom.
3. The first widely used credit card was a Diners Club card made out of cardboard.
4. In the 1960s credit cards were mailed to 5 million Chicagoans, including toddlers, felons, and dogs.
5. The American Express platinum card, which debuted in 1984, was the first premium charge card.
6. Lenders collected more than $18 billion in credit card penalties and fees in 2007.
7. In 2008 half of U.S. college students had four or more credit cards.
8. Outstanding credit card debt reached a record $951 billion in 2008.
To get the answers keeping reading. (more…)
The average American household that uses credit cards carries a $10,679 balance, which, in the grand scheme of things, is not much debt. The problem is that credit cards have such high interest rates, making a few thousand dollars in debt nearly insurmountable.
Like many bad spending habits, small scale purchases – a new gadget, a few drinks out, a pair of jeans – get us into big trouble.
Let’s take three different looks at this seemingly little problem.
1. Percent markup. If you stopped using your credit and started only paying down the balance, making minimum payments of 3 percent or $25 a month (whichever is more) on a balance of $10,679 at a 15 percent interest rate will take 188 months.
That translates into 15.6 years and extra payments of $7,284. So in the end, $10,679 worth of instant gratification costs you $17,963, or 68 percent more than the original cost. Next time you are oggling a fantastic consumer good that will absolutely complete you ask yourself if you are willing to pay 68 percent more. Makes it easier to say no, right?
Got a slightly different interest rate or balance? Calculate the big picture cost of your minimum payment.
2. Lost buying power. Ironically, the $7,284 you are giving to credit card companies to get the good things in life – STAT! – is money you could have spent on the good things in life…later.
That $7,284 in interest could buy over 15 years:
- One very fancy dinner every three months (at $140 per dinner)
- 145 pairs of new shoes (at $50 per pair)
- 18 months of groceries (at $400 per month)
- Approximately ten percent of your yearly IRA contribution
- 87,408 miles of driving in a car that gets 30 mpg at $2.50 per gallon
3. Dreams deferred. Paying extra interest also detracts from the real American dream – retirement. A couple in their mid-30s that invests the $7,284 in even yearly payments ($485 over 15 years), could earn an extra $9,676 towards retirement in a Roth IRA account. That assumes 10 percent returns over 15 years, which historically is not unreasonable.
Thanks, Dad and Hubby!
