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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.
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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.
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.
Politicians cracked down on credit card companies to help out consumers during the recession, but the new credit card law that goes into effect today has pitfalls.
“During the past nine months, credit card companies jacked up interest rates, created new fees and cut credit lines,” an AP story says. “They also closed down millions of accounts. So a law hailed as the most sweeping piece of consumer legislation in decades has helped make it more difficult for millions of Americans to get credit, and made that credit more expensive.”
Here an outline of the changes in store.
Pros:
1. Credit Card companies have to give you 45 days notice if your interest rate is increasing.
2. Statements will now show how long it will take to pay off the balance if you make only the minimum payment. Statements will also show how much you need to pay each month to pay off the loan in three years.
3. Statements must be sent 21 days before the due date, which cannot shift willy nilly anymore.
4. You have to expressly agree to be able to charge over your limit, which triggers over-the-limit fees. Even if you do agree, there are limits to how much your bank can charge you.
5. Folks under age 21 cannot get a credit card unless they have a co-signor or can show they can pay off the charges (independently of their parents’ income). Banks can’t hang out on college campuses offering perks for applying for a credit card.
6. Americans will save $10 billion or more a year from the changes, according to the Pew Charitable Trust.
Cons:
1. There’s still no ceiling on interest rates.
2. Fees now are capped at 25 percent of the total credit line during the first year – but in my book that is still way too high!!!
3. Annual fees are coming back. In late 2009, forty-five percent of new credit cards had annual fees compared to 25 percent in the same time period the year before.
4. Some retailer credit cards will charge $1 for paper statements, like Victoria’s Secret and Ann Taylor. Look out for inactivity fees, as well.
5. Balance transfer fees will go up on some cards.
6. Reduced credit lines on existing accounts. My credit limit decreased, which is not surprising consider 40 percent of banks reduced credit limits on existing accounts.
7. Higher initial interest rates. The average rate for new cards was 13.6 percent last week compared to 10.7 percent a year ago, according to Bankrate.com.
8. Fewer cards. There are 15 percent fewer Visa, Mastercard, and American Express cards in circulation in 2009 compared to 2008. Maybe this is a good thing, though it means credit cards with perks – like grocery and gasoline rebates – are declining.
I hope these changes have a net positive effect, but the bottom line is that if you use credit cards you have to be very careful about charging more than you can pay off, paying on time, and avoiding fees. When in debt, you are at the lender’s whim.
PS. Remember you can check your credit report for free.
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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 $250,000 richer at retirement, the LAT story says.
9. Volunteer. Seeing how others live will no doubt making you feel better about what you have in life.
10. Budget! Check out my simple 15-minute budget. It really does work.
11. Exercise. Going for a walk, run, or bike ride is a cheap activity that can energize you and save you trips to the mall$.
This is a guest post from credit card strategy expert known as Outlaw. He blogs about reward cards and cash back strategies over at Credit Card Outlaw.
The recession may have pulverized your 401k, but credit card companies are still offering great bargains — if you are willing to look, and cautious enough to pay your bill in full each month to take advantage of your grace period.
Since both of us are probably short on time, here’s a quick breakdown of my favorite cards out there right now.
For Travelers:
If you live in America, and you own a TV, you have probably seen one of the new Chase Sapphire commercials. They are on constantly. I recently reviewed their Chase Sapphire Preferred card which has an $85 annual fee (waived for the first year) and Ultimate Rewards points that never expire.
Your points can be redeemed for air travel or hotel stays, plus you earn 15,000 bonus points if you spend $1,000 on the card within the first three months (that’s only about $333 per month, very doable). Sapphire Preferred also offers you a 7 percent annual points dividend.
There is also a “basic” version of the Sapphire card, which has no annual fee — but it won’t earn you a points dividend.
Only drawback to both cards? No zero percent promotional APR period, although if you pay your bill in full each month this is one to get anyway. Perfect for bargain-conscious jet setters.
For Cuisine Aficionados:
Enjoy an evening after work of cooking delicious food from scratch with fresh ingredients from the grocery store? So do I.
Which is why I’m a big fan of the Citi Dividend Platinum Select line of cards: you get “5 percent cash back at supermarkets, drugstores, gas stations & utilities for 6 months; 2 percent thereafter” plus 1% cash back on all other purchases. You can’t beat that.
I just got a cash back check from Citi the other day, in fact.
For Paranoid Bargain Hunters:
If you are worried about credit card companies slamming you with secret fees, the American Express Clear card is for you.
No annual fee, no late fees, no balance transfer fees, no over-limit fees, and no cash advance fees. Is that clear enough for you?
Plus, every time you spend $2,500 in eligible purchases, they automatically mail you an AmEx gift card for $25. Pretty hassle free. I’ve had this one for a couple months now, and aside from a lower-than-average credit limit compared to my other cards, I like it. It also has a cool transparent design that has gotten comments from quite a few bartenders.
I still carry a MasterCard as a back up, though, as some places don’t accept AmEx.
For more, check out my site, but these are my three absolute faves right now. Can’t go wrong with any of those.
If you’re a bargain-minded investor, the Schwab Invest First Visa card is pretty cool as well, because you get 2 percent cash back on purchases — which is swept into your Schwab brokerage account. Of course, you’ll need a brokerage account there to participate.
Small Business Owners:
I would recommend the Citi Professional Cash Card for small business owners and successful entrepreneurs. Great introductory terms and cash back: “3 percent cash back on purchases at restaurants, gas stations, certain office supply merchants and on auto rentals for 12 months, 1 percent thereafter” on purchases.
Plus, you get zero percent promotional APR on regular purchases for 6 months after opening your account, and then a reasonable 12.24% variable APR.
Although this is a great card, it is designed only for business use. Individuals without businesses will not be able to get it. It has some nice additional features for the busy executive, including free quarterly & annual summaries (great if you file your taxes quarterly) plus immediate access to a real human being by pressing “2” after you call their customer service line.
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If you haven’t already gotten your free annual credit report, now is the time. Each person gets one free report per year thanks to the federal Fair Credit Reporting Act. Snag yours on AnnualCreditReport.com. (Note, this is the only site where you can truly get a free credit report.) You can also call 877-322-8228 to request a free report.
Don’t expect a free credit score, however. The three major credit tracking bureaus, Equifax, TransUnion, and Experian, will try to upsell you on that. Stick to the report for now because it will tell you plenty about whether there are any mistakes.
Before you call or request your report through the above website, make sure you have your social security number handy. They will also ask you for a few past address and may ask a question that only you know the answer to, such as how much a particular bill was.
If you request your report over the phone, expect to receive it in about 15 days.
Once you get your report, watch this video about how to interpret it. I watched the 3:54-minute video and it is helpful and straightforward.
Thanks, Bargain Hubby!
This is a guest post from Ask Mr Credit Card, who writes about and reviews credit cards.
Today, I’m going to show you how you can actually save money on top of the money you save from coupons with credit cards. If you are a savvy coupon clipper you would be doing the following:
- using store coupon
- using manufacturer’s coupon
- know when to buy in bulk
Just using these techniques will help you save a lot of money. But there is another thing you could do that will save you even more money. And that is by using a cash back credit card.
What are cash back rewards credit cards? They are cards that pay you a rebate for every dollar that you spend on the card. For example, most cash rebate cards pay you a 1 percent cash rebate for every dollar that you spend on the card. Though that is good, you can do much better than that if you are savvy. The better cards pay more than 1 percent (typically 3 to 5 percent) for spending on certain categories like gasoline, drugstore, supermarket, dining and travel.
So here is the formula: store coupons + manufacturer’s coupon + using cash back credit cards = quite a bit of savings
There are a few things you have to watch out for when you are choosing a cash back card. Firstly, you have to watch out for tiers. What is that? Well, some cards require that you spend above a certain threshold before you can earn the highest rebates. Some cards cap the amount of rebates you earn. You also have to consider how you are paid. Some will pay you once a year through a statement credit. Others send you a check when you have made $50 in rebates. Some will debit it into your bank account.
Gas credit cards
The same concept applies when you shop for gas. Pick a gas station near your home that consistently has lower gas prices. Use a gasoline credit card that pays at least 3 to 5 percent rebates for gasoline purchases. If you do a car wash, make use of coupons as well.
To select the right card, all you have to do is to figure out your expenses. Write and split up your credit card expenses into the following categories: supermarket, gasoline, travel, and dining and restaurants.
You could split it up into other categories. But this would be a good start. You then have to do research and figure out which card will give you the most rebates based on your spending habits. This is very tedious, but is a necessary step. So please do it. Last year, I got over $400 from my cash back card.
Online Shopping Discounts
Aside from using card that give you cash rebates, there are some credit card issuers that give you cash rebates or discounts when you shop through their online portal.
Here is how it works. Let’s say you want to shop at Macys.com. You could go directly to your web browser and type in Macys.com and shop there. However, some credit cards have partnership agreements with online merchants. What you then have to do is to log on into your account, go to their shopping portal, and then go to Macys.com. When you shop at the site and use your credit card, you can get anywhere from 5 to 10 percent rebates (I look at them as discounts). You are actually going to the exact same site through your credit cards’ shopping portal. The only difference is that your purchases are tracked with the merchant and the credit card company so you can get the rebates.
There are some fine prints with such arrangements. Some merchants do not give discounts on gift cards. Some do not give rebates if there is already a sale on the item. But in most cases, you can really save a lot if you use these credit card perks wisely.
Travel Discounts
Your annual vacation is one of your biggest expenses. So why not make an effort to save on it. Most of us take at least one family vacation a year. If you are not careful, all the money you saved on supermarket coupons will be thrown down the drain if you are not savvy with your travel plans. Here are a few steps you should take.
1. Plan way ahead of your vacation.
2. Subscribe to the newsletters of the hotels that you are thinking of staying.
3. Get on the mailing list of online travel agents like Expedia.com – if you have used them before, they will send you frequent email promotions.
4. Make use of your frequent flyer miles or credit card reward points if possible.
If you or your spouse or partner travel a lot in your/their jobs, make sure you are using a reward credit card to accumulate either air miles or reward points. They points should be redeemed for airline tickets and hotel stays. There are several factors you have to be aware of when you are choosing reward card.
Firstly, if you fly frequently with one airline (and one airline only), then it probably make sense to get that specific airline credit card. Or you may be a member of a few frequent flier program, you may want to get a card with a reward program that lets you transfer miles to various programs. American Express, Diners Club and Starwood Preferred Guest have such programs. If you are not a frequent flier, then it is best to get a generic reward program from a credit card company that let’s you use points for travel items or one that let’s you book your own travel and then use points to get discounts. This topic about choosing a reward card is much too complex to put it in one post.
OK – I’ll stop here. But feel free to post any questions on the comments below and I’ll try to answer them. Or you could hop over to my site and send me an email. Remember, it is all good and frugal to be using coupons, checking deal sites for great deals. But if you are not using your credit card properly, you are certainly leaving money on the table.
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
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 Credit Card Act takes effect tomorrow. So how will that affect you? Some of the most important changes…
Creditors must give 45 day advance notice if they are going to raise the interest rate and they cannot raise the interest rate on existing or outstanding balances.
Payments go toward your most expensive balances first.
You have a minimum of 21 days from the day your statement is mailed to pay.
There are no extra fees if you pay your bill by phone, mail, or online.
And that’s just the start! To read a quick list of all the changes, check out this explainer on BillShrink.com, a site that helps consumers find low-cost cell phone plans and credit cards.
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.
There are a lot of sites where you can find credit cards. What I like about FindSecuredCards.com is that they tell you the pros and cons of their cards upfront.
Pros: Prepaid credit cards are for those are looking to get a flexible way to manage their money without the risks. Get a credit card today with a major logo like Visa and MasterCard.
Cons: Prepaid credit cards have different types of fees. Make sure that you pay close attention to the fees to make sure it’s the type of card you want. Prepaid cards will not build your credit but instead will help you manage your money and allow to buy things as if it were a credit card.
The site lists prepaid and secured credit cards you can apply for. For each one FindSecuredCards.com lists the annual fee, APR, monthly fees and if there is a credit check required to get the card.
The site also has helpful articles that answer basic questions like how to improve your credit score, the difference between a prepaid card and a secured card and how many credit cards you should have.
This is paid content. Interested in buying a sponsored post? Read my Advertise page.
