Even when someone writes checks and makes their payments online before the due dates, the potential for an error is possible – and a simple mathematical error in a checking account can accumulate expensive overdraft fees. If you have ever made an error in your check register, you know how quickly overdraft fees can add up! It takes awhile to receive notification of your error from the bank – and in the meantime, if you do not realize the error has been made, you could continue to spend more money than you have available – particularly since each check or transaction that takes place once a checking account is “out of money” results in an additional overdraft fee ($20 to $40, depending on the bank’s policy).
With overdraft protection through your bank in the form of a line of credit, should you make an error in your checking account, the bank will automatically pull from the other account and avoid the overdraft fee. Some banks do charge a fee for this overdraft protection, however it is less than what you pay per transaction if you should overdraw your account.
There is another option for overdraft protection that consumers may not be aware of. Credit cards can be linked to many checking accounts to be used for overdraft protection. Deciding whether or not this is a cost-effective option for you will depend on how much your credit card charges for a cash advance. If your bank charges $40 per overdrawn transaction and the credit card company charges a cash advance fee of $10, it may make more sense to link your credit card with the checking account to use for overdraft protection. If you don’t have a line of credit option or savings account to use for overdraft protection, the credit card may be a cost effective back up resource with lower fees than bank overdraft charges.
Not all banks will allow you to use a credit card for a backup funding source, so if this is something you’re interested in doing you would need to find a bank that offers this option. When you are looking for a bank account, here are a few questions you can ask to make sure the bank offers you what you are looking for before you open the account:
Q. How much do you charge for overdraft fees?
If you’re lucky enough to find a bank with low overdraft fees, you may not have to worry about anything else!
Q. Can I link my credit card to my bank account to use as overdraft protection and how much is the fee to transfer money from the credit card in the event I overdraw my account?
Ask this question of your bank, but also check with the credit card you intend to use as your back up funding source to see if and what kind of cash advance fee they will charge you for this service.
Q. Is using a credit card for back up funding your least expensive option or could you apply for an account with a lower overdraft protection fee or an account that allows you a line of credit or connection to a savings account?
Your best option is a bank that allows you to connect a savings account to use as back up funding. If you overdraw the checking account, it will automatically pull money from your savings account. But if this option is not available to you, you’ll need to resource the other options to find the least expensive way to handle any potential overdrafts.
by: Debbie Dragon
]]>Use Real Life Examples
The credit card process is mysterious to kids. Most children don’t realize that when you charge a purchase, you have to pay for it later – and then some. The next time you pay your credit card bill, sit down with your child and show them the charges, fees, and interest you have to pay. Show them how the price of the purchase increases when you don’t pay your balance in full every month.
Get Them Involved
Kids enjoy role reversal. Ask them what they would do to raise enough money to pay off the credit cards completely. They’ll probably have some creative suggestions. Also, you might be surprised by the sacrifices they’re willing to make in order to reduce the family’s debt, such as giving up fast food or full-price movie admissions. Let their enthusiasm inspire you.
Play Games with Them
Robert Kiyosaki, author of “Rich Kid Smart Kid”, has produced a game called “CASHFLOW for Kids”. It makes children consider the consequences of paying cash versus paying with credit, and allows them to decide which is the best choice. CASHFLOW is available for free to schools, and parents can purchase a CD ROM or board game version to play at home. Or, if you’re the creative type, you could come up with a game of your own.
To best teach your kids about credit cards, start young. Empower them to make wise decisions and teach them to be responsible spenders. I can’t help but wonder where the economy would be right now if debt education had been mandatory for my generation.
by: Janna Weiss
]]>It’s been popularly believed that Americans have been doing just that in the tough financial times of late. But studies have suggested that credit card use is actually on the decline. Whichever theory you hold with, it can’t hurt to educate yourself about the reality of using credit cards to cover your daily expenses.
Credit cards are best used in short-term situations. Ideally, card holders pay off their card balances every month to avoid interest fees. But when we use credit cards to pay for our everyday necessities like groceries and utility bills, we tend to carry a rotating balance. This racks up the interest and causes us to pay more for our monthly needs than we would if we paid cash.
Regardless of what we hear on the news, studies have shown that Americans are using their credit cards less. Instead of using their plastic to maintain their lifestyles, they are simply scaling back on their expenses by staying home and cutting out unnecessary charges, like premium cable. They are also using utilities more sparingly to avoid sky-high energy bills. And eating out is, well, out. More and more Americans are choosing to cook at home in the name of saving a buck.
If you’d rather strike a happy medium, consider getting a cash back reward card that gives you some incentive to make daily purchases. Cut back on your other expenses wherever you can, and use the money you save to make more than the minimum monthly payment on your credit cards.
Low-interest cards are another way to stretch your credit dollars as far as you can. Look for cards with a 0% interest phase. These introductory periods typically last 6 months to a year. The charges you make during that time won’t be subject to interest. That’s a good thing for thrifty card holders.
by: Janna Weiss
]]>A customer, who probably could not afford a credit card at those terms in the first place, proceeds to max out the card, get immediately behind on their payments, the fee’s begin to build, and that snowball continues to roll down the hill that did not have to be. Again, it is a shared responsibility. The credit card companies have to be aware of their risks and not issue credit cards for profit potential only. On the other hand, customers who take on credit cards, must accept the responsibility of owning up to their financial obligations.
There was once a time in our society where credit revolved around a simple hand shake. Those times have long since faded into obscurity. Why? For one thing, a hand shake was based on honor during a time when someone’s “honor” actually used to mean something. Your hand shake was your bond, the reflection of you as someone who could be trusted. This was a reputation that was not taken lightly. Of course, honor does still exist, but it just seems to mean more to some than others. There are instances of course, where hard times just get the best of you and it has nothing at all to do with your honor- just your financial situation!
You end up taking on too much, and then you get buried in an ocean of credit related debt that continues to grow as you find it difficult to keep up with your payments. There is hope, though, and all does not have to be lost. You can still save your honor! You can climb out of the hole that you are in. Don’t give up the ship without a good fight.
Here is how to take responsibility for your credit cards:
If you are going to take on credit cards, you should be prepared to take responsibility for them. Until you can get your financial situation under better control, at least make an effort to make the minimum payment due, before it’s due. This will avoid the addition of late fees or increased interest rates that are often the result of a late payment to a credit card company.
Do not depend on your credit card as a bail out. Use it responsively. Call your credit card company and ask to have your interest rate lowered. Many times it will be in the credit card companies best interest to lower the rate, rather than simply inherit a delinquent account. Organize your finances. Know what you have coming in and what you owe out on a monthly basis. Take responsibility for your credit cards and they will take care of you by giving you access to credit when you need it.
by: Debbie Dragon
]]>If you’ve received many offers of credit in the mail, you know how easy it is to be seduced by the easy terms and other marketing gimmicks on the envelopes. But the truth of these offers is on the inside of the letter, and often written in small print. There you will find hidden fees coupled with high interest rates and rules that can change at the creditor’s whim. Still, it’s hard to refuse a credit card when someone really wants to give you one.
A little preparation can enable you to accept those offers of credit without the fear of digging yourself into a financial hole. If this is your first credit card, look to friends and family for credit etiquette. They can be good examples of how to handle your new credit limit, or they can serve as reverse role-models – living proof that you do not want to live beyond your means.
The first thing you need to do when you get a credit card is to look at your budget. Make a simple ledger or spreadsheet that lists your monthly income as well as your outgoing bills. Credit card interest rates can range from 15-30%. If you make purchases on the card, be sure that you can afford to pay them off each month. If the debt lingers from cycle to cycle, interest payments will make that purchase cost more than it’s worth.
Next, list your bills in order of priority. You have to pay for food, power, and lodging before you pay for credit cards. If your monthly necessities leave you little financial wiggle room, you might want to avoid using the credit card except in emergencies.
What if you’ve already accumulated a heap of debt? Start fixing it right away. Call your creditors, explain your situation, and see what they can do to help. Some lenders will grant a forbearance for a month or so, while others will accept partial payments. Make a good faith effort to take care of your debt, and establish a relationship with your debtors. Make sure they have current contact information, and don’t put them through the trouble of calling you first. Instead, be proactive. Let lenders know when you face financial hardship. If you get in touch with them, they’ll know that you care about paying off your debt – and they won’t hassle you so much.
These simple strategies can be put to use by anyone who has, or is thinking of acquiring, a credit card. Credit cards aren’t free money. Spend only what you can afford to spend, and stay in touch with your creditors if problems arise.
by: Janna Weiss
]]>Some of the practices under review include: universal default, too-short customer notice of changes to terms and conditions, and the retroactive application of new interest rates to a customer’s entire existing balance.
Universal default occurs when a customer’s credit score is lowered and their credit card company raises their interest rate as a result. There are many problems with this practice. For one, it’s too easy to implement. If a customer makes a late car payment, their credit card interest rate could suffer as a result. And higher interest rates make credit card payments higher, increasing the likelihood that the customer will default with many lenders instead of just the original one.
Credit card companies are also being asked to give more notice to customers when their rates are about to change. Right now, companies are only required to give a fourteen day notice by mail. Customers argue that, by the time they receive the mailed notices – if they receive them at all – they only have a few days to decide how to deal with the changes. If the new bill is passed, that notice period will be increased to nearly a month. Companies will also be required to send out bills 25 days in advance of their due dates, compared to the two-week cycle now in place.
The new bill could also change the way card companies handle punitive interest rates. Some companies will take the higher rate and retroactively apply it to the full amount of the customer’s balance. Customers feel that this is unfair; if they have been paying in a timely manner for years, why should they have high interest applied even to the debt that has been meticulously paid month after month? Companies are being asked to apply such rates only to the portion of the balance that caused the increase.
Credit card companies aren’t happy with the proposed changes. They are facing difficult times, they say, and rules and regulations forcing them to change their practices will only hurt their ability to offer credit to a large number of customers. They maintain that the credit card industry is competitive already, and that customers have no need of legislation to protect them from creditors.
Whichever stance you take, it’s possible that the credit card industry will be making a major overhaul in their business practices. In addition to the bill proposed last month by the House Financial Services Committee, the House Judiciary Committee wants merchants to be able to negotiate the amount they have to pay for credit card transaction fees. Despite card companies’ protests, change is on the horizon.
by: Janna Weiss
]]>1. Price Protection is a Geeks Best Friend – Don’t you hate it when you drop $600 on an iPhone or your now obsolete HD DVD player and it drops in price by a couple hundred bucks a month or two after you buy it? Many credit cards offer a price protection program which will refund you the difference when you purchase an item with the card and you find a better price within 30-90 days.
2. Read the Terms and Conditions – They are not nearly as long as you may think and fairly easy to read. The card companies are not always forthcoming with the details in their advertising and this is where you’ll find the hidden fees and rate information.
3. Balance Transfers Aren’t Always Worth It – Especially when your plan is to pay off the card anyways. There’s almost always a balance transfer fee and that fee, plus the interest accrued from it delaying the repayment of your card, often ends up being more expensive than just keeping the higher rate card and paying it off.
4. Choose Longer Intro Period over Lower Fixed Rate with Balance Transfers – This may seem counter-intuitive, but having a 6 to 18 month jump on paying off your debt, interest free usually ends up being a better deal than getting a lower fixed rate when you plan on paying off the debt. For more information click here.
5. Get Cards That Offers Rewards for NOT Using Them – Believe it or not they exist. Many will offer you free airline miles for just signing up or for making a single purchase. The Citi Driver’s Edge card offers you rewards just for driving your card; enough for free oil changes.
6. Don’t Carry A Balance – Credit cards are rarely the best source for financing a purchase long term. Most likely you can open a line of credit with your bank that offers much better terms. You can still use the card for the convenience but if you need to carry over the balance from month to month, transfer it to this line of credit.
7. Get Rewards You’ll Actually Use – If you travel a lot, an airline or hotel rewards card may be the best choice for you. If you don’t, don’t plan a trip around the rewards. Find a card with rewards you’ll use anyways like gas cards, saving for college, or funding a retirement account.
8. Cash Back is King – As we mentioned in a previous article, almost all credit card rewards are essentially the same, 1% cash back in one form or another. Knowing this, why would you want to deal with blackout dates, restrictions, expirations, etc. Just get the cash back card and use that cash to pay for whatever you want.
9. Take the Purchase Protection, Leave the Extended Warranty – Many cards offer purchase protection for items you buy with them, which not only act as an extended warranty, but will also often cover the item if you damage it or it’s stolen.
10. Have More Than One Card – If you insist on carrying a balance and for whatever reason are previous advice on opening a line of credit won’t work for you, then at least have a separate card for this. Ignore all the rewards and similar factors and just get the lowest rate you can. Use your rewards card for making everyday purchases and use this low interest card to cover expenses you plan on financing.
11. Track Your Expenses – Most banks offer the same reporting on credit card accounts as on checking accounts. This includes the ability download to Quicken or MS Money. Don’t just log one big expenses for ‘credit cards’ on your budget, download and log your entertainment, dining out and other expenses as you would if it was your checking account.
12. Beware of ‘Poor Credit’ Cards – There are definitely some legit credit cards for those with poor credit, but there’s also no shortage of absolutely horrible ones. Some charge you so much in hidden fees upon opening the account that it adds up to near the available amount of credit you have on the card! Sadly that is no exaggeration. You should always read the terms and conditions on the cards, but this is especially true with those designed for people with poor credit.
13. Use a Separate Card for Business Expenses – No matter how small your business is. If you run an internet business or any other kind of small business odds are you use a credit card or at least debit card for most of your expenses anyways. Even small businesses (or with some cards, individuals) can qualify for a business credit card. Get one and use it and come tax time, those deductions will be a snap!
14. Closing Credit Cards Doesn’t Always Help Your Credit Score – By closing a card that is paid off, you end up raising the ratio of your used vs available credit which can often hurt your credit score. If you have an excessive amount of cards that you want to close out, that’s fine, but think twice if your reasoning for doing it is to improve your credit score.
15. Pay Off Your Highest Balance Card First – When getting out of debt you may be tempted to pay off your smallest debt first. While this give you a sense of accomplishment sooner, the best technique is to pay off debt with highest interest rate first, which is usually a credit card.
16. Everything Is Negotiable – If you’re a good customer, or even a mediocre one, odds are you can get out of paying late fees or get your bank to lower your interest rate just by asking. Here’s a video explaining how.
17. Beware of Two-Cycle Billing – The amount of interest you pay is based on your average daily balance. Many card companies have come up with a new method of calculating your average daily balance by considering not only this month’s average balance but also the previous months. The problem with this is that amount is usually higher when you’re in the process of paying off your debt making it even harder to do so.
18. Sign the Back of Your Card – Many people refuse to do this thinking they want the person accepting the card to be forced to check ID. The only problem with that, is if your card is ever stolen, the thief will have no problem signing the back of the card for you and will now have a perfect signature match. Not that most people really check the signature anyways, but don’t make it even easier on the thief. If nothing else, write “Please Check ID” in the signature box.
19. Personalize Your Card – You might as well have a card that reflects your personality. Most banks will let you personalize your card in a number of ways such as putting your team logo on it, your photo, or even provide your own card art. Take advantage of this, it’ll give you a card you love and make a great conversation piece.
20. Have a Discover Card – Have you ever noticed that although many merchants don’t accept Discover, at certain government agencies and wholesale clubs, the only accepted credit card is Discover? The reasoning behind this is somewhat complicated, but if you hate writing checks as much as I do, do yourself a favor and have at least one Discover card.
21. Never Pay the Minimum Payment – No list of credit card advice would be complete without the classic advice to never pay the minimum payment on a card. I’ll spare you the math but in short by doing so you’ll usually end up paying somewhere in the ballpark of three times what you borrowed and end up paying it over twenty or so years.
by: Jeremy Zongker
]]>A credit freeze is something a consumer can place on his or her own credit report – depending on where in the country you live. Some states allow anyone to put a freeze on their credit; while others only allow the victims of identity theft to freeze their credit. Here are other tips that will help you understand the basics of a credit freeze:
1. Even if your credit is frozen, your report can be updated by your existing creditors. Don’t think that by placing a freeze on your credit report you can slide by with a few late payments that won’t get reported!
2. A frozen credit will only prevent new creditors from accessing the information in your report. If your existing creditors want to check your credit report to see how you are paying your other creditors, they can.
3. A freeze of your credit is made with individual credit bureaus. If you freeze your credit with Experian, it won’t be automatically frozen through TransUnion or Equifax. You have to freeze each manually if you want all access to be frozen.
4. “Thawing” a credit freeze; in other words, removing the hold you have on your credit report, takes several days to take effect (unless you live in Utah where they’re able to unthaw in 15 minutes!) If you plan to apply for new credit or apply to rent an apartment or apply for a new job; you will want to thaw your credit a few days before you’ll need it to be sure that these authorized people will have access to the report.
5. Freezing your credit does not prevent you from using your credit cards. It’s not like “freezing” the credit card or “freezing” a bank account. It literally only effects the ability of a new lender to look at your credit report.
6. While the intent of a credit freeze is usually to prevent identity theft and fraud- there are still numerous ways around it that could result in you becoming the victim of identity theft or fraud, despite having a freeze on your credit. For example, in the event a lender doesn’t try to check your credit before issuing a new account, new credit could be opened in your name if the criminal had the right details to do so.
Hopefully, this list has given you some useful insight into what a credit freeze is, and what it is not. Using a credit freeze may help reduce your potential for being the victim of identity theft, but if you are hoping to end the prescreened credit card offers or have creditors alerted to possible fraud activity when they begin to open a new account for you; chances are you are looking for a fraud alert service and not a credit freeze.
by: Debbie Dragon
]]>Credit has been with us since time immemorial. In the old days, stores would keep open accounts, or “tabs”, for their customers. The customers would take the merchandise they needed, the store owner would mark their purchases in a ledger, and the tab would be paid at a later date.
Credit in card form was first mentioned in literature in the 1887 novel, Looking Backward, by Edward Bellamy. The author theorized that, in the future, all customers would need to make purchases was a little card that represented their available credit. Now that was a good guess, and timely: Western Union issued purchase cards to its best customers as early as 1914.
Gas cards came before most other types of credit cards. In the 1920’s, more and more people purchased automobiles. Those automobiles needed fuel, so many gas stations began to issue cards which could be used to make fuel purchases. In an innovative networking move, various gas stations even accepted their competitor’s cards as a form of payment.
Next came store credit cards. Originally devised as a marketing ploy, these cards helped increase the customer base of many retailers. Customers liked the fact that they buy now and pay later, and retailers liked the fact that the period of repayment had a definite limit. That is, the customer had a specific amount of time in which to pay off their debt. Good customers gained a good reputation among merchants – the credit history of yesterday.
Revolving credit came onto the scene in the 1930’s and 40’s. The stores started off by allowing customers to pay off their debt over a series of months, requiring the debt to be paid in full before further purchases could be made. Then they did away with the repayment limits. This allowed customers to carry a balance on their credit cards that did not have to be repaid in a specified time period. Instead, the customer had to repay a certain amount of debt each month – the minimum monthly payment. This provided even more convenience for the customers, though many didn’t quite know what they were getting into. Credit card companies made revenue from fees and interest, just like they do today.
In the 1950’s, Ralph Schneider introduced the concept of an all-purpose credit card which could be used in lieu of multiple charge cards. Enter the cards we know today: Visa, American Express, Diner’s Club, and others. These major companies soared in popularity in the 1970’s and 80’s.
Today, credit cards have become a big business. It seems that every provider is eager to place a card in the hands of a customer, regardless of that customer’s credit score or demonstrated level of financial responsibility. This is good news for consumers who want to build up their credit, but can also mean big losses for an industry that was founded on the strength of a promise.
]]>You will be told that in case of death, critical illness or disability, your credit card payments will be taken care of, relieving you and your family of an additional burden. All you need to do is pay a certain percentage of your monthly balance as an insurance fee.
What you’re not told is that in such an unfortunate event, your policy would only cover your minimum payments – typically 4% of your balance, not your whole debt. You better believe interest will continue to accrue on the remainder of your balance. If you are able to return to work later, you will still be responsible for the remainder of the balance, on top of the medical bills you recently incurred. Essentially the financial institution is asking you to pay premiums on a policy that protects itself. You as the credit card (or loan, or mortgage) holder are not the beneficiary. Other than peace of mind, you don’t gain anything from such insurance.
It is the standard policy of many banks to include this type of coverage in personal loans. Most borrowers are not aware of this and unwittingly sign up. If that’s not bad enough, the bank receives up to 40% commission on reselling you this insurance policy simply for signing you up. You’re better off going directly to an insurance company and springing for a whole life policy that will benefit your family, cover all your debts, not just one and will cost you less money.
Credit lenders are aggressive with these offers, and when you initially refuse, often push you into a free introductory period. Don’t take the bait. These policies are notoriously difficult to cancel – you have to deal with the insurance company itself, so your bank’s customer service department won’t be able to help you. And it can be tough to even find contact information for the insurer.
Be careful to read the terms and conditions on credit card and other loan agreements before signing anything, and make sure your banker explains your agreement fully. When pushed to accept additional insurance, remember to just say “no.”
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