Today I did something I have never done before. I canceled a credit card.
Yes! I finally took the step I've meaning to for ages and got rid of one of my cards. While the card was one of my two oldest (I got them within a month of each other) it was the younger of the two, plus the only one of the four cards I have that charges a monthly fee AND an annual fee. (All three of the other cards do not charge either fee.) Also, it had a very small limit of $500. So it was an easy choice.
Not so easy, however, was the process of actually canceling the card. I had to speak to a "customer specialist" or something of the sort, who I literally had to tell four or five times, 'No, I just want to cancel the card," as she alternately tried logic, fee credits, and scare tactics to keep me from closing the account. But now it's done and I am saving $6 a month (the monthly fee) plus about $100 a year (the annual fee). And I still have three other cards to serve my credit needs, so I'm happy and my wallet is happy.
Showing posts with label credit cards. Show all posts
Showing posts with label credit cards. Show all posts
November 24, 2008
October 4, 2008
Bailing Ourselves Out, Part 3: Credit Cards
The $700 billion bailout bill has passed both the House and Senate and been signed by the President. But will it really help end the current financial crisis? I'm feeling pretty skeptical about that, and I'm hearing a lot of skepticism from others as well. While we wait to see what future this Emergency Economic Stabilization Act and its add-ons will carve out for America, let's all do something to help the overall situation. This post is my third in a series on ways regular, everyday people can address the causes and concerns of the financial crisis in their own lives.
Part 3: Cut down (or cut up) your credit cards.
Credit cards can be a wonderful tool for building your credit score and history, as well as helping you make important purchases with added consumer protections. Unfortunately, they can also be hugely destructive in the wrong hands, burying the cardholder in mountains of debt they can't afford to pay.
Part of the reason the financial world is such a mess right now is that over the last few years, it's become the norm in America to spend like there's no tomorrow. Most people spend what they earn instead of saving it, then spend even more than that by putting purchases on their credit cards (vacations, computers, flatscreen tvs, you name it) without thinking about whether they can really afford those items. Many people, myself included, have gotten credit cards intending to use them "for emergencies only" but ended up using them for frivolous spending.
If you have more than two or three credit cards, consider that you may have too many. If you are carrying balances on any or all of them that you cannot pay back at the end of the month, you definitely need to take a hard look at your situation. Credit cards are not magic -- the money has to be paid back, and the interest charges every month mean you'll only owe the company more.
Make a plan today to cut down on your credit card use. Make a list of your cards with their current balance, interest rate and credit limit. Then look at the list and decide on a plan of attack. Some people, like those who use Dave Ramsey's snowball method, pay off the card with the smallest balance first so they have a quick victory to encourage them to continue. Others go for the card with the highest interest rate, so they'll immediately pay a lower percentage of money for interest fees. You can also consider what the cards do for you. If you have one card with particularly good rewards, you might want to keep that one and get rid of any others. Or if you really want to have one card for emergencies, pick one with a limit high enough to cover any serious problem and get rid of the rest. (Of course, having an emergency fund is the best choice to plan for those situations, so if that's your motivation you should also start putting small amounts of money away every week or every month. That way, you'll eventually have emergency funds in place and won't need your credit card.)
Once you've targeted your first card to eliminate, make your minimum payments on your other cards and put all available cash toward the balance on the card you are eliminating. When you've paid the balance down to zero, cancel the card/close the account.
Closing a credit card account puts a small negative mark on your credit score. If you are planning to buy a house or car, or something else that will require financing in the next six months, don't close your paid-off credit card account. Just cut up the card so you can't use it for any additional purchases. After your mortgage or loan is in place, then you can close the credit card account.
And after you've set up a card payoff plan, cut down on your credit card spending. Don't make a plan to get out of the hole and then dig yourself back in again. Look carefully at the types of purchases you've been making on your card(s) and look for patterns. Do you tend to charge big-ticket items? Save up for them instead by setting aside small amounts on a weekly or monthly basis. Some places will even give discounts if you pay cash for large items.
If your charges tend to be recurring impulse buys at a few particular stores, avoid those stores! Yes, I mean it. Do not pass store, do not spend. And if you have a habit of charging your morning breakfast at Starbucks or expensive dinners out every night, scale back. Make breakfast or dinner at home a few times a week and give your cards (and your cash) a break.
We created this credit-driven, flash-driven, try-to-beat-the-Joneses culture in America. We need to be the ones who dismantle it and replace it with a healthier model that benefits everyone.
Part 3: Cut down (or cut up) your credit cards.
Credit cards can be a wonderful tool for building your credit score and history, as well as helping you make important purchases with added consumer protections. Unfortunately, they can also be hugely destructive in the wrong hands, burying the cardholder in mountains of debt they can't afford to pay.
Part of the reason the financial world is such a mess right now is that over the last few years, it's become the norm in America to spend like there's no tomorrow. Most people spend what they earn instead of saving it, then spend even more than that by putting purchases on their credit cards (vacations, computers, flatscreen tvs, you name it) without thinking about whether they can really afford those items. Many people, myself included, have gotten credit cards intending to use them "for emergencies only" but ended up using them for frivolous spending.
If you have more than two or three credit cards, consider that you may have too many. If you are carrying balances on any or all of them that you cannot pay back at the end of the month, you definitely need to take a hard look at your situation. Credit cards are not magic -- the money has to be paid back, and the interest charges every month mean you'll only owe the company more.
Make a plan today to cut down on your credit card use. Make a list of your cards with their current balance, interest rate and credit limit. Then look at the list and decide on a plan of attack. Some people, like those who use Dave Ramsey's snowball method, pay off the card with the smallest balance first so they have a quick victory to encourage them to continue. Others go for the card with the highest interest rate, so they'll immediately pay a lower percentage of money for interest fees. You can also consider what the cards do for you. If you have one card with particularly good rewards, you might want to keep that one and get rid of any others. Or if you really want to have one card for emergencies, pick one with a limit high enough to cover any serious problem and get rid of the rest. (Of course, having an emergency fund is the best choice to plan for those situations, so if that's your motivation you should also start putting small amounts of money away every week or every month. That way, you'll eventually have emergency funds in place and won't need your credit card.)
Once you've targeted your first card to eliminate, make your minimum payments on your other cards and put all available cash toward the balance on the card you are eliminating. When you've paid the balance down to zero, cancel the card/close the account.
Closing a credit card account puts a small negative mark on your credit score. If you are planning to buy a house or car, or something else that will require financing in the next six months, don't close your paid-off credit card account. Just cut up the card so you can't use it for any additional purchases. After your mortgage or loan is in place, then you can close the credit card account.
And after you've set up a card payoff plan, cut down on your credit card spending. Don't make a plan to get out of the hole and then dig yourself back in again. Look carefully at the types of purchases you've been making on your card(s) and look for patterns. Do you tend to charge big-ticket items? Save up for them instead by setting aside small amounts on a weekly or monthly basis. Some places will even give discounts if you pay cash for large items.
If your charges tend to be recurring impulse buys at a few particular stores, avoid those stores! Yes, I mean it. Do not pass store, do not spend. And if you have a habit of charging your morning breakfast at Starbucks or expensive dinners out every night, scale back. Make breakfast or dinner at home a few times a week and give your cards (and your cash) a break.
We created this credit-driven, flash-driven, try-to-beat-the-Joneses culture in America. We need to be the ones who dismantle it and replace it with a healthier model that benefits everyone.
October 3, 2008
Bailing Ourselves Out, Part 2: Loans
Today the House of Representatives votes on the $700 billion bailout. Whether or not they approve it today, odds are good that the government (and thus the taxpayers) will be on the hook for that money. This post is my second in a series discussing ways for ordinary Americans to address and repair some of the basic causes of the current financial crisis.
Part 2: Make your loan payments in full and on time.
You may be looking at the above sentence and wondering if you've read it correctly. After all, who doesn't make their loan payments in full and on time? The answer is, quite a few people. Mortgaged houses are being abandoned by owners who simply stop making payments and mail the keys to the bank. Car loans, student loans, and credit cards have all seen an increase in payment delinquencies recently. So, what's going on?
It's true that some adjustable-rate mortgages shifted to new rates with monthly payments so high, the homeowners simply couldn't afford to pay them. But that isn't the whole story. All over this country, people have gotten in over their heads in debt, be it measured in swollen credit card balances, expensive cars, or houses they really couldn't afford. There is some blame to be directed at bad lending practices for this. At the same time, the consumer also has to take some responsibility. We're the ones who sign up for the credit cards, walk into the car dealerships, and agree to make the offer on the house. But now it's time to really look at the mess we've created.
Paying late, missing payments or making partial payments on mortgages, cars, credit cards, consumer and student loans can all badly affect your credit. If you find yourself with more bills than you can afford to pay, look seriously at other spending that you can cut down to cover the gap. Do you really need premium cable? Or a new cell phone every year? How about that morning coffee at Starbucks? Most budgets have some fat that you can cut.
Consolidation might also help you by cutting down on the number of payments you're making. If you are juggling balances on multiple credit cards, keep making your minimum payments and target one particular card for elimination. You could choose the one with the highest interest rate, or smallest credit limit. Using balance transfers, move the balance from that card onto one or more of the others. Then close the target card. (Closing a credit card account does have a negative impact on your credit report, but so does missing scheduled payments.) If you have multiple student loans, you may be able to get a consolidation loan that allows you to combine them all into a single loan with one interest rate and payment. Several lenders have stopped offering these recently, so call yours or check their website to see if they offer consolidations.
Lastly, a word on mortgages. If you can afford to make your mortgage payments, and you are not planning on moving or selling your house within the next 2-5 years, stay put!!! There have been a lot of alarming news items about homeowners being "underwater" on their mortgages -- that is, they currently owe more on the mortgage than they would be able to sell the house for in the current market. It is partly this concern that is causing some people to sell their houses at a loss, or walk away from them. But unless you need to sell your house right now, or fairly soon, what you can get for it in the current market does not matter. In fact, if you're planning to live in your house for another ten or twenty years, the current real estate value means little. In the last year or two, home prices have been heading down. For four or five years previously, they were increasing. The real estate market has ups and downs like any market. And the longer you hold your property, the more likely you are to see the value go up.
We've seen several large banks disappear during this crisis, partly because they could not meet their obligations. Take a good, hard look at your finances and make sure you can meet yours. And before taking on any new loans or credit cards, think long and hard about whether you really need to make that purchase right now. We've developed a bad habit in this country -- mortgaging our futures.
Part 2: Make your loan payments in full and on time.
You may be looking at the above sentence and wondering if you've read it correctly. After all, who doesn't make their loan payments in full and on time? The answer is, quite a few people. Mortgaged houses are being abandoned by owners who simply stop making payments and mail the keys to the bank. Car loans, student loans, and credit cards have all seen an increase in payment delinquencies recently. So, what's going on?
It's true that some adjustable-rate mortgages shifted to new rates with monthly payments so high, the homeowners simply couldn't afford to pay them. But that isn't the whole story. All over this country, people have gotten in over their heads in debt, be it measured in swollen credit card balances, expensive cars, or houses they really couldn't afford. There is some blame to be directed at bad lending practices for this. At the same time, the consumer also has to take some responsibility. We're the ones who sign up for the credit cards, walk into the car dealerships, and agree to make the offer on the house. But now it's time to really look at the mess we've created.
Paying late, missing payments or making partial payments on mortgages, cars, credit cards, consumer and student loans can all badly affect your credit. If you find yourself with more bills than you can afford to pay, look seriously at other spending that you can cut down to cover the gap. Do you really need premium cable? Or a new cell phone every year? How about that morning coffee at Starbucks? Most budgets have some fat that you can cut.
Consolidation might also help you by cutting down on the number of payments you're making. If you are juggling balances on multiple credit cards, keep making your minimum payments and target one particular card for elimination. You could choose the one with the highest interest rate, or smallest credit limit. Using balance transfers, move the balance from that card onto one or more of the others. Then close the target card. (Closing a credit card account does have a negative impact on your credit report, but so does missing scheduled payments.) If you have multiple student loans, you may be able to get a consolidation loan that allows you to combine them all into a single loan with one interest rate and payment. Several lenders have stopped offering these recently, so call yours or check their website to see if they offer consolidations.
Lastly, a word on mortgages. If you can afford to make your mortgage payments, and you are not planning on moving or selling your house within the next 2-5 years, stay put!!! There have been a lot of alarming news items about homeowners being "underwater" on their mortgages -- that is, they currently owe more on the mortgage than they would be able to sell the house for in the current market. It is partly this concern that is causing some people to sell their houses at a loss, or walk away from them. But unless you need to sell your house right now, or fairly soon, what you can get for it in the current market does not matter. In fact, if you're planning to live in your house for another ten or twenty years, the current real estate value means little. In the last year or two, home prices have been heading down. For four or five years previously, they were increasing. The real estate market has ups and downs like any market. And the longer you hold your property, the more likely you are to see the value go up.
We've seen several large banks disappear during this crisis, partly because they could not meet their obligations. Take a good, hard look at your finances and make sure you can meet yours. And before taking on any new loans or credit cards, think long and hard about whether you really need to make that purchase right now. We've developed a bad habit in this country -- mortgaging our futures.
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