Posts Tagged credit cards

Real Estate, Interest Rate . . .

So first things first.  I think we might have to give a thumb up to the Fed.  Yesterday’s news that the sub-prime reset rates for mortgages at risk did not jump as high as was expected.  In other words, people expecting their mortgage payments to leap out of payment reach were pleasantly surprised at a little they had changed because the Fed had lowered prime.  Breathing room is what they call it.

Strangely enough, on the very same day that I read that news, my Citibank credit card sent me a letter explaining that they were forthwith increasing my variable rate for purchases to U.S. Prime plus 14.9% but with a minimum set at 19.99%.  At BCSAlliance.com, I found this note:

When the prime rate decreased during the period February 2001 until June 2004, most credit card interest rates did not decrease accordingly.  In fact, most credit card issuers raised their interest rates steadily during that period.  How did they do that?  When the prime lending rate fell, they simply raised their margin rates to compensate for the decreasing prime rate so they would not have to lower the interest rate on customers’ credit cards.  You can find out how ethical your credit card company is by getting out your old monthly statements and seeing if your interest rate dropped as the prime rate fell steadily during the period February 2001 to June 2004. (Of course, to do this your credit card interest rate must be tied to the prime lending rate.)   If you have a variable rate card, notice how quickly your credit card company raised your interest rate when the prime rate increased.  Did they lower your interest rate when the prime rate fell?

I think just about everyone would agree that the credit card industry lacks in transparency.  Even as congress struggles to regulate it, it is also clear that the question about what reasons apply to explain the lenders margin rates are still missing.  As I expected, information about this problem is scarce and indicates the slant of privacy is definitely towards the credit card companies. 

Meanwhile, the world turns.  Have a nice Sunday.

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Credit Card Chronicles

My first credit card wasn’t really a credit card.  It seems strange to say it that way but it’s true.  This was back in the mid-1970’s and I’m not sure that credit cards had even been created.  This card wasn’t even a card really.  The situation was this.  In those days I was living lean so I have a hard time imaging how it all happened.  But for some reason, the main one being that I really hadn’t learned how to balance my check book, I was bouncing checks about twice a pay period.  As I recall those days, it’s really difficult to know how that could have been happening except for the fact that I rarely paid attention to where my money went.  Hell, I didn’t own a car.  My house payment was small and I had money in savings.  But there I was, standing at the bank counter explaining how it just couldn’t be.  So the bank, being my friend, offered me a service called a check guarantee.  My checking account would be backed up by their funds which I could then pay back. 

So off I went, my problem solved I thought.  That was in the spring.  But by then I had reached a point in my life where I didn’t work in the summer.  Three months of waiting for the waves and pounding the sand playing beach volleyball, and travelling up the coast to Santa Barbara to visit friends were my summer tasks.  I rented a studio in Encinitas and did a lot of journal writing.  You could call it therapy or escapism but I just lived for the moment.  I didn’t get any mail.  Had no phone.  I was free and alone.

Then summer ended and I went back to my house and a stack of mail and three months of bank statements that showed that gradually but surely I had accumulated a $1251.00 debit against my check guarantee.  I don’t recall if there were interest charges, probably there were.  I only know that this was my first real experience with how living on credit can get out of control.  During the summer, if I needed to pay for dinners, or trips, or a new board I wrote a check.  It was guaranteed.

Of course, I cancelled the service immediately.  Pulled the money from my savings and then sat down with my check book and bank statement and taught myself how to reconcile.  I’d like to say that I had learned a valuable lesson but that wouldn’t be true.  I did get better at tracking my expenditures but I didn’t grasp the real meaning behind what had happened.  I learned to keep track but not how to control which we will see as this story continues was my main mistake.

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Credit cards, the good, the bad and the uglier it gets

These are the times to take care.  As prices inflate and salaries stagnate and unemployment hovers above the 5% rate, it would be easy to return to your use of credit cards and lines of credit (if you can obtain them since the lenders did their reassessment resets) for supplemental funds.  It would be easy and oh so greasy to slide back into the cocoon and weather the storm.  But don’t do it.  Stay lean, and mean if you have to, but don’t let this bubble burst economy bring back the mind set upon which credit used to be based.  For one thing you should note that even though the FED has lowered its rate and the banks are showing lower interest rate earnings on your money, the credit card industry has not responded in kind.  As a matter of fact they are all beefing up their rules and warning anyone who defaults in one area that the info may/will affect them elsewhere.  For another thing, this is a time when we need to remember why we chose, needed to choose, to be frugal in the first place.  In times of stress, it is easier to fall back, without noticing, into the old addiction. 

Take a Frontline look here if you need reminders of what the credit card industry is like.   One step you can take that may help in keeping yourself straight is to update your budget.  Take a fresh look at your expenditures over the last couple of months.  Prices for food and goods are increasing.  So recalibrate the amounts allocated for your basic expenses.  A second step might be to think about taking a Staycation this year instead of the planned drive across country to Disneyworld.  A third step should be to pull out those ideas you had last summer (when the fuel rates were lower than they are now) for using your vehicles less.  You know carpooling, using public transportation, stacking tasks that require car use so that they happen on one trip instead of several, and parking the car on the weekends except for necessary use.  And A fourth step is the one you take every time you decide not to use that credit card.

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Health, care, and our emergency fund

Over the years T and I have come up with and endured several different kinds of health care emergencies.  We dealt with these in a variety of ways. At first, because we were economically strapped we just used a credit card system.  Someone got sick, we pulled out the card or rather a card since we, like a lot of other folks, really didn’t know too much about how our interest compounded.  Then, as we began to become moderately successful, we began to look at the possibility of insurance taking some of the load for the various and sundry health care needs that came our way.  Our son, C, played a part in this since his school athletic program required he be covered.  So once we started with him it seemed only natural to find a plan the covered T, too.  I was already covered through my job but since we hadn’t yet married neither she nor our son could be included there. 

Anyway, we picked out an insurance company, Blue Cross, and began paying out monthly premiums on an 80/20 plan with a copay and a deductible.  The not so funny thing was that now that we were insured we seemed to stay relatively healthy and after two years we totaled up the costs ($1735.00 the first year and $1800.00 the second) and came to the conclusion that maybe just setting the same amount aside in a savings account would serve the same purpose.  So that’s what we did and though we didn’t know it at the time we were also starting our first Emergency Fund.  As a matter of course, as our business had become more successful, we had begun to pay off our credit cards, too.  And because we were doing that we began to look at the interest rates, 19.9, 22.4, 21.1, 17.8 on the different cards we used and think about how best to get out of this debt.  This was back in the late 90’s and we knew nothing about the things that seem so natural to the Personal Finance world of today.  We worked so much – full time day jobs plus our concession business on the weekends and in the summers – that we really didn’t have time for frivolous spending.  We just started attacking the cards from two directions.  Each month we paid extra on the card with the largest balance and at the same time we tried (and mostly succeeded) to pay off any new charges against a card within the monthly charge period.  This strategy just made sense and it worked to the point where we were actually finally out of debt.

At this point, in 2001, we decided to take the next step with our concession business and move from a sole proprietorship to a corporation. (I’ll save that story for another post)  Once we had a corporation and a business plan, we began to realize the possibilities.  As employees of our corp, T and C were both eligible to join our corporately paid for health plan, which they did.  The corp then was able to write off the health-care plan as part of its operating expense.

Still, the habits we had developed through our growing years stayed with us.  Since the corp now took over the health care, our personal savings began to grow into what we now realize really is an Emergency Fund.  One which, when that health care emergency finally hit this last winter, we were able to tap into to cover our share of the copay and the 30% that the plan didn’t cover.  The corp plan costs $5200 a year with a deductible of $1000 and a 70/30 split on the expenses so when T came down with colitis and needed surgery that ended up costing a little over $12,000 the plan covered everything except for our $3700 share.  And our Emergency Fund, well let’s just say it’s time to start a new one.

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Credit card gambles

As I have chronicled in the past, my partner T. loves to play the credit card game of 0% interest offers.  She has such great credit that the companies just can’t keep themselves from offering her massive loan limits, $27,000, at 0% interest for 9 or even 15 months.  Actually, it is more likely that their computer setup reads her payment history (perfect) and her credit score (780) and automatically generates those cute little check offers so that she can take advantage of this great opportunity to go into debt.  T.,  on the other hand, doesn’t go into debt.  She takes the offer and parks the money in a CD at 5.2%, pays her monthly minimum, and collects the difference as another way to add to her income stream.  Last year, she made an additional $2500. 

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Rewards

So I signed up for an Amazon Credit Card offered by Chase Credit Card Services because I wanted to try out the idea of earning points.  In the first month, I earned 270 pts. at Amazon and 180 at other locations for a grand total of 450 pts.  My bill informed that it would take 2500 pts to earn a $25 Amazon gift card.  The actual dollar amount I spent to earn my 450 was $179.95.  All of the purchases were in my normal budget for the time period.   That is, I wasn’t just spending to spend.  I would have spent the cash anyway but I wanted to test the value of this offer.  The offer includes a 0% charge if the charges are paid by the billing date.

So I set aside the cash, and I paid the bill immediately.  Still, for $179 I received 450 in points.  In other words, to get my first reward of a $25 reward certificate, not cash, I would have to spend another $716.  Hmmm?  Do I need anything immediately?  No.  Can I be patient enough to spend regularly and monitor the repay cycle so as to avoid the 22.49% APR?  Probably.  Is this meticulous approach to spending, thinking about the purchase, setting aside the money, monitoring the cycle, and using the reward ($25 or more) appropriately, going to be worth my time and effort?  I think so.  At this point the key word is Patience. 

Some side effects:  I won’t hold up the line.  I don’t have to use my pocket cash.  I can pay via online banking.  I can monitor my expenses.  I can overspend very easily so being careful is even more important.  Especially since being able to buy things without caution has always been my down fall.

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