We all have credit cards and we look at the bottom of statement and see all these multiple rates. Rates for balance transfer, new purchases and cash advances.
What are all these rates?
Well they are how credit cards make money. Let's take an example to explain.
You transferred a balance of $4,000 from one card with a higher rate to one with a rate of say 0% for life credit card or balance paid off.
Your first thought is this is a great card with a low fixed rate of 6%. Then one day you go to your local department store and charge $500 of clothes on your new 6% credit card which is much lower than the 21% department store card.
Once again you think you did a great thing by using this credit card.
Well friends let's fast forward to when you receive you next bill. This is what you will see:
Balance Transfer Balance of $4,000 Interest Rate 0%
New Purchase Balance of $500 Interest Rate 12.99%
Cash Advance Balance $0 Interest Rate 22.99%
You send in your regular payment of $200. Guess where that entire payment goes to? Two guesses?
1. Payment goes to Balance Transfer balance?
2. some goes to Balance Transfer and some to New Purchases?
Answer the entire payment goes to 0% Balance and the New Purchase Balance continues to accrue interest until the Balance Transfer is paid off.
A little rule most credit cards have is that your entire payment goes to your lowest interest rate and ZERO goes to any other rate.
I have seen so many people make this mistake of using a credit card they transferred a balance to get a lower rate.
LESSON: Whenever you transfer a balance for a lower rate make sure you review what the New Purchase Rate on the card.
If the New Purchase Rate is higher than the Balance Transfer Rate do not use for ANY new purchases. Hope this helps.
Friday, January 30, 2009
Thursday, January 29, 2009
Using Credit Cards
A common mistake I find people make is using credit cards for everyday purchases (groceries, gas, restaurants) and not paying off each month. Questions: The gas you bought last month are you still using? Are still eating your meal from Applebee's?
Don't get me wrong using your credit card for everyday purchases is OK since some receive some type of incentive (airline miles, cash back). However, when you start carrying a balance from previous purchases your balance starts to build up.
I had one client use a credit card to buy gas when filling the tank was $60 or more. After doing this for a year or so they had a balance of over $6,000. The couple made good money it was just more convenient to buy gas that way. The mistake they made was not paying off balance every month like they intended.
What they started doing were two things:
1. They stopped using credit card and pay cash for gas
2. They started paying $300 or $400 a month instead of minimum
Anyone can do this it just takes a plan and discipline.
I hope this helped some people out there.
Don't get me wrong using your credit card for everyday purchases is OK since some receive some type of incentive (airline miles, cash back). However, when you start carrying a balance from previous purchases your balance starts to build up.
I had one client use a credit card to buy gas when filling the tank was $60 or more. After doing this for a year or so they had a balance of over $6,000. The couple made good money it was just more convenient to buy gas that way. The mistake they made was not paying off balance every month like they intended.
What they started doing were two things:
1. They stopped using credit card and pay cash for gas
2. They started paying $300 or $400 a month instead of minimum
Anyone can do this it just takes a plan and discipline.
I hope this helped some people out there.
Wednesday, January 28, 2009
How to debt stack your bills
DEBT STACKING
Debt stacking is one of the best ways for someone to eliminate debt quickly. However, it does take discipline. Debt stacking involves gathering your bills together and looking at the following items:
1. Balance
2. Interest Rate
3. Minimum Payment
4. Your Actual Payment
What debt stacking involves is taking any of your actual payments that are higher than your Minimum Payments and applying that money to one bill.
For example, let’s say you have four credit cards that you pay $25 extra on each for a total of $100. What a debt stacking program will do is determine which balance will be paid off first and take the entire $100 to that bill. Important is that you continue to make only the minimum on the rest of the bills.
Oh and one more extremely important note:
ANY CREDIT CARD YOU ARE DEBT STACKING SHOULD NO LONGER BE USED!!!
If you use this credit card debt stacking will not work. My suggestion is keep one credit card with a low balance and high enough limit to pay for any unseen repair, purchase or anything for that matter.
OK back to debt stacking.
You will make your minimum payment plus the additional $100 until that bill is paid off. Let’s say the minimum payment is $30. You would pay $30 + $100 = $130 on the first bill.
Once that bill is paid off take the entire $130 to the next bill on the list and continue until the last bill is paid off. I used this with many clients and some even kept next to their computer so they could review list when paying their bills.
They would just mark one bill off then another. One suggestion I usually give is to reward yourself once you have paid off a bill.
This is especially important for anyone struggling to stay ahead. Like the above example instead of taking the entire $130 to the next bill maybe keep $40 of that money and go to dinner or buy something for your family.
Just like any weight loss program they always tell you to reward yourself so you can appreciate your success. I’ve had families go what I consider “hardcore” by following plan for one year, but never rewarded themselves and then fell back into old spending habits.
I believe this was due to not rewarding themselves since they were still living paycheck to paycheck.
LESSON: Reward yourself when you eliminate a bill.
Debt stacking is one of the best ways for someone to eliminate debt quickly. However, it does take discipline. Debt stacking involves gathering your bills together and looking at the following items:
1. Balance
2. Interest Rate
3. Minimum Payment
4. Your Actual Payment
What debt stacking involves is taking any of your actual payments that are higher than your Minimum Payments and applying that money to one bill.
For example, let’s say you have four credit cards that you pay $25 extra on each for a total of $100. What a debt stacking program will do is determine which balance will be paid off first and take the entire $100 to that bill. Important is that you continue to make only the minimum on the rest of the bills.
Oh and one more extremely important note:
ANY CREDIT CARD YOU ARE DEBT STACKING SHOULD NO LONGER BE USED!!!
If you use this credit card debt stacking will not work. My suggestion is keep one credit card with a low balance and high enough limit to pay for any unseen repair, purchase or anything for that matter.
OK back to debt stacking.
You will make your minimum payment plus the additional $100 until that bill is paid off. Let’s say the minimum payment is $30. You would pay $30 + $100 = $130 on the first bill.
Once that bill is paid off take the entire $130 to the next bill on the list and continue until the last bill is paid off. I used this with many clients and some even kept next to their computer so they could review list when paying their bills.
They would just mark one bill off then another. One suggestion I usually give is to reward yourself once you have paid off a bill.
This is especially important for anyone struggling to stay ahead. Like the above example instead of taking the entire $130 to the next bill maybe keep $40 of that money and go to dinner or buy something for your family.
Just like any weight loss program they always tell you to reward yourself so you can appreciate your success. I’ve had families go what I consider “hardcore” by following plan for one year, but never rewarded themselves and then fell back into old spending habits.
I believe this was due to not rewarding themselves since they were still living paycheck to paycheck.
LESSON: Reward yourself when you eliminate a bill.
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