Healthy Financial Habits

Choosing a First credit card can be a difficult task when you have never dealt with a credit card companie before. At first glance the terms and conditions can be overwhelming. You may ask – What is APR? Compounding interest?  How much would my minimum payment be? What is a credit limit and how much will mine be?

Well it doesn’t have to be that difficult. My journey began when I was about 18; I had no money in my wallet and needed a couple new tires for my car. After eliminating the possibility of asking my parents for money I decided to take matters into my own hands and apply for a credit card.

I applied for the first credit card that I found in my mailbox. When your tires are about to fall off of your card and you have no cash there are not too many options. I filled out the little boxes with all of my information and sent if off in the mail. A couple weeks later a shiny new credit card appeared in the mail. After charging several hundred dollars on this card I read the statement that they sent at the end of the month. 23.4% interest? Are they crazy? I quickly found a way to pay that card off and never used it again.

Afterward, I received more offers in the mail and ultimately figured out which ones to apply for and which ones to pass up.

I use the following criteria while selecting a credit card:

1. Nice introductory period  – I go for 0% for at least one year
2. Cash back rewards – nothing beats cash
3. Low interest rate after intro period -  this is important especially if you plan to keep the card for a while
4. No annual fees – Why pay annual fees when most cards offer great rewards and no fees.
5. Low balance transfer fees – if you are interested in transferring balances from your other credit cards
6. Credit limits – I want the largest credit line that you can offer

Theses are 6 basic criteria that I look at while selecting a card. You will have to look at your individual needs in order to determine which card is best for you. One word of advice is not to get too carried away with credit cards. Only charge what you know you can pay off in the immediate future.

Credit card companies seem to pop up out of nowhere. There are gas cards, airline cards, internet cards, small business cards, student cards, cash back cards, rewards cards, hotel cards, and the list goes on.

So how many are out there and which one is right for your?  The answer to the first question is tens of thousands. There are banks everywhere who want to give you their money (at a hefty rate of interest of course).

Making the decision of which credit card company to go with can be overwhelming. After all, you want to choose the credit card that is right for you. You would not want a Disney credit card that offers Disney perks if you have never visited Disney and do not plan to in the future.

You must first ask yourself questions about your lifestyle. Travel a lot by vehicle and gas price are high?  Try a cash back gas card. What if you travel a lot by plane? How about a sky miles card? Do you have a large family to feed? Try a card that offers a high percent cash back on groceries.  Are you a small business owner who needs a card to purchase office supplies? Try a small business card.

The possibilities are unlimited. You don’t have to pick a card that is specific to a particular area of spending in your life. Discover offers great cash back discounts on many areas such as travel, dining and retail.  But beware while carrying a Discover card. Many merchants do not accept Discover so be prepared to pay with an alternative method. Mastercard and Visa are rarely rejected at places that accept credit cards.

A low interest credit card can be a real life saver when you are short on cash and need a line of credit to buy things such as groceries, clothes, gas or even pay the rent. There are several credit card companies out there that are offering great deals on low interest credit cards however these rates are usually teaser or introductory rates. True low rate credit cards are usually available to those with good credit. If your credit is questionable or bad, then credit card companies look at you as a high risk customer and normally adjust your rates accordingly.

Here are a few deals that I found:

-Discover and Citi bank are offering rate of around 11.99% with a 0% introductory and no annual fee.

-Capital one is offering a similar deal but at 13.9%.

-Gold Delta Sky Miles is currently offering 9.99% plus prime. One downfall is that the card carries and annual fee of $95

Right now credit card rates seem to be a bit on the high side. This is due in part to the recently signed Card Act. You can read about it here: Credit Card Act Of 2009 – How Will It Affect you.  If you keep an eye out you will eventually come across a low interest credit card that is right for you.

“I want to pay off credit card debt” – does this sound familiar?  This may have been your New Year’s resolution or something that you discuss with your wife or significant other every night before you go to bed. The fact is that millions of Americans are in some form of credit card debt. For years credit card companies have made it easy for you to fall into debt by offering low introductory rates and easy credit.

Well just because you are in credit card debt doesn’t mean that you have to remain there.  There is a way out and it can be very simple if you discipline yourself to monitor your spending habits. Like many other bad habits, the first thing is to admit that you have a debt problem. From here you can make a plan to pay off and eventually eliminate your credit card debt.

One strategy is to eliminate unnecessary spending by evaluating your current spending habits. Do you really need 500+ television channels to surf or can you get by with just 50?  Is that gym membership really necessary when you only go once every 3 months? Once you free up some money you can move onto the next step which is paying off your credit card debt.

One of my favorite methods  is Dave Ramsey’s “Snowball effect”. The strategy behind his method is to pay off your debt starting from the highest APR card to the lowest APR card meanwhile making the minimum payment on your other cards. Every time a card becomes free and clear you continue to pay the amount you were paying on the previous card on your next card. Once the first two become clear you apply the money that you were paying on the first two to the third. Repeat this process until your debt is eliminated.

You may have noticed that your credit card payments have been on the rise.  So you may ask yourself why is this? In my previous article Credit Card Act of 2009 – How Will It Affect You? I explained the Credit Card Accountability, Responsibility, and Disclosure Act of 2009. This was signed by president Obama at the end of May and goes into effect the beginning of next year.

Credit card companies have been taking a proactive approach to the restrictions that the new laws will now place on them. They are tightening down the clamps and trying to squeeze every dollar that they can out of credit card holders.  Some credit cards that never charged annual fees are now beginning to do so.

In addition to pressure from the CARD Act the office of the comptroller of currency is putting additional pressure on card companies to increase minimum payments in order to encourage holders not rack up such high balances. It is very easy to become deeply in debt when your minimum payment is only $50 per month.

You will find that in the upcoming months your credit card minimum payments will be on the rise. It would be wise to make a plan to pay off those credit cards now if possible. If you find yourself in a situation where you can not make your minimum payment then it would be a good idea to consider refinancing using a balance transfer.

Credit card gas cards can give you cash back just for being a loyal customer to a particular gas station. They typically pay anywhere from 3% – 5% cash back on purchases made at their stations. After you accumulate so many dollars in rewards they usually credit your statement for whatever the amount may be. (I.e. $25, $50).

The process is relatively simple. To start, you want take a look at the gas stations that you pass by during your daily routine. Take note of the most common stations that are convenient to your commute. For instance, you would not want to consider a gas station that you would have to cross 6 lanes of traffic and make a left turn to access.

Once you have a good idea of what stations are plentiful in your area you want to conduct a search for the type of credit card that they have to offer. Most large companies offer some type of cash back rewards card.  From here you want to weigh your options; select the card that offers the best deal and apply.

You may be scared away by the high APR that some cards charge. If you use this card wisely there is no need to worry. Remember, you are getting this card to make you money- not rack up more debt. In other words, pay off the balance every month.

You can also find companies such as Discover that offer some great cash back offers at any gas station, but be careful. More and more merchants are refusing to accept discover due to the hefty fees that the discover charges per transaction.

Credit card APR is a hot topic when it comes to selecting a new credit card. Credit card rates are on the rise leaving us with just one question: Who charges the least interest on credit cards?

If you conduct a search on the internet you will find that the going low rate is around 11.99%. This may seem a bit on the high side if it has been a while since you have applied for a credit card. Interest rates on credit cards are going up.

Rather then applying for a new credit card, another option is to call your current credit card companies and haggle with them. Let them know that you would like to use their card but their rate is simply too high. With a lot of convincing and a little luck you may be well on your way to a much lower rate. I know of a person who has been a long time Discover card holder. After speaking with a representative he talked his way into an extremely low fixed rate on all purchases.

While interest rates are well above 11% there is one card that stands out above the rest right now. The Simmons First Visa Platinum card now offers a sweet 9.25% APR with no annual fee. This card also earns one point for every dollar that you spend. One disadvantage is that this card requires excellent credit- something that not all of us have.

Remember that credit cards are unsecured debt therefore they are associated with a higher risk on the lenders part. This higher risk translates into a higher interest rate paid by the card user. You should expect to pay anywhere from 8% on up depending on your credit.

0 interest credit cards can be a handy tool when you are looking for a temporary plan to lower the amount of interest you pay every month while paying down debt. Although they are not as prevalent as they once were they do still exist.

Right now the Discover More card is offering 0% APR on balance transfers along with several other perks such as 5% to 20% cash back bonuses at select retailers.

Citi Bank also has several 0% APR offers on balance transfers. They are not offering as sweet of a deal on rewards however, they use Visa and Mastercard which are more widely accepted.

American Express is offering a deal at 1.99% APR for 6 months which is also not too bad. One perk to using the TrueEarnings card is that there is no limit to how many rewards you can earn. With this card you can earn 3% annually for gas, 2% for travel and 1% for everything else. Not too shabby.

One of my favorite things to do is apply for a no interest credit card with a low cash advance fee. I wait for them to send me those infamous blank checks in the mail with a 0 interest introductory rate. As soon as I receive it I take a cash advance for the maximum amount and deposit it into my High Interest Checking Account. You pay upwards to $100 at first but soon recover this as you receive interest from your checking account. You must keep the money in your account and not spend it. At the end of the 0% period give them their money back in full and enjoy the interest that you just earned.

Whichever card you choose just remember that the 0% offer always expires and usually converts to a high APR. If you plan to apply for one of these cards just remember that they are extremely effective when it comes to getting you into deep debt. It is easier to spend money when you know that you are not paying interest on it. Suddenly your introductory period expires and you are stuck with thousands in debt and no plan to eliminate it.

An interesting letter awaited in my mailbox when I returned home from a recent vacation. It was a plain white envelope with Chase printed in the return address.  After some thought I figured out that it was a response to a recent credit card application that I submitted before leaving. But something was different about this letter. I examined it, checking for the infamous flexible piece of plastic within.

It was thin and appeared to contain only a single piece of folded paper.  I quickly opened the letter and started  to question what may have possibly gone wrong. Is there a problem with my credit? Maybe they are sending the card separately? Maybe this isn’t the letter I thought it was?

After opening the envelope and unfolding the letter I read:

Thank you for your interest in our visa platinum credit program. Your application was given thoughtful consideration…

“We have determined that the projected costs of maintaining this account would exceed anticipated earnings.”

I could not believe my eyes! I was denied an extremely high interest gas rewards credit card because I am one of the few who use credit cards responsibly. Apparently they took a look at my credit history and figured out that I always pay off my balance and have never paid a nickel of interest. The rejection of my application was a result of the recently signed CARD Act.

On May 22, 2009 president Obama signed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act.
The objective of this act is to protect Americans from deceptive practices that some creditors use. Part of this act states that creditors must now use plain language when explaining credit card terms. In other words they must now dumb it down for your average “Joe six pack”. It also places limits on how often rates can change and gives more time (21 days from mailing) to pay your balance.

Here are a few more highlights of the act:

-card issuers must clearly disclose how long your card will take to pay off if you were to pay the minimum payment along with amount of principal and interest paid.
-People applying that are under the age of 21 must have a co-signer
-People under age 21 will be protected from prescreening
-Interest rates are not to increase in the first 12 months
- Promotional APR must be offered for minimally 6 months.

The entire act can be read at http://www.whitehouse.gov/the_press_office/Fact-Sheet-Reforms-to-Protect-American-Credit-Card-Holders/

Most of these rules will take effect in February 2010.  The fact is that credit card companies unfortunately make the  their money from people with less than average common sense. Credit card issuers are now scrambling for ways to make up for anticipated loss of revenue.  Keep an eye out for changes to your current credit cards terms and conditions. Such changes will come in the form of taking away rewards and incentives, charging a higher APR, or even charging annual fees.