Tips from Fools
The best advice on bearing and caring for plastic comes from Fools on the
Credit
Card/Debt message board. We combed the messages and hounded co-workers
to bring you this collection of Foolish tips. Chime in with your best tricks,
tips, and even your horror stories.
PAYING DOWN DEBT
CC 110395
I used to be over $25,000 in debt with credit card and car loan payments.
I was attending college and only had a part time job. I never stopped paying
my bills or missed any payments because I knew that would damage my credit.
It took me about 4 years to pay off my debt. Now I'm saving like crazy
for a new home. I never knew that saving could be so much fun. So just
keep chipping away at those credit cards payments and you'll be out of the
credit trap
IrvHamlin
If you truly believe that you are "underwater" to the extent that it will
take four years to climb out of debt, then it's really imperative that you
begin paying down your debt right now -- not next week or next month.
Hedu
First, start by calling the credit card companies with the high interest
rates and ask them to reduce their rate -- tell them you will transfer the
amount to another card if they don't. My brother married a girl in debt
and when I told him to call the card companies, they all reduced his rate
from 20% down to 12%.
TMF Runkle
One way to end up heavily in debt is for the person using the card to have
nothing to do with paying the bill. That can apply to husband, wife, or children.
Since I can freely criticize myself, I'll tell a story about how I ran up
credit card bills ten years ago. I figured that I made good money, I could
afford things I wanted. How could a $300 purchase really hurt us? We could
pay for it. However, since my wife handled the bills, I had no clue as
to what I was doing. End result? Up to our ears in debt. The way we solved
it is that my wife makes out the checks, and I keep up the account in Quicken.
That way, both of us know where we stand financially. It's amazing how that
keeps spending under control.
bhill@tamu.edu
I had a college accounting professor state that credit card debt was the
DEBT DEVIL -- worse than all other kinds. He went on to ask, "What use is
a savings account for emergencies if you have credit card debt?" His point
was that in an emergency, the most important asset you have is GOOD CREDIT.
His advice was to take cash and pay off as much debt as one was comfortable
with paying at one time. The sooner you are debt free, the sooner the money
you make stays in your pocket.
TMF Biker
I got into a lot of debt when I was in school. After I graduated, I had the
card issuers lower my credit limit as I paid each card down. Now I have
two cards with credit limits that are the equivalent of one month's
paycheck.
trent.lezer@cwcinc.com
A professor of mine stated that the term 'Savings Account' is the most
inappropriate name for it because of the insignificant amount of interest
earned. However, credit cards, even those with low introductory rates of
5.9, are eating up not only the interest you "earn" with the savings account,
but also into your savings. Building a few months of savings for a rainy
day is a nice thought, but the best, and perhaps the most Foolish, way
to truly save money is to pay off all high interest credit cards, and then
avoid using a savings account to store rainy day funds. Rather, invest
in something that will return better than the 4% mentioned, and that can
also be liquidated quickly for quick cash.
TMF Value
I had a friend who used to freeze his card in a bowl of water. If he still
wanted the item when his card thawed out, he would buy it. Remember,
no cheating. The microwave will hose up the magnetic strip.
TMF Jeb
If you order a new card with a very low (i.e., 5.9%) rate, with the intention
of transferring balances (say, $5000) from higher rate cards, be sure
to cancel or cut-up the original card, or you'll end up with double the
debt. I'm sure I'm not the only one to succumb to this trap.
TMF NoClue
Every few months I get offers in the mail from my existing credit card companies
for low rates on balance transfers (anywhere from 6 months to a year or more).
They usually provide convenience checks to make the transfer easier. However,
their great offer never applies to existing balances. Drat! That's where
my trick comes in. I always keep one credit card with no balance on it. I'll
call this the HiRate Corp. card. I use it for emergencies only and it's paid
off monthly. I call up HiRate and say "Hey, I'd like to do a balance transfer."
The nice customer service rep says, "Are you kidding? Your rate is 21%!"
(this actually happened). I give the nice lady the amount of the transfer
and the address of NiceRate Corp. HiRate sends out a check to NiceRate
that should arrive within a week. A few days later, I write out one of those
handy-dandy NiceRate convenience checks for the amount of the transfer and
a few dollars more to cover any interest and send it to HiRate. Voila!
I now have the entire balance on my NiceRate card at a rate of 6.9% for 6
months.
TMF Bogey
When it comes down to it, there are only three uses for cards: 1.
Convenience - 'I have the money to pay this and will at the end of the month.'
2. Emergency - 'I need this, but don't have the money right now. I absolutely
must have it though' (Car Repairs, etc.). 3. Indulgence - 'I want this, yet
I don't have the money. I'm gonna buy it anyway though and pay 20% interest
for the next 6 years.' If #1 is true, then either get a debit card, or make
darn sure that you pay the balance each month in full. If # 2 is correct,
then credit cards are somewhat useful as short-term loans. However, you'd
better do your best to pay that off as quickly as possible else you'll get
swamped with debt. # 3 is the situation I imagine most people get themselves
into (myself included in college). DON'T DO IT! :) Material things are cool
and all, but when you figure out what you actually paid for it, you'll be
sick.
TMF Runkle
I've found that when traveling on business, it's useful to carry a separate
card for business use only. It's easier to track business expenses, and
make sure that they are paid off when an expense check comes. I use American
Express, since my employer provides it. However, you have to pay American
Express in full, so if you have trouble getting your expense account reimbursed
on time, Visa or MasterCard may be better. HOWEVER, American Express does
not give you a preset limit. Years ago I remember worrying about getting
a room in a motel because I was using a Visa for travel expenses, and had
come up to my credit limit.
David Tepper
Do you just pay the minimum every month on your credit card? Then paying
cash is the equivalent to finding a 75% off sale! Chew on *that* next
time you pull out the plastic.
TMF School
Don't get stuck with a late-payment fee just because your credit card bill
comes at an inconvenient time of the month. Simply call and ask to have
your billing cycle changed. That way you can spread out your monthly
expenses.
Sstevedd
If you are in debt and get an offer that includes free transfer of balances,
take it. Promo rates range anywhere from 0 to 5.9%. The trick is that
if you still have a balance, transfer it to a new low rate card before the
promo rate expires. A couple of VERY important things: First, do not
accrue any more credit card debt. Second, after you transfer all the balance
off a card, call the card company and cancel the old card and then destroy
it. This way you will not bet tempted by credit cards laying around begging
to be used.
TMF Jedi
Here's a simple trick: 1) NEVER throw away a receipt. 2) Keep one envelope
for each account/credit card, and when you log a transaction, stick the receipt
in the envelope and keep it in a safe place. I added in the trick of
wrapping receipts around the credit/debit card it went with -- I kept the
receipts with the card until they were logged in Quicken (God, I love that
program!) and only then could they be retired to the envelope. It's amazing
how few checks I bounce these days!
TMF Templr
I essentially took a student loan on plastic my last year of college. I took
out five low-interest-rate cards. After I paid off the debt on each one,
I nuked it. I had no way to charge more because my existing cards were
at their limit.
TMF2Aruba
Try this challenge. You know how you are always getting those offers that
tell you if you accept their card, you will get a very low interest rate?
I challenge you to call up your present card bank, and tell them you want
YOUR interest lowered. If they squawk, just say you were offered a better
rate by another card, and either they beat it, or you dump them. I guarantee,
they will NOT want to lose you, and you will instantly get a lower rate.
You will immediately begin to save money! : )
indigo@dimensional.com
I get those low interest rate offers all the time. The problem is that they
come from the same companies over and over. Once you take one of them up
on their offer, are you willing to bet they will extend that offer again,
even if you cancel the card? You are talking about burning at least two,
probably more like four or six of these cards each year. Are you going
to have your house paid off before you run out of companies?
pdmolino@gemstate.net (Pmad)
It became increasingly discouraging to read our credit card statement each
month and realize that 3/4's of our payments were getting eaten by interest.
We made the decision that we were going to just suck it up and pay the things
off as quickly as we could. I have now been able to get back into my professional
field and have the money to make rather large payments. We do not have
3-6 months of savings, instead opting to put all extra money into paying
off credit cards. If we saved 3 months of emergency money, we, in reality,
are actually saving 3 months of emergency money to pay off credit cards.
SANDRAMEND
After 2 years, I just closed my secured credit card, because the $500 in
my account earned NO interest and because I HATED paying interest the two
times I was sick and didn't pay in full… I now use an ATM/VISA card.
If I plan to make a large purchase, I write a check from my money market
account and deposit in my checking account. I have no further plans to
get another credit card.
TMF Ski
Having never carried a balance past the magic 30 day grace period on our
cards prior to buying our house, my wife and I were most disturbed to watch
the combined balance rise into the 5 digits. Two months ago I found an
3 year 8.24% home equity loan and paid those suckers off. That felt really
good. The tax benefits of home equity loans are also excellent. Also,
make a pact with your spouse that every month your balance will be paid off
in full.
TMF Mishap
Whenever I am forced to really budget my money, I give myself a weekly
allowance that forces me to live within my means. Moving further into
anality, I have 2 sections of my wallet devoted to different expenditures.
For instance, one sum of cash in my wallet would be dedicated to meals and
the other would be dedicated to miscellaneous expenditures. If I run out
of meal money, I don't eat for the rest of the week. Of course, I do not
go by it that strictly but it does give me a framework to budget my money.
THE PERKS
TMF 2Aruba
I charge constantly! Sure, why not? If I'm paying the bill when it comes
anyway, I might as well use it instead of a check or cash. I use an American
Airlines Visa card which awards me air miles. For years, I've been able
to get at least one free round trip ticket to Aruba each year. (And by
the way, Citibank does charge an annual fee of $50 for this card. I call
them each year and threaten to drop the card if they insist I pay it. They
take a look at the activity I give them, and they always send me a $50 gift
certificate, which negates the fee.)
scheibe@cts.com (kelvin)
If I have the cash to make a purchase, then I'll use my card. I then am
insured against theft or damage for 3 months. This was especially useful
when we bought a camera for my wife to take to Australia. Of course not all
cards offer this type of protection
TMF Cheeze
Recently I rented a car, only to realize (too late) that if I had used
a different card, the insurance would have been covered at no extra charge.
Next time I'll remember. It would have saved me a good 20% over what I ended
up paying.
TMF Taxes
I purchased my last car via credit card. I checked with the dealer first.
I then checked with the credit card company, and made a substantial prepayment
against the credit card, which would allow the charge to go through.
Bingo...I bought the car AND got a free airline ticket for my trouble.
TMF Sheard
I sometimes use my credit card as a short-term loan vehicle for special
purchases -- it's much easier than applying for a new loan for every
such purchase. Over the last year or two, I've purchased a new computer and
a new set of golf clubs. And when I go out of town, I often charge my traveling
expenses on my card. For some of these purchases, I can't pay the entire
balance off the first monthly cycle. But I plan for these purchases "on plastic"
before hand and know that within a couple of months, I'll have the balance
down to zero again. (I'm also fortunate to have a reasonable credit card
interest rate of 10% rather than some of the outrageous rates flooding the
market. Check into your local credit unions if you're eligible. You'll often
find their rates very competitive.)
THE FINE PRINT
Bmauerman
There's one scam I forgot to mention: credit insurance. This has to be the
worst "insurance" that anybody could buy. I wonder how many people have read
the fine print, like the fact that it only makes the minimum payment when
you are unemployed or disabled (I wonder how many people think it pays more)
and pays off your balance when you are dead so your relatives don't have
to (when you are dead, who cares if your balance is paid off -- they can't
go after your relatives because THEY DIDN'T SIGN THE CREDIT AGREEMENT). They
offer all of these non-existent benefits for one ridiculously large premium
each month. Credit card insurance does not insure YOU, it insures THE
CARD ISSUER!
RMcint5442
After studying card applications, I found out that Arkansas limits credit
card companies in their state to a maximum of 5% above the DISCOUNT rate
(as opposed to a variable rate tied to the Prime rate. The discount rate
is the one the Fed charges banks). The Discount rate is around 4.5 to 4.875
right now. My rates with these companies has been a pretty steady (around
9.35%, 9.45%) and I don't have to expend a lot of energy surfing other cards
offering the low introductory rates.
TMF Taxes
I had a card that would allow a grace period from purchase to payment (i.e.,
no interest charged so long as the balance was paid off). One month I got
an interest charge on my card (with a zero balance). I called and they
told me of the "change" that had occurred: No more grace period. I cancelled
my card immediately.
ttm@ix.netcom.com
Sometimes card companies will send out "'convenience" checks. You must be
careful, because most carry the 2% cash advance fee. Clarify with your issuer.
Slightly less often, these no-fee cash advances have a great interest rate,
like 5.9% to 6.9%. But some do not. Inevitably, there is a 2-3-4-5-6 month
time limit on the bonus interest rate. And what's more, any purchases you
make over and above the advance are charged at the regular 16% rate. But
you snap these up like a frog eating a gnat, pay off your 16 percenters,
and retire your CC debts with haste. A nice trick. I retired a business
credit line this way and avoided a considerable pile of interest. (I was
willing to incur interest in order to develop my biz credit line.)
From: BigWords
Watch out for this new way the credit card companies utilize the ol' fine
print: In the "Important Information" disclosure box (usually tucked away
on the back of that exciting application), look to the column titled "Method
of Computing the Balance for Purchases." If it says "Two-Cycle Average
Daily Balance," that means they charge you interest on TWO month's worth
of purchases. (That is, they charge you the second month, even if you pay
your balance off.) So, if you buy a $500 television on June 4th, they will
not only charge you interest on your new Sony at the end of June, but at
the end of NEXT MONTH'S BILL as well. ALWAYS read the disclosure box!!
TMF Taxes
If you have just gone through bankruptcy, your mailbox should soon be FULL
of approved, unsecured cards. Why are the card companies so willing to
work with the recently bankrupt? Because you can't declare bankruptcy again
for another 7 years. So they know that they have you by the short hairs
for a while. They'll get you in with a low balance, and if you run up the
card, you'll have all of that lovely interest to pay.
THE BARRAGE OF SOLICITATIONS
From: ScootM
I had the GE Rewards card for about a year, and recently cancelled it. Why?
I counted the numbers of phone calls I got from them trying to sell me
add-ons to my like insurance… 38 (over 3 per month!) [Also, EVERY
call, even 10 months into ownership started out "Hello, we understand you're
a new GE Rewards Card member. Have you safely received your card?"] I counted
how much mail I got from them trying to get me to buy into some of their
plans (not including statements): 27
Aam492vs
I run out to the mail box every day looking for that unsolicited junk. What
I'm really looking for is those "postage paid for by addressee" envelopes.
I'm usually able to stuff that envelopes contents plus the other trash
I received that day into the envelope and re-mail it back to the sender.
If you're good, you can stuff that envelope till it is shaped like a football!
Hey, it reduces my trash and hopefully sends a message back to the sender.
How do you handle debt? Put in your two cents and pick up a few tips on the
Credit
Card/Debt message board.
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