Jill Russo Foster

Tips for Successful Personal Finances

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Reducing Your Interest And/Or Fees

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Last, we spoke about bank accounts – now I’ll talk about credit cards.

Do your homework and determine what credit cards your have, what interest rate and fees your paying.

First, you must be honest with yourself and decide which of these two categories you fall into:

  1.  Credit card balances are paid in full each and every month
  2.  You pay your credit card monthly, but carry a balance month to month

Which one are you?

If you are number #1, you are not concerned about the interest rate associated with your credit card.  You pay the balance in full each and every month, so there isn’t interest charged to you.  You need to look at the fees that you might incur.

If you are a number #2, you care about the interest rate and the lower the interest rate is, the less you pay each and every month while you are carrying a balance.

Are you using the right credit card for the spender you are?  If not, look around to determine if there is a better option for you.

Make Your Money Grow

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Do you have the best bank / credit union accounts?   How can you tell which is best for you?

For your bank / credit union account, you want to earn the highest interest rate (paid to you) with no (or the lowest) fees.  Start by looking at what you currently have – how much are you earning and paying?  Once you know this information, you have a starting point.  Now compare that with what other’s offer.  Can you do better?  Don’t forget while looking compare both local, out of state and virtual banks / credit unions.  What would you have to do to eliminate all fees?

Keep in mind, that the bank and/or credit union you are looking at must (non negotiable) be FDIC (Federal Deposit Insurance Corp.) for a bank or savings and loan.  Credit Unions are insurance through NCUA (National Credit Union Administration).  This protects your money up to $250,000.  Once you confirm this, then look at how you earn interest and what fees are involved before making your choice.

Personally, we bank both locally and virtually.  We earn interest on both our checking and savings accounts with no fees and do NOT have to carry a large balance in the account to do this.  So if we can do this, you can too.

Other quick tips, that may help you:

  • Don’t link your savings account to your ATM / Debit card
  • Set up automatic savings deposits with each and every paycheck (pay yourself first).

Remember, that every penny your earn or save is more money in your pocket.  Those pennies add up.

 

Fees, fees and more fees!

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How many credit cards do you have that charge a fee?

Do you pay:

annual fee?

foreign transaction fee?

balance transfer?

cash advance?

and more

We’ll you are not alone.  There are so many credit card to choose from, that you can avoid these fees by having the right credit card for this situation.  We have a card that we use for foreign travel – no fee.  We have a low interest card 8% with no fees for when we need to finance a purchase (that we know we won’t be able to pay off in full when the bill arrives).  So it’s understanding what your needs are and what credit card meets them.

CreditCards.com released a report listing what credit cards offer what.  This will help you to decide if you have the correct credit card for your needs and may help you to save money.

 

How to Choose the Best Rewards Card

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Last issue we talked about zero percent financing.  Now, I want to talk about the benefits of ‘rewards cards’. You know, those credit cards that offer cash back bonuses, airline miles or other rewards that accumulate with each purchase.

Get the facts to determine if rewards cards are right for you.

Annual Fee and Interest Rates

First, rewards credit card generally have an annual fee and a higher interest rate than non-reward credit cards.  You have to be absolutely certain that you will pay your balance off each and every month in full or the reward won’t be worth it.

Can You Use the Reward?

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Nothing is worse than carefully accumulating points for a year, only to find you can’t use the reward.  Ugh!

You need to find out what rewards are available, how many points and/or miles are needed, what are the exclusions?  I was just reading an application for someone and for 25,000 points, they could get a free coach airline ticket valued at up to $400.  That seems great on the surface, but what does that actually mean?  Can you book that reward when and where you want to use it?  How much do you have to charge to earn those 25,000 points?

If you were a part of my Nearly Free Travel Group, you know that we don’t have an airline miles rewards credit card.  We earn our miles in more direct ways.  We used to have several different types of rewards cards (airline miles, cruise points, etc.) but not anymore. But with everything in life, this is a choice we made.  You may want to choose differently.

The Terms and Conditions

So what should you look for?

  • How the interest is calculated – single or double cycle billing?
  • How long is the grace period?
  • What percentage is the minimum payment (typically 2 to 2 ½ %)?

Take your time and ask questions before applying. Make a pros and cons list – does it work for your future plans and current spending habits? To start your research, go to Nerd Wallet’s Best Credit Cards of 2015 for a comparison chart that will help you determine if a rewards card could benefit you.

Is there good credit card debt?

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Is there such a thing as good credit card debt? I believe the answer is yes, but you must be able to use the debt to your advantage.

For example, have you ever used zero percent financing to make a purchase?

This is how we did it. Back in November, we purchased a snow blower.  It cost approximately $600 and we were offered zero percent financing for 1 year.  It was a great offer and well worth it if as long as we paid in full before the free financing period ends.

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We did pay it off with $100 installments, so it was all ours before the snow stopped falling.  That was a good use of zero percent financing.

Zero percent financing is an expensive mistake if you don’t pay it off on time.  But let’s say you still had a balance at the end of the finance period.  What would happen?

You would have interest charges going back to the original price on the original date.  So, for our purchase of $600 at the regular credit card rate of 18.99%, the minimum payment would be $15.00 per month.  If you only paid $15 each month for 12 months, you would have only paid $180 of the $600 balance.  If you continued this, it would take you 63 months and cost you $954.27.  That’s a lot for a snow blower that’s only worth $600.

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This is why it’s so important to know what you can actually afford to pay. We knew we could have the snow blower paid off in 6 months with a series of over payments.  Each over payment was like insurance, giving us extra time should something else unexpected come up.  Let’s face it, life is great at delivering unexpected surprises.

So, use the zero percentage financing options wisely. They can be a great deal under the right circumstances.

Holiday Credit Mistakes You Don’t Want to Make

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Getting ready for the holidays? That will put extra stress on your time and budget. Every time you shop, you’ll be facing temptations that could send your finances off the cliff.  If you want to keep away from the edge , keep listening:

  1. Every store will push their own card.  They’ll offer a 10-15% discount if you sign up at the register. With your little pile of purchases in front of you, it will sound like a good deal. Don’t do it.

Why not? Because they’ll run an inquiry on your credit report,  instantly lowering your credit score and costing you more money in the long run. Don’t forget that store credit cards charge the highest interest rates out there.  Think about the temptation you’ll face. With one purchase safely tucked away on a new credit card, you’ll find some breathing room in your checking account for more holiday purchases. Before you know it, you won’t have enough left to pay the store card in full. In the end, that discount will have cost you over 15%, putting you in the hole.

  1. You will be off your routine and forgetful. Between preparation, gatherings, and parties, something will probably slip through the cracks. You might even forget to pay a bill on time. Don’t do it.

Why not? Missing a due date will cost you a late fee – sometimes $35. If it’s a credit card payment, they could penalize you with an increased interest rate at a time you need it least. Worst of all, the late payment could end up on your credit report, lowering your credit score.

  1. You will want to spend more than you can afford. Don’t kid yourself. Holidays are a time of giving and sharing. You will get caught up in the moment and spend more than you planned. You may even spend so much, that you won’t have enough left over to pay your credit card in full when the bill arrives. Don’t do it.

Why not? It could take forever to pay off. If you have a $500 balance and only pay the minimum amount due (typically 2%) then it will take you 85 months (or 7 years plus) to pay off the balance. That is assuming you don’t make any other charges. Plus, you don’t want to start the New Year with new debt.

Plan ahead and use cash for holiday shopping to stay within your budget. That way, you can enjoy the holiday season without facing budget busting debt in January.

Is it time to take a break from your credit cards?

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My credit cards have been with me for years – my oldest was opened in 1987. They were there for me when I had unexpected car repairs, unfinished holiday shopping lists, uncovered medical expenses, a slow month in business, and the times when our money ran out before the end of the month. They have gotten me through good and bad financial times, just like old friends.

But, about ten years ago, I came to the conclusion that my cards were helping themselves more than they were helping me. When I relied on them for emergencies, it meant paying interest on the entire balance for an unforeseeable amount of time.

Here’s a common example of credit card debt:

Balance Owed

Interest Rate

Minimum Payment

Months to Payoff

Additional
Interest
Paid

Total Paid

$5,000

12%

$100

70 Months
(almost 6 years)

$1,966

$6,966

$20,000

18%

$350

131 Months
(almost 11 years)

$25,745

$45,745

I want you to look closely at the last 3 columns. Look at how much you’ll end up paying and how long it will take! That should scare you into taking a break from using your credit cards. I know it did me!

Once you get behind in your bills, it becomes a never-ending cycle of taking out debt to pay debt. You worry yourself into sleepless nights and your whole paycheck goes towards past expenses instead of current wants and needs.

Today is the day to make a resolution to stop your credit card debt and take back your financial independence.

This step is the scariest, make a list of all your credit card debt (you can include other debts as well).

The list should look something like this:

Name

Interest Rate

Minimum Payment

Balance Owed

Payment Due Date

Paid On

Creditor #1

18%

$350

$20,000

5/1/14

4/27/14

Creditor #2

12%

$100

$5,000

4/15/14

4/10/14

You can tackle paying off your credit card debt in one of two ways. 

Save money by paying the highest interest rate card first.

The first way is to pay the credit card with the highest interest rate off first.  Pay every penny you can above the minimum to get it paid off as soon as possible.  There is a box on your credit card bill that tells you how much you have to pay each month to pay the balance off in 3 years – aim for that or sooner.

Once that card is off your list, pay off the next highest interest rate credit card until all cards are paid off in full.

Get satisfaction quickly by paying off the lowest balance first.

Sometimes we need to see physical evidence that our efforts are working to stay motivated. If you need encouragement, then pay off the lowest balance first, then work your way to the highest balance.  You’ll get satisfaction as the low balance cards drop off your list.

Either way, you need to stop using your credit cards for emergencies and monthly expenses, and make a plan to pay off your debt once and for all.

Financial Housework: Deciding What to Clean First

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Have I ever had credit card debt? Yes! There have been times in my life when I haven’t been able pay my balance in full when the bill arrives.

Credit card debt is the enemy of a good budget, but life happens. Even the best budgeter can have unplanned expenses.

According to a recent study by Trans Union, the average US adult carries $4,878 in credit card debt. That doesn’t include zero percent balances. That means the average US adult owes almost $5,000 plus the additional interest.

If this is you, I want you to take a deep breath. Debt repayment is just financial housework. There’s nothing to be afraid of here.

Do you know what’s really scary? Having company due in 5 minutes when the bathrooms aren’t clean.  When that happens, do you lock the front door and pretend you’re not home? No! You walk into the bathroom and decide which part needs to be cleaned first (just in case you run out of time before the doorbell rings).

That’s right. I just compared paying off credit card debt to scrubbing the toilet. smiley-1  That’s because you want to use the same thought process with your credit cards. Some cards will need more attention than others, so you need to make a list of your debts which includes the interest rate and minimum payment amounts.

There are two methods to setting priorities on your credit cards.

Option 1: Pay the highest interest rate first. Your list will look something like this:

Priority Interest
Rate		 Minimum
Payment		 Current
Balance
Card #1 19% $100 $5,025
Card #2 15% $47 $2,141
Card #3 11% $177 $9,056

This is the best option if you want to save money. Using the example above, you pay as much as your budget will allow on card #1, and only the minimum on cards #2 and #3. When #1 is paid off, you make card #2 the highest priority. Rinse and repeat until all cards are paid in full. When you pay the highest interest rate first, you pay less overall.

Option 2. Pay the smallest debt first.  Your list will look something like this.

Priority Interest
Rate		 Minimum
Payment		 Current
Balance
Card #1 15% $47 $2,141
Card #2 19% $100 $5,025
Card #3 11% $177 $9,056

This option is good if you need to see results to stay motivated. Receiving a bill with $0 due is really satisfying. A positive emotional boost can really keep the momentum going. You can compare it to housework, dieting, or exercise. We like to see improvements.

Bottom line: You have chosen to get out of debt (your goal) and the actions that will get you there (your plan).  You’ll know the best option for you and your family, and you can change tactics whenever you want as long as you’re moving forward.

Let us know which option you choose and how you are doing.

Cards Declined in Copenhagen: Lessons in Travel

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In the last edition of my newsletter, you heard about our amazing trip and how we were able to pay for almost everything with points and some smart pre-planning. (You’ll see photos today).

Now, you will hear what didn’t work.  This was big lesson for me.

To stay on budget, we used mainly cash. We even bought foreign currency before leaving home. We were able to purchase Crown, Kroner, Euro and Rubles at our local exchange in Connecticut.

But we knew we would want to use credit occasionally, so we called our credit and debit card companies to let them know where we’d be travelling and on what dates (as I’ve told you to do many times).

Imagine our surprise when our cards were declined in Copenhagen. We had dinner with friends and asked the restaurant split the bill between us – half on their card and half on ours.  Ours was declined. We knew it wasn’t the machine because they processed our friends’ card first. We could see that theirs worked because the staff at the restaurant actually processes the credit card at your table using a portable machine.

We wondered if it was because we were using our US debit card with a pin.  So we ask them to do it again as a credit card. It still didn’t work.  The staff said that a lot of US credit cards are declined for some reason.

And, it wasn’t just the restaurant. We tried using the credit card when we checked out of the hotel.  Again, declined! It was very embarrassing.

When we returned, I called the credit card company to ask why they wouldn’t accept our transactions.  After a lengthy conversation, and several people, they realized that they couldn’t see any of the attempted transactions in their system. Fortunately, I kept the receipt as proof, but even with the evidence right in front of them, they still couldn’t give me an answer.

The mystery continues.  Thank goodness for our American Express card. It saved the day.

Remember, no matter how prepared you are. Things can go wrong. Make sure you have a back-up plan when you travel.

Update: A big thanks to Heidi for giving us an explanation! Apparently, their credit card machines are programmed to accept cards originating from countries in the European Union – and nowhere else. I guess that makes things easier for Denmark, but not for tourists! Read her full comment below.