Jill Russo Foster

Tips for Successful Personal Finances

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What’s up with credit card companies lately?

There was a time when our mailboxes were full of credit card offers. Now the offers have been replaced with policy change notices.

Credit card companies are racing to make changes before the new regulations hit in February 2010. They’ve have had a bad couple years. It used to be easy to make money in the credit card business, but things have changed.

The first issue is defaults. Because of unemployment, more people are defaulting on their debts. So, credit card companies have been lowering everyone’s credit limits to help reduce the risk. Their reasoning is sound. The less debt you have, the less debt they will have to cover.  Expect your credit card limits to fall even if you have a good payment history.

The second issue is pay offs. More people are paying off their credit card debt because they’re anticipating layoffs. This means that the creditors are earning less from interest payments. They need risk-free revenue, so they’re looking at annual fees. Expect your credit card company to either add an annual fee or increase the fee you already pay.

Right now, under the old regulations, they can still make changes to your account with minimal notice.  If you get an unpleasant policy change in the mail, you should definitely call the credit card company and try to get them to revert back to the original terms.  If that doesn’t work you can always close the account.

Credit Card Shaving is Cut and Paste Fraud

Credit Card Shaving – it sounds like what you would say if you were cutting back on your credit cards, but that’s not what it means. This is the latest credit card scam and there is nothing you can do to prevent it. Isn’t that scary?

Credit Card Shaving Q & A

How do they get your credit card number? They get it through guesswork, not by theft. The thief makes a random list of 16 digit numbers. Then he tries to make purchases online with different combinations. If one works, then he knows he has a legitimate account.

Why is it called “Credit Card Shaving?” The thief literally shaves the raised numbers off of other credit cards (usually cheap gift cards) and glues them onto a new card in the correct order. The card looks legitimate. He can even use his own ID to prove the card is his.

How does he change the magnetic strip? The thief doesn’t need the magnetic strip, he just “scores” or scratches it so it can’t be used in the automated stripe reader. This forces the cashier to manually enter the numbers that are glued to the card.

What can you do about it? Always monitor your accounts. Check statements for unusual purchases. If you can access your accounts online, you can check more often.

Is it time-consuming to monitor your accounts? We treat credit cards like pre-approved micro-loans, or feel they’re safer than carrying cash because they can be canceled if stolen. In reality, the more cards you have, the more work is required to watch over them.

Which saves you more money: a debit card or a credit card?

Which saves you more money:  a debit card or a credit card? Most people believe debit cards are cheaper because there’s no interest rate or annual fee. But what about overdraft fees?

Debit card overdrafts are now the biggest source of revenue for banks. The danger with debit cards is twofold: One, the transactions hit your account instantly and two, very few people keep track of their debit card transactions in a check register.

Debit cards are convenient and fast. We use them for everything from buying $200 worth of groceries to $1.50 take-out coffee. The problem is that we aren’t notified at check-out if our account is overdrawn like we would be if we had maxed out a credit card. And overdraft fees are expensive – approximately $30 per transaction. Some people have found themselves with $60 – $1,00 in overdraft fees in a single day because they continued to use their debit card while their account was overdrawn.

Please, take a moment to record your debit card purchases. Remember, too, that debit cards hit your account instantly but deposits don’t. If you deposit a check and use your debit card on the same day, the debit card transactions will hit your account before your deposit clears.

Your Password is Easy to Guess

If you do any type of online financial transactions, whether you shop online, pay bills, or manage accounts, then you need good online passwords and you need to change them often. Here are some Do’s and Don’ts:

Don’t use passwords that are easy to guess like “welcome,” or “abc123.” And, don’t use passwords that are easy to research, like birthdays, phone numbers or addresses. It should be impossible for people to guess your password just by knowing you.

Do use a random combination of numbers and letters (both upper and lower case). Don’t use some personal association that’s easy to remember, because, no matter how clever you think you’re being, it will probably be easy to guess. You can learn to memorize a random number. After all, you know your phone number and social security number, and those are random.

Do change your passwords often. There are actually services out there that will steal your email password for a fee. They market themselves as private investigators, catching cheating spouses or business partners. If you use the same password for all your accounts, this puts you at great risk. Changing your password often won’t stop hackers, but it will make their work more difficult and expensive.

New Credit Card Rules

Have you heard about the new credit card rules? Credit card companies must give you more time to review statements and rate changes, which helps you make better decisions when dealing with debt.

Statements must now be mailed at least 21 days before the due date. Credit card companies make a good profit from late fees and rate increases. To increase the amount of late payments, they began billing closer to the payment due date, sometimes forcing you to pay within a week. This allowed them to add fees and raise rates based on payment history. The new rule allows you a standard billing cycle to review your statement and remit payment.

Second, creditors must now notify you within 45 days of a rate change. This is better than the previous 15 days notice. The rule change gives you a chance to accept or decline the offer, and gives you time to shop for a new credit card company.

The rest of the Credit Card Act will go into effect next year, hopefully with more consumer protections. Remember: if you owe creditors a balance that can’t be paid in full each month, you give them power over your financial health.

You Won’t Get Far With Those Rates

Reader Question: My credit balance is $3,000.00. What will happen if I only make minimum payments each month?

A credit card minimum payment is usually about 1.5% to 2.5% of your balance. That’s a very small amount. Since I don’t know your interest rate, I’ll do calculations based on a 12% interest rate. In your case, that would be about $45 per month.

If you are paying the minimum payment it will take you a really long time to pay off your credit card in full – at $45 per month it will take you 411 months or 36 years. This is assuming that you will not be making any additional charges.

Credit card lenders make their money from the interest they charge you. Your objective is to pay as little interest as possible. When you pay your credit card balance in full each month you save yourself a considerable amount of money.

12 Months Free Financing – No Money down

Reader Question: The store is offering a buy now-pay later deal – is there a catch?

The only catch is that you might cheat yourself.

Many stores offer these deals and they are legitimate. If you pay the loan off on time (and it is a loan) you won’t have to pay interest. If you don’t pay it off on time, you pay interest for the length of the loan – that could be 15% interest for 12 months on a $5,000 purchase. Ouch. Some bargain.

The real problem with these deals is that most people don’t pay off the loan on time. The rule is simple: if you can’t afford to save up for a purchase, then you probably can’t afford to make the payments.

I am not in favor of this type of offer.  I strongly encourage you to start saving and wait before you buy. If you hate your furniture, take some pride in saving for a new set. In fact, brag it up. Saving for purchases is smart. You might find that you can get a deal on much better furniture if you save ahead of time instead of buying the sale items that the store is trying to unload with their “buy now-pay later” deal.

However, if this is truly an emergency purchase that can’t wait, like a furnace or hot water heater, then make paying it off a priority, even if it means cutting back. I’ll discuss clever ways to cut expenses in future posts.

Refinance Now?

Reader Question: Mortgage interest rates seem to be coming down, how do I know if it’s a good time to refinance?

Refinancing is a long-term numbers game. Many people refinance thinking that a lower mortgage payment means they’re saving money. It’s not necessarily true. To find out if this is a good time for you to refinance, let’s do some math! Let your math savvy spouse, friend, or child help you with this if needed:

  1. Take the refinance principle and interest payment and subtract it from your current principle and interest payment. This would be your savings per month.
  2. Assume that the closing costs of the refinance will be about 4% to 6% of the mortgage amount. Example: Closing costs would $10,000 on a $250,000 house if they charge 4%. Figure out your closing costs and write that down.
  3. Take the number from step 1 (your monthly savings) and divide that into step 2 (your closing costs). This is the number of months it will take you to recoup your closing costs.

Now that you know how long it will take you to recoup your loss, you should decide whether you’re going to be living in the house that long. If you are sure that you will be there past the months it will take you to recoup the closing cost, then refinancing might be a good idea. If not, then don’t refinance.

What Is A Credit Inquiry Doing On My Credit Report?

A credit inquiry is when a potential creditor accesses your credit report. This can occur when you apply for credit.

For example, when you sign up for cell phone service, the provider checks your credit before they decide if they’ll work with you. If your credit is good, they’ll give you service. If not, they may refuse to work with you, or ask you to pay up front with a security deposit.

Your credit score is reduced every time someone makes an inquiry because each inquiry means a potential new account. As you’re wandering through the mall, allowing the check-out clerks to see if you’re eligible for a store credit card, you’re lowering your credit score. Please consider your priorities before allowing just anyone to check your credit. It’s not unusual to get declined for a reason of too many inquires.

Some types of major loan inquires will only count as one inquiry, as long as you don’t wait too long between. For example – if you are applying for a mortgage and are checking out several different lenders, then this is one inquiry as long as you’re doing it within a short period of time. Long periods will mean separate inquires. Note, that this is not true for student loans – each inquiry is separate and will reduce your credit score.