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lagilmanI've been meaning to talk about this for a while, but haven't had the chance to put thoughts in order. I'm still not sure they're actually ordered, but this may be as good as it gets.
If credit cards, or the handling thereof, is triggery for you, you might want to skip the rest of this post.
-------------------------------------------------------------
I was decidedly pleased, at the "finance for writers" panel at the Nebulas, to discover that we could toss the entire "how to handle credit cards" section out the window, as nobody there was carrying debt on their cards.
Admittedly, it was a self-selecting group -- professional writers who were willing to bypass time by the pool to sit in a seminar on finance were likely to have already learned the basics. And yes, credit cards [the uses and abuses thereof] are very basic.
But the basics need to be revisited, every now and again.
Despite what we're often told [by credit card companies/banks], a credit card is not for "buying things on layaway/hope I have money someday." It is for buying things you can afford but
a) want to track the purchases via your statement
b) will be reimbursed for at a later date, by a 3rd party
c) don't want to pay for right then [either by cash, debit card or check] but will pay for in full several weeks from now, in one lump sum of "stuff I bought this month."
d) buying things that you may want to have buyer protection on, above and beyond any warranty on the product
Or e) all of the above*.
For those of you who need a refresher course, I have it right in front of me. The new laws require more transparency in fees and etc, so right on the front of your statement is the hard cold facts: what you're actually paying, if you only pay the minimum.
Of my $572 credit card bill from Amex, if I pay the minimum amount due, it will take me five years to pay off the balance on this statement.
Five years to pay off $572. And I would do it by paying an estimated total of $833, after finance charges.
If I pay $20 (as opposed to the $15 minimum) I would pay it off in "only" three years, at an estimated total of $737. The credit card company refers to this as a "savings" of $96.
I say that if I pay it all off now, I pay only $572, the exact cost of the goods received, and "save" myself all finance charges, period.
$572 vs $833. What could you do with $261? Wouldn't you rather keep it than give it to the credit card company in 'payment' for delaying your payments?
Now, the fact is that we don't always have the cash for things we need. I've had to juggle end-of-month payments a few times myself, when costs overran income by a few weeks. That's why freelancers (and salaryfolk) should have a slush fund. But if you find yourself in that position more than two months in a row, it's time to take a cold hard look at what you're buying -- and why.
This bill was average for me (my convention travel & business-related whatnot goes on another card that occasionally makes me wince). So what did I buy? A new down blanket. My monthly gym membership. Flowers. A few grocery and Costco runs. A lunch out. A new windowsill perch for Pandora. Oh, and my quarterly webmaster invoice. I spent too much on Costco last month, but odds are I won't go again for a few months, so it evens out. The blanket was a one-time expense. The website costs are a work expense and therefore a tax deduction. I didn't spend much on groceries this past month, because I was traveling a lot. It will come out on the other card, in terms of hotels and restaurants. I won't eat out much at all in June, to compensate.
The trick is twofold: awareness, and control. Be aware of where your money goes, and be able to control what you're spending. If you're having trouble with one or the other, there are ways to get help, from professional credit counselors to, well, cutting up your credit cards and only ever paying cash. But the latter only keeps you out of trouble; it doesn't address the underlying problem....
The other thing I find useful is online banking. I know some folk are worried about the security of same, but I've found that -- so long as I remember to only ever work via a firewalled, encrypted connection (ie. not when I'm piggybacking on an open line!) it's as safe as any transaction, and the convenience of being able to do my banking 24/7 is priceless. Being able to schedule payments is equally so: a bill comes in, I schedule the payment, I note the payment so I don't forget the money is coming out, and then I file the bill. Done. No chance of forgetting to pay, or forgetting to mail the check. And being able to stamp "paid" on a bill is quite satisfying.
Online banking also allows me to keep an eye on my balance -- and if I start to run low, note it immediately, rather than getting a call from the bank that ooops, something didn't clear in time and I got hit with a charge. (I still occasionally get dinged, but the last time I ran close, I saw it, called the bank and gave them a heads-up that money would be hitting the account that afternoon, and even though the money got paid out before the money came in [by about half a day] they waived the overdraft fees. Yes, really. They waived the fees.)
*or, as we discussed in the session, for the Times of Emergency when you need that plane ticket, that ER treatment, that New Interview Suit and haircut, etc. I have one card I keep solely for such emergencies, so I know I always have available credit.
DISCLAIMER: I am not a certified financial anything. I'm speaking from my own hard-won experiences and that of others as-told-to-me, and giving advice from that. Consult your own Trained Professional for specifics to your situation.
If credit cards, or the handling thereof, is triggery for you, you might want to skip the rest of this post.
-------------------------------------------------------------
I was decidedly pleased, at the "finance for writers" panel at the Nebulas, to discover that we could toss the entire "how to handle credit cards" section out the window, as nobody there was carrying debt on their cards.
Admittedly, it was a self-selecting group -- professional writers who were willing to bypass time by the pool to sit in a seminar on finance were likely to have already learned the basics. And yes, credit cards [the uses and abuses thereof] are very basic.
But the basics need to be revisited, every now and again.
Despite what we're often told [by credit card companies/banks], a credit card is not for "buying things on layaway/hope I have money someday." It is for buying things you can afford but
a) want to track the purchases via your statement
b) will be reimbursed for at a later date, by a 3rd party
c) don't want to pay for right then [either by cash, debit card or check] but will pay for in full several weeks from now, in one lump sum of "stuff I bought this month."
d) buying things that you may want to have buyer protection on, above and beyond any warranty on the product
Or e) all of the above*.
For those of you who need a refresher course, I have it right in front of me. The new laws require more transparency in fees and etc, so right on the front of your statement is the hard cold facts: what you're actually paying, if you only pay the minimum.
Of my $572 credit card bill from Amex, if I pay the minimum amount due, it will take me five years to pay off the balance on this statement.
Five years to pay off $572. And I would do it by paying an estimated total of $833, after finance charges.
If I pay $20 (as opposed to the $15 minimum) I would pay it off in "only" three years, at an estimated total of $737. The credit card company refers to this as a "savings" of $96.
I say that if I pay it all off now, I pay only $572, the exact cost of the goods received, and "save" myself all finance charges, period.
$572 vs $833. What could you do with $261? Wouldn't you rather keep it than give it to the credit card company in 'payment' for delaying your payments?
Now, the fact is that we don't always have the cash for things we need. I've had to juggle end-of-month payments a few times myself, when costs overran income by a few weeks. That's why freelancers (and salaryfolk) should have a slush fund. But if you find yourself in that position more than two months in a row, it's time to take a cold hard look at what you're buying -- and why.
This bill was average for me (my convention travel & business-related whatnot goes on another card that occasionally makes me wince). So what did I buy? A new down blanket. My monthly gym membership. Flowers. A few grocery and Costco runs. A lunch out. A new windowsill perch for Pandora. Oh, and my quarterly webmaster invoice. I spent too much on Costco last month, but odds are I won't go again for a few months, so it evens out. The blanket was a one-time expense. The website costs are a work expense and therefore a tax deduction. I didn't spend much on groceries this past month, because I was traveling a lot. It will come out on the other card, in terms of hotels and restaurants. I won't eat out much at all in June, to compensate.
The trick is twofold: awareness, and control. Be aware of where your money goes, and be able to control what you're spending. If you're having trouble with one or the other, there are ways to get help, from professional credit counselors to, well, cutting up your credit cards and only ever paying cash. But the latter only keeps you out of trouble; it doesn't address the underlying problem....
The other thing I find useful is online banking. I know some folk are worried about the security of same, but I've found that -- so long as I remember to only ever work via a firewalled, encrypted connection (ie. not when I'm piggybacking on an open line!) it's as safe as any transaction, and the convenience of being able to do my banking 24/7 is priceless. Being able to schedule payments is equally so: a bill comes in, I schedule the payment, I note the payment so I don't forget the money is coming out, and then I file the bill. Done. No chance of forgetting to pay, or forgetting to mail the check. And being able to stamp "paid" on a bill is quite satisfying.
Online banking also allows me to keep an eye on my balance -- and if I start to run low, note it immediately, rather than getting a call from the bank that ooops, something didn't clear in time and I got hit with a charge. (I still occasionally get dinged, but the last time I ran close, I saw it, called the bank and gave them a heads-up that money would be hitting the account that afternoon, and even though the money got paid out before the money came in [by about half a day] they waived the overdraft fees. Yes, really. They waived the fees.)
*or, as we discussed in the session, for the Times of Emergency when you need that plane ticket, that ER treatment, that New Interview Suit and haircut, etc. I have one card I keep solely for such emergencies, so I know I always have available credit.
DISCLAIMER: I am not a certified financial anything. I'm speaking from my own hard-won experiences and that of others as-told-to-me, and giving advice from that. Consult your own Trained Professional for specifics to your situation.
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no subject
Date: 2010-05-20 03:16 pm (UTC)Know your credit report. Those credit card offers you may get? The rates vary based on your FICO score and credit report. When you apply for a credit card, the application (regardless of whether you've been approved or not) shows up on your credit report, and in virtually all cases has a detrimental effect on future applications for credit.
Fraudulent applications for credit or accounts in your name will also show up on your report, and the sooner you catch that, the sooner you can contest these entries.
You can get your credit report from the big three credit scoring agencies via the Annual Credit Report site (https://www.annualcreditreport.com/). You can also pay for more regular monitoring, or use a free service such as Credit Karma (http://www.creditkarma.com/)that will give you a ballpark idea on a constant basis (as in, they only report TransUnion scores, not those from the other two agencies).
Depending on your comfort level with divulging such information, you may also want to consider online personal finance tools such as Mint (http://www.mint.com/) or Wesabe (https://www.wesabe.com/). These services pull your transaction data into a single form, provide most of the functionality of something like Quicken, but do it in a much smarter way and with lots of intelligent automation. They're also more than likely better than the financial management tools your bank provides.
no subject
Date: 2010-05-20 03:19 pm (UTC)Paying for your credit reports/monitoring, unless you already know you're having trouble, is a bit of a scam. You can get your updates for free 1-2x a year, which I highly recommend, yes.
no subject
Date: 2010-05-20 03:23 pm (UTC)I agree completely. Question on the 1-2x a year, though. I know you can get the report annually via the annual report website. Is there another option that allows to do so more frequently, or do you mean staggering the annual requests to the individual reporting agencies?
no subject
Date: 2010-05-20 03:51 pm (UTC)I'd suggest one additional reason for purchasing with a card: buying things that you may want to have buyer protection on, above and beyond any warranty on the product. Credit card companies are very good, if you have them behind you, at putting pressure on sellers to make good on problems incurred during their sorting process, or during delivery, which they might well want to refuse to fix. This is something no consumer ever wants to have to do, but it's nice to have the card issuer on your side if you have to endure the process.
no subject
Date: 2010-05-20 04:10 pm (UTC)no subject
Date: 2010-05-20 04:04 pm (UTC)Thank you for posting it. (Me, I'm so horribly debt averse that I monitor my one card like a neurotic hawk.)
no subject
Date: 2010-05-20 04:12 pm (UTC)I agree with you almost entirely, and I do agree with you entirely on "discretionary" spending. But while it's nice that you have that "extra" card for emergencies, not everyone does - largely because, when income disappears entirely for six month and your monthly non-negotiable bills (mortgage, healthcare, utilities, food) total $4000, you're credit rating gets trashed in a big hurry. Which is what happened to us.
I'd totally echo your advice to take a good long hard look at what you're buying.
no subject
Date: 2010-05-20 04:17 pm (UTC)It can happen to anyone.
"Nice" has nothing to do with money, as you well know.
no subject
Date: 2010-05-20 04:28 pm (UTC)Unluckily (and yes, there I am being ironic), despite the fact that our emergency card was paid in full every month until that one month, the card was cancelled out of hand, after they jumped the APR to 32% from 9.2 - and that was never having missed a payment or been late. But lack of regulation on predatory increases gives them that discretionary power - and since we declined having our rate triple, they cancelled the card.
So yes, if you prefer, I can change "nice" to something else. But for now, I'm going with that one. Sorry if it bugs.
no subject
Date: 2010-05-20 04:55 pm (UTC)Worst Case Scenarios are highly individualized both in cause and how they can be dealt with.
no subject
Date: 2010-05-20 04:50 pm (UTC)1) ordering through mail or the internet; many of those vendors ONLY take credit cards; and
2) circumstances where you can't or don't want to carry large amounts of cash.
That said, I had my own troubles with the cards (starting with a car that needed a lot of repairs and compounded by losing a job and losing health insurance just in time to shatter a knee). These days, I save my only card for the above and emergencies, and I pay it off in full each month. It does keep me thinking long and hard about what I'm buying and what means I'm using.
no subject
Date: 2010-05-20 04:57 pm (UTC)no subject
Date: 2010-05-20 05:11 pm (UTC)no subject
Date: 2010-05-20 05:21 pm (UTC)I ran afoul of the credit card gods last year, when I didn't realize my dad's offer to pay $x towards my wedding meant that he'd give me a check four months after the fact, as opposed to when all the bills came in. The Chase cards have a nice option, called "Blueprint", that lets you pay off all your monthly charges without incurring finance penalties, while making minimum payments on the big lump sums until the money for them comes in.
no subject
Date: 2010-05-20 05:36 pm (UTC)I paid off all the cards then canceled them, and promised myself I'd never fall into that trap again.
no subject
Date: 2010-05-20 06:51 pm (UTC)I note that you and I have a common passion--cooking--and wonder if you might mention the huge savings on mostly home cooked meals, especially if the restaurant meals are bought with credit cards. Talk about your depreciating assets!
I have ONE credit card (for the reasons you list) and ONE debit card. Why would anyone need more?
no subject
Date: 2010-05-21 05:10 am (UTC)I also use credit cards for work-related expenses - because there is a delay between when I need to pay for the hotel room/plane ticket/new computer hardware and when I will be reimbursed.
Recently I've also started to pay for medical/dental bills for office visits and procedures on the credit card - I figure I might as well get the 1% cash back.
I've held at least one credit card since I was 19, and in sixteen years, I haven't ever held a balance on my card - that's not what they're for, in my mind.