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This Week in Personal Finance Blogging: The Power of Tomorrow
I’ve got a borrowed copy of Eckhart Tolle’s “The Power of Now” audio book in my car right now, and every once in a while, I flip it on while stuck in wrenching traffic, take a half-dozen deep-belly yoga breaths and try my best to appreciate the present moment – nevermind that I’m stuck in a freeway parking lot and will probably be late to wherever I’m going … again.
Tolle says that if you don’t focus your attention on the here and now, you are missing out on life. “Time is an illusion,” he says. Every minute that you spend focusing on the past or future, you are wasting a precious moment you won’t get back.
I can see his point, but I rarely follow through on his advice. Most days, if I don’t actively remind myself to turn my thoughts to the present moment, my mind inevitably wanders to the future. I’m a compulsive planner by nature and have practically made a hobby out of creating, erasing and revising my long-term plans. I enjoy daydreaming about future possibilities, and I feel unsettled if I don’t have a Plan A, Plan B and Plan C for nearly every situation.
According to Tolle, I could be sacrificing power-of-now ecstasy for the illusion of long-term security. But personal finance experts will often tell you that early planning and reflection is a key building block to a successful financial future. (Take that, Eckhart Tolle!)
So when I came across The Simple Dollar’s passionate defense of living with the long-term future in mind the other day, I felt vindicated. Sure, your circumstances may change on a dime, notes Simple Dollar blogger Trent, making it hard to really plan, but if you start out with a list of flexible goals that you revise as you go, you’ll be better off in the long-run.
The Simple Dollar’s words of wisdom: “It doesn’t matter where your path leads you. Eventually, you will grow old … Unlike many long-term goals, aging will happen and it’s worth your while to be prepared for it.”
With that mind, here are eight more of my favorite posts from the past week that celebrate reflection and long-term thinking.
1. Moneyning takes a look at “alternative investments” for the financially adventurous and offers solid advice for those who want to take the financial road less traveled by. (Offbeat investment ideas originally supplied by CNN Money include: Ostriches, chicken feces, Christmas tree farms and beauty school.)
3. Bargaineering warns young professionals not to over-leverage their lifestyles in their first years out of college and makes a solid point about human psychology: Once your income starts to pick up and you can finally throw out that last packet of Ramen, it’s tempting to want to upgrade your lifestyle to match your salary. But don’t do it!
4. WiseBread challenges readers to buckle down, stop procrastinating and start working on these eight “personal finance basics” as soon as possible. (Some of the basics include clipping coupons, planning for retirement and strengthening relationships.)
6. Budgets are $exy takes it a step further and blogs about a beginner’s budget trick from Money magazine called the “bucket” budget. (If you follow this method, get ready for multiple banking accounts.)
7. Frugal Dad extols the virtues of hanging on to a paid-for car until it dies. You might spend more upfront for a quality car, Frugal Dad blogger Laurel Gray notes, but you could save a fortune in the long-run if you refrain from trading it in after a few years.
8. The Lean Times ponders the wisdom of “breaking the frugal rules” when you know you need a vacation and decides that sometimes it’s worth it to (temporarily) sacrifice your finances for the sake of a little R and R .
Poll: It’s Hard to Save, Say Most Consumers
On a recent Sunday, I sat shamefaced over my plate of IHOP crepes while my significant other patiently explained how he manages to stick to his graduate student budget: First, he painstakingly saves every receipt he gets. Then, he adds each one individually to Quicken and broadly re-evaluates his budget whenever he wants to add on bigger expenses (such as renting a car for summer road trips).
I wish I had that kind of discipline. My receipts go to die in the bottom of my purse. Cash disappears as if I never had it and when I want to add a bigger expense to my monthly “budget,” I whip out my credit card and assure myself that next month, I really am going to pay off the damn thing.
So far, the only budgeting method that has worked for me is ex post facto shame. I pay for nearly everything with either my debit card or credit card. Then, when I go online to pay my bills, I force myself to look at every purchase and chastise myself when I’ve accumulated too many (I spent how much on coffee?!) expenses. It may not be the best budgeting method, but, temporarily at least, it works for me.
I’ve never charged more than the price of an airline ticket to my credit card, and if my balance ever tips higher than my biweekly paycheck, I scrounge for as much cash as I can to pay it down and live on peanut butter for a couple weeks (or more).
But despite my marginal pride at my ability to freeze my wallet when I need to, my haphazard approach to spending control does nothing for my savings – which are so embarrassingly paltry that I’ve given up hope on that trip abroad that I’ve been planning for, oh, the last seven years.
It’s one thing to keep yourself from overspending most months. However, it’s another thing to deliberately add money to a pool of cash that you’re not supposed to touch. (I do, at least, have a retirement account that I add to automatically. However, the only thing that keeps me from dipping into it when I feel like I need it is the knowledge that I’d have to pay taxes and a penalty on it.)
The numbers were even worse for those in my age bracket – the 18- to 29-year-olds. A whopping 35 percent said they had no emergency savings at all, while 28 percent said they had only saved up enough money to handle expenses for three months or less.
Unfortunately, I fall into that last group. I have enough cash to last me for a bit if I really need it, but my hopes of saving more to spend on a vacation that doesn’t involve family members’ weddings or Super 8 motels are going to be dashed for a while. Even worse, my ability to bounce back unscathed from a major emergency is seriously limited by my meager savings (I’m not the only one: Only one in 10 adults 18- to 29-years-old have saved up at least six months’ expenses, according to the Bankrate poll.)
Experts say that building up your savings takes yogic-like discipline. But that’s hard to do when all your other expenses – such as food and gas – keep rising as well. I did, at least, buy a version of Quicken the other day, and I have every intention of digging through my purse for my receipts. So there’s always hope.
If you have any ideas for building a better budget and saving for emergencies, let me know in the comments section.
Mom-and-Pop Stores and Interchange Fees: A Moral Dilemma
I love local establishments, such as mom-and-pop stores that have been around for 20-plus years and local retail shops with a regional flair. I’m lucky to live in a city that celebrates locally owned places, and I deliberately patronize them as a way to show my support.
But whenever I use my debit or credit card, I’m painfully aware that I’m also forcing these shops – many of which are operating on extremely tight budgets — to pay a small but significant interchange fee on every purchase.
In the United States, if you use a credit card to make a purchase, the merchant will have to pay about a 2 percent fee to your credit card company for processing. And that number often goes up if you use a premium card, such as a rewards card.
For now, this is true if you use a debit card as well (typically, credit card companies charge merchants 1 to 2 percent in debit card swipe fees). But thanks to a key provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act, this won’t be true for long.
The U.S. Senate voted on Wednesday to go ahead with a Federal Reserve proposal to cap debit card interchange fees at just 7 to 12 cents. The new rule – set to take effect next month – makes me feel a lot better about using my debit card at my favorite mom and pops.
But I doubt things are going to change any time soon for credit card interchange fees — which is causing me to rethink my recent plan to apply for a rewards card. After salivating over travel magazines for the last year, I had planned to apply for an airline credit card and use it for everyday purchases in the hope of racking up enough points to score a free flight somewhere.
However, the guilt of imposing a potentially hefty fee on my favorite locally owned, cash-strapped shops will likely cause me to pull out my debit card instead.
Mobile Wallets: The Next Big Thing?
My sister Kim has a classic case of ADHD, and she is always forgetting her wallet. She often zooms from one room to the next, absorbed in whatever task or great big plan she has on her mind, and leaves a trail of personal belongings in her wake: Wallet, keys, hair band, hair brush, shoes …
She has locked herself out of her car so many times that she has perfected the art of opening the car door with a clothes hanger. And when she got married two weeks ago, her infinitely patient lover promised in his vows that every time they left a room, he would recite the same checklist he has uttered for the last six years: “Cell phone … wallet … keys.”
But if mobile wallets actually start to take hold in the U.S. in the next couple of years, my new brother-in-law may finally be able to shorten that list.
Yesterday, Google set the media and tech worlds buzzing again with its announcement of a new application for Android phones called the Google Wallet. The new app will allow Android users like my sister to pay for goods and services with a quick wave of their cell phone and leave their heavy leather wallet at home (a nice perk for the more scatterbrained among us).
Google isn’t the first U.S. company to introduce a mobile payment system for smartphones , but its stature is big enough to send enough tsunami-size waves across the payment industry to help keep the mobile wallet momentum moving. (Nevermind that the company’s PR bonanza on Thursday was thrown under the bus less than 24 hours later by PayPal, which has accused Google of stealing major trade secrets.)
Earlier this week, the mobile startup Square also added to the mobile payment momentum when it announced a new mobile wallet system called Card Case that will allow iPhone users to “open a tab” with a favorite merchant and after an initial swipe with old-school plastic, pay for the rest of their transactions with their phone. In a press release, Twitter founder Jack Dorsey called the new service revolutionary. “We’re transforming everyday transactions between buyers and sellers into something special,” said Dorsey. “Card Case goes beyond point of sale to transform the entire buyer-seller relationship.”
Meanwhile, Visa announced earlier this month that it , too , is jumping into the mobile wallet waters. “Visa and our subsidiaries are working with financial institutions, merchants, mobile network operators, and innovative technology providers to bring new ways to pay and be paid to more consumers and merchants around the globe,” said Visa Chairman Joseph W. Saunders in a press release.
But are U.S. consumers ready to leave their leather wallets behind? According to a MasterCard survey released last week, the answer is: Maybe – depending on their age. According to the survey, 63 percent of consumers, aged 18 to 34, say they would be happy to make purchases with their smartphone. But only 37 percent of consumers aged 35 or older said the same, meaning: It may take a generation before mobile wallets become commonplace.
At the same time, experts say that U.S. merchants will need to buy in to the mobile wallet momentum too if mobile payments are going to go from big idea to practical commodity. After all, if you can’t use your mobile wallet at more than a handful of retailers, then it’s probably not a good idea to leave your traditional wallet at home.
Study: 4 “Money Beliefs” That Can Wreck Your Finances
You can read all you want about credit scores and IRAs and say that you’re going to do the right thing with your money, but according to psychologists, your financial actions are more likely to be governed by an irrational, haphazard belief system you developed as a kid.
Luckily, it’s possible, say these psychologists, to fight back against the lizard brain that drives your worst financial choices — as long as you come to terms with the financial beliefs that are subconsciously driving your decisions.
According to a recent study published in the Journal of Financial Therapy, there are four common money beliefs that often cause us to make poor financial choices. These include:
1. “Money should be avoided”: Consumers who believe this “money script” see money as evil and dangerous, say researchers – or they see it as something they don’t deserve. A person with this belief system may think that if they accumulate too much money, they will become corrupted by it — or they will compromise their values by overspending.
Researchers say these consumers tend to sabotage themselves by excessively under-spending (including on items they really need) or by giving away large amounts just to get rid of it. These consumers may also be so negative or risk-averse toward cash that they worry excessively about “abusing credit cards or over-drafting their checking account.”
If you fall into this group, the following beliefs may be familiar to you:
- “People get rich by taking advantage of others.”
- “It is not OK to have more than you need.”
- “I do not deserve a lot of money when others have less than me.”
2. "Money is power": These consumers see money as a saving grace – if only they had more, they tell themselves, their lives would be better off. They often glorify the rich and romanticize what it’s like to live with a lot of wealth.
They also tend to overvalue material objects and set themselves up for serious disappointment. Once the initial high of a purchase or a sudden financial windfall wears off, researchers say these consumers often find that mo’ money means mo’ problems.
If you fall into this group, the following beliefs may be familiar to you:
- “Things will get better once I have more money.”
- “It is hard to be poor and happy.”
- “Money buys freedom.”
(Another interesting, albeit not surprising, tidbit about this group: Consumers who worship cash also have a higher likelihood of carrying around revolving credit card debt.)
3. "Money must be guarded": These are the most anxious consumers, say researchers — the ones who hide money under their mattresses or stash it away in a low interest savings accounts. Some of the consumers in this group see money as a “source of shame or secrecy,” no matter how much they have, while others see it as something they need to carefully guard from others.
Researchers say these consumers are more likely to hide money secrets from their spouses, and they are also more like to sabotage themselves by avoiding risky investments, such as stocks. They are less likely to apply for credit, and they tend to live in such a state of high anxiety about money that they are unable to enjoy it.
If you fall into this group, the following beliefs, used in the study, may be familiar to you:
- “You cannot trust banks.”
- “If you loan money to someone you should not expect to get it back.”
- “Taking risks with money is foolish.”
4. "Money is a status tool": You know this group. These are the consumers who parade around in fancy cars or buy the most lavish homes on the block. These consumers measure their self-worth by how much money they accumulate – or at least, by how much they can show off.
Researchers say that consumers in this group tend to sabotage themselves by placing too much emphasis on external yardsticks for success – such as money — and too little emphasis on personal growth. They are also more likely to suffer from anxiety and unhappiness and often find that no matter how much you actually accumulate, someone else will always have it better.
If you fall into this group, the following beliefs may be familiar to you:
- “Your self-worth equals your net worth.”
- “I will not buy something unless it is new (e.g., car, house).”
- “If someone asked me how much I earned, I would probably tell them I earn more than I do.”
So what do you do if you fall into one of these four groups? Use the information to identify what beliefs have been most harmful to your finances and challenge them, said Brad Klontz, one of the study’s authors, in an interview with NBC. “If we can identify our money scripts [and] have insight into the early experiences of our childhood and multigenerational patterns of money beliefs in our family, we can challenge and change financial beliefs that may be causing us financial harm or limiting our potential.”
Calming Financial Worries: 3 Tips From “The Worry Cure”
The National Foundation for Credit Counseling released an online poll that found that financial distress is seeping into all areas of consumers’ lives – affecting everything from their marriages to their health.
Twenty-seven percent of respondents to the online poll said that their financial worries are stressing out their marriages, while 24 percent said money troubles are wreaking havoc on their health. Sixteen percent said their financial concerns are also causing them to lose sleep more than usual, and 13 percent said their “role as a parent” has been adversely affected by the stress.
“Financial concerns stay with you 24 hours a day, seven days a week,” said Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling, in a statement. “They are there when you wake up and when you go to sleep, at work and at home. [So] it is not surprising that this degree of prolonged financial stress manifests itself in areas other than our bank accounts.”
As I thought about the poll last night before I went to bed, I pulled Robert L. Leahy’s classic 2005 self-help book, “The Worry Cure,” from my bookshelf and scanned it for a few quick tips that would apply to financial worries. Here are three that stood out above the rest.
1. Don’t jump to conclusions.
This is advice that I could use myself. I tend to let my financial worries linger, lurking in the back of my mind as I carry on with other tasks. Then, when a financial hiccup occurs – say, an unexpected car repair or a costly medical expense – I panic: How much is this car repair going to cost? I’ll ask myself. What if it’s more than I can afford? Will I need a new car? I can’t afford that! What if something else happens? What will I do then? At the time, considering potential outcomes feels like I’m shielding myself from surprise; but according to Leahy, I am just making things worse.
If you, too, have a tendency to catastrophize, make a list of your top financial worries and critically evaluate them. Identify the worries that you can control – and challenge those that seem over the top. For example, if you’re worried that you’re going to lose your job because your boss is acting differently toward you one day, take a step back and consider other reasons why he or she may be acting strangely. More than likely, you’ll find that you’re ascribing meaning to details that have nothing to do with you. (On the other hand, if you’re worried about your job security because you received a poor evaluation, then this is a good opportunity for you to reevaluate your work habits and figure out what you can improve.)
2. Don’t be a (financial) coward.
In my first few years after graduating college, I would avoid looking at my bank account and credit card balance because the numbers made my heart race. But by ignoring the numbers – no matter how hard they were to stomach — I was allowing my credit card balance to grow faster than I realized. I was also denying myself the opportunity to look at my finances as they actually were — rather than how I wished they were – and plan my way out of my predicament.
Leahy recommends that you accept the reality that your financial situation is less than stellar — and accept that you are limited in your ability to control your financial outcome. Once you have looked your financial situation squarely in the face — without hedging or burying your head in the sand – you can start taking positive steps toward fixing what you can.
3. Look back; and then look ahead.
Critically evaluate your spending priorities, Leahy also recommends, and consider whether inaccurate assumptions about money are causing you to worry more than you need to about your finances. Then use this self-knowledge to combat your money woes from a more realistic place – without worrying yourself into a frenzy.
For example, if you grew up thinking that your finances must be in perfect order at all times and you’re only safe if you have a certain amount in the bank, then you could find yourself running in circles and spending less than you need to in order to meet unrealistic expectations. Your bank account balance may be lower than you like; but that doesn’t mean you’ve failed at managing your money – or that you’re destined for the street.
Leahy also advises that you keep your perspective as you fight back against circumstances that are out of your control. “We tend to view our income and assets as a sign of success,” writes Leahy. “But they are simply material possessions. One man who had been unemployed for a year recognized that his wife, children and health were far more important than … work … Appreciating more makes money less valuable and essential.”
Should You Text Your Donation to Tornado Relief?
Donations by text message surged in 2010 after the earthquake in Haiti – leading to record-breaking donation amounts – and they have since become a standard donation method for natural disasters. But if you’re planning to donate funds to the tornado relief efforts in Alabama, Mississippi and the four other states ravaged by tornadoes, is texting your donation the best way to give? It depends, say experts.
Pros:
1. It’s convenient. According to the Web development company, Webitects, it takes 1 minute on average to text a donation. I tested the claim by texting a donation to the American Red Cross, and it took me less than 30 seconds to send the text and just a few seconds to confirm it. By contrast, when I logged on to the American Red Cross website and made another small donation online, it took me a little over 3 minutes to determine the right page and enter my credit card details by hand. Not a huge difference – but a big enough one to count.
2. It’s secure. You don’t have to give out your personal information, and you can leave your credit card in your wallet. Your cell phone carrier will simply add the $10 donation to your phone bill. That said – like any donation — this payment method is secure only if you text your donation to a legitimate organization. If a friend or a stranger directs you to an unfamiliar charity, vet the charity online before you hit send. Charity scams often surge during disasters, and so it’s a good idea to be extra careful – no matter how legitimate an organization may seem. You can research nonprofits online at Charity Navigator or GuideStar before you send in your donation. Or, you can simply turn to the three old guards for safe, reliable giving: The American Red Cross, the Salvation Army or the United Way. All three are accepting donations for tornado relief:
- Salvation Army: Text “Give” to 80888.
- The American Red Cross: Text “REDCROSS” to 90999.
- United Way of Central Alabama: Text “Tornado” to 50555.
Whatever you do, don’t give out your credit card details in a text message. If a charity asks you to do this, it’s probably a scam. A trustworthy organization won’t ask you for your personal information.
3. It’s (marginally) cheaper for the charity than a credit card donation. Unless your credit card issuer or your charity’s mobile donations provider decides to waive the standard transaction fee, then a small chunk of your donation will go toward processing your payment. Credit card issuers typically charge 3 to 5 percent per donation; so if you donate $10 on your card, then the charity will have to pay the card issuer 30 to 50 cents to accept the donation. Mobile donations providers such as mGive, on the other hand, typically charge charities just 25 cents for a $10 text donation. That 5 to 25-cent difference may not sound like much; but it can add up to big savings for the charity of your choice.
Cons:
1. It’s slow. Cell phone carriers typically wait until your next billing period to release your donation, and this can take up to 60 to 90 days. Some carriers promised to expedite the process for earthquake and tsunami relief efforts in Japan; but they have yet to announce that they will do so for the recent tornadoes in the South.
2. It’s limited to $10. You can’t donate more than $10 at a time when donating by text, and most cell phone carriers will only allow you to donate up to $30 per month to a specific charity. You can, however, donate to multiple charities in $10 increments.
3. It makes tax time slightly more complicated. You won’t receive an automatic receipt for your donation. However, if your charity uses the mobile donations provider, mGive, you can go to mgive.org/receipt to print one out. (You will have to enter your cell phone number on the website and a PIN number will be texted to you.) The IRS also allows you to use your cell phone bill as proof of your donation. Just make sure you remember to actually save it in your tax file after you pay your phone bill.
The verdict: If you only plan to give a small amount — and you’re donating to a large charity that already has some money upfront – then it makes sense to text your donation. Texting allows you to give anytime, anywhere – so if you’re sitting at a drive-through or waiting in line, you can text your donation in less than a minute, rather than risk forgetting about it when you get home. However, if you plan to give more than $10, then you are better off giving online, or by calling a charity on the telephone. You can also send a check in the mail and bypass the processing fees altogether.
Americans’ Attitude Toward Debt — Before 2008
Here’s one gift that I received from the recession: A profound fear of excessive debt. Before the financial crisis hit in 2008, I cared more about molding my life into what I thought it should be than about building a secure foundation for the future.
I thought nothing of paying for grocery bills with my credit card so that I could “afford” the rent in a tiny shared apartment in New York, and I came dangerously close to signing up for $60k in student loans so that I could hang a fancy graduate degree on my threadbare wall.
It wasn’t until I was seriously shaken by the Great Recession that I began to reassess my rocky relationship with debt. Nothing is worth a lifetime of restricted choices and unremitting financial fear. But the psychology that leads a person to accumulate excessive debt so that they can live a life more closely aligned with what they imagined is easy to understand.
A new study that is set to appear in the Journal of Consumer Research in December came to a similar conclusion. The study profiled 27 white, middle-class Americans in 2006 and uncovered a familiar communal attitude toward debt: Building a more comfortable life underwritten by credit is “the American way,” as one research participant put it.
“The economic crash was not just about people being dumb or greedy,” said Michelle Barnhart, one of study’s lead researchers, in a statement. “There are compelling forces out there that lead people to live lifestyles outside of their means.”
According to Barnhart, credit card use and heavy debt became such a normal part of American culture in recent decades that Americans began to view it as an essential building block for creating the life they thought they needed – or deserved. “Even though we say as a society, ‘don’t get in debt,’ the overwhelming messages being sent out – from the way credit is used to approve or disapprove us for services to political leaders telling us to spend after a big disaster to prove our patriotism – all of this has created a culture of debt,” said Barnhart.
Among the study’s other, equally compelling findings:
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Younger participants said that they were uneasy about applying for credit, but they felt that it was a necessary evil to finance the things they needed for the future.
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Some participants talked about measuring their personal worth by the loans they were approved for. Being denied funding for, say, a larger home or other big expense seriously wounded their self esteem.
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Half the participants in the study were in significant debt and one-third were being actively pursued by collection agencies.
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All 27 said that they learned the basics of financial literacy mostly through personal experience. Only a select few had learned about how to manage their finances in school or at home.
The study’s greatest limitation — besides being small — is that the interviews were conducted before 2008. Barnhart says that she would like to do a follow-up report on Americans’ attitude toward debt after the recession. That’s the study that I would like to see.
Are No-Fee Balance Transfer Offers On Their Way Back?
This is what happens when you spend all day reading, writing and editing stories about personal finance. You start to do strange things in your off-time — like reading the “Terms and Conditions” on pre-screened credit card offers for fun.
Yesterday, I received an especially interesting offer. Splashed in orange on the outside of the envelope was something I hadn’t seen in a long time: a 0 percent, year-long balance transfer offer without a balance transfer fee. I thought fee-free balance transfers were (nearly) extinct.
Before the recession, these types of offers were common. But dual pressure from the credit crisis and the Credit CARD Act of 2009 forced card companies to reassess how they turned a profit – and promotional balance transfer offers took an especially hard hit.
After nearly disappearing during the recession, sweeter balance transfer offers began popping up again last year. But the card offers looked noticeably different. For one thing, the fees were higher. According to Andrew Davidson, senior vice president at Mintel Comperemedia, issuers typically offered 3 percent or less before the Credit CARD Act of 2009 went into effect. But now fees range anywhere from 3 percentto 5 percent and, according to Davidson, the trend is for the fees to keep going up.
The majority of card issuers have also scrapped the $50-$100 caps on balance transfer fees that were the norm before the recession — forcing cardholders with high balances to pay big bucks to transfer their balance to a new card.
That’s why the limited-time fee-free deal that I received in my mailbox yesterday is so intriguing. It’s a sign that the credit card industry is picking itself back up and sending out sweeter promotions for new cardholders. Davidson also speculates that the trend toward higher balance transfer fees has created a unique opportunity for issuers to “buck the trend” and set themselves apart in a competitive marketplace with a fee-free offer. So this is probably not the last time that I’ll see a similar deal.
That said, like any promotional offer, it’s not a free lunch. When I took a closer look at the terms and conditions, I saw that the balance transfer fee after the promotional period expired would shoot up to 5 percent without a cap. And if I missed a payment, my APR could range anywhere from 16.99 percent to 24.99 percent indefinitely. The purchase APR raised an eyebrow too: The offer ranged from 10.99 percent to 18.99 percent, depending on my creditworthiness. That’s a big 8-point range, and I won’t know what offer I’ll really get until I apply.
That’s why if you’re thinking about taking advantage of a similar offer, it’s important to thoroughly read the terms and conditions and consider what you’ll do after the promotional rate expires.
Quiz: How Financially Literate Are You?
The credit card industry has changed considerably in the last year since major provisions of the Credit CARD Act of 2009 went into effect, and CreditCardGuide.com correspondent Eva Norlyk Smith has followed the changes from the beginning.
In honor of Financial Literacy Month, I’ve combed through the CCG archive and put together a short quiz based on Smith’s reporting. Try it now and see how much you remember.
Quiz
1. True or False: If you overdraw your checking account, you will automatically be charged an overdraft fee, unless you opt out.
2. True or False: Most card issuers cap balance transfer fees at $75-$100.
3. True or False: Credit card issuers aren’t allowed to offer students tangible gifts, such as water bottles or T-shirts, in exchange for signing up for credit cards.
4. True or False: If you currently pay for payment protection on your credit card, you’re automatically covered in case something happens.
5. True or False: Stay-at-home moms can list their partner’s income on their credit card application and still obtain a credit card.
6. True or False: Since provisions in the Credit CARD Act took effect, most new cardholders pay a higher interest rate than the rate that they were originally offered when they applied for the card.
Answers
1. False. It’s the other way around. Banks are no longer allowed to charge consumers overdraft fees, unless consumers opt in for overdraft protection.
2. False. Most card issuers used to cap balance transfer fees at about $50-$100. However, that’s no longer true. If you transfer a large balance from one card to another, expect to pay the full fee — which typically ranges from 3 to 5 percent.
3. True. Sort of. Card issuers aren’t allowed to offer tangible items to students on or within 1,000 feet of campus. But they can offer gifts to students off campus (say, through students’ email accounts). And many card issuers are doing just that.
4. False. Think you’re automatically covered if you made all of your payments on time? Think again. Card issuers have gotten in trouble recently for enrolling consumers in payment protection plans, and then refusing coverage because the consumers weren’t eligible.
5. True. For now. The Federal Reserve recently modified some of the Credit CARD Act’s key provisions. Beginning in October, applicants without an independent source of income (such as stay-at-home moms and dads) will no longer be able to list total household income on their applications. Instead, they will have to sign up for a joint account with their spouse.
6. False. That used to be the case before the Credit CARD Act went into effect. But according to new research, the CARD Act has forced card issuers to be more transparent on pricing. Now, if you apply for a card with a 14 percent APR, you’re less likely to get stuck with a 15 percent APR after you receive the card.
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