Like most people, your monthly income never goes far enough. After shelling out for food and house payments, it seems there's little leftover for things that matter most to you -- weekly dinners out, nice dresses, a college savings plan for your kids. Here are some tips that might help for budgeting your income.
Sunday, May 31, 2009
Credit Card Goodies, What is the catch?
Free merchandise points, free bags, free tools, free airline miles and a lot more. Sound familiar. It seems like every time you turn around, the credit card companies are thinking of new ways to bait you into signing up for their cards.
According to MSNBC report, the average person that carries credit card has a debt of $2,000! If you sign up for an 18% credit card and pay $50 a month on it, you will pay $1,002 of interest in addition to the $2,000 of debt. That means, you will spend $1,002 for a $15 bag or tool that you'll probably never wear or use!
That's not the only way cards can mean trouble. Check out these other credit card tactics:
- Annual fees can eat your credit card benefits for lunch. Let's say your card offers airline miles and has an $50 annual fee. If you spend $5,000 on the card every year and pay it off each month, you'll have accumulated enough to get the free ticket may be in 5 years. The only problem? You'll have spent $250 in annual fees alone...and you can buy a plane ticket straight up for $250.
- Expiration dates are another "gotcha" in the credit card world. A credit card company was surveyed by a customer advocate group a couple of years ago. It advertised up to 4% cash back on purchases (not every purchase will qualify, though). The catch is that after 2 years, the points start expiring. Even, if you spend $10,000 a year on the card, you'll only get back an average of $40 a year. Even more, you can't redeem the rewards until you build up at least $100, which will never happen at that spending rate.
- Low caps are still another way that credit card companies hook you in. They may promise you cash back, but they impose a limit on how much you can get. If they promise 1% cash back and have a $200 cap, then you'll need to spend $20,000 to get $200. That's too much effort for too little reward. Do you really want to spend $20,000 unnecessarily just to get $200?
Think about this for a second. When you open up a credit card account, you are likely to pay thousands of dollars in interest over the years as you carry a balance. Even if you promise to pay it off every month, all it takes is one lost or missed payment. If that happens, your interest rate is jacked up, you get slapped with fees, and it dings your credit. Either way, you'll make a big money mess.
Keep your money simple, and you will win with it. When you climb steps, you climb them one by one and go straight up. Using other people's money and making things complicated is like tying your feet together and trying to jump up the steps. You'll only hurt yourself. Don't make things complicated.
Credit Card or Cash
Many people think that they can get ahead by using credit cards. By paying off each month, they pay no finance charge, gets 2% cash back, and use the credit card company's money for free. They think the credit card company is losing money on them. Is this right?
Theoretically is yes, but practically is a big NO! First, every time you use the credit card, the credit card company is already making 2% from the merchants. But this is not the issue. The real issue is are you really making money or saving your money by using credit card.
Studies done on consumer spending shows otherwise. Dunn and Bradstreet say that spending cash hurts and registers psychologically. They also did a study proving that people who spend with plastic, even disciplined and responsible people, spend 12%-18% more. Those same people spend 37% more when using plastic at a fast food restaurant and 78% more at a vending machine.
Even if you’re conservative and only over-spend by 6%-12%, you’re still not winning and you’re taking a risk. You’re risking that the credit card company will post your payment late and that you’ll get charged with late fees and interest on that balance. Even if it’s their mistake, you’ll spend the next five months arguing over $20 because these people break federal law everyday.
Some merchants even require minimum spending limits before credit card transactions are allowed. This requirement may even lead to unnecessary purchases.
As responsible as you are, you could probably continue in your credit card spending habits and break even – maybe even make a little bit of money. But as long as you’re playing with snakes, you’re going to get bitten. This may not be a big deal for you personally, but it is a big deal for millions of people. We have yet to meet a millionaire who says that the cash back they got on their credit card was what made them wealthy.
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