Expenses

This category looks at stuff that we spend money on!

Would you pay 2,600,000% APR on borrowed money?

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Here’s a horror story that should give you pause for thought. I’ve posted on the merits and demerits of payday loans for quite some time.

But I was quite surprised to read this story in the BBC News Website about one woman in the UK who used a payday loan whose interest rate was calculated at an annual rate of 2.6 million per cent:

York Credit Union’s Mike Horncastle has never seen a higher APR A loan firm has come under fire after charging one client an annual interest rate of more than 2.6 million per cent. An unnamed woman in York took out a one week loan for £320 with the firm Early Pay Day Loans, which attracted £80 in interest over the seven-day period.

What’s the most interest you ever paid? Would you ever use a payday loan? Why or why not?

Christmas is coming: the three ‘C’s of a Succesful Holiday

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And they are: cheer, credit cards, and cost! If you match them well enough, your holiday should be great! If not, read on…

The timer at the top of my blog edges ever closer to December 25th, and with it the sense that Christmas shopping, a moment dreaded by almost every man I know, should begin! Yet this year, there are a lot of pressures on our wallets, perhaps more so than in many previous Christmases over the last ten years or so: inflation is ticking up, gasoline (and all energy prices) are rising, food prices are spiralling upwards, interest rates are rising, and many homeowners now face an ARM reset in early 2008.

natfinancecreditcards

It’s my Christmas, and I’ll swipe if I want to

Given the increasing pressure on our regular spending, it’s very tempting to let our flexible friends bear the weight of the extra expense of Christmas, so that we can at least enjoy a ‘happy’ and ‘free’ Christmas… But InvestorBlogger is challenging you: How can your Christmas be ‘happy’ and ‘free’ when you know that come January, the charges will start appearing on your credit cards‘ statements as early as the end of the first week of January?

  1. Will you feel happy knowing that you have to pay more than 15% pa interest on goods, foods, and services that have long been consumed (and even forgotten!)?
  2. Will you feel free when you find that your paycheck has to be handed over to the bank to cover the minimum payments on ALL your credit cards, and it’s going to be months before the principal is paid off?

Well, I’m proposing that you can take five concrete steps towards acting before it’s too late. If you follow these, you will find it much easier to alleviate the January pressure, lighten the Christmas shopping burden, and improve your Christmas cheer!

1. Limit your purchases

Many parents, family members and friends do go overboard on purchasing presents. Of course, this is just not necessary. So if you find that you are buying lots of presents because you’re not sure what that person wants, then don’t. Have a good think about what that person is like and means to you, then purchase one or two presents at the very most that are of good quality, that exemplify your relationship, and that mean something.

One of the best presents I ever got from my parents was a simple ‘made in Taiwan’ plastic chess set (the pieces were large and easy to handle for a kid!), even though the chess set is long gone, the gift started me on a long journey to play Chess at school, and with friends. From there I learned a lot more wonderful board games, including backgammon, draughts, etc.. That simple plastic set was a much more valuable present to me than all of the fancy Evel Knievels, Action Men, and Meccano Sets that I received in all my years as a kid. One simple game, decades of satisfaction.

2. Limit your spending

Set large budgets for your shopping, and allow a little legroom so that you can overshoot your budget with out feeling bad. Typically when I’m shopping for a big ticket item, I’ll budget a base amount +/- 20%. In other words, if I want to buy a new TV, I’ll budget say $400 +/-$80. I’ll try to get the best TV I can around the $400 mark, but I won’t limit that to just $400, so if I see something that is quantifiably better for a little extra money, I won’t feel bad about it! I can buy. The important thing for me is the freedom to buy something better, but I feel secure enough knowing that there is a ‘hard’ limit to my spending as well as a soft limit.

3. Simplicity vs. Abundance

We all live in a world of things, too many things. We’re given things on many occasions, we spend too much time and money shopping, we’re even buying on the Internet now. Yet in this world of abundance, we’re often short of simplicity: simplicity in our relationships, simplicity in our lives and simplicity in our health.

Every box of cereal comes with 200 vitamins, every mobile phone can do 100 things, … What happened to a simple gift made to do one thing and do it well? So, if you are shopping, choose carefully, choose meditatively, choose simply.

4. Focus on the people, not the things!

In the US, Christmas is a time of celebration, a time of rejoicing. It isn’t an accident that it is preceded by Thanksgiving. If you are faced with a choice of buying a lot of things on credit cards or owning up to not feeling good about spending too much money on credit cards, tell people that you are just not able to spend that kind of money…! Instead, enjoy Christmas for what it should really be about…! Tell people that you’re going to enjoy Christmas because it’s a real chance to connect to people you care about…! If you find buying an abundance of things tough on your pocketbook, then look to making things for them, things that they will appreciate because you made them especiallly for them: your own calendars, postcards, T-shirts, plants, books… the list is quite endless. While the kids may want an X-Box, most adults really don’t.

5. Making the most of your ACTUAL spending

There are so many ways that you can utilize credit cards these to cut your expenses that it would, of course, be foolish to not use them. So, if you do use your credit cards, make sure that you get as much back as possible: typical benefits can include cash back on purchases from cash back credit cards, bonus points or airmiles, parking discounts, 0% interest periods, grace periods, balance transfers, store discounts, rebate points, etc. If you are applying for new credit cards before Christmas, or you have a bundle in your wallet already, you may want to compare credit cards carefully to get the best benefits! But remember, using a credit card to save money only really works if you were going to buy the item in the first place!

Whatever your shopping plans are this Christmas, I hope that all my readers have a happy holiday and that we welcome in a prosperous new year!

Your Christmas has been saved by natfinancecreditcards!

You are not a ‘credit card slave’.. and you’re sure about that?

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In this series, I’m looking at our changing attitudes to money, and answer the simple question: are we all credit card slaves now? Part 1 was entitled Where did our attitudes to money come from?. Part 2 is Credit Cards, Bank Accounts and Salaries. Part 3 was The Credit Card Cascade and the Madness of Spending. Then there is the fourth installment in this week’s series:Are you a credit card slave?

No, not me! I didn’t do it!

Naturally, most of us have been lucky enough to avoid many of the pitfalls of owning a credit card: the higher interest rates, the late penalties, and so on. Phew! We can count our blessings… or can we?

Well, let’s see, shall we… There are many ways that credit cards make things more expensive for you…

Credit Card Annual Fees

First, when you apply for a credit card for the first, there is the annual fee. Now, many cards waive the annual fees these days because there are so many choices on the market, and yet there it is in the Terms and Conditions. And if you are unlucky enough, you may find yourself paying for it anyway.

Transaction Costs

There are costs for each transaction that are paid to the credit card issuer: for withdrawals the fee is charged directly to you, and is in addition to any ATM or bank fees that you may incur; for purchases, the transaction fee is ‘hidden’ in the purchase cost of the item you are buying – typically these are 2-3%, but can sometimes be much higher; and if you do a balance transfer, separate fees will also apply. These are the costs are all billed to the consumer.

APRs

Of course, Annual Percentage Rate is the amount of interest that you must pay for borrowing the money. This is the most obvious kind of payment, and yet for consumers, it’s one of the most overlooked. Too many consumers simply look at the amount that must be paid every month, and figure if they can afford that, then it’s okay. Yet higher APRs mean that the amount of interest in terms of the total amount of dollars paid is going to be MUCH higher than you’d expect, and the debt will take much longer to pay off. Oh, and don’t forget there are so many kinds of APRs these days, each depends on the type of transaction taking place.

Exchange Fees

When you travel, and you find yourself charging things to the credit cards, there are additional ‘hidden costs’ that you need to be aware of. An item that is charged in Euros for example will include an exchange fee that will be calculated as part of the exchange from Euros to Dollars. This amount is usually not specified anywhere on your statement. Moreover, it’s quite difficult to figure out the exchange rate actually used for the conversion since the amount is usually credited at a different time or date from when you actually carried out the transaction.

Penalty Fees

There are a number of penalties, fees and increased interest rates that you may incur when you ‘forget’ to make a payment on time. I did this once, and found that I had incurred a $10 late fee. Naturally, I don’t do that anymore. But late fees can add up, and higher interest rates for late payment usually make things worse for the borrower, not better.

These are the most obvious ways that credit cards can make things more expensive for you… but there are also a number of ways that many people don’t realize.

Business Pay Through The Nose

For businesses, if you want to accept credit cards at all, there are a number of fees that you must also pay in addition to the transaction fee mentioned above. You must pay a regular standard charge, you must pay a percentage of the sales, and you may also be liable to chargebacks and fraud.

Even Cash Shoppers Pay More

In some countries, it is illegal for businesses to quote different rates for cash vs. credit card transactions (I wonder why…), so in reality the businesses simply making shopping for EVERYONE a little more expensive, because the costs of using a credit card are part of their cost structure. Since businesses can’t discriminate by who pays (legally), they simply factor the cost of credit cards into their cost structures. From that cost structure, most businesses then decide what profits they need to make.

So, the next time you whip out your credit card to pay for something, think about all the other people who are getting paid at the same time…. You’d be surprised at how much using a credit card really costs.