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June 28, 2012, 6:00 am

How-to Crush Your Debt Forever

by: MD    Category: Credit Rating & Credit Bureau

Is your debt holding you back from the life that you want? Do you want to finally start saving more money?

It’s time to take a step back and look at crushing debt. I enjoy writing about making more money, starting a business, and working on cool projects. The thing is that many readers are in a position where they’re still stuck with debt and can’t make too many moves for the time being. I totally understand that. This is why it’s important to focus on getting rid of that debt.

I wanted to put together a primer on crushing debt to help you get started and build some momentum.

How can you crush your debt forever?

Calculate how much you owe.

Do you know how much you exactly owe? The first step in dealing with your debt is to figure out how much money you owe in total.

When looking to see how much money you owe, I recommend considering the following thoughts:

  • How many outstanding credit card balances do I have?
  • Do I have to pay my parents back?
  • How much school debt do I have?
  • Who needs to be paid back first?

Once you figure out how much you owe in debt, you can move forward. You just need to know where you stand.

Decide which debt to attack first.

Which debt are you going to deal with first?

There are two schools of thought here.

  1. The first belief is that you should attack the debt with the highest interest rate first. This is the mathematically correct option since you’ll be saving yourself money in the future on interest charges.
  2. The other school of thought is to go after the smallest debt first. This strategy is all about chasing after a quick win. When crushing debt, you can get pretty discouraged at times. This theory believes in psychological boosts that come from seeing results.
Both options work. The end goal is pay off your debt. It doesn’t matter how you get there. I just want to make it easier for you.

Find a side gig.

It would be totally helpful if you found a second gig to help you deal with the debt. The more money you have coming in, the more you can put towards your debt. Thus allowing you to become debt-free much quicker and ahead of schedule.

The hidden benefit of working extended hours is that you can prevent yourself from spend money by being at work. It’s tough to spend money when you’re at work. Whenever I want to get hardcore about my savings, I pick up the amount of hours that I work.

Automate your payments.

Setup your bank account so that your debt payments are made automatically. You don’t want to be the victim of a simple mental error. This is why I believe in automation. Once you set your payments up, you can forget them.

Keep on going.

This is the least fun part. You just have to keep on going. There are no shortcuts here. Just repeat. Viciously pay off your debt with your eye on the prize. Don’t forget to still have some fun (without the plastic).

Reward yourself once in a while.

I don’t want to see you snap on your road to becoming debt free. This is why I recommend that you reward yourself after a small win or when real progress is made. A reward doesn’t mean that you put yourself into more debt. It can be something simple like a night out or a dinner at your favorite restaurant. I want you have to fun and feel good about what your doing. Burnout can be avoided by simply treating yourself when you deserve it.

I have more on this in my premium guide, Completely Conquer Credit.

That’s how you can become debt free. You won’t be debt free today or tomorrow. If you stick it out you can have a credit card balance of zero in just a few months.

Once you’re debt free you can quit your job, build your savings, go on more trips, and live the life that you want. It all begins today with the first step of your journey. I hope you’re ready.

What are you doing to crush your debt?

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September 30, 2010, 7:14 am

Future Shop Rant

by: The Financial Blogger    Category: Business,Credit Rating & Credit Bureau

 

It has been a while since I wrote my last rant. But this morning, I have a good one that I wanted to share with you. I find it very unfortunate because I usually like going to Future Shop. In fact, going to Future Shop feels like I was 10 and going to Toy ‘R’ Us (now I have to hide my joy when I enter with my kids ;-0 ). So here’s my Future Shop Rant Story:

It all started yesterday morning while I was comfortably installed in front of my computer for my blogging day. My wife comes to see me and says that the washing machine just died. Sad story, it was part of my life for a good 10 years. However, what is really sad is that I have to buy another one. This wasn’t the greatest news of all.

So after dinner, I go to Future Shop to buy another one. They had a great promotion on the Samsung (paying taxes, delivery, taking my old scrap for free, $200 gift card and they are offering to pay in 36 payments without interest… I’m in heaven).

So I first have to hear a 5 minutes babbling about how great the extended warranty is a scam…I mean valuable (did you know that it takes 9 to 10 hours at $50/hour to change de rubber on your frontal washing machine?… RIGHT!).

So I tell her “no thx”, she tells me “are you sure?” and I stand up and say “no” and replies with her eyes wide open “REALLY??”, and I answer “REALLY” and she end-ups with “so you are going to walk away with your  brand new washing machine without extended warranty?” and I reply a dry “yup”. End of the lengthy and useless conversation. So I was already a bit annoyed but I was happy to have a new set to be delivered quickly. Then, we moved to the customer service center since I didn’t have a Future Shop credit card (for the 36 payments option).

I had to spend a good 25 minutes in front of a lovely lady hanging on a phone to know if my card was approved or not. I was asking for a *huge* amount of $2,000, just enough to cover my expense. Well guess what? I got declined at Future Shop!

I was quite upset because:

#1 I had to waste 5 minutes arguing that I didn’t want the extended warranty.

#2 I had to wait 25 minutes watching a stupid movie preview in loop on the tv waiting for my credit card approval.

#3 I got declined at Future Shop for a stupid and small credit card; this is very insulting.

#4 When I returned to pay my washing machine (with my own Mastercard Platinum!), the girl made a mistake on the bill and was charging me $80 more.

I asked her to credit my card right away but she had to see her boss first… another 10 minutes waiting to get the approval from the sales director…

I had been annoyed by Future Shop the last time I’ve ordered a iPod Touch for one of our contest (over at The Dividend Guy Blog) because they made me call twice to confirm my order (and each time you have to wait a good 10 minutes on the line). But now, I have not only wasted almost an hour of my time, but I got declined for a stupid commercial credit card. It was a very insulting feeling (especially since I make more than enough to pay those stupid appliances). The worst part is that I couldn’t even know why I got declined. I supposed it’s because I wasn’t sure about my Social Insurance Number but getting my credit bureau nonetheless should have been more than sufficient to get an approval.

Anyway, I hope I’ll get my washing machine and dryer in a good order… if not, I’ll start to stink in the upcoming days!

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August 18, 2009, 5:00 am

Credit card perks ups and downs – why business relationships have to be fair

by: The Financial Blogger    Category: Credit Rating & Credit Bureau

This is a guest post by Mr Credit Card from www.askmrcreditcard.com. He reviews credit cards (lots of them) and knows quite a bit about the industry. If you are looking for a new card, he has compiled a list of the best credit card deals and offers.

Just last week, Mike had this post about watch out rate shoppers. He mentioned how he hated it when rate shoppers called him “just for a rate”. What ends up happening at the end of the day though, is that rate shoppers get lousy service. But this is a typical pattern for those who only want to get free service, or just the cheapest price. Businesses hate them. The savvy ones learn to NOT compete on price but on other factors. The not so savvy ones get caught up in a wave of downward spiraling price competition that just drives the business to the ground.

In my space, credit card issuers have fallen for the low cost (in their case, teaser rates) game to attract new customers. They gave out deals that were really not profitable for themselves. Consumers were savvy enough to taken advantage of them. But when the sub-prime crisis blew up everything, credit card issuers began to cut back and hurt lots of innocent folks in the process.

In this post, I would to highlight some incredible deals card issuers were offering, how they were taken advantage of, and how they are hurting every one as they realize their folly.

Abuse of gas credit cards – Gas stations (or rather the oil companies) have always made use of gas credit cards to instill customer loyalty. If you go to any gas station, you will find brochures offering their both their gas cards and gas credit cards. Typically, most gas rewards cards pay anywhere from 3% to 5% rebates when you make gasoline purchases at their gas stations. So for example, a Shell Mastercard allows you to earn 5% rebates at shell stations.

Soon, credit card issuers began to offer their own version of their gas credit cards. Rather than allowing card holders to earn rebates at one particular station, they structured their cards to allow cardholders to earn rebates on gasoline purchases at ANY gas station. To make their cards more attractive, they allowed card holders to earn unlimited rebates.

This is when the trouble started. Those who cut coupons will understand the concept of coupon stacking. In credit card land, credit card stacking involves combining various reward cards to maximize the rewards that you can earn. Well, many business owners, salespeople (who drove a lot for their sales meeting) started getting credit cards that paid rebates on gasoline purchases. But more importantly, many of them used them exclusively for gas. This became a no win proposition for credit card issuers. At best, credit card issuers make 1.5% to 3% from merchants who accept credit cards. But when most cards do not charge annual fees, customer pay in full every month and you are paying 5% rebates on gasoline purchases, credit card issuers will lose money on these cards.

So what do they do? Well, they simply put caps on the amount that a card holder can charge before they stop earning rebates on gasoline.

0% Balance Transfer Abuse – When interest rates got to rock bottom in 2002, the era of easy money was to continue for the rest of the decade (at least till now). Credit card issuers also joined in the fun by offering the classic bait and switch tactic. They started offering 0% APR if you transfer your balance from another credit card over. Their rational was simple. Once a customer signed up, credit card issuers figured that they were more likely to stick around. Well, that did not turn out to be the case. Consumers began looking at the 0% offer as another method of financing. Here was what they did.

?Consumers used 0% deals in place of a home equity line of credit

?Consumer arbitraged 0% deals by borrowing at 0% and putting it in a high yield savings account

?Consumers used these 0% deals to finance large purchases

The 0% balance transfer credit card segment became so competitive that soon, every credit card company was giving away these deals for 12 months and waiving the balance transfer fee. But rather than stick to the card that they originally got, consumers simply jumped to the next 0% balance transfer deal when their introductory 0% period expired. They simply got a new card. Soon, credit card issuers realized that these deals were unprofitable for them because consumers did not stick around. They began to reintroduce balance transfer fees and reduced the length of introductory periods for 0% APR from 12 months to 6 months.

Soon, credit card issuers were fighting back. For example, there have lots of complaints that Chase has increased the minimum payment on their cards from 2% to 5%. Moves like that where your payment doubles can be crippling for folks who do not have room in their budget for emergencies.

Issuers heavily promoting student credit cards – But consumers have not just taken advantage of credit card issuers. Credit card issuers have also way heavily promoted their student credit cards at campuses. It is one thing to promote credit cards, but another to actually pay colleges for every card that is signed up, or pay (sponsor) clubs for promoting their cards at their booth! The majority of students don’t really know about money management.

Let’s think through this for the moment. If you are a new immigrant, or do not have a credit history, there is just no way that credit cards are going to issue you a regular unsecured credit card. More likely, you may have to start off with a secured credit card. But this rule does not seem to apply to college students who (mostly) have no history and very little income! Why are credit card issuers willing to issue cards to students who have no credit history? I guess they want to get them as customers when they are young and hopefully become customers for life? (not too sure if this is really sound?).

For this one, the latest credit card bill of rights has imposed limits on the amount of credit they can extend to college students.

Give credit lines too easily, now reducing Credit Lines – During the boom years of 2003 to 2007, credit card issuers were giving excessive credit lines to many folks. Then, when the financial crisis hit in 2008, all of a sudden, they began reducing credit lines across the board. While there are folks that should not have credit lines issued to them at all, the sudden disappearance of credit has a lot of collateral damage. It is one thing to tell someone in advance that you will be cutting their credit lines. But when you cut their lines close to their present balance, or even below their balance and charge an over-the-limit fee, that borders on being unethical.

The collateral damage in this case fell on folks with great credit!.

Give teaser rates, not increase their rates! – Many folks who have gotten low interest credit cards have seen their rates increase for no reason. Very often, rates have shot up to over 20%. This has the effect of doubling or even tripling minimum payments for card holders!

Moral of the story

Any relationship has to be 2-way – Any business relationship (or any relationship for that matter) has to be a win win for both parties for it to be sustainable. In all the previous examples, the relationship was lop sided. In many ways, you cannot blame consumers for taking advantage of deals being offered by credit card companies. Going forward, perhaps more credit cards will charge annual fees, or rewards will be cut back more. But I would not worry too much as a consumer. The credit card industry is still pretty competitive. There are still many good reward cards and programs around. Just remember when something is too good to be true, it usually is and does not last forever.

Just remember that when a business relationship is too one sided in your favor, eventually, it will come back to hurt you.

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May 9, 2009, 5:00 am

A New Type of Marketing Aroused In The Banking Industry; Beware!

by: The Financial Blogger    Category: Banks and You,Credit Rating & Credit Bureau

You have already seen 24 and 36 payments without any interest when buying furniture. Even better, you can pay next year and you don’t have to pay any interest. We now have the similar type of marketing with cars with 0% over 5 years (I bought my Mazda Tribute with a 0.4% interest rate over 6 years!). And now, I just saw a shocking mortgage offer: fixed term 5 years fro 2.99% on new condos.



To put everybody in perspective, in Canada, the best deal around for a 5 years fixed rate mortgage is 3.85% as of late April. You would probably not even be able to get it from your bank but from a mortgage broker. So if the best deal possible on a fixed mortgage is 3.85%, how come they can offer 2.99%???? And the answer is….

A powerful marketing system!

The mortgage business is changing drastically in Canada due to the very low rate, poor economy and the rise of cost of funds for banks. For the very first time, it seems that some banks saw what is coming and realized that a blue suit and a red tie was not enough to sell mortgages anymore. The business has changed; it’s not an oligopoly anymore as more and more new players are working in the same industry. What happens when an oligopoly breaks? Each company needs a solid marketing plan to take advantage of this new open market.

But this doesn’t tell how they can offer 2.99% on new properties?

They are simply playing with the numbers:

Choice #1: The bank is willing to drop to 3.85% for those mortgages in order to still make money. It makes a deal with the contractor that he pays back the difference on a 5 year term mortgage at 2.99% and 3.85%. The contractor takes it from his profit and sells his condos much faster.

Choice #2: We have the same situation with the bank. The difference is that the contractor slightly increases his price in order to cover most of the gap between 2.99% and 3.85%. So the client end-up financing a higher mortgage rate without knowing… This is exactly as he does when he buys furniture at 0% for 24 or 36 months. The interest rate lies within the product! When the contractor asks 212K instead of 207K, nobody really notices as it is always harder to compare prices for a new construction. He can always bring some “builder bullshit” such as “the condo was made with higher quality materials” ;-).

This is also why you will see this kind of offering on new construction and not in your branch for a regular purchase.

I think it is a smart way to present things. However, potential buyers must keep in mind that their mortgage rate will go much higher upon renewal. Therefore, they are better off calculating their budget with a 4.5% or 5% interest rate on their mortgage in order to not get caught off guard at renewal.

As I previously said: there are no free lunch in finance!

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April 14, 2009, 5:00 am

6 Easy Steps to Make money from Cash Reward Credit Cards or Point Rewards Credit Cards Part2

by: The Financial Blogger    Category: Credit Rating & Credit Bureau

pile-credit-cardsThis is a guest post from a contributor of The Credit Toolbox. This is a blog about understanding, improving and keeping a good credit record. They write an interesting series about how to make money from cash reward credit cards. I am featuring the second part here while the first part and third part are already live on The Credit Toolbox.

2- Use your credit card for your day-to-day spending

Woah! You must be thinking that I am completely crazy. After getting on the back of Dave Ramsey, I am telling you to use your credit card on a daily basis? Maybe I am good for the nut house after all ;-). However, there is a reason why I think your cash reward credit cards should be used everyday; to get more points and cash in your pockets!!

Don’t get me wrong, I am not telling to spend more (there are people spending on their credit cards thinking it’s a great deal because of promotions…), I am telling you to use it. What is the difference? I personally think that you should use your cash reward credit card for every single purchase your make in a day. From your daily coffee to your grocery and gas in your car.

The idea behind paying everything with your credit card is that you would have paid for food, gas and other daily spending anyway. However, if you pay with cash or with your debit card, you don’t get any points or rewards back.

Where is the catch?

The catch is that you have to pay your credit card bill completely by the end of each month. You should never leave an unpaid balance on your credit card as you are paying an awful lot of interest charges on it. As you can see, this technique is not for people who have already a balance on their credit cards or have problem managing their credit cards. This is a technique for people who are in control of their personal finance.

Here’s a real example:

Let say that we only consider only a few spending for this example:

- $500 per month for grocery

- $250 per month for gas

- $100 per month for your phone and cell phone bills

- $150 per month for restaurants

This gives a total of spending of $1,000 per month that you already pay anyway,right?

Well if you use the Discover® More(SM) Card – Wildlife Collection cash reward credit card, you will get $312 at the end of the year (it gives 5% on spending such as gasoline and restaurant (and other spending categories) and 1% on everything else). As you can see, you can save money on your day to day spending. It’s like having a free rebate on what you are already buying anyway ;-)

Over a year of spending, I was able to get $400 in cash reward and my wife got almost the same. In order to get this free money, we simply used our cash reward credit card on every single purchase we made and pay off our credit car bill at the end of the month. Money was accumulating in our bank account and we never withdraw from it to make sure we have enough money to pay off your cash reward credit card at the end of the month.

So you must not use the cash reward credit card to finance unexpected events or goods you can’t pay at the end of the month. Remember step #1; you choose your cash reward credit card based on its program not on a low interest rate option. Therefore, the cash reward credit card must be paid at the end of the month… all the time!

Here are a few examples of great cash reward and points credit cards:

Discover® More Card(SM) - American Flag

Discover® Card
More® Card – American Flag

American DreamCard™ Platinum MasterCard®

MasterCard

American DreamCard™ Platinum

Discover® Open Road(SM) Card

Discover® Card
Discover® Open Road® Card

Iberiabank Visa® Platinum Rewards Card

IberiaBank Visa®
Platinum rewards card

Here is the complete 6 Easy Steps to Make Money From Cash Reward Credit Cards of Point Rewards Credit Cards (links will be updated as article goes live).

1- Select a card with cash rewards or a good point system that suits your needs

2- Use your credit card for your day-to-day spending

3- Keep another credit card for emergency

4- Do not withdraw money from your bank account anymore

5- Pay it completely at the end of the month

6- Enjoy rewards from your credit card

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image source: flickr

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