Thursday, October 16, 2008

Credit Card Horror Story

A friend told me a cautionary tale:

He had a credit card on which he carried a significant balance at an introductory rate. That card was bought by Bank of America, the bank he uses for his personal and business banking. When his mail came, he stacked the B of A envelopes and didn't open them immediately, thinking they were only bank statements.

Au contraire. His oversight cost him $200 in late fees. He said that was a one-time fee and not accrued late fees over several statements. (I find that shocking--even for B of A--but it's what he said.) They also jacked up his rate.

He placed a phone call to the bank and they returned his rate back to the introductory one, but the whole experience cost him--by his estimate--several hundred dollars and a lot of stress.

Moral of the story? Open all of your mail promptly, just in case. And work on liberating yourself from credit cards.

I would also advise being aggressive about pursuing a refund in situations like this. This has happened to me a few times in my life--particularly during times of transition when my statements didn't catch up a a move in time, or when i lived with roommates and a statement got misplaced in our group mail experience. In almost all cases, the fee was reduced or removed.

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Avoid Finance Charges

Even if you pay off the balance of your credit card every month, you may find yourself paying finance charges if there is no grace period. It's important to know your card.

On the back of your statement, in all that fine print, there should be specific details that outline your card agreement. (I keep all of my statements on hand in a filing system so that I can check on them if I need to. I kept paper statements for five years when I was self-employed. I advise keeping them for at least a year--and to always keep the initial card agreement and other relevant documents.)

Look for a section labeled Grace Period. Also read the sections on Finance Charges.

Also keep in mind, that many cards use an average daily balance, so that even if you pay off your balance in full before it's due, you may find yourself paying a finance charge.

I recently paid off the balance on a card, but because it was a balance that had been sitting on the card for more than one billing cycle, there was no grace period. I paid $4.74 in finance charges for the month AFTER I had paid it off. My balance was zero, but I owed $4.74 in interest.

This is another reason why it's important to always open and look at your statements immediately. I almost didn't bother to open that statement because I knew I had paid off the card, but if I hadn't, I wouldn't have known that there was a small balance due--and I would have been dinged for late fees of more than 600% of that balance.

The moral? Know your card(s)--and always open your statements promptly, even if you're afraid of what's there and even if you think you don't owe anything.

If you have the ability to schedule e-mail alerts for things such as approaching your limit or a new statement, I also recommend doing this.

And, of course, the best practice is to liberate yourself from credit cards entirely.

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Friday, October 3, 2008

Why I love the LL Bean card

Far be it from me to encourage credit card spending, but for me, the LL Bean card (now from Barclay's) is the very best of what credit cards can be. The perks are big; the downside minimal.

Let me explain.

I frequently shop at LL Bean. Maybe it's because I'm a Mainer. Maybe because I live in New England where good, durable foul-weather gear is a must. Maybe it's because I'm so practical, but I love LL Bean.

Everything you buy has a lifetime guarantee. You dig? You can buy a pair of winter boots and never have to replace them again as long as you live. Ditto tents, sleeping bags, winter coats, sleds, furniture--everything they sell. You can return whatever you buy at any time if it starts to fall apart--only it pretty much never will. So, rather than buying something somewhere else and paying to replace or repair it, with LL Bean, you opt into a system of quality and dependability that is unmatched.

I recently bought an air mattress, for instance. I had been shopping around for them for years. And every one I had ever encountered had developed a leak, was uncomfortable, or had some crazy pump system--or lack thereof. Enter LL Bean. I found one--on sale ($40 off, I think)--that was durably constructed, got rave reviews from users, and has a handy-dandy-built-in pump. Like, you literally just push a button and the thing blows itself up and then deflates itself, too.

(We haven't slept on it yet, but we did inflate it and spend an evening lounging on it and watching TV and we pretty much decided its better than at least one of our real beds!)

Because I have the LL Bean Visa card, I paid no sales tax, no shipping, and if it turns out it isn't right, I can return it free of charge, too! Plus, if it ever--for the rest of my life--rips, leaks, or fails me in any way, I can return it. For free. AND, because I have the LL Bean Visa, I earned 3% of that purchase back towards another purchase.

Today, for instance, I bought a pair of winter boots. They're vegan, which is hard to find. And by applying my LL Bean coupon dollars ($10), which were a reward for opening the card and making the mattress purchase, I saved $19.95 on shipping and the price of the boots. Plus, I'll earn $7 in coupon dollars toward my next purchase because of a double coupon dollars promotion. I also saved by not paying any sales tax.

If they don't fit or I don't like them, I can just send them back, free of charge, or take them in on my next trip home. (I actually have here a pair of LL Bean boots that I bought a few years ago, but which are horribly uncomfortable and which have a flaw in the lace-up construction--the metal loops shred the laces. I want to return, but keep feeling shy about it since it's been so long. Once I get up the nerve to send them back, if I apply that credit toward this purchase, it's like getting half-priced boots, really.)

Last month, when my sister-in-law wanted to buy her daughter a monogrammed LL Bean backpack for kindergarten, I ordered it for her. The monogramming and shipping were both free, saving her about $20 and earning me $1.65 in coupon dollars.

Seriously, I love this card. The important thing to watch out for--for me--is that I don't get shop-happy and start buying all sorts of things just because it's so easy. I stay away from the catalog until after I've decided I need something--such as a backpack, boots, or an air mattress. I also have to remember to pay off the balance immediately because the interest rate is very (very) high.

The card also gives me 1% in reward dollars for other, non LL Bean purchases. And has some excellent travel-related and other perks. So, at some point, I may start using it for regular monthly purchases--such as the cable bill--so rack up more coupon dollars (which don't expire for a year) but for now, I want to use it only for LL Bean purchases--or large one-time purchases--so I don't fall into the trap of spending more money than I have.

I'm not saying you should necessarily get the LL Bean card. But I am saying that if you're going to have a credit card in your life, it's worth shopping around and finding the very best card for your lifestyle. To learn more about the card, visit LL Bean.com.

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Thursday, October 2, 2008

In Celebration of Progress: $11,000 in debt is gone!

One year ago this week, I started my new salaried position as an editor. After ten years of freelancing, I was ready to settle into a steady 40-hour-a-week project with a regular paycheck and benefits when just the right thing came along.

52 weeks later, I can report that I love my job! And I've been able to make good progress toward my goal of living sustainably.

For me, living sustainably is not just about recycling or growing my own dirt using worms and table scraps in the basement; it's not just about reducing my carbon footprint or the mess I make on this earth. For me, it's really about living in a way that is actually sustainable.

Toward that end, I have set about removing myself from the shackles of debt that have plagued me in all the years that I've been too ill to earn a living wage--in other words, too sick to sustain myself. It began with the Year of Healing, which sent me deeper into debt, but which helped me to get well enough to do this job I now have (which sustains me).

Phase one accomplished.

Commencing phase two.
With a level of health that was still not 100%, but which allowed me to complete my 40-hours-a-week of work from home, last November, I set about reducing my debt and increasing my savings.

After one year, I am able to report that I have reduced my credit card debt by more than $11,000. I have invested 3% of my gross income into a 401k with company matching. And I have in my savings two months worth of living expenses. And I did all this while supporting not just myself, but my partner who arrived here in late December.

I confess I wish that it were all happening quicker. I wish the economy were in better shape and that my partner could sell his house and find lucrative work here, which would free up more of my resources to get myself out of the hole--and into a home of my own.

Nevertheless, now that I sit here surveying the work of the past twelve months, I am savoring the progress. It feels really good to have come this far.

How I did it.
I've employed a lot of money-saving techniques that I never seem to have the time to write about here. But, in a nutshell, I followed the basic rules I think are necessary to live a thriftful and sustainable life.
  • I increased my income. In addition to my full-time work, I kept a couple of freelance clients. It was often exhausting to stay at the computer nights and weekends, but it's been worth it.
  • I set a detailed and specific budget in an Excel spreadsheet.
  • I tracked all of my actual spending for one month and compared it to the budget I had set out.
  • I paid cash for things and used my credit cards only for airline tickets, hotels, and rental cars.
  • I took a good solid look at my debt. I got out all of my credit card statements and made a spreadsheet in Excel that listed the cards, their current interest rate, the monthly finance charge I had paid, and the amount I had left to pay.
  • I felt truly dismayed and overwhelmed--and angry--as I looked at that massive number. Then, I took a deep breath and I made a plan.
  • I mapped out in Excel my Debt Reduction Plan. I figured out--based on my original budget--how much I could put each month towards my credit card debt while still meeting my savings and investment goals.
  • I then stuck to my plan. Every time a bill arrived, I opened it, then opened my spreadsheet and updated the interest rate, balance, and finance charge. Then each month, I made a large payment to one of my cards based on the Debt Reduction Plan.
  • I chose to pay off the smallest cards first, rather than going after the ones with the highest balances or the highest interest rates. It created a feeling of accomplishment. Right away I was able to say, "I paid off a credit card today!" and this helped fuel my desire to keep going.
  • I made realistic allowances, such as reducing the amount I would put toward my debt in December and January, in anticipation of holiday expenses--travel and gifts, etc. Ditto June, when everyone in my family seems to have a birthday (or Father's Day).
  • I was a conscious consumer. I paid attention to what I spent money on and I employed good thrift thinking--I used the library a lot. I ate in. I bought things on sale. I planned ahead. I gave myself room to splurge now and then. I was especially diligent about weather-proofing and reigning in winter heating costs. I was blessed by the generosity of friends, who let me stay with them on vacation, significantly reducing my expenses. In other words, I spent carefully and freely, but with thoughtfulness and power.
  • I also used my spreadsheet to motivate myself. I resented that when I began my journey, I was paying more than $140 per month just in finance charges on my various cards! It spurred my desire to reduce that cost. When I wanted to splurge on a large purchase--like a couch, which I want SO badly, or new luggage or a Wii--I thought about that money just disappearing every month to the credit card companies and I made a conscious choice NOT to spend on anything else until that money was back in my hands. Now, my monthly finance charges have dropped to about $50--and that number shrinks every month.
  • I called my credit cards occasionally to lobby for lower interest rates. When I started, the average interest rate on my cards was 7.51%, with the worst one at 17.15% (the card with the highest balance).
  • I switched balances to cards with lower interest rates when the offers suited me. Now, my average rate is 4.74%.
I still have a ways to go, but I'm more than two-thirds of the way there. My current plan has me credit-card-debt-free in April of 2010. This plan allows for a generous contribution to my savings, though, so that I can meet the Phase Three goal of saving up a down payment for a home of my own. However, with some good luck this winter, some careful planning, and continued gainful employment, I may just decide to knock that last bit off a whole lot sooner so that I can celebrate the completion of phase two and finally (finally!) declare myself credit-card-debt-free!

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Tuesday, April 22, 2008

Avoid Sneaky Late Fees

The credit card industry makes a large portion of its income on its exorbitant late fees. They want you to be late. Devising a system that works for you is essential. For instance, always putting your bills in one place when they arrive or always paying bills on the same day of the week works well for a lot of people.

I, myself, like to receive both paper and electronic bills--plus I have set up all of my credit cards to send me little reminder e-mails when my bill is ready and when it is approaching its due date.

It can be tempting to pay your bill at the last minute--to hang onto your own money as long as you can before you hand it over to them--but beware. Even if you make an online payment, which should be instantaneous on a business day, you are likely NOT protected from incurring late fees.

HSBC, for instance, a major credit card lender, warns its customers who pay online that standard payments "post in 1-2 business days, late fee may apply." For those paying by check through the mail, it's important to leave at least ten days--more to be safe--to allow for transport time and "processing" time.

Of course, if you want an instant payment, HSBC will let you, but at a premium.

In a nutshell, pay your credit card bills early, even if you are paying online. Make a note of your transaction number and print and keep a receipt. If you pay two days before your due date and are still charged a late fee, make a polite, but assertive phone call to your credit card company, provide them with the confirmation number that proves you paid on time, and see if you can get the fee refunded. If you are a customer in good standing, they will often do this. Sometimes, they offer to refund half the fee. Still annoying, but better than sucking it up.

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