Mailbag Monday: Using a Personal Loan to Pay off Credit Card Debt

debitcardI was able to get a personal loan from my bank (with a low interest rate) to pay off $40,000 worth of credit card debt.  I have a total of nine cards. Is it advisable to cancel the cards that I have paid off?  Should I cancel the ones with a higher or lower credit limit? I don’t see myself using these cards in the future so is it wise to even keep them?

– Kris

Hi Kris. I’m going to give you the answer you asked for – and some advice you didn’t.  And then I want you to print this out and tape it to your fridge so you look at it every day. Although I’m sure you’ve read that cancelling credit cards hurts your credit score because it’s a knock on your credit utilization (the percentage of credit you have available to you, compared to the amount that you’re actually using), in your case closing some is the right thing to do for two reasons.  First, you simply have too many.  And second, it seems as if they’ve been too tempting for you in the past.  Start by closing the ones with the lowest limits, the highest annual fees and the highest interest rates.  In other words, hang on to the ones that – once you get your act together – you might want to use as a tool to make purchases you pay off every single month.

Getting your act together is the thing that you didn’t ask about – but that I’m going to address anyway.

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Mailbag Monday: Paying Off a Balance Transfer

debitcardHi Jean. I recently transferred a portion of the balance on my higher interest credit card to a Slate 0% card. Is it better to focus on paying down the higher interest card or getting the balance on the 0% card paid off within the introductory offer period?

– Trish

Oh Trish! I have to tell you, I have thought of this question so many times and never, ever been asked it.  In the best of all possible worlds, you’d transfer all your high interest rate debt to the Slate card, then wail on it at that 0% interest rate to make as big a dent in the teaser period as possible. (You did choose well when it comes to balance transfer cards, by the way — the 15 month 0% interest rate is just about as good as it gets.)

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Mailbag Monday: Rebuilding Your Credit

debitcardI’m a recent widow and was left with no insurance.  My house is being sold via short sale and I have moved to a small apartment, where I’ve paid the rent on time for the full year I’ve been here.  I would like to open a credit card, but would like a suggestion on where to go.  I know my credit rating is very poor, but I would like to get it back on track.  Do you have any suggestions?

– Jill

Hi Jill.  I’m so sorry for your loss and for the tough time that has followed.  The answer is that there are credit cards available for you.  Most of them are secured cards, so called because you deposit a sum of money (usually a couple to a few hundred dollars) to secure your credit.  The best of these report to all three credit bureaus on a regular basis, which enables you to build the sort of credit you need to eventually get a regular old credit card.

Among these, the folks at CardHub.com recommend the Capital One Secured Mastercard, which you can get with a deposit of as little as $49. If you’d prefer a card for which you don’t have to make a deposit, look at the Credit One Bank Credit Card with Gas Rewards (it gets around the deposit by charging an annual fee of $35 to $75.) Note: Your credit limits on both of these will be low, but your interest rate high.  So whatever you get, use it as a credit-building tool.  Note what your credit limit is.  Never rack up purchases that account for more than 30% of it at any time. And pay it off every single month.

Mailbag Monday: Help! My Issuer Canceled My Credit Card

debitcardMy husband called Chase Visa about his Marriott card (which he has had since 2002 in excellent standing) to have his 22.4% interest rate reduced (which I have done often for my card based on your recommendations– I now have 13.2% for a long time).  They refused. He asked for a supervisor who also flatly refused.  He told them he would cancel his card, and they did!  He carried a large balance each month, and was either paying off a large portion of it or, lately, paying the total balance.  We enjoyed the Marriott points, but now he says he will share my card and use his American Express instead.  Is this typical in this economy? Thanks so much for your time.

– Jennifer

Hi Jennifer.  I really can’t say how typical it is.  It’s been a very long time since I’ve seen a large piece of research where hundreds or thousands of people tried – at once – to get their interest rates lowered and the results were recorded.  (Hey US PIRG: How about it?) Anecdotally, though, I’ve heard some stories like yours.  I’m very glad your husband is paying off his balance every month – rewards, whether they’re hotel points or frequent flyer points or even cash back, are never worth what you pay in interest.  What I would suggest is figuring out what kinds of rewards matter to you the most and then perhaps applying for a card that will give you a lot of them.  The Amex may do the trick for that, but there are a lot of cards offering big bonuses these days just for signing on and spending a few thousand dollars in the first few months (which business travelers like your husband often do anyway).  You might as well get the kind of rewards that can put you on a tropical island (or wherever you want to go) for a few days for free.

Wednesday Welcome: Five Credit Card Mistakes You Never Want to Make

This week we welcome Beverly Harzog, a frequent source of mine when it comes to credit card issues and author of the new book, Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made. She was nice enough to welcome me to her blog last week and I am happy to return the favor. Here she is with five credit card mistakes to avoid: 

harzog-about-meCredit cards can be a really useful money management tool. If you take time to understand how to use credit wisely, you can even make a profit from your credit cards.

But if you don’t know the rules of the game, you can end up in trouble in no time at all. Here are five credit card blunders that you want to avoid at all costs.

Mistake #1: You open several credit cards at one time. This mistake is often common among those who are new to credit cards. How do I know this? Because I made this exact mistake when I got out of college.

You open the envelope and pull out your first shiny card and see your name on it. It’s a rush! More offers start rolling in and you don’t see why you shouldn’t apply for all of them.

Well, there are plenty of reasons to stop yourself. Each time you apply for a card, the credit card issuer does what’s called a “hard inquiry.” This can knock two to five points off of your FICO score.

Another good reason to say no to multiple cards?  When you’re new to credit, you need to gain experience when it comes to managing a credit line. So take your time and build a good credit history slowly.

Mistake #2: You don’t have a budget. One of the biggest contributors to credit card debt is the lack of a budget. Without a spending limit, you could easily charge more with your credit cards that you can cover with your monthly cash flow.

Remember, a good budget isn’t a constraint that ruins your fun. A budget actually puts you in the driver’s seat because you’ll be able to see a clear view of your expenses and cash flow. And most importantly, you’ll have control over how much you spend.

Mistake #3: You don’t track your spending. This is a detail that often falls between the cracks. You might think this will be a pain, but these days, there are so many options and many of them are even fun to use. You can choose from oodles of smart phone apps, free money management software on the Internet, or create your own spreadsheet if you’re tech savvy.

Be sure that you have a limit for the amount you plan to put on each credit card and then stick to the plan. Check your credit card accounts online every week just to make sure you’re on top of everything.

Mistake #4: You don’t pay your bills on time. Make sure you pay not just your credit card bill on time, but all of your bills on time. If you don’t, your credit score will suffer.

A lot of folks don’t know that a bad credit score can increase the rates they pay for health insurance, car insurance, car loans, and more. An excellent credit score actually helps you save money in many areas of you life.

There are a variety of ways to set up reminders, such as text or email alerts. So do what it takes to pay all of your bills on time and protect your score.

Mistake #5: You carry a balance. Sometimes this starts innocently and you think you’ll carry a balance just this once. But then, before you know it, it’s six months later and your balance is getting bigger due to compound interest.

Look, life can get awful messy at times and emergencies happen. But unless you’re in dire straits, make a vow that you won’t carry a balance.

So pay your bill in full during the grace period. For those who don’t know, when you use your card to make a purchase, the grace period is the amount of time you have to pay the bill before interest charges kick in.

About Beverly: Beverly Harzog is the author of Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made. She is a nationally recognized credit card expert, author, and consumer advocate. She’s appeared on Fox News, CNN Newsource, ABC News Now, and top media markets across the country. She is a frequent guest on syndicated radio shows, and her advice appears regularly in print and on major websites, including the Wall Street Journal, The New York Times, USA Today, SmartMoney, Money Magazine, U.S. News & World Report, New York Daily News, Washington Post, MSNMoney.com, CNNMoney.com and more. Beverly runs a popular credit card blog on her website and has coauthored two books, The Complete Idiot’s Guide to Person-to-Person Lending and Simple Numbers, Straight Talk, Big Profits! She lives in Johns Creek, GA.

Mailbag Monday: Controlling the Things You Can Control

receiptsHi Jean. We bought our home in 1982 for $67,000 and refinanced in 2001 for $85,000. This company sold our mortgage without our knowledge in 2013 for $72,000 @ 8.5% interest.  Unfortunately things happened that were beyond our control. For the past ten years I took care of my parents. They both passed away last year. Our whole life we’ve taken one step forward, three backwards. It seems when we get caught up something else happens that takes us back. Our credit is poor. We have never asked anyone for help; that’s why we are in this mess. We don’t know where to turn. Can you please point us in the right direction. Thank you.

– Toni

Hi Toni.  I have to admit, I can’t tell from your letter exactly where you are right now – but I can sense that it’s somewhere very difficult.  And having lost one of my parents, I cannot imagine losing both – let alone in the same year. I’m so sorry for all you’re going through.  In situations like these, fixing everything quickly is just not an option.  The world of money just doesn’t yield results that dramatic that fast (if it did, I’d have a television show like The Biggest Loser). Rather, it’s the smaller, habitual changes that add up to something meaningful over time.  Focus on controlling the things that you can control.  The top three things I’d do?  1. Look at your spending and see where you can cut back.  2. Take that money and pay down high interest rate debt if you have it, or save it if you don’t.   And 3. Pay your bills on time. Even if you’re just playing a little more than the minimum (a number you should try to nudge up) paying on time will help move your credit in the right direction.

Money Sense on Fortune

debitcard

This week’s column is the second part to my two-part series on credit scores. If you missed last week’s on the murky waters of credit scores (i.e. FICO vs. Vantage), you can catch up here. As for this week’s piece, I tackle the misconceptions surrounding millennials and credit, and how both parents and twentysomethings can get started on building (and maintaining) solid scores.

You can see the full column on Fortune.

Wednesday Welcome: Little-Known Credit Card Perks

This week’s guest post comes from Bill Hardekopf, CEO of LowCards.com and one of our go-to resources when it comes to credit cards. If you’re in the market for a new card, his site will help you find it. 

Bill_Hardekopf (color)Credit cards are the object of a lot of criticism due to their high interest rates and fees. But if used properly–paying off your balance in full on time each month–then a credit card is the best way to make a purchase. You can actually make money, thanks to the cash back rewards offered on some cards. But there are also a significant number of perks and protections that you receive for free just for using your credit card.

These benefits are usually found in the welcome packet or listed in the terms and conditions of the card. They vary by issuer and type of card. But some of these perks may astound you.

Here are some of the free benefits that may be available if you make a purchase with your credit card:

Price Protection. Pay attention to the price of the item after you purchase it. If the price drops during a specified time, some issuers may reimburse the difference. MasterCard’s Price Protection offers this for a period of 60 days; Citi Price Rewind offers this for 30 days if the price is at least $25 lower that what you paid. You may have to register the purchase online as well as keep your store and credit card receipts as proof of purchase.

Extended Warranties. Some cards double the manufacturer’s warranty for up to a year. There are limits to the coverage. Save your manufacturer’s warranties and receipts for any purchases that may be covered.

Purchase Protection. The purchased item must have been working when you received or bought it, then stopped working or was damaged. This feature sometimes protects you against theft or accidental damage for up to 90 days from the time of purchase. Some purchases may be excluded and coverage may be limited by occurrence.
debitcard
Car Rental Loss/Damage Insurance. Using your credit card for a car rental may cover damage incurred when renting the car, so it may not be necessary to purchase extra insurance coverage from the car rental company. Before renting, check the description of this coverage in your Cardmember Agreement. To be covered, you must be the primary renter and decline the collision damage waiver (CDW) or similar option when you are reserving and picking up your rental car.

Travel Accident Insurance. Travel accident insurance provides benefits if you lose limbs or are killed in an accident on a common carrier such as an airplane, ship or train. Coverage ends when you arrive at the place designated on your ticket.

Trip Cancellation Insurance. This protects you against forfeited, nonrefundable and unused payments if your trip is interrupted or cancelled and you have purchased your common carrier tickets with an eligible card.

Lost Luggage Insurance. If your baggage is delayed for at least 12 hours, some cards will give you up to $300 to buy essential items such as toothpaste, a change of clothes, etc.

Travel Emergency Assistance. Most cards offer some type of travel assistance. For instance, American Express cards offer an emergency hotline that helps find a doctor and assist with lost prescriptions. Visa and MasterCard provide medical assistance while traveling and helps you find dentists, doctors or pharmacies. Visa also helps you make all the necessary arrangements for emergency transportation home or to the nearest medical facility.

Roadside Assistance. Some cards offer tire changing, jump-starting, lockout service and fuel delivery. There may be certain conditions on these services and they usually cost.

Security from Unauthorized Purchases. All card companies provide emergency assistance for lost or stolen cards. Under federal law, your maximum liability for unauthorized use of your credit card is $50. If you report the loss before the card is used, the issuer can’t hold you responsible for unauthorized charges. All cards have dispute resolution. If you see a charge on your bill and it is not familiar to you, call the credit card company and dispute that charge.

About Bill: Bill Hardekopf is the CEO of LowCards.com and has been involved in finance for over 12 years, with frequent contributions to Forbes, The Street and The Christian Science Monitor.

Today’s Money: Best Credit Cards for 2014

As Natalie said this morning on Today, if you’re using credit cards when you shop, some cards are certainly better than others. I did the groundwork for you, and came up with the best cards for 2014. Below you’ll find my segment with Natalie and Al — scroll a little further to see my top picks.

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Best Balance Transfer cards:

If you have excellent credit (above 720 on the FICO scale):

Slate from Chase
0% on new purchases for 15 months
0% on balances transferred for 15 months
No transfer fee
No annual fee
Regular APR of 12.99% to 22.99% depending on your credit

If you have good credit (between 660 and 719 on the FICO scale):

Capital One Platinum Prestige
0% on balances transferred and new purchases through May 2015
3% transfer fee
No annual fee
Regular APR of 10.9% to 18.9% depending on your credit

Best for New Purchases:

If you have excellent credit

Citi Diamond Preferred
0% on new purchases for 18 months
No annual fee
Regular APR of 11.99% – 21.99%

If you have good or fair credit (620 to 720)

Capital One Quicksilver Cash Rewards Card
0% on new purchases until February 2015
No annual fee
$100 bonus for spending $500 during the first 3 months
1.5% cash back on everything
Regular APR of 12.9%-20.9%

Best Cash Back: Overall, the Capital One Quicksilver Cash Rewards Card gets consistently high marks – and it’s also great because you don’t need to have pristine credit to get it. Also:

Chase Freedom (for good and excellent credit 660 and above)
0% on balance transfers and new purchases for 15 mos.
$100 bonus for spending $500 in the first three months
5% back on three categories each three month period (currently gas, movies and Starbucks stores – up to $1500 max)
1% on everything else

Best Rewards:

Barclaycard Arrival World MasterCard (for excellent credit)
40,000 mile bonus if you spend $1000 in the first three months
2 miles for every purchase
Use miles (100 = $1/40,000 = $400) as a statement credit against travel, so no blackout dates
0% APR for 12 months
No annual fee first year; $89 thereafter

Capital One VentureOne Rewards Card (for good credit)
20,000 mile bonus if you spend $2000 in the first three months
1.25 miles for every purchase
Use miles (100 = $1/40,000 = $400) as a statement credit against travel, so no blackout dates
0% APR through February 2015
No annual fee

Barclaycard Rewards MasterCard for Average Credit
0% intro APR for six months on balance transfers and purchases.
24.99% thereafter.
You receive 2,500 points after your first use of the card. 2 points for every dollar spent on gas, groceries and utilities;
point for every $1 on every other purchase.

If you’re not a student:

Capital One Platinum Credit Card caters to people with limited credit history
No annual fee the first year; $19 thereafter
No rewards
APR 24.99% — high, but the goal is buy it, pay it off, build credit
A tip: Put an automatic payment, like your health club on the card, pay it off automatically and don’t use the card for anything else – building credit will be a breeze.

If you are a student:

BankAmericard for Students
0% APR for 15 months on transfers and purchases
No annual fee
APR 10.99% – 20.99%
If you have bad credit:

Credit One Bank Credit Card With Gas Rewards
Annual Fee: $35 to $75
APR: 17.9% – 23.9%
1% back on gas purchases
Make your first six payments on time, they’ll increase your credit line. Also offers email/text reminders that your payment is due.

Mailbag Monday: Money School to the Rescue

Do you have appointments for individual consultations for financial planning? I live at the Jersey Shore and will travel anywhere to get the financial help I need. I am 59, a teacher and divorced with a low credit score and significant debt from a high mortgage and poor choice of loans. Facing major decisions, and I need help!!

– Sue

I don’t, Sue. But you’re an excellent candidate for Money School. Specifically, you should take The Debt Diet, which is designed to help you do two of the very things you mentioned you’re struggling with: pay off debt, and increase your credit score. By the end of the class, you’ll also be prepared to start building an emergency fund, which can help keep you from falling into debt again the next time money gets tight.

A new schedule of classes can be found here — this semester’s live schedule starts on February 11. I teach these live classes via webinar, and they come with a live Q&A period at the end, as well as a week of chat-based Office Hours, so you can ask me all of your questions and come back for more info if you realize something from the lessons wasn’t clear. It looks like this:

Screen Shot 2013-08-01 at 12.25.18 PM

This year, I’m also offering recorded versions of the same classes — including The Debt Diet — through an online education platform called Udemy. This is a great solution if our live course schedule doesn’t mesh with your own schedule.

And as debt is usually tied to other areas of your financial life that aren’t working, you may want to take some of the others (particularlyBudgeting Bootcamp, A Crash Course in Saving More and Spending Less, and Yes, You Can Retire) as well. 

I hope that is helpful — and I hope to see you in class! If you decide to attend, I look forward to hearing what you think.

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