Archives For Credit Cards

This is good but he misses one point. I’m not sure if it’s true of all 401(k) plans but interest on a 401(k) loan usually is paid into the 401(k) account. In other words, the interest is your money. It’s as if you borrowed from the Bank of You. Also, some companies do allow contributions while paying back a loan.

I agree with everything else he says.

NOTE: Notice there are no links to sign up for the credit card. That’s because I don’t hawk credit cards here at AFM.

Received a GM Rewards Card offer in the mail today. This particular card offers 0% APR on purchases and balance transfers for 15 months (3% balance transfer fee with a $15 minimum) and 5% cash back on purchases. They make it a point to say that there is no cap on that 5%. Sounds pretty good.


There’s a catch (there’s always a catch, isn’t there?).

Although there is no limit on how much you can earn from the 5% cash back, there are lots of restrictions on how you can apply it towards a vehicle purchase.

For instance, the cashback balance can be used with other discounts EXCEPT any of the following:

• GM Employee Purchase Program; QRD
• GM Dealership Empoloyee Purchase Program
• GM Enhanced Dealership Employee Purchase Program
• GM Supplier Discount Program
• the Credit Union Member Discount from GM

In addition, there is a cap on how much you can apply towards a purchase:

For 2012 models (these amounts are subject to change), you can redeem:

• up to $1,000 on the Chevrolet Cruze or Buick Verano; and
• up to $1,500 on the Chevrolet Silverado or Cadillac CTS; and
• up to $2,000 on the GMC Yukon, and
• up to $3,000 on the Chevrolet Corvette or Cadillac Escalade

I suppose it’s better than nothing but I’m pretty sure we would do better using the supplier discount.

Front page in today’s WSJ was an article about how Bank of America is planning to start charging their customers $5 per month when they use their debit cards. Other banks are testing such fees.

Why the new fee?

According to the article, the fee is in response to a part in the Dodd-Frank Financial Reform Bill that will limit the amount banks can charge businesses for transactions (“swipe fees”). Those fees have been capped at $.24 per transaction. They are currently $.44 per transaction. This change will supposedly cost banks $6 billion per year in lost revenue.

What’s funny (maybe funny is the wrong word) is this quote from Dick Durbin:

Sen. Dick Durbin (D-Ill.), who championed the legislative provision that led to the caps, said in a prepared statement: “After years of raking in excess profits off an unfair and anticompetitive interchange system, Bank of America is trying to find new ways to pad their profits by sticking it to its customers. It’s overt, unfair, and I hope their customers have the final say.”

Come on, Dick! Do you honestly think banks will just accept $6 billion in lost revenue? HARDLY! This is simply another case of how government involvement leads to unpleasant consequences (I was going to say “unplanned consequences” but I can’t see how new customer fees could be an unplanned consequence of new regulations).

This is a relatively small issue for me but one of the retailers I visit, Spec’s Liquor, has a two-tiered system for charging customers. Customers who pay with cash or debit card, receive a discount. Those who pay with credit card, do not. So, I’ll either have to pay with debit and incur a banking fee, pay with cash (I seldom carry cash), or use my credit card and forgo the discount.

I am happy to report that Christopher Dodd, Barney Frank, and Dick Durbin will be happy to reimburse you for your fees. Just send them the bill. (Unfortunately, that was a joke.)

Interesting piece I found on Investopedia this morning: 9 Reasons to Say “No” to Credit.

Their nine reasons:

1. Financing your purchases doesn’t teach self control.

2. Financing your purchases means you aren’t sticking to your budget.

3. Credit card interest rates are expensive.

4. Credit card interest rates increase when you can’t pay off your balance in full.

5. A poor credit score can affect your insurance rates, being accepted for a job or the ability to finance meaningful purchases like a home.

6. Poor financial habits can jeopardize your relationships.

7. Financing purchases can lead to higher spending.

8. In a worst-case scenario, the habit of financing your purchases can lead to bankruptcy.

9. Avoiding financing can bring peace of mind.

I agree with all of the above. BUT…

A smart person can use credit to their advantage. If you have the option to pay cash or get 0% financing, check to see if you can get a discount for paying cash. If not, take the 0% offer. Then, put the cash in an interest-bearing account and set up automatic payments to pay off the purchase within the interest-free period. Sure, interest rates aren’t good right now but you will earn a little something.

Although mismanaging credit can hurt your credit score, managing credit properly (rather than not using it at all) can help it.

As part of the CARD Act, there were several new rules that went into effect on Sunday. They are:

Reasonable penalty fees. The new fee can’t be more than $25 unless you have been late within the last six payments, in which case it can be up to $35. I fail to see how this is going to motivate people not to be late.

No more inactivity fees.

No more multiple fees for the same transaction.

Rate increases must be accompanied with an explanation.

Rate increases must be evaluated every six months to see if a lower rate is appropriate.

I saw a commercial today for a company that made the claim that “debt settlement is YOUR RIGHT,” and that people can “drastically reduce” their balances. This kind of stuff gets on my last nerve. I think that people should have to dump most of their material possessions first and THEN the balance can be reduced to whatever acceptable level (this still bugs me but at least people wouldn’t be getting off too easily). Of course the glitch in my idea is that not all credit card purchases are for material goods.

Anyway, overall, I think these changes are okay. I never liked inactivity fees. Late fees are totally okay by me. If you don’t want a late fee then pay your bills on time. It’s not that hard to figure out.

I did see on Instapundit this morning that one of the consequences of the CARD Act is higher interest rates on credit cards. Let’s face it: banks are going to make their money one way or another.

I was talking with a friend of mine the other day. He asked me whether or not he should liquidate his 401(k) in order to pay off his credit cards. Here are some of the details:

• credit card debt around $15,000. Interest rates of 19% and higher.

• 401(k) balance of $16,000 from a former job. No other retirement savings.

• will not be able to contribute to his 401(k) until next year.

• he has an extra $1,000 per month that he could put towards paying down his credit card debt. (I’m not sure what he’s currently doing with the $1,000.)

Here’s what I told him to do:

1. DO NOT LIQUIDATE THE 401(K)! Why? Because nearly $5,000 would be lost to taxes and a penalty. Not only that, he’d be losing out on the future growth of his 401(k).

2. I would then commit to paying $1,500 (using the $1,000 mentioned above plus current credit card payment amounts) towards paying off the credit card bills. I did some quick math and found that he could have his credit card debt elimated by February of next year:

It’s amazing how quickly interest charges can come down as long as you pay a sizeable amount each month towards the balance.

3. Then, about that time his credit card bills are eliminated, he will be eligible for the 401(k). I would then contribute $1,375 per month to the 401(k), which is the current employee maximum allowed.


The main thing is to have a plan and stick to it.

Check this out: Credit Reform and My New 703.8% Card

Now before you say, “Damn! That’s a high APR,” read this:

Department Stores National Bank, which issues the card, charges a “minimum interest charge.” On my average daily balance of $3.41, that minimum charge worked out to “an actual annual percentage rate” of 703.80%. (Part of the impact of last year’s credit reform is that the issuer had to disclose that shocker on the statement, while also noting that the card’s normal APR is 24.5%.)

Did you see it? HER AVERAGE DAILY BALANCE WAS $3.41! She conveniently leaves out what the interest charge was, which couldn’t have been more than a few dollars. I’m not sure why she’s being charged interest if she’s not carrying a balance.

Besides that, what’s she doing opening a department store credit card during Christmas? Isn’t that one of things you’re not supposed to do?

Just curious. Read the rest of the article. There’s all kinds of good material there. Oh, and the name of her column is “Devil in the Details.” Hahaha…