Joe's Money

As I’m sure you can tell, I don’t think you should have a credit card if you haven’t cleaned up your financial life and you are confident you will use it appropriately.  In the US, the average credit card debt is over $6,000.  At other points in time, I have heard this has actually been closer to $10,000.  That doesn’t sound like moderation to me.  Use your card once per month for a necessity, like a tank of gas, or put a bill on autopay through the card.  Pay it off in full every month.  Do not use it for buying toys or other want items.

If you are on the younger side and don’t have much credit, a credit card can be a good tool to build credit.  When I was younger, around 20 years old, I managed to build my credit score up to the 730 range only using only one credit card.  You don’t need a wallet or purse filled with plastic.  Find one good card, and stick with it.  It is important that you select one, and keep it for the long run.  Part of your credit score comes from the length of your accounts.  If you are closing old accounts and opening new ones, your credit score is going to be lower than someone who has used the same card, the longest.

When looking for a credit card, the most important factor is the interest rate charged.  Most folks consider anything under 10% is pretty good, for a credit card.  However, finding one of these cards when you don’t have much credit.  Stick to it and you can always call and try to get the credit card company to lower your rate.

Next, look for a card with no fees.  You should NEVER pay an annual fee to use a credit card.  An annual fee is simply money the credit company charges you just to have the card, even if you don’t use it.  This fee can vary, but stay away.  In addition, look for a card with no minimum finance charge.  This isn’t a huge deal since the minimums are usually only $.50 to $1.00.  But hey, if you can, get one without a minimum.

If you are having trouble getting approved for credit cards starting out, try department stores or big box stores.  Try to stay away from stores where you might have the urge to impulse buy, control your finances, don’t slip into that trap.  If you can’t get approved at even a department store, go to your bank and see if they offer a secured credit card.  The idea is pretty simple.  Your limit is usually the amount you secure with a deposit.  Example:  You deposit $500 into your savings account, your credit limit is $500.  You will not be able to use your deposit until the bank decides you are credit worthy or you close the account.  With the secure deposit, the bank can’t lose because your maximum credit line is the same or less than that of your deposit.  This is how I started building my credit.

One last comment…  Don’t chase the cards that offer the rewards.  If your new card has it, great!  Consider it an added bonus.  The rewards usually add up so slowly its almost worthless.  For my personal credit card, I can get a $50 gift card for every $6,500 I spend.  Whoopity doo.  Thanks anyways.  Find a card with a good rate.  With the money you save that way, you will be able to afford a $50 gift for yourself anyways.

I can’t begin to tell you my frustrations lately with the credit card companies.  I had heard of all these people saying their rates are getting jacked up for now reason.  They all stated they had never been late or missed a payment, never went over their limit, etc.  I figured there was more to it they simply weren’t disclosing.  I was wrong.  It happened to me.

Traditionally, I never carry a balance on credit cards month to month.  About 4 months ago, my credit card company must have realized that in the midst of the declining market and cut my credit limit in half.  I really wasn’t upset that the limit itself was cut, I would probably never use anywhere close to the max.  However, another piece of the credit score puzzle, is the ratio of debt to available balance.  Generally, you don’t want to have a ratio higher than around 30% or so.  Example below.

Using $300 of a $1,000 balance = 30% ratio
Using $500 of a $1,000 balance = 50% ratio

While even after my limit was cut in half, I still didn’t go over the 30% threshold, I was still a little peeved that this is what they are pulling on loyal customers.  I have never missed a payment, and I have had this account open for around 6 years.  Thanks anyways.

Even more recently, I received my first credit declined message.  I had applied for a gas card good at one of the major gas station chains in the US.  I know I advocate not opening credit cards, but this one offered a 5% rebate on all purchases at this chain.  I figured, I’m here constantly, lets save a few bucks.  There was no fees, so I was good to go.

I was expecting the card in the mail.  When I received the envelope, I could tell there was no card in there.  I almost started to panic at the thought of a declining letter because I know my credit is good and if I was declined, maybe I could have been a victim of identity theft.  Then I opened the envelope.

DECLINED!

As I read through the letter, I was happy to find they provide you with the reason for decline.  It stated my credit history was excellent.  So why would they decline a good outstanding citizen like myself?

“Expected expenses will likely outweigh the revenues for this account.”

I guess they wised up and realized they won’t make any money with me!  So much for saving 5% on gas.

Anyone else have a similar experience?

The sooner you realize that any credit card debt is too much the better off you will be.  Most folks have to learn this the hard way.  Once you have acknowledged that you need to rid yourself of credit cards, start with these steps to get rid of them for good.

I have 8 credit cards.  Where do I start?

I have found that paying off the lowest balance card first makes the most sense.  You may have heard of something called the “Debt snowball.”  This was mentioned in one of Dave Ramsey’s books.  The idea is simple.  Start with the lowest balance first.  Apply the most you can to that card while making only the minimums on all the others.  This helps in many ways.  First, it helps you realize you ARE making progress.  Once one card is paid off you can see for yourself that you have accomplished something.  The bill stops coming and its one less thing to worry about.

Once the first card is paid off, take the money you were using to pay the first card with in addition to the money you were using for the minimum payment on the next lowest balance card.  Do this until all cards are paid off.  You will be shocked at how fast this can get things rolling.

But wait!  Some of my cards have much higher interest rates on them.  While you raise a excellent concern, people need constant motivation to stick to the plan at hand.  Unless all of your cards have similar balances, stick to paying off the smallest balances first.  If your cards have similar balances, then it would of course make sense to pay off the higher interest rate credit cards first.

And last but not least, once you are done paying off all these balances, cut up the cards and never use them again.  You can no longer use the excuse they are for emergencies.  If you have setup an emergency fund, you won’t need them.  Plain and simple.  Don’t fall back into the debt trap once your out.

Well, it turns out no matter what income bracket you’re in, you probably still broke with negative net worth.

This book was a real eye opener for me.  It describes the perception and the reality of millionaires and how they got their millionaire status.  The truth is, the average millionaire is not driving a $100,000 sports car, or even a new car for that matter.  The folks driving the $100,0000 sports cars are usually just as worse off financially as the person making $8/hour if not worse.  They make more they spend more.  The doctors and lawyers may be book smart, but according to the author, they are decades behind on financial literacy.

Check it out, this is a good, inexpensive read!  Enjoy!

Link to purchase book – Used copies starting at only $.50

For Average Joe’s Automatic Investing is the Only Way to Go

When it comes to money and saving, us averages Joe’s tend to procrastinate more than with anything else.  The “I’ll start saving tomorrow” idea isn’t going to work.  Unless you are one of the fortunate ones that manages to do this without thinking about it, automatic investing is the way to go.

You can setup automatic investing for almost any type of account.  401K accounts are among the easiest, IRA accounts, regular savingss accounts, education 529 accounts, and so one.

401K accounts are the easiest.  You set them up with your employer and the money comes right out of your check.  If you start doing this immediately when you start your new job, its almost like the money wasn’t there to begin with so you don’t miss it or even realize it was ever there to begin with.

Roth IRAs, traditional IRAs, and brokerage accounts can be setup online with any major discount brokerage firm like Fidelity or eTrade.  You can set how often the money is transferred, it could be weekly, bi-weekly, or monthly.

Standard savings accounts, including online accounts (which typically have better rates than local branches) can also be setup for automatic saving.  You can have either the bank setup the automatic transfers from your checking to your savings accounts and in many cases you can even setup your direct deposit with your employer to automatically transfer a portion of your check to your new savings accounts.

Education 529 savings plans also usually offer a automatic investment option.  These work very similar to the IRAs and brokerage accounts.

Keep things simple.  Setup your automatic investing and savings.  Its one less thing to think about for your financial well being.

I can’t speak on behalf of all areas in the good ole US of A but around these parts I am constantly seeing the free credit report commercials on TV.  As with most things in life, there is a catch.  At the end of the commercial, you hear “With enrollment in XXXXX.”  Here is how to get your credit report FREE with no catch.

www.AnnualCreditReport.com

At the above website, you can check your credit report from all 3 of the major credit bureaus.  Equifax, Experion, and TransUnion.  These are the 3 major bureaus that creditor use to check your credit worthiness.  You can check your credit report once yearly for no charge, and no catch.  They do throw a few upsells out there but simply un-check the offers with a cost.  Or, if you would like to see your actual score, it will run you about $10.

Check this at least once per year, its free.  It will give you a piece of mind.  The report shows all open and past credit accounts including credit cards, auto loans, mortgages, etc.  It also shows payment history for all accounts.  If you were late even once, it will show up here.  Its a good idea to check for discrepancies and also to make sure there aren’t any rogue accounts out there that you didn’t open.  Its also a great idea to check this out before applying for new credit accounts so you know if you can expect the best rate or a sub par rate.

Cliff Notes:  Go to www.AnnualCreditReport.com, view all 3 of your credit reports, free!