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.

Ok.  The first thing you need to do is come back to reality.  Unless you are the perfect soul who never gives in to life’s finer things, you can find money to cut.

The first thing that comes to my mind for myself, is my terrible habit of smoking.  While I didn’t quit in my journey, it certainly was there to help motivate me to try even harder.  Another huge money waster for me was eating breakfast and lunch at my employer’s cafeteria 5 days per week.  I always said to myself, “ah its only $2 for breakfast and $3 for lunch.”  Pretty easy to do the math on this one.  I was wasting $100+ a month on this alone.  Now I bring generic cinnamon pop tarts that cost $1.25 per BOX for breakfast and bring leftovers or prepare my own lunch.  While that still costs money, I know I don’t spend half of what I used to.  Pick your poison, everyone has one, or in many cases, more than one.  This is all about sacrifice at this stage in the game.

There are countless other expenses I’m sure you could do without.  Cable TV, cell phones, etc. are all wants, not needs.  Sometimes it can be hard to distinguish the two, but again, focus.

A little story about a friend of mine…

My friend starts the conversation similar to one I’m confident you were involved with.  Not necessarily you yourself, but someone you know.

“I’m broke.  I don’t know where my money is going.  I’m telling you, I don’t shop, I don’t eat out.”  Line after line.  I knew for a fact that this person was making more money than I.  Probably even more than both me and my wife combined.  So I go into my usual pitch, to get out of the seemingly endless race, you have to sacrifice some things now to be much, much better off later.  The immediate response was “Well, there are some things I just cannot sacrifice.”  This person must have been referring to the near new truck, boat, ATV, and motorcycle they had.  This was in addition to the cars he and his significant other drove daily to work and around town.  I was floored.

The idea behind this is to get you back to reality.  Get a grip.  Make it happen.  It is up to no one but YOU.

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, guess what?  I’m not.  I read an article the other day detailing how banks are “evil.”  If I hear the word evil again, I’m going to drive my car off a bridge.  Society kills me.  There is no personal accountability anymore.  Everything is someone elses fault.  I don’t buy it.

It sounds like people have completely forgotten that banks are a business.  The teller behind the counter, gets paid.  I know, this must be shocking news to you.  It turns out that the bank has to make money to pay this person.  Another shocker, I know.  So why it that when you found out they charged miscellaneous fees, they are the most evil people in the world?  100% of these fees can be avoided, if you are accountable for YOUR actions.

The article basically goes through and calls out the banks for their high fees on overdrafts.  At the end of the article, there is a section where users can post their responses, very similar to this blog.  I was in hysteria after reading the comments.

One reader comments “These outrageously high bank overdraft fees are just another example of the financial system profiting from the unfortunate.”  I find this completely ridiculous.  Here’s an idea, stop writing bad checks.  The argument the fees are too high is completely irrelevant.  I don’t care if the fees are $.02 or $500 per transaction.  At the end of the day, if you had enough accountability for your finances, guess what, the fees would have never been incurred anyways.

Ways to avoid overdraft fees:

1.  Keep a check register
2.  Keep an extra couple hundred dollars in your account.  If you don’t have a couple hundred dollars extra, get a budget.
3.  Don’t even use a bank.
4.  Use cash or a prepaid debit card.  No one is forcing you to bank.  If you don’t have enough accountability for your OWN finances, stop using banks.
5.  Be accountable for your own actions.

Another reader comments about how banks constantly screw him over by processing debits before credits.  Again, this shouldn’t matter.  If you had control of your finances, this would not be an issue.  Many of the readers write of the constant barrage of overdraft fees.  You know what this shows me, not that the fees are insane, but that you have been “screwed” time and time again but have learned absolutely nothing for the “crazy” fees.  So not only do you leave yourself susceptible to the banks “evil” practices, you know so much about how they work to “screw the little guy” you have actually learned the ins and outs of how the bank works yet have not taken an even fundamental step to correct this wrong doing that is being thrown upon you.

Get real people.  You can point the finger all you want but at the end of the day, if the finger isn’t pointing right back at yourself, you’re never going to change.  Its up to you and NO ONE else to fix this.  Your money mistakes and problems are no ones fault buy your own.  The bank didn’t open the account without you asking.  In fact, you probably had to get in your car, drive there, fill out an application, and make a deposit.  The credit card company didn’t send you a credit card without you signing up.  Sure, they advertise, but YOU took action to do this to yourself.  If I ate fast food 3 times a day, 7 days a week, and got pissed off that I weighed 400 pounds, I sure the hell wouldn’t be saying the fast food chains are evil.  They post the nutrition facts in the restaurant stating the burger has 800 calories.  If you’re too lazy to read that, its no ones fault but your own.  Its just as easy to stop over drafting as it is to stop eating double cheese burgers and uber grande size fries everyday.

Cliff notes of the article:  Overdraft fees didn’t break you, you broke yourself.