Archive for November 2010
Easy Steps to Reduce Credit Card Debt
The above lines seem to be too good to be true. But the fact is if few tips are practiced regularly then it will be very easy to reduce your Master card debt.
Shift from Company
One of the best ways to reduce the credit card debt is to shift your balance to another Visa or American Express card company. By doing this you will be able to take advantage of introductory period of nearly 3 months to 1 year having interest rates as 0% or quite minimal. This move will help you prevent paying excess of interests to credit card companies.
Cut down on your usage
The other sure shot thing to help you is to cut down on your credit card usage drastically. Pay by cash wherever possible. It may also help you to negotiate your interest rate with your credit card company. You might prove lucky if they reduce the rates by a few points.
Prepare your own budget
This may seem a tedious task but once done carefully, will help you a lot at later stages. Budgeting your expenses will give you a clear idea of how much you can save per month and how much you pay towards your credit card bills. Once you form a habit of paying more than the minimum amount required to be paid by credit card companies, you will save yourself from unnecessary higher interest rates later.
Visiting a Credit Counselor may help
Other then these basic procedures you can also opt for credit counseling companies. These companies have experts who may work on your debt structure and do a detailed analysis of your financial situation. After this they may come up with a debt reduction program which can be smaller one of few months or even it may extend till a few years depending on the amount of debt and your financial situation.
There are also options like taking up a debt consolidation loan if the situation demands. By this we saw the basic and simple steps we can take in our day to day life towards reducing the Master card debt.
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Balance Transfer Offers – When 2.99 APR is Better Than 0
Long Story Short — Sometimes it’s better to take the 2.99 offer if the introductory period is longer (or sometimes the bank will even offer that rate until the balance is paid off), and you know it’s going to take you a while to pay off the loan.
Let’s say you owe $10,000. An interest rate of 2.99% would cost you $299.00 for one year. (This is just a ball park figure — it would actually be less because you’d be making payments every month). The same $10,000 @ 7.99% would cost $799.00 for one year, but if you had a 0 APR rate for the first six months and made substantial payments, this $799.00 figure would be substantially reduced.
Neither of these calculations deduct the monthly payments. In the second example, if you were making payments of $1,000.00/month, you’d have $6000.00 of the balance paid off before you started paying any interest. The interest would be calculated on the remaining $4000.00 only. Multiply $4000 by .0799 and divide by 12 and you get $26.63. Do the same thing using $3000, $2000 and $1000 (for the remaining 3 months) and you come up with monthly interest of $19.98, $13.32, and $6.66 respectively for a total interest amount of $66.59. (Actual amounts would be slightly higher since the balance would include the accrued interest each month, but this is close enough for our purposes).
Let’s do the same thing with the 2.99% APR using the same $1000 monthly payments. Multiply 10,000 by .0299 and divide by 12. This comes to $24.92 for the first month’s interest. Do the same for the remaining 10 months (the card will be paid off by then except for interest) subtracting $1,000 each time as above and you come up with a total interest amount of $137.05. This is slightly more than twice as much as the example above using 0 interest for the first 6 months and 7.99 for the remaining 4. (Even this amount is substantially less than the $299.00 ball park figure shown originally due to the rapid repayment schedule).
So far, the 0% interest is looking better. This does assume a very rapid repayment schedule so what you really want to do to determine which one would work best for you is to is come up with your best guess as to how much you’ll be able to pay each month. Here, you really do want to pay as much as you can. Paying minimum payments only will take you forever to pay off the balance which will please the banks because that’s that much more interest for them.
Let’s just take one more example, and see how it works out. Let’s go with the $10,000 balance and the 0 APR for 6 months following by a 7.99 APR, and compare it to the 2.99 rate for one year, but let’s assume a monthly payment of $500.00 this time. For the first example, we’ll need to subtract $3000 right off the top for the first 6 months. Then we’ll take $7000 multiply it by .0799 and divide that by 12 for the first month’s interest of $46.61. The remaining five month’s interest (after subtracting $500 from the balance each month) would be $43.28, $39.95, $36.62, $33.29, and $29.96 respectively. This gives a total of $229.71 for the first year’s interest. At this point we’ve also made 12 payments at $500.00/month so the loan balance is approximately $4000.00,
Now let’s compare that to the 2.99 rate. The first month’s interest (10,000 * .0299 / 12) would be $27.85. The interest for the next 11 months (here again assuming monthly payments of $500.00) would be $23.67, $22.43, $21.18, $19.93, $18.69, $17.44, $16.20, $14.95, $13.70, $12.46 and $11.21, respectively, for a total interest amount of $219.71. At this point, the difference between the total interest amounts is negligible ($229.71 vs $219.71), and both loan balances are around $4000.00. If you’re comparing an introductory offer of 0% APR for the first 6 months, and 2.99% for a year, and both of them convert to a 7.99 rate after the introductory period, see what other incentives come with each card. The difference you actually pay in interest is around $10.00.
However, if the 2.99 rate is for a longer period, then you’ll want to look closer. Compute the interest for the next 3 months at the 7.99 APR rate and you get $26.63, $23.30, and $19.98 for a total of $69.91. For the 2.99 rate, those amounts would be $9.97, $8.72, and $7.48 for a total of $26.17. This $69.91 is more than 2.5 times greater than the $26.17 figure. Granted it’s only $43.74 more, but if your original balance is more than $10,000 or if you can’t pay $500.00/month as shown in the above examples, then the 2.99 could be a lot better over the long run.
One thing you do want to remember regarding the above calculations is that I have not added the accrued interest each month. For example, during the first month @ 2.99, the calculation would actually be $10,000 * .0299 / 12 = $24.92. Then the next month, the $1,000 payment (or $500.00 for that example) would be deducted from $9,024.92 which would change the figures slightly.
The figures shown are simply meant to show that you do want to look at the whole picture (interest rate and the length of the introductory period) when choosing a balance transfer offer.
Hope this helps.
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Credit Card Identity Fraud
This type of fraud occurs when a fraudster has an easy access to your bank details either through your credit card statements or utility bills and craftily uses this information to make an application for a credit card in your name. Once the application has been approved, the fraudster is then able to purchase goods and services in your name. Sounds ghastly, doesn’t it? But the ugly truth is that you then become the unfortunate victim of identity fraud. So how can one protect himself or herself from becoming a victim? Here are a few possible ways to ensure that this unfortunate event never happens to you:
First and foremost, remember to shred all official documents that you no longer need to keep in your possession. If you were to simply scrunch up your official document into a ball and then bin it, the fraudster is likely to scavenge your bin, smooth out the creased document and hey presto, all your personal details has, like magic, slipped into his hands! Shredding is a good way of avoiding such a terrible occurrence from happening.
Always remember to check your credit card statements every month so as to ensure no unauthorised transactions have taken place in your name. If you see a suspicious looking transaction recorded in your statement, report this fact immediately to your credit card provider and to the police.
Get the most recent copy of your credit card report and check if there has been any credit search against your name. This will give you a vital clue if anyone has made an application for a credit card in your name. If you find this to be the case, report the matter to the credit card provider immediately. When you move house, remember to inform all official bodies that you no longer reside at your old address. You could also contact Royal Mail for details of their re-direction service.
And lastly, never, ever, reveal your PIN to anyone. And don’t make the mistake of writing it down because if others, whether they are known or unknown, get to read it, they will have an easy access to your bank account. Memorize it instead. Do keep in mind, that the chip and PIN method is an excellent anti-fraud measure to keep potential fraudsters at bay. Without your PIN, the fraudster will be unable to purchase goods and services at retail outlets or withdraw your cash from the ATM.
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