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I continue to clean up my huge archive. Many times I simply delete old silly content, but this topic is still valid. If you carry a large credit card balance, and make only minimum payments, you are in for a shock. Look for how long it will take to pay off the balance (it must be in your statement). This was originally published back in 2010.

My current credit card balance is quite large this month due to a bunch of specific previously planned expenses (and a couple that we hadn’t planned).  The bill will be paid on time, so there is not too much worry about starting a cycle of credit card interest charges (at least that is my plan, unless I forget to pay on time).

Having wandered through the wonderland of spending, I tripped across the following sentence:

credit card minimum payment
Example of how long a minimum payment will take only 18 years eh?

19 years? Aye Carumba, that is an astounding time frame. So my estimation if we were making this same payment that the effective yearly rate is about 20% and I’d end up paying in total about 500% of the initial amount on the credit line once all payments are made, pretty cool eh?

I realize that sometimes folks spending gets out of control. Sometimes, bad things happen that knock you off your financial feet. If this happens you must fight to get back to paying off the entire balance of your credit card monthly. The interest rates on Credit Cards can be over 20% and will dig a deep financial debt hole for you.

Some ideas you can do to stop paying Credit Card interest:

  • Set up an unsecured line of credit. This can be good, if you treat is as an Emergency only credit vehicle. Typically this has a lower interest rate, but it has risks. If you habitually use the LOC to pay off Debt, but can’t pay off that balance, maybe this is not the way to do it.
  • Consolidation loans or consolidation into your mortgage sounds good. If you use it once, it can get you back on track. If you use it habitually, that is a very bad thing. You are digging a bigger debt hole, more slowly.
  • Borrow it from your family or friends? A last resort, and it can destroy relationships, but it could work, short term.
  • Pay Day Loans? Absolutely, positively NO! Go talk to a licensed insolvency professional before you do this.

The amazing things you can read on your credit card statement.

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Credit Card: One Time Services

A long time ago I wrote about how credit cards can forgive interest charges (i.e. late fees). This can happen more than once, but not easily. For those who allow credit charge pile up, this is not a story for you.

I was checking my Credit Card statement and found a credit charge for last month. That is rare, so I investigated further. Usually I pay off my credit cards every month. This is an important factor for this story.

The culprit for the past due payment was that I paid my bill from 3 different accounts that month. One of the payments from one of the banks got dated a day after the payment due date. This meant that part of my payment was “late”. Another important factor was that the total of my payments added to more than the Credit Card balance for the month.

I called the credit card company. Luckily there is an option for Dispute Credit Card Interest charge. A very kind young lady answered the phone after a short wait. I explained what had happened, and asked polity, “Can this past due fee please be reversed?”.

Previously I had to wait to see if the charge could be reversed, but not this time. The young lady looked at the payments and my record and simply reversed the charge for my account. This was a big relief for me.

The service rep pointed out that this is something that is done rarely. If you habitually don’t pay off your card, this forgiving of fees will not happen. She suggested setting up automatic bill payments to make sure this didn’t happen again.

What Did We Learn About a Late Credit Charge?

  • No matter how smart you think you are, many times it is your fault.
  • Being a jerk on the phone may make you feel better for the moment, but don’t expect any help from the person at the other end of the phone.
  • If you have a relatively good payment record, you can ask for “redemption” from your late fees.
  • Pay off your credit card balances every month, it helps your Credit Rating and other things.
  • If you are absent minded, set up automatic payments for your Bills in general, or your Credit Card, in specific.
  • Past due payment penalties on Credit Cards are no fun.

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Farewell New Credit Card

Last week I received a new credit card in the mail. It was a Flexiti card, and they seem to have purchased the business from The Brick or some other store credit card. Every few months I keep getting new credit cards like this sent to me. They come with a simple activate procedure to turn them on.

Each of these new cards adds:

  • More liability to me, in the eyes of any reputable loan provider (i.e. bank or the like). In the good old days each credit cards credit limit counted against your ability to borrow I am not sure how things work these days.
  • Another attack vector for those attempting to fraudulently use my good credit. Each of these cards has a new number, a new login on-line and thus another place where thieves can attempt to steal your
  • Temptation, and this is the intangible nasty part of One day I might get into a position where if I had this card I might use it as a last resort (when maybe I should have done something sensible instead).

Cancel the Card

To cancel this card, I called and spoke to a polite young man, who did try to convince me not to cancel the account, but relented when it became obvious I wouldn’t change my mind. I also asked for a confirmation that the card was cancelled. The credit card number and information have been put in a safe place as well (along with the date I cancelled the card).

The card has been shredded, so this credit vehicle should be dead.

As I have said previously I have too many credit cards, so cancelling this card and a few more is a very good idea for me. Your mileage may vary, but I think having one (or no) credit cards is a good idea.

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Does a Credit Card Appear Out of Nowhere?

One of my daughters is starting to work and has asked me questions about what she should be doing with her money. She is lucky, her student debt is not very high and she has very few expenses, but she has a credit card (more on that later). We started with where she should put her excess savings (but yes she is paying down her student debt too). We decided she should open a TFSA (I will write more about that later).

During these discussions, she asked me, “Should I put more money in my TFSA or pay off my credit card balance?”. Luckily she asked me that in an e-mail, and I was able to delete the, “WHAT ARE YOU INSANE? DON’T YOU READ MY BLOG?!?“, e-mail and simply responded, “Pay off your credit cards balance every month, never carry a balance”.

My daughter took my advice to heart, and she paid off her credit card.

Credit Card

Wait a minute, when did my daughter get a credit card? She never told me she did, maybe she got one when she started working? I was confused.

We started discussing her TFSA again, and she was looking at her on-line banking page, and I asked her, “When did you get a credit card?”. She pointed to her on-line banking, and said, “… there it is…”, so she seemed to have a credit card.

I was still confused, so I asked, “When did you apply for a credit card?”. That was the right question to ask.

As background, about 3 years ago, I decided that as a safety measure, I would give my daughters  credit cards from my account. This was when most of them were in school, so it was very much an emergencies only card.

My daughter’s answer to my question was, “I don’t know, I never applied for a card”, and finally everything fit into place. TD had put my credit card on her on-line banking (using her card number). What is interesting is that she sees the entire balance on the card, and she paid it all off (taking my advice).

In the end she had paid off a couple of Uber trips that one of her other sisters had taken, but luckily I had no charges on there.

My only concern is why did TD put my credit card on her on-line banking? My guess is because it is in her name, so it is actually a group credit card, but I am not sure.

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Credit Cards Help You Get a Mortgage

Do credit cards help you get a mortgage ? Most financial folks say having credit cards (which you pay off) are good to help build your credit score and thus help you get a mortgage. This is true, but far too often this idea is used as a sales pitch for credit cards.

Does  the Credit Limit on every credit card you have counts against you for your mortgage?

The person we dealt with at our bank did a credit check on us, when we applied for our mortgage and gave us a report that looked like this.

do credit cards help you get a mortgage

Shackled to Credit

http://www.ccpixs.com/

  • Credit Card 1 Balance $0  Credit Limit $1000
  • Store Credit Card 1 Balance $0  Credit Limit $2000
  • Credit Card 2 Balance $0  Credit Limit $2500
  • Store Credit Account 1  Balance $500  Credit Limit $5000  (we were buying a couch on a zero % interest deal)

We were then informed we had been OK’d for a mortgage balance of $X , taking into consideration my income, and our down payment. We were then informed that the real balance they would allow us to borrow would be lower.

$X - ( $1000 + $2000 + $2500 + $5000 )

The explanation given was the calculation done needed to include the potential debt load I might add with those extra debt vehicles. This made sense to me, and we got our Mortgage.

There are reports that this potential debt load is no longer being considered by some vendors? How could any sane lender not take this into consideration?

Question for Readers

Did your lender ask about credit cards, also did the credit cards count against your mortgage loan level ? I have had differing answers from different folks.

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