The Morally Culpable Purchase

Personally, I think credit card companies themselves aren’t the cleanest morally, and that this might be a bit of the pot calling the kettle a certain shade of dark, but some credit card companies are going to refuse to put through transactions that are morally questionable. ‘Questionable’ is a highly subjective term, and could mean anything from legal marijuana for medicinal purposes through to online pornography. According to MSN Money, some consumer watchdogs feel that these limits are unjust, but suggest that companies could be liable federally should they allow the purchases on the cards they promote.

The Start-Up

People are always positive about their start-up businesses, and that’s perfectly acceptable. You should be pumped about your own business. But why are you funding it with a credit card? Sure, it’s possible. But if you’re reduced to using your credit card for the upfront capital, maybe you should consider delaying the business plan until you’ve actually saved the money or found some investors that aren’t going to charge you the absolute earth in interest. Beyond anything, should things go pear-shaped (which is a reality all of us need to be reasonably aware of when it comes to start-ups) your credit rating could be seriously damaged.

The Spiral

Credit card debt is a spiral. It’s easy to get a little debt, feel like you can’t cope, and continue to use the plastic in an attempt to worm your way out of the issue. It’s never going to work. The only way you will ever get on top is if you stop using the card and start paying it off at a rate higher than the mimimum. If you’re starting to rely upon your credit card to buy groceries, or advancing cash to cover your rent, then you need to sit down and re-budget. Work out where the money is leaking from, how you can increase your cash flow and stop using the card.

Small Businesses

I work in a cafe where people tend to pull their hair out in frustration when I explain that I can’t use their credit card unless the total is over $10. I can understand, some people don’t carry cash on them and it can be frustrating, but the reality is for small businesses, credit cards can be a pain. Or, more accurately, the fees that come with credit cards. Rampant credit card swiping on small amounts will eat into their profits like no tomorrow and, unlike juggernauts like Coles and MacDonalds, they don’t have the capital to absorb it. So, if you’re heading out for a coffee, taxi ride, buying a beanie from your local store, think about swinging by the ATM first.

But the why, wherefore and actual process of cutting up a card is not a simple as it seems. Here’s how.

Why

Most people you know have credit cards Probably they have a couple. A quick look in your wallet probably says the same thing about you, and a quick look at your bank balance will show you the damage that they do. Sure, part of the problem is our lack of discipline. Our tendencies towards financial excess.

But credit cards make it easy, too easy, to fall into debt. They delay the pain of spending, and just when you’re down, the bank offers you an increase on your credit limit. The interest makes it impossible to keep on top of, and all of a sudden, without anything to show for it, you’re drowning in consumer debt.

Wherefore

Alright, wherefore means exactly the same thing as why. Nevertheless, let’s look at the nitty gritty reasons you should be cutting up your credit cards. For one reason, having several credit cards would seem slightly over-the-top and an easy way to lose control of your spending. So, as a baby step, maybe think about cutting up Credit Card #2, #3 and #4. Sit down and ask yourself exactly what you need that many credit cards for, and how much all the fees and interest is costing you.

If you’ve only got the one credit card, should you be cutting it up? Well, people will tell you it does terrible things to your credit ratings. Then again, so does spiraling debt, so I choose to ignore those people. I hate credit cards. I’m all for a credit-free existence. And why not? You can use your debit card for online transactions, and they have the same amount of security features. And rewards programs? By the time you’ve spent all that extra money, paid late fees and interest, you could probably have afforded the reward by yourself.

How

I cut my credit card up in an extraordinarily cavalier manner, it now turns out. I may have been a bit worked up at the time, so didn’t think about the proper process of getting rid of the rotten thing and staying safe from identity theft or fraud.

Here’s how to do it properly. First, cut between each of the groups of numbers on the front, making four sections. Then, turn your bits of card over and find the security numbers on the back. Now cut so that the embossed number and the code are separate.

WikiHow suggests you then preferably dispose of each part in a different city. That’s eight cities it is suggested you travel to. I don’t know about everyone else, but that seems somewhat extreme as I don’t generally visit eight cities every couple of months. I think it’d generally be okay if you got rid of the parts in a couple of different bins. If you feel like a bit of lark, maybe this is your opportunity to Bogart-it-up, and walk around town in a trench coat and trilby, subtlety disposing of the ‘parts’ in different locations. After all, this is a truly satisfying moment. You may as well enjoy it.

You also have to have (well, I do at least) a reasonable level of fear or appreciation of the consequences that are attached to a financially irresponsible life.

Here’s my contribution to the last element of financial security; some of life’s scary credit stories.

Story #1: The Co-Signed

The oldest credit card horror story in the book. So your boyfriend’s brother needs someone to co-sign a loan. He seems nice; he just wants to get educated/ a car/ a ticket to Delhi so he can connect with his spiritual side. Or maybe it’s your Mum, or a friend. Whoever it is, whatever the story, don’t do it. That may sound callous, especially when people might need your assistance.

But there’s only way this can end, and that’s badly. Too many people act out of the goodness of their hearts, and end up saddled with a loan they did nothing to earn. How to avoid it? Don’t take the risk, no friendship is strong enough to withstand those kind of issues.

Story #2: The Snowballer

You have your credit card under control. Maybe you’ve cut it up. Maybe you’ve put it in a block of ice. All is hunky, dory and dandy. And then something goes wrong. You lose your job, an unexpected repayment comes up, Christmas arrives. Whatever it is, you don’t have the money for it. So you advance cash off your credit card, and then the avalanche begins.

Cash advances are the Demon King of credit cards. You pay for them the second you advance it, and it makes the interest on the card enormous and very hard to control. How to avoid it? Have an emergency fund for these occasions. Build it up simultaneously to paying off your credit card, so that if disaster strikes, you don’t have to enter debt again to survive.

Story #3: The Chip Away

Somehow, your debt is huge. Clothes, medical expenses, Wallabies tickets- whatever. However it happened, you’ve got bad credit card problems. And so you chip away, and you chip away and yet it goes nowhere. How common a tale can you get? Avoiding this one can be done in two ways. The first way is to never get a credit card and never get into that kind of debt. The second way is to pay above the minimum repayments on your debt. It’s not just important, it’s essential. You’ll never clear it otherwise. However you have to do it, pay above the minimum.

Story #4: Paying Your Dues

So you’re finally tackling your credit card debt. You have your payments lined up and you’re keeping your spending under control. And then, all of a sudden, you start getting late fees. Impossible, you say. Sadly no, there seems to be several instances online of credit card companies changing the due dates on credit card repayments so every one misses them and has to pay late fees.

Simple, effective and so unethical it makes me hop. How can you avoid it? It’s near-impossible to prepare against, but if it happens to you, contest, contest, contest the charges because that kind of behaviour ain’t on.

Whatever happened to ‘plastic fantastic’ and other such terms? Its true being in credit card debt is tough, particularly if you have more than one, but it’s not the end of the world, it could in fact be the beginning.

I want a home loan, but I have no credit rating

It’s true that since the GFC, banks have greatly tightened their lending practices to make it near impossible for first home buyers to get a home loan. Gone are the days where 106% lend or No doc loans flourished in the market. These days if you don’t have a minimum 10% deposit and a good credit history you can stay in the rental queue. So how will a credit card help? For a start when you apply for credit an ‘application enquiry’ goes on your credit file.

Then when you apply for another loan with a bank, they check your credit file and will see that another institution has checked your file. The bank can then request statements from you for any application of credit on your file. If you can provide these and demonstrate you’ve made repayments on time – or better yet, paid the balance in full, this puts you in a better position for a loan.

55 days interest free

If you are considering a major purchase, and have money in the bank, consider a credit card with this option. If you time the purchase to fall at the start of your statement period, this will give you 55 days of no interest on your purchase.

On a purchase of $5,000 this could save you up to $160*in interest. If you invested the $5,000 over the same period at 7%, your money could also earn you around $55.

Cheeky, but it works

I had a personal loan of $10,000 a while ago at 14% interest, this was going to take me 5 years to pay off at $230/month and would pay over $3,900 in interest. So I applied for a low rate credit card 9.9% and paid out the loan, automatically saving me $1,200 in interest. I then decided to take it one step further and applied for a card through another bank. This bank was offering 2.9% for 12 months on balance transfers.

I transferred the balance to the new card, closed the old card and saved myself a further $1,000 in interest. I then made extra repayments to pay out the credit card within the 12 month period. $10,000 paid off in 1 year instead of 5 and a saving of over $2,000 in interest…not bad for half an hour’s work.

I don’t know what I did with that $100…

“Cash is king” unless like me you have one very absent mind and suffer the embarrassment of trying to pay for coffee out of an empty wallet. Your credit card statement is a record of all expenditure, good or bad and as I have fallen victim to several times now, a record of that naughty shoe shopping splurge (which is why I open the mail in my household.)

My purchase is faulty or I didn’t authorise that transaction

Usually, in these circumstances, your financial institution will immediately reverse the transaction. They will then seek a chargeback of the disputed amount from the merchant’s bank. There is a time limit though, so keep an eye on those statements!

On the subject of Gold cards

Each credit card has its pros and cons, but I’m still on the fence when it comes to Gold cards. These cards always have a high interest rate and big annual fee. In return they offer you travel insurance, credit insurance and extra rewards points for purchases. If you travel frequently and have the card linked to your frequent flyers reward program AND pay your balance off in full each month, it is possible this kind of card could work for you.

Before you decide however, it would be worthwhile to add up the potential savings you could make each year and compare them to what it will cost you to have the card. You may find you are better off purchasing travel insurance for your trips and having a no frills credit card. No matter which card you chose though, always shop around, there are many plastic fantastic’s out there, find the one that works for you!

They usually have a twelve-month expiry and, like a voucher, if lost then the balance is forfeit. ANZ introduced the first card into the market and it was successful. The advantages are that it can be used in any store a person should wish, so it doesn’t have the drawbacks of giving someone a Bunnings voucher only to realise that their version of hell would be never-ending DIY. So is it a good gift to give?

Survey says

55.2% of adults in America would be happy to receive a prepaid gift card as a present. In the same survey, however, it was revealed that 22.1% felt it to be too impersonal and another 10% felt they would rather save money by buying items on sale. This is an important element o the prepaid gift card debate- they are an item of convenience as opposed to money saving, If you want to save money, you can invest the time in combing flea markets and finding the perfect gift for the perfect price.

Break it down

The obvious money being made is by anyone who issues the cards. The ANZ card costs $6.50 to buy, the Westpac card costs $4.95 or the Canvas Visa costs $19.95 to buy. Personally, I don’t really understand why you would pay money to give money. The advantage of the card as a present is that people without credit cards can use it online to buy concert tickets or books from Amazon, but be aware that its not a money saving gift.

You can give cash without having to shell out $10 bucks upfront and cash can be as widely used as credit cards. After all, this is $81 billion market. The people making money off it are not the consumers in this instance.

Use it or lose it

Prepaid gift cards can be a major money drain if they get lost- check when you purchase them that they can be replaced should they be lost, and encourage the recipient to use it quickly as often they issuer won’t have a replacement policy. Expiry dates can be pesky things, and always crop up much earlier than you seem to remember.

I’m pretty old-fashoined when it comes to gifts. I like getting vouchers, but not as much as I like getting personal gifts. Great presents have no need to be expensive. If you can invest some time, it’s possible to get wonderful presents very cheaply. A second-hand Agatha Christie, some crazy $1 jewellery or a framed picture are cheap and meaningful.

If someone is hard to buy for, give cash. That way you can avoid fees, expiry dates and they can spend it wherever they would like.

Do you use prepaid cards as gifts? What do you think are the pros and cons of prepaid gift cards?

Whatever the reason, and however good the initial intentions, if you don’t start out using your credit card properly, it has the tendency to own you. I got a credit card for an overseas trip, used it a bit too much and, by the time I was back home, I was in a credit state of mind, the effects of which I am still paying off.

So what should you do, with your first bit of plastic in your pocket? Probably don’t head straight to Myer and blow your limit. Other than, the good people at Forbes had some tips, which have kindly served as inspiration here.

Think about your rating

People differ about the value of a good credit history. No one suggests you try and have a bad one, but operating in a world where you can only get a loan or rent an apartment based on your proclivity for credit seems a bit crazy to me. Personally, I think people are starting to move away from credit history as the be all and end all. Should you have a credit card, make sure your rating stays positive as it will be one thing that banks and landlords have a look at.

Stay up-to-date

If you’ve just graduated from uni, you’re probably already in the habit of reporting your every move to Centrelink. It’s not quite as rigorous as those processes, but ensure that your issuer knows your employment status and salary. This will be reflected in your limit, which may or may not be a good thing, but certainly makes you feel very grown up.

Stay debit

Debit cards should be your major card. Credit cards involve instant gratification and delayed pain, and are dangerous for just that reason. Use debit first, and credit sparingly. You can even get a debt card that acts like a credit card for online purchases, but debits money from your savings account.

30%

Try to not use more than 30% of your credit card limit. Not only will it leave you disciplined about how much money you’re putting on your card, it will make your bank confident in your ability to pay off your credit card.

Pay it all on time

Credit cards will end up killing you, if you don’t pay them off in full at the end of every month. If you can’t pay it all off, reconsider your budget. Have a look at using some of the money you set aside for saving for getting back on top of your credit card. Paying back the minimum once you’re ensconced in debt will make it very difficult to get free of the credit crunch in the near future.

Check it out

Don’t just pay your balance unthinkingly. Don’t assume that everything is okay with your credit card; check it every month. Beyond anything, it will help you see where you are spending money and how you might be able to cut down on unnecessary expenditure.

What are your tips or rules of thumb for new credit card users?

Credit card fraud and theft is probably one of the most common forms of attack, right after the handbag-being-stolen-on-street variety. Often it happens when you’re travelling, and your insurance or bank covers it. Generally the bank will cover it anyway, once they’ve satisfied themselves its legitimate. Even though there are ways to redress the situation, credit card fraud is still a risk, nuisance and cause to worry.

Here’s some tips on how to protect yourself, thanks to Scambuster for the inspiration.

Try not to let the credit card out of your sight

Make sure it gets returned pronto. Giving your credit card to a waiter in a restaurant seems normal, but if they’re a bit crooked, it’s the easiest thing in the world to get all the details and go on a spending spree on eBay.

Don’t’ give your credit card details out over the phone or email

Unless you’ve initiated the conversation. No legit company would ask for those details over the phone/email.

Check the website is secure before you type in those numbers

Somewhere on the page will be a sign that it is secure. If you can’t see it, don’t buy it.

Sign your credit cards as soon as you get them

Walking around with your card unsigned is asking for a whole heap of trouble to head your way fast.

Don’t keep the PIN on it, near it or with it

Don’t disguise your PIN as a random birthday in your wallet, because people are hip to that groove and will probably strip you of your cash before you can blink. You might have trouble with insurance as well in that situation.

Don’t leave your card lying around. Obviously..

Try to keep the numbers down. If you don’t need the card, don’t carry it with you. The more cards you have, the more chances you are giving those less upstanding members of our society to take advantage of your optimistic view of human nature.

Look at your credit card bills

I know its hard, and something to be avoided at all costs, but if there are charges on there that you weren’t responsible for, you need to know about it quickly. Keep receipts and check them against the statement every month.

Don’t sign blank credit card receipts

How often do you actually check the receipt you sign? If your answer is ‘not often’, you need to rethink your approach. Blank sections of a receipt can be used to add extra charges, which you will pay for because your signature will be down the bottom.

Don’t lend your credit card to anyone

No matter how nice, no matter how trustworthy. Keep your friends close and your credit cards closer.
How do you protect yourself from credit card fraud? Have you ever been a victim of fraud?

The person who submitted this tip wishes to remain anonymous. We thought it was a very enlightening read and definitely worth sharing.

Here it is:

Dear Savings Guide,

I work for a large bank, and credit cards can be great and they do work well when you understand and use them properly.

The biggest problem we seem to come across is customers inquiring on interest charges, fees (late payment, overlimit, cash advances etc) and not understanding why they have been charged, and genuinly believing that it was a bank error.

You need to keep in mind that the bank supplies you with all relevant information before you activate the card to completely understand how it works and to avoid those extra costs.

My biggest credit card tip?

READ AND UNDERSTAND THE TERMS AND CONDITIONS BEFORE YOU ACTIVATE THE CARD.

If you don’t understand you can always call to have things clarified with a trained consultant with most large banks having a 24hr general inquiries line available to call.

Don’t get too excited when you get the shiny new card that you miss the most important step, as part of activating the card you MUST agree to reading these terms and conditions (otherwise the card will not be activated until you do) therefor you are forfeiting any right to a refund of fees/interest because you ‘didn’t know’, ‘didn’t understand’ or ‘weren’t aware’ – because really you should have been.

We get a lot of customers calling and saying “that’s not fair!” or “Ohh… I didn’t know that” and it isn’t a very nice thing to have to state that its in your terms and conditions.

Well the usual response is something along the lines of ” Yeah but who actually reads those?” and then telling the customer well you did, you agreed to reading and understanding them. Unfortunately they have no where to go from there and usually start bad mouthing the bank for all sorts of reasons (mainly because they let themselves down.)

Now, I’m not sticking up for the banks, because honestly, before I started working there i didn’t understand the T’s & C’s either, I was just to excited to activate the card and start spending, so I myself had to learn the hard way too, and unfortunately i was unable to blame the bank, and received the same type of spiel, which was not nice to hear.

The banks are big businesses with every corner covered in every situation and while we may think its mean or unfair that they “get away with highway robbery” – you as a consumer, applying for credit with an institution also need to take some responsibility for your own accounts, credit cards and actions (or lack of actions).

At the end of the day you are the only person in control and aware of your balance and required payments, if you do not want to pay interest – well then don’t spend beyond your monthly means! The bank is providing you a service of utilizing their funds at you convenience, and that is what you applied for, not the bank forcing you to.

Money on credit cards is the banks money

We all need to remember sometimes that a credit card is the banks money, and it is a privlidge not a right to have one, as customers often state “you can’t block my credit card, that’s my money!” well no its not your money, and yes the bank has the right to stop you spending more of their money until you satisfy at least the minimum payment.

So bank smart, read and understand what your agreeing to and take some responsibility because at the end of the day if you get into strife with your credit card, it’s only yourself that put you into that position. Stop blaming everyone else and read the information provided because you will never win that battle with a bank. Sad but true. They have covered their behinds, so why not cover yours!

I know I may sound a tad harsh, but sometimes credit card holders need to be reminded of a few things.

So get some knowledge under your belt and be smart!!

Regards,

Anonymous

Note from editor:

Savings Guide here, I totally agree with ‘anonymous’ regarding taking responsibility with your bank issued credit cards – to me it is a given that people think like this and the only way to become accountable for your money spending antics! The only thing I would like to add is that sometimes I disagree with the banks policy on credit limits. I have seen students who were given a $20,000 limit at the age of 19 while studying full time and working casually at Bakers Delight. To me, that was a very big miscalculation. Although the spending of that $20,000 is up to the student, I believe their is a level of social responsibility that the banks must acknowledge.

Thanks for the tip! Please submit your own if you have the time!

Card skimming devices are used by criminals wanting to capture your cards swipe details and password in the attempt to recreate your card and withdraw your money at a later stage.

I have to say, it blew me away at how professional some of these devices are getting and who knows how many times I could have fell victim to such a scam.

In the interest of not getting your ATM or Credit Card details stolen – I suggest you view the following presentation right now. After all, we talk a lot about saving money, but it would be kind of hard to save if we kept having it stolen!

For those among you (a mere few I’m imagining) who haven’t hung on every word of mine so far (you’ve been sick, death in the family, you suddenly lost all sight- all of those reasons pass. If none of the above applies, exactly why haven’t you memorized all my articles?), I’ll do a quick onceover.

The pain theory of credit cards

The Pain Theory basically suggests that buying something is a showdown of emotions. The instant pleasure of a purchase versus the pain of handing over the money to acquire said instant pleasure. This is where credit cards come in (boo hiss from the audience please).

Credit cards delay the pain, but provide the instant pleasure. If you’re disciplined and conscientious, then that’s not too big of a problem. If you can pay off your credit card at the end of every month, then it’s a wonderful innovation that can be very liberating. If you’re not disciplined, it can the bane of existence.

I know I shouldn’t blame credit cards for what is essentially, my own personality defect. But sod it. I’m going to blame it anyway. It’s a pretty easy target when it successfully manages to make my net worth a red mark of deficit..

Is it because I am a girl?

So does this terrifying slide into debt have anything to do with the fact that I’m a girl?

Those in marketing certainly seem to think so. As soon as women entered the workforce, they were greeted with specifically tailored credit cards. My personal favourite was advertised with the tagline ‘the Man don’t get it’. The cards look good, and are coupled with a wide array of benefits, such as free access to a gym or a female wellness clinic.

These cards were suggested as the next step to freedom, and yet recent Australian data found that 80% of women had debt and just under half of that debt was due to a credit card. Of the women who had credit card debt, 56% felt they were going backwards financially.

It would seem that once you have credit card debt, you have no ability to save or invest because everything goes into trying to pay off the monthly payments and the interest.

So whether you’re a guy or a girl, if you’re not balancing your credit card, here are a few tips to help you out.

1. Recognize that credit cards obviously don’t represent real money to you Try and spend only cash for a month. Extend it to three months. Don’t stop paying off your credit card in this time.
2. Consolidate your credit card debts onto one low-interest credit card. Or, as you pay off one credit card, get out the scissors and wreak your revenge on the bit of plastic that got you into this mess to begin with.
3. Confront the reality that you’ll have to pay off a credit card debt for 15 years if you just pay the minimal repayment. Find some (legal) way of finding the money to pay above the minimum.
4. So are girls just bad with credit cards? The jury is still out. Right now, credit cards certainly aren’t working for a lot of women. But with a bit of financial know-how and a dash of discipline, my sisters and I will be well on our way to a debt free (and potentially credit card free) existence.

Does your credit card work for you?

How do you manage to control your credit card spending?