10 tips to manage your credit card debt

Article contributed by http://biz.thestar.com.my/news/story.asp?file=/2011/6/11/business/8863673&sec=business

By EUGENE MAHALINGAM
eugenicz@thestar.com.my




IN the movie Confessions of a Shopaholic, the lead character, Rebecca Bloomwood, froze her credit card in an ice cube in the refrigerator to curb her spending impulse.




Rebecca Bloomwood (played by Isla Fisher) in the movie Confessions of a Shopaholic.
Indeed, desperate times call for desperate measures, but it didn’t work, as Bloomwood eventually succumbed to her spending addiction and retrieved her credit card by smashing, chipping away and melting the ice block.


The following are 10 simple, less-dramatic ways to manage your credit card debt if you believe that the potential movie sequel, Confessions of a Shopaholic 2, should be based on you.


1. Credit card freeze (not literally)


P.S. Tan, 32, is a self-confessed shopaholic who ended up freezing her credit card account after her handbag got snatched.


Already up to her neck in credit card bills prior to the theft, she considers the incident a blessing in disguise.


“By freezing my account, my expenses became more manageable and I actually ended up settling all my bills,” she explains.


“Unfortunately, I had to end up getting robbed first, but by freezing my account, it helped curb my spending.”


For those curious to know, she has resumed her credit card account.


“I am more cautious with my spending now,” Tan says.


Financial planner Wilson Low, however, cautions that freezing your credit card account has its drawbacks.


“If your (credit card) account is frozen, banks will not be able to approve loan and credit card applications in your name since they can’t access your account and credit report.”


2. Waive the annual service charge


One way to limit your credit card bill is to have the annual service charge waived, says double credit card holder P. Susi.


“I tend to use one card more often than the other and reached a point where I wanted to terminate the one I rarely use,” she explains.


“But because I was a long-time customer with that bank (whose credit card I wanted to discontinue), they were more than willing to waive my annual service charge and retain me as their customer.”


Alternatively, a bank is also willing to waive your annual service charges if it’s used regularly, Susi adds. “If you spend enough to justify it, you can usually get it waived.”


3. Minimise credit card usage or use it as a last resort


Credit card owner Tony Liew, 35, says he only uses his credit card “when absolutely necessary.”


“I use it as a last resort only if I don’t have the cash, like paying for my annual post graduate course or if cash is not an option, such as ordering something overseas via an online shopping website.”


4. Pay bills on time and in full


Liew adds that if he has a credit card bill to pay, he’d try his best to pay it in full.


“Of course it’s easier said than done, but I try to make full payment or spread it over two payments at the most, if possible. I also try to pay my bills on time to avoid being charged extra interest by the bank.”


5. Take advantage of offers


If you absolutely have to use your credit card to purchase that 999-inch plasma TV or that glow-in-the-dark blender, then use it when there’s a cheap sale on.


“The year-end sale is a good time to purchase goods as prices get slashed and the impact won’t be so much on your wallet or credit card bill,” says Tan.


She also adds that as a shrewd shopaholic, one needs to be up-to-date with the latest sales promotions.


6. Don’t let your points expire


Banks offer reward points to cardholders as incentive to keep using their cards. Additionally, the reward points can be redeemed for gifts – such as that glow-in-the-dark blender from that cheap sale that you missed out on.


If your points are close to expiry and you can’t find anything you’d like to redeem it for within the bank’s rewards network, one could try calling up the bank to find ways to prevent the points from expiring.


“Some banks will require you to either use up the points by the expiry date or risk losing it forever. Other banks, however, are more flexible,” says Susi.


“Alternatively, some banks also allow you to redeem your points to waive the annual service charge,” she adds.


7. Reduce the number of supplementaries


Ever had supplementary credit cards that belong to care-free family members who just spend and spend, and who take forever to repay their bills, thus jacking-up the monthly interest rates?


“The best thing to do is to reduce the number of supplementary cards, which would also remove the annual goverment tax imposed on all credit card holders as well as their supplementaries,” says Low.


8. Reduce the number of cards held


Reducing the number of credit cards will help you minimise the annual service charge amount and the annual government tax imposed.


“With multiple cards, you’re inclined to keep spending. With the credit on one card maxed out, a cardholder will just continue spending using his other cards,” says Liew.


“But if he has one card, once the credit on that one has maxed out, the spending stops,” he adds.


9. Use a debit card or cash (don’t use credit financing)


When you purchase goods via a debit card, the money is taken from your bank account right away – so you are restrained by how much of money you have on you.


“Unlike the credit card, where you are spending money that you don’t have, a debit card means you’re spending money that you actually have,” says Leslie Lee, a kindergarten teacher.


Lee, who says she’s not a big fan of credit cards, explains that having a debit card helps keep her spending habits in check.


“I also prefer to purchase using cash, as it helps me keep in check the amount of money that’s coming out of my pocket.


“Technically, using a credit card is also money coming out of the pocket. But seeing your cash actually leaving your hand has more of a psychological impact than just producing a plastic card to pay for something.”


10. Don’t spend – if you don’t need to


If all else fails and the urge to use your credit card is simply irresistible, then think Rebecca Bloomwood and come up with a creative (and more effective) way to keep that piece of plastic at bay.


On a serious note, you should always consider whether what you intend to buy is something that you really need. Chances are, it’s something you could do without.


After all, when you really think about it, how much more useful can a glow-in-the-dark blender be anyway?


Article contributed by http://biz.thestar.com.my/news/story.asp?file=/2011/6/11/business/8863673&sec=business

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The Greatest Financial Gift You Can Give to Your Children

Article contributed by

http://www.dailywealth.com/ By Tom Dyson, publisher, The Palm Beach Letter

Saturday, October 1, 2011

I wrote this essay for your children and grandchildren.

You've probably heard about America's huge debt load. The U.S. government's financial obligations now exceed $663,000 per American family. This burden will fall on the youngest Americans.

It's unethical. It's unfortunate. But it's the reality.

With this giant financial obligation bearing down on them, it's critical that now – right now – your children and grandchildren learn about money and finance. They need to know the basic principles… like how to be independent, why debt is dangerous, and how to grow money.

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They don't teach finance in schools. If you don't teach them this knowledge, no one will. They call this financial illiteracy.

If our children are financially illiterate, they have as much chance of survival as a swordsman in a gunfight. There will be no mercy for the financially illiterate in the future. It's likely these people will live as indentured servants to the government and its creditors.

But if our kids have a grasp of finance and its basics – and they obey its laws – they will grow up rich. They will be in a position to help other Americans, too.

Below, you'll find the three vital financial concepts all children need to understand. Please pass them on to your children and grandchildren as soon as you can. I have two young children… And these three concepts are my starting point for their financial education.

First of all, our kids must know that they are not entitled to money or wealth… or anything for that matter, even Christmas presents. They must earn money. I want my children to learn that they shouldn't expect anything to be handed to them. I don't want them to rely on the government for their livelihood, like many people do right now.

So many people treat money and prosperity as an entitlement. The government even calls its welfare programs "entitlements." This word – and what it represents – gets stamped into young people's brains. Kids act as if they are somehow entitled to toys, video games, and cars. But why should they be? Just because they have parents, it doesn't mean they should get everything they want… or anything at all, for that matter.

I plan to regularly remind my children of this when they are old enough to understand it. And I'm not going to pay my kids an allowance. An allowance would reinforce the sense of entitlement. They can make money by earning it: doing the dishes, making their beds, mowing the lawn… there are a million things. My wife and I will pay them for doing those things. But I'm not going to just give them money.

The second concept our children need to understand is debt. Debt is expensive. If you abuse it, it will destroy you. Like the entitlement mentality, debt is an enslaver. It robs you of your independence. I avoid debt in my personal life… and when I'm choosing investments.

The best way to illustrate the cost of debt is to calculate the total amount of interest the debt generates in dollars over the lifetime of the loan, instead of looking at the interest rate (like most people do). Once you look at it like that, you can see how expensive borrowing money really is.

For example, say you borrow $100,000 with a 30-year mortgage at 7%. Over 30 years, you'll end up paying $140,000 in interest to the bank. In the end, you're out $240,000 for a house that cost less than half that. Not a good deal.

The third thing our kids need to learn is the power of compound interest and the best way to harness it.

Compound interest is the most powerful force in finance. It is the force behind almost every fortune. The brilliant Richard Russell calls compound interest "The Royal Road to Riches." And it's mathematically guaranteed.

Let's say, for example, you have $100 earning 10% annual interest. At the end of a year, you'll have $110. During the second year, you'll earn interest on $110 instead of $100. In the third year, you'll earn interest on $121… and so on. This is the power of compound interest. The numbers get enormous over time, simply because you're earning interest on your interest.

Because time is the most important element in compounding, it's an incredibly powerful idea for children to understand. They have the ultimate edge in the market: the time to compound over decades.

The stock market is the best place to earn compound interest. You buy companies that have 50 years or more of rising dividend payments ahead of them. Then you let the mathematics work.

As soon as my kids are old enough to understand some arithmetic, I am going to sit down with the classic compounding tables and show them which stocks they have to buy. I'll use Coca-Cola, Johnson & Johnson, and Phillip Morris as examples.

After that, assuming they have the discipline to follow through, they will get rich. There's no doubt about it.

In sum, you have the responsibility to educate your kin about finance. If you don't, no one else will, and they will suffer for it.

Encourage them to work hard and avoid the entitlement mentality. Teach them the power of compound interest and explain the dangers of debt.

If you do this, you will equip your kids and grandkids to survive financially in the difficult circumstances ahead. You'll provide them with something that nobody can place a price on: the power of independence.

Good investing,

Tom

P.S. It's a shame how many folks don't know these simple financial concepts. If you're not happy with your financial situation or if you simply want to learn more concepts – and how to use them for a lot of extra cash – you're in the perfect position to start immediately. My colleague Mark Ford has just recorded a video that covers a vital market secret you can use to start growing your wealth. To watch this short video, click here.