PocketCoinage

I was never one for carrying a balance on my credit cards.  Everytime the bill came in, I would pay it off immediately.  The problem with me was I had way too many cards; From store brands to your standard Visa and Mastercard.  I had about 6 in total all with different due dates.  This just made my finances more complex.  With the complexity came more stress, “Did I pay that credit card off?” So I decided that enough is enough and I closed out all three store cards about three weeks ago.  Let me tell you, it was very liberating!

Funny Story
Just yesterday I decided to cancel two more credit cards: my Visa and Mastercard.  These by far were the most fun to cancel because of the representatives’ responses.

The first representative at Bank of America told me, “What?  You can’t cancel your card now!  It’s springtime!” That was pretty comical trying to keep me on as a customer.  Being that it’s springtime has nothing to do with closing my credit card, but okay.  The account was closed and we had a nice chat about the weather between Maine (where she was located) and New Jersey.

The next representative at Wells Fargo was very boring. He brought up the fact that my “score with them would be lowered”.  One can only imagine that would be my credit score; I told him that was fine.  Once the account was closed, he told me to “feed the card to my dog” and that it was as good as “feeding him chocolate.” With his monotone voice I could not tell if he was joking or not.  However, you can clearly tell he doesn’t enjoy his job.

Right now I am left with one credit card that I have open for “just in case”.  I do not plan on using it, but there could always be a time between now and when my emergency fund exceeds that credit limit.  I’ll feel more comfortable about getting rid of it once I have my student loan paid off and my emergency fund built up.  Overall, I have not used any credit since December; everything’s been on a cash basis.  It really has kept my spending under control.  When I would charge things with the credit card, I would find that I would purchase more goods.  Which, in return, didn’t give me the leverage needed to pay down my student loan debt as quickly as possible.

More Reasons to Close the Cards
Canceling the cards was not only for personal relief, but to relieve some future financial burdens.  Once I heard about what these big banks are planning, I decided it was for the better to closet down the cards.

According to this WalletBlog.com article, “…Bank of America recently announced plans to apply $59 annual membership fees to about 5% of its credit card customer base.”  The worst of the news came from my grandma.  Bank of America is currently charging her $4 for each check image printed on a statement!  She incurred $12 in fees last month for doing something your normally do with a checking account: writing checks!  This weekend I will be taking her to a local community bank and patronize their business.  At least they still have a soul!

Have you been used by the mega banks?  If so, do you still do business with them?

Just the other week I made my final, 0% interest payment on the flat screen TV that hangs above the fireplace.  It was an 18 month payment plan that I paid off in 14 months.  At the time, getting the store credit card and taking advantage of this offer seemed like a really good idea.  If you are not careful, however, the 0% interest can jump to their default percentage (20-30%).  This is something that many people do not take into consideration.  I did, however, consider it carefully and made sure that I had enough funds to cover it before I made my purchase.

Why did I use a store card even though I had the cash to pay for it? I did not want to touch my savings account to pay for it up front.  I was able to keep my money making money (even though it wasn’t much) while I sent the payments in every month.

These store cards can be really tricky, for instance, if you are late or miss a payment they can charge you a late fee, all of the deferred interest, and take away the 0% interest on this item for the remainder of the balance!  This can leave you up a creek, spending money you didn’t intend to.

To give you an idea of the amount of deferred interest, here are the numbers on my final statement.  This is after 14 months of deferred payments:

Initial Purchase: $1,241.16
Deferred Interest Charge @ 26.99%: $237.22
Late Fee: $39.99

Grand Total for Missing Payment: $277.21

Imagine spending an extra $277 on an item because you missed a payment?  I know I’d rather spend (or save) $277 elsewhere.  This is how credit card companies make their money.  Imagine if they gave 0% to everyone and they all paid on time and in full?  Credit card companies wouldn’t be in business!

All-in-all, I feel more free not having another bill to pay every month.  This monthly payment is now going to my “Gotta Live a Little” fund for weekend trips and vacations.  I just felt that having this extra, non-essential bill every month made things a bit more complicated in my life.  As of right now, my goal is to simplify things.  To me, this means de-cluttering the house, reducing my debt, and spending more time doing things I love to do.

What experiences have you had with credit cards?

This is the third in a series of weekly posts titled “How I Did It”.  I’ve been so inconsistent with the weekly postings, I’m not sure that I can call it a weekly series.  The past week has been very unusual with two blizzards and getting stuck overnight at work.  I will try my best to post on a weekly basis. Throughout this series I will be describing my methods of personal finance, frugality, and what it took to get where I am today.

If you’ve read the series from the beginning, you’ll notice that I received my first credit card when I opened my checking and savings accounts.  This was around 2004 when they were giving credit out like free pancakes at the diner.  To recap, my local bank offered me a credit card.  I was hesitant at first and I asked a few of questions that were important to me:

• Is there a monthly/yearly fee associated with this card?
  • No
• Does it cost anything to apply?
  • No
• What’s the benefit of holding this card?
  • Reward Points: 1 point for every dollar spent
• If the card it paid off every month, will I incur a finance charge?
  • Not unless cash advances are made

Once I had the questions answered, I sat and thought about the positives and negatives of holding a credit card.

Positives

• Building a credit history at an early age
• Have it in case of emergencies
• Order items online without too much worry; It’s not linked to my checking account
• Ability to reserve hotels and rental cars without putting a hold on my checking account

Negatives

• I could slip into debt if I did not think about my spending.
• Someone could steal my card number and use it.
• The company could change my terms of agreement at any time.  If I did not pay attention to the changes, it could cost me in fees.

After careful consideration, I decided that the pros outweigh the cons and I went for the credit card.  About a week later the approval letter arrived in the mail.  The credit limit: $500; not too bad since this was my first card and I haven’t held a job for too long.

Using this card responsibly, every month, opened up another door from my local bank.  About two years later, they were offering me another credit card.  After reading their terms and talking with the local representative, I decided to go for it.

The advantage of this card was:

• It was from the same company as my local bank
• It had a better rewards structure
• A higher credit limit

Now I had two credit cards in my name from the same bank.  A few weeks later I understood what their reasoning was.  I received a letter in the mail about how my first credit card company was separating from my local bank.  I believe the local bank wanted to keep me as a customer.

In the end, I am glad I signed up for these credit cards.  It’s been 5 years since my first card and I’ve had a great experience ever since.

By making this small first step, I was able to build my credit history at an early age.  Keep in mind, I always pay my cards off.  It does not make any sense to leave a balance on them.  You’ll never gain back the money in interest payments through a savings account.  If I overspend, I tap into my savings account to pay it off.  Yes it hurts, but it hurts less than owing more money in interest.