Tom Purves / Flickr
This is a post by BargainBabe.com writer Yazmin Cruz.
Your smart phone is about to get smarter as mobile payment apps replace swiping plastic, by enabling you to tap your phone and exchange your credit card information via a radio frequency field. But just how safe is this?
I first learned about mobile payment apps in a college personal finance class. My professor warned us to be careful about using these apps until laws catch up with technology. Let me explain.
Once upon a time
alancleaver 2000/Flickr
My friends at AOL’s Lemondrop blog (I blog for AOL’s WalletPop) wrote a helpful article about how exactly to pay off high-interest credit card debt. I don’t carry a balance and I found this article fascinating. The story offers five approaches to paying off the debt, some of which might help you.
Her sitch: In June 2008, Tiffany owed $14,611.47. She’s managed to chip away at the balance by using gift money, tax refunds and watching her spending, but she still owes close to $8,000, and she’s not sure what else to do.
“I don’t have any real system,” she says. “I tried fun Excel spreadsheets and advice from friends, but nothing really panned out. In the end, I just kept throwing any money I could at it, from $50 to $200, as often as I could. But I’m hoping to move in the upcoming months, so I won’t be able to set much aside to pay off the debt. Help!”
How’d she rack it up? Tiffany lives in a college town and has had trouble committing to long leases, so she’s moved five times in as many years. “Every time I moved, I would put extraneous costs on the credit card, telling myself I’d pay it off right away,” she says. “But one new thing always leads to another when you move into a new place.” On her expense list: paint, shower curtains, rugs, cleaning supplies and lots of takeout food. “It always caught me off guard when it added up,” she says.
The glitch: Tiffany has plans to move to New York City in May, where she’ll look for another nonprofit job. Currently she works for a women’s transitional home and brings home about $1,750 a month after taxes. She expects to make $35,000 to $45,000 in a similar position in New York. “What I make now is barely anything, and in general the pay isn’t great for nonprofit work,” she says. “Having a salary that can just wipe the debt away is unlikely. What do I do?”
The expert’s take: First of all, the fact that Tiffany has shaved more than $6,000 from her balance in less than two years is fantastic. But her plan to move to the Big Apple with $8,000 still hanging over her head raises th e eyebrow of Boston financial planner Cheryl Costa. “I would suggest she look long and hard at whether she can afford the move to New York,” Costa says. “Does she have an appreciation for how much it will cost her to live there? If she makes this move, it may take forever to pay down her debt.”
Keep reading to see what five steps the expert recommends for Tiffany.
Politicians cracked down on credit card companies to help out consumers during the recession, but the new credit card law that goes into effect today has pitfalls.
“During the past nine months, credit card companies jacked up interest rates, created new fees and cut credit lines,” an AP story says. “They also closed down millions of accounts. So a law hailed as the most sweeping piece of consumer legislation in decades has helped make it more difficult for millions of Americans to get credit, and made that credit more expensive.”
Here an outline of the changes in store.
Pros:
1. Credit Card companies have to give you 45 days notice if your interest rate is increasing.
2. Statements will now show how long it will take to pay off the balance if you make only the minimum payment. Statements will also show how much you need to pay each month to pay off the loan in three years.
3. Statements must be sent 21 days before the due date, which cannot shift willy nilly anymore.
4. You have to expressly agree to be able to charge over your limit, which triggers over-the-limit fees. Even if you do agree, there are limits to how much your bank can charge you.
5. Folks under age 21 cannot get a credit card unless they have a co-signor or can show they can pay off the charges (independently of their parents’ income). Banks can’t hang out on college campuses offering perks for applying for a credit card.
6. Americans will save $10 billion or more a year from the changes, according to the Pew Charitable Trust.
Cons:
1. There’s still no ceiling on interest rates.
2. Fees now are capped at 25 percent of the total credit line during the first year – but in my book that is still way too high!!!
3. Annual fees are coming back. In late 2009, forty-five percent of new credit cards had annual fees compared to 25 percent in the same time period the year before.
4. Some retailer credit cards will charge $1 for paper statements, like Victoria’s Secret and Ann Taylor. Look out for inactivity fees, as well.
5. Balance transfer fees will go up on some cards.
6. Reduced credit lines on existing accounts. My credit limit decreased, which is not surprising consider 40 percent of banks reduced credit limits on existing accounts.
7. Higher initial interest rates. The average rate for new cards was 13.6 percent last week compared to 10.7 percent a year ago, according to Bankrate.com.
8. Fewer cards. There are 15 percent fewer Visa, Mastercard, and American Express cards in circulation in 2009 compared to 2008. Maybe this is a good thing, though it means credit cards with perks – like grocery and gasoline rebates – are declining.
I hope these changes have a net positive effect, but the bottom line is that if you use credit cards you have to be very careful about charging more than you can pay off, paying on time, and avoiding fees. When in debt, you are at the lender’s whim.
PS. Remember you can check your credit report for free.
