You pay for convenience. That's the simple reality of economics. Having a cab -- or even an Ubermobile -- pick you up is more expensive than catching a bus. Eating out costs more than making a meal yourself.
So, when you consider the tremendous convenience credit cards offer, it should be no surprise that consumers end up paying a hefty price to add convenience to their lives. In many cases, though, the price is higher than it should be.
You can't fix everything about the high price of credit cards; but the more you know about the various ways they can cost you too much, the more you can eliminate at least some of that unnecessary expense. Here are eight examples:
According to a 2013 Nilson report, credit and debit card fraud were the cause of over $11.2 billion in losses in 2012. And if you think that sounds bad, just wait; it's expected to get much worse.
As USA Today reported last year, hackers and scammers have turned stealing credit card numbers into an art form. By focusing on major retailers such as P.F. Chang's, Target, and Home Depot, they can score thousands of credit card numbers in one fell swoop -- numbers that are then packaged and resold for a profit.
And stolen credit card numbers aren't as cheap as one might think; they often pull in big profits. According to Neal O'Farrell, founder of the non-profit Identity Theft Council, stolen numbers are often sold for $120.
Over the past 12 months, I have used credit card rewards to finance the bulk of our trips to Jamaica, Las Vegas, Denver, New Orleans, London, Paris, and St. Maarten. And in the process, I've also cashed in a five-figure sum of hotel loyalty points, airline miles and rewards. Of course, I blame part of this on my love of family travel, but it also has to do with how I make a living. Since I'm a points-and-miles blogger for Frugal Travel Guy, it would be pretty weird if I never went anywhere.
Aside from the questions I hear about earning points and miles and booking award travel, I get a lot of questions on the financial aspects of these trips. Are credit card rewards counted as taxable income? How about bank bonuses? If the fine print isn't all that specific, how can I tell?
Are Bank Bonuses Taxable?
We've all gotten at least one of these offers in the mail. They say something like, "Open a new savings account with XY Bank and receive a $300 bonus after setting up direct deposit" or "Earn a $250 bonus after making 10 qualifying transactions with your bank debit card."
Americans might be more responsible now than they were in the early 2000s when it comes to the use of credit. At least, that's what the evidence from a Gallup poll taken earlier this year seems to suggest.
The Gallup poll, which was based on random telephone interviews with 1,026 adults, shows that a full 48 percent claim to pay their credit card balances in full when the bill comes due. Not surprisingly, the opposite group, those who carried a balance each month, came in at a record low percentage since Gallup began recording this metric in 2001.
But the poll went further to reveal more about the secret lives of credit card users in the United States, and how the use of credit affected overall debt levels. For example, it showed that the average American carries 2.6 credit cards on average, but the figure jumps to 3.7 when you remove those who don't carry a credit card at all from the equation. Furthermore, the average American carried $2,426 in credit card debt when this poll was taken. However, exclude those without a credit card and the figure quickly jumps to $3,573. So, what does this mean?
Holly Johnson's post (“The high cost of keeping up with the Joneses”) got me thinking about a number of things this week, but mostly about how people manage their credit. Obviously, if you're intent on keeping up with the Joneses and you're living above your means, that house of cards is going to fall, right? And the reality is that time and good behavior are what it will take to repair your credit after such a train wreck. The first step (obviously, again) is to determine what your credit score is and to track your progress as you address your debt situation.
If, on the other hand, you're someone who actively manages their finances and is always looking to improve their financial picture, do you also monitor your credit score to improve it? And if so, what do you do?
You can always get your free credit report at the government's official site, annualcreditreport.com, but that isn't your credit score and so it provides rather limited insight into your credit situation. You can pay to get your credit score from one of the bureaus or get it when you're denied credit, but otherwise you're in the dark if something changes. It would be much better to see your credit score on a regular basis so you can determine if your decisions are helping you or hurting you. This becomes even more relevant if you're anticipating a job change, making a large purchase like a home or a car, or even getting married or divorced. Does having a lot of open accounts improve your credit score? Would it be better to close some accounts?
What do you spend most of your money on? For most people, their two biggest expenses are their home and car(s). If you remember the post comparing expenses in 1913 to 2012, you might recall the three things that Mr. Average spent most of his "raise" on were:
- Housing (36 percent of the raise)
- Income taxes (28 percent), and
- Transportation (24 percent)
A majority of the increase in transportation has, arguably, to do with that wonderful instrument of freedom -- the automobile.
The choices we make
Our spectrum of choice in cars is, of course, wider than a mile. Egotistas spend big on the latest model of the coolest car. Hollywood celebrities once flaunted their beblinged Cadillac Escalades at the annual Oscar ceremony. That was before the 2002 recession. When that hit, it suddenly wasn't cool any more to be seen piloting a behemoth slurping down rivers of Mother Earth's precious resources. That's when the curtain went up on the eco-friendly Toyota Prius, which Cameron Diaz and other stars rode to the 2003 big event in their sipply little Priuses. Overnight, saving the planet with the Prius became California Cool.<
A little over a month ago, my husband and I were getting ready for a five-night trip to Jamaica. And as usual, we went to great lengths to budget for anything and everything. For starters, all but $97 of our airfare was paid with points I earned with my Chase Ink Bold Business Card, and that expense was taken care of months before. The fact that we were staying in an all-inclusive resort also meant that I didn't have to budget for meals either, an added perk. The only expenses left to consider: round-trip transportation to and from the resort and money for tips. Once that was taken care of, I looked forward to a week of fun, mojitos, and beach time with my best friend.
When bad weather attacks
So we left and didn't look back. Unfortunately, we were totally unaware that a giant snow and ice storm moved in right after we left, burying places like Charlotte, N.C., the city to which we were supposed to fly back. But we weren't worried. Hell, we were having too much fun to concern ourselves with the problems of the world. That was, of course, until it was time to leave and we hopped on the computer to check in for our flight.Continue reading...
A few days before Christmas, I was having lunch out when I opened an email that appeared to come from American Express:
"Please click this link to authorize a recent charge on your account."
"Well, that's weird," I thought. I hadn't used my American Express card in several months.
Two years ago, I watched Confessions of a Shopaholic with my daughter. If you're not familiar with the movie (or the book), I can summarize it for you in three sentences.
A finance journalist named Becky Bloomwood is a shopaholic. She goes on spending binges and ends up in horrible credit card debt. She can't pay her bills and is pursued by a sleazy debt collector.
This is all especially funny because she's a finance journalist, which gives it a cute, ironic twist. So I'm watching the movie and laughing hysterically until I realize something awful: I used to be Becky Bloomwood. No, I'm not kidding.
This guest post is from Daniel Wesley. Daniel is the founder and CEO of CreditLoan.com, a website that educates consumers about various personal finance issues. Among some of the topics discussed are bad credit loans, credit cards, auto financing, and many other credit and financial help issues. Connect with Daniel on Twitter and Google+.
A few years ago, I took my grandmother to a wireless provider store to help her get her first cell phone. While we filled out the paperwork to set up an account, the store clerk ran a credit check on her, which came back with a rather unsavory number. We were informed that, because of her poor credit, she would be required to put down a $200 deposit, on top of the cost of the monthly contract and the phone purchase, in order to set up an account with their company.
That inconvenient encounter at the cell phone store was just another reminder that bad credit does not discriminate; it causes problems for a lot of people — even my sweet, old grandmother — in really unexpected ways.