Here are the top 5 dirty, mean and sneaky tricks played by Credit Card companies:

Minimum Payments

The minimum payment required is usually between 1.5% to 2% of your total outstanding balance. If for example, your outstanding balance is $1000 then your minimum payment is only $20. At this rate it will take you years to pay off your $1000 debt.

Here are the facts about minimum payments:

• Minimum payments give you false sense of security.
• The only thing you avoid by paying off the minimum amount due is the late fee.
• You will still be charged interest if the outstanding balance is not paid off.
• Credit Card companies intentionally have low minimum payment requirement. They are hoping that you will fall into the trap and pay only the minimum amount and thus end up owing them huge amount of dollars in interest.

Interest Free Period

• If you take a cash advance then you will be charged interest straight away. There is no interest free period.
• The interest free period does not apply for all purchases. Let me and try and explain what I mean here using my most recent credit card statement as an example. Here are the statement details:
  
  
  

  Statement Begins: 15 July 2008 Statement Ends: 13 Aug 2008 Payment Due Date: 08 Sep 2008 Minimum Payment: $174 Closing Balance: $8705

  
  
  
  

  Here are the two possible scenarios:
  
  
  1. If I pay off the entire closing balance of $8705 by 08 Sep 2008, then I am safe - nothing to worry.
  
  
  2. If I pay less than $8705 by 08 Sep 2008, then all the purchases that I made from 14 Aug 2008, will start incurring interest. These purchases will have no interest free period. Interest will be calculated from the date of purchase. So basically I will be charged interest on all purchases from 14 Aug 2008 plus interest on my closing balance (closing balance from the above statement). All these new interests will show up on my next statement.

Multiple Interest Rates

Here are some common tricks played by most credit card companies:

• One rate for purchases and one for cash advances
• A higher rate for purchases once you exceed the credit limit
• Some cards advertise lower interest rate but what they only tell you in fine print is that this low interest rate is only applicable if you make purchases above a certain limit.
• Some cards advertise low introductory rate on balance transfers. What you need to check is the interest rate these cards will revert to once the introductory period is over. The rates can be much higher than the market rates.
  These cards offer low rates on balance transfers and a normal rate for your regular purchases. But they usually apply any payments you make first towards your lower interest portion.
  
  

  An example:
  
  

  Balance Transfer Interest Rate: 2% for 6 months
  Normal Purchases Interest Rate: 20%
  Your Balance Transfer Amount: $10,000
  Your New Purchases For The Month: $2000
  
  

  Your Payment: $2000
  
  

  Here is the trick -
  
  
  The $2000 will be applied first towards your lower interest - i.e. it will be applied towards your balance transfer. So though you were good and paid off the new spendings, you still end up paying 20% interest on your new spendings.
  
  
  Read my post about 7 Things To Watch Out For In A Low Balance Transfer Credit Card.

Low Down On Fees

• Some cards advertise that they don’t charge annual fees. They might not charge annual fees but most of these cards actually charge monthly fees.
• When you exceed the credit limit, apart from charging you interest, they also charge you a ‘over the limit fee’.
• The same for cash advances as well - Not only do they charge interest straight away but some actually charge very high fees for cash advances.
• If you are late in paying off your outstanding balance, you get charged a ‘late payment fee’.

Mind Games

I get at least one new credit card offer every couple of months. The offer letters use positive words like - ‘Congratulations’, ‘You Deserve A Platinum Card’ etc..They never ever use the word ‘debt’. Most of these offers are pre-approved. These offer letters are unsolicited. Some are for new cards and some are from my existing provider (offer to increase my credit limit). They play all sorts of psychological games to make you feel good and sign up for more cards - and the sad truth is many actually fall a victim to these games and sign up.

Research shows that one in three people are unaware of at least one of these tricks. We can make credit cards work to our advantage if we use them properly.

If you had any bitter experiences with credit card companies then please share them below….Or if you are aware of any other mean trick played by the card companies, let us know…

PS: I am submitting this post for a competition run by Darren Rowse of Problogger. If you have come to my site from Problogger.net then - ‘Welcome’. If you are a blogger and are unaware of this competition then check out the details here - Competition.

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The recent increase in child care rebate, has led many child care centres to increase their fees. My regular readers will be aware that my son recently started child care. He is two years old. My daughter also went through child care. Its around 3 years since my daughter left child care. In these three years, the fees have increased by around 26%. You don’t have to be a rocket scientist to realise that it is a huge increase. When I heard that some centres might raise fees again, I decided to do a quick research on child care fees…

Here are the important points from my research:

1. The child care fees is increasing at a rate faster than the inflation rate. How come? If the fees are being raised to cope with increase in expenses, should they only be raising with inflation - or at the most should only be marginally higher than inflation…

2. Government’s spending on child care care has increased by 4000 per cent in real terms since 1980.

3. Every time the Government announces a rebate or subsidy to the parents, the centres raise their fees - this defeats the entire purpose of Government’s rebates.

4. Some people are spending more on child care than on their rent.

5. Like teachers, child care staff are usually underpaid.

6. Fees have almost doubled in the past 6 years.

The government has to address the actual reasons the child care centres are raising fees. Rebates alone will not keep prices under check.

Do you have a child in child care and if so what are your thoughts about this?

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Apart from this blog, I also have a website called DotComMothers. On this website I interview women who run successful businesses. I recently interviewed one of my mentors - I have never met her, prior to this interview I have had no contact with her - but she has always managed to inspire me. And she is ‘Margaret Lomas’.

She currently owns more than 34 properties across Australia. She runs a very successful financial advisory company called ‘Destiny Financial Solutions‘. This company assists clients to achieve prosperity using direct property investments as the vehicle. In 2006 Margaret Lomas won the ‘NSW Telstra Business Woman Of The Year‘ award.

So on with the interview now -

You started Destiny Financial Solutions. You worked hard on it and it was doing well. And then you took it to the next level – the level which won you Telstra Business Awards. A lot of small business owners want to take their business to the next higher level but it’s not always easy. What do you think helped you to take your business to the next level? Was it a change in the way of your thinking or employing right people…What was it?

I have always been a person who does not take a great deal of risk. This is probably because, when you have 5 children you have such a great responsibility to feed and clothe them that they must come first. Making the decision to expand a business requires you to be quite selfish in many ways, even if you feel you have pure motives (like we did, believing we wanted to help more people).For me the decision to expand was about the need to reach a greater audience with important messages about property investing. In fact, our local branch here on the central Coast had a good reputation and we were quite prosperous without having to do a proportionate amount of work. It wasn’t enough for me or my husband though – we wanted the country at large to be able to get independent advice of good quality from people who had real integrity. Because of our disliking of debt, we funded the expansion from (meagre) company profits, and it was many, many years before we even got close to the incomes we were earning prior to our expansion. It was during those times that we had to hold fast to the dream and remind ourselves of our motives (helping others) to continue and not just throw it all in!Employing the right people came later – it can be hard to share your dream in a way that you capture the passion of others and in this market (high employment) a small business which can only afford smaller wages can have difficulty attracting good people. We found a few, made many promises about the ultimate reward in staying with us, shared our vision, and those people are still with us today.

Who is your biggest inspiration and why?

I am continually inspired by most people around me, and I try to find something inspiring each day. My husband Reuben, inspires me with his commitment to me, our family and our business. Our current staff inspire me because they share our passion and continually go over and beyond the call of duty simply because they believe in us. Our branch managers inspire me because they work long hours for the pleasure of seeing others get ahead.

And my children inspire me because they are all good, independent people with a great love for our family, even though society has said they should be dysfunctional because they have been through divorce and had a working mother!

You have five kids and an extremely successful business. It’s always hard for working women with kids to create balance in their lives. If there is one tip you can give to women about staying organized, what would that be?

Give up thinking you are every going to get 8 hours sleep again – in fact, give up thinking you need it. Instead be thankful for whatever you do get and know that a waking hour is provided to you so you can achieve something new. It is on those days that I wish I had more time/rest/hours in the day that I don’t cope as well. On those days when I know that I have all I am ever going to get and I might as well utilise it as best I can that I achieve more!Be sure that you get your kids to learn about responsibility early on. My children are 22,20,19,15 and 13 and they all do their own washing. Why? Because they would have no clothes to wear if they didn’t! They can all cook too, which can be useful when dinner time comes!

If you had a chance to start your business all over again what would you do differently this time?

I do think I would go into debt for my dream. We could have done what we have done a bit sooner had we asked for financial help. Instead we used whatever money we were creating and that makes for a slower road.Mind you, that is not necessarily bad. We started with only a few branches and sat for a few years trying to iron out the bugs and get it all right before opening more. In hindsight, I do believe this was a good strategy.

When you are looking to invest do you first look for a property in your price range, then research that suburb/region for its future growth Or do you first research and pick the region and then find a property that fits your criteria in that region?

This is a hard question. I like to use Australia as my search area and start with perhaps a fairly open price range and then start whittling down from there. If you spend too long in one region doing the research, and then get to question 15 (of the 20 must ask questions) and find the area is not right, you have wasted a lot of time on that one area.

What do you think are the key ingredients of your success?

Firstly you must have a big business mentality. When we started, we had a desk in the bedroom. We still answered the phone using a corporate greeting and really did visualise ourselves as being a big business from day one. We ensured we had comprehensive systems in place even when it was just the two of us, and always asked ourselves questions like ‘What would AMP do? What would the St George Bank do?’ when planning our next moves.Next you must have a long term vision. If we had been in this for short term profits we never would have come the distance. Not once did we ever focus on small issues which may have impacted on weekly or monthly profits. We just plunged ahead, spent whatever we had and committed 100% to this business. In the early days, there were many weeks where the staff got paid and we did not, and we got by using our personal debt capacity.The other few important things include – only do something if you really love it (because working hard doing work you hate will make you bitter and you cannot be successful if you are bitter!); Do whatever you do better than anyone else does – you don’t have to be the first at anything but you do have to be the best; know your competition and always add value to your service or product and, most importantly, START TODAY. If you think about it too long you may never get started.

What’s next for Margaret Lomas?

I want to be a fiction writer. I have started my first book and each chapter I write I read to my husband – he cries and laughs in all the right places so I am hoping it comes off.Writing a novel is so much harder than the books I write now – I can write one of those in just 2 weeks because I have all the information in my head. A work of fiction requires far greater time commitment, which I don’t have right now.Of course I would also love to have an educational Property Investment TV show – but I have tried and tried to get the networks interested and they say that there is not enough interest in Property Investment to do a whole show!

To visit Margaret’s website, click here - eDestiny. Margaret has a monthly newsletter - It is a free. It is full of valuable information. To get access to this newsletter, sign up here - eDestiny VIP registration.

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What Are Store Credit Cards?

A lot of retail giants offer ‘Store Credit Cards’. Store Credit Cards are different to co-branded credit cards. Co-branded credit cards can be used outside of the retail store that offers the credit card. These cards are just like any other credit card - example Woolworths-HSBC Master Card. Store Credit Cards on the other hand cannot be used outside of the retail store that offers the card. Example - David Jones Card.

Reasons Why Store Credit Cards Are Tempting

Discounts and special offers to card holders Invitations to special promotions and events - like a fashion show Huge Interest free periods for certain purchases

Pitfalls Of Store Credit Cards

• A much higher interest rate than the normal credit cards
• Some of these stores offer up to 5 years of interest free options - sounds good doesn’t it - but hang on, here comes the trap - you have to make a minimum purchase (usually around 500 dollars). Now, just to make use of this interest free option, I am quite sure many will be tempted to make a purchase for minimum amount and above - even if you have no real need for the purchases you are making.
• Check out the interest free period terms - there can be some huge charges if you default on any payments
• Specials for store card holders - again by constantly bombarding you with catalogs for these specials, these stores are tempting you to buy - why should you buy things you don’t really need.
• The prices charged in the retail store that is offering the card might not necessarily be the best deal anyway…You don’t want to end up paying a premium, just for the advantage of using the store card.
• This is the biggie for me - you are tied to that one store.

How You Can Make Store Cards Work For you

• If you are not an impulse buyer and are careful with your purchases, then you can really make these cards work for you.
• If you can exercise discipline with your purchases
• No establishment fees and annual fees.
• Pay off all payments due within the date due
• Should have a reasonable amount of interest free period
• If it comes with ATM facility, don’t use it.
• Make sure that the interest rate is not high and is in line with market rates
• And finally, don’t sign up a card from a store where the prices are at a premium…You will end up paying a higher price for a product, just for the privilege of using the card.

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Woolworths will be launching its own credit card on September 1st. Its partners are HSBC and Master Card. Woolworths Everyday Money credit card will allow customers to earn shopping cards, which can be redeemed at the group’s retail outlets - Woolies supermarkets, Liquor Land, Big W, Tandy and Dick Smith.

The retail gaint has made no secret of its plans to move into the financial services industry in a big way. In UK the supermarkets have shaped themselves into ‘mini banks’.

They offer credit cards, insurance, loans etc - ‘Supermarket Banking’ is becoming huge over there. It makes sense though. Supermarkets have the following advantages over the banks:

1. Already have a huge customer base.
2. Even though shoppers might have no intention of signing up for a new credit card, everytime they shop there they are still exposed to the credit card. The same goes for other financial produstc as well. This constant exposure might actually persuade them to sign up for the credit cards/products.

We make more trips to supermarkets than to banks. Imagine a customer service office at Woolies explaining how we can save money with their new card or new insurance product. Sounds good doesn’t it…Whether we should sign up or not is another thing - atleast they have the huge advantage of being able to market their products to us.

From consumer point of a view, we need to be careful. I plan to do a review of the card once Woolworths publishes more details. I am also keen to find out if there would be any link with the Every Day Rewards Card. Overseas supermarkets’ financial products are very competitive. Their increasing market share is making the banks take notice of them. I would love a similar situation here. I love competition (especially when banks are involved)

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Types Of Property Co-Ownership

Property Co-Ownership is when two or more parties buy a property together. There are two types of Co-Ownership:

1. Joint Tenants: The owners have an equal ownership of the property. The owners cannot act on their share of property independently (example: both have to sell together - one cannot sell independently of the other). This type of ownership is most commonly exercised by married couple.

2. Tenants In Common: Each owner of the property has a pre-defined share of the property. Each owner can act independently of each other (example: one might opt to sell his share while the other owner still hold on to his share). The percentage of ownership is determined by the percentage of contribution by the individual shareholders. If one contributes 60% and the other 40% then the former owns 60% of the property and the later owns 40% of the property.

Reasons For ‘Tenants In Common’

The following are the main reasons why people might opt for ‘Tenants In Common’ type of agreement:

Rising Property Rises: For a lot of young people, owning a property has become unaffordable - thanks to the rising property prices and the increase in cost of living. And hence owning a property with a friend or a relative is becoming an attractive option for many people.

Importance Of An Agreement

When you opt for ‘Tenants In Common’ type of ownership, a verbal agrement is not enough. There is no legal requirement for any specific type of document. But it is advisable that all parties involved, seek professional help and sign a well documented agreement. This agreement is called ‘Co-Ownership Agreement’.

Some of the aspects the agreement will cover are:

1. what happens if one decides to sell out
2. mortgage repyament obligations
3. what happens if one party defaults on mortgage repayments
4. how expenses will be split
5. property management details

So if you are considering an ‘Tenants In Common’ type of ownership, please make sure you have a co-ownership agreement in place. Lately in Australia, this type of ownership has been on a rise (property prices being the main reaon behind it).

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Nation’s credit card debt has been mounting at an alarming rate. If you are one of those credit card owners, struggling to pay off your debt, then here are some steps that can help you:

It All Starts With You

This might sound like a cliché to many. But the fact is this is the most overlooked step. Everyone wants to get out of debt but only a few are determined to get out of debt. When you are determined, ideas and ways to get out of debt starts flowing in. When you are determined, you will leave no stone unturned to get out of debt (except ’stealing’ - you don’t want to go that way).

When you are in debt, it is easy to pass the blame to others or to circumstances beyond your control. Some circumstances are beyond anyone’s control but you have to stop using that as an excuse for being in debt.

You need to ‘accept’ the situation for what it is. Stop blaming the rising prices, the government and banks - make yourself solely responsible for the situation you are in. Only when you make yourself responsible, you will be given the ‘power’ to fix the problem.

Current problem is - “You are in huge debt”. Solution - “Find ways to eliminate the debt”. Get consumed with the problem. Make fixing the problem your sole focus.

Analyse Your Situation

Sit down with a cup of coffee, a note book, a pen, calculator and your latest bank/debt/loan statements. Add up all the debt. Write it down. And then write down you income. Your goal for the next few months/years is to spend much less than you earn so that you can repay every extra dollar into your debt account.

Consolidate Your Credit Card Debt

Speak to your bank manager and see if you can consolidate all your credit card debts into one card.
Also consider using the zero balance transfer cards. But you have to use them wisely to reap the rewards or you will end up incurring more pain than you already face.

One At A Time

If you cannot consolidate your cards, then attack it one at a time - It makes financial sense to attack the one with the highest interest rate first. But if the one with highest rate is also the one with the maximum debt then bear in mind that it will take a long time to repay that debt. Some people might not be comfortable with this. They might need some encouragement - I am one of them. If you are like me then attack the debt with lowest balance first. Finish it off and then move to the next one. The encouragement you get by seeing a zero balance on a loan is highly motivating.

Any Savings

If you have any savings stacked up somewhere, anywhere, then may be its time to get that out and repay your debts. You will be paying more interest on your debts than what you will be earning from those saving accounts.

Stop Using Cards

This is probably the most important one. If you keep accumulating more and more debt then your debt will never be paid off,. You need to pay of what you currently owe and you can do this only if you don’t take on more debt. Put your cards into a blender. Get a reality check - You are in Debt - So no point living a fancy life and flashing those credit cards.

Budget Budget Budget

Your aim is to spend less than you earn. You cannot do this if you don’t track your spending. You need to monitor all your outflows. Compare each month’s outflows with the previous month’s. Cut down on anything and everything you can - even little things count.

A Figure

Arrive at a figure that you can contribute every month towards your debt reduction. Use a calculator and figure out how long it will take to repay the entire debt if you stick to that figure. Sometimes you may be shocked at how long it will take - This shock might force you to contribute more towards your debt reduction program.

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The banks have raised the mortgage rates twice this year - without any prompting from the Reserve Bank. They have blamed the Credit Crisis in U.S. They say that this crisis has increased their cost of funds and hence they have no choice but to pass on the increase in cost of funding to consumers.

Since there has been such an extensive coverage in the media about the U.S credit crisis, the banks probably felt that people will understand if they blamed the credit crisis for their actions.

I am not saying that the banks just invented this excuse. The credit crisis is real. It has led to a substantial increase in cost of funding. The initial consumer and media reaction when they announced the rate rises was one of shock. Shock not at the banks’ actions but shock at the huge impact of the credit crisis.

But then we are no fools…It all slowly started to sink in. Here are some of the events following the mortgage rate increase, that makes me angry:

1. Record profits by Commonwealth Bank.

2. Banks cut interest rates on deposits - on their own - no rate drop was announced by RBA.

3. Banks increase the credit card interest rates - again on their own

4. And here is the biggie - there are predictions that RBA might cut rates early next month. But the banks are saying that they are not sure if they can pass on the rate drop - even if they did, they say that they can only pass on a part of the rate drop. This is an absolute disgrace.

I acknowledge that Government has been putting a lot of pressure on the banks. But the fact is this pressure can really do nothing much. Australia has a de-regulated financial market. And hence Government cannot force the banks.

Government has to address the real problem here. The real problem here is the lack of competition. The real victims of the credit crisis in US are the non-bank lenders. Lending by the non-bank lenders has declined sharply. The banks know this and they are rejoicing. They are not afraid. They know that they are the only choice for consumers.

There are recommendations by Mortgage and Finance Association Of Australia to introduce ‘mortgage bonds’, like the Canadian Government did in 2001. Mortgage Bond program provides investors with the opportunity to invest in a guaranteed fixed income vehicle that features semi-annual interest payments and repayment of principal at maturity.

The bonds are backed by the Government. So basically the mortgages are converted and sold to investors. The financial term for this is securitisation. The main difference is that it is all backed by Government, which increases the demand for investing in these bonds. So you see, if we had a similar system here, it will open a new funding avenue for non-bank lenders. Once they have the funding, the non-bank lenders will re-enter the market and that will force the banks to behave.

Its time for Government to address the core problem here rather than doing some lip service.

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RACV.com.au has released some interested figures on car expenses. Apart from the fuel costs, there are lots of other ‘not so obvious’ costs for running and maintaining a car. RACV’s research data reveals the total cost of owning a car.

There are two types of costs:

1. Running Costs: This includes the fuel costs, tyre costs and service & repair costs. These are the ‘obvious’ costs of maintaining a car.

2. Standing Costs / Fixed Costs: This includes depreciation of a car, loan interest, rego and comprehensive insurance. These are ‘not so obvious’ expenses. The standing Costs of a car is much more than the running costs. Overall depreciation takes the prize for contributing the most towards the costs. Depreciation is the decline in car’s value over the course of its life.

Most of us probably already knew about these standing costs. But RACV gives us weekly costs for each of these contributors. Quantifying it this way makes it all easy to to understand. And thats what makes this report so interesing and useful.

To check out what your car’s running and standing costs are, visit - RACV

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Forbes.com published an article on its website recently which tells us how people in different countries are spending their money. The data for this analysis was obtained from the World Bank’s most recent and hugely comprehensive International Comparison Program study.

The report divides individual consumption into 11 buckets — from food and clothing to health care and recreation. What makes the report interesting is that it gives us a snapshot of the spending patterns of individuals in 18 countries. It tells us what people in different countries are spending most and least on…

Here are the highest, lowest and Australia’s spending percentages for each of the 11 buckets:

I have italicized the buckets where we spend the highest and lowest.

A few points from the above table:

1. Can’t believe that United States spends only 6% on Food And Non-Alcoholic Beverage.


2. We love Eating Out (Restaurants And Hotels) and Recreation (Recreation And Culture).


3. We spend a considerable amount for our utilities (Housing, Water, Electricity, Gas And Other Fuels)

What stands out for you in the above table…Share your thoughts.

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