Bank of America, You sneaky ba$tard

I’ve been with Bank of America for a little over a year now, as they are the bank that manages my Alaska Airlines Credit Card . I’ve wrote about it many times before, but I will reiterate: I use my credit card for every purchase  I possibly can. I even used it once for a 47 cent purchase for garlic at a grocery store (I know it’s pathetic). I’d pay my student loans and my rent on the card if I could.

Stacking up all my purchases over a one month time period usually means I have a nice $1,000 to $1,500 bill to be paid off…and you better believe I alwyas pay that balance in full. I often chuckle when I see “$15” as my minimum monthly payment. Although it would be nice to only fork out 15 bucks and keep the rest in my savings, I know that is the stupidest financial move one can make. I have learned to cope with the pain of parting with “four figures” each month.

I’ve had the card for 18 months now, and every time I go to make a payment, Bank of America tries to pull a fast one on me. Wanna know how? When I click on the “Pay Now” button to make my big payment, all of the information is pre-populated for me. That’s right, B of A decides that my payment will be made on the latest possible date and that payment will ONLY be the minimum balance. Instead of leaving all the fields blank, they subliminally try to trick you in to making only a minimum payment. There have been a few times where I wasn’t really paying attention and I processed on to the next page. Luckily, I always noticed on the “confirm payment” page that I was only paying $15 when I meant to pay $1,500 and quickly corrected the action.

Accident? I think not! They know exactly what they are doing. I think they have two goals in pre-populating the payment field. The lazy will think “Oh that’s nice B of A suggests I make the minimum payment. I guess that sounds good.” I’m willing to bet a ton of people don’t pay more on their credit cards because of the conveinence of submitting the auto-populated form (It’s kinda like “one click” shopping).  And even for those of us with the best intentions, I’m sure some don’t realize they make a minimum payment, when they intended to pay the full balance. Thus, the bank collects interest on their remaining balance for at least a few days before that action can be corrected.

Moral of the story…. I love my credit card, but I also know it should be registered as a lethal weapon. You have to know you what you’re dealing with and learn to suffer the consequences of any unintentional mistakes. Anyone else notice their CC companies do the same thing? Is this just a B of A thing? Or even worse, have you ever fell victim to one of these devilish tricks?

Credit Card Incentives: Should you sign up?

I was prompted to write this article by my dear old young, mom, I’ll call her Mama Ninja. She thought it would be valuable to explain the benefits and risks associated credit card incentives. I have blogged about credit cards a few times before, here, and here. But never really hit on the point Mama Ninja raised: “Is using a credit card with incentives a good idea?”

For those that don’t know much about credit cards, certain banks offer incentives with their cards to customers who purchase from merchants who accept credit card payments online, ultimately hoping it brings in more business for them. Some of the most typical offers are: 1%-3% cash back on all purchases or one frequent flier mile administered for each dollar spent.  If you’re still a little confused…you’re dumb….just kidding (kind of). Basically, if you charge $10K to your card over the course of one year and you have a credit card that offers 1% rebates on all purchases, the credit card company will credit your account with $100 by the end of the year. If you have a credit card and it doesn’t have incentives you might want to consider tracking a good offer down and signing up, after all, it is free money.

So why would the credit card companies want to give money back to you? The answer is simple. Most people with a credit card carry a balance from month to month and that makes the banks filthy stinkin’ rich. *Side Note: If you have credit card debt, pay that ‘ish off ASAP, sell a kidney if you have to, because the interest rate on credit cards is ridiculous.* They offer incentives to entice new customers, with the hope that they will not pay off their balance each month. Think about it like this, if you carry a balance on your credit card, they win. If you pay your balance in full each month you win.

So why did I recommend you sign up for using an incentives card? I would only make that recommendation if you have a proven track record (6 months or greater) of paying off your full balances EVERY SINGLE MONTH or if you posses crazy amounts of discipline. If you can’t do that, don’t sign up for any more credit cards!

I personally have a card that rewards me one frequent flier mile for each dollar I spend. I have had the card for two years and have always paid the full balance before the end of the billing cycle. I pay $75 each year to Bank of America to hold their Alaska Airlines Credit Card. I would almost always recommend that you only use credit card incentives if there are no strings attached…like an annual fee.

Why do I deviate from my own advice? Although I pay $75 each year for the card, I not only receive the miles on each purchase I make, but I also receive one $50 companion ticket each year. The companion ticket just means if someone I know flies Alaska Airlines to any destination I can get a ticket with them for just $50. I used it a couple months ago when I flew to Seattle with a friend and paid $50 for the ticket, when it would have cost me $225 if I purchased the ticket solo. So for me, the cost of being a member $75 is worth it to get a $50 dollar flight. I basically paid a total of $125 for my plane ticket ($75 annual fee plus $50 ticket fee). I could get a variety of different credit cards that offered similar mileage plans, but none can compete with the companion ticket offered through Alaska. The incentives offered with my credit card are perfect for my situation. If your preferences differ, consider going with a cash back card, but at the end of the day, never forget…Credit card companies wouldn’t offer these incentives if they thought you were going to pay your balance on time. 

If you do chose to sign up for an incentives card it is imperative you pay the full balance every month, on time. Now that I have bestowed wisdom upon you (actually you probably knew all of this) go forth and do great things.

…and in case you are wondering, I drew the plane up top…pretty good right?

I’m dumb for consolidating my student loan

One of the worst days of my life occurred two years ago this month. I was in my senior year of college and life was good, that was, until I got a piece of paper in the mail that rocked my world. It was a tiny white envelope from my school’s financial aid office. It said I had a mandatory student loan exit interview to attend prior to graduating.

No big deal right? Wrong! I sat down for my exit interview and was given a piece of paper  summarizing my student loan balance. This was the first time I saw the damage in it’s entirety, sitting there laughing in my face. It was a dark day in my life. I was a month away from graduating, had no employment lined up, and was told it was time I started making payments on my over $28,000 balance. I felt like I wanted to throw up. Needless to say, I knew I needed to get my priorities in order and figure out exactly how I was going to tackle the intimidating $330 monthly payment.

I did a little research and discovered the world of student loan consolidation. Everything I read (probably from bank websites and Sallie Mae) preached about how amazing it was (let’s just say I didn’t know about PF blogs back then). I saw that it would lower my monthly obligation and lock in my interest rate. Turns out locking in my interest rate was stupid. I locked in at 7% and am kicking myself in the pants. Interest rates dropped the next year to 6% and are now at 5.6%. Even worse, they are scheduled to continue dropping through 2011 to 3.4%.

Shoot me in the face. I would have gladly paid a variable interest rate for four years and then locked in at the 3.4% interest rate in 2011. I ran the numbers and assuming I made minimum payments for 20 years, I would have saved exactly 10 buttloads of money by not consolidating my loans for the first four years and then securing the lower interest rate. 

I have learned that consolidating is not always the best option, especially when you are consolidating at one of the highest interest rates in recent history. Luckily I only plan to be making payments for another two years , so overall it wont affect me too much.

F you Sallie Mae for tricking me into a 7% interest rate, you win this round.

"A dilemma"….follow up

About two weeks ago I posted about a dilemma I was having. For those unfamiliar, I was unsure of the amount of my disposable income I wanted to allocate to my “future house fund” and how much I wanted to throw at my student loan. That article has been my most read post and by far the most responded to. After mulling it over, running numbers, and deciding what I wanted my goals to be, I have reached a conclusion. I am committing to throw $1,000 each month towards that bad boy. That was the overwhelming recommendation from each reader that responded! I think in my head I was justifying the necessity to hoard my cash and put it all in my savings, when this clearly opposes mathematical reasoning.

Although I still believe personal finance needs to remain personal, I agree the numbers need to be strongly considered. I became focused on the desire to purchase a house (taking on more debt) when I should have been concerting my efforts towards breaking up with Sallie Mae.

This decision couldn’t have come at a better time! With a little over $12K in the bank, my Emergency Fund is fully funded (6 months pay) and allows me the freedom to throw as little or as much money as I’d like at my future house fund, or even better, towards my school loan.

So on this day, April 3rd 2009, I commit to putting a minimum of $1,000 to my school loans each month. Thank you fellow bloggers for whispering wisdom in my ear and opening my eyes… hey its like that Ace of Base Song… “I saw the sign, and it opened up my eyes, I saw the sign!Booya for Ace of Base, Booya for sweet advice from bloggers, and double Booya for paying down debt!

I am punching Sallie Mae in the face!

I LOVE having a net worth of Negative $2,000!!!!!!!

No Im not crazy! I’m super excited to have a net worth of -$2,000 because on 01/08 my net worth was -$28,000. Never would I thought owing money would feel so good! Essentially my net worth is pretty easy to calculate because I don’t own very many things. I have a savings/checking account and a couple retirement accounts . I chose not to include things like personal belongings (laptop, camera, etc) or my car (which would add probably $5K to my worth) because I figure those are things I will always need and wouldn’t really want to go with out. My negative net worth comes from my evil Aunt Sallie Mae  and her 25,000 friends (It used to be 28K). I have been making double payments on my student loans every month (minumum payment $178) and trimmed $3k worth of fat off her last year.

So read it and weep fellow bloggers. Below is my net worth graph. The green bar is the cash I have in savings, checking, and my two retirement accounts. The blue bar is the amount of debt I owe (again all school loans). The red dot is the tracking of my overall net worth (you can see on this graph I was worth negative $22K this time last year). The goal is to have that red dot cross the threshold and enter into the green zone in ONE MONTH baby! Can’t wait to actually have a POSITIVE networth!!!!!

It feels good to be broke,

I love learning about finances….and I love my Credit Card!

So I got a Credit Card that awards one airline mile for every dollar I spend. I know most people recommend cutting all credit cards up to avoid high interest on any consumer debt, but I am quite a fan of my card. I have never needed to use the “credit” aspect of my credit card. I treat it like a debit card and pay the full balance every month. If I don’t have the money, I don’t buy it. There are two BIG advantages to using my credit card for EVERY purchase I make.

The first is that I get one airline mile for every one dollar I spend. I put everything from a $1 pack of gum to my $1,000 laptop on my credit card. Just by using my credit (instead of debit) card for ALL my purchases I basically rack up enough points to earn a free flight every year. I don’t know about you, but I’ll take a free ticket any day!

The second advantage to using my credit card is basically free money for one month. This allows me to make purchases before my paycheck gets auto-deposited in to my account. For example, I bought my laptop for $1,000 dollars on the 10th of Jan. At that time I only had $900 saved for my new laptop, but since I charged it to my credit card I was able to walk out the door with it before I had the full $1K saved. I got my paycheck two weeks later and took my “$100 a month laptop fund” added that to the $900 I had already saved and paid off my credit card balance in full. The laptop didn’t cost me any more then it would have if I used my debit card, but I was able to get it two weeks earlier.

I’m fully aware of the dangers of owning a credit card. It takes discipline, but as long as you don’t spend money you don’t have, I’m convinced that credit cards  are an asset to my financial success. I have plenty more to say about credit cards and I would love to hear what you all think about them. Keep looking for more of my financial habits and advice.

What do you think?