If you can answer the five questions below without peeking at your credit or charge card statement (excluding number 5), then you're likely carrying a card that’s right for you and working to your advantage.
If it’s a struggle, then it’s time to get better acquainted with your cards of choice, because avoiding this Q and A could end up costing you hundreds, or even thousands, of dollars in unnecessary costs. It won’t take long, so let’s get started.
How much is my debt is costing me?
If you’re carrying a balance, you need to know this number. Pull up your statement online and note your interest rate. Then, click here and plug in your current numbers. You now know what your debt is costing you.
Rerun the calculation with an interest rate even a few percentage points lower than your current rate and see how much you can save with a reduced rate. To actually lower your rate, you’re going to have to make a call to your provider.
The Simple Dollar personal finance blog provides tips and a sample script for making the call to your provider here. For additional leverage, arm yourself with a few examples of competitors' rates. Calling and lowering your current interest rate by even a few percentage points will help. If you’re planning to pay off your $4,000 balance over the course of a year, for example, and lower your interest from 19 per cent to 14 per cent, you’ve just saved yourself more than $100 in a single call.
Am I insured?
You may have been sold on credit balance insurance (also known as balance protector or credit wise) when you first got your card, and have been paying it ever since without even realizing. Is credit card balance insurance necessary for you? That depends on your situation. This type of insurance is designed to protect you from outstanding debt in the event of job loss, disability, critical illness or death.
If your coverage is 89 cents on each $100 of average daily balance, for example, that adds up. My colleague Sandra paid more than $2,000, over the course of a few years, for insurance that wasn’t necessary for her. She only noticed this charge on her bills after she started scrutinizing her bills line by line. Some people may certainly benefit from this type of insurance, but if you’re not one of them, you should cancel it immediately.
Am I rewarded?
If you have essential purchases to make like groceries and gas, then why wouldn’t you use a rewards card to make the purchase? You’re going to spend the money anyway, so why not get rewarded. If you’re in the market for a new card, or would like to see how your card stacks up against others, click here to start. You’ll enter the main reason you want the card, the annual fees you’re willing (or not willing) to pay, and the kind of rewards you’re most interested in getting. Then voila, a convenient list pops up for you to view.
Do I know all of my perks?
If you’re paying off your balance monthly, the perks of paying with plastic are clear: additional security if purchases are lost or stolen, easy tracking, the opportunity to build your credit score, etc. However, there are a number of perks that aren’t so obvious and those are the ones you want to know about. This information is likely online. If you can’t locate it, then call your provider for the information. You don’t want to pay for extended warranties or car rental insurance, for example, if you’re already covered with your card.
Am I being overcharged?
Although you may not find them very often, mistakes do happen. Scanning your bills once a month is a quick and easy habit to get into to ensure you’re not charged for something you didn’t purchase, or paying an unnecessary fee. This is especially important to do if you have automatic payments set up.
An honest review will also help you to detect spending habits and see where your money is going. You might not realize how much your impulse buys or 2 p.m. coffee runs are actually costing you, until you see them lined up in black and white.
The next time you want to charge a seemingly great deal on a credit card carrying a balance, check out the free online tool, The Real Damage, to see what that item will actually cost you. The tool takes into account your current balance, interest rates, and monthly payments, and then calculates an approximate dollar amount of how much more you’ll pay in interest for this new buy before you’re out of debt. Knowing you’re adding $50 in interest charges to a purchase might not seem like such a great deal after all.
Answering these questions should help you feel more confident with your card choice and more in control of what you charge and why. If you lack plastic willpower, then credit should be used sparingly if at all. However, if you are smart with your card, and pay your bill in full every month, then paying with plastic definitely has its advantages.
