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5 Credit Cards Fees that Can Make Plastic an Expensive Way to Pay
Everyone’s aware that credit card companies and issuers primarily make money by charging interest on the amount you borrow. The specific rate charged can range from an introductory (meaning it expires after set period of time – usually around 6 -12 months) 0% to a you’re-never-paying-off-that-balance 79.99%. But interest rates aren’t the only way the credit card industry makes a profit. Below are additional methods of getting you to part with your hard-earned cash:
1. Late payment fee
Forget to mail in your check? Internet outage and you can’t login to online banking? That’ll be $39 please. The new credit card laws have somewhat cracked down on bogus late fees – ones where your payment was considered late just because the processing center’s mail didn’t come until late afternoon.
2. Cash advance fee
Cash is king. Because of that (or maybe because of the potential profits), credit cards can usually be used at an ATM to make a withdrawal against your line of credit. This is where you get dinged twice. Once for the fee, usually around 5% of the amount you borrow. Plus the higher interest rate you pay on what you borrow.
3. Balance transfer fee
If you’re carrying a balance on a high interest rate card, you can transfer it to another card with a lower interest rate. But this isn’t a freebie. The new card issuer will often charge you 3% to 5% of the balance transfer as a fee. While this is an upfront cost, balance transfers can save you money by reducing the interest you pay. Just do the math beforehand to make sure it’s a good deal.
4. Exceed credit limit fee
Shop until you drop and you’ll likely go over your credit limit. That’ll be another $39. This can get expensive quickly because if you just make the minimum payment, your balance will only be slightly below your credit limit. That means it’ll be extremely easy to go over again
5. Annual fee
This fee is simple – you pay it in exchange for being given the privilege of using a particular card. Annual fees had all but disappeared in the past 10-20 years, but the recent credit crisis has seen them make a small comeback. Most average everyday student or rewards card are still annual fee free.
While these fees are ridiculously expensive, they’re all optional. Just as paying interest is. You can choose whether to carry a balance over many months and years. You can choose whether to go over your limit. You can choose to get a card without an annual fee. You don’t even have to have a credit card if you don’t want to. But, if you choose to have a credit card like most people do, it’s wise to know all of the fees that can wreck havoc on your finances if you aren’t careful.
Investing 101: Mutal Funds
Mutual funds can be another important part of your portfolio, but it helps to understand them first.
So What is a Mutual Fund?
A mutual fund is actually a collection of different stocks, bonds, and other types of securities (investments). The point of this is to lessen risk, while still reaping a decent reward. A mutual fund also pools many different investors’ money together to purchase these investments, with each investor getting part of the profits (or losses…)
What’s So Great About Mutual Funds?
The best thing about mutual funds is that your risk is spread among many different types of investments. If one company has a bad year, your investment won’t crash and burn. The other benefit for “normal” people is that the fund is managed by a professional so you don’t need to know the nitty gritty details of investing to start.
Mutual funds can also be an affordable way to start investing. Quite a few funds don’t have high minimum balances, so you can get started without a lot of money.
How Do Mutual Funds Make Me Money?
Similar to single shares of stock, you own shares of a mutual fund. You can usually sell these shares anytime you wish. Assuming you sell them for more than you bought them for, you make money.
Also similar to stocks, you can earn be paid dividends when the mutual fund performs well.
What’s Not So Great About Mutual Funds
Because mutual funds are managed by a professional advisor, there are fees and costs associated with buying into one. These fees are charged even if the fund doesn’t do well, so you might have to deal with a negative return along with a sales fee or purchase fee.
You have less control. With individual stocks and bonds, you can pick exactly what you want to invest in. So you aren’t likely to find a mutual fund with only the investments you want.
Overall
Mutual funds can definitely reduce some of the risks associated with investing. But you also have to deal with fees and a lack of control. From my own research and reading, I’m not too impressed with them since the fees seem to eat up a large portion of any return.
Investing 101: CDs
In the financial world, a CD refers to a certificate of deposit. Some might say that a CD isn’t an investment because they are insured by the FDIC (a US owned corporation which protects certain banking products), but I’m counting them here because they do provide a higher return than savings, but at a significant cost: time.
So What is a CD?
A certificate of deposit functions in many ways like a savings account. You open the the account and deposit a certain amount of money. Interest is earned on this deposit. Pretty much every bank in existence issues CDs. However, you do not just withdraw money every time Nintendo releases a new Wii game.
What’s So Great About a CD?
Mainly, the benefit is a higher interest rate. A secondary benefit, if you want to call it that, is it forces some self control. You can’t just take the money out whenever you feel like it or you’ll lose money.
What’s Not So Great about a CD?
In exchange for a higher interest rate, the bank locks up your money for a set amount of time. If you withdraw your money before this time period is up, you will pay a penalty. Banks can also set up a “withdraw window” where if you don’t collect your money before this period is up, the money will be rolled over into a new CD. If this happens, your money is once again tied up for a certain period of time.
Overall
If you have a lot of cash and know you might only need a portion of it, putting the rest in a CD, or across multiple CDs, can be a good way to get a better return than what a regular savings account would provide. On the other hand, you need to choose the length of CD carefully. The shortest are typically 3 months. If you have good reason to believe you’ll need the money before that, then look elsewhere to keep your money.
Investing 101: The Basics of Stocks, Bonds, CDs, and Mutual Funds
Of all of the personal finance concepts that people should know, I think investments are one of most misunderstood concepts out there. This is backed up by the fact that “just 17 percent of students knew that investing in stocks are likely to produce higher returns over the next 18 years than savings bonds, savings accounts and checking accounts.” With that sad fact out of the way, I thought it would be a good idea to do a simple introduction to investing over the next week.
The definition of investment is something that grows in value over time. But there isn’t just one type of investment. There are stocks, bonds, mutual funds, index funds, exchange traded funds, and more. This can all get really confusing.
In this series at The Financial Student, we’ll look at the different types of investments. What they are, what’s unique about them, their risks and rewards, and everything else.
By learning what types of investments are out there, you’ll understand how you can earn money while managing risk and not lose sleep every night.
An Argument for Knowing How Much Money Your Parents Make
I know, it’s one of society’s most honored norms. You never, under any circumstances, ask someone how much money they make.
Screw it.
I’m serious. There are two people whose incomes you should know. They’re your parents. Knowing how much money your parents bring in and how they run the family budget is an important tool in understanding real world finances.
For one, it removes a mysterious aspect of money. Adults typically act like their income is some government secret worth more than all of the information inside Area 51. It’s not. It’s a number they assign a high importance to. These types of secrets don’t help you learn about money and it’s functions.
Furthermore, there’s a trust issue at play. Why don’t my parents trust me with this information? Why exactly can’t I know it? Answers like “it’s none of your business” and “just because” are pretty common, but they’re also bullshit. This just creates a situation where you’re kept in the dark and in not-an-adult-yet-zone forever.
You need to know what’s expected of you. Are you paying for your 1st car? College tuition? Room and board? Prom? Just because your parents could pay for these expenses doesn’t mean they will. Knowing their income can be the 1st step in figuring out who’s responsible for what.
Lastly, it lets your parents be direct and honest. Instead of making up a reason why they can’t afford to buy something, they can explain financially that there just isn’t enough money in the budget. This is a great example of how the world isn’t all rainbows and butterflies. Knowing the truth is better. You can deal with bad news just fine.
Overall, I think there’s a lot to be gained from kids knowing how much money their parents make. I think the biggest benefit is how much secrecy is removed. Your parents no longer have to dance around money issues any longer if all the cards are laid out on the table.
