Why do Credit Cards Cost More than Bank Loans? [Podcast]

Suppose I have an $8000 credit card and an $8000 bank loan. They both have the same interest rate of 14.4% AND they both have the same payment of $220.

You would think that these two loans would get paid off at the same time, but that would be very wrong.

By the time you pay of Credit Card, you’ll have spent $3300 more in interest than you would have using the bank loan.

WHY IS THAT?

- Is it because credit cards are more convenient?
- Is it because credit cards are revolving loans?

So lets explore…

Most people are aware that when you take the more convenient choice… you pay more. It’s more convenient to go to a gas station than it is to visit the grocery store, but the prices are almost double for the items there. Whenever you shorten the length of time to do something, you pay a premium to do so.

So what makes a credit card more convenient than a bank loan? Well… it’s an easier application process for one. You fill out a pamphlet and give it to the bank teller, or you do it all online. Then you get your answer in the mail. Applying for a bank loan is not convenient at all. You have to go to the bank and sit with the loan officer and if feels like begging.

With a bank loan, once you pay it down, you can’t just borrow more money unless you go through the loan process again to get another loan. With a credit card on the other hand, you can pay it down and charge it up again without every having to apply.

This is called revolving credit. You can pay down and charge up your credit line. You can borrow, repay, borrow again, and repay as often as you like without the hassle of creating new paperwork. Revolving credit is a cool idea and it’s a convenient idea, but it is a COSTLY idea!

Here’s why:

A bank loan has a fixed payment schedule. In the case of the loan above, an $8000 balance will take 48 months to payoff with a payment of $220 and an interest rate of 14.4%.

The credit card with the same numbers will have a payment of $220 as well, but ONLY for the first month! The second bill has a payment of $217 and the third bill has a payment of $214.

It’s called a Decreasing Minimum Payment. Because you pay less and less each month, it takes you longer to pay off the bill AND it costs you more money in all. In fact, this loan will take 202 months to pay off and costs $3300 more in interest charges. This is true even if you are never late and interest rates never go up.

This is a big problem with an easy solution. You can pay off a credit card just as if it was a bank loan simply by keeping your payments the same each month. Whatever you are paying today, just keep paying it until your balance is $0. It helps to pay more when you can… but definitely DO NOT just pay the minimum payment they send you. Minimum payments are ineffective and do not put a dent into your balance.

With this strategy, you can pay off your credit cards faster and save a lot of money.

For a more comprehensive look at this subject please check out this report:
Credit Card vs. Bank Loan

Also… the strategies listed in this article and in the report are just a FEW of the strategies included in the Debt Elimination Engine found here:
www.DebtFreeInnerCircle.com

And finally… here is my Debut Podcast on iTunes. Feel free to comment below.

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How to Give “Bad Financial News” to Your Spouse

Last year, one Friday afternoon, I received a notice in the mail from my mortgage company. It basically said that my payment was about to go from $770 to $1600 effective immediately. After the shock wore off I called the mortgage company, but they were closed until Monday. So I had to keep this information to myself all weekend long. I didn’t want to alarm my wife about it without knowing some reason why.

On Monday. I called the mortgage company as soon as they opened and I learned some shocking news. It seems when they set up the escrow on the mortgage, they figured in the home owners insurance but they did NOT figure in the property taxes. In fact… they didn’t pay the property taxes for THREE YEARS! They “just” realized it and paid what was owed… but now they want to COLLECT it back from us in 12 months. This means a payment hike MORE THAN DOUBLE what we were paying before. Only problem was.. We couldn’t afford the new payment.

Now… I don’t like to cause my wife any undue stress, but this was BIG DEAL, and I don’t like keeping things from her. But before I could show her the letter and tell her what was going on, I had to find a solution. I asked the mortgage company if they would collect the deficiency over 24 months instead of 12. They agreed that the circumstances were unusual so they granted the request. Now the mortgage payment was set at $1107. It would still be hard… but doable.

The mortgage company sent us a new “Escrow Analysis” letter showing the $1107 payment, and I sat down with my wife to talk about it. Understandably she was upset at the situation. How could the mortgage company DO that? I explained everything I learned, and let her know where the money was going to come from to make the difference. She appreciated me doing my research and felt much better that we had plan was in place.

If you have “bad news” to give… follow these tips:

When you have “Bad News”

1. Don’t hide it – Many times it’s tempting to pretend you never got the bill, or the letter, or the eviction notice… but things like this ALWAYS come out at some point. When it does, you spouse will not appreciate the blind side.

2. Have a solution if possible – You don’t want to simply dump the problem on your spouse. If you have any control over the situation, present to spouse both the PROBLEM and the SOLUTION.

3. Ask for help – If you don’t have a solution, or you can’t implement the solution alone, ask your spouse for help. You will need their support no matter what.

4. Thank them – Thank your spouse for listening, for offering suggestions, and for being brave under the circumstances.

Have you had to give bad news to your spouse? Do you have more tips on how to make it easier?

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A Great Time to Set New Goals

2013 is not to far off. It’s that time when everyone sets their New Year’s Resolutions and set’s forth to achieve them. Usually, a New Year’s Resolution centers around starting a new healthy habit or to discontinue a bad one. Quitting cigarettes or alcohol, losing weight, toning muscles, and curb impulse buying are among the top ones. Some of us actually do them, while most of us fail to hit the mark.

So what makes the difference between those who succeed at accomplishing their goals and those that don’t? Is it the person or the goal? Sometimes it’s both.

Problems with the Resolution Itself

Many times a person will state a New Years Resolution but leave it vague, unrealistic, or based on results. Lets take a look a each of those problems:

Too Vague: If my new years resolution is “I want to lose weight”, that leaves a lot of open questions. How MUCH weight? What timeframe? HOW am I going to do it? The problem with this resolution is that it isn’t specific enough. It would be better to say “I want to lose 35 pounds by June 1st, 2013 by eating healthy, drinking lots of water, and daily exercise.” This statement gives you the WHAT, WHEN, and HOW the resolution is going to be achieved. A goal that is vague and not specific is nothing more than a wish.

Unrealistic: If my new years resolution is to “Win the Lottery”, “Lose 100 lbs in 3 weeks”, or “Sell my house for profit by the end of the month” then I’m just asking for failure. These goals are unrealistic because they too dependent on outside circumstances beyond your control. You cannot MAKE the lottery machine spit out the correct numbers. You cannot force your body to lose 100 lbs in 3 weeks (not the correct way anyhow), and while it might be POSSIBLE to sell your house for profit by the end of the month, it’s highly IMPROBABLE. Ask yourself what’s more likely? Is it more likely that you’ll burnout trying to lose too much weight too fast than actually succeed? Is it more likely you’ll sell your house for profit if you don’t rush the process than if you took the first offer than came along? Is it likely that you’ll win the lottery at all? Make sure your goals are firmly rooted in reality and based on things you can actually control.

Based on Results: Some goals focus on the end results instead of the means to which you can get those results. For example, if your goal was to “Sell $500,000 worth of product”, that is focusing on the results you want. Results are consequences of your actions. Getting sales is a consequence of making sales calls right? So if you were to focus on the actions you take (such as making more sales calls), then you would naturally increase your results. So a good goal in this case would be “This year I’m going to increase the number of sales calls I make to 35-50 a day”. A different example would be “For the next three months I’m going to do the P90X workout routine”. Focus on the actions only and then the natural consequences of those actions will follow.

Even if people can make a well established goal, there is still one obstacle they need to overcome: Themselves.

Personal Blocks to Achieving Your Goal

Many times…the roadblocks to accomplishing a goal or resolution are rooted in FEAR, BELIEF, and a LACK of planning. Even if your goal is reasonable, realistic, well thought out, and worth the effort, there still may be a part of you that is afraid to take the first step.

Before you even take your first step, you have to believe in your own success. If you don’t believe that you can lose the weight, quit cigarettes, or pay off the debt, then it just won’t happen. So first you have to believe that it is possible to accomplish. You’ve known people who have accomplished the goal, so you know it’s possible. Next.. you have to believe that it is possible FOR YOU to accomplish. Visualize yourself doing the ACTIONS that will take you to a completed goal. See yourself winning and feel now what it feels like to win in the future. Sometimes, your belief is all you need to motivate you to success.

Sometimes a goal never gets achieved because you never take the first step. Usually when procrastination rears it’s ugly head it is due to a FEAR of some kind. Here are some common fears:

Fear of failure, Fear of success, Fear of looking like an idiot, Fear of stepping out of your comfort zone, Fear of people leaving you, Fear of growth, Fear of gain, Fear of being hurt, Fear of death, and the biggest one: Fear of the unknown.

Many people fear the unknown more than they fear death. Strange isn’t it? We will continue to do things that are harmful to us, because we are resistant to the making change and face the unknown. But once you do… the unknown becomes known and it really isn’t so scary.

Whatever fear is blocking you from succeeding with your goal. Face it instead of delaying the start of your journey. When you feel the fear…acknowledge it and continue walking the path anyway. Pretty soon you’ll get over the fear.

Lastly…another block to achieving your goal is a lack of planning and preparation. You can’t succeed at a goal unless you have setup the environment for success. If your goal was to run a marathon in July and you signed up for it, but then did not start training for it, you won’t be prepared when the day comes. You can’t build anything without plans… and you can’t succeed at your goal until you have the right environment and the right mindset.

So..it all comes down to the final questions. Whatever your New Years Resolution is:

Is it Specific?
Is it Realistic and Attainable?

Before you get started remember to BELIEVE that YOU can achieve the goal, acknowledge your fears about it, and set up your environment.

What are your New Years Resolutions and what are your FEARs in relation to them?

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