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Credit Card Companies Are Raising Your APR – Here’s Why & What You Can Do

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Isn’t it always a blessing to come home, check the mail, and be greeted by a handful of bills!  Don’t you just love that?

The Problem

Today I had the pleasure of getting an extra special treat from Capital One; one of my ever so thoughtful credit card providers.  Here is the letter I received from them:

apr

According to the literature, Capital One is raising my APR by nearly 7% due to “the challenging economic environment”.  This is an incredibly steep increase in interest that has been implemented in order to pass the brunt of these tough economic times from the shoulders of a credit card company over to my shoulders!  I suppose they assume I have broad, strong, healthy, able shoulders!

I Tried Negotiating

Of course being the extremely frugal chap that I am, I called the powers that be and not only attempted to halt the increase, but actually tried to have my rate lowered from the original amount of 16.24%.  In order to be successful I knew I was going to have to strategically maneuver my way through the carefully constructed deterrents of the CC company’s convoluted phone system before finally getting connected with a “customer service rep” who could “help” me.  Enter Melissa.  Melissa was a charming young lady who most likely has a couple credit cards of her own.  My wife & I tried to imagine what Melissa was like outside of the scope of her CSR job.  Here are some of the things we came up with:

  • She probably brings in around $7-$10/hour to sit on the phone all day and field calls from disgruntle Capital One “customers” such as myself all while worrying about her 6 kids and whether her 1989 Chevy Suburban would break down on the way home from work today.
  • For this measly pay she takes the brunt of the grief for the corporate policy setters a.k.a. “leaders” who are doing one of two things:
    • Sipping brandy and smoking fine cigars on their yachts – or –
    • Finalizing the terms of their corporate “bailout” program compliments of the Federal Government

I digress…

In reality, as expected Melissa did have a script she was expected to follow, so I immediately switched into CSR communication guy and worked to create a distinction between the CSR and the company in an attempt to get her on my side and perhaps increase the chances of getting my rate lowered.  It didn’t work this time.  Melissa was thoroughly unable to help me lower my APR.  The only thing she could offer me was a Balance Transfer at 0% APR for six months, but even that would have cost me 3% of the transfer with a $50 minimum, so I graciously passed.

When I directly asked her why Capital One was raising my Annual Percentage Rate by a total of 7%, she only had this answer:  “Capital One is doing this as a benefit to our customers.  During these tough economic times we need to raise our rates so we can continue to be around and serve our you our customers.”

What??  Uhghh, yack, che heh heh uhhhal…

Sorry I just threw up in my mouth a little there.  If you’re going to blatantly raise my rates from 16% to 23%, at least have the decency to elude to the fact that I’m getting screwed over.  Don’t condescend me or insult my intelligence!  **RANT OVER**

So What’s The Answer?

There are only two options we have at this point:

  • “You can choose to decline the changes to your rates and close your account.” – As stated in the wonderful mailing I received.  Going this route will terminate the card and forfeit any rewards you had accumulated.  Another potential negative is the effect this could have on your credit score.  Normally if you pay down the balance of a credit card to zero, it is in your best interest to leave that card open which will help boost your score.  If the card is closed, you are not provided that opportunity.
  • If possible just pay off any remaining balance on the card before the rate goes up. This is the option I will be pursuing.  Because I am able to eliminate my existing balance within the next 2 months, I will pursue this route which will end up having a positive effect on my credit score.  The bible advises us to, “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”  Romans 13:8 –  This is good advice and we would be wise to heed and follow it.

APR_Decline

There you have it folks, one more reason we should be doing all we can to eliminate our debt and spend less than we earn, thus granting us freedom from the likes of companies and situations like this!

DFA is passionately dedicated to helping others break the bondage of debt using biblical principles.

Financial Philosophy & Sacrifice to Create Wealth & Live Off Your Interest

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Do you have a Financial Philosophy?  How much are you willing sacrifice to become debt free?

Over the course of the last week or so I have drawn several noteworthy conclusions about myself, my life, my family, and my financial goals.  When I say “family” I am referring to my wife & I.  Currently it is just the two of us, but I still consider us a family.

I recently discovered that my financial mindset was faulty, in several distinct ways.  This faulty mindset is not something I will look to blame on anyone, rather it is a mindset that is shared by a vast majority of middle class folks such as myself.  Even since my financial awakening in January of 2009, I still had an errant view of finances.  Here are the 2 distinct problems with my previous thought process:

  1. I thought the best financial plan available to me was to save money I earned and pay cash for things.
  2. I did not have a financial philosophy.

Yes, you read that right, saving money I earned to pay cash for things is an errant financial though process.  Let me elaborate.

Saving Money To Buy Things is NOT the Best Option

While saving money to pay cash for your purchases is a wise decision, it is NOT the best financial decision.  What about saving your money in order to pay yourself?  How does that sound?  It may sound great to some, but may sound unrealistic or like somewhat of a foreign concept.

You may be thinking, “Yeah, that sounds great…if it were possible!”  I am here to tell you today friend…it is VERY possible.  It will take some time, but living off the interest of your own money is something wealthy people have been doing for many, many years!  Therein lies the difference between a wealthy mindset, and a middle class mindset.  I have now adopted the wealthy mindset and I urge you to do the same!

There are several things that you need to do before your money can start paying you back.

  1. Figure out how much your money is paying someone else – Go through all of your expenses and figure out your interest amount paid to others.  This will give you a painfully obvious & realistic overview of how much money your interest is already earning other people.  Now consider for a moment, if some or all of that money were going where it belongs…into your bank account.
  2. Work out a plan to reduce your debt so you can begin paying yourself – Sacrifice, sacrifice, sacrifice!  This is the key.  If you read over the archives of Debt Free Adventure you will notice a common theme; my wife & I are finding ways to sacrifice so we can attribute larger chunks of our money to debt repayment.  This, in turn, will cause less & less of our interest money to go toward paying others, and allow us to start saving it so it can begin paying us instead!  Here is one very specific example of how we are sacrificing by eating more beans instead of meat to save hundreds on our monthly grocery bill.
  3. Begin saving & investing your money – You do not have to save tons to watch it accumulate.  In the beginning you should attribute more of your funds to debt repayment, but make sure you save at least some of it.  Develop a plan, set savings goals, and automate the withdraws so you don’t have to think about it at all.  Here is a great article if you are overwhelmed by your present financial state that will help you put all of this into perspective.
  4. Patiently & faithfully stick to your plan – You are not going to be able to wake up tomorrow, quit your job, and begin living off your interest…so the sooner you lose this idea the better.  Realistically the entire process will take years, but is entirely necessary to build your financial strength and fortitude.  Waiting on the Lord and meditating on His Word is the best medicine for you.  Read Psalms & Proverbs to gain wisdom & patience.

Hopefully you are starting to see the pattern.  Sacrifice in order to pay down debt, develop your plan, and save your money, and trust in the Lord.  It may take awhile, but within a few years you will see a noticeable difference.  This is not going to happen overnight, nor should it.  It is good for you & your family to go through the process of getting your financial house in order.  It is also good for you to do so over a long period of time.  It will help build your character and will help establish & grow you financially, emotionally, and spiritually.

Develop your Financial Philosophy

Your financial philosophy can be as long or short as you like but should embody your overall financial goals and how you plan to achieve them.  I chose to establish a very short philosophy so I can easily tattoo it in my mind and incorporate it throughout my entire life.

  • “Sacrifice now to benefit later.“

That’s it folks.  That is my entire financial philosophy in one short statement.  Use your imagination to expound the depth and breadth of it.

Take a good look at your overall financial state, where you would like to be, then develop your own philosophy to help you get there as soon as possible!

Concluding thoughts on sacrificing…

Jesus gave us the ultimate example when he sacrificed His own life to save ours!  It makes sense then that in order to save, we need to sacrifice.  What are you willing to give up in order to reach your goals?

I can become financially free much quicker if my wife & I choose to sacrifice more.  As you might expect, the greater we sacrifice, the sooner we will reach our goals.  Will it take us 30 years, 20 years, 10 years…how about 5 years?  It all depends on how far we are willing to go.

Most recently we have been discussing selling our home.  If we can sell it and avoid taking much of a loss, we will most likely do just that.  If we do sell, we plan to rent an apartment or condo for around $500/month.  That would save us over $900 on the mortgage, taxes, & insurance alone not to mention all of the money we would save on home maintenance.

We are also considering becoming a one car family.  I was recently in a car accident (I’m okay) which required my Jeep to be in the shop for the last few months.  Because of this experience we have learned that we can get by with only one vehicle.  It may seem impossible, but remember that you get used to where you are, no matter where you are.  If you have 5 cars, it will hard to imagine cutting back to 4.  If you have zero cars, you will find a way to get used to that as well.

I will expound on the latter points in new posts over the course of the next few weeks so be on the look out.

DFA is passionately dedicated to helping others break the bondage of debt using biblical principles.

Interest Amount Paid – Establish a Proper Relationship with Your Debt

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Your Debt Costs You More Than You Know

If you want to take a truly sobering look at just how much your debt really costs you, follow this simple guide to figure out what your monthly interest amount paid is.  Once you complete the exercise you will have finally developed a proper relationship between you & your debt!

This article will address the following:

  1. What is interest & how destructive is it
  2. How much interest I pay out each month
  3. How I calculated that amount
  4. The anger I gained toward my debt after completing this exercise
  5. The incredible motivation this information gives you
  6. Real steps we can take to lower, reduce, & eventually eliminate the interest we pay

What is Interest & How Destructive is it?

While there are several definitions of “interest”, for the purpose of this article we focus on the interest amount paid toward our debts and will define interest as a fee paid on borrowed assets; and/or the price paid for the use of borrowed money.

Simply put, interest destroys your ability to build wealth by taking your hard earned money and misappropriating it toward paying rich people (the people who loaned you the money.)  I will demonstrate this fact by listing my interest amount paid from last month (March of 2009).

How Much Interest I Pay Each Month

Please note that I will have to pay these amounts each & every month until I eliminate the associated debts.  However, on the bright side, the amounts will lower each month as I lower the principle debt amounts.

  • Mortgage 1 (80%) – $592
  • Mortgage 2 (20%) – $296
  • Student loan 1 – $165
  • Student loan 2 – $120
  • Auto payment – $52
  • Credit card 1 – $30
  • Credit card 2 – $19
  • Credit card 3 – $11
  • Credit card 4 – $8
    • Total interest amount paid for March 2009 – $1,293

Let it be stated that this is approximately 20% of our gross family income (amount after taxes).  A convincing explanation of how this interest amount paid greatly hinders our ability to save and become financially free is simply not necessary; the numbers speak for themselves.

How I Arrived at the Above Amounts

Follow these simple steps to find out your monthly interest amount paid:

  1. Write down a list of all your loan amounts including your mortgages, student loans, auto loans, credit cards, etc.
  2. Either look at the statement each account mailed you last month, or log into their associated web sites to find the amount of interest (a.k.a. finance charge) you paid over the past month.
  3. Write down the numbers you find above next to the associated accounts
  4. Calculate your very own monthly interest amount paid.

After completing the above steps, you will most likely be filled with anger!  I was.

The Anger I Gained Toward My Debt

Before I completed this exercise I was certainly angry about the amount of debt I had, but now that it has been so plainly laid out in front of me I have entered into an entirely new realm of DEBT HATRED!

Similar to how the bible teaches us to HATE SIN, I am learning more & more to have a righteous hatred toward my debt.  It gives new meaning to Proverbs 22:7, “The rich ruleth over the poor, and the borrower is servant to the lender.”

It is important that we use this information as motivation to push us into a much more passionate, much more driven, much more functional stratum of debt repayment & elimination.

How to Channel Your Anger Into Motivation

This step is simple but crucial.  You must not allow yourself to slip into the trap of becoming overwhelmed.  You must realize that you are the only one who can turn this around.  You must stand up and fight.  You must take control of your own financial destiny and your own financial freedom!

Consider, meditate, and memorize this quote and use it as a daily battle cry against your debt:  “A journey of a thousand miles begins with a single step.” ~ Lao Tzu

Solidify in your mind the realization that you got yourself into this mess & just the same you are the only one who can get yourself out.  Now stand up and take responsibility for your own actions and commit to establish a new financial mission of debt free living.  A mission that will change your existing relationship with your creditors.  A mission that will enable you to take control of your own financial situation.  A mission that will allow you to finally begin building your own wealth with the money you have long been squandering on interest and debt.  A mission strongly fortified with direction and goals.

Real Steps to Reduce, Lower, and Eliminate Interest & Debt

I would like to start this section by happily reporting that Credit Card 4 from above was eliminated with this past months payment!  That means that I will now be paying $8 less interest every month, and when I add in the reduction of principle of the other debts, that number actually grows to $12.

By using a focused, goal oriented approach, in one month I was able to lower my monthly interest amount paid by $12.  I will use this amount as motivation and will keep track of how much I reduce my interest amount paid each month.  You should do the same.

  1. Hold on to the list you formulated above.
  2. Call each creditor & attempt to get your interest rate lowered.  This can give you a HUGE jump start in lowering that initial amount.  DO NOT skip this step!
  3. Each & every month record the interest amount paid for each debt.
  4. Calculate your total interest amount paid every month.
  5. Track your progress by listing your lowered amounts.
  6. Place these monthly amounts somewhere you can see them every day, like your refrigerator.
  7. Balance your focus by paying off both small debts & high interest debts.  I use both of the following methods in tandom:
    • The Dave Ramsey snowball method of paying off small debts first to motivate yourself & see entire debts eliminated
    • Focusing on the highest interest debts – doing so will be the fastest way to lower your interest amount paid
  8. Some would say reward yourself once a month by treating yourself to something you want, but for me the lowered amount of interest I’m paying is reward enough.  Use what works for you.

The more we eliminate our interest amount paid each month, the more we can use toward paying ourselves.  This disciplined approach, if properly employed, enables us to begin building wealth and will help guide us down the road toward our ultimate goal of FINANCIAL FREEDOM.

DFA exists to help you become debt free. If there is something you like or dislike; something you would like to see more of or less of, no matter how trivial it may seem to you, please let us know.  The best way for us to improve for your liking is to hear it straight from the horse’s mouth. If you have been reading but have never commented, I encourage you to do so now.