How Credit Cards Really Work

How Do Credit Cards Really Work?
A Guide For Anyone With A Credit Card.

 

A lot of readers of personal finance blogs are already advanced in their knowledge of how money works; how to make it, how to spend it and how to save it. It’s almost an elite club where we push each other to find new ways to stretch a dollar, make a buck or aim for early retirement. This time, I am writing for those who are not masters of their finance; people like you and me: they may be on either end of the income scale, they drive on the same side of the street and yet know nothing about credit cards.

 

These days, I am working with people and helping them understand their credit card debts.  It’s no wonder that we can get ourselves into financial messes and not really understand how it happened because no one has taken the time to explain how credit cards work.

 

CREDIT

 

Credit. It’s like a four letter word with gatekeepers on either side. Credit seems to be a confusing animal. Here is the simplified version of the way credit cards work. I wish everyone would take a moment and read or share.

 

The Credit Card

 

Credit is money that is lent to people who may have demonstrated the ability to manage money through other means as reported by the credit bureaus. Credit cards are a device to access funds that a bank or institution has given you access to. It is not your money, it is the bank’s money. If you use that money, it is still the bank’s money. You have borrowed it.

 

Let me repeat that. You are borrowing someone else’s money and the credit card belongs to the bank, not to you.

 

In order to assist you, and to be accountable to you, banks issue statements on a regular basis. Generally, they send you a statement monthly that outlines each charge or payment or adjustment that occurred during the last month, if any.

 

The statements have a due date scheduled on them, generally 21-26 days after the date of the statement, and the statement shows you a balance due. This balance is the amount YOU have spent or accrued over the last month. Pay that amount by the due date, and you’ve received a free loan. Seriously.

 

There’s a second amount on the statement called minimum due. This is a good faith payment that the bank expects from you to show that you intend to pay off that balance in time, if you cannot pay it in full. The minimum payment will keep your account in good standing but will not deflect interest from accumulating on the balance that remains.

 

Let’s simplify that: Pay full balance by due date, no interest to pay. Do not pay full balance by due date, then your balance is subject to interest from the date you spent it.

 

I want to mention here that banks are businesses. I am not advocating for the amount of money they make, as I think it’s truly excessive (my opinion). However, judging by the amount of people who do not understand how to use a credit card, it’s no wonder that they are making oodles of money and you are losing your hard-earned money in return.

 

Example: If you borrow a library book and don’t return it on time, the library fines you. This is no different. If you choose to pay in instalments on a credit card, that’s your choice to do so – that’s why the credit cards set out minimum payments.  It’s enough to keep your account current, but if you do not return the funds in a timely manner, there are fines to pay.

 

Interest on the Credit Card

 

Interest is how banks make lending money affordable. It’s how they make their money. And, if you are reading personal finance blogs, it’s all about how to make the money, right?

 

Interest rates on credit cards can range anywhere from 12 – 30%. Banks generally have lower interest rates available to those with good credit, but there’s a catch:

No rewards, good credit = lower interest rate 

Rewards, good credit = middle interest rate 

No rewards, bad credit = higher interest rate

Rewards, bad credit = highest interest rate 

*there are exceptions to every rule, but this is a general perspective.

 

Before deciding on a credit card that earns you miles, or points or freebies, you need to consider how you use your credit. If you pay your balance in full each and every month, a higher interest rate and higher rewards would benefit you because you wouldn’t pay interest. However, if you carry a balance, then you would be paying interest on these funds, and would have to consider if the cost of carrying the balance at that interest rate is worth the rewards you are receiving. It doesn’t make sense to pay a high interest rate to earn air miles, for example, if you could turn that interest into a flight by the time you are done!

 

Before deciding on a rewards card, make the decision to pay off the balance every month; otherwise, you are paying for the rewards. Why not just pay for what you want? Click To Tweet

 

Interest rates are set by market standards: cost to borrow money (if the bank borrows), cost to run the business, cost of risk from customers, etc. The standard credit card will have a range of interest rates from 18 – 22%, and more if you are higher risk. This is why the cost of borrowing money is so expensive.

 

Remember, when you don’t pay your borrowed funds back by the due date, you will owe interest!

 

Cash advances on the Credit Card

 

A lot of people have no idea what or how a cash advance works! A cash advance is when you use an ATM machine to withdraw cash from your credit card. Alternatively, it can also be when you use your credit card for gambling or lottery. These transactions are often processed as a cash advance.

 

Your credit provider likely has a fee for cash advances, as cash advances are a service provided in conjunction with the Mastercard and other networks. Like a scenario where you withdraw funds from another bank’s ATM, the other bank will likely have a service fee attached as well.

 

That’s not all that happens with cash advances. Interest begins the day that you take the cash out, and will continue until your full balance, purchases and cash advances together, are paid off.

 

Cash can be used for nearly anything and is not traceable as easily as a purchase, which makes it a higher risk transaction.

 

Cash advances are usually charged at a higher interest rate because they are a higher risk to the bank. There are usually fees associated with obtaining a cash advance, and interest starts on the first day that you take one out.

Let me repeat that: cash advances accrue interest the first day you take it out.

CREDIT CARDS Before you assume you understand the credit card, read this. I was shocked at the questions that I heard over and over. Here are your answers. #credit #creditcard #debt #wealth #money #budget

Credit cards have complicated repayment methods, and are individual to each company. There’s a good chance that your payment is spread between regular purchases and cash advances, after paying fees and interest. If you carry a balance on your credit card, you will likely not be able to directly pay back the advance. Interest on that cash advance will continue, at a higher rate, while you pay down the remainder of the balance. That couple hundred bucks you borrowed will be eating at your payments for a long time.

 

Credit cards are fantastic tools for managing your money, building credit and earning rewards, but only if you pay them in full every month. If you carry a balance, you are borrowing money, and that means the lender can charge you to do this, so don’t be surprised at the result!

Using your Credit Card Correctly

Many people get credit cards and think they know how they work, but be sure you do. Understand how interest is calculated. Be aware of annual fees, late fees, interest charges, and interest rates. I am sure to get feedback from some people that this is common knowledge, but I assure you, it’s not. If you have any questions about how credit works, please send me a message or comment below, because credit is not an easy concept for everyone, and there’s no reason to be lining someone else’s pocket when it could easily be your own.

 

This post may contain affiliate links, meaning, at no additional cost to you, I may earn a small commission if you choose to purchase through these links. Please see my disclosure for more information. Amazon Affiliate Disclosure: I am a participant in the Amazon Associates Program, an affiliate advertising program designed to provide a means for me to earn fees by providing links to Amazon.ca and affiliated sites.

When Every Dollar Counts: Quick Shopping Tips and SCOP

When every dollar counts, you need to make the most of it! #groceries #money #saving #wealth #credit #scop

When Every Dollar Counts:
Quick Shopping Tips and SCOP

 

We live in a world where every dollar matters and time is money. This is why I want to talk about shopping habits and how I get the most for my money and time.

 

Like many of you, I shop for items at the best price, and that often means shopping at big box stores, like Walmart or Target (when they were in Canada, or when I am in the States). Throughout this debt-free journey, I have made a very serious attempt at going into the stores, purchasing what I need and came for, and leaving.

 

It doesn’t always work in my favour, as I am as prone to impulse buys as the next person. However, there are times that I can take advantage of my wandering eye when shopping at big box stores and grocery stores alike:

 

End-of-Aisle Products

 

Did you know that end of aisle products are often the products on sale, and are considered “loss leaders”? If you watch the end of aisles for the sales items, the store will place the most “on sale” items at the ends to lure customers into making an impulse buy. This isn’t always a bad thing, as these are usually highly discounted items.

 

If they are items I buy on a regular basis, I try to stock up and buy two or three or more, depending on the expiration date. While it may not be an item on my list, it’s something that I use regularly, and by buying in a bulk amount, it saves me from paying full price the next time I need it and it’s not on sale.

 

Great examples of this are toilet paper, cereal, paper towels, and canned goods.

 

So, there I am, with a small list of items to purchase, and suddenly my cart gets just a little bit fuller. I enjoy walking most of the store (it’s a bad habit of mine as I suffer from OCD, and therefore I walk the store in the same way each time – it’s a point of contention at a grocery store with the husband, as he wants to go in, get what he wants, and leave.). It’s true that it leaves me susceptible to more purchases, but that’s where willpower comes in. At the same time, I have scored some great deals on clearance or on sale that otherwise would have been missed! Plus, I am getting my exercise (so I tell myself).

 

Look above and below eye-level

 

Stores often place their convenience items in the aisles, so that you have to see aisles of products while searching for an item on your list. Eye-level products are usually the most popular and most expensive, so be sure to scan the bottom and top shelves for other items that may be cheaper. Some people are supporters of no name products – for me, it depends on what it is. If you can find a no name, or store brand of what you are purchasing, it’s often 25-50% cheaper than the brand name.

 

Don’t sacrifice value for $0.50, though. It’s not worth it if it’s something you really like. For me, that’s ketchup… or toilet paper… or feminine products. No name and store brands do not always equal the same value. But some items, like facial cleanser, pharmacy products like pain killers, or certain canned goods are made at the same factory, have the same or less ingredients as the brand name, and are exactly the same quality. It pays to be a smart shopper and look at labels to compare.

 

Coupons

 

Since I live in Ontario, it’s difficult to find coupons on items other than cleaning supplies and…well, cleaning supplies. Sometimes the stores will have small dispensers or pads of coupons on new products, or products that the manufacturer is looking to promote. Keep your eye out for coupons only on the items you regularly use, and remember to take two or three.

 

It’s frowned upon to take a whole pad of coupons, as most people cannot use thirty by the due date. Read the fine print – usually it’s one coupon per purchase, and sometimes per day. The store may not let you have 30 separate transactions. If they do, and you can use or donate the items before the expiration date, have at it. Just don’t be greedy and let items go to waste – that’s money going down the drain.

 

We may not have double coupon days here, but fliers are a great way to price match. Some stores will allow price matching from fliers of retail stores (not online stores, however). I recommend browsing the Flipp app to compare prices before heading out. This also saves you from going to three different stores across the city to hit each sale. (Trust me, I have tried to do that, and I seem to expend more gas than what I save.)

 

Price Book

 

It’s hard to remember what the prices are for every item, especially at their sale price, so some people recommend creating a price book. You can find these on Amazon, if you want a template, or you can create your own using a small notebook.

 

You will want to record the items you regularly purchase, and what you paid for them. Remember to write the per pound or per litre price if applicable. For example, you may purchase stewing beef for $7.99, but what’s the per pound price? That’s the price you need to know.

 

Beware of the Dollar Store

 

By having a price guide, you will be able to tell if a sale is really a sale. Many people will recommend going to the dollar store to purchase garbage bags, laundry soap, or other essential items sold in smaller quantities. However, that’s where the price changes! When sold in smaller quantities, the price will be lower… but compared to a larger item, your per unit price is higher at dollar stores.

 

What I mean is, if you only need cupcake liners for a class project, then the dollar store is perfect for providing a small container of cupcake liners for a dollar or two. But once you start purchasing cat food, laundry soap or garbage bags – things you are likely to use a decent quantity of over a period of time, you will find yourself purchasing those items more often (because they are in smaller quantities) and paying more. You might be able to get a box of ten garbage bags for $2, but a box of 40 might be $5 at the grocery store, and that’s a savings of $3 over time.

 

Checking out

 

Now that I’ve managed to find the items I went shopping for, plus a few items on sale that I can stash away in my pantry, I head to the checkout.

 

Here’s one of the biggest secrets of shopping: The Scanning Code of Practice.

 

Have you heard of SCOP?

 

The Scanning Code of Practice is a voluntary policy that many stores do subscribe to. Do you know what it is? Click To Tweet

 

The Scanning Code of Practice is a voluntary policy that many stores do subscribe to. Canadian Tire and Walmart, for example, has it posted at the cash registers, but most people are trying to bag their items, or watch the register or keep track of the kids, and don’t take the time to read it.

 

If an item scanned for higher than the posted price on the shelf OR in the flier, you are entitled to invoke SCOP. If the store subscribes to SCOP, that means you get the first item discounted by $10, or free if under $10. Each separate and unique UPC (the scanned barcode) on an item that scans in at an incorrect price above the posted price is eligible for SCOP.

 

Let me give you an example so you know how to use it. I have purchased laundry soap at Walmart, and before choosing the item, I figured out the per unit price to ensure I was getting the best deal. The sticker on the shelf, which matched the UPC, said the item was $9.97.

 

When I was at the cash register, the item scanned in at $16.97. I told the cashier that the sticker price on the shelf said $9.97, not $16.97. She called for someone in the department to check it out, and yes, I was correct. Someone had “labelled them wrong” but this time, it was to my benefit. Because the item was $16.97, I was entitled to $10 off the product because the price was entered wrong. This means I paid $6.97 for my laundry soap.

 

It will take a few extra minutes, and some patience, and sometimes you will have to ask for a manager to get the SCOP applied (because staff are only trained for so much), but it is worth it when I have saved money!

 

Always, always check your receipt before you leave the store, because you are still entitled to the SCOP even after you’ve checked out. Customer service can assist you with that as well.

 

Paying for my Purchases

 

Because of my shopping habits, I pay the least per item when I can, I buy in multiple if it’s a good deal and stash it in my pantry, and I watch to make sure I am not overcharged (or double charged) for an item.

 

Finally, I pay with a credit card.

 

This may come with some difference of opinions as some people think paying with a credit card is an easy way to overspend. It’s all about using it as a tool, and getting the most out of your money.

 

New with credit or not so great credit? Here are a few of the easier cards to obtain and still earn rewards with no annual fees or membership fees:

 

Walmart Mastercard earn Walmart rewards – money you can redeem either while you earn, or save it up for when funds or short, or for Christmas shopping.

 

PC Financial Mastercard has a program to earn PC dollars, which gives me free groceries. With moderate use, and always paying it in full, I earned over $80 in groceries in less than a year. That’s $80 extra dollars towards debt or other expenses.

 

RBC Rewards Visa can be transferred into gift cards. Want an evening out or a gift for someone? Free.

 

Canadian Tire Mastercard or the Triangle Mastercard earns Canadian Tire money on the card, no matter where you shop. I used mine for a vacation, and when I had to purchase tires for my car, I was able to save 25% on sale, pay for one tire with rewards, and the cost to me was only half of what it could have been.

 

This is a small list of reward cards, but don’t get stuck with one that you don’t receive any benefit for. Make your purchases count.

 

My Quick Guide Tips

 

That’s my quick guide to getting the most out of shopping for your everyday essentials. I never pay with something that I am not earning rewards on, and I pay off that purchase in full. I try to avoid ever paying full price for an item, and I keep track of per item cost so that I am not caught in a “special” that isn’t a special. And sometimes, I will splurge on a few things, just so you know I am as human as the next person!

 

What are your shopping habits? Do you have any to add? Where do you get the best deals, or what do you want to know about?

 

Recommended Reading:

How To Make Money with Passive Income and Virtual Services

7 Changes That Have Saved Us Over $1,000

How Much Would You Pay For Tomorrow?

 

This post may contain affiliate links, meaning, at no additional cost to you, I may earn a small commission if you choose to purchase through these links. Please see my disclosure for more information. Amazon Affiliate Disclosure: I am a participant in the Amazon Associates Program, an affiliate advertising program designed to provide a means for me to earn fees by providing links to Amazon.ca and affiliated sites.

 

 

53 Surprisingly Frugal Gift Giving Ideas for the Holidays

Have You Started Thinking
About the Holidays?

 

The kids are going back to school, and that means Christmas is just around the corner. Let’s talk about Christmas budgets or holiday budgets, whatever that will mean for your family.

 

FRUGAL GIFT GIVING

 

Begin With a List of Holiday Expenses.

 

What are you responsible for this holiday season?

 

Are you hosting dinner? Are you responsible for the full meal, or can you request each guest to bring a small item to help?

 

Some small items could be a bag of buns, a salad, pickle tray, cheese tray, one or two non-alcoholic beverages, etc. It’s the little things that can add up (beyond the cost of meat and potatoes!) therefore don’t be shy on asking people to spend $5-10 on a donation to the meal.

 

Doing a gift exchange with work?

 

Do you have teachers to purchase for?

 

Take a few minutes and brainstorm what you need to deal with over the month of December.

 

Do Inventory in Your Home.

 

Do you have a gift stash somewhere? Do you still have wrapping paper and Christmas cards? Check to see what you will need, and make a list of the gifts you may have already purchased, and what incidentals you will require.

 

Make a full list of all the people you will be giving presents to this year. Here are some suggestions to consider:

  • Parents
  • Grandparents
  • Children
  • Grandchildren
  • Aunts & uncles
  • Cousins
  • Neighbours
  • Teachers
  • Paper carrier
  • Mail carrier
  • Babysitter
  • Service providers
  • Friends
  • Spouse
  • Coworkers
  • Employees
  • Employers
  • School bus drivers
  • Nursing home residents
  • Donations to charity/families in need
  • Pets

 

Once you have your list, prioritize. Who are the most important people on your list to buy for?

 

Be Honest With Your Budget

 

How much do you want to spend this year? This is a big question. How much CAN you AFFORD to spend? If it’s September, you will have 3-4 months to save up. How much can you truly afford to spend?

 

Start by budgeting a figure for the top priority people on your list. That may be children, grandchildren, parents, etc. Give each person a value and then deduct it from your budget. Does it fit? How much is left? Count the remaining people on your list and divide by the difference. How much per person?

 

Example:

Budget: $500.00

I know I need wrapping paper, tape and bows. I have cards. My estimate is $30 for supplies. I will deduct $30 from my budget.

I have 6 people who are top priority to buy for. Since my budget is now at $470, and I have more than 6 on my list, my plan would be to spend about $30 per person on my priority list. 6 people at $40 is $180. I deduct that from my budget of $470, and I am left with $230.

I have 10 people on my secondary list, and I have $230 remaining. I know I want to give two gifts to a charity, so that’s 12 people. I can spend $19.16 per gift.

 

How to Maximize Your Spending Allowance

 

There’s more than one way to buy for people. Here are some suggestions that will help you maximize your per person gift costs:

  • Do you have any pre-bought gifts? Who can you give them to?
  • Do you have any gifts you’ve received and are still in new condition? Can you regift?
  • Do you have any gift cards you’ve bought or received and can gift?
  • Have you earned any points on credit cards and can purchase items at a discount or with points or money on the card?
  • Can you exchange rewards for gift cards?
  • Instead of purchasing for each adult relative, can you make a secret santa draw and only buy for one at a higher value than each of them individually?
  • Has your family discussed just shopping for the under-18 crowd?
  • Try a mystery gift where each person spends $10-20 on one gift that could be for anyone (like gift cards, socks, etc.) and do a gift game where people can “steal”, pick and trade wrapped gifts. Whatever you end up with is your mystery gift!
  • Shop at a bulk store and package gifts into baskets:
    • Can you buy movie tickets at a discount and pair them with movie snacks bought in bulk and divided up?
    • Gifts in a jar or gifts in a box are very popular. Is it cheaper to give gifts in a jar?

Here are some examples of gifts in a jar:

 

More Inexpensive Bulk Ideas

  • Make a bulk batch of wine at your local craft wine location and create holiday labels, like “Merry Christmas from our family to yours” or check out some ideas here.
  • Try glass etching on wine glasses. You can find the etching solution at your local craft store, and wine glasses at a dollar store. Make a set of four Christmas wine glasses for under $10, or make a set of two and fill with candy or some other treat for even less.

 

Make ornaments.

There are so many ways to be creative with ornaments:

 

Search online for different ornaments you can “diy”. Depending on your crafty skill, you could create some complex gifts, and even if you are not crafty at all, you will find some that look wonderful and are very easy to do.

 

By packaging these with some nice ribbon, a gift box or bag, you can make an inexpensive homemade gift outshine the most expensive trinket.

 

Be Creative

  • Get together with a couple of friends and make big batches of cookies. Share and divide the cookies up, and then divide them again into smaller gift boxes lined with parchment paper. Many people crave the homemade Christmas treats but never have the time (or interest) in making the treats themselves.
  • Check out your direct sales representatives. Many reps have Christmas packages on sale and they make great basket gifts. Display them in a bag, basket or caddy with a big bow.
  • Design something that will last through the year. Find an inexpensive journal or notebook and take some stickers or washi tape and decorate the book. Create a theme, like inspirational, devotional or reminder to your parent/child of your love and support for them. Include a picture or two, and/or a small gift card.
  • Check out Black Friday and Cyber Monday sales. Be careful not to get carried away or purchase things that you are not familiar with online. You might be dissatisfied or surprised with what actually comes in the mail.
  • Give a gift of time. As discussed in my post about saving for the holidays, there is no shame in giving the gift of time. The time given for parents to go on a date, a single mother to grocery shop alone, or anything that requires childcare is a gift in itself. Offer to child sit for a couple of hours while your friends or family enjoy the time to themselves.
  • Give a gift of service. Do you mind cleaning, cooking or shopping for others? You can offer to clean a house, cook a couple of meals or go errand shopping for relatives who may not be as capable to do that themselves. Don’t be surprised if the job you offer is worth more to them than a plant or a new pair of slippers.
  • Consider sharing an event with friends instead of gift giving. Have a fondue party, watch a movie with gourmet popcorn, or go for a wine tasting tour.

 

Time is Money too

 

After reading these “DIY” and inexpensive gift ideas, I want you to remember something.

Remember that your time is worth money too, so never be embarrassed about gifting something that did not come prepackaged at the store.

 

Your time is worth money too, so never be embarrassed about gifting something that did not come prepackaged at the store. - On Gift Giving The Frugal Way Click To Tweet

 

Small Tokens of Appreciation
are Worth More

 

Some of the people on your list, like teachers and service providers, often receive small tokens of thanks from their clients, students or customers. Do not feel obligated to give anything other than a card if you cannot afford it. Also, a $5 – $10 coffee gift card is often more appreciated than another mug, serving plate or trinket purchased from the local department stores.

 

Minimalism Counts

 

There are two conditions on gifts that we aim for in our house: consumable and memorable. We no longer search for trinkets, big gifts, etc., as we are all adults and can purchase much of what we want for ourselves. We aim for items that are consumable (think socks, towels, blankets – things that can be used every day or used up and that we would normally need anyways) and memorable (like event tickets, gift cards, investment donations, charitable donations, etc.).

 

Review the Budget

 

Looking at the number of people you would like to gift something to, is there anyone that you could move into a homemade gift section or a token of appreciation? Are there people who you no longer feel the need to purchase for? Can you reduce that budget? Can you ask others for gift bags that are in good condition to use for gifting?

 

If you are just starting out, be realistic with your budget. Times are tough for many people, and you might be surprised at how many people would be relieved to do something different this year.

 

Good luck!

 

 

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This post may contain affiliate links, meaning, at no additional cost to you, I may earn a small commission if you choose to purchase through these links. Please see my disclosure for more information. Amazon Affiliate Disclosure: I am a participant in the Amazon Associates Program, an affiliate advertising program designed to provide a means for me to earn fees by providing links to Amazon.ca and affiliated sites.