My Grandad always used to say, “Take care of the pennies and the pounds will take care of themselves.”
He was obviously English and referring to the British monetary system but the concept is clear no matter which currency it’s applied to: Little amounts saved can add up to a lot. And that can make a big difference when it comes to meeting not just your financial goals but personal goals as well.
The inspiration for this post actually came in the form of a credit card statement ~ when I realized my interest rate had just TRIPLED for no apparent reason.
I never used to really understand or pay much attention to how the credit industry worked. I never really felt I needed to because I almost always paid the entire balance during the grace period so I didn’t have to pay interest or late fees or over-limit penalties. I also never used to ask questions. I just assumed there was a good reason for the changes, that it was my fault, and that I, a lowly borrower, was powerless to do anything about it. Remember The Golden Rule?
Well, not anymore. I’ve taken a keen interest in everything credit-related over the last few years, especially with the Great Recession and as the new federal regulations started coming out. I began tracking cards and rates, watching every statement like a hawk. I now review and verify new charges, avoid pre-authorized bank or card charges wherever possible or set email alerts to follow up free trial periods so that I cancel on time if needed. And I always, always, ALWAYS check the interest rates.
Twice in the last two months I have noticed rate hikes and successfully called the credit card companies in an effort to get them to lower the interest rate. Through this process I have learned that most credit accounts are set up on various automated systems. One involves a periodic, random check that is based on an inquiry into your credit report. Any kind of change to your credit (new card, job, even an error) can trigger a hike to a predetermined default interest rate, regardless of your past history with that card or company. The new rate is applied immediately and without notice.
Another automated system involves the payment due date. In the past, many companies would forgive a payment that posted a day or two after the due date. Not so anymore. Additional fees are typically set to apply immediately and are often accompanied by an automatic interest rate hike. I realized this after making a payment through my bank website instead of the company website. Because of the weekend, it delayed my payment beyond the due date and triggered an automatic rate hike.
As expected, the first response to both of my calls to request a rate reduction were negative. It pays to be calm and persistent, though. Fortunately, I have excellent payment history and was able to use that to my advantage. After asking for manager review and assistance, I was able to successfully get both rates adjusted back down to their original levels (along with my blood pressure!)
The interest rate reduction was extremely important because I was carrying a balance on both of the cards at the time. The tripling of the rate meant that my minimum monthly payment would more than DOUBLE from the original amount and would have resulted in TRIPLE the amount of total interest paid for the year.
Remember, this is happening immediately and without notice. More importantly, it is happening regardless of actual payment history. It might have gone unnoticed and unchallenged had I not been in the habit of reviewing and tracking the charges and rates.
Obviously, these hikes would have affected my own overall cash flow. But, in this global, interconnected world, that isn’t the end of the story. It could also impact the financial situation and daily lives of several women in developing countries who have benefited from the micro-loans that I’ve been able to contribute to since I was introduced to Kiva, an incredible micro-finance organization. The few extra dollars that I am able to save in interest can literally mean the difference between a child somewhere being able to attend school or not, or a family’s ability to put food on the table each week.
A few dollars saved here and there may not always seem like much or worth the trouble. To some, it might even be looked at as penny-pinching or cheap or just plain anal-retentive. To me, it’s about meeting financial and personal goals, without having to compromise one for the other. Who knows? Maybe Grandad was right about the pennies and pounds after all. In the grand scheme of things, that little bit just might make all the difference in someone’s world.
Maybe you’ve heard of it. Maybe you’ve experienced it. Maybe you’re one of the ones teaching the lesson. Any which way you look at it, the concept is pretty clear:
The Golden Rule of the world of finance ~ Whoever has the Gold makes the Rules.
Money is a pretty complicated thing. When you don’t have it, your life can be complicated. When you do have it your life can be complicated. The big difference in those complications seems to be whether you are following someone else’s rules or making your own.
Right now there are a lot of people at the mercy of rules dictated by institutions and government and others all over the financial industry. Real estate owners and investors are not the only ones feeling the credit crunch, although they are arguably shouldering the brunt of the on-going mess in both residential and commercial markets. Barriers such as tightening regulations and newly imposed standards are hurting new purchases. Lower property values are making it tough to refinance even solid performing properties. Existing Home Equity Lines of Credit (HELOC’s) are being capped and closed despite perfect payment histories and spotless borrower credit. They may not tell you this, but even lenders who actually want to renew your investment loans may not be able to because they already have too many of that particular type of loan on their books.
Take a look at the banking and credit card sectors, too. If you haven’t been monitoring your statements on a regular basis, you really need to pull them out and read carefully. Your savings rate may have been cut and credit card interest rates could have tripled for no apparent reason. New monthly and annual fees may now be applied to your accounts and many in-place fees may have jumped up. Worse, that credit card you haven’t used in a while may have actually been canceled and your account closed at the company’s sole discretion. Every single one of these situations has happened to me over the past two years.
It’s frustrating. But unfortunately, when you have structured your life around debt and credit provided by others, you often end up paying the price, literally. Remember the Golden Rule? They have the gold so they make the rules.
Sure, you can rant and rave about the injustice of it all but basically if you want or need the cash/credit that they offer, you must accept their terms or go elsewhere. Credit card companies send you those lovely little notices stating that if you don’t want to accept the new rate you are welcome to cancel the account and simply pay off the balance. They are banking on the fact that most people won’t be in a position to do so. Why do you think they send applications to college students as soon as they turn 18? Because spending habits are formed early and hard to break. Once you dig that hole, it’s hard to get back out. And the cycle begins…
So what can we do? Well, we can start by weaning ourselves off of this dependency on credit as a means to support unsustainable and, in most cases, unnecessary lifestyles. It’s hard and will take some time and changes but has to be done if you don’t want to be a slave to your debt.
We all know that money itself can’t buy happiness (on the contrary, money tends to magnify the real issues in most situations). But, like any other tool at our disposal, having exactly what you need at hand can make a world of difference in accomplishing our goals.
These people and institutions only have the power that we give them, though. That WE GIVE THEM. Our spending habits are letting these people hold us underwater. Take back control of your life, your spending, your credit and borrowing power. Choose to pay and play by your own rules.