My 1990 Honda Accord still is cruising toward 200,000 miles. I enjoy the tones of respect it gets from mechanics on those rare occasions when it needs work done. Even more, I like the cost savings. Owning a car for a long time not only avoids interest and principal payments but also holds down insurance and taxes. My approach to cars is not for everyone. Yet, there are a lot of other easy ways to save money.
Saving money is easier than earning a higher salary or greater investment returns. It also is more certain. Here are some strategies for putting more money in your pocket from both little ticket and big ticket items.
Avoid late payments. Credit card issuers love it when a payment is late. First they charge a finance charge of about $39. On top of that is interest on the late payment. It is easy for busy people to make a payment a few days late, especially when some cards require payment less than 30 days after a bill is received. Yet, the finance charge can be avoided by having the minimum payment made by the due date, and it is simple to set up an automatic payment for at least the minimum.
Anyone using online bill paying can set up an automatic payment for the monthly minimum. Each online system has its own way of setting up automatic payments, but I believe they all provide for it. You can create an automatic payment of say $50 to the credit card by your due date each month. When you have time the rest of the bill can be paid. This won’t avoid interest on the unpaid charges, but it will avoid a finance charge or late fee.
Another method is to talk to your bank or the credit card company about automatic drafts from your checking account. The bank will send full payment to the card when the bill is submitted to it. You avoid both late charges and interest by having full payment made this way. You still have 30 days from when the bill was submitted to challenge any charges. Most utility companies and others that issue monthly bills also have systems for automatic payment. You still receive paper bills for review under these systems.
Ask for the best deal. Most people take their regular monthly bills for granted. They selected a service plan when they first signed up and have not reviewed it since. Yet, things have changed. It is a good idea to call the service providers once a year or so to ask if there is a better deal. This is particularly true of companies that have some kind of competition, such as cable and internet providers, telephone companies, and wireless service providers. Many of these companies will give you their best current deal if you ask, especially if they think you might move to a competitor.
Even when dealing with monopolies such as electric and gas utilities periodic inquiries can be profitable. Often these companies have different plans. For example, many offer a lower rate if you allow them to reduce or cut your use during peak periods. Others offer variable rate pricing that can be valuable if you are able to use less energy when others cannot or won’t cut back.
Auto financing is a steady leak of cash for many people. Too many auto buyers focus on the monthly payment. They want a certain type of car as long as the monthly payment stays within their target. Auto sellers are very accommodating. They develop financing packages to meet the desired monthly payment.
The problem is that the buyer’s goals often are achieved by stretching the loan term. It used to be rare to see an auto loan for more than three years. Now, auto loans routinely last for five, seven, or even nine years. The average car loan today is for about 70 months. This creates several problems.
Longer-term loans carry higher interest rates. Since the loan lasts longer, the buyer also pays more interest over the life of the loan. The longer the loan term, the higher the total cost of the car. Few buyers, in fact, know the total cost of their cars.
Another problem is that the car depreciates more rapidly than loan principal is paid. At most points during the life of a long-term loan the amount due is greater than the value of the car. This is known as an upside down loan. If the buyer wants a new car before the loan term, the trade-in will not pay the loan. Most auto sellers accommodate this by putting the difference on the new loan and stretching the loan term again.
Before signing an auto loan know the total cost of the purchase, including both the auto’s cost and the total interest payments. Also, know at what point the balance on the loan will cross over so that it is less than the resale value of the car.
Overseas travel is more expensive now that the dollar is declining against most currencies. The cost can rise higher because of currency conversion costs. How you pay for charges overseas can be critical.
The easiest method is to use a credit card. In recent years, credit card companies realized this and increased their fees for payments overseas.
There are two costs to consider when making overseas payments. One cost is the exchange rate. Not all companies use the same exchange rate, and different rates can reduce your spending money by several percentage points. Visa and American Express post their estimated exchange rates on their web sites each day. MasterCard requests cardholders call their banks for the daily rate.
The next cost is the transaction fee. Most cards now charge 2% for each foreign currency transaction. (Lesson: Do not put small foreign currency purchases on a credit card; pay cash in the foreign currency.) In addition, the bank issuing the card might impose another fee of up to 1% of the transaction’s value. You can view a chart of the fees charged by the major cards at www.bankrate.com or contact your card issuer.
Using a foreign ATM can be even more expensive. You will incur most of the same costs as using a credit card, plus pay ATM fees.
The cheapest approach might be to take traveler’s checks in the currency of the country to which you are traveling, if they are available. American Express will not charge for traveler’s checks purchased at their branches by cardholders. Otherwise, there usually is a fee of 1% or so for foreign traveler’s checks.
You need to determine all the costs of making overseas purchases by each of the different methods. Otherwise, your foreign trip will cost more than you expected, and you won’t know the real cost until the credit card bill arrives.