How to Use Your Credit Card Balance Transfer To Your Advantage

Credit Card Balance Transfer

First Published Date : July 31, 2010 ADawnJournal.com

Credit card balance transfer is a tool used by card companies to entice you to start using their cards in hopes that you will continue using their cards even after the balance transfer promotion is over – regardless of whether you pay off those balances you transferred or not. If you know a few simple techniques, you will be able to use credit card balance transfer to your advantage. Let’s go over a few basics on credit card balance transfer you need to know.

In Canada, you will usually get notifications of balance transfer offers in the mail. It is also a good idea to keep an eye on credit card company websites. Also, you can call their customer support line occasionally to check if any balance transfer promotion is going on.

Once you have a balance transfer promotion offer, read the terms and conditions carefully. Here are some tips to help you to get maximum benefit from a balance transfer:

How long the balance transfer will last – Pay attention to the start and end date of the balance transfer offer. Do not start before this date, even a single day ahead can make you pay very high interest. Likewise, do not stretch beyond the last date. Use Google Calendar, a reminder on your cell phone, or any other reminder to remind you at least 3 business days ahead of the actual end date so you will have enough time to pay before the deadline.

Avoid balance transfer fees – In Canada, usually these types of charges are not seen. However, you still need to make sure that it does not exist.

Write Cheques – If you get the offer in the mail, it usually includes customized cheques only for balance transfer purposes. You can use these cheques to pay off other high-balance cards, or you can deposit cash to your own account (using these cheques) and then pay off other credit cards from your bank account. Using these specialized cheques as cash should be written in the terms and conditions. Make sure that you will not be charged high interest for paying other credit cards by taking cash. Call customer service if you need to be sure.

Transfer by calling the customer service line – You can also transfer by calling the customer service line of the card that is offering the balance transfer. Sometimes, you will only be able to transfer to other credit cards; sometimes you will have the option to take cash in your bank account (linked to your credit card) and then you will be able to pay to other credit cards from your own bank account. Ask customer service which options are available and pick the one that is most convenient for you.

Do not pass your deadline – As I mentioned before, under no circumstances should you delay paying off the balances you used for those promotional months. Even a single day delay can make you pay additional fees and high-interest (instead of low interest) penalty and the whole purpose of transferring your balance will be forfeited. So avoid this at any cost.

More than one offer – Sometimes, you will get a balance transfer offer from more than one company. Use your judgment to pick the best offer. Usually, the lowest rate with the longer time-period offers the best value. However, a little higher rate with a longer term than a lower rate with a shorter term may be a better one to pick.

A lot of us decide not to utilize credit card balance transfer because of the hassle and steps involved with it. However, these few steps and a little hassle can save you some money. And it’s never wrong to save a few bucks here and there – it all adds up.

Personal Finance Guide for Kids Age-by-Age

Teaching Children about Money: Goals by Age

First Published Date : August 22, 2010 ADawnJournal.com

Did you know anything about personal finance when you were a kid? I did not, and I hadn’t the slightest idea of how money and finances worked at that time. I wish things were different then. I wish I was taught to prepare myself to face the real world financially. It’s not just me; most of us were not given any money lessons at an early age and at schools and universities. It is time to take lessons from our past. As parents, our goals should be to financially prepare our kids to face the money challenges that exist in the present world. Today, I will present a simple age-by-age personal finance guide for kids. To make things simple, I have broken down the learning time frame into 4 different parts: age 1 to 5, 5 to 10, 10 to 15, and 15 and beyond.

Personal Finance Guide For Kids: Age Up To 5

Kids start to show interest in money and coins at an early age. During this time frame, start teaching kids the basic concepts of money. Here are some ideas:

Introduce them to various coins and bills.

Teach them how different coins and bills add up to a greater bills and coins. For example, 5 pennies make a nickel, 5 Loonies (1 dollar coin) make a 5 dollar bill and so on.

Explain how money and society work. Money is something that we exchange to buy various products and services to take care of ourselves.

Teach where money comes from. We go to work to earn money and this makes us sacrifice our time at home with family.

Buy them a piggy bank and encourage them to save money by putting money in it whenever they have some in their hands.

Personal Finance Guide for Kids: Age 5 to 10

Explain that money is not endless. We need to make choices between products or toys; we can’t have it all, as money is not endless. If your kids ask for many things at a time, an exercise you can do is to give them an amount, such as $5 or $10, and tell them to pick the one they think would be the best.

Tell them we need money to buy food and take care of ourselves. We can’t spend all money as soon as we get it because if we do that, we will be in trouble in the future and won’t have anything to take care of ourselves.

Involve kids in family planning and finances. Ask your kids to participate actively in family meetings regarding future planning and money issues. For example, if you are going on a vacation, ask your kids to research the best deals within your budget or ask everyone, including the kids, for their suggestions on fulfilling goals of making major purchases and so on.

Do not give kids allowance without proper guidance. Help them to budget their allowances, especially a certain percentage (15 to 20%) going to their savings accounts.

Teach them how to pay for a purchase and how to count the change they are getting back from the cashier.

Teach kids the power of giving. Tell them that we are fortunate to live in one of the wealthiest countries on earth and not everyone is as fortunate as we are. Explain to them that we can live a more meaningful and joyous life by sharing and giving what we have to those who are less fortunate.

Explain how a bank works, what a credit card is and why it charges interest. 

Explain to them what a budget is and why it is important to stay within a budget. However, do not over-emphasize the budget at this time.

Personal Finance Guide for Kids: Age 10 to 15

It is time to put some concepts you taught your kids in the previous age segment into practice at this time.

Set up a real savings account at the bank. Teach your kids how to handle bank accounts. Teach them about credit cards and how they work. You can also set up a credit card for them with a lower limit. Here is an article to deal with credit cards for kids: Should We Give Credit Cards to Kids?

Help your kids with setting goals. Explain to them how to set up goals and show them how to reach goals by making plans. For example, if they want to buy a bicycle or a gadget, instead of financing the full cost ask them to finance half from their savings by setting up goals to save that much.

Kids should pay for their expenses such as movie tickets, cell phone bills, snacks, etc. themselves. The reason? Using their allowances to pay for stuff they need will make them realize that money is limited and if they waste money on something, they won’t have money to buy other things.

Ask them to exercise the power of giving. Even from their small allowance, they can donate to charities and to those who are less fortunate.

Kids should budget for their expenses at this point and should spend less than their earnings or allowances.

Kids should not be paid for doing regular household chores. However, you can pay them for special projects which are outside regular chores such as such mowing the lawn, cleaning the backyard, and so on.

Personal Finance Guide for Kids: Age 15 and Beyond

This is the most critical time of kids’ lives as they are on the verge of stepping a foot into the real world. Personal finance education should follow a slightly different path at this stage.

Start talking about more targeted personal finance teachings starting this point. Some of the examples are: Investing 101, debt management, credit cards, how financial markets and products work (Invest Now by A. Dawn is a recommended book to learn the basics of financial markets and products), and so on.

Some of the resources you can use for your kids can be found right here, written by your favourite personal finance author A. Dawn. The Personal Finance For Kids Section is just one to mention among a few of them here. There are tons more articles suitable for kids available for free on A Dawn Journal. Take your time to read them to enhance your knowledge on personal finance at your leisure by bookmarking this page.

Just because your kids have reached this age does not mean that you should stop talking about finances. Kids at this age need more financial advice and guidance than ever before. Have open discussions about money and finances whenever opportunity exists.

I have taken my time to write this article suitable “in general” for all kids. These guidelines or tips are not set in stone. It is recommended that, based your kids’ ability or interest, you may need to switch around these tips. For example, if you find your 7-year-old seems to be very interested in learning about finances, try using some tips from the 10 to 15 age group and observe how she reacts. It is the parents’ responsibility to secure their kids’ financial future by guiding them through a solid financial roadmap from their early days.

How to Raise Financially Responsible Kids

Teaching Kids Financial Responsibility

First Published: May 9, 2010 ADawnJournal.com

Teaching kids about money and financial literacy is an ongoing process and it is as significant as teaching kids about general education and other life disciplines. Grasping the significance and value of money at an early age will help kids to realise the importance of being financially responsible and respect money, thus helping them navigate their life more smoothly in financial terms. Today, I will discuss some simple steps you can take to make your kids financially responsible in later years.

Understanding Why Money Is Important – The first important thing you can do to is to make kids understand what money is and why it is important to be responsible with it. Explain what money can do; for example, it helps to live a good life, support family and friends, and it helps to support those who are in need and their favourite charities.

Start Early – Children are able to recognise and show interest in coins when they are 4+ years old. Grab this opportunity; when they start showing interest, help them identify different types of coins and bills. When you go for groceries and money exchanging deals, start letting your kids interact with merchants. This will teach interactions with others in general and in terms of money.

Action is Louder than Words – Talking nice things about money is not going to do anything unless you show your kids that you do what you say – and you believe in what you do. Don’t just tell them to stop spending wastefully; set examples by doing the same. Don’t just tell them to invest for the future; do the same and show them how you are doing it regularly in your mutual fund or investment accounts.

Be Careful with Allowance – Do not pay kids an allowance without giving them proper guidance towards how to spend it. Break down their allowance into smaller parts, such as 10% should go to the piggy bank, 20% should go to science magazines, and so on. It is recommended not to pay kids for regular house chores that they would normally do. They can get paid for special projects for which you would normally hire outside people such as mowing the lawn, cleaning the backyard, etc. – if they can complete it successfully.

Bank Accounts and Credit Cards – Bank accounts and credit cards are a part of daily living in the 21st century and kids should be taught about it once they are 7 – 10 years of age. Explain to them how banks and credit cards work, how and why credit cards charge interest, what to do to avoid paying interest, and so on. Open savings accounts for them, give them credit cards (with lower limits and supervision over how they use it), and walk them through towards becoming a financially responsible adult.

The Importance of Saving Money Early – Once kids start earning, teach them the beauty of saving money. Encourage them to save 15 – 20% regularly and continuously as they enter adulthood. Saving is a virtue that needs to be practised from an early age. If kids can make saving regularly a permanent habit, they will be able to reach financial goals much earlier and will live a happy life.

Learning to Spend Less – If there is one financial tip that is considered the number one tip of all time this has to be it: spending less than you earn. Teach kids to understand this concept and tell them that if they can follow it religiously, they will be wealthy one day.

Learning to Appreciate What We Have – We are privileged to live in one of the wealthiest countries on earth where abundance is everywhere, including riches. Many other nations are not as privileged as we are. Teach kids to appreciate and to become grateful for what we have and show them the joy of giving and sharing.

Keep in mind that “children do what they see.” Parents and adults can be role models by taking sound financial steps. The onus is on you to secure your kids’ financial future by guiding their financial journey through a solid financial roadmap from their early days.

How To Avoid Extra Costs On Your Mortgage

Extra Costs Can Drain Your Funds

First Published: ADawnJournal.com May 18, 2010

The number one priority expenditure for most families in Canada and further afield is a place to live. There are other things that need to be addressed as a matter of importance, too, and it is not limited to the family home. But without the family home, nothing else really matters. If you don’t have a home to keep you warm, safe and comfortable, then you can have as many cars as you like – none of them will be as satisfactory and as central to your life as your home. Taking your mortgage seriously is therefore an essential matter. As much as you may want to cut loose a little bit when the monthly pay check comes in, it is important to remember that some figures need subtracting before the fun can begin.

The monthly mortgage payment is the first number most people will subtract from their paycheque they are making their month ahead calculations. It is one payment that cannot be missed and should not be compromised. If the situation you find yourself in precludes making a full payment to the mortgage, it is essential to call the lender and seeing if you can work out a payment holiday or, if necessary, a restructuring of the loan. Not bothering to keep the bank aware of how the situation is progressing will only see you receiving angry letters, late payment fees and, eventually, being at risk of losing your house. If you have any way of avoiding it, you should make sure that you do not miss payments – even if it means making reduced payments on other lines of credit. This loan is secured on your home.

Avoiding extra costs on your mortgage is partly a matter of common sense and partly a matter of being able to see where problems will occur before they really begin to cause concern. Seeing a debt advisor to talk through your options and make out a financial management plan is one way in which you may even be able to avoid making reduced payments to the highest of all high priority debts.

Strangely, though, there are some loans (mortgages included) that add on extra fees not only for the late payment or partial payment (or even non-payment) of the monthly debt repayment, but will charge you an early payment surcharge if you pay the loan off in full ahead of time. If this is something you can see yourself doing, then it is worth asking the bank if they have such a policy. Look through the terms and conditions on your loan agreement as well, to see if there are any strange circumstances in which they will add fees to the balance of your mortgage. The less you have to pay on a mortgage, the more money you will have to truly enjoy. For this reason it makes sense to avoid any unnecessary and stupid expense and to find ways of cutting off problems before they can cost you money.

RRSP or Registered Retirement Savings Plan

Understanding Your RRSP

First Published: ADawnJournal.com May 22, 2010

Retirement is approaching for the Baby Boomers and that has many thinking about their RRSPs. Many Baby Boomers have been contributing to their RRSP for many years now, but how many actually know what is going on with their RRSP? Do you know about contribution limits? Do you know when you need to start taking money out of it, or what RRSP even stands for? Well, now that you are approaching the age of retirement, its time to learn more about the world of the RRSP.

RRSP, or Registered Retirement Savings Plan, is an account that provides you with tax benefits for saving for your retirement. Only available in Canada, it was created as part of the Income Tax Act that was created to give you the ability to shelter your financial property from income taxes. The ways that you can reduce your taxes with an RRSP come down to three options:

1.   RRSP contributions are deducted from your income before your income tax calculation is due.

2.   Income that you earn with your RRSP is not taxed until you withdraw money from the plan, which gives your account the ability to grow faster than if you were making contributions outside the plan that are subject to taxation.

3.   You can withdraw from an RRSP in tax years when you are in a lower-income tax bracket due to unemployment or other circumstances.

You can hold a variety of financial properties within an RRSP, in many more options than other retirement plans of other countries. Some of the financial properties include a savings account, guaranteed investment certificates, bonds, mortgage loans, mutual funds, shares, labor-sponsored funds and income trusts.

The Types of RRSP

There are three main types of RRSPs that you can choose from depending on your life circumstances.

1.   Individual RRSP: This is an RRSP that is meant only for one person, who is the account holder of that RRSP. Only the account holder can contribute money towards the RRSP.

2.   Spousal RRSP: With this type of RRSP, the higher earner, who is the spousal contributor, can contribute in the name of their spouse. The spouse is the account holder and the spousal RRSP is the way that an RRSP is turned into split income for retirement. When investment properties are divided between the spouses, each spouse gets half of the income. This creates a lower tax rate than if one spouse earned all of the income. If there is $300,000 in the RRSP and one person has it, the tax rate is higher than if two spouses have $150,000 each from it.

3.   Group RRSP: With this RRSP, an employer has employees making contributions through deductions from their pay checks. The employee can then decide the size of the contribution each year and the employer will deduct a certain amount accordingly for them. This is then deposited into the individual account and invested as the employee wants.

While the Group RRSP is held in only one account structure, Individual RRSP and Spousal RRSP accounts can be held in one of three account structures.

1.   Client-Hold Accounts: This is when the account holder uses their RRSP to purchase an investment with a certain investment company. Each time an individual uses money from the RRSP to purchase an investment from a different company, a separate client-held account is then opened. For example, if you buy investments from Fund Company 1 as well as Fund Company 2, you will have two separate RRSP accounts held with those two companies. You do not generally have annual fees with this type of account but it is harder to keep track of your RRSP in this structure.

2.   Nominee Accounts: These accounts have the individual account holder nominating a nominee for their account and this is typically one of the major banks in Canada. This nominee will hold the different investments in a single account for the account holder. So, if you have investments with Fund Company 1 and Fund Company 2, it will be held within a single RRSP account with the nominee. The benefit here is that it is easier to keep track of your RRSP investments, but you do incur annual fees.

3.   Intermediary Accounts: These accounts serve the same function as nominee accounts and the reason someone would choose this over a nominee account depends mostly on the investment advisor the person deals with. If the investment advisor is not aligned with a major investment company or bank, they may not have the logistical ability to offer you nominee account options. The advisor will therefore approach a company to offer the investor identical benefits as those that come from a nominee account. The main benefit and disadvantage to this is the same as you would find with nominee account.

Contributing To RRSP

As with most investment retirement plans, there is a maximum amount of money that you can contribute in any given year. This amount is how much you can contribute without being taxed, as in the amount is completely tax deductable. Typically, it comes to 18 percent of your earned-income from the previous year minus a pension adjustment up to a certain maximum. That maximum does change over time.

Here is a brief rundown of just how much the maximum has changed over the past six years:

·   2004: $14,500

·   2005: $16,500

·   2006: $18,000

·   2007: $19,000

·   2008: $20,000

·   2009: $21,000

·   2010: $22,000

When you file a tax return, you will receive a Notice of Re-Assessment from the Canada Revenue Agency that indicates just what your new RRSP deduction limit is going to be.

This is where we come to the biggest advantage of the RRSP. With your RRSP, your contributions are completely deductable from your income. That deduction is based totally on your tax bracket and the amount of tax paid on the last dollar of earned income. So, if you are in a marginal tax bracket of 40 percent, then if you contribute $1,000, you will receive $400 back in your taxes.

You can contribute to your RRSP until the age of 71. At this point you must cash it out or mature it into a Registered Retirement Income Fund.

A last point on RRSP contributions is that if you contribute within the first 60 days of the tax year, you must report those contributions on the previous year’s tax return, but you may also deduct those contributions fro the previous year.

Withdrawing RRSPs

You can cash out any amount from your RRSP at any age, but when you withdraw money from your RRSP, that is counted as taxable income and you will pay taxes on it. As was already mentioned, once you hit the age of 71 you must cash out your RRSP or transfer it to a Registered Retirement Income Fund. Before 2007, the age was 69 but the rising number of Baby Boomers still working resulted in the RRSP age limit to change by two years.

RRSP Myths

Many RRSP investors say that if you want to retire in a nice style you need to start contributing to your RRSP when you are young. For example, if you begin to contribute to your RRSP when you are 22, and you put in $4,000 every year, with an eight percent annual rate of return, you will have $1.3 million when you retire. So, naturally the longer you have the better it seems for your retirement savings. However, there are some common problems with this concept, the first being that there are not too many 22-year-olds who are going to be able to afford to put $4,000 away, or want to, for something that is 43 years away. Most people do not start contributing into their RRSPs until they are in their 30s. The older you get, usually the more you can contribute. If you contribute $4,000 a year from the age of 22, you can reach $1.3 million, but you can also contribute an extra $4,000 fro the age of 42 to 65 to make up the same difference. Not to mention, the earlier you invest, the more you pay in commission and fees. If you do not start putting money into your RRSP until you are 42, you save on 20 years of annual fees that you would have paid into if you started at the age of 22.

Another common myth is that you should borrow if you do not have the funds to contribute to your RRSP. This is not a good thing to do. Borrowing to invest only makes sense if the annual rate of return is higher than the amount you will be paying in interest on the loan. If you are paying an interest rate of six percent and only getting an annual rate of return of four percent, then you are losing money, not making money.