That Apple Deal

Going back to my comment about Apple's "pretty good deal" on a no-interest-for-12-months Visa card linked purchase...

I want to underline that this is only a good deal if you pay all of your minimum payments on time and pay off the entire cost within 12 months, before the actual interest rate kicks in. I'm personally extremely uptight about always paying off my entire balance because I have a very basic aversion to interest. This comes from an underlying belief that credit cards are evil.

Really though, they are. And this "good deal" is a perfect example of why.

Let's say I want to buy Apple's most affordable laptop with this plan. So it's $999, and the oh-so-helpful website tells me I can get it for "as low as $23 a month." Sweet. This $23 a month is the minimum payment on the Visa credit card I'll have to apply for in order to get this deal. So I apply for the card and buy my new Macbook. I follow the rules like a good credit card customer and pay my minimum payment, $23, every month so I don't lose my no-interest period and get hit with the 27% penalty interest rate (Seriously, read the fine print!). I'm doing great, right? Not quite.

Here's approximately what's going to happen if I take this route...

After paying $23 a month for 12 months, I've only paid off $276 of the $999. That means my balance after the 12 months is $723. Now, the interest kicks in at a mind blowing 20.99% (and that's if they like my credit check. It could be as high as 22.99%). I can keep paying off my minimum balance like a good customer, but each month 21% of the total balance gets added to what I owe.

That means that if I pay $23 dollars in month 13 they'll add $151.83 (21% of $723). Now my balance is $851.83 ($723 - $23 + $151.83). In month 14, if I pay $23 dollars they'll add $178.89 (21% of $851.83). Now my balance is $1007.72 ($851.83 - 23 + 178.89). Impressive. It only took two months (after 12 months of paying my minimum like a good credit card customer) for me to owe more than the cost of the original laptop.

If I keep paying the minimum payment, at month 18 (1.5 years) my balance will be $2,034.87. At month 24 (2 years) it will be $6,152.10 and at month 36 (3 years) it will be $59,627.29 (Yea, I used an Excel spreadsheet. Act like you know!). 3 years after buying my $999 laptop I now owe Visa almost $60,000.00. Seriously. All for being a good, minimum-payment-paying credit card customer (Okay, they'd probably increase that minimum payment somewhere along the way, but you get the picture).

This brings me to my point. It is essential to never ever be a good credit card customer. Credit card companies want you to pay the minimum payment, rather than the balance, because that way you end up owing them tens of thousands of dollars. What you need to do is be the worst possible credit card customer, also known as paying off your entire balance every month.

So again, this "good deal" is only good if you go into it with the mindset that credit cards are evil and protect yourself accordingly by being a bad credit card customer, i.e. paying all minimum payments on time and paying off the entire balance within 12 months.

If I were to take this deal, I'd set up automatic payments on the Visa card through online banking. I'd make the monthly payment equal the total balance divided by 11 (months, just to be safe!). That way I'd always make my minimum payment and pay off the balance a month ahead of time. Victory!

Fees and Terms and Penalties Oh My!

So many charges, so little time.

I'm planning ahead for my quick "city break" in Europe with my boyfriend next week. My budget analysis showed that I was losing around 10 pounds each time I took a trip abroad on transaction fees. So I took this opportunity to figure out which of my various cards is best to use abroad. I figured it was also a good idea to summarize the general fee/interest rate situation account for each card while I was at it.

(Actually, this particular activity was inspired by one of my recent crises. When my computer crashed, it looked like I was going to need to buy a new laptop for this year, but I definitely don't have the funds. I was considering carrying a balance on my credit card for the first time ever - gasp! - and wanted to sort out which card was the best bet. In related news, Apple has a pretty good deal going with a 12 month no interest - as long as you make all minimum payments and pay it off in 12 months! - payment plan for its new laptops. It is of course linked to a credit card and has a pretty steep 21 - 23% interest rate after the 12 months. Check it out here but don't miss the fine print.)

Here's what I came up with...

U.S. Checking #1
$8.95 monthly maintenance fee
3% international transaction fee for purchases
1% international transaction fee for ATM withdrawals
$5.00 ATM charge for out-of-network ATMs (Barclays in UK, BNP Paribas in France, Scotiabank in Canada)

U.S. Mastercard
7.90% variable interest rate
25 day grace period
3% international transaction fee
$15 minimum payment

U.S. Visa
12.24% variable interest rate
3% international transaction fee

UK Checking
2.75% international transaction fee for purchases and ATM withdrawals
2% ATM fee for international ATM withdrawals

UK Mastercard
2.75% international transaction fee
5 pound or 2.5% minimum payment

So the long and the short of it is that for ATM withdrawals, my U.S. debit card has the lowest fees at in network ATMs, but I'll still get hit with the crappy exchange rate. But the UK debit card is crazy with the fees! With that one I'd get hit twice, once for the currency conversion and once for the ATM fee.

For purchases, though, the U.K. credit card has the lowest fee. Sadly, I lost the pin (yes, U.K. credit cards require a pin for transactions, crazy I know) about 9 months ago, so unless it's a swipe machine I'll be out of luck. (Don't worry, I asked them to resend the pin and it will be waiting for me when I return to Ox). So coming in at 2nd place for purchases at a 3% transaction fee are the U.S. Checking, the U.S. Mastercard, and the U.S. Visa.

So, I'll be getting myself to a BNP Paribas ATM for any cash withdrawals. Since I only have $200 in my U.S. checking (cringe! and that's thanks the the $75 of Visa rewards points I just cashed in), I'll stick to my U.S. credit cards for emergency purchases. The Mastercard will be my best bet because it has the lower interest rate, in case I end up having to carry a balance for a month or so while I sort out my financial "issues."

Here's hoping my stipend check deposits into my U.K. checking before October 1 so I can pay my rent!