Finance Guide

Whether you are shopping for a new credit card or wondering about the one that you may already have, knowing how to calculate the finance charge applied to that card is important. First, however, it is equally important to know what finance charges really are.

A credit card finance charge is the amount of money that you pay to the credit card company in order to use their credit. This is not the same as the purchase amount balance. The purchase amount balance is the dollar amount of the purchases that you made using the card. If you pay off the purchase amount balance within the stated amount of time that the company allows, you will have no finance charges applied to the amount. It is when you carry over your balance that finance charges are triggered and added to your account.

Finance charges are calculated using the amount of your outstanding balance and APR. The APR is the Annual Percentage Rate and all credit cards use them to figure finance charges. It is important for consumers to understand that the ARP can vary from one company to the next, and it can even vary within the same company. It is for this reason that consumers should always look for the companies with the lowest APR’s. This will save you money in the long run.

There are several ways that credit card companies can calculate the finance charges that they apply to consumer credit. Many people do not realize it but the method that is used can make a difference in the amount of money that you will have to pay. Here are some of the methods that credit card companies use to figure finance charges on your outstanding balance:

They can calculate using one billing cycle or two billing cycles.

They can use the adjusted balance, previous balance, or the average daily balance.

They can exclude or include new purchases in the balance.

You will normally find that you have a lower finance charge when the company uses what is known as one-cycle billing and uses the average daily balance method which excludes new purchases. Much of this, however, depends on the balance and the time of the month that you make purchases and payments.

The next lower finance charge method is the adjusted balance, followed by the previous balance method. You can see which method the company is using by reading the bill that you receive. This information is usually contained on the back side.

It is also important that you understand that some companies will have a minimum finance charge system. When a credit card company uses this system you will be charged that set amount even if your calculated finance charge is less than that amount.

Of particular importance to some credit card holders are the cash advance programs that come with some cards. Consumers should be very careful when using credit cards for cash advances. Many companies that offer cash advances treat those advances differently than they do purchases. Before you use your credit card for a cash advance, make sure you look for the details of how you will be charged for that advance.

You will certainly want to know what the APR is for cash advances. Keep in mind that this may be significantly higher than the APR that is used for purchases. You should also investigate the fees that may be applied to the transaction. Fees are in addition to the finance charge that you will have to pay.

Lastly, find out how your payments will be credited. Some companies will apply your payments to your purchases first and then to any advances in cash that you have taken.

Use your credit card wisely and keep track of your finance charges and you will enjoy your credit more fully and avoid some of the pitfalls that many consumers experience.

Jerry Warner asked:




Taking a vacation can be an important part of your yearly routine… after all, it’s been shown in medical studies that individuals who go on vacation at least once per year not only tend to live happier lives but also may have longer lives as well.

Unfortunately, vacations aren’t free; it can sometimes be all that a person can do to scrape together the money to go on their vacation and the person generally comes back to face their various financial problems without the money that they need to repay them. With a little bit of effort throughout the year, however, it is entirely possible to build up a vacation fund without breaking the bank. Below you’ll find some suggestions about how you can save up the extra money that you need while keeping the rest of your finances in check.

Yearly savings

One of the easiest ways to save money for a vacation is to do it a little at a time over the course of a year. Find a large container and designate it as the “change” jar, filling it with loose pocket change and the occasional loose bill at the end of every day. Though it may seem like a small amount, after the end of a year you’ll find that you’ve managed to set aside a pretty significant amount of money. Depending upon how much change you have, you might even have to empty the jar once or twice before the year is up!

Make it a family affair

To help make saving for a vacation more enjoyable, get the entire family in on it and make it somewhat of a game. Set up a small savings account to be used for vacation money, and make a note each time a family member sets aside some money to go into the vacation fund. At the end of the year, you might have whoever had put in the most money have a larger say in where you’re going for the vacation or perhaps they’ll have more spending money allocated to them on a shopping trip.

It’s important to make it fun for any children who might be wanting to participate, and make sure that they have a little bit of extra change or other money to put in from time to time so as to give them an above-average chance of winning the grand prize.

Borrowing for a vacation

Though many people might think it to be an unnecessary expense, taking out a loan to pay for vacation expenses is actually a common occurrence. The loan is often a smaller amount and should only be used to subsidize the money that you’ve saved in other ventures. Taking out a loan can mean the difference between an okay vacation and one that’s truly great, so as long as you can afford to repay the loan later you should at least consider looking for a good loan rate.

Reducing vacation expenses

You might also want to consider ways to make your vacation a bit more friendly on your wallet. Plan visits to certain attractions outside of the peak season, or go on theme vacations that involve a lot of sightseeing or camping in order to have a good time without spending a lot of money. Take the time to plan out your vacation in advance, estimating your expenses and cutting unnecessary expenses where possible. Remember that it’s a vacation, however, and don’t sacrifice a good time for the sake of saving just a little bit of money.

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So now that you know what your basic plan is, it’s time to start getting a little serious and put some structure into your actions. The first thing you need to do is to get ‘pre approval’ for a loan. In other words you need to find a lender that suits your needs and get them to agree ‘in writing’ to lend you a certain amount of money to buy a Property. I remember when I bought my first property feeling completely over my head when it came to getting my finance into place. I had so many questions – most of which I managed to answer by trial and error. I will try to give you a detailed overview of all the question, problems and answers that I have encountered with getting finance.

Q. Why do I need to get ‘pre approval’ of a loan?

A. You don’t NEED to get pre approval but I highly recommend you DO for a number of reasons.

- Pre-approval will let you to know EXACTLY how much your budget is and therefore allow you to exclude properties that are out of your price range. This can save you valuable time.

- If you are competing against other buyers then having ‘pre-approval’ will definitely give you a big head start and allow you to take advantage of Vendors who are looking for a quick sale. Think about it – If you were the vendor and two people both offered you $350k for your house BUT one of them had ‘pre-approval’ whilst the other didn’t. Who would you choose? It’s a no brainer, there are even times when you offer $1k -$30k less than somebody else and they still choose you. Why? Because for one reason or another the vendor needs to sell straight away and they can’t wait to find out if the other offer will be approved.

- Keep STRESS to an absolute Minimum. There is nothing worse than having your offer accepted and then having to wait for the bank to make their decision. This is especially the case if you haven’t got a home loan before or are self employed.

Q. Should I use a Mortgage Broker?

A. Yes, a good mortgage broker should save you thousands of dollars and help you get a loan easily. If you are buying your first property then you will appreciate as much help as you can get. Mortgage brokers deal with banks every single day and they should know how to get you a loan and more importantly WHAT loan to get. Have you noticed that there are a million different loan options these days? A good mortgage broker will know which one suits your situation and save you lots of time and money. Always do your own research but if you find someone who you trust you should have no problems. Best of all you don’t even have to pay them; the bank will do that on your behalf. So really there is no reason NOT to use one. Just remember find a Broker who you trust and get along with.

Q. What sort of loan should I get, and what does Interest only mean?

A. The best person to advise you on this is your broker but generally speaking Investors only ever use Interest only loans. What this means is that they will never own the house outright, instead they make smaller repayments that only cover the interest bill. This can be a crazy idea to get your ‘head around’ at first but the reason is quite simple. The lower your repayments are on your property the less restricted your cash flow is, therefore you have more excess money to help finance your next investment property. The logical question is – but if you never pay off the house how can you make any money? As we learnt in Chapter 1, you can still access the equity in your property without selling or completely paying off the house (see chapter 8 for more details). It’s also worth mentioning that the Interest component of an Investment loan IS tax deductible whilst the principle repayments are NOT, just another reason why Professional investors always use Interest only loans.

Q. Should I fix my Interest rate or leave it variable?

A. I have a basic rule or recommendation when it comes to this question. When you first see banks raise their long term fixed rates you know it is time fix your loan. Using this rule and some common sense you should be able to work out what’s best for you.

Q. How much do I need to save for a deposit?

A. Once again it depends on your situation and circumstances. A ‘normal’ property loan would include a 20% deposit but professional investors will always try and pay as little deposit as possible. So, would I recommend getting a 95% loan? With caution and common sense, yes I would – BUT every situation is different and I obviously wouldn’t recommend for someone who is earning $20,000 a year to get a 100% loan for a $500,000 property. Use your common sense whilst doing everything possible to make it happen for you. The worst feeling in the world is when you have saved a decent deposit but decide to wait another 6 months to save that extra little bit only to find out that house prices have risen and your deposit is now effectively worth less than it was 6 months ago.