Friday, November 5, 2010

Why shouldn’t you get a store credit card?

I always restrained myself from signing up a store card to save 10% off or get a lower interest rate on financing. However recently, I signed up for a store credit card, which is not store-brand visa or mastercard.  I signed up because it saved me few dollars on a big purchase.  Now, I am stuck with that store credit card because I can’t use it anywhere except that store -- also the APR is too high to use it on other regular purchases.
This new store credit card has single handedly knocked off dozens of points from my credit scores.
This is how your store credit card hurts your finances.
  • Even before signing up, a new credit inquiry is added to your credit report, lowering your credit scores.
  • After account is open, this new account lowers the average age of your credit accounts further lowering your credit scores.
  • If you make a big purchase (since you got discount), the ratio for used credit increases, increasing your credit utilization and again lowering your credit score.
  • Your interest increases after an introductory period. So, a purchase with future interest could cost you even more.
  • Normally, people tend to overbuy when given a discounted purchase. You end up paying more for things you don’t really want and definitely don’t need. 
Image based on photo by stevendepolo

Wednesday, November 3, 2010

My Debt Roundup – November 2010

This month I reduced my debt by $42 to 12,960. I still don’t have roommate for some personal reason that I don’t want to discuss here. Besides that, my main unexpected expense this month was related to healthcare. I have a decent health insurance provided to me by my employer. Still, I had to pay $700 out my pocket for something because my insurance company decided it should go under my deductible for this year.

I don’t want to get into current healthcare debate. However, I don’t understand why costs of healthcare are not transparent at the beginning or prior to receiving the care. Normally, you go to health professionals and get treated for ailments without having any idea for what is going to cost you. Even you get estimated cost, you have no idea how much you will be ultimately responsible. For non-emergency ailments, knowing the accurate cost prior to any procedure would help you decide to treat, wait, or shop around.

In this age of iphones/blackberries and 1-800 numbers, can’t we legislate (or?) for health insurance providers to give us an estimated cost (with margin of error) for requested procedure as well as comparative prices. This will not only save money for patients but also save millions for insurance companies. People may decide that they will go with a relatively new Dr. Smith for $500 rather than going with Dr. Jones for $2,000, who happens to be recommended by their friend. If we decide to treat (certain) healthcare products as an economic commodities then why not really treat them like one?

Image based on photo by CarbonNYC