The GM Card August 3, 1999March 25, 2012 This is the MasterCard, you will recall, that is serviced by some other company, yet GM gets all the ill will. It is a terrible card, serviced by a terrible company. Latest example: I finally found out how to transfer the $1,500+ rebate I had accumulated to someone else. (The card gave me 5% on every charge against the purchase of a new GM car.) You add the name of the car purchaser to your account, which can be done by phone and takes only a couple of days. He or she need not be a relative. You can specify, as I did, that the additional cardholder not get a separate card, and you can always take the person OFF your account. So I found a friend actually willing to consider buying a new GM card — not easy! — added him to the card, and prepared to redeem my dollars. (I couldn’t bring myself to waste that rebate and let it go unused.) As it happened, once my friend started looking for real, he couldn’t find a GM car he liked. He wound up buying a Saturn. Yes, Saturn is a GM car, but it is specifically excluded from this rebate plan. So I didn’t manage to transfer the $1,500+ after all, and it remains to be redeemed. But I got a letter from James Hogan in the GM Card Customer Center saying they had recently sent me a new card, yada-yada-yada, and if I hadn’t received it I should call the Lost/Stolen Department at 1-800-374-0001 immediately. Well, I hadn’t received it. Indeed, I hadn’t realized they were even sending me a one. (My card was not due to expire for a while.) But maybe when you add a name to the account they send a new card. In any case, you don’t want to ignore this kind of thing, so I called the number. And was placed on hold for 20 minutes. Eventually, I just had to hang up. What if someone were out charging merchandise even as I was on hold? Wouldn’t the stolen-card department want to answer the phone real quick? If I’m supposed to call them immediately, shouldn’t they be staffed to answer pretty fast? I called back a few days later, was forced to reveal my entire life’s history for security purposes, to verify it was really me, and then was allowed to explain the reason for my call. I was surprised to get this notice, I said, because I hadn’t been expecting a new card. Had they really sent one? The (nice) security specialist checked and said, no, I had not in fact been sent another card. So why the letter saying that I had been, and instructing me to call immediately if it had not been received? Just part of the GM MasterCard service. I wrote about the GM Card a couple of years ago after being charged a $20 fee for being (they claimed) 3 days late on a $55 payment — a $20 fee they refused to waive — and got an outpouring of similar stories from readers. One, dubbed Deep Plastic, wrote: “As an employee of Household Credit Services (the bank that underwrites your GM Gold Card), I can assure you that you are not alone in your Credit Card Billing Rage. . . . I own GM stock, and I’m tired of the bad rap GM gets for the stupid policies of Household. (I say stupid, because it takes Household approximately 4 days to post a payment to an account once the payment is received. Household does not back-date the payment, therefore a late fee is assessed even though 90% of the time they had the payment on time)." Perhaps this has changed in the last couple of years, but I doubt it. Someday GM will unhitch its trailer from Household Credit Services. That will be one small sign GM is beginning to get its act together. In the meantime, I have a feeling its market-share erosion is not over.
Biweekly Loans August 2, 1999February 13, 2017 Bill Merkel: “Thought I’d pass this ‘great deal’ on your way. My mortgage company, Norwest, has been bugging me since I first bought my house to sign up for their ‘convenient’ and ‘money saving’ bi-weekly service plan. They claim that by doing so, I can shave over 6 years off my term and reduce interest payments by about $20,000 over the life of the loan. And it only costs $9 a month. Hmmm, the opportunity cost of $9 a month for 23 years, say at 15%, is about $21,500. So I’ll save $20,000 by [foregoing] $21,500. I think I’d do better by just sending in an extra $9 in principal every month. That math is a bit tough for me, though. Any thoughts on bi-weekly payments?” A biweekly repayment schedule is a relatively painless way to pay down your mortgage faster, and thus save lots of interest. Instead of paying $1,000 a month, say, you pay $500 every two weeks. There being 52 weeks in a year (and 4.3 weeks in a month — a handy fact many people forget), you wind up make 26 such payments, or 13 months’ worth rather than 12. That extra month’s payment greatly accelerates the pay-off. Is it worth it? Certainly not if you can earn 15% on your money. But you can’t. At least not over the long run, unless you are a very, very rare individual. The math here is actually very simple. Paying off, or paying down, an 8% mortgage is the same as “earning” 8% — risk-free — by not having to pay it. That’s a tax-free 8% (not bad!) if for some reason you don’t itemize your tax deductions; or more likely the equivalent of a taxable 8% if you do. (Because after-tax the mortgage interest really didn’t cost you 8% at all, but perhaps 5% — so, after tax, that’s all you’re really saving by paying it down early.) So if you happen to be the last one on earth with a 12% mortgage, it’s a no-brainer — jump at any early pay-off you can make. But while I think mortgage pre-payments are a decent idea for most people, the case grows ever less compelling as the interest rate goes down. Would you rush to pay off a 3% loan (if there were such a thing)? I hope not! The fact is, the 7% or 8% that most people could “earn” these days, risk-free, is a pretty good rate. After all, it seemed OK to the people who loaned you the money, and they weren’t naive little savers. Indeed, the people who loaned you the money were likely getting a tiny bit less (the bank, as servicing middleman, takes its small cut), and they were taking at least a teeeentsy bit more risk. (There is almost no credit risk in first mortgages, let alone in buying bonds backed by a diversified pool of first mortgages. But “almost no risk” is not zero risk. And believe me, there is zero chance, if you owe 8% interest on your mortgage, it will be forgiven. So there is 100% certainty that by paying down your mortgage you will save the 8% you would most assuredly otherwise have had to pay. Unless, that is, the bank fails to do its math properly — something to watch out for.) Accelerating the payments on an 8% mortgage is not a way to grow rich quick, but it is, as I say, a relatively painless way to sleep sounder; an easy form of forced saving. But what about this $9? At first, I thought it was a monthly principal prepayment, but now that I think of it, I assume it is, as you say, a bank service charge — $108 a year, year after year, to have a computer clerk at the bank click one button, one time, to recast your repayment schedule. (Not to mention the 14 extra payments for you to mail or e-transfer each year — 26 instead of 12 — which may have a small cost to you as well.) So if you have the discipline to do it, I’d skip the $108 fee and just send an extra principal pre-payment (clearly marked as such on your check!) every so often. For example, you might commit to yourself to send the amount of your entire tax refund each year, if you normally get a tax refund. Check with your bank; but every bank I’ve ever had a mortgage with has handled pre-payments routinely. The extra payment is simply subtracted from the balance due. And without service fees.