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| The Basics | Don't pay too much for 7 critical services
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From home and auto loans to cell-phone service and long-distance calling plans, heres what you should expect to pay for some common services -- and not a dollar more.
By Liz Pulliam Weston
By now, we consumers were supposed to be in charge.
The Internet, we were told, would be a conduit to all the information we needed to be smart shoppers. We were supposed to be able to compare prices on every kind of good and service to ensure we were getting the best deals.
Instead, it seems to be getting harder and harder to figure out what you should pay for stuff. Credit cards advertise one rate and then give you another. Mortgage lenders promise no fees -- then tack extra costs onto the loan. Cell phone providers -- well, dont get me started on the ways a wireless carrier can pad a bill.
The companies say theyre customizing their deals to serve consumers different needs. I say we need a few benchmarks to know a good deal from a stinker.
With that in mind, I talked to experts in several spending categories -- credit cards, mortgages, car loans, phone service and life insurance -- to find out what we should be paying and where to look for better deals if were shelling out too much.
Interestingly, in many of these areas a good credit score is key to getting the best deal. If you dont know your score, the three-digit numbers lenders use to gauge your credit-worthiness, you can get a rough estimate at Bankrate.coms credit score estimator.
Credit cards: 10% or less
Interest rates are creeping up, but there are still plenty of decent offers out there -- if you have good credit.
If your (credit) score is in the 700 to 720 range and up and youre paying more than 10%, said Curtis Arnold, founder of comparison Web site CardRatings.com, you need to shop around.
One of the card issuers featured on Arnolds site, Pulaski Bank, offers a card with a fixed rate of 5.5%, but only to borrowers with excellent credit who were willing to provide proof of their income, such as pay stubs. Few other issuers are so rigorous in their underwriting, Arnold said.
But many credit card companies have balance-transfer offers with low rates for six months to a year. Citibank and Chase, for example, have cards that offer 0% rates on transfers for 12 months. A few have low rates that are fixed for the life of the balance, meaning you keep the rate until you pay off the debt. Typically, though, these cards have a much higher rate for purchases, and your payments apply to the low-rate balance transfer first, making these cards an expensive way to go if you continue to charge. American Express Blue card, though, offers 3.99% for the life of a balance transfer, plus 0% on purchases for 15 months.
If you typically carry a balance, youd be smart to research whats available and nab a good deal before rates climb much further. Factor in any annual or balance-transfer fees you might have to pay when comparing deals. Then use the low rate as an excuse to pay off your debt.
If you see a great transfer offer, lock it in, Arnold said. The really great offers arent going to be around forever . . . theyre going to be less and less plentiful as time goes on.
What if you dont have great credit? If your score is 650 or less, youll be lucky to get a rate in the mid-teens, Arnold said. If youre in subprime territory (620 or below), Arnold recommends a secured credit card over the unsecured cards many issuers offer.
Theyre going to hit you with all kinds of outrageous fees, he said. The subprime cards are almost outright scams.
Mortgage: 6%
Many, many factors are used to determine home-loan rates, and even if youre paying more than the going rate you might choose to stick with your current loan (see 4 reasons not to refinance).
But with five-year hybrid adjustable mortgages at 5%, and 30-year fixed loans at 5.5%, you should at least explore the possibility of trading in your loan if youre still paying more than 6%.
This assumes that your credit scores are above the crucial 620 line. Below that, and youre in subprime territory.
The rates are much higher and the terms much more unfavorable, said Chris Larsen, CEO of E-Loan. (A score of) 620 is a pretty big deal for lenders.
Those borrowers whose scores lie between 620 and 720 may pay a higher rate than those with higher scores, Larsen said, if their finances are shaky or they dont have any equity in the property.
You can find lots more information about how to shop for and evaluate mortgages at MSN Moneys Home Financing Decision Center.
Home equity line of credit: 4.75% to 5.25%
If your credit score is really good -- 760 or above -- you should qualify for a home equity line of credit (HELOC) rate equal to the prime rate minus half a point, or 4.75% currently, E-Loans Larsen said. Thats assuming all your mortgages, including the line of credit, total less than 80% of your homes value.
Those with slightly lower scores of 700 to 759 can typically get lines with rates equal to prime.
(HELOC rates) are more reliant on the person than on the property, Larsen said. Theres a real break for people with the very best credit.
Fall below the 700 mark, though, and rates climb steeply. Informa Research, which tracks loan trends, recently reported rates of 7.736% on average for people with scores in the 660 to 679 range, and 9.111% for those in the 640 to 659 bracket. Below that, rates climb steeply into the double digits.
You can find a primer on HELOCs and other second mortgages in MSNs House & Home section. Bankrate.com has prevailing rates and more resources on how to select the right HELOC.
Car loan: 5%
Auto-loan rates vary hugely depending on your credit score and the length of the loan. Someone with a score of 740 or over can land a three- to four-year loan with a rate as low as 4%, Larsen said, with rates marching steeply higher from there.
On average, people with a 720 score or above are paying 5% for a 60-month loan, a rate that rises to 5.7% for people with scores between 690 to 719, said Bob Kurilko, vice president of marketing for Edmunds.com, which tracks vehicle finance trends. Slip down to 675, and the rate spikes to 7.5%; below 640, and youre in the double digits.
Unfortunately, many buyers focus only on the monthly cost, so car dealers stretch out the loan -- jacking up the rate in the process -- to give them the lower payments they want, Kurilko said.
The term is too long and the rate is too high, Kurilko said, but its invisible to (car buyers) because they havent worked out the numbers.
Those who notice theyre paying a much higher rate than they should based on their credit scores can try to refinance, but theyll get decent rates only if they have some equity in the car. Unfortunately, many buyers drive into the dealership still owing money on their last vehicle. Some people are $10,000 to $12,000 upside-down, Kurilko said. Thats insane.
If you cant refinance, Kurilko recommends driving out of the loan, keeping your current car at least until its paid off, rather than compounding your error by trading it on a new one.
If you have some equity and want to look for a better loan, you can find rates, information and lenders at Bankrate, E-Loan and Cars.com, among others.
Cell-phone service plan: $39.95 for 500 anytime minutes
Wireless carriers offer all kinds of bells, whistles and add-on fees that can make it tough to compare offers, said Bill Hardekopf of the SaveOnPhone.com comparison Web site. But if youre paying much more than $40 for much less, you should be on the lookout for a better deal when your current contract expires.
Switching mid-contract rarely makes sense, because carriers typically charge early-termination fees of $150 or more. A good credit score wont get you a cheaper deal, but youll need at least decent credit to be approved for a wireless plan at all. Otherwise, you may have to settle for prepaid plans which typically charge 10 cents to 40 cents or more per minute.
You can shop for wireless deals at a number of Web sites, including SaveOnPhone.com, LowerMyBills.com, LetsTalk.com and GetConnected.
Long-distance calls: 5 cents a minute or less
If you buy long distance from AT&T, MCI and Sprint, youre paying too much. Period.
All three carriers are backing out of the residential long-distance business in favor of more-profitable niches like wireless and Internet calling services. Their long-distance rates have always been higher than their smaller competitors, Hardekopf said, but are now extremely uncompetitive.
Today, you can find plenty of smaller companies that offer state-to-state calls for less than 4 cents a minute and a few that go for less than 3 cents a minute. But intrastate calls can be much higher, depending on where you live.
Pioneer Telephone, for example, offers a 2.7 cent state-to-state rate for Arizona residents, but calls within the state go for 14.5 cents. Someone who lives in Phoenix and who mostly phones friends in Tucson might be better off going with 3U Telecom, which charges 4.8 cents for state-to-state calls but 7.9 cents within the state.
Youll find these cheap carriers, along with dozens of others, at SaveOnPhone.com, LowerMyBills.com and GetConnected, among others. Hardekopf recommends looking for a plan with no fees and no minimums to further decrease your bill.
An even cheaper option for big talkers or those interested in ditching one of their land lines is Internet phone calling. Vonage, AT&T, Time Warner Cable and Comcast are big players in this voice-over-Internet-protocol, or VOIP, market. Youll need a high-speed Internet connection (via a cable modem, if you want to drop your regular phone service; DSL requires that you keep your land line). Vonage offers unlimited calling in the United States and Canada, plus a host of features including voice mail, caller ID and call forwarding for $25 a month; the phone and cable companies are generally higher, although they often offer package deals with their broadband service.
Life insurance: $225 a year for $250,000 term life insurance coverage
The quote above assumes youre a 40-year-old male in excellent health; youll pay less -- perhaps a lot less -- if youre a woman or under 40. A 30-year-old male can buy the same amount of coverage for about $165 a year, while a 40-year-old female would pay about $190, according to Insure.com.
What if youre paying a lot more? Perhaps its been awhile since you shopped for term insurance, and you didnt realize how much rates had dropped. Even if you have health issues that prevent you from getting the top rates, you may be able to lower your premiums with a new policy.
Or, maybe instead of term insurance youve purchased whole life, universal life or another cash-value variant, which are typically much more expensive. These policies have their place, but make sure if you buy the more-expensive policies that you have enough coverage to adequately protect your family. An unscrupulous agent may sell you a smaller whole-life policy rather than a larger term policy simply because the commissions are higher on whole life.
OK, with any luck, Ive just saved you a few bucks or at least given you some ammunition for the next time you go shopping.
And isnt that what the Internet is all about?
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
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