Plugging the Holes in Your Budget

Posted by The Happy Rock on June 3, 2010

The following is a guest post by a dear friend Ed(@ed_bruner) who is just months away from finally getting out from under $40,000+ in debt.

Use cash to plug up the holes

I assume every family budget has holes in it. Ours did. The holes were mostly unaccounted spending or personal spending…a trip to a retail store, a lunch out, snacks, etc. These “little”spending events can destroy a budget or even derail your debt reduction if they are not kept in check.

The way we handle this issue is by allowing ourselves weekly spending cash. The rest of the income is for bills & savings. All significant purchases are planned and discussed. Once the personal cash is gone, the spending stops. With the change to cash I’ve found that I pay more attention to the cost of things I’m buying. If I want to buy something, then I need to save for it. It really is as simple as it sounds and it works.

I’m sure you are familiar with the statistics regarding credit cards specifically that we are likely to spend up to 15% more when shopping with plastic. Dave Ramsey says that a McDonald’s study showed a 47% increase with plastic. Cash is finite, credit (and debit) have overdrafts and outrageous credit limits, which entice you to be less concerned about price. The minimum payment is only a small fraction of the debt amount.

We do use debit cards but have stopped all spending on credit. When we use debit, it is subtracted from weekly cash allowance.

Its much more enjoyable to manage money, than manage debt.

» Filed Under Cash, Credit Cards, Psychology of Spending

Rethinking Credit Card Rewards – Are They Worth It?

Posted by Debt Destroyer on October 25, 2009

5% cashback sounds good right?

Or does it?

Baker at Man vs Debt, recently posted on why he doesn’t use credit cards. His personal morals don’t allow him to support an industry that he doesn’t agree with. I thought he made a great case and I applaud his ideals (I can relate since I’m an occasional idealist as well). But will it change my mind on credit cards rewards?

Hmmm…that’s a tough one.

I primarily use a Discover card. As many are aware, Discover card offers cashback on all purchases. In addition to that, they run quarterly specials that offer 5% cashback. This quarter’s(Oct-Dec) special is for two of my favorite things:

Food (Grocery stores & restaurants)
Movies (Movie theaters and video rental stores).

You long time readers might remember that my Christmas budget is financed through my cashback amount. This system has worked out great for us. Last year we had $420 to spend thanks to this system.

The same long time readers will remember that I started paying cash for more of my purchases than I used to. While I love the fact that my credit card bills are much lower then they used to be, this has reeked havoc on my cashback rewards. It looks like we’ll only have a little over $200 this year.

But $200 is better than nothing right?

While I do love my rewards, I get to also see the other side of the equation.

My wife is a photographer. Her clients sometimes pay for her services via credit card. Even though she has a super low transaction fee (1.5%) which comes to chump change, she hates paying it. I don’t blame her, as the silent partner, I get to see how the “chump change” can add up in a hurry and take a bite out of a small business.

With the passage of credit card reform, it was clear that plenty of people have similar feelings to Baker when it comes to the credit card industry. I’ve seen the darker side of the industry first hand.

After my father died we went through his paperwork and found out he had recently declared bankruptcy a 2nd time. His mail was then forwarded to me. Almost all of it was credit card offers. I couldn’t believe it.

So will I join Baker’s cause, cut up my cards and stop supporting the credit industry, or will I stop paying cash and start charging groceries for an extra 5% off?

I signed up for the quarterly special.

I guess I fall into the camp that thinks credit cards are like tools (Which is funny because I’m not handy at all). If you use them correctly, they can make things easier. If you use them incorrectly you can really screw things up. And as ESPN taught me, “A good craftsman doesn’t blame his tools.”

On a personal note I’ll be curious to see if I end up spending more by reverting back to credit cards at the grocery store. Over the last three months I’ve spent an average of $381.43 on groceries.

The extra rewards will be worthless if I end up spending more than I normally would. Which is exactly what Discover and my local grocery store want me to do.

So where do you stand in this debate? Are you cutting up your cards, or are you swiping away?

Unitl next time,

-DD

» Filed Under Credit Cards

Are You Ready for Some Financial Football?

Posted by Debt Destroyer on September 20, 2009

Woo-Hoo! Football has finally started!

Better yet I got to watch my favorite team, The Washington Redskins, on TV(This is a big deal when you live in the middle of nowhere and you only have three channels). But let ye football gods strike me down because I ended up watching more of the US Open than I did the pigskin.

The way I figured I only had one more day of tennis left on TV, but I have 20 more weeks of football.

Besides every time I turned to the football game, the Giants were kicking butt, so I decided it was best that I didn’t watch. But I made sure to check my fantasy players.

That’s right, I’m a nerd!

The Redskins may have started out poorly, but my two fantasy teams are off to a great start(probably because I don’t have any Redskins…j/k I have Cooley).

And while I’m already a huge fantasy football fan, today I stumbled upon another football game that I think I’ll like.

Financial Football

It’s geared for teachers to use it in their classroom to help teach students financial literacy.

The game (sponsored by VISA) has four quick lesson plans which they recommend you go through before playing. They call it “training camp.”

The Fundamentals of Net Worth
Savings and Interest
Credit & Debit Cards
The Art of Budgeting

I didn’t have the patience to go through “training camp” so I dived in right away.

Here is an example of the questions they ask:

What is the first step in settling a retail dispute?

If you answered “call the retailer with whom you have the dispute”, you wouldn’t get tackled and gain a first down. The crowd would cheer and you’d get another question.

I opted to only play one quarter due to lack of time, and before I knew it I had The Redskins getting revenge on the Giants for their week one let down. I marched down the field and scored at will.

Hail to the Redskins!

But getting back to the point…

I thought it was an interesting way to reach out to kids and get them thinking about their finances. You should play it for yourself and let me know what you think.

Do you think it is appropriate material for classroom use? Do you think kids will take to it? Does it leave a bad taste in your mouth knowing it’s sponsored by Visa? Or do you think its crazy that the Redskins can march down the field on anyone?

Until next time,

-DD

» Filed Under Children and Money, Credit Cards

Remember Traveler’s checks? Do People Still Use Them?

Posted by Debt Destroyer on April 25, 2009

Yee-Haw!

The Debt Destroyer clan finally got out of Dodge (meaning we took a quick vacation over Easter break). And with such a trip, there are all the last minute preparations you need to take care of before leaving.

Making sure the kids are all packed up.
Making sure the van is ready to go.
Bring snacks, DVDs, & music for the trip.
Drop off the dog.
Get Traveler’s checks(cheques).

I crossed the last one off because it’s the 21st Century.

While I might pretend to be a pretty cool cat, I’ll admit to being old enough to have used Traveler’s checks. When my high school marching band went to Disneyworld (early 90s), my Mom made me get some. It made sense, I mean I wouldn’t trust a high school kid walking around with a wad of cash either. I of course would’ve wanted big bills, and if I had lost them I’d have been screwed.

So looking back I think she made the right move in making me get some Travelers Checks. And I actually remember using them (I think it was in the gift shop after watching the Muppets in 3-D).

But just a few short years after that trip, while sitting in a dorm room playing Techmo Super Bowl, I would be solicited to apply for my very own credit card(by a very attractive young lady…what are the odds?). And I would never use a travelers check again.

But should I be?

Looking at some sites it seems like they can serve as a nice emergency option when traveling abroad. But sadly my international travel experience have only been a couple of trips to Canada(Honeymoon & Pearl Jam concert), so I didn’t feel the need to worry about that.

Does anybody use these things anymore?

No really, I’m curious if people still use these or not. If you don’t, did you ever?

Until next time,

-DD

» Filed Under Cash, Credit Cards

Paying Off Credit Cards With The Credit Card Snowball

Posted by The Happy Rock on April 8, 2009

This is a guest post by Trisha Wagner. Trisha is a freelance writer for DepositAccounts.com, where you can compare rates from dozens of banks in one place. Trisha writes regularly on the topics of personal finance and saving money.

Credit card debt is among the hardest debt to pay off once you have accumulated it. Not only are the interest rates pretty high, but most people use their cards regularly, which means they add to the balance just as fast (or faster!) than they make payments on them. If you make a payment late or charge more than your available credit, you get slammed with additional charges on top of the interest.

Paying off high interest credit cards should be your first priority for finally taking control over your financial situation. Here is a method you can use to pay off your credit cards in a way that gives you results early, and helps you build momentum and motivation to pay them all off!

Step One: Figure out how much you owe. Sit down with each of your credit card statements and write down the total amount owed, the current interest rate, and your minimum payment. Also figure out your living expenses (rent/mortgage, other loans and debts, utilities, etc) to figure out how much money you have available to contribute to your credit card payments on a monthly basis.

Step Two: Call each of your credit card companies, one by one. You’re going to say something similar to the following, in an effort to get your interest rates lowered:

“I have been offered a 5% balance transfer offer from another credit card company. They are willing to transfer the balance from this 18% interest credit card to theirs for a 5% interest rate for the life of the balance. I’ve gotten great service from you, but I am going to have to switch my balance to help me save money if you can’t lower my interest rate.”

The response at first will probably be something they read off their customer service response manuals, and basically tell you that your rate is the best they can offer. Thank them for their time and let them know you will be transferring your balance since they are unable to help you. Many customer service representatives will put you on hold to speak to their managers at this stage, and will come back with a lower interest rate to keep you as a cardholder. Sometimes, they don’t help you but they can’t raise the interest rate just for trying to get a lower one, so what do you have to lose?!

Step Three: Once you have called each of your credit cards (and hopefully lowered a few interest rates), re-arrange the order of your credit cards on your list of accounts so that the smallest balance is first, followed by each of the others ordered by balance owed.

Step Four: Pay all of the cards on your list the minimum amount due, except for the credit card in the first position. You will send this account as much as you possibly can every month until it is paid off. So if the credit card with the smallest balance owed is $300 and you can afford to send them $100 a month, it will take you 3 months to pay it off, during which time all of your other accounts receive the minimum payment.

Step Five: As soon as you pay off the account in the first position, take the amount you were sending to that creditor and add it to the minimum payment you had been sending to the credit card second on your list. So if you were paying that card $20 each month, you’ll know send $120 a month until it’s paid off, while paying each of your other creditors the minimum amount due.

You’ll simply continue this process, getting larger payments to apply to each of the credit cards on your list as you pay off the one before it.

Many people argue that you should pay off accounts with the highest interest first, but for most of us, we need to get results to stay motivated. If your highest interest account also happens to be your largest balance, you could be paying for years on that account before you see it get paid off. When you can pay a card off rather quickly and make a larger payment to the next one in line right away, you start to see the benefits of your hard work much sooner, and are more likely to continue your debt repayment process.

» Filed Under Credit Cards, Debt Elimination

$500 Credit Card Cashback In A Year

Posted by The Happy Rock on March 2, 2009

chase-freedomcheck-2

I just recently received another $250 from my Chase Freedom rewards card. The check arrived almost exactly on my one year anniversary of signing up for the card. I have some unspent cash back still on the account, so even accounting for the $26 dollars in charges for an 8 hour late payment I still made $500 this year. In reality I only had to earn $400 in cash back rewards since Chase still adds $50 to a $200 check request. A nice little perk for funneling our cash purchases through a credit card and paying of the balance each month.

I am not telling everyone to go sign up for credit cards, since the debate about whether it is worth it still rages on. There are many downside factors that people often don’t consider when using rewards cards.

Current financial discipline
Current income and debt
Past credit and financial history
The rewards and credit costs that are passed on to merchants
Spending with plastic can cause you to spend more
Hassle and stress factor of dealing with a card or with mistakes. There are no late payments or double charges or finance charges with cash.

What are the reader’s thoughts? Credit cards rewards: worth the effort or not worth the hassle? After my last late payment debacle I am getting closer and closer to the not worth my time and energy side of the debate. My time and energy deserves to be spent on much more important things.

» Filed Under Credit Cards

Removing Finance Charges From My Chase Freedom Credit Card

Posted by The Happy Rock on February 16, 2009

After two months of procrastination, I finally called Chase to ask that they fully remove any finance charges related to my first time late payment offense. Did I ever mention that I hate making phone calls even if it is just calling a service rep that I don’t know to get late fees and finance charges removed? The introvert in me often hopes that avoiding the calls will make them go away…that rarely works.

The thing about this charge was that it left me seething. Every time I thought about it, I got upset. Upset because:

One 8 hour late payment resulted in about $100 in late fees and finance charges, $39 late fees and $51 dollars of finance charges that were spread out over two months of statements.
The bill was due on a Sunday and the payment was ready to be picked up on Sunday, but they don’t process payments on Sunday.
As someone who has paid their bill on time for the good part of ten years, I don’t like being treated as a delinquent.
My attempts at removing the fees(5 emails) had failed thus far and I suspected that if I talked to the right person they would remove the fees.

The only thing that kept me using the card is $500 in cash back in just one year of using the card.

After some prayer I was finally motivated to the point of action. I armed my self with all the relevant information which included the statements for the credit cards and for my bank payment. holding strong to the fact that they thought of me as a valuable customer. They had just raised my limit to $5,000 in a slow economy. I didn’t even plan to try and use ‘I own a personal finance site that talks about your company’ line.

When I called I got a reasonable customer service rep who listened intently as I laid out my case as strongly and politely as I could. She started to give me an annoyed scripted response about how the due date can fall on any day, but I politely persisted and said that she had to get a manager to remove the fees. A friendly manager came on and I politely told the story again and added stronger language about how I have one credit card and switched to Chase because of their service, but now every time I use the card I want to cancel. I continually stressed how I was a good loyal customer and how if this was resolved I would be a loyal customer again.

She relented and offered to remove half of the fees($26). I was placated. Not completely happy, but placated nonetheless. If I wasn’t averaging $40 a month in cash rewards from the card, I would be much more upset. Plus at $26 replaced in ten minutes, it feels like earning $156 an hour.

» Filed Under Credit Cards, Money Savers, Productivity(Financial)

Credit Cards Make Purchases Cost More

Posted by The Happy Rock on January 30, 2009

Here is another strike against credit cards. Not only do they often cause us to spend more, but they make merchants charge more to cover the credit card processing fees are usually 2-3%. The best cash back credit card that I use can end up costing merchants even more because credit companies pass an extra fees to cover the rewards which then gets passed right back on to the consumer. Americans spend an estimated $50,000,000,000(500 billion) in processing fees, almost the cost of one stimulus or bailout package.

Here is the scoop from True Cost of Credit :

Rewards cards cost businesses more than non-rewards cards because the credit card issuers pass the cost of the rewards onto the businesses by charging them higher Interchange rates. Rewards interchange rates are typically around 0.30% higher than the rate for a regular card. However, many smaller businesses actually get charged more than 0.30% additional for such transactions because it triggers a downgrade, which allows their credit card processor to charge them as much as an additional 1.50%.

The True Cost of Credit site combines information from several sources to provide you the estimated fees that were paid by merchants to your given credit card company. Just click through to the site and put in the first six digits(Issuers Identification Number) of a credit card and the site will give you a report on the fees merchants pay when using that card. Here is the report for the Chase Freedom Card, if you are interested. The report also offers examples of fees for different types of purchases that is also quite eye opening.

A pack of gum at a convenience store: $1.50

Credit Card Fees: $0.38 (25.1%)

So next time you swipe your card think twice about how much it might be costing you. What do the readers think about all of this?

» Filed Under Credit Cards, Personal Finance Systems

Crafty Creditors Are Making Changes

Posted by The Happy Rock on January 14, 2009

This is a guest post from Tisha Tolar is a freelance writer providing content for CreditCardAssist.com, where she regularly writes about credit cards, rewards programs and general consumer finance issues.

******
As the economy remains rocky and the credit card industry works through the crunch, it is important for consumers to take heed and pay more attention to what they are getting in the mail. Per law, credit card companies can change the terms of their issued credit cards provided they send notice 15 days prior to alert customers of the impending changes.

Due to the credit crisis, many credit card companies are resorting to different tactics to reduce their risks and increase their income in order to survive.

The Tactics

Some card companies are steadily analyzing customer accounts and dropping credit limits for the riskier clients, those who have been late with payments or have other debt. Even good customers are seeing their higher credit limits slashed up to half the original amount. Another tactic is the increase of interest rates. Back in the day, a customer was subjected to higher interest rates when they missed several payments. By today’s standards, a good customer can simply be late paying a debt other than the credit card and find their interest rates skyrocket, sometimes as high as 30%. It does not take long for debt and charges to accumulate, leaving you in even greater debt. Credit card companies rely on the fact that you don’t pay attention, thus making it easier to make money off of your lack of knowledge.

The Expectations

Credit card companies are fully aware that many customers will disregard written notices sent through the mail. It is common practice for people to skim over a contract, skip the fine print, and sign off without so much as a question. In keeping with that theory, the same people will likely toss privacy statements and notices beyond their monthly bill into the trash, without a second glance. It is only after that things have changed for the worse do customers sit up and take notice. Credit cards send out term changes and privacy policy changes essentially knowing the customer will not be looking very closely.

The Lesson Learned

The information we throw away often contains the important details about how the credit card company collects and uses our personal information, how our interest rates are calculated, and the regulations on fees and charges for late or missed payments and default. The statements also reveal the details of how the company reports your information to the major credit bureaus. It stands to reason that each and every customer would want to know and retain this information for future disputes. If you have to initiate a correction or an argument, it is best to know what you are talking about before jumping too far ahead. You can also help stop the sharing of your personal information with third-party sources.

In the world of credit, ignorance is not bliss. It can cost you dearly if you don’t know what is going on with your finances at all times. All too often we read of stolen identities or excessive debt brought upon by miscommunication or a misunderstanding. It’s your finances and your responsibility. Live up to them and live debt-free – or at least fool-proof.

» Filed Under Credit Cards

Holiday Spending 2008 – DD’s Quick Recap

Posted by Debt Destroyer on January 2, 2009

I hope you are all enjoying the holidays. For those of you who haven’t, the good news is that they are over.

Long time readers might remember that I mentioned my Christmas Budget technique is to save up our cashback credit card rewards and use that money on presents. This year we had $420 to work with.

Let’s see how we did:

$90 – Our kids
$100 – My folks
$75 – Wife’s folks
$57 – My family
$78 – Wife’s family
$30 – Angel Tree Gift

Total = $430

We only missed our goal by $10, not counting the gifts we got for each other(we don’t pre-budget those in order to surprise each other). If we’d add those in our total would be very close to $600.

$600 is more than I wanted to spend, but considering this covered 22 people it’s not so bad.

This is about the amount we’ve been at for the past few years. So I guess we’re leveling off. I think the only way to shrink it down any would be to cut out some people and use The Happy Rock’s idea about skipping Christmas presents.

Actually this almost happened for us this year.

Last week one of my wife’s family members called wondering if we’d be cool not exchanging gifts this year (due to me not working). And instead of saying yes, my wife told them that we’d already bought them some. This was the truth, but as I explained to her we could’ve easily taken the gifts back.

Oh well, no biggie. We’ll just have to remember this for next year.

Enough about me, how did you fare this holiday spending season?

Did you come in under/over budget? How did this year compare to others?

Until next time,

-DD

PS Happy New Year!

» Filed Under Credit Cards, Spending

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