Personal Finance Blog — Page 33 — Tips And Stories To Help You With Managing Money

Credit Card Or Debit Card? It All Depends

April 7, 2016 By Twila Van Leer

Which card is better to use between credit and debit?

It’s one of the questions that enters into discussion whenever issues of personal finance come up. And the answer is not as easy as it would appear on the surface. Purchases with both cards are subject to processing that makes a difference. Before you decide how to handle your card-shopping, consider these factors.

Debit Card

When you use a debit card, the transaction usually requires a personal identification number or PIN. The transaction is completed in real time, with the money coming immediately out of your bank account and transferring to the merchant.

Credit Card

A credit card does not require a PIN and is an offline transaction. The funds remain in your account until the merchant settles the purchase. It generally takes two to three days for the transaction to be apparent in your account.

Fees

Before the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed by Congress, card issuers could charge different fees for credit card purchases than for debit card transactions. Initially, interchange fees of 12 cents per transaction were set. They rose to a 21-cent cap before the bill was signed into law, but that was still significantly lower than the previous 45-cent fee that had been in effect.

Credit Unions

The law, however, does not apply to thousands of community banks and credit unions that issue cards. It is in effect for financial institutions with $10 billion or more in assets.

The caps tended to dry up the debit card rewards and free banking provisions that had been offered with cards.

Difference

With the regulatory changes it makes less difference if you use a debit card or charge card for your purchases. The major difference now is that a debit card does not help you build credit, while a credit card does. Many debit cards now will run transactions without the use of a PIN, which minimizes the prospects for fraud.

Personal Decision

If you pay off credit card purchases in a timely manner, avoiding the interest charges, the distinction between debit and credit is further neutralized. Most Americans are likely to have one or more of both types of cards in their wallets. How they use them as they shop is a personal decision.

5 Excuses Keeping You From Being Debt-Free

April 3, 2016 By Twila Van Leer

The only solution to debt is to stop the leakage and resolve to get rid of it.

There are many reasons why you may be stuck in debt and they’re not all necessarily related to the state of your finances. In fact, your money woes may be exacerbated by your mindset. Your beliefs are often what guide you, and if you’re carrying around problematic ones, you’ll have a much harder time getting debt-free.

Here are five excuses that could be keeping you in the red.

I Deserve It

One of the most common phrases debtors bandy about is “I deserve it,” Jeff Jones, a Certified Financial Planner in Huntsville, Ala., wrote in an email. “It’s an excuse and that transcends financial matters … but this usually comes at the expense of a larger, long-term goal.” This mentality, for instance, enables people to reward themselves with a lavish vacation (on credit) or a new car (and the payment to go with it), Jones added, when instead you should be thinking about becoming debt-free or saving more for retirement.

I Don’t Know Where to Start

Facing debt is overwhelming. It involves owning up to whatever got you there in the first place and taking responsibility for paying it off. Add to that the sinking feeling that comes with realizing how much you owe and the whole thing starts to become one sad situation that seems insurmountable. How will you ever get out from under this mountain of expenses? Fortunately, there are options, including, for instance, debt consolidation, balance transfer credit cards or the help of a credit counselor. You just have to be willing to face your debt head on and put the time in to research what strategy may work best for you.

I’ll Deal With It Later

Another day, another excuse. “I’ll draft a budget in the new year” or “When I get a better job, I’ll start paying off debt.” And on it goes. The problem with this mentality is that the timing will never be right. It’s like keeping a diet: If you always find an excuse to get out of it, you’ll never reach your goals.

I Only Need to Make the Minimum Payment

Initially choosing to make only a minimum payment on your loan obligations can be a hard habit to break. “This one is invidious because it anchors you to making a payment, which means that, in the case of a credit card, it will take, say, 10 years to pay off, assuming you don’t add to the balance,” Jason Hull, a Certified Financial Planner in Woodbury, N.J., wrote in an email. “We tend to become attached to the first number we see, so when we see the minimum payment, we assume that’s what we should pay. Instead, we should pay as much as we can on our credit cards to pay them off as soon as possible — and make sure that we’re not adding any more to the balance.”

You can see just how much adding a few dollars to your monthly payment can impact your debt-free timeline using this credit card payoff calculator.

Remember, high credit card balances can damage your wallet and your credit. You can see how your credit card debts may be affecting your credit score by viewing your free credit report summary, updated each month, on Credit.com.

I’m Not Responsible

It’s easy to blame our debt woes on external forces, like car repairs or a medical emergency, but when all’s said and done, we need to take responsibility for our actions. That could mean not living like an upper-class family on a middle-class paycheck, being able to sign off of our favorite shopping sites when we know our credit card bills are already too high and avoiding “friends” who spend to have fun (and encourage you to do the same.) It’s a good idea to try to stop justifying your habits with the idea your debts aren’t your fault — someone got into debt, and whether you acquired it by marriage, co-signing, or on your own, it’s yours, and yours alone, to pay off.

Coping With Debt PDF: Developed by the Federal Trade Commission, this pdf was designed to help consumers stay ahead of their debt. 20 pages of self help techniques that can help you through your financial difficulties.

Watch Out For Scary Scams

April 3, 2016 By Twila Van Leer

Medicare

Medicare enrollment time is from Oct. 15 through Dec. 7, and there are scammers out there hoping they can trick you out of your Social Security/Medicare number while you are particularly vulnerable. Be wary of the caller who says he/she is a Medicare employee and that the agency is issuing new cards, that their records need updating or that they can help you with re-enrollment. Don’t you believe it.

Some of these scammers may say you have past-due medical bills. Genuine Medicare employees will never call and ask you for personal information over the phone. They will not visit your home pretending to solicit information the agency already has.

Utility Company

As the weather cools, such unscrupulous frauds may show up saying they are from the local utility company and claiming that you have unpaid bills. They may ask that you pay with your prepaid debit card, which makes it hard to trace. They may suggest that you pay cash and offer to send someone, supposedly a bona fide utility employee, to pick it up.

Again, don’t you believe it. Utilities don’t work that way. They will always send at least one and usually several reminders if you are truly behind, and they do not send employees to pick up payment.

Home Inspections

Another ploy that allows a scammer to dip into your financial resources is the man who shows up to “inspect” your home and supposedly finds serious repairs that need to be taken care of immediately. They may suggest that your chimneys, HVAC ducts or furnace need cleaning. Usually they don’t. Much better to rely on someone with whom you are familiar to do such upkeep.

Investment

At the final quarter of the year, many people are looking for little tweaks they can make to their investments, with an eye to improving their tax situation. If you receive invitations to free lunch seminars to be “educated” about investments, be aware you could end up paying dearly. Such gatherings often are sales pitches for bogus investments. Words such as “risk-free,” “guaranteed” or “limited time” may be clues that you are about to be scammed. Common investment hoaxes focus on oil and gas, precious metals, promissory notes, life settlements and long-maturity annuities. Before you head out for a free lunch, visit brokercheck.finra.org to learn about past lawsuits, bankruptcy filings and other possible irregularities.

Charity Organizations

When the holiday spirit begins to loosen purse strings, scammers come out of the woodwork by the droves. Last year, the focus was ebola. Every natural disaster brings out those who appeal to your humanity to help in the recovery process. Many of the scams are custom-designed for the elderly and they may solicit help for police, firemen or children. If you feel uncomfortable, ask the solicitor to provide you with materials about the suspect charity so you can study them before making a donation. Or go to give.org, charitynavigator.org or the agency in your own state that regulates charities. This information is listed at nasconet.org.

There are dangers of fraud and scam all the time, but especially in the next few months. Don’t start the holiday time of year by letting a scammer treat you to a trick.

Save Big Bucks On Airline Tickets

April 2, 2016 By Twila Van Leer

Prices for airline tickets are all over the place. If you want to fly right and for less, become savvy about making your purchases. It is possible to save a lot – up to $300 or more per ticket – if you buy when the prices are at their lowest.

Best Time To Buy

So, how do you know when that magical moment has arrived? CheapAir did some of the footwork for you. The company monitored air travel fees for some 5 million flights in 2014, comparing the cost of bookings from 320 days in advance of the desired flight time to just one day. The research pinpointed 47 days pre-flight, on average, as the time at which fares were likely to be at their nadir.

“Window” Opportunity

From 114 days to 27 days, however, were identified as a “window” of opportunity during which it is worthwhile to shop for the best airfares. If you wait until only 14 days before you plan to fly, the price may jump by an average of $174. By that point, the airlines know you are likely to pay what they ask. Booking too early, on the other hand, can raise the price by an average of $50 per ticket, the CheapAir review found.

Book Early

Of course, there are many factors that affect prices, including dates and destinations. The research organization suggests early booking for holiday and standard vacation times in the area in which you are interested. If your travel group includes more than four people and you want to be seated together, early booking will be better. Start checking fares once a week as soon as your plans seem firm, to get a sense of the market. If you see a good price, go for it. It is more likely to rise than to fall further.

Information is available from airfarewatchdog.com, cheapair.com or kayak.com, which regularly monitor airfares.

International Travel

Fares for international travel do not fluctuate as much as those for domestic flights. If you are leaving the country, book early. Sales open 335 days before departure, CheapAir says. About 90 days before the departure date, fares start rising rapidly. If Europe is your destination, book at least 276 days in advance to get the best price. The best opportunities for cheaper tickets to the Caribbean is 144 days in advance; to Asia, 318 days; Africa, 262 days; Mexico, 251 days; South Pacific, 244 days; Middle East, 213 days; Central and South America, 96 days.

Be Flexible

Allowing yourself a little flexibility can also save money. Booking flights with connections or those that leave either early in the morning or late at night are cheaper. Tuesday, Wednesday and Saturday are the days when fares tend to be lower.

Price Drop Rebates

Many airlines and travel agencies will give you a rebate if your flight’s price drop below what you paid. Often the rebate will come in the form of credits or vouchers. Sign up with Yapta.com to receive alerts about falling prices. But be aware that some airlines will charge a big fee for re-booking a flight to a lower price. If the fee outweighs the difference in the fare price, obviously, you don’t want to consider it. CheapAir offers a $100-per-passenger credit if the price of your ticket drops. That avoids a fee for rebooking.

Finding the best fare may take some time and effort, but the savings will make it worthwhile.

Are You Spending Too Much?

April 1, 2016 By Twila Van Leer

There’s nothing left of the holidays except the memories. And the bills. And if that has been painful, it may be time to take another good look at your long-term goals and make adjustments as necessary.

Studies show that Americans are spending more than ever. The average credit card debt is $5,000 to $7,700, depending on the source of your information. Student loans, mortgage or rent payments, cars, cell phones and other electronics and other recurring debts add to the pressure.

How do you know if you are spending too much? Here’s a list of guidelines that may help you decide.

Credit Card Debt

If you carry more credit card debt than you can pay off monthly, you may be on the brink. The interest is gobbling up money that you could be using for other things.

Retirement

If you are making no provision for retirement, that’s another red flag. Though you have plenty of company – a third of working age Americans are in the same leaky boat – you may be asking for a longer working time in the future. Most experts say you need to start saving 10 to 20 percent of your income starting in your 20s to meet retirement needs.

Housing

If your housing, rent or mortgage, is absorbing more than 28 percent of your income, that’s a danger sign. And your transportation costs should not exceed 15 percent. Vehicles depreciate fast. If you are over this limit, it could be time to go shopping for less car.

Children’s Education

The working years are the time to save money for your children’s education. Higher education debt has become a major stumbling block for many young (and not so young) adults. The average student will face a $33,000 debt load when he receives his degree. Being able to take care of some of the costs up front could make the transition into a career easier.

Health Insurance

Financial disaster is fairly predictable if you don’t have health insurance. A coronary bypass can cost more than $38,500. Just thinking about this and other medical emergencies that are part of life could give you a heart attack. With new government provisions, you could be paying penalties for not having health insurance, unless you qualify for an exemption. Better the cost of insurance than the cost of the penalties.

Eating Out

If your family has become addicted to eating out, you are paying more for food than you need to. A home-prepared lunch costs about a third what they will charge you in a restaurant. Ditto coffee. Some studies have indicated 60 percent savings when you eat foods you fixed yourself.

Emergency Fund

Not having an emergency fund is asking for trouble. The experts don’t all agree on how much a cushion is enough, but the recommendations range from three to 12 months of your income total. Don’t worry so much about the total you need as the need to get started. In a pinch, anything is a whole lot better than nothing.

As a rule of thumb, financial advisors say you should spend half your income on essentials, 20 percent for debt payment, retirement and savings and 30 percent on lifestyle choices. The guideline can have some flex, but is a good gauge to whether you are making good use of your financial resources.

Bottom line: Overspending and under-saving can be disastrous. Starting early to address budget concerns may allow for a more secure and trouble-free future. If you aren’t paying attention, now is the time to start.