Saturday, March 24, 2012

Wise Use of Credit Cards

As we have mentioned before, credit cards can be a good thing, or they can be a bad thing. If you are one of those people who simply cannot control your spending when you have plastic in hand, then cut up all your cards and use checks, cash, or debit cards. This will limit your spending to what you actually have in the bank. You can still get in trouble if you spend all your money on frivolous stuff, leaving no money for essentials later. But at least you will be somewhat limited on the amount of debt you accrue.

If, on the other hand, you have a handle on spending, credit cards can be very useful. First off, they allow you to easily pay for things without having to immediately deduct money from your bank account. If you pay off the credit card bill each month in a timely manner, it basically amounts to an interest-free short-term loan. But if you plan to build up a balance on a card and then pay only a portion of it each month along with interest payments, then forget about using credit cards. The interest on credit cards can be pretty steep. You don’t want to get stuck making these hefty payments if at all possible.

Here’s what we personally look for in credit cards. REWARDS!! A card must not have an annual fee, unless the rewards paid by the card more than compensate us during the year. Currently, all the cards we own have no annual fees. Also, the card must allow us to pay it off in full each month with no interest or penalties. In other words, the cost to us for the card’s use must be zero, but additionally it must pay us back. In essence, the credit card company should be paying us for using their card. Another feature to look for is the ability to have the credit card company automatically withdraw the total amount due from your bank account each month. This prevents you from accidentally being late making a payment, resulting in interest and late fees. Just make sure you have enough money in your bank account to cover the withdrawal when the bill comes due. We set up monthly reminders on our electronic calendar for this purpose.

Some cards pay back a percentage of each purchase regardless of where the purchase is made. Other cards give rewards based on the type of purchase. Common ones are for gas stations, grocery stores, and drug stores. If you travel a lot, some cards give rewards that can be used for airline flights. Also, some businesses team up with Visa or MasterCard to provide a card with rewards, particularly if you use the card at the business. Some businesses have their own credit cards that can only be used at their stores.

If you look around, you can find some pretty good deals on cards. Here are a few we use that you might want to look at. Please be aware that the description of the rewards we receive with these cards can change at any time. In fact, we have occasionally quit using cards when they change their rewards programs to be less desirable or when better cards come along to supplant them.

This is a good general use card because it pays a flat 2% cash back on all purchases. In order to get this card you will have to set up a Fidelity Investments account. The rewards can be deposited into either a taxable account, an IRA, a college savings plan, or sent to the cardholder as a check. However, the full 2% is only available in check form if we let the rewards build up to at least $250. We use this card for all purchases except for those where we get a bigger reward using another card. The one disadvantage of this card is that quite a few businesses, especially small local ones, do not accept American Express cards due to their higher merchant fees.

This card is issued from the Pentagon Federal Credit Union. This account is primarily designed for government, particularly military, personnel. However, we were able to make a donation to an organization that supports military families, and that allowed us to join. You must also set up a savings account with the credit union and make at least a $5 deposit. However, the rewards are well worth it. You get 5% back on pay-at-the-pump gas purchases, 3% on supermarket purchases, and 1% elsewhere. We only use this card at gas stations, supermarkets, and any place that does not accept American Express. Gas companies, such as Shell and BP, sometimes offer credit cards that have 5% rewards on purchases made at their stations, but we much prefer having one card that gives us 5% back for gas purchased anywhere.

Normally the rewards paid by the Discover card are not as large as those from some other cards. However, every few months, special 5% bonuses are offered on certain purchases. For instance, it will soon be offering 5% cashback bonuses at restaurants and movies. One caveat is these specials always have spending caps. We only use Discover when the special offers are better than what we can get with any other card. Points earned with the Discover card have to be redeemed with gift cards. Some cards can be purchased for less than their face value. One of our favorite ways to cash in our Discover points is to get a $50 Chili’s Grill & Bar gift card in exchange for $45 in points.

Some businesses offer credit cards that give you substantial rewards for use at their store. For instance, the Best Buy RewardZone MasterCard offers a 4% reward for purchases made at Best Buy and 1% elsewhere. Amazon’s Visa card offers 3% rewards for Amazon purchases, 2% for certain types of other businesses, and 1% elsewhere. Many times the rewards come as vouchers that can be used at their store rather than as cash. However, if you make regular purchases at these stores, that’s as good as cash.

Store Cards

Some stores, such as Kohl’s, JCPenney, Sears, and others, offer credit cards that can only be used in their respective stores. Under normal circumstances, these cards generally don’t offer any incentives for their use. However, occasionally the stores will offer sales that can only be taken advantage of when using their card. It can be very useful under those circumstances, especially given that they usually give the discount at the time of purchase. Still, we do not bother with a card from a store we shop at infrequently. Oftentimes a store will offer a steep discount on the entire current purchase for opening a credit card account with them. We sometimes do this if we are making a large purchase and the discount is substantial, but normally we take a pass on these offers.

Student Cards

Some credit card companies offer cards that are geared toward college students. They will typically offer rewards on purchases that are of interest to this age group. Our son uses the Citi Forward Card. It should go without saying, but we’ll say it anyway. If your college-age child is not very responsible with their spending, DON’T give them a credit card. BAD IDEA!

There are many, many different types of credit cards on the market to meet the needs of essentially every type of spender. We have mentioned only a few that we have found to be useful. For others, check out the Credit Card Guide.

Keep in mind that the deals can change frequently. The rewards we mentioned earlier may not be available by the time you read this. Also, there may be cards available that we would like better, but just haven’t happened onto them yet. Indeed, if anyone reading this finds a great credit card, be sure to let us know about it.

If you use credit cards at a lot of different businesses, you may find that to maximize your rewards, you may need to have a plethora of different cards. This can become unwieldy. Sometimes you just have to say, “No more cards.” Decide how many cards you are willing to keep up with, determine which ones will benefit you the most, and go with just those. If you occasionally order merchandise from Internet sites that you are not totally confident in, you will want to have one credit card with a low spending limit so nefarious individuals who might decide to use the card will be limited on what they can spend.

Speaking of credit card theft, be sure to find out if you are responsible for some amount of money should a card be lost or stolen and then used by someone else. If seems to us that most companies’ cards these days do not require a fee from you under these circumstances. Another thing to be aware of is that some cards cap their rewards. This is okay. Just remember to switch to a different card once you reach that cap because you will no longer receive any rewards on purchases that exceed the cap. And again, watch out for those annual fees and penalties.

Happy credit card shopping. May your balances be paid in full each and every month.

Wednesday, March 7, 2012

Cutting Expenses Part 2

An area where cuts can help a lot with your bottom line is utilities, primarily heating and cooling. Of course, the cost of utilities vary greatly depending on where you live, both because of the climate and the cost of power. The latter varies greatly with the source of power. Several years ago the cost of natural gas became extremely high and people who used it were wishing they could heat with electricity. Now, natural gas prices are down, and the reverse is true. But apart from the type of energy you use for heating and cooling, the only real way to control its usage, assuming your house is insulated properly, is to lower the thermostat in the winter and raise it in the summer. (And by lowering and raising, we do not mean moving it close to the floor in the winter and near the ceiling in the summer.) We know this can be difficult, especially for older people. We used to keep our house at about 70 deg in the winter, but as we aged, this became unacceptable. So, now we keep it at 73 deg. Right now we can afford that, but should prices rise, we may have to resort to using space heaters just in the part of the house we are currently in or bundling up more. We have always kept the house at 78 deg in the summer, but Randy has to supplement with fans to be comfortable as he is more warm natured than Kathy. Anyway, in your case, you just have to find a balance between comfort and your checking account.

Other big power users are stoves, ovens, and clothes dryers. So, if you can limit the usage of stoves and ovens for cooking, you can save money. But if you make the alternative to eat out, then you’ve just shifted a few dollars in savings on utilities to a lot of dollars of non-savings on food. One thing we do is to use a toaster oven for smaller items rather than heating up the big oven. If push comes to shove, the clothes dryer can be eliminated altogether by using the old fashioned method of drying: hanging on a clothes line in the back yard. This may not be feasible when the weather is bad, but we can remember as a child having clothes hanging on racks around the house when it was raining. And we can also remember having ice on our clothes when they were hung outside and the weather turned cold unexpectedly. The point is: use your best judgment about when to use certain types of energy. If your budget is tight, these are the types of decisions that must be made on a daily basis.

Little things you can do include: turning off lights and devices when not being used, letting sunlight into the house in the winter and blocking it in the summer, putting insulation on your hot water heater, using fluorescent bulbs rather than incandescent, taking fewer hot showers in the winter, and hand-washing dishes rather than using a dish washer. In general, just become more aware of how you are using energy around the house and cut where possible.

Another area for a large potential in savings is communications. Are you paying for a landline phone service? Cell phone service? TV service? Internet service? Pager service? There are so many communication services available, it can eat up a lot of money. When it’s all said and done, you could eliminate all these services and still live well. It wasn’t that long ago that many of these services didn’t even exist. We know that in our modern society these things all seem essential, but in reality they are simply just desirable. Even if you decide you don’t want to rid yourself of any of these conveniences, there are ways to lower your cost.

Consolidate. If you have landline phone service with one company, cell phone service with another, and Internet service with yet another, then you can most likely save quite a bit of money by consolidating these services with one company. We just recently rolled our landline phone, TV, and Internet service into a bundle with one company. We will save about $80 per month for the first year and about $40 per month from then on. If you really don’t want to change service, we have heard about other people talking to the companies they currently have service with and asking for a good customer discount. Many times they will give you the same price they offer to first time customers for a year. If asking doesn’t work, you can tell them you are planning to switch your service to another company unless they can give you a better price. Although we still like having a landline phone, we have a lot of friends and family that have dropped this and converted totally to cell service. This can save you money for sure, especially if you bundle the cell service with TV and Internet service.

Another great money drainer is transportation costs. The current high cost of gasoline is driving much of that. However, if you have a proclivity for new expensive cars, most of your problem may be high car payments. If you are on a tight budget, you have no business buying expensive cars. Go for the lower cost vehicles that get high gas mileage. If you can find a decent used one, then you can save even more.

Buying used is what Dave Ramsey recommends, but we personally like buying new vehicles and driving them until they break down and are too expensive to repair and maintain. However, we do invest in having our vehicles serviced regularly, believing that this will prolong the life of the vehicles and thus save us money over the long run. But that’s us. We have a relatively decent income and have been able to afford new cars when needed. However, our son owns a used car and it has served him well now for several years. If our income were lower and we were in need of a vehicle, we wouldn’t hesitate buying used. Also, if you have the skill and the time, you might want to do some of the servicing yourself to save money.

If you live a long distance from your job, you seriously need to think about carpooling to save money. We know this can be inconvenient, but if saving money is your goal, it will be well worth it. If you use public transportation, you might consider riding a bicycle or even walking, if possible and the weather permits.

Be creative. Record how you are spending your money and put together a plan on how to reduce that amount. You must begin to be totally honest with yourself about what is really needed and what is merely wanted. Thinking that something is needed rather than simply wanted leads many people to becoming impulse buyers. They’ll go to the store to pick up a few needed items and leave the store with three times as many wanted items as needed items. This is not good. But some people have a bad habit, or even a compulsion, to rationalize to themselves that a wanted thing is really a needed thing. Like, “I really need an iPad. It’s so much easier to play solitaire while riding down the road than using cards. And I can check my Email without having to get on my computer.” Come on now. That’s not a valid reason. Unless you need an iPad to do your job, then it remains a luxury item for those that want it and can afford it. If you don’t have the money, let the iPad remain at the store. Then have a long discussion with yourself. Conduct an intervention if you will. On YOURSELF. Tell yourself, “I don’t really need all this stuff, I just want it. So, get over it, self! Quit borrowing money to support my spending habits. I’ll be glad I did.” Once you have these ideas firmly planted inside your head, you will find that you really can leave those wanted items on the store shelf. If you find that you cannot, then you may need to seek professional help.

So, let’s stop here. We hope you take these suggestions to heart and that it helps you to live within the budget your income allows.