Another Reason Why Credit Cards Stink

Still want to use credit cards?

Do you really think it is worth it to spend more to get frequent flier miles that are limited more and more?  If so, then get ready for the terms to change whenever it is convenient for the issuer to make a buck.

Stay away from the plastic!

Fed Plans To Revise Credit Card Rules

Finally, some good news out of Washington! It looks like the rules on credit cards are going to be revised to make them more consumer friendly!

An exerpt:

The new rules would require companies to tell customers 45 days before terms of a credit card contract are changed, compared with 15 days now. And the rules would expand the list of changes requiring advance notice to include those involving penalty interest rates, which often range above 30 percent. Today, most consumers learn only after opening their monthly bills that they have been penalized with significantly higher interest rates because of paying late, going over their credit limits or falling behind with another lender.

Also:

Companies would also be required to spell out that low rates on balances transferred from another credit card apply only to that balance, not to new purchases. And it would require companies to apply payments to the debt carrying the highest interest rate. Many companies now apply payments to the least costly debt, thus forcing customers to pay more in interest.

These measures will definitely help people in getting out of debt. Still, it is shocking that consumers can be treated so badly by an industry without any public scorn. These changes still don’t make credit cards a good method of payment, but they at least start to even the playing field.

Nothing Wrong With Student Loans (Part 2)

Here are some updates to my previous article …

1. Robert Reich wrote about the real problem with student loans, that the average consumer is being ripped off by finance companies and underserved by the government.
2. The Washington Post exposes how student loan companies abuse your privacy in order to try and make a buck.

Now, do you still think that these people are the ones we want our children to do business with starting at 18?

Nothing Wrong With Student Loans?

The prevailing logic in our culture is that student loans are a good thing, or at least a necessary evil that is required in order to get an education. In reality they sap both our individual and collective futures. We take the people with the most energy, the most enthusiasm, and the most potential and saddle them with long-term financial commitments at exactly the wrong time.

Student loans are a student loans are a multi-billion dollar industry , in some ways a shady one. With hundreds of millions of dollars going through major universities there is a significant conflict of interest, establishing a relationship that will enrich an institution at the expense of its students. The New York Times published an article detailing the tangled relationship between Citibank and several universities. While no wrongdoing was admitted on anyones part, both parties agreed to pay restitution and to abide to a new code of conduct for student loan processing. That sure sounds like wrongdoing to me!

MasterCard Makes Identity Theft Easier!

I just saw a commercial that really struck a nerve. It is from MasterCard (I believe) and is touting the new proximity cards that don’t require a signature.

The ad is a story about a sick zookeeper who has his animals steal his card, then go to the store and get him chicken soup, a blanket, and other soothing things. Then the animals swipe the card and are able to buy the items without a signature or a second look from the merchant.

I thought this was an excellent commercial, at least from my point of view, as it showed how insecure these tools really are. It tells the world, any mammal can steal your identity!

Week 9 Homework

This lesson is titled ‘Buyer Beware’, and discussed debt marketing and the use of sales techniques and gimmicks to influence your buying behavior.

The homework for this week is:

1. Read Chapter 5 in Financial Peace Revisited.
2. Fill out the 3rd column of the Financial Snapshot form. A copy came in your materials, or you can do it at the FPU Member Resource Center. If you do it online, you are entered in a drawing to win an iPod.

Also , this week we would like to check our progress as a group. Take a moment to look at the questions and send your answer either via email or in person at our next class.

Lastly, we have some additional reading on this subject, if you are interested.

Buying Used

I was browsing through MSN Money and found a great article titled “10 Things You Should Never Buy New“. There is some great practical advice here, definitely worth a read. Our culture is so focused on consumption and the marketing messages are so strong that it seems positively radical to settle for something other than the latest and greatest new thing. Buying used can be a fantastic way to stretch your resources and truly have your cake and eat it too.

An example … this weekend I took my 3 and 6 year olds shopping and we got bought a soccer ball, a toy helicopter, a model, a board game, and some action figures. Plus, we stopped at the restaurant of their choice and got lunch. Sound expensive? It certainly could have been! However, on Saturday our church had a very large garage sale, and everything they bought was used. The grand total of their purchases was $5, and the soccer ball only cost a nickel. Lunch consisted of a hot dog, chips, and a soda from the card table out front, which cost $2 each, for a total of $9. Now, this was money that they earned (through commissions, not allowance) and they were thrilled with their purchases. Doing this at a toy store and a chain restaurant could have easily cost us a hundred dollars or more.

At the same time, this week the entire family is going to go to see The Lion King on the stage, a big deal for us. The tickets are very expensive, several hundred dollars for all of us. Normally we could not have afforded both a shopping spree and a night on the town. However, we were able to do both by buying used.

Give it a try!

Is it a Want or a Need?

As our family started down the path to financial peace, one of the most useful tools that we had was to classify the things in our life as a want or a need . If everyone could agree it was a need, then we made room for it in the budget, regardless of what we needed to do to get there. Otherwise, it was a want, we prioritized it and tried to fit it in as best we can, but only if it made sense.

If your monthly income covers all of your needs then you are doing well. Otherwise, you are going to have to make some decisions about increasing income or temporarily going without.

You would be surprised how often we disagreed about what was a want and what was a need, and how just considering our lives in this way changed the way we approached money. It is pretty easy to decieve yourself on exactly what is a luxury and what isn’t. Here is a simple test that we came up with …

The Want Test

Think about one of your ‘need’. Imagine your life without it for 90 days, or with a substitute that is significantly less expensive.

• Would I be considerably less safe or comfortable without it?
• Would it signifcantly disrupt daily life for me or my family if I didn’t have it?
• Would it cost me a lot cash up front to get rid of it?
• Would it violate the spirit or the letter of the law if I lost it?
• If I was counseling to someone else in my situation, would I recommend that they keep it?

If you can honestly answer ‘no’ to all of these questions then it is most likely a want in need’s clothing. Unless you have completed the baby steps then I would recommend that you reduce or eliminate this cost as soon as possible.

Also, I would take some time to consider if over the long term if this expense is more important then retirement, college savings, or investments. If your first answer wasn’t an immediate, unqualitied, unflinching ‘yes’, then you should really reprioritize this item in your life. I promise you, it will be worth it!

Million Dollar Habits

Michelle Singletary (from the Washingon Post) has some very wise advice having to do with the the true cost of smoking. She looks at the habit from a couple of different perspectives:

• The potential cost of getting sick.
• The daily or weekly cost of tobacco.
• The cost of spending a few dollars a week instead of saving for retirement.

Michelle is counselling Carl, a 38 year old man with a $100/month habit. She figures (with conservative estimates) that channeling this money into a 401K would translate to $100,000 at age 65. When confronted with the numbers, her client has decided to quit smoking and instead focus on saving for his families future. Good for him! I am sure that armed with knowledge and willpower he can improve his life.

Million Dollar Habits

Carl isn’t really different from the rest of us, we all have our million dollar habits. It could be Starbucks, McDonalds, Marlboros, or even iTunes, but a few dollars spent here and there can be the difference between steak and Alpo at retirement.

Michelle gives us a great example of the power of compound interest, and how spending with a purpose can change our lives. Remember, if someone saves $100/month between ages 25 and 65 it will be worth $1,000,000. That is $3/day!

Now, can you change your life like Carl?

Opting Out of Debt Marketing

Debt is the most heavily marketed product in the US today, to the detriment of American consumers. It is difficult to avoid the huge number of sales pitches that are seen and heard on TV, Radio, Internet, and through sponsorship of the arts and sporting events.

However, there are some things that you can do to keep these ‘offers’ away from you …

Opting Out

Opting out is like adding your name to the ‘do not call‘ list for telemarketing, except for credit card offers. It won’t stop everything coming your way, but it will slow the flood.

The Opt-Out Prescreen website will allow you to remove your name(s) from the lists provided by the major credit agencies. These lists are used mostly for direct marketing from credit cards and insurance companies and are the source of a lot of the dead trees that arrive in your mailbox.
There are a couple of things to know …

1. When processing your request online, the opt-out is for 5 years.
2. You can opt-out permanently through paper mail.
3. You will need to provide your Social Security Number.

BTW, I heard about this through 50 Fun Facts About Credit Cards.

Stopping Direct Marketing

Also, you can remove your name from lists used by the Direct Marketing Association here. These lists are also used to generate offers as well, although they are used less for financial services.

A couple things to understand here …

1. There is a $1 fee to use this service (online or through US Mail) which I don’t agree with.
2. Irresponsible or unethical marketers simply won’t use this mail.

Let me know if there is anything to add ….