Financial Tips | Debt Management

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10/31/07

The Truth about Secured Credit Cards

A secured credit card is a credit card that is that is tied to a monetary fund of some kind (whether it is a deposit, bank account, or some other account). The monetary fund can be accessed and used by the credit card company in the event that the credit card holder defaults on a payment. These kinds of credit cards usually have an obscenely high interest rate and an inordinate amount of fees. Basically, they are terrible credit cards that target people with bad credit.

First and foremost, never get a secured credit card unless you absolutely have no other choice at all. In fact, even if you have no other choice, you should again analyze whether you should get a secured credit card. As I stated, secured credit cards have terrible interest rate and a vast amount of fees (including an annual fee, program activation fee, deposit fee, etc), therefore, they are bad credit cards to own. However, they are attractive options for people with bad credit because the requirements to get a secured credit card are very easy to meet.

As an alternative to getting a secured credit card, you should look at non-major credit cards. These types of credit cards include credit cards from various retail stores, department stores, and even gasoline cards. These cards usually have a high interest rate, however, the usually have no fees attached to them as secured credit cards do. Additionally, these “non-major” credit cards are unsecured, therefore, you do not have to put up a big deposit or tie the credit card to a bank account. It is easy to qualify for non-major credit cards, and thus, they provide an attractive alternative to secured credit cards.

Secured credit cards can help restore your bad credit, however, they come with a heavy cost. It might actually be cheaper to dispute negative information on your credit report. If some of the negative information gets removed, your credit score will increase, and therefore, you will have a better chance to qualify for an unsecured credit card.

The point is, if you have a choice, do not get a secured credit card. If you do not have a choice, make sure that you seriously consider whether or not obtaining a secured credit card is worth the potential credit score benefit.

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10/30/07

Credit Card Safety: What to do if Your “Bank” Calls

A very common technique utilized by an identity thief is to call you pretending to be an employee of your bank. These con artists usually make up a story about the bank losing your information and that he/she needs you to verify your bank account by telling him/her your account number, full name, social security number, and other personal information. The unsuspecting victim complies with the request hoping to solve any problems the bank is having. Unfortunately, that person is about to become another statistic in the growing number of identity theft cases.

Your bank, or any legitimate bank for that matter, will never call you and ask for your personal information. Think about it logically; if they had your phone number and name and knew you were a bank customer, why would they need your personal information? Do not fear hanging up on these criminals!

Many people fear that it really is their bank calling and that if they hang up on their bank, something bad will happen. Listen, nothing is going to happen if you hang up on your bank. It is not like you are going to get a letter the next day telling you your account has been closed due to your telephone rudeness. The point is, do not be fooled by these con artists.

Always remember (absent being inside the bank opening a new account), a bank will never ask you for your personal information! It is that simple. If you truly feel that it is your bank calling and that there really is a problem with your account, get the caller’s name and call station location. That same day (or the next day if the bank is already closed) go down to your local branch and tell the teller the situation. If the teller checks your account and everything is fine, then you know that you just prevented an identity thief from claiming you as his/her next victim.

Always look for subtle signs that an identity thief is trying to steal your identity. For example, a call after regular business hours; a “private number” showing up on your caller id; or the caller not be able to tell you what is wrong with your account are all signs of an identity thief attempting to steal your identity. Like I stated above, you would much rather be safe than sorry in these kinds of situations, therefore, error on the side of caution and never give out your personal information over the phone or through the mail.

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Credit Card Safety: Should Sign Your Card?

When you first get a credit card, there is a signature strip along the back of the card. Most of the time, the credit card company from which you received your card will instruct you to sign your card immediately. I do not really believe that signing the back of a credit card adds any extra security.

First of all, unless you use a certain kind of pen, your signature usually rubs off within a relatively short amount of time. Therefore, you have to keep tracing over your own signature so that the signature strip does not look like a jumbled mess.

Second, by signing the back of the card, you are giving would-be identity thieves a sample of your signature. Most retailers only briefly look at your signature, if at all. If the signatures look even remotely similar, no questions are asked. Therefore, I feel that by signing the signature line, you are unintentionally helping an identity thief steal your identity.

Third, as briefly stated above, most retail employees do not even look at your signature line. However, many do ask for you id. Therefore, signing the back of your credit card is usually a waste of time.

Instead of signing your name to the back of your credit card, you should print the words “SEE ID” in all capital letters. If the retail employee happens to look at the back of your credit card to match signatures, they will be instructed to ask for your id and match the signature on your government issued identification. This is helpful because now the employee can check your information against the credit card and can match your identification. Additionally, by placing those words on the back of a credit card, you are making it harder for an identity thief to steal your identity. Printing the words “SEE ID” on the back of your credit will not stop all attempts of identity theft. However, it will make it harder for the identity thief and will therefore, hopefully act as a deterrent. That is all you can really ask for in this day and age.

If you want to sign the back of your credit card, do what you feel will protect you against identity theft, however, as I stated above, I believe that signatures on the back of a credit card are ineffective and, at worst, help an identity thief accomplish his/her goal.

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10/29/07

Should the Rules on Applying for Credit Cards be Tighter?

This is a question of much debate among people of all kinds of financial and educational levels. The proponents of such a measure believe that “tightening” the requirements to apply for and obtain a credit card will help protect people against irresponsible credit card use. These people think that credit is evil and that only a select few, if any, should possess it.

The opposition to such a measure believes that credit itself is not evil and that financial education is the means by which to prevent credit misuse. These people also believe that restricting the means to obtain credit will have an overall negative economic effect.

I agree with the latter. Restricting the means to obtain credit effectively prevents poor and middle class people from obtaining credit. One cannot restrict the obtainment of credit based upon credit score because one cannot have a credit score until one obtains credit. Additionally, one cannot restrict the obtainment of credit based upon monthly or yearly income because, as stated above, this effectively prevents the poor and middle class from having credit.

The truth is, I have yet to hear one good reason as to why credit requirements should be “tightened.” Some people point to the current real estate market and credit crunch as reasons why credit card obtainment should be restricted. This is a very unreasonable way to think. Basically, these people have concluded, “it is bad, therefore, is should be taken away.” The first flaw in this conclusion is that credit is not bad; credit is a powerful financial tool that can help you achieve monetary success.

The second flaw in the conclusion is the remedy (that credit should be taken away). If this is the case, how are people supposed to purchase a home, a car, or pay for college, to name a few. The people that propose such a remedy do not consider all of the good things that credit can provide (most notable a place to live, a car to drive, and an education).

The point is, credit card requirements should not be “tightened.” In my opinion, the answer is to better educate people as to the dangers of credit misuse and as to the advantages that credit can provide if proper credit use is practiced.

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Rewards Cards?

Rewards programs are supplements to credit cards and should not be the primary reason as to why you get the card. In my opinion, the best reason to get a card is a low interest rate (and of course no annual fee, because there is absolutely no reason to have a card with an annual fee).

Look carefully at rewards card advertising. Many commercials state that you can get cash back from using your credit card. The commercials go on to show a person stating that they got $100, $200, or more back due to his/her “cash back” rewards card. These commercials are not telling you the whole story. Do not get me wrong, it is very possible get this amount back, but you have to charge upwards of $10,000 to get it. That is not a typo, $10,000 to get $100. That is 1%! Is it really worth it to apply for a card that offers 1% cash back, but has a higher interest rate than other cards? I do not think so either.

Also, make sure that the rewards card you want actually offers rewards that you want. Almost all credit card companies offer some kind of shopping mall in which you can redeem your rewards points. What if you do not like or need any of the merchandise in these credit card malls? What you end up with is a bunch of reward points that you will never use or, if you redeem your points, you will end up with a piece of merchandise that you do not want.

The point is, do not be awe struck by a credit card solely because it offers rewards. Get a credit card that has no annual fee and has a low, fixed interest rate. If you find a couple of credit cards that meet these criteria, then you can choose based on rewards. Just make sure you look into the rewards first so that you are not stuck with a 1% cash back rewards card or a point redemption mall full of unusable and unwanted merchandise.

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10/28/07

A Basic Guide to Credit

A credit guide can be summed up in three steps: (1) establish it; (2) maintain it; and (3) use it responsibly. There is nothing easier. This is the shortest way to credit success and also happens to be one of the best plans you can follow.

(1) Establish It

A person that tells you to never get a credit card is giving you bad advice. It is that simple. Despite what some people may think about credit card companies or credit in general, the fact is that we live in a time when a credit score is a powerful financial asset. Becoming monetarily successful is difficult enough without cutting off a significant financial asset. Establish credit by getting a low interest rate credit card.

(2) Maintain It

Many people have no idea what is in their credit report. Always do monthly checks of your credit reports in order to prevent identity theft. Additionally, you should check your credit reports monthly in order to make sure that no inaccurate information exists. Inaccurate information will affect your credit score.

(3) Use It Responsibly

This is the most important step. Credit is a privilege, not a right. Do not misuse your credit and you will have nothing to worry about. Do not charge something unless you have the money to pay it off; a credit card is not an alternative to lack of cash! Pay more the minimum balance in order to minimize interest payments. If you use your credit responsibly, you can always negotiate with your credit card company for a lower interest rate and a higher credit limit.

Following these three easy steps is the most basic and most successful guide to credit. In sports, the best teams are the ones that do the simple things well; the same is true in credit.

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10/26/07

Ways to Deal with Junk Mail Credit Card Offers

You will notice, if you have not already, that once your credit score gets high enough, you will receive nonstop credit card offers from all over the place. Some of the cards offer laughably high interest rates. I ask, if my credit score is good, why oh why would I accept a card with an interest rate of 15% or higher?

If you already have all the credit cards that you want, simply dispose of these offers. However, in order to limit the possibility of identity theft, you should shred these offers in a cross cut paper shredder. If you do not have such a machine, you should rip up, or cut up with scissors, all of the offers you do not want and dispose of the pieces into separate trash cans throughout your home. Chances are, you empty the various trashcans in your house at different times. Additionally, you probably have two trash pickup days a week in your neighborhood. Therefore, some pieces of an offer will be in one trash, while other pieces of the same offer will be in another trash.

Of course there is absolutely no way to entirely prevent identity theft, but you will be making near impossible for an identity thief to achieve his/her purpose by disposing of these credit card offers in this way.

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Common Sense Credit

The term “common sense” is a misnomer. Some people believe that it is common sense to get only one credit card. Other people believe that credit cards are evil and, therefore, it is common sense to never own a credit card. Still, others believe that credit cards are a necessity in today’s financial times and, therefore, it is common sense to own more than one credit card. Who is right? The truth is that they could all be right, and they could all be wrong. Everybody has a different situation, therefore, “common sense” for their situation will dictate.

My “common sense” tells me that most of us will buy a home and/or a car in our lives. Therefore, unless you are paying cash, you will need to have established some kind of a credit score in order to qualify for the loan that is necessary to pay for these things. You cannot establish credit unless you open a credit account. The most common type of credit account is a credit card. It is true that you can get loans from your bank, but without an established credit report, you will have to secure these loans with some sort of collateral.

If you do own a credit card or credit cards, there is “common sense” advice for you to follow. First, use your credit responsibly. People do not get into financial trouble overnight. It is a gradual process that people refuse to acknowledge before it is too late. Constantly monitor your spending habits and financial statements so that you know when to stop spending or when your finances will allow you a little more leg room.

Second, pay your bills on time. You would be surprised how many people, who have the money to pay the bill, just plain forget to pay. As a result, their credit score suffers. If you are that forgetful or lazy, as the case may be, set up an automatic bill pay through your bank’s internet site. If your bank does not have such a feature, there are many companies that can set up an automatic bill pay for you.

Last, get updated, monthly credit reports from the credit reporting bureaus. By doing this, you will be able to see if any incorrect information is reporting on your credit report. By checking monthly, you will be able to dispute inaccuracies as soon as possible and, thus, minimize your damage. It will cost you about $12-15 every month to get all of your reports, however, think of it as financial insurance against inaccuracies and identity theft.

Do these “common sense” things and you will be able to obtain and maintain a high credit score and sound financial health.

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10/25/07

What are the Pros and Cons of a High Credit Limit?

A high credit limit can be a great thing. First of all, it gives you more flexibility for purchases. Second, it gives you a lot of spending power. Last, it can increase you credit score because you debt to available credit ratio will be smaller. However, there are also some negatives that come along with a high credit limit.

As stated above, you will get more flexibility with your purchases, and you will have a lot of spending power with a high credit limit. While good in some respects, a high limit can get you into to trouble if you abuse it. If you have a high credit limit, this means that you have practiced responsible debt management. However, like most things in life, in you fall out of practice, you can get into trouble. Here, just because you have more spending power does not mean that you should utilize it unless you are making a planned purchase for a particular purpose. Do not make a big purchase just because you can. Doing this can turn the “pro” of having a high credit limit into a very big “con.”

Increasing your debt to available credit ratio can have a positive effect on your credit score. The interesting thing is that it can also have a negative effect on your credit score. It is all about timing. If you dramatically increase your debt to available credit ratio in a short amount of time, a credit reporting bureau may see this as you stockpiling credit in order to make a big purchase. This makes credit reporting bureaus nervous because they believe that you may not be able to pay off the big purchase (if made). Therefore, if you are going to increase your debt to available credit ratio, do it over a sizeable time frame and increase your credit limit in small monetary increments.

Both pros and cons exist with a high credit limit, but if you practice responsible debt management and increase your debt to available credit ratio over a sizeable amount of time, your high credit limit can be a powerful asset.

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The Effects of Debt on Your Emotional Well Being

I have seen debt cause more stress than most things or problems that people encounter throughout their lives. Debt is an interesting beast. People become so consumed by debt that it is all they think about. Like being told you have a terminal disease and are about to die, people lose sleep, lose their appetite, and let their personal life (including a marriage, children, significant other, and/or friends) suffer because of the constant worry of making next months payments. People actually risk their health with this amount of built up stress.

The good news is, there are ways out of debt. The better news is, once you are out of debt, there are ways to control your debt so that you never have to experience those feelings of worry again (at least not because of debt).

Depending on your situation, cutting costs and balance transfers, consolidation, and bankruptcy all are options to consider. Obviously, some of these options will negatively affect your credit score, but that can be rebuilt. Choosing between your health and your credit score should not be a difficult decision. The point is, you have to take action to change your situation. Stressing out every month at the expense of your health and your personal life is the worst thing you can do. Change this circumstance by doing what is necessary to get out of debt.

Getting out of debt is the primary concern. When you start to notice the decrease in you debt, you will start to feel better. You will notice a relaxing feeling like everything is going to be okay. It is a great feeling, therefore, to maintain this feeling (as far as debt is concerned), you need to manage your debt.

The bottom line is, like always, use credit responsibly. All of these problems could have been avoided had you stepped back and assessed your situation during the debt accumulation process. Control your debt and you will be able to take your life back.

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10/24/07

How to Negotiate Credit Card Interest Rates

Only two circumstances exist in which you can successfully negotiate to reduce your credit card interest rate: (1) when you account is in good standing; and (2) when your account is so badly defaulted that your only way out is bankruptcy. Hopefully your situation is the former and not the latter.

First, if your account is in good standing, you will have a better bargaining chip than you would have if your account is in severe default. In order for you to strengthen your bargaining position, make sure you have an offer from another credit card company. You do not have to apply for the other card, you only need to be able to qualify for the card and the card must have a lower interest rate than your current card. You can get this other credit card offer very easily. You can find this other offer by looking on-line, checking your “junk” mail, or going to your local bank and grabbing an application.

If your account is in good standing, give your credit card company a call. Do not be secretive or discreet about your reason for calling. Tell the card representative that you are calling because another company has offered you a better interest rate. Continue by telling the representative that you are happy with their card and you want to know if they can match the lower interest offer. At first, the representative may tell you that it is not possible or that he/she does not have the authority to authorize such a request. At this point, ask to talk to a supervisor/manager.

Tell the supervisor/manager the same line you told the representative. If the supervisor/manager seems reluctant, express you disappointment in a stern yet polite way. Yelling or getting abusive will not help your situation. It may take a few minutes but you should be able to work something out.

The problem that exists is that you do not want to close your account. Closing your account could negatively affect your credit score. The credit card company knows this, therefore, they will be reluctant at first. However, customer retention is important for credit card companies, therefore, they will work with you.

Be polite yet stern and present the situation intelligently. Make sure you have another offer for which you qualify. Doing all of these things will increase your bargaining strength and will help you succeed in your purpose.

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The Dirty Little Secrets of Credit Cards

There are many “dirty little secrets” that credit card companies hide in the fine print of your credit card agreement. Some of these secrets, although specifically stated in you credit card agreement and within the power of your credit card company to enact, are rarely used by the credit card company.

However, there are two secrets that a credit card company will not tell you. You have to scour your credit card agreement to even find mention of these two provisions to which you agreed. These two provisions are devious and are created solely to squeeze as much money out of you as possible.

(1) CASH ADVANCE INTEREST RATES

If you look at your credit card statement, you will see a section that shows you your interest rate (if it is too high, call the credit card company and get it reduced). There are usually two interest rates shown: (1) your purchases interest rate; and (2) your cash advance interest rate. I can almost guarantee that the cash advance interest rate will be several points higher than your purchases interest rate. For example, you regular purchases interest rate may be 12.95% while you cash advance interest rate may be 19.95%. Why the big difference? This difference exists because your monthly payments will NOT count towards your cash advance balance until you fully pay off your regular purchases balance!

Basically, while you are paying down your lower interest balance, you are get nailed by an interest rate that is 7% higher (in this example) then your normal rate. I hope you do not owe a lot of money on the card on which you took a cash advance or that the cash advance you took was very small.

(2) UNIVERSAL DEFAULT

Universal default is a credit practice where you will be in default on one card because you are in default on another unrelated credit account. For example, let us pretend you have two completely unrelated credit cards; Credit Card A and Credit Card B. Further, let us pretend that Credit Card B has a universal default provision in the credit card agreement. Now, pretend that you are late or default on a payment to Credit Card A. The credit card company that gave you Credit Card B can now put Credit Card B into default even if you have never missed nor been late on a payment to Credit Card B!

The effect of this is that it is possible for you to get nailed by a credit default fee for Credit Card B (even though you have never missed nor been late on a payment to Credit Card B) and that another negative impact will occur on your credit report.

Watch out for these dirty, credit card secrets that are buried in your credit card agreement. They can really sting you if you do not take notice of their existence and effect.

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10/23/07

Comparing Credit Cards and Debit Cards

Debit cards are cards that draw against your checking account. Basically, when you make a purchase with your debit card, the purchase price is deducted from a pool of money that you already have on deposit with your bank. If you spend more than you have on deposit, you are likely to pay overdraft fees and whatever other fees your bank is allowed to charge based upon your debit card agreement.

Some of you may have used your debit card as a credit card at the gas station and/or grocery store. In other words, you may have pushed the “credit” button on the payment machines available at these locations. You did not have to enter your pin and you had to sign a receipt or enter your zip code. Even though the transaction was executed and approved like a typical credit transaction, your debit card purchase is not reflected on your credit report and the purchase prices is debited from your checking account within a business day or two. Therefore, although transacted like a credit transaction, it is not in fact a credit transaction when you use your debit card. You do not get any credit report benefits and such transactions and subsequent debiting on your checking account does not affect your credit score.

Credit cards, on the other hand, are not secured by a checking account (there are some credit cards that are secured by a deposit and are known as “secured” credit cards; however, these cards have the affect of a credit card transaction although they work very similarly to a debit card). Most unsecured credit cards have a credit limit. This limit is the most amount of money you can “borrow” to make purchases. Absent a cash advance, you do not actually get the cash in hand. However, you do get make purchases against this credit limit.

Your charges are accumulated during a set billing period and (unlike a debit card where the entire purchase price is taken out of your checking account), only a portion of that amount becomes due and payable at the end of that billing period. If you do not pay back all the money you “borrowed” to make your purchases, the balance is charged an interest rate. This interest charge increases your outstanding balance. Timely and untimely payments are recorded on your credit report and affect your credit score accordingly.

The differences are many. However, if you know how to use these cards effectively, you will be able to build a great credit score without getting into any debt management problems.

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10/22/07

Is a “Free” Credit Report Really Free?

The answer to this question is, YES. A free credit report really is free, you just have to know where to get it. Federal law requires that the credit reporting bureaus provide you with one free credit report per year. Therefore, by law, you can get your credit report for free.

The best place to exercise this right is by going to www.annualcreditreport.com. This website allows you free access to all three of your credit reports (by all three, I mean your credit reports from Experian, Equifax, and TransUnion) once per year. The process is very simple and very safe. In order for you to access your credit reports, you have to answer security questions based on certain credit and/or revolving accounts that you own.

Note that federal law only requires that these companies give you a copy of your credit report, not your credit scores. Therefore, if you want your credit scores, you are going to have to pay for them.

When you obtain your credit report, make sure that you print a copy for your records. Even if your credit report is 20+ pages, it is worth the printer ink to have a copy of your credit report. Look at your credit report and make sure that no inaccuracies exist. If you find an inaccuracy, you need to dispute it so that your credit score is not negatively affected.

Get you free credit report, check your accounts, and maintain your credit.

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10/19/07

How Many Credit Cards is Too Many?

I am amazed when I read literature from people that advocate that credit cards are evil and that a person should never own one. The reason that these people give is that the credit card owner will incur a lot of debt quickly and will be trapped by these devices of evil. These people automatically assume that you are going to irresponsibly use credit. That is an unfair assumption!

In order to support there arguments, these credit bashing people back up their arguments by quoting statistics. Mark Twain once said, “There are three kinds of lies: lies, damned lies, and statistics!” The point Twain is trying to make is that people become slaves to statistics. For example, a statistic exists that states that 50% of first marriages end in divorce. Does this mean that you should not get married because it is doomed to failure? Of course not! The same holds true with credit cards. Just because there are people that struggle with credit card debt does not mean that you are going to struggle with it. Additionally, in this day and age, credit is a vital asset. Unless you plan on paying cash for your home and car(s), you are going to have to have credit in order to be approved for a loan.

If you are a responsible credit card user, the number of cards you have is irrelevant. However, for purposes of providing a finite number to the question presented above, I think 3 is a good number, but 4 at the most. My reasons are simple:

First, there are four major credit cards: Visa, MasterCard, American Express, and Discover. I am not a big fan of the Discover card, therefore, having one card from each Visa, MasterCard, and American Express would give you a total of 3 cards. However, if you like Discover, then that would be your fourth card.

Second, when applying for a home loan, a bank looks to how many credit accounts you have open for a specific term. Most banks require that you have at least three credit accounts open and current that are at least 3 years old. Therefore, owning only 1 credit card will not cut the mustard.

Third, different cards give different benefits. Therefore, if your Visa has a low interest rate and you are making a larger purchase that will take a couple of months to pay off, use the Visa so you do not get nailed by the interest rate (of course all of your cards should have a low rate to begin with). However, if your American Express offers rewards points for airlines miles or other merchandise and your purchase is relatively small, use the American Express. The point is, tailor your credit card use to your purchases and the benefit you seek.

Last, most wallets only have room for four credits cards, therefore, you should only have four credit cards! I am just kidding about this last reason.

When I stated above that the number of cards you own is irrelevant if you are responsible, I meant that it is irrelevant in regard to debt management problems. There is a one other reason why you should not have more than 3 to 4 cards. As you maintain these cards, your credit limit will increase. Getting more cards adds to your total credit limit. If you have ten cards and a total credit limit of $100,000 (ten cards at $10,000 each), but you only make $50,000 a year, a home lender may view this as a risk. Think about it; you could borrow twice your annual salary! A home lender will be nervous that if you utilize that credit limit and ended up owing more than you can afford, you will default on the home loan. Additionally, depending on how and when you opened these accounts, you credit score could be negatively affected.

Here is the bottom line, use credit responsibly.

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10/18/07

What to Do If You Have Lost Your Credit Card

Most of us carry our credit cards in our wallets or purses. What happens if the wallet or purse is lost or stolen?

First, as soon as you notice that your credit card has been lost or stolen, immediately call the bank that issued the card and report that the card has been lost or stolen (based on your situation). The effect is that the bank will put a hold on your card to prevent any subsequent purchases. Additionally, if your card has been used since you noticed its disappearance, most credit card companies will reimburse you for these fraudulent charges.

Second, find out the procedure for getting a new card from the bank. It may require some paperwork, but it is worth it to prevent fraudulent charges and to obtain a new card. If your card is stolen, you may have to file a police report in order for the bank to proceed with your request.

Third, if you use that card to auto-pay certain bills, you need to call those companies and notify them that your card has been stolen or lost and that you need to switch the account to another card (at least until you get the new card).

At this point there is not much else that you can do. I know it is frustrating and that you feel violated, however, as long as you notify your credit card company, initiate the process to get a new card, and notify any companies that auto-bill that card, you have solved the problem. One of the main things you should inquire about before you get a credit card is the procedure for disputing fraudulent charges. Make sure that you are not liable for these charges and that the dispute procedure is easy. Other than that, there is not much else you can do.

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10/17/07

How to Get a Lower Interest Rate on Your Credit Card

A lower interest rate is a great asset to have. The most noticeable benefit is that you can save a lot of money on interest charges. However, you can also use that credit account as a bargaining chip with other credit companies. You can use the time tested “can you beat this offer” routine. Thus, the question is, how do you get a low interest card?

First and foremost, if your credit score and credit report qualify, you can apply for a low interest card. This is the easiest and most obvious way to obtain a low interest credit card. However, this method is only the easiest and most obvious if you have the credit score and credit report to allow you to get such a card. If you do not have the best credit score or report, there are some tactics you could use to lower an interest rate.

If you already have a credit card and your record with that card is flawless, you can call the credit company and request a lower interest rate. You have to be firm and you have to make a credible request. As a general rule, credit card companies want to collect at least between 8-10% interest on credit balances. Of course credit companies love when you pay more, thus, they never tell you that you can get a lower interest rate than the one originally given.

Anyway, back to the credible request. If your interest rate is 18%, asking for a 6% interest rate is just a waste of time. Even if your credit was flawless, no credit card company would drop your interest rate 12 points at one time. It is more realistic that your rate would end up somewhere between 13-15% based upon your relationship and history with the credit company and on your credit score and credit report.

The bottom line is, your options are limited unless you have a good credit score and credit report. Therefore, if your score and report are less than par, you are going to have to deal with your current credit account companies in order to get a lower interest rate. The worst thing that can happen is that your credit card company will not lower your interest rate. The best thing that can happen is that the company will lower your interest rate, therefore, why not give it a try? Just remember to keep it credible, but stay firm with your request and bring up your great history with the company from which you are trying to get a lower rate if the company seems reluctant.


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10/16/07

How to Profit by Using Credit Cards to Pay Bills

You pay your bills month after month. Your either write a check and mail the payment, or (if your are technologically savvy) you make the payment online using your bank’s bill pay service. Paying bills with cash can actually cost you more money than just the cost of the bills. As you pay bills, your checking account balance is gradually reduced. Therefore, if you have an interest bearing account, you are losing the interest on those dollars. However, there is a solution that could not only take away this disadvantage, but could possibly reward you in three ways. The solution is to pay your bills with your credit card.

I know what you are thinking, “Why would I pay with a credit card? A credit card must also be paid, so what is the point?” The point is that you could be rewarded for paying things with your credit card. First, if you have a rewards card, you will earn points for the amount you charge. Rewards points are redeemable for cash, airline travel, and other merchandise.

Second, by the continuous use and timely payment of your credit card, you will be building a strong credit report and thus, building a strong credit score. A good credit score will save you tons of money in interest and will help you get approved for loans.

Last, you do not lose as much interest from your interest bearing account (assuming you have one) because the money stays in your account longer. Additionally, when you do pay your credit card, only that one sum comes out at that one time. Therefore, you do not gradually decrease your checking account. Additionally, paying the bills in a lump payment (by using your credit card and then paying off your credit card) will help you get an accurate number on your monthly expenses.

It is important to note that in order for you to realize these benefits, you must pay off your credit card balance in full every month. If you do not pay off the bill in full, you will incur interest and the whole reason to use the credit cards (to get the interest free benefits of reward points, a strong credit report and credit score, and more interest from your interest bearing account) will be frustrated.

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Cash or Credit - Which Should You Use?

As a general rule, you should never buy something with a credit card unless you have the money to pay off the charge. Many people like to buy things on credit (even though they cannot normally afford the item) with the intention that they will pay off the purchase in the long term. This is a mistake because you will end up paying more in interest than you would have had you paid cash.

Another way to use a credit card is as a rewards point builder. First and most obviously, you must have a rewards credit card for this to work. The process is very easy from here. All you do is use your credit card to make specific purchases throughout the billing period. When your bill becomes due, you pay off the entire amount. Obviously, you have to have the money available to pay off the entire monthly amount. Additionally, you must keep very accurate records of your charges in order to ensure that you have enough money on hand to pay off the monthly balance in full. The whole purpose is to build reward points without paying interest on your charges. Keeping accurate records and charging only specific purchases will help you accomplish this goal.

Most people are surprised when they get their monthly bill because they do not realize how much they have spent on food and gasoline. These charges can add up fast. If you are responsible with your credit and keep accurate records, this should not be a problem. How do you know if you are a responsible credit user? Let me put it this way; if you have to ponder whether or not you are a responsible credit user, chances are that you are not. This does not mean that you cannot utilize the rewards points strategy; all this means is that you probably should not purchase food or gas on credit because there is a chance you will charge more than you can afford. If this is the case, you should use cash (or a debit card) for food and gasoline purchases.

Basically, everything comes down to responsibility. If you are responsible, you could use cash and credit interchangeably without worry of getting in over your head. However, responsible or not, always keep accurate records of your credit so that you do not lose track of your spending.

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10/15/07

What You Should Know About Credit Card Costs

Yes, credit cards can have costs. There are two main costs associated with credit cards: (1) interest rates; and (2) annual fees. However, even though these are the two monetary costs, there exist many intangible costs (such as customer service).

First, the monetary costs. Why oh why would you pay just to own a credit card? Annual fees are just nuts! Unless you have bad or no credit, have absolutely no other choice, and desperately need credit, then it may be... NO, scratch that sentence – there is absolutely no reason to pay an annual fee on a credit card. There are far too many credit choices from which to choose. Do not get a card with an annual fee, it is that simple.

In addition to annual fees, credit card companies charge other fees of which you may not be aware. If you are ever late on a payment, there is usually a fee. If you go over your credit limit, there is usually a fee. Know what these fees are and factor them into your decision as to whether to obtain that particular card.

How about interest rates? These can be pretty sneaky. First, you should notice that the interest rate is different for credit purchases and cash advances. Cash advances always carry a higher interest rate. Additionally, your monthly payment will not count towards your cash advance balance until your credit purchases balance is paid off. Why? Cash advances carry a higher interest rate, therefore, the longer that that balance remains unpaid, the more money the credit card company makes.

Also, make sure that the interest rate that is advertised is not an “introductory” rate or a “variable” rate. Introductory rates only last a couple of months (at most, one year). After that introductory period, your interest rate resets to the default rate. The default rate is usually a lot higher than the introductory rate. Therefore, be aware of what you are getting yourself into.

Variable rates change with economic conditions, therefore, you could have a great rate one month and a terrible rate another month. Do not play a guessing game with you credit card interest rate. Get a low fixed rate and you will be much happier.

Intangible costs can ruin a credit card. Have you ever called your credit card company only to listen to an infinite amount of menu options? When you finally get a real person on the phone that person tells you that you have called the wrong department. In an attempt to transfer you, the main menu comes back up and you are back to square one. At the least, this whole process is a waste of time. Why put up with this? As I said before, too many credit card options exist for you to have to settle for one with mediocre service. Your time is valuable; do not waste it on bad customer service!

Know the costs that are associated with a credit card. By doing this, you will be able to make the best decision possible based on your needs and wants.

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10/14/07

How to Apply For a Credit Card

Applying for a credit card is a simple process. Everything can be done online nowadays. Additionally, you can receive an answer as to whether you are approved for the credit card, usually within thirty seconds. All you have to do is complete the application (which usually consists of you name, address, phone number, social security number, employment information, date of birth, etc.), click the submit button (if applying on-line) or mail in the application if submitting a hand written application, and wait for a response. The only part of this process that is difficult is determining what card is right for you.

There are many types of credit cards that offer many different types of options. First, you need to know if you want a charge card or a credit card. What is the difference? A charge card works just like a credit card except the balance is due in full at the end of a billing cycle, meaning that you cannot make payments over time. If you charge $1,000 during the billing period, $1,000 is due on your next bill. Charge cards are usually reserved for people with disposal income or people who have an established, high credit score.

A credit card, on the other hand, allows you to pay your balance over time at a set interest rate. The obvious advantage is that you can pay a charge over time. However, the additional advantage is that certain credit cards can be obtained even if you have no credit or bad credit.

Second, you need to determine your credit bonus. Do you want reward points that are redeemable for cash, airline tickets, and other merchandise, or do you want a low interest rate card? If you do not use you credit a lot or if when you do use your card you only use it for small purchases which you usually pay off in full, you may want to opt for the rewards card. This way you can build points towards rewards and the usually higher interest rate will not be a detriment because your balances are too low and because you always pay off the balance in full.

However, if you are just starting to establish your credit, you may want to go for the low interest card. This way, if you misuse your card, you will not get severely punished by the interest rate.
If you use your card a lot, look for a nice balance between rewards and low interest.

Third, should you have a card that charges an annual fee? Simply put, unless you have no other choice because your credit is bad, there is absolutely no reason to have a card that charges an annual fee. Do not get one!

Last, the type of card (Visa, MasterCard, American Express, Discover, etc) is important. I am not the biggest fan of Discover cards because they are not always accepted, but in all fairness to Discover card, I never have had any problems with customer service. If you are getting your first card, opt for the Visa or MasterCard. These two cards are accepted virtually everywhere, and the credit cards of the major banks in the United States are usually either Visa or MasterCard. It just makes sense.

Find out which card you want, submit the application, and get your shiny new card. Just remember not to abuse the privilege.

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Saving Money While Paying Off Your Credit Card Debt

Credit card debt can be a real financial drain. You have all heard the statistics and seen the commercials. If you made only minimum payments, it could take you over 7 years to pay off a debt of only $2,000! This is insane! Why pay off the interest when you could be paying off the principal? There are some simple steps you could follow in order to save money on your credit card debt.

First, you must make more than the minimum payment. If you broke down the minimum payment, you would discover that almost half of it goes to paying interest. This is money that you are paying that is not reducing your outstanding balance. If you pay more than the monthly payment, more money goes to the pay off the principal and thus, it takes less time to pay off the debt.

Second, you can utilize a balance transfer. This option is only good if your interest rate is high. Sometimes, credit card companies will offer to give you a card with a 3, 6, 9, or even 12 month interest free or very low interest rate (usually around 2%) introductory period. After the introductory period, the interest rate resets to the default rate. If this default rate is lower than you current interest rate, you should transfer your balance to this new credit card. It is a very simple procedure, you will save tons of money because you will significantly pay down your debt during the introductory period, and your default interest rate on the new card will be better than the interest rate on the current card thus, saving you more money. Everybody wins!

Last, you can call your credit card company and ask for a lower interest rate. You have to have good credit to do this and usually have to have had an account with the credit card company for over six months. However, if you can take advantage of this, I suggest that you do. Many people do not know that you can negotiate with your credit card company and raise your credit limit and reduce you interest rate. If they seem reluctant at first, threaten to close your account. Make them believe that you can receive a better deal elsewhere. Better yet, have a better deal waiting and see if your current company can match it. If they claim they cannot, tell them that you will no longer do business with them and hang up. However, do not close the account because this would negatively affect your credit score. Instead, never use the card and see if your current company comes around.

Saving money on debt is possible; you just have to know where to look and what to do. Take advantage of these easy to use tips, and you will be debt free for less money in a faster time frame!

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10/13/07

Protecting Yourself Against Credit Card Fraud

Identity theft has hit epidemic proportions. This used to be a random occurrence, but with the rise of internet banking, debit cards, and other electronic cash alternatives, identity theft is a crime that the normal, everyday person has to safeguard against. Like taking vitamins to ward off disease, preventive measures exist to ward of identity theft.

First, you can call your bank and credit card providers and ask that they call you and get verbal confirmation before approving an amount over X amount of dollars. The dollar amount is going to be different for everybody depending on his/her threshold. For example, you could call your bank and tell them that any withdrawal or purchase over $750 needs to be cleared by verbal confirmation. Therefore, if a purchase over $750 is attempted on that credit card, the company will call you on the phone number that you have provided (usually a cell phone) and will ask if you are making a purchase of X amount of dollars. If you say yes, the amount is approved and on you go. However, if somebody else is trying to do this, the purchase will be denied and the thief will be caught.

The effect of this measure is that you account is protecting against “abnormal purchases.” This measure does not prevent you from buying something over your confirmation amount. All this measure does is create an additional layer of protection so that if somebody tries to use your credit cards, they will not be able to make a “big” purchase.

Second, you can sign up for a credit report monitoring company. By doing this you will know if a new account has been opened or if an inquiry has been made on your report. The credit report monitoring company will immediately notify you and ask whether the opening of the account or the inquiry is valid. If it is not, the account will be disputed and the thief will again be unmasked.

Third, do business with a bank that will guarantee to replace all stolen funds within a short period (24 – 120 hours). This way, damage to your account is minimized. If you check your account balance everyday, this measure will be extremely effective because you will immediately know whether a fraudulent purchase or withdrawal has been and where it was made.

Last, be careful and avoid things you do not know. For example, I have seen letters from identity thieves that were sent via US mail. The letter usually purports to be from a large bank and asks you for your account number, social security number, or some other private account information that is necessary to steal your identity. These letters will provide a phone number to call in case you have any questions. If you randomly get a letter or e-mail like this, NEVER call the number provided. Open up the phone book or call information and get the bank’s number. Call that number and see if the bank really sent out such a letter. NEVER reply to these kinds of letters through the mail. Think about the situation; why would your bank want this kind of information? The bank provides you with an account number, so why would they need to “verify” it through the mail? Additionally, why do they need you full name and address; didn’t they just send you a letter?

Protect yourself and protect your assets using these safety measures.

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10/12/07

Getting a Credit Card with Bad Credit

Getting a credit card with bad credit is not as hard as you may think. The types of credit cards that can be obtained with bad credit is the real problem.

There exists a financial practice called adverse selection. Adverse selection is the process of singling out potential customers who are considered higher risks than the average. Credit card companies combat this risk (the risk that people will default on their credit cards) by charging higher interest rates and annual fees. However, this is where the problems begin. If I have a great credit score, why I am going to get a credit card with high interest rates and high annual fees? The answer is, I would not get the card. Therefore, because people with good credit do not want the card, only people with below average credit scores (people that are “high risk”) apply for and obtain the card. Thus, a vicious circle is created. As the credit card companies charge more interest and fees on particular cards to offset the potential of default by high risk cardholders, those particular cards are only obtained by high risk cardholders. Thus, the behavior that the credit card company set out to deter is actually being promoted by the credit card companies’ practices.

So, if you have bad credit, where does this leave you? This leaves you with bad options as to credit card ownership. First, you could get one of those high interest, high annual fee, and low credit limit cards. You will probably pay more in annual fees and interest than you will principal. However, having the card (as long as it is a major credit card; Visa, MasterCard, American Express, or Discover) and using it responsibly will help raise your credit score.

Second, you could obtain a secured credit card. This means that you have to put down a deposit. The amount of the deposit is the amount of your credit limit. It works as a debit card except that it is reported as a credit card (which is a benefit), but it also has high fees and interest rates (these are disadvantages).

Last, you could obtain a merchant credit card (Macy’s, Dillard’s, Sears, etc.). Having this kind of a card will help boost your credit score. However, the interest rate is going to be very high. These cards usually do not have annual fees, but the high interest rate is a great disadvantage.

Even though options are limited and not the best, they are options. Start reestablishing your credit today so that you can help finance your future and save money.

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10/11/07

Evaluating the Need for Credit Cards

If you have endless cash, you will never have a need for credit. You will never have to take out a loan because you will always have the money to cover any cost. However, many people do not have this option.

As a general rule, you should not purchase something on credit if you cannot afford to pay for the item in cash. This does not mean that you have to have the entire amount in cash currently available. This means that you have to be able to use your cash, without financial strain, to pay off the bill.

In this day and age, credit cards are essential for building your credit score. Why is this important? Like I said, if you have endless cash, this is not a problem. However, like most of the people in this country, a big purchase, like a house, if something that cannot be afforded if cash was required. Therefore, in order to qualify for a big loan (like a house, car, etc.) we have to build our creditworthiness. Building your creditworthiness is accomplished by raising your credit score. Raising your credit score is accomplished by the correct use of credit cards.

Therefore, the need for credit cards is important in order to be able to afford shelter for yourself and your family and to provide a convenient mode of transportation. If used correctly, credit cards can be a very powerful financial tool. Learn to use your credit cards correctly and you will be able to open financial doors that would otherwise remain closed to you.

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10/10/07

Should Teens Have Credit Cards?

A teen should have a credit card in order to teach him/her about financial responsibility. Of all the subjects we learn in school, we are never taught about finances, credit, or money management. This lesson is usually left to our parents. The problem with this is that many parents are not qualified to teach their children about money management. Therefore, the children walk blindly down the financial road only to meet numerous pitfalls and debt traps. One way to combat this potential for financial failure is to teach children about money management.

I use the term “children” loosely. I am not advocating that you sit your six old down and tell him/her about interest rates, credit scores, and investment risk. Absent you child being a financial prodigy, a six year old will not understand any of these subjects. However, once your child reaches fourteen, fifteen, or sixteen, lessons about financial independence should begin. I advocate these ages because these are the ages when most teens get their first job.

Bill Gates could lecture you about “how to become a billionaire,” but none of the information will be useful unless you can put the information into action. I feel the same way about teens and credit. You could lecture your teen about how credit cards work, the importance of timely payments, credit limits, and credit scores, but until a teen actually uses the card and pays a bill, he/she will never fully grasp the principles of this important financial tool. This does not mean that you should drop a $10,000 limit gold card into your teen’s hands and tell him/her to “go nuts.” However, there are many credit cards with a $300 - $500 limit that should be used as the teaching card. This amount is high enough so that your teen could actually use it, but low enough so that if your teen has a job, he/she will not get into trouble.

The credit lesson has to be taught carefully and slowly. It is very easy to lose track of how much you are spending with a credit card. Therefore, it is vital that a teen learn that a credit card is not a substitute for cash. Meaning, if you cannot afford to buy something, you should not put it on your credit card.

Teens should have credit, but only as a privilege used as a tool for financial education. A credit card, like a driver’s license, is a privilege, not a right. Therefore, teens should first be educated, and then be allowed the privilege of credit card use. They should always start small and SLOWLY build their credit limit. As a parent, you can always monitor your teen’s credit use to insure that your teen is using credit correctly.

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What is Universal Default and How Does it Affect Your Credit?

Universal default can be a big problem. Have you ever looked at the terms and conditions of a credit card? Somewhere in the fine print you might discover that your particular credit card is subject to universal default.

What is universal default? Universal default is a practice in the financial industry where a loan that you have goes into default (whatever the default terms are under the agreement of said loan) when you default on another unrelated loan. In other words, if I have two credit cards, Credit Card A and Credit Card B, and Credit Card A is subject to universal default and I have NOT defaulted on said credit card but I have defaulted on Credit Card B, Credit Card A would then be in default.

Why is universal default a problem? Universal default is a problem because it can negatively impact your credit score. If you are never late on any payments, then this financial practice is unimportant, however, if by misfortune, mistake, or some other accident you are late on a loan payment (and thus in default) you can get dinged twice (once for the account for which you are in default and once for the card that practices universal default) for one accident. This in turn has a double negative impact on your credit report and credit score.

Universal default does make some sense if you think about it. A person’s credit worthiness is based on how likely a person is to pay back a loan. The more risky a person, the more unlikely he/she is to pay back a loan. Think about it like this: If a person defaulted on Loan A before applying for Loan B, that person would most likely be denied for Loan B. Why should this change if said person already has acquired Loan B? Is not that person still just as risky before acquiring the loan as he/she is during (post acquisition) the life of that same loan? Although this may be true, my thought is, why put yourself in harms way? Do not take on more risk than you have to. There are plenty of credit card companies that do not practice universal default, therefore, acquire those cards and save yourself the headache should you accidentally or even intentionally miss a payment on one loan.



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10/9/07

Credit trap: Keeping Young Adults on the Right Track with Credit Cards

I will never forget the time I got my first credit card. I signed up on my college campus. It was great because I got a university t-shirt when I applied for the card. The people working the kiosk basically guaranteed that I would be approved. I was sold! I took the application, filled in my details, and impatiently waited for my shiny new card to arrive in the mail.

It is funny when I think back about how young and naïve I was. I did not care about annual fees, interest rates, or credit limits. If I would have known then what I know now, I would have set a booth right next to that credit card kiosk and passed out fliers about how bad the credit card offers are on university campuses.

There is a popular military strategy called “shock and awe.” Basically, a military will use overwhelming force and spectacular displays of power to paralyze the enemies on the battlefield and destroy their will to fight. The same strategy is used by these university credit kiosks. They promise young and financially naïve adults all these great benefits, but fail to inform about high annual fees and interest rates. Eventually, the college kid finds himself/herself in a debt trap from which he/she cannot escape.

My advice is to do your homework. Make sure that the credit card offer is not all smoke and mirrors. Ask about the annual fee and interest rates. If the person working the kiosk does not know the answers, do NOT get the card. There are too many places where a credit card can be obtained, therefore, you do not have settle for the sub par cards that they hand out on college campuses.


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Testimonies: How Debt Can Make You Feel

Okay, time to confess a secret. At one point of in my life, I could no longer manage my debt. I did not file for bankruptcy and all the debt is now paid off (it was all credit card debt), but there was a time when I did not know what I was going to do.

The constant worry is a nightmare. You never know how you are going to pay next months bills, and you are always wondering how long you can keep it up. The funny thing about credit card debt is that it does not suddenly appear. It is a process over many months. You keep spending and paying the minimum balance. Before you know it, your cards are maxed out, and paying the minimum no longer works because the interest on your balance is more than the minimum payment.

I had trouble sleeping and when I did sleep, I would have dreams where I would lose my teeth. I looked at that particular dream in a dream dictionary and found out that dreaming about losing your teeth means financial hardship. Crazy, huh?

I decided to do something to change my situation. My solution was to do debt consolidation. The advantages were that my debt was consolidated into one, low monthly payment and that the interest rates on the credit cards were reduced. Therefore, I was able to pay down the balance a lot quicker. The disadvantage is that once you choose this option, the credit card accounts that are included in the consolidation are closed. The disadvantage of this is that it negatively affects your credit rating. Your credit rating is not substantially lowered, but the decrease is noticeable. Additionally, when you are enrolled in the debt consolidation program, a note appears on your credit report that your are enrolled in a debt consolidation program.

This is how I dealt with the debt. Today, I am very responsible with my credit. My credit score has been completely revitalized, plus more, and I am debt free. Being debt free is the best feeling. Have you ever been in a similar situation? How did you deal with it or are you still dealing with it?


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Conventional Personal Finance

There are many bad things that you can do with your money or to your money. There are also many goods things you can do with or to your money. What should you do and what should you avoid?

(1) Plan Your Finances – Budgets are very hard to stick to and can cause many headaches, however, planning the big purchases can help protect you from a financial blunder. Always plan out the big purchases before reaching a final decision. This will not guarantee that you made a wise purchase, but it will make you think out and research all the details before concluding one way or the other.

(2) Always Use Interest Bearing Accounts When Possible – Many banks offer interest bearing checking accounts, and various other interest accounts. While deciding between investment opportunities or for the money you keep in an account to pay the bills, collecting interest on this idle money can quickly add up. You will not become rich, but this is the easiest, risk free money you will ever collect.

(3) Diversify – This is very common and effective advice. The recent volatility of the real estate market is a perfect example. Many people lost everything because they threw all of their investment money into the real estate market during the boom. Unfortunately, like gravity, what goes up must come down, and that is what the market did, with a vengeance. If these people had been diversified (meaning they had spread their investment dollars through various industries and markets) these people would have minimized, and probably offset any loss they received from the real estate market.

Doing these three, simple things will help you generate and maintain income for many years to come.


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10/7/07

Surviving Financially After You Have Been Laid Off

It happens to the best of us. Sometimes, economic factors beyond your control cause a company to downsize. Sometimes, a merger or a buyout means that a company’s employees will be laid off. What do you do now?

For purposes of this article, we will assume that our fictional, laid off worker did not have any savings, or money set aside in order to “weather the storm,” so to speak. To tell somebody that has been laid off to tap into their savings assumes that the person has savings. One cannot give advice about what to do AFTER one has been laid off based on assumptions of what one should have done BEFORE one was laid off. Do you see the problem with that?

First and foremost, you cannot stay discouraged for long. Being discouraged makes you doubt yourself and, therefore, takes away your motivation to find a new career. If you are feeling discouraged, remember that statistics show that people now-a-days change career three or four times throughout their work lives.

At this point, you have to sit down and calculate your bills. Note what you have in your bank account and see how long (under a worse case scenario) that you could survive without working. Now take that timeframe and shorten it by two (2) weeks. Once you figure this out, you now know your deadline to find a new job. You shorten the timeframe by two weeks because that is how long it usually takes before you get a paycheck at your new job.

You may to get a part-time job in the mean time to cover any bills that you cannot afford while you are in between jobs. The part-time job should be easy to get and not interfere with your goal of getting a new, full-time career.

If things are taking longer than expected, you might want to consider cutting costs. Getting rid of some luxuries (eating out on the weekends, your morning latte at the coffee shop, expensive cable packages, etc.) will help reduce monthly expenses until you have your new career in hand.

If all else fails, start thinking about selling assets. This does not mean hold a garage sale. This means you might have to dump a car, some television or stereo equipment, or something else that when sold would actually have a positive financial impact.

Just remember that your main goal is to find a new career. Do not procrastinate and stay positive!


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Is it Possible to Live Without Money?

Technically, it is possible to live without money. One can barter for necessary items such as food, water, clothing, and shelter. However, this is more true in earlier times than in today’s modern society.

This question is more important in the context of determining what is important to you. Think of this question more as a “would you rather” situation. For example, would you rather be rich or happy? Therefore, the question of “is it possible to live without money” is more metaphorical. In my opinion, it is possible to live without money as long as myself and my family are healthy and happy. Keep in mind that I am not saying that I do not want money or wealth. If I am able to obtain all three (health, happiness, and wealth), I will do everything in my power to achieve.

The purpose of the question is to make you think. Think about what you are willing to do, sacrifice, or compromise in order to obtain your ambitions. Think about whether the things you are compromising or sacrificing are more important that the things you are compromising or sacrificing it for. In other words, do the means justify the ends?

Think about this carefully or you could be giving up more than you obtain.


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10/6/07

Defining Financial Freedom

What is financial freedom? Basically, one would probably define financial freedom as being rich or as being wealthy. But, what is rich? What is wealthy? Do you define “being rich” or “being wealthy” as having a lot of money? Do you define “being rich” or “being wealthy” as having the time to do what you want when you want, or do you feel that spending more time with your family is the defining characteristic of success?

Here is the million dollar question: do you need a lot of money to be able to have the freedom to do what you want and to be able to spend more time with your family? In other words, do you have to be “financially free” in order to achieve your “higher” goals?

Up to this point I have asked many questions but have provided few answers. The reason for this is because each person is different. A lot of money, a big house, and an expensive car are not necessary for many people to be happy. Many people who are not financially rich lead exceptionally happy lives. These people create a budget and stick to it, however, these people enjoy quality of life over financial success. Some of the happiest people on earth make barely enough money to fit into what is defined as the “middle class.”

How does this help define financial freedom? Basically, there are two ways to think of financial freedom. First, one can have an abundance of money and can, therefore, afford anything one wants. This means that money is not an issue of concern. The other way one can be financially free is for one to not care about money. These are the travelers and movers in the world that make just enough money to support themselves, but because they are always on the move, traveling around and discovering new things, money is not an issue. These people believe that life experiences are more important than the size of a bank account.

The big question you need to answer is: what kind of financial freedom do you want?


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What if I Experience a Loss?

In everyday speak, a loss is a bad thing. Whether the loss is love, life, or money, a loss is never good. However, because I deal primarily in business transactions and financial insight, we will disregard all other losses and concern ourselves solely on financial loss.

For example purposes, let us pretend that you own a business. You want to make a lot of money in your business. But sometimes, a loss happens. Now what? Do you pack up shop and leave? The answer is: it depends.

If you are a new company, chances are you are going to be operating at a loss in the beginning. This is due to all the initial costs that were necessary to establish your business. Does this mean that after a year, if the company is not profitable you should close shop? What about after two years? How about three years? Once again, your decision depends on your situation. If you are a new business, you probably should not pack up after a year. But if you have no long term plan and you keep losing money year after year, you might want to think about cutting your losses.

Many people make the classic mistake of justifying their continuing a failing business because of all the time and money that has already been used for the business. A classic statement is something like, “I already put $X into the company, I might as well ride it out.” This is a terrible way to think because this usually results in further monetary loss! The time and money that have already been spent are sunk costs. A sunk cost is defined as “a past outlay or loss that cannot be altered by current or future actions.” This means that “riding it out” will not recoup the loss. You have to move on and stop wasting additional dollars!

On the other hand, there are some pretty big companies that operate at a loss because their future profit potential is huge. Two companies that currently do this are Sirius and XM Satellite Radio. Because of the costs of launching satellites, acquiring customers, and developing packaging contracts with auto makers, these companies have been operating at a loss for years. However, as more and more people sign up for the service and as equipment costs decrease, these companies come closer to becoming cash flow positive with every passing quarter.

If your company is designed to follow some sort of long term profitability plan, then it would not make sense to close shop after a year or two or three of losses. Just makes sure that your future profits are viable. Do not fool yourself into thinking that future profits will come if such a future profit business structure was not part of your original intention or plan.


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10/4/07

Considerations When Making an Offer on a Home

You want to make an offer on a home and the listed price is $300,000, what do you offer? There are many factors that you need to take into account when offering a price for a home.

First, consider your intentions. Is this a home that you plan to live in or is this an investment property? If this is a house you plan to live in, you want your first offer to be lower that the list price, but not so low that the offer is flatly rejected. If you plan on living in the house for a long time, it may not matter if you pay the list price because you will make that money up and more due to appreciation over the years. However, be wary not to pay more than the home’s worth. You never know when you may need to move and you do not want to lose money on a quick sale.

On the opposite side, if you are buying this home as an investment property, shoot for the fences. In other words, if the list is $300,000, you may want to offer something like $230,000. You would offer this lower amount because you want to maximize your return.

Second, consider the seller’s intentions. If the seller is in a dire financial situation (similar to the current situation facing many home owners in this market), is facing a divorce, obtained an out-of-state job, or something like that, the seller will be more motivated to sell, and thus would take a lower price if you offered a shorter escrow. This would work out for you regardless of your intention.

However, if the seller is selling an investment property, the price is probably going to be firm. In this situation, if you have considered your intentions, (you already know the seller’s intentions at this point) your last consideration is the house’s appeal to your intentions.

Last, consider the home’s appeal based on your intentions. In other words, if the home is a “perfect” family house in which you and your family are going to live for many happy years to come, you may not care if you pay the price listed. If the house is a “perfect” investment property, you may, once again, not care if you pay the list price. However, if the home is just another property that really does not impress you, move on.

Your intentions are most important because they will dictate your next course of action. Know your intentions, find out the seller’s intentions, the make a low offer or list price offering as applicable.


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Why do You Need a Will?

First of all, what is a will? A will is a legal declaration of a person’s wishes as to the disposition of his or her property or estate after death, usually written and signed by the testator and attested by witnesses. In case you do not know, the “testator” is the masculine form for a person who makes a will. The feminine word is “testatrix.”

Now that you know what a will is, why do you need a will? Without going too deep into the possibly situations that could occur based upon the execution, or lack thereof, of certain estate planning documents, whenever a person dies leaving property (whether real or personal), that person has died leaving an “estate.” Because a will (as stated above) is a legal declaration of a person’s wishes as to the disposition of that property or estate, a valid will has the effect of determining where your estate goes after you die.

If you do not care who gets a piece of your estate after you die, then you probably do not need a will. However, if you do care, then a will is necessary in order to dispose of your property according to your demands. If a person dies with a will, the person is said to have died “testate.” If a person dies without a will, the person is said to have died “intestate.”

If you were to die intestate, your property would be disposed of according to your state’s intestate succession laws. This means that the state, based upon the laws in place, will determine who gets your estate. Note that these laws will apply equally to everyone. In other words, no judge, state official, or any other official can subjectively decide who gets your estate. Everything is set by law. This can be a disadvantage if you want to disinherit one or more of your legal heirs (depending on your state’s laws and your familial situation, legal heirs means anybody related by blood; there is a system (called the Table of Consanguinity) by which certain blood relatives take before other blood relatives), because without a will, they will get a percentage of your estate.

Therefore, the biggest advantage of having a will is that you get to decide how your estate is distributed. You do not avoid probate and there are no real taxes advantages of having a will, however, the power to distribute your money and property according to your wishes is an advantage that cannot be measured.


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