Education

…that when you open credit cards at your favorite stores in order to get the discount, you’re hurting your score?

While on a shopping spree, many consumers are tempted by the discounts of 10% or 15% when they open a store credit card.  They think they are saving a bundle, but many consumers may be chipping away at their credit score.

For one thing, multiple inquiries from lenders for their credit reports in a short period can trim their score, especially if they don’t have many credit accounts or they have a short credit history. Why? FICO says that people with six or more credit inquiries on their reports in a short period are eight times more likely to declare bankruptcy than those with no inquiries.

What could be more damaging to a score is how much is charged to new cards. If the balances are near the cards’ limits, they will likely increase the credit-utilization ratio — the amount of debt is relative to the credit limits. The higher the ratio, the greater the negative impact on the score. If there is not a lot charged on the cards, if they are paid off quickly and balances are kept low, the score could eventually benefit from the higher credit limits. But in general, credit should be taken sparingly.

Return to Thrifty Spending Issue 94

Car Ads too good to be true?

Every day consumers are bombarded with cars ads on the radio and on television that grab their attention and get them thinking about trading in their current automobile.  Consumers are targeted with special finance offers such as, “no money down,” or “if you work, you qualify” Some of those ads although true are sometimes misleading. The dealer neglects to state that the interest rates on these loans may be astronomically high, and the cars in these ads may be high mile models, or have a history that could include accident damage.

The ad that has really gained a lot of attention lately, mentions how the dealers “will pay off your current loan no matter what you owe”. Consumers that may have purchased a car for full list price with no money down and a high interest rate, or even traded a car where they owed more than the traded value, are prime candidates for being “upside down” in their current car.  Being “upside down” is a phrase used to describe people whose debt on a car is more than the vehicle’s worth.” In these recent ads dealers are heard saying that they will pay off the current car (even if upside down) if a consumer comes in and purchases a new car. Sounds great, right? The problem is, they neglect to inform in the ad that the payoff amount will be added to the price of the new car which will ultimately put them further upside down on the new vehicle. The Federal Trade Commission (FTC) agrees and has recently cracked down on a handful of dealerships across the country. The FTC’s complaints allege that despite the dealers’ claims, consumers still end up being responsible for paying the difference between the trade-in loan balance and the vehicle’s value. The complaints that charge the dealers’ representations that they will “pay off” what the consumers owe are false and misleading, and violate the FTC Act. In addition, the complaints in three of the cases allege violations of the Truth in Lending Act (TILA) and its implementing Regulation Z for failing to disclose certain credit-related terms. Two additional complaints cases allege violations of the Consumer Leasing Act (CLA) and its implementing Regulation M for failing to disclose certain lease related terms.

Consumers should do their research before going to the dealership. Finding out what is owed (auto loan statement) and the value of their car before shopping is imperative. To check the value ranges and the trade in value, consumers can check KBB.com or NADA.com. It may be worthwhile to consider selling the car first and bringing cash to the dealership. Find the current auto loan rates at bankrate.com and use their calculators to see what the new payment might be. If consumers discover they may be upside down, the best cure may be to keep the current vehicle and keep paying down the debt before trading.

Become an educated consumer, get a copy of the offer being made, go home and review before signing. Buyer beware!!!

Return to Thrifty Spending Issue 94

…offers to repair your credit can be a rip off?

Credit repair agencies enjoy soliciting their special industry knowledge and insights, and people often assume these firms can do things that individuals can’t.

Consumers are led to believe that credit repair firms know loopholes in the law and that if you take advantage of these loopholes, you can get things off your credit report.  But what credit repair firms know, is no secret. Consumers have access to the same information and can take the same steps to do what these firms do, for free.

One place to start is the FTC’s page on credit repair. The FTC provides step by step instructions for consumers to repair their own credit as well as get familiar with their rights.  Consumers can also get their free annual credit reports at AnnualCreditReport.com and a free “credit report card,” based on their Experian credit report.

Return to Thrifty Spending Issue 103

The ExtraBucks Rewards at CVS can be overwhelming when you first sign up, but it is one of those loyalty cards that pays off.

Here’s how the program works:

• Earn 2% cash back (in the form of ExtraBucks Rewards) on most purchases. Alcohol, tobacco and a few other products don’t qualify.
• Earn more ExtraBucks Rewards on specially marked purchases. You can see all the high earners in the weekly ad.
• Redeem your ExtraBucks Rewards automatically four times a year.

If you shop at CVS frequently, those rewards rack up pretty quickly, but what’s really worth it is their coupon kiosk. It’s typically located up front, and all you have to do is swipe your card and the kiosk prints out in-store coupons.

www.money.msn.com

Return to Thrifty Spending Issue 103

What to do with your tax refund

Expecting a hefty tax refund this year? You may have visions of plasma televisions and Hawaiian vacations. But with the economy locked in recession and the unemployment rate at a 25-year high, there might be more practical ways to spend the extra cash.

In past years, tax refund splurges were common. But this year is different. A handful of personal finance experts were asked to weigh in on how your priorities ought to stack up in today’s economy.

Build up emergency savings. Given the precarious labor market right now, building up a reserve fund of cash ought to be a top priority.

“If you have lost or think you are going to lose your job, then just put that money in the bank,” said Beth Gamel, CPA/PFS at Pillar Financial Advisors. “If you are not in that situation – you have a job, and it looks pretty secure – you still should look at your cash reserve,” she added.

Gamel said that risks associated with living paycheck to paycheck are higher now than before the recession, because banks are more reluctant to extend lines of credit to people with less-than-perfect credit histories.

So which should you do first – pay off debt or save for emergencies? Greg Plechner, CFP with Modera Wealth Management, said that while he recommends people have 6 to 9 months of expenses available in cash, the decision to pay down debt or accrue a reserve fund is a matter of interest rates.

Invest for the long term. While stocks have started to climb back from multi-year lows, the major indexes still have a lot of growing room, and now is the time to take advantage.

Gordon Bernhardt, CFP and CEO at Bernhardt Wealth Management, recommends that if an individual has no credit card debt, this is a very good time to get into the market, by opening up a brokerage account or a tax-advantaged retirement account like an IRA.

If you’ve got at least 5-10 years before you’ll need the cash, then investing for the future – particularly for your retirement – is a smart move today.

“I am extremely positive that 5 years from now, the market is going to be a lot higher,” said Bernhardt.

To protect yourself from volatility, Bernhardt recommends you “take that money and buy an index fund – that is going to be the easiest way [to] get diversification at a low cost.”

Refinance. For those without debt and job insecurity, lowering monthly housing payments might be the way to go. Lending rates are at record lows, and by locking in a lower rate, you save money every month, said Plechner.

“You need between $2000 and $3000 to refinance – those are the typical closing costs,” said Plechner, although total costs can vary greatly depending on your home’s value. Using your tax refund to pay for all or part of the refinance “would be a great use of the money and that would increase your monthly cash flow.”

But refinancing doesn’t make sense for everyone. For example, you should be able to knock at least a percentage point from your current rate to justify the cost. Plus, you need to have home equity and your credit needs to be good enough to qualify for the lowest rates, Plechner said. To figure out whether refinancing is right for you, try an online calculator like the one on Bankrate.com.

Contribute to a 529 College Savings Plan. If you have children and are planning to set aside something for their future education costs, then consider opening and contributing to a state sponsored college savings plan. In these education savings plans, the savings can grow and be used tax-free when withdrawn for qualified education expenses. You may even receive a deduction on your state income tax return if you contribute to your own state’s savings plan.

Make extra principal payments on your mortgage. By making just one additional payment on a 30 year mortgage each year, you can have the mortgage paid off in about 17 years and save thousands of dollars in interest over that time.

 www.money.cnn.com

Return to Thrifty Spending Issue 103

…It’s not good to maintain a balance of more than 30% of your limit?

Lenders like to see a big gap between the amount of credit you’re using and your available credit limits. Getting your balances below 30% of the credit limit on each card can really help; getting balances below 10% is even better.

If you need assistance bringing down those balances, click here for more information.

Bottom-shelf bargains at the supermarket

Lots of supermarket chains claim to bend over backward to serve their customers.

But experts say consumers can serve themselves by leaning a bit forward — to find overlooked bargains on the bottom shelves of grocery aisles.

It isn’t where you’re likely to find imported olive tapenade or balsamic vinegar older than a Spanish monastery. But on your next supermarket safari, hunting through the bottom shelf may be the ticket to bagging big savings.

“The better-value items, you will find on the lower shelves,” said Rajiv Vaidyanathan, executive director of the Association for Consumer Research and a professor of marketing at the University of Minnesota Duluth.

The size of grocery bills is incentive enough to explore the bottom-shelf alternative. An article in Consumer Reports ShopSmart magazine noted last year that the average family of four spends $10,692 per year on groceries. Just a 5 percent savings comes to $534 annually.

Catching your eye

Vaidyanathan and other analysts say a couple of factors conspire to make the lower shelves a veritable bargain basement. For one thing, consumer product giants around the world covet eye-level shelf space. Sometimes they pay for the privilege, a practice known as slotting, according to the Food Marketing Institute. As a result, undiscovered smaller players don’t always get a chance to rent your attention.

Furthermore, it’s only natural that retailers turn over the best location to top names with big advertising budgets. They’re more likely to fly off the shelves, benefiting the producers and the stores. Yet despite 2010 sales exceeding $562 billion, the supermarket industry’s profit margin is just under 1 percent, according to the FMI.

But frugal consumers can also benefit by taking the shelf less traveled. According to a 2009 study by Consumer Reports, you can lower your grocery bill by looking down. The report adds that higher shelves offer similar deals. “Check high and low,” the report notes. “Supermarkets are in the real estate business, and prime selling space includes the middle or eye-level shelving. Check whether similar products on top or bottom shelves are less expensive.”

A southern direction

What will you likely find? It might include items being discontinued by the store, so they — and their prices — are sent south. They’re joined by the brands less likely to draw a crowd. And some products are in packages whose size — particularly super-sized — limits their popularity. Bulk grains and larger boxes of cereal are examples.

The net savings from bottom-fishing varies by product, store and personal preferences. But Vaidyanathan says some bottom-shelf equivalents have prices up to 50 percent less than their upstairs neighbors.

www.bankrate.com

The IRS is giving taxpayers impacted by the Boston Marathon bombing an additional three months to file their taxes.

The extension automatically applies to anyone who lives in Suffolk County, Mass., which includes Boston.

Anyone outside of Suffolk County who was impacted by the bombings, which occurred on Tax Day, can also request to be covered by the extension by calling 1-866-562-5227 beginning on April 23.

The deadline for those qualifying for this relief will therefore be pushed back to July 15. That means no payment or filing penalties will be assessed until that date.

However, the IRS said it is still required to charge annual interest of 3%, compounded daily, on any tax owed after the original April 15 deadline.

“Our hearts go out to the people affected by this tragic event,” IRS Acting Commissioner Steven Miller said in a statement. “We want victims and others affected by this terrible tragedy to have the time they need to finish their individual tax returns.”

www.money.cnn.com

Return to Thrifty Spending Issue 102

…that your weight could determine the price of your plane ticket?

Rates range from $1 to $4.16 per kilogram (2.2 pounds) based on the distance. The airline’s planes are much smaller than commercial ones – their fleet seats fewer than nine passengers per flight – and Samoa Air CEO Chris Langton says that makes minimizing weight variance more important.

One price comparison shows a 165-pound person with a 33-pound suitcase would pay less for a flight from Samoa to American Samoa on a flat fare from Polynesian Airlines than a “fat” fare on Samoa Air. (The difference is about $15.) Shorter, thinner people and families with children would likely benefit from the change, and it might make luggage fees more agreeable in some cases.

Others could end up paying more, although the airline’s website says, “With Samoa Air, you are the master of how much (or little!) you air ticket will cost.”

Samoa Air flies a very limited number of routes in the Pacific Islands. But how likely are American airlines to adopt this pay-as-you-weigh strategy? It’s certainly a possibility if fuel costs and the average waistline continue to increase.

Price discrimination, such as charging kids and the elderly different prices, is not new, and airlines like Air France, Southwest and United already have policies that require passengers to buy an extra ticket if they cannot fit in the seat with both armrests down.

www.moneytalksnews.com

Return to Thrifty Spending Issue 102

Even if you don’t particularly like to cook; you have to appreciate how it helps both your health and finances and you mush make an effort in this budget area. Here are the easiest ways to cut your food budget in half:

Limit alcohol. It can get expensive to have a daily happy hour, so if you are not willing to give it up, you must adjust your budget to cope with the expenses. If you need extra dollars, perhaps cutting back to only have alcohol in the home for friends or a special occasion.

Stop buying ready-made solutions.    If you use a lot of something, try to figure out how you can make it yourself in volume. It’s cheaper for me to buy bulk steel-cut oats and cook a pot of it for the week than to buy instant oats.

Plan menus two weeks out before grocery shopping. Carve out time in your schedule (about 30 minutes) to plan your breakfasts, lunches, dinners and snacks for the next 10 to 14 days. Start by checking your kitchen cabinets for what you already have on hand, and build your menu to use up cans of soup and other staples. Consider keeping a folder of recipes you want to try. Once you have a completed menu, build your grocery list.

Grocery-shop three times a month, and stick to your list. People who eat lots of fresh fruits and vegetables really prepare for this tip.  Bring these items home, prep them immediately and keep them in airtight containers, most stuff easily lasts 10 days.

Designate a “meal prep” day.    Every 10 days or so, spend serious time cooking big batches of… rice and beans, morning gruel, root vegetables, a casserole to freeze, etc.  If you precook then it will be easier to make a meal after a full day of work by throwing something into a salad or stir-fry, or just have something to pull from the freezer the day before.

Keep comfort food ready to go.    There are times when you may not want to eat as healthfully as you usually do or should. When you are driving home after a long day, nothing sounds better than takeout. So keep fixings on hand for things that sound better than takeout, like a grilled cheese sandwich or Beecher’s Mac & Cheese.

Return to Thrifty Spending Issue 102