Credit Cards and Minimum Purchase Requirements

We’ve talked in the past about how the major credit card issuers don’t allow merchants to require a minimum transaction amount in order to accept a credit card (e.g., here and here). Well, guess what? That appears to be a thing of the past.

As I previously reported, the recent financial reform legislation allows merchants to enforce minimum purchase requirements as long as they’re applied across the board.

According to The Consumerist, AmEx, Visa, and MasterCard have changed their policies to allow merchants to require a minimum, and Discover isn’t far behind.

What do you think? Is this a good idea? I suspect that the answer to this question depends on your situation. Small merchants are probably thrilled to have the flexibility, whereas consumers are more likely to be unimpressed.

Published on September 3rd, 2010 - 13 Comments
Filed under: Credit Cards
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Mapping Out Our Financial Life

The other night I spent some time streamlining our banking system. I’ve more or less settled on three core online savings accounts: ING Direct, Ally Bank, and Discover Bank to go along with our local bank accounts.

Why these three? As many of you know, I love the convenience of ING Direct. They’re so good at so many things. Thus, we’re currently using ING as the “hub” of our online financial world.

Unfortunately, ING Direct has fallen back a bit in terms of interest rates, so we’ve kept Ally and Discover around because they have a history of paying competitive rates. We’re currently getting 1.50% APY at Discover vs. 1.10% with ING.

Now that I’ve identified the core pieces of our banking puzzle, the next step is to get them to work well together. As things stood earlier this week, certain accounts were linked up in a daisy chain fashion, where money had to move from A to B before it could get to C.

In the interest of creating a more efficient system, I decided to go spend a few minutes systematically linking the accounts to one another. Stealing a page from my pal Jim’s book, I’ve drawn up a simplified financial network map to illustrate how things are configured.

A few words about this map… The arrows indicate the direction of links. Some accounts (with double-headed arrows) are capable of pushing and pulling money from either side. In other cases, the arrow runs from the “master” account to the “servant” account.

For example, I can log into ING Direct and push/pull money to/from our Bank of America checking account. I could configure our BofA checking account to access ING Direct, but BofA charges fees for certain types of external transactions initiated from their end, so I haven’t bothered.

As you can see from the map, I can shuffle money around within BofA very easily. Once it’s in the checking account, it can be pulled out to any of our online savings accounts, and from there it can be shuffled back and forth at will.

Is this more complex than it needs to be? Sure. That BofA savings account isn’t strictly necessary, and we don’t really need three online savings accounts. At the same time, however, I like flexibility and being able to eek out a bit more in the way of interest earnings whenever I can. What can I say? I’m a maximizer.

Our true financial map is, of course, considerably more complex than this. For example, Lending Club is set up to push/pull money to/from our checking account, and our Vanguard accounts have access to both our checking account and ING Direct. I also haven’t drawn in our automatic billpay, all of which originates from checking.

Nonetheless, this should give you a pretty good picture of how we’ve set things up.

What about you? How streamlined is your banking system?

Published on September 3rd, 2010 - 15 Comments
Filed under: Banking
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Link Roundup: Transmission Trouble Edition

Over the past week or so, my wife’s 2004 Odyssey has given her a blinking green “D” (drive) light on several occasions. After looking in the owner’s manual, we were a bit concerned because the blinking green light is a sign of transmission trouble.

For those that are unaware, the 2nd generation (1999-2004) Honda Odyssey has a history of transmission troubles, particularly in the earlier years. We were thus concerned that we might be facing a major repair.

At the same time, we haven’t noticed any slippage, racing, or other shifting problems, so we were hoping it wasn’t anything major. We dropped the car off with our favorite mechanic this morning, and guess what?

He called this afternoon to say that the warning code indicated a bad 4th gear pressure switch, which is a trivial repair. We picked the car up tonight, and are hopeful that’s the last we’ll see of the blinking green light.

And with that, here are some recent links that caught my eye…

• How to Frugally Stock Your Home Toolbox
• Yes, You WILL Get Social Security
• What it Takes to Really Succeed
• I Want to Become a Minimalist, But I Could Never Give Up My…
• Dealing With Investment Confusion
• The Future of Economics, Explained With Physics

That’s it… Happy reading!

Published on September 2nd, 2010 - 2 Comments
Filed under: Link Love
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Stop Learning and Start Earning

It’s time to stop learning and start earning.

I’m not kidding. You really should stop studying and just get out there. Once I did, I became a lot more successful.

I can best explain the true cost of learning when I tell you about launching my blog.

Two years ago, I didn’t know what a blog was.

A friend convinced me to launch one in order to market a book I was writing, so I decided to “look into it.”

The more I looked into blogging, the less I understood it. As a result, I went deeper.

I bought every book on the subject I could.

I paid gurus to lead me to the blogging “promised land.”

I participated in programs that offered to teach me what to do.

I literally spent six months (and a big chunk of money) learning about blogging before I wrote my first post.

Don’t get me wrong; I did pick up some very valuable nuggets – but I learned volumes more in the first month of actual blogging.

In retrospect, I was lying to myself.

I was frightened.

And I was wasting time studying. It was my excuse to justify why I wasn’t actually doing the work. Who was I kidding?

Only myself.

I share this with you because you might find yourself in the same trap someday.

Let’s say you’re about to launch a new project.

You’ve decided you need to:

• Budget better.
• Invest smarter.
• Install a sink.
• Get the right kind of life insurance.
• Buy the right car.
• Get your business out of debt.
• Improve your credit score.

You realize that if you want a good result, you’re going to have to invest some time and possibly money. But why not try to save as much of both as you can?

Here are three steps to help you do just that:

1. Clarity

Be crystal clear on exactly what you want to do and why you want to do it. Don’t worry. Later on, as you learn and experience more, you can change you mind. But be clear on your direction before you leave base camp.

Say you want to get out of debt. Even on a subject as straightforward as this, there are many opinions on what the best path is.

Is your goal to get out of debt quickly, or is it just to get out of debt and never get back into debt? Believe it or not, depending on your answer, you might take different actions.

Think hard about what exactly you want to get done.

2. Anoint your gurus carefully

There are so many experts on each subject, you’ll drive yourself crazy if you follow more than one guru. That was my biggest problem when I started learning about blogging. Each guru – even though they were all very successful – had a different message. I figured that if I could take the best that each had to offer, I’d be a sure success.

Wrong.

This was the biggest time waster I could have imagined. I followed one person’s ideas just long enough to get interested in someone else’s thoughts. As a result, I spent hours and hours chasing my tail. Don’t repeat my error.

Pick your mentor carefully and follow his/her direction.

Of course it’s important to keep asking questions. But if you are clear about your goal, pick the best person you can to help you achieve that goal and follow their lead. And put your blinders on.

Along the way, a little voice inside will tell you to veer off course. That you need to study someone else’s ideas.

Don’t listen.

If you’re trying to get out of debt for example, you don’t have to read a ton of books on the subject. You probably don’t need to spend hours and hours researching it either. You need to find one trustworthy expert and just follow that person’s direction.

3. Got Grit?

There’s a great John Wayne movie called “True Grit.” I recommend you rent it sometime.

It’s the story of a person who takes on a task without having all the tools and equipment he needs. But he makes up for that with determination. That’s what you need.

Don’t be afraid of making mistakes. They can be fixed. And be patient. Solutions take time.

Don’t be afraid of refining your goals and changing direction. Once you embark on a path, you can always make adjustments. It’s easier to do that once you leave port. But you’ll never reach your destination if you stay in port.

Every time you make a mistake, you’ll learn a ton and you’ll get much closer to your ultimate goal.

Your homework assignment

Pick the most important item on your “to do” list and take action.

Make a list of the steps you need to take in order to make that wish a reality.

If you want to improve your credit score (for example), the first step is to get your FICO score so you’ll know where you stand.

Next, get a credit report and start correcting any errors you find. Finally, take other steps to boost your credit score.

It will take patience and time but you can knock these pins down… One at a time.

Expect to do it wrong and be OK with that. Expect to make mistakes. Just put put the books down. Stop doing research.

Get going — and remind me to do the same when I get caught in the trap.

Published on September 2nd, 2010 - 3 Comments
Filed under: Productivity
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Mixed Banking News From the FDIC

This is for all you financial statistics junkies out there…

According to the FDIC’s quarterly banking profile, more than one in ten US banks (829 out of 7830) are currently in trouble, and the number appears is climbing, with the number of banks on their “problem list” increased by 7% during the 2nd quarter.

In terms of bank failures, 118 banks have already under in 2010, compared to 140 in all of 2009, and just a handful per year prior to the current economic crisis. In other words, be sure to pay attention to FDIC limits when managing your bank accounts.

The good news is that, for the first time since 2006, the number of loans that are 90 or more days past due declined, falling nearly 5%. The same can be said of loans charged off by banks, which showed a slight year-over-year decline for the first time since the 4th quarter of 2006.

Interestingly, the 2nd quarter of 2010 also marked the first time in 38 years that the FDIC didn’t add any new banks.

Source: FDIC Quarterly Banking Report via WSJ.com

Published on September 1st, 2010 - 3 Comments
Filed under: Banking
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Hotel Alternatives: Save Money When Traveling

This is a guest post from Matthew Kepnes of Nomadic Matt’s Travel Site. If you like what you see here, please consider subscribing to his RSS feed.

When we go on vacation, we book a hotel. We are sort of taught that’s where you stay. By instinct we book a hotel. We go online, shake our head at the high price, and book it anyways, wishing there was a better way.

Well, there are a lot of better ways. The problem is that most aren’t advertised because they don’t have the marketing budgets that hotels have. On your next trip, consider these four alternatives:

Bed and breakfasts

Bed and breakfasts are a good alternative to hotels. You’ll get treated just as nice (if not better), you get breakfast, a smaller and more intimate setting, and the hosts who will take care of you.

B&B’s are usually owned by a family or couple and not some big corporation. The quality of service is usually a lot better and the prices a lot cheaper. Moreover, unlike hotels, they usually provide free internet.

You can find B&Bs on this website.

Apartment rentals

If you are with a family or a large group of people, renting an apartment is a much better choice than staying at a hotel. In NYC, the average price of a hotel is $250 dollars/night, but yyou can find apartments that sleep up to 5 for $200 dollars.

If you are with a big group, a hotel is not worth it. The rooms will be far too expensive. Rent an apartment. Or a beach house. Or a condo. Just skip the hotel. I highly recommend Home Away. They have the biggest inventory and best prices.

Couchsurfing

Couchsurfing is a website that connects travelers with locals who are willing to give them a place to stay for free. You can stay with families, couples, or single people. Many hosts allow families or couples to stay with them.

I stayed with a lovely family in Denmark, a student in Oxford, and a nice lady in Athens. Members are verified by other users, the company, or people who have stayed with them. It’s very safe. Alternatives to Couchsurfing are Hospitality Club and Global Freeloaders.

Hostels

When people think of hostels, they think of dirty dorm rooms, bacteria infested showers, dirty kitchens, and smelly young people. But hostels have grown up a lot since the 60s.

Now, you can imagine them as mini-hotels. While you can still find dorm rooms, you can also find private rooms and double rooms. Moreover, most have free breakfast, free Internet, computer terminals, offer free tours, and have a kitchen.

While in NYC, I stayed in my own room with private bathroom, wi-fi, TV, and turn down service for $90 USD per night. All of which was right near Central Park. That’s a lot cheaper than any hotel in the area.

For hostels, I like to use Hostelbookers since they have no booking fee.

Just say “no” to hotels

The bottom line is that accommodations don’t have to cost a lot of money. I never stay in hotels. They’re simply too expensive. Instead, I use one of the options above.

These alternatives cut my accommodation budget in half or (sometimes) to zero. That’s money that stays in my pocket and can be used to see the sights, buy dinner, buy beer, or pay for a plane ticket. I have much better things to do than give hotels my money, and I bet you do too.

Published on September 1st, 2010 - 12 Comments
Filed under: Frugality, Travel
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Paying Down Debt With a HELOC

Are you swamped with high interest debt and looking for a solution? The airwaves are filled with ads for debt consolidation, but do you really need someone to do it for you? Why not do your own legwork and roll your debts into one low(er) interest loan?

One option for consolidating your debt is rolling it into a HELOC. But first… You might have some questions.

What is a HELOC? Is consolidating debt with a HELOC a financially sound decision? What problems might arise if you use your HELOC to reduce your debt?

What is a HELOC?

The term HELOC is shorthand for “home equity line of credit.” Home equity is defined as the difference between what your house is worth and what you owe on the mortgage. This home equity line of credit essentially let you borrow money using the equity in your house as collateral.

Lenders typically calculate the line of credit based on a percentage of your home’s appraised value. For example, if you have a house that is appraised at $200,000 and your principle is $135,000, he lender may calculate your home equity line as:

$200,000 * .80 (it varies among lenders) = $160,000
$160,000 – $135,000 = $25,000 HELOC limit

The percentage of your home’s appraised value depends on the lender, but it’s generally 75-80%. With houses appraising for much less than they used to in some areas, many homeowners have had their HELOC reduced or closed.

Why you should use a HELOC

The big plus with using your home equity line of credit to consolidate your debt is that you’ll almost certainly reduce the amount of interest that you’re paying. Since it’s a secured loan, your HELOC will typically will have a much lower interest rate than your credit cards.

If you’d like to play around with just how much you can save, I highly recommend the online calculator over at Dinky Town.

Another good reason to use a HELOC is that, assuming you itemize you tax deductions, the interest on your HELOC is tax deductible. Thus, you’re not only paying much less in interest, but you’re also catching a tax break, thereby reducing the cost further.

Why you shouldn’t use a HELOC

The other side of the coin when using a HELOC to consolidate debt is that you’re taking unsecured debt (credit cards) and tying them to your home. This can be a risky bet – what happens if you lose your job and can’t pay your HELOC? You risk losing your house, that’s what.

Also, getting a HELOC isn’t necessarily cheap. There are several possible fees associated with it that add to the total cost. Some of the fees you might face include:

• Appraisal fee
• Application fee
• Annual fees (some, not all lenders charge this)

Ultimately, you’ll have to weigh the costs of opening an account against simply using a debt snowball, or similar approach, to get out of debt.

It’s also worth noting that lenders have gotten much more strict when it comes to approving loans, so if you’re looking at getting one, be sure that you can qualify.

Another minor downside is that when you apply for a HELOC, they’ll do a hard credit inquiry which can hurt your credit score. It’s not much of a hit, but it’s worth keeping in mind.

Thoughts on using a HELOC for debt reduction

In my opinion, if you can get yourself out of debt in two years or less, I wouldn’t bother with a home equity line of credit. If you’re struggling with high interest rates, try negotiating with the credit card companies or look into doing a balance transfer to a card with lower interest.

Personally, I’m not a fan of converting unsecured debt (credits cards) to secured debt (HELOC). Yes, you can save money, but… With people getting laid off and paychecks being cut, your plans could fall through and you could lose your home.

There are other options besides using a HELOC if you’re looking to consolidate your debt. For example, you could try to get a personal loan through your bank or credit union, or you could consolidate your debt with a loan from Lending Club.

Your take

Have you ever used a HELOC to consolidate your debts? How did it work out for you? Would you do it again? Why or why not?

Published on August 31st, 2010 - 13 Comments
Filed under: Credit Cards, Debt Reduction, Mortgages
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Flexible Spending Account Changes for 2011 and Beyond

Open enrollment season is just around the corner. With that in mind, I wanted to remind you of some changes that will soon be affecting Flexible Spending Accounts.

For those that are unaware, an FSA allows you to use pre-tax dollars to pay for medical expenses. Starting in 2003, over-the-counter (OTC) medications were added to the list of allowable expenses, thereby giving consumers a lot of flexibility in how they could spend their FSA money.

As I’ve outlined in the past, FSAs operate under some fairly Draconian “use-it-or-lose-it” rules. More specifically, if you don’t spend out your balance, you lose whatever money is left over at the end of the year. Given this stipulation, the OTC allowance was very valuable addition.

No more OTC purchases

Now for the bad news… Starting in 2011, OTC purchases will no longer be eligible for reimbursement unless you are expressly directed by your doctor to use them. In other words… It’s going to be a heck of a lot harder to spend down your FSA balance is you set too much aside.

Yes, you’ll still be able to use your FSA to pay for deductibles, co-pays, orthodontia, and eyeglasses, but you’ll no longer be able to claim OTC allergy medications, pain relievers, vitamins, antacids, contact lens solutions, and so on.

In other words, be very careful when deciding how much to set aside in 2011.

Caution: falling limits

Looking a bit further ahead, another big change will be a federally-mandated $2500 cap on FSA contributions starting in 2013. This new limit is part of the healthcare reform legislation that was passed this past spring.

As things currently stand, FSA limits are determined by employers, and it’s not uncommon to be able to set aside $5k. Depending on your income tax bracket and level of healthcare spending, that can be a huge benefit.

Published on August 30th, 2010 - 16 Comments
Filed under: Insurance, Taxes
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Claim Your Credit Card Rewards

Here’s some homework for this weekend… Log into your credit card accounts and claim whatever rewards you might have accrued. While some reward credit cards (such as Amex Blue Cash) automatically credit your cash to your account, others (such as Chase Freedom) don’t.

When I logged into our Chase Freedom account the other night, I found that we had a bit over 25k points waiting to be redeemed. I quickly requested a $250 check and went merrily on my way. Granted, $250 isn’t necessarily a life-changing sum, but I’d rather have that money sitting in our savings account vs. sitting around idle.

If you’re in a points-based program and you can’t turn your points directly into cash, look for a gift card to a store that you frequent. Just be sure to get at least a penny per point. In some cases, you’ll have to save up for a higher denomination, but it’s usually well worth the wait.

And with that… Have a great weekend!

Published on August 27th, 2010 - 5 Comments
Filed under: Credit Cards
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How Many Checks Do You Write?

Do you still write checks?

Whenever I mention the (seemingly) ancient are of check writing, I always get a few comments from readers who have long since quit writing checks.

As much as I’d like to join the ranks of the non-check-writers, we still have a number of instances where we need to write a check. Note that I’m talking here about the physical act of writing a check, not using online billpay to send a check.

More often than not, our check writing needs stem from the fact that we have four school age kids. Thus, we write checks for fundraisers, to put money in their lunch accounts, and so on.

While we’ve been able to automate many of our check writing tasks through our bank, there are still numerous instances where we have to dash off a check for one thing or another — again, mostly kid-related.

Anyway, I thought this might make for an interesting poll topic, so… Here goes. Please keep in mind that I’m asking below about how often you actually grab the checkbook and physically write a check.

As always, please feel free to post a comment adding some context to your answer.

Interestingly, as recently as 2007, 54% of people were paying their bills by check.

Published on August 27th, 2010 - 25 Comments
Filed under: Banking
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