Does It Really Pay to Be Frugal?

If you want to know, keep a running count of how much frugal habits are saving you.

For example:

• Bring your lunch from home instead of buying it.  If you save $5 per workday, that’s more than $1,200 per year. 
• Buy $30 worth of store brands per week instead of $50 of name brands. Save $20 per week, or $1,040 per year.
• Buy $200 of gently used clothing per year instead of $800 worth of new clothes, save $600 per year.
• Save $10 per week by using driving techniques to save gas, save $520 per year.
• Cut down on or eliminate “vices” and save $20 per week, or $1,040 per year.
• Cut credit card use and therefore monthly payments by $40 per month and save $480 a year.
• Work to cut electricity use by $30 per month and save $360 per year.

That’s actually not a lot to do, especially if you make these techniques habits, one by one. And the total for just these savings, per year, is a whopping $5,240.

That’s almost $450 less in expenses per month. Most of us can find a lot of thing to do with that much: pay off credit card bills, pay down our mortgage, create an emergency fund, save for college or a vacation.

So…start looking around. How can you save money, not by depriving yourself, but by doing simpe things that cut your costs?  It can be easier than you think….and a list of what you’re saving, week by week or month by month, can be a great motivator.  

Saturday: From the Archives

From Wednesday, March 22, 2006

You Don't Have to "Starve" to Save!

Saving money can be like dieting. It's easy to become discouraged if you're constantly "doing without." But by using what I call my "80/50" rule, you can have almost all the pleasure of buying what you want, at a price you can still afford.

Let's say you see something you'd like to have, but really can't afford. Don't be like most people and whip out a credit card, paying an extra 18% for instant gratification. (And almost inevitably, subsequent regret!)

Instead, ask yourself this:
"How can I obtain at least 80% of the pleasure of owning this, at 50% of the price?"

An example: When I built my house a few years ago, I decided I really wanted a round, glass-topped coffee table for the living room. I checked some stores and perused a few catalogs. The only table close to what I wanted cost $200.

I had a whole house to furnish. I was not going to pay $200 for a coffee table. So....how could I get something that would be at least 80% of what I wanted, at 50% of the price?

I kept both my eyes and my mind open, and a few weeks later, noticed a really ugly statue standing on a small plaster pedestal in a used furniture store. I had no use for the statue, but the pedestal had possibilities. Though chipped and scratched, it had a classical motif and was about the right size and height for a coffee table base. Could I just buy the pedestal without the statue?

Sure, said the store owner. Twenty-five dollars.

I took the pedestal home, sprayed it with a soft gold paint, used a little cinnamon-colored paint to "antique" it and had a very nice, classic base for my coffee table. A week later I found a heavy round piece of glass on sale at Pier 1, reduced from $50 to $20. I bought a package of those little gel bubbles to keep the pedestal from scratching the underside of the glass, went home, put everything together and had my glass-topped coffee table.

It looks better than the one in the catalog. It cost less than $50. So I ended up with 110% of the pleasure, at 25% of the price. You think I feel deprived?

Going broke buying "convenience" foods, but don't have time to cook Monday through Friday? Don't skip lunch,or settle for endless drive-through burgers. Cook double amounts of your favorite foods on the weekends and freeze individual portions in reusable plastic containers. For almost no extra effort, you'll can still enjoy microwaveable meals at 50-70% less than the cost of typical, store-bought "convenience" food.

Need a lawn tractor (rototiller, leaf blower, utility trailer) but can't afford it? These are items you don't use every day or even every weekend, so why pay full price for something that will sit in your garage most of the time? Find a neighbor (or two) in the same situation and work out an agreement to buy and share!

Dying to practice your French, but can't afford to fly to Paris? Don't sit at home. Find out how much a week in Quebec will cost! Love to sail and go water skiing, but can't swing a trip to the coast without borrowing money? See if there's a lakefront resort that's closer, more affordable...and just as much fun.

Hate the look of your ugly (but still sturdy) couch, but can't afford a new one? Check into the cost of slipcovers, or having the couch reupholstered. Can't afford new cabinets for your kitchen? See if you can get close to the same effect by refacing your current cabinets and buying new knobs.

I could come up with more examples of the 80/50 rule, but I hope you get the idea. Use your brain instead of your credit card. Keep your mind and your eyes open...and you can save money without feeling at all "starved."

Saturday: From the Archives....Do You Need A Wallet Full of Plastic?

From: Sunday, March 29, 2009

Store credit cards are wonderful!

Why?
   

• You earn juicy rates of interest.
• Card holders are more likely to shop with you.
• Store cards provide a steady revenue stream without the expenses of manufacturing, advertising, , employees, shipping....

Of course, all this is only true if "you" are the store.

For those who use them, as opposed to those who issue them, store credit cards make no sense whatsoever
.
I don't know how many times I've been asked by a sales clerk if I want a store credit card. I try to be polite, but once, when I walked through a newly opened store and got pounced on, one after another, by six people all shrieking the same pitch ("Sign up for our card and you can save 10% on your first purchase!") I finally got tired of saying "No, thank you" and asked Pouncer #6 the following questions:

"Doesn't this store accept VISA or Mastercard?"
"Well....yes.""
"Then if I want to use a credit card, I can use one of those?"
"Well...yes"
"How much is the interest rate on your card?"
A few moments of checking the application, then:
"16%."
"Does it make sense for me to pay 16% interest on everything I buy with your card in order to get a one-time 10% discount?"
"Uh.....I suppose not...."

Store credit cards are worse than useless, they're actually, IMHO, toxic. First, they encourage you to shop in a specific store, even if that store isn't offering the best values. My friend Jenny, (not her real name) for example, only shops for clothes at Penney's because that's where she has a credit card. Sales or great deals elsewhere? Too bad. All her Christmas and birthday gifts for other people? Bought at Penney's. I have nothing against Penney's, but who wants to be stuck with only one option?

Second, a wallet full of store credit cards means a lot of applications on your credit report, plus many open lines of credit. Both can be a red flag to potential lenders, since they represent additional credit you can use....or misuse. (Even if you've only charged $500 on a $5,000 credit card, lenders know you could spend that extra $4,500 tomorrow....and that's a count against you.)

Third, store cards tend to charge higher rates of interest. Carry a balance equal to your initial "10% discount" purchase for a year and you'll likely end up paying much more in interest than you saved

Fourth....well, with more bills to keep track off each month, you're more likely to miss a payment and that can really hurt your credit score. Besides, who wants all that paperwork?

There's almost literally no place in the world that won't accept either VISA or MasterCard. Don't take the bait of a one-time discount on a card with a high interest rate. Keep your wallet slim, your bill-paying simple and your shopping options flexible. Carry one each of the two major cards and you'll have at least one card that will work in any store, just two bills to pay, and a cleaner, better credit report.

But don't forget....you pay no interest at all when you buy with cash.

Vanity: It'll Cost You

Have you ever noticed how many sales pitches are based on human vanity?

• "Available only to discriminating customers." 
• "You deserve the best."
• "Be the envy of your neighborhood."
• "If you want to be cool, buy this!"
• "Be a smart consumer."
• "We tailor our product to you."

We all want to be respected, loved and admired and those who market products know this. So they often craft their marketing to appeal to that urge.

I hate to tell you this....but ain't none of us that special!

In most cases, millions of people are watching the commercial you're watching, or have read the ad you just read. One of millions...how special can you be?

But the inherent vanity of human beings is what marketers count on. Try to resist that appeal. Judge products on their real worth. In one way, you are very special....you deserve products that really meet your needs, and you shouldn't be seduced into spending money on those that don't.

So buy the skin product because it really will smooth your skin, not because you've been told it will make you the envy of other woman.  Buy the car because it's comfortable, safe and a pleasure to drive, not because you've been told it will make you a babe magnet. Don't jump on the phone to buy an overpriced product because you're being told only fifty people in your area are receiving this once-in-a lifetime offer. Don't by something because the salesman flatters you. "It's obvious you know quality when you see it."  Don't  get that silver, gold or platinum card with the high yearly fee....and no corresponding increase in features you'll really use.

We all love to be complimented. Just make sure it's good sense....and not vanity....that influences how you spend your money.

If You Owe Money....Or Even If You Don't!

I'm starting to see complaints on the internet about a company called Afni, Inc., starting with a recent post on the national blog, the Daily Kos.

According to these complaints, this company is often dunning people to pay money they don't owe to companies they've either never done business with or have paid in full. Afni, Inc. a collection agency, demands payment, insists on absurd levels of "proof" that a debt has been paid, and worst of all, puts black marks on the credit reports of those who don't send them a check, according to these reports.

A Google search on Afni, Inc. turned up a number of a complaints, and described Afni, Inc. as a "junk" debt collector, a company that buys debts for pennies on the dollar and makes its money by collecting these debts using tactics that many people see as punitive and abusive. People accused of owing debts report that the company demands receipts for payment on debts that are years old, for example, or refuses to acknowledge that people have never done business with the company in question.

(One consumer reports getting Afni, Inc. to admit that she was eight years old when her supposed "debt" was incurred, but despite this, Afni, Inc. still demanded payment. )

Afni, Inc. isn't the only debt collector reported as using less-than-stellar-tactics, and in these hard economic times, such situations will probably increase. What can you do if you find yourself dealing with a company like this?

Keep in mind that if you really do owe the money, a debt collector has the right to demand payment. However, debt collectors are limited in the tactics they can use, and certain tactics that qualify as harassment are against the Fair Debt Collection Practices Act.

If you think that you don't owe the debt, contact the debt collector and ask for specifics. (Keep a record of the call, who you talked to and what was said.) If you're sure that a mistake has been made and the debt collector still insists you pay, send that collector a certified letter asking for validation of the debt--be sure to use that word validation--that is, proof that they indeed have a legal right to collect the debt.

You can do this with a debt collector, but not with the original company. In other words, if you supposedly owe money to a store or utility and they contact you, requesting validation of the debt won't work. (For more specifics on requesting debt validation, here's an excellent article from CreditInfoCenter.com.)

If the debt collector refuses to provide validation but still demands payment, try contacting your state Attorney General and the Federal Trade Commission with a complaint about the collector violating the FDCPA. Again, make sure that you document every contact with the debt collector.

You should make every effort to pay a valid debt. But companies that use intimidation tactics, or demand you pay money you don't owe can be dealt with if you stay calm, document each contact, and learn what your options are under the law.

Is It Time To Put Your Day-to-Day Spending On A Cash Basis?

Paying with cash is getting to be so rare nowadays I often feel like a fiscal outcast when I pull out those quaint green bills at a cash register. Everyone else is slip-sliding credit or debit cards through that little machine....usually again and again, because it never seems to work the first time (the idea that paying by credit card is faster than paying by cash is a pure myth) or they're writing checks. Still, anachronistic as it might seem, I'm going to make a pitch for paying for day-to-day purchases with cash.

Why? Because when you pay cash, you're less likely to overspend.

Most of us don't have an unlimited amount of money at our disposal. We have to make what we earn last from paycheck to paycheck. This is tough when paying by card, even a debit card, unless you keep a purchase-by-purchase accounting of what you've spent and, even more important, how much money you have left.

Use cash, on the other hand, and you'll know how much money you have left every time you look in your wallet. If it's three days to payday and you have $20, it's obvious that this is not the time to spend $15 on the newest CD.

So...if you find that your money doesn't stretch from paycheck to paycheck....if you always find yourself running short (and reaching for a credit card) a few days before payday....if you end up with a little more debt each month and can't figure out why.....try making your day-to-day purchases with cash.

Put yourself on a weekly cash allowance. (No, that's not just for kids.)

Here's how to do it:

First, sit down and find out out what you spend on non-discretionary items such as housing, insurance, loan payments,taxes and utilties. (For tips on how to do this, check out my series on budgeting. ) Then figure out how much of your paycheck you should allocate to make those payments.

For instance, if you're paid monthly and your monthly non-discretionary bills equal $1,200, you need to put at least that amount per paycheck in a checking account you use only to pay those bills.

If you're paid twice a month, put $600 per paycheck in that account.

Paid every two weeks? There is an average of 4.3 weeks in a month, so divide $1,200 by 4.3 to get a weekly figure, then mulitiply that by two and put that amount in the account each payday.

Now take the rest of your money, in cash, and divide that into weekly amounts. With a monthly paycheck, divide your take-home pay by 4.3. If you're paid bi-weekly, just divide by 2. Paid twice a month, multiply your paycheck total by two to get a monthly amount, then divide by 4.3.

At the beginning of each week, put a week's worth of cash in your wallet or purse. Each morning, take it out and count it, and recount it each time you make a purchase. That's about all you have to do. (By the way, count it discreetly. There's no sense in waving big wads of bills around...even $1 bills.)

Why does this work? Because day by day, purchase by purchase, you will know exactly how much money you have available to spend. You'll also know that if you want to make a large purchase, you'll have to tap the next few days cash, and you'll know immediately how much that will leave you to make ordinary purchases for the rest of the week.

An example?

Let's say that Georgia Spender usually deposits most of her paycheck in her checking account on payday. She makes everyday purchases using checks or credit cards and pays bills by check as they come due. She writes down each check, but doesn't immediately subtract it from what she has in the account, so she doesn't know from day to day how much she still has available to spend. She also doesn't know how much she has available to pay bills.

When she does check the total towards the end of the month, she's always shocked to see how little is left, and habitually ends up having to resort to credit cards. Her credit card total keeps creeping up and her hope that she can put a little money into savings keeps being postponed.

So she decides to try paying cash. Her take-home pay is $2,400 a month. A half-hours' work reveals that her non-discretionary monthly costs are a little under $1,000 dollars. She's paid twice a month, so each paycheck she puts $500 in a savings account she uses to only pay those bills.

To find out how much she can allow for discretionary spending each week, she divides the remaining $1,400 by 4.3, to get $325.

Now...she puts $325 in her purse and puts the rest of her cash in a safe place. (An ATM accessible savings account, her safe deposit box, a lidded, empty can of hot chocolate mix in her pantry. Wait a minute....if you know where I live, forget that last suggestion.)

On her first day on this system, she buys morning coffee, two sodas, groceries and gas for a total of $75, counts her cash and finds that she now has $250 to last six more days.

The second day, she buys morning coffee, lunch, some sandals and a plant for her house ($42 total) counts her cash and finds she has $208 left.

On the third day, morning coffee ($3) a birthday gift for a relative ($16) some toiletries ($16) and dinner with friends ($9) drops her funds to $164.

On the fourth day, she has to buy more gas ($20) she rents a video ($4) and buys paper and ink for her home printer ($36). She counts her money and finds she now has $104 to last three days.

She is going to a movie with friends this weekend, then to dinner afterward and she knows that will cost at least $30 for gas, tickets, popcorn and dinner, so she passes on buying coffee and a new scarf and spends only $4 for lunch on the fifth day, leaving her with $100.

On the sixth day, she spends $32 on her movie outing, counts her money and finds she has $68.

On the seventh day, she sets aside $30 to put into savings, spends $10 to rent another video and eat lunch, leaving her with $28 to add to her $325 for the second week. (If you have extra money at the end of the week, save it, pay down credit cards, or add it to the next week's available cash. I suggest you do the first two until you have a nice emergency fund and low credit card balances.)

Starting the second week with $353, she buys two dresses on the first day ($82) plus lunch ($7) leaving her with $264.

Then on day two, one of her tires needs to be replaced ($70) and that, plus lunch ($4) leaves her with $190.

On day three, she spends $60 on groceries and gas and $5 for lunch, counts her cash and comes up with $125.

Knowing that this has to last her four more days, she decides to bring lunch from home the rest of the week and on the fourth day, only spends money to rent a video ($4) leaving her with $121.

On the fifth day, she has her hair cut ($20) has the oil changed in her car ($30) and buys more groceries ($18) leaving her with $53.

On the sixth day, she goes to dinner with friends ($14), buys fertilizer for her plant ($6) a new filter for her vaccum cleaner ($14) and is left with $19 to spend on the seventh day. A little tight, but by knowing how much she has available from day to day, she has eased her spending back just a little during the week and made it.

Day by day, purchase by purchase, she knows how much money she can spend just by counting the bills in her wallet.

What if Georgia wants to make a large purchase, say $200 for a new chair for the living room? She can spread that through the entire month by deducting $50 from her weekly "allowance," leaving her with $275 cash spending money each week for that month. Or she can set aside money in advance, again dropping her weekly "allowance" to free up the necessary cash.

That's the system. It's actually pretty simple.

Objections? I've had people protest that it's just not safe to carry cash around. Well, its not safe to carry credit cards either. A wallet full of credit cards means the possible loss of $50 each if a thief gets hold of them, plus the hassle of trying to cancel all those cards before they're used and your credit is ruined. Me, I'd rather lose a little cash. (No one needs more than two credit cards. I'll explain why in a future article.)

Emergencies? Always carry one credit card and a single blank check just in case. Having your car throw a rod in the middle of your commute is an emergency. Buying the newest digital music player is not....and it's surprising how obvious that is when you're handing over actual money.

Actual money...not numbers in a piece of paper. Actual money....that you can simply count for an instant check on how much you have to left to spend.

Give it a try. Remember to first set aside enough to pay all your bills. Paying cash is for discretionary spending. It's a method that will really make you think about your financial choices.

Keep A Very Close Eye on Your Credit Card

Some very odd things are starting to happen in the world of credit cards.

It started when I found out that (due to making what I intended to be my February credit card payment too early--yes, too early--it's a long story) I was the grand total of $17 overdue and my credit card was frozen. (I'd also been charged a $39 overdue fee.)

Did I find out about this from the bank? Was I notified of this in my bank statement or by email?

Nope. I've had credit cards for forty years and I've never had my card refused. Today, I had it refused twice, first while trying to make an online payment and then, after that, during a "test" purchase of a soda from a convenience store (I very rarely use my credit card for day to day purchases, preferring to pay cash.)

I tried calling the "Customer Service" number on the back of my credit card, but got nothing but a computer. After trying for ten minutes to get an actual human being on the line, I gave up and headed down to my bank's local branch.

There, I ended up on their phone talking to the bank's national credit card office and discovered that if any holder of one of their cards pays their bill one day past the due date, they will freeze that customer's card.

One day late. In my case, when I was a whole $17 overdue. That is their policy.

First I'd heard of it.

If I wanted my card unfrozen, I was told, I could make a payment at my local branch and my credit card would start working again two days later. If I wanted to cut the wait time to the next morning, there would be a $15 fee.

After listening to my teeth grind, they agreed to waive the fee.

Had other people run into this "one day late and you're toast" policy? I posted this info on a national blog and started reading the comments. Yes, other people had. And that was just the start.

Some of those comments led me to information that is prompting me to give you this warning:
Be very careful to pay your credit card bills on time, read your bill over thoroughly each time it shows up and be ready for unexpected (and possibly unannounced changes on your credit card terms.

If you give these people the slightest reason to hike your rate, cut your limits or charge you any one of a number of fees, they just might do it. Because banks and other lending institutions are now looking for cash where ever they can find it.

For example, here's a story from CreditMattersBlog.com about American Express customers being called and pressured to pay early. That's right. They're not being called because they're overdue, they're being told to pay before their due date. Not asked, told.

On the same blog, there's also a report about AMEX offering certain customers $300 to close their accounts. It's getting very strange in Finance Land when financial institutions are paying people to close accounts.

Watch also for surprise interest-rate hikes, too. 5%, 10%...or even worse, if you pay late even one or two times a year, an APR hike to a "default" rate that could be as high as 30%.

As for your credit limit, I'm hearing of people with $10,000 limits who suddenly find that their limit's been dropped to $1,500. (I hope such people aren't finding this out when they're traveling.)

Some people think that a lot of this is happening now because the Federal government is talking about passing new regulations on credit card issuers, and the issuers are trying to make as much money in interest and fees as they can before this happens. Sounds plausible to me.

So keep your eyes open, and double-check your credit card bills. If your rates are hiked, your credit limit slashed or you start getting pressured to pay early, feel free to shop around for another card.

But be very cautious about closing your current account. Credit rating companies often don't differentiate between accounts closed by card issuer and accounts closed by customers, so completely closing an account can seriously hurt your credit rating. Keep that no-longer-worth-it account open, but keep the credit limit and the balance very low, ...I'd suggest just a few dollars more than the smallest minimum payment. That way you can keep your credit rating high...without being at the mercy of a credit card issuer.

(One last ironic note: my bank is constantly sending me marketing pitches, despite my asking them to quit. After my card was frozen, they sent me such a mailing that said I was eligible to receive a $50,000 loan...."just fill out this simple form!"

Like I say, things are getting very, very nutty in Finance Land.)

Sneaks and Scams: One Monthly Bill You Should Always Read

I understand that both Oprah and Rachael Ray have touted the benefits of acai berries on their shows.

Now, I am not intending in this post to dispute either Oprah or Rachael or make any claim to dietary expertise. (Since my dietary expertise consists of managing to never--as yet--give myself food poisoning, I wouldn't dare.)

This post is instead all about being very, very selective about giving out your credit card info.

It's a sad fact that the scammers are always quick to pervert the newest hot product for their own use and it seems that acai berry pills are no exception.

Info is now starting to emerge on the internet about online offerings of this product that promise you can have a free month's worth for a very small shipping and handling charge.

So....you happily contact the company and make the order. Then you find that hidden in the fine print is the information that your card will be charged a big chunk of cash each month if you don't call and cancel within a certain time period. Except it's impossible to call and cancel. (The person in this particular situation ended up having to cancel his credit card instead.)

Or as Associatedcontent.com reports:

The real deception occurs when someone believes they are getting a free sample for $4.95, when in reality, they are being asked to give out their credit card number to pay the shipping cost, and agreeing to a $74.95 per month recurring charge on their credit card to continue shipment of the Acai Berry pills.

I have nothing against acai berries (figuring out whether they work as advertised is up to you) and I'm sure that there are acai berry vendors out there who are completely honest.

The points I want to make are:

• Always, always, read the fine print of any on-line agreement.


• Always, always, be cautious in giving out your credit card information. In fact, unless you are dealing with a well-known company, I suggest you never pay directly via credit card. Ask if you can pay through Pay Pal instead. If a company that advertises online won't accept Pay Pal, I'd think long and hard about dealing with that company.


• Most importantly, when you get your credit card statement, always take a quick look at the charges. You can't deal with a scam charge or even a charge that's an honest mistake if you don't know about it.

Again, I'm got no beef with acai berries. (Am I allowed to mention red meat in the same sentence? Sorry, couldn't resist. Bad Cathy!) I do have a problem with any scammer who uses the newest hot product to make life tough for consumers.

So should you. Be cautious about online purchases using your credit card, especially when dealing with a company that's not well-known.

And open up that credit card bill each month and take a quick glance at the charges. It's a habit that will serve you well.

One Van: $9,000, Bought Used... 178,000 miles later.

Well, we made it.

Quartermain, my 1994 GMC Safari van, hit the 250,000 mile mark two days ago. (He's named after the hero of "King Solomon's Mines.")

I bought Quartermain used for $9,000, with 72,000 miles already on his odometer.

He was in good shape--I had my mechanic check him out before I bought him, since I was buying him "as is"--and he's been a solid vehicle. We've had our moments...for example, if I solemnly promise to wash and vaccum him and don't do it, he usually retaliates by flatting a tire on me, though I must say, he's always been gentleman enough to do it in my driveway or a parking lot, instead of while we're running down the road at 60 mph--but despite a few such idiosyncrasies, he's been pretty good at getting me from here to there and back again.

I, for my part, have changed his oil every 3,300 miles (it's easier to remember when an oil change is due when you do it at 10,000 miles, 13,300 miles, 16,600 miles, 20,000 miles, 23,300 miles and so forth.) I've checked his oil, transmission and anti-freeze levels on a reasonably regular basis. I changed his air filter myself once and found that I didn't like hanging upside down trying to unscrew his cowling (yep, he's that kind of van) so I had someone do it the next four or five times. We've also gone through two extra serpentine belts, changed before they snapped. (Much better idea to change before than after, believe me.)

I've had his radiator recored twice. I've just put on his third set of shocks, I've gone through perhaps four full sets of tires, replaced his starter and his compressor, and had his spark plugs and spark plug wires changed out twice. One new battery....or was it two?...I can't remember .

He currently needs some minor work on what my mechanic calls a vacuum problem with his heating and air conditioning system, the passenger power window doesn't work, (though the driver window will go up and down, though admittedly with a certain reluctance, and that's all I need) and he needs a new seat cover. Other than this, he chugs along pretty well, even with 4,000 pounds of trailer and ponies in tow. (He's rated for 6,000 lbs.) He even looks fairly good, probably because of those frequent washings.


Neither his engine nor his transmission have ever needed anything but routine maintenance. He shows no signs of rusting out. (I always wash out under the wheel wells.) His two passenger bench seats are in my closet, providing room behind the front seats to haul everything from landscape timbers to a Miniature Horse. (Cloud, my young gelding, has no problem jumping in through the side door.)

I drive him gently (see my article on "hypermiling") which is probably why his shocks, brakes, engine and transmission have lasted so long.

I mention all this just as an example of how you can buy a good used car, and by keeping up with routine maintenance and driving it with a little care, have a vehicle that will last a long, long time without major repairs. Quartermain cost me $9,000 cash some 11 years ago and I estimate repairs over the years equal around $3,000, for a total cost per year, other than routine maintenance, of about $1,110 per year. If I'd bought a similar van new, it would have cost me at least 30% more, or nearly $12,000.

Quart's original owner traded him in at 72,000 miles. Assuming he did that at similar intervals, he would have bought 3.5 vehicles by now. If he bought equivalent vans, he would have bought three so far at prices of about

$12,000
$18,000
$22,000

or about $52,000 total, with another purchase due in a year and a half.

A car bought new can easily depreciate in value 20% the instant you drive it off the lot, plus an addtional 12% or more per year. So if Quart's original owner traded in his vans every four years and got an average of 40% of the original value, he would have received $20,800 in trade-in credit. So he would have paid $31,200 net for those three vans and driven 216,000 miles. To drive the equivalent of my 250,000 miles, he would have paid an estimated $35,880.

Of course, we haven't included financing. I didn't rack up any financing charges, since I paid cash. If we assume 6% interest charged on an average of $3,000 per year for 11 years, we need to add another $1,980 to the cost, for a grand total of $37,860.

Now you may say that there'd be fewer repair costs with new vehicles, epecially those under warranty. Fair enough; we'll deduct my $3,000 in repairs, for a comparison cost of $34,860.

So Quartermain has hauled me, my Mini, bales of hay, sheets of plywood, landscape timbers and the occasional 4,000 lbs. of trailer and ponies for a cost of less than 5 cents per mile, including repairs, but not including gas and routine maintenance.

Quart's first owner has (hypothetically) paid nearly 14 cents per mile, almost three times as much.

Quite a difference, no? But let's make it even more interesting. Let's say that I take the $34,860 extra I haven't paid for transportation during the last 11 years and, as of today, start earning 6% interest on it and do that for the next 25 years. How much would I have in 2033?

$155,648.


Is a "new car" smell worth over $150,000? Or is it smarter to buy a good used car, maintain it properly, drive it gently and keep it until it racks up 250,000 miles..... or more? (I'm not planning to replace Quartermain any time soon.)

You decide. It's your money.

(Note: If you just have to have that smell, allow $200 or so for getting your newly-purchased used car cleaned at a detailer until it sparkles...and ask them to finish by spraying the car with "new car" scent. I'm for anything that keeps you happy.)

P.S. For those of you who wonder why Quart is a "he"....well, I'm a she. All my cars are "guys."

My thanks to the Carnival of Money Stories for including this post in this week's carnival.

Debt: Make Those Payments on Time, Pt. II

Another payment you really need to make on time is your mortgage or rent payment. Going into default on these can not only lose you your home, it can downgrade your credit rating so badly that finding a new place to live will be a major challenge.

One problem with mortgages is that often your mortgage holder is not a local institution. Mortgages are now routinely bundled and sold, then sometimes sold and sold again, with each seller taking a bit of profit. (Many experts are saying this is part of the reason for the economic mess we're now in.) A mortgage held by your friendly neighborhood bank is the exception, not the norm. I'm fortunate enough to have my lender, the original issuer, less than 20 miles away, and on more than one occassion, I've made that 40 mile round trip in order to get my payment in on time.

Why? What happens if you're late? First, if you don't already know, find out if you have a grace period, and now long it is. (But don't take those extra few days as a given. Some lenders are shrinking the amount of leeway they give homeowners.) If you don't get your payment in before the end of the grace period at the latest, you're now a payment behind, and many lenders will hit you with a late fee.This can happen as quickly as fifteen days past the due date.

This can be the beginning of a downward spiral. Such fees may make it even more difficult to bring your payments current. Miss a few more payments and, according to the the Department of Housing and Urban Development, your lender can begin to assess you its attorney fees. You heard that right; you may be expected to pay the legal fees incurred by the lender in trying to force you to bring your payments current.

You don't want to get that position. If you're struggling, do every thing you can to stay current. If you miss a payment, pay it and any late fees as quickly as possible. If you can't, contact your lender and try to work something out. HUD also has counselors who may be able to help you.

Renters, don't count on being able to sweet-talk your landlord into letting you pay late. With credit as tight as it is, few landlords will do this, and a single late payment may start you on the road to eviction. If you can't make your payments, don't ignore the problem. Start looking for something you can afford. Skipping payments, or even worse, being evicted, will seriously damage your credit rating and make it next to impossible to rent a new place.

Some readers may accuse me of being negative here. Well, here in rural Texas, we have snakes. Rattlesnakes, copperheads, cottonmouths, deadly all. Which is why, when I go walking through tall grass or weeds, I wear high boots and watch where I'm walking. And I'm careful lifting up rocks or anything else that's been lying on the ground awhile. Because I know there are snakes out there, because I know where they're likely to be, I can walk my land and do my outside work in relative safety. Knowing what might get you in to trouble, and how to avoid such situations, isn't negative, it's sensible....and good sense is what we all need more of now.

Debt: Make Those Payments on Time!

We’re going into the weekend, which will give us few days of respite from watching those little green numbers on the big, black NYSE board bounce up and down, up and farther down, up and really down. Hopefully, two days off (the stock markets will be open, but the bond market will be closed Monday for Columbus Day) will calm things down, though some analysts are seeing this as a not-good-at-all delay in finalizing some necessary deals.

No one in the financial sectors is happy now, except Warren Buffett, who is supposedly prowling the markets looking for deals. I’m not going to waste my sympathy on the angst of hedge managers and derivative traders, though…my concerns are more with the ordinary Americans (and our fellow working stiffs around the world) who are wondering if they can keep a roof over their head and food on the table.

For those reading this article, there are a few pluses. First, because you’re reading a blog promoting thrift, I’m going to assume that you already have a certain degree of financial self-discipline in place. You’re not going to experience the amount of shock a spend, spend, spendaholic will feel as the credit lines dry up and the credit card statements keep coming. You're probably fine with cooking your own food, now that stacks of Stouffers in the freezer or food from the local takeout is suddenly a luxury. You know that you can survive quite well without a weekly pedicure from a trendy salon or a reflexology session, and you're ready to turn the thermostat down and your sweater collar up.

But there are some additional things you need to be aware of, especially relating to the lack of liquidity in the economy and the lack of scruples on the part of some financial institutions.

Do all you can to keep your credit record pristine, and especially, be sure to pay all your debt obligations on time: mortgage, car loan, credit cards, etc.--it's fine to pay the minumum on credit cards for awhile, but don't pay less and don't delay in getting that check in the mail. Many of the largest credit cards issuers are gasping for cash right now and they're looking for any excuse to hike your interest rate.

Some may not even wait for an excuse. If you signed up for one of those "3.99% for the next six months!" credit cards, dig through your files or go online and see if you can find your credit agreement. Then read it carefully. Far too often, especially on such promo deals, the issuer has reserved the right to change the interest rate whenever it wishes, to whatever it wishes, once the honeymoon period is over. Be aware, too, that a promise of a "non-variable" rate may mean only that the interest rate won't vary automatically in sync with some index such as the prime rate, but the issuer can "vary" it any time it wants.

Credit card issuers usually show some restraint about hiking rates without cause, because they compete fiercely for customers and it's very bad PR. (Back in February, Bank of America tried it, got called on it, and backed off.)

Now, however, issuers may be willing to ride out the outrage. On a blog I visit regularly, one commenter today reported opening his credit card statement to find his payment had doubled. It doesn't take a big hike of your interest rate to do that.

So check your statements every month. Look at the interest rate. If yours bounces into the stratosphere (hikes to near 30% have been reported) contact the issuer and ask why. If you get the runaround, try contacting the issuer of another card, especially a card you currently have, and ask them if they'll give you a better deal if you transfer your balance to them. Be sure to nail down, though, both the interest rate you'll pay and how long it will last. (Ask them to mail a credit agreement to you, and write down the date and time of the call and who you talked to.)

I did this recently, and was given my choice of 3.9% for six months or 6.4% until the transferred balance was paid off. I took the 6.4%, a good rate for the long term, rather than leaving myself open to another rate hike six months down the road. I could do this because my credit history is reasonably good, another reason to make those payments on time.

I just checked the DJIA at closing--down, but only a little, a much better ending then the last five days. Cross your fingers, say your prayers each night--and keep your eyes on those loan statements.

(More on this subject--including mortgages--on Tuesday.)

The Christmas Club. A Quaint Idea Worth Revisiting.

Ever heard of a Christmas Club? Unless you're over forty, the answer's probably "No."

Which is not surprising. Christmas Clubs are something most banks used to offer decades ago to increase deposits. That gave them actual money in their vaults they could then lend out for a profit. Meanwhile, the customer saved up a tidy little amount to use for the Christmas buying season. Most banks even gave you cute little deposit books with Santas or Christmas trees on them. (You don't know what a savings account deposit book is? Geez, you're such a kid!)

Ah, those were sweeter, simpler times. These days, banks and other financial institutions make their money by charging high interest rates on credit cards. Christmas is a wonderful time for them, since consumers use those cards to rack up charges they then spend the next 11 months (or more) paying off. With interest.

I hate to be a Grinch and ruin the credit card issuers' holiday season, but I have a suggestion: instead of going into hock to pay for the holidays, establish your own Christmas Club.

Once a week, put some money aside. I don't think you have to put it in a bank account, since most short-term savings accounts now offer such low interest rates it's hardly worth the trip to make a deposit. Put it an envelope, in a sock, in a tin box. If you're nervous about stashing cash at home, write checks to yourself.

Start today and you have twelve weeks to save before December 15. Save $30 per week, and you'll have $360 stashed before you even start shopping. $50 per week will add up to $600. Spend $600 cash instead of putting that amount on a card with 18.99% interest (that it takes you a year to pay off) and you'll save more than $113 in interest.

Put a few dollars aside, too, to use the week after Christmas, when cards, wrapping paper, ribbon and Christmas ornaments are deeply discounted. Then take the amount you spend, divide it by 50 and, the first week in January, start saving for next year!

Bits and Pieces: Useful Tips from the Internet

If you have trouble controlling your urge to spend for the sake of spending, here's a good article on the subject from Get Rich Slowly.

If you've ever considered getting a "payday loan" you need to read this first.

And the home mortgage mess gets murkier....ever hear of a liar loan?

Term vs Whole life insurance....the real question is, what will most benefit those you leave behind?

Finally, choosing a consumer credit counseling service can be like choosing a diet plan....there are companies out there that promise a lot and deliver very little. Learn which services will really help you out of debt....and which will cause more problems than they solve.

FICO: You Definitely Want to Score High Here!

I happened across this very interesting article about the ubiquitous FICO score and thought I'd pass it along to you. It's on a real estate site and was written by a mortgage and banking expert, but as he quite correctly points out, a FICO score affects people's lives to an astounding (perhaps even disturbing?) degree, far beyond the approval or denial of a loan. In fact, if you're starting a business, trying to rent an apartment or even applying for a job, chances are good someone's going to take a look at your FICO.

I especially like the irony inherent in Mr. Beranek's opening statement:

When I started in banking, I was taught to examine the financial statements, the business plan and then look the potential borrower straight in the eye. I could usually assess a good risk from a bad one. But, those days are gone.For better or worse, a credit decision now usually rests on what is supposed to be an objection and unemotional number. That number is [the] FICO credit score.

One wonders why we need loan officers at all. Just let the computers trade numbers.

By the way, if you think a "just good enough to get the loan" FICO score is fine, take a look at the section of this article that shows how your score can affect your interest rate--and the size of your payments--when you get a loan. It's a real eye-opener.

Banks: Comparing Apples to...Financial Grenades (Sneak!)

"Sneak" is my term for marketing and advertising pitches and practices that are probably within the letter of the law , but almost certainly intended to mislead.

Once again, I’ve received a marketing letter from a major bank. This one is pushing that darling of the banking industry, the home equity loan, a loan that’s absolutely wonderful….for the bank.

I didn’t even have to read the fine print to know this one was a Sneak. The less-than-honest information was on the front page, in the form of a comparison of how much money could be saved consolidating debts into a home equity loan from this bank.

The hypothetical debts listed were:

* a regular credit card with a 15.9% interest rate and a balance of $30,500
* a department store credit card with a 19.9% interest rate and a $14,000 balance
* an auto loan with an 8.69% interest rate and a $45,000 balance.

$89,500 of debt total, with, according to the bank, a total monthly payment of $1,650.04.

The letter says that if I got this home equity loan, the monthly “interest-only” payment on this hypothetical debt would be $298.33, based on an interest rate of 4%.

Wow! I’d save over $1,350 a month! Give me a pen! Let me sign this thing now! "$1,350 less! $1,350 less! Go team!"

Uh-huh. Sykes, put away your pom-poms. Let’s take a slightly closer look at this thing.

“Interest only?” Most loan payments are a combination of two things, an interest payment and a principal payment, interest being the money you pay for borrowing money, principal being the actual amount borrowed. So each time you make a "principal and interest" payment, you’re paying back some of the principal, thereby reducing the amount of money you owe. But in this example, with an interest-only payment, I'd pay nearly $300 a month…..and no matter how long I paid, still owe the same $89,500.

In other words, with an "interest-only" payment, a borrower essentially pays each month to “rent” the money.

So comparing a regular payment to an interest-only payment is not exactly kosher. (Actually, it's a classic Sneak.)

Let’s suppose that a hypothetical debtor, with credit good enough to qualify for such a loan, instead found a bank or credit union that would give him a consolidation loan for $89,500 at a fixed rate of 7%.

Based on a payback term of ten years, he’d pay $1,039.17 per month. With a slightly lower interest rate or a longer loan term, he'd pay less. The important thing is, eventually he'd pay off the loan.

But—but—but—you say—according to this letter, the interest rate on the equity loan would be only 4%! Isn’t it always better to pay a smaller interest rate? How can you beat 4%?

A reasonably good argument, except for one thing. A bit of fine print on the back of the letter informs us that this is a variable rate. As many people have discovered lately, variable rates are tricky things. A four percent rise on that 4%--an entirely possible scenario--would hike that “interest only” payment from $298.33 to $596.66…and our debtor still wouldn’t be paying off the loan.

But the Sneakiest part of this whole pitch? Mr. Debtor, already in hock for a $89,500, wouldn’t qualify for that 4% rate in the first place! According to the fine print….

(…read the fine print. Always read the fine print…)

….the rate offered only applies to loans over $100,000! So unless our debtor’s willing to take on another $10,500 worth of debt, he’s not going to get 4%.

Add this to the scenario, too... if our debtor “does not meet the repayment terms”...which means, of course, if he misses a payment or two... his interest rate could jump instantly to 18%. (Darn that fine print!)

And at 18%, even an “interest-only” payment on $100,000 would be $1,500.

Plus, nowhere in this letter does it mention exactly how one does pay off this loan. No mention of length of term, or how much each monthly payment would be if it actually included some principal as well as interest.

I guess the idea is that anyone taking out such a loan is to “rent” that $100,000 for the rest of their natural life, paying anywhere from $333.33 (4%) to $1,500 (18%) a month. Nice. Really nice.

Is this offer looking not quite so good now? Yes?

Yes!

But here’s the final kicker, the thing you should always keep first and foremost in your mind when any financial institution offers you a home equity loan….

….if you can’t make the payments, they can take your home.

If you can’ t make the payments, they can take your home.

Does that mean you should NEVER take out a home equity loan? No....but the reasons, terms and conditions should be considered very, very carefully. And....

...read the fine print!

What a Deal! (Sneak)

Two themes for this essay: Always read the fine print....and isn’t it sad that banks now seem to have the ethics of "Push, Pull or Tow!" used care salesmen ?

I am looking at a marketing mailing sent me by my bank, one of the largest and oldest banks in the country. I seem to get such mailings at least once a week, all urging me, in one way or another, to borrow more money from this bank. (I have one of its credit cards.)

Carefully examined, this mailing skates close to being a pure huckster’s pitch. God help anyone who doesn’t read what’s buried in the fine print. (Fifty years ago, no respectable bank would ever have sent out stuff like this, but then, fifty years ago, banks weren’t in the business of convincing people to borrow money at high, variable interest rates. That kind of thing was left largely to pawnshops.)

The first thing I saw when I pulled this out of the envelope was a red headline that proclaimed “Now--an opportunity to take your credit card balances down to zero.” Because I’m “a valued customer,” the piece goes on to say, I can now get an “unsecured loan up to $50,000*” to pay off “expensive credit card debt†” at “competitive non-variable rates.”

Uh-huh.

To begin with, always beware of flattery. My bank--or rather, the computer that generates this stuff-- does not know me well enough to be realize how truly, truly special I am. This isn’t an pat on the back or a good citizen award, it’s a pitch to make money. Always keep that in mind when a company starts telling you how wonderful you are. Or in this case, how “valued” you are.

Next comes the part about how I can pay off “expensive credit card debt.†” The little symbol after the word "debt" is called a dagger. Daggers (†), asterisks (*) and so forth indicate that there are a few facts you really should be aware of tucked away somewhere in the fine print, where, if you're a trusting soul, you’ll never bother to go read them. But being a suspicious sort, I searched around and found the dagger, and learned that my bank “may prohibit use of this account to pay off or pay down any account issued by”......

.....my bank.

In other words, they want me to have the opportunity to quit paying high credit-card interest rates unless I’m paying those rates to them. Since most of my fairly modest credit card debt is owed to this bank, this deal is suddenly looking not quite so special.

Still, I can get an “unsecured loan up to $50,000*.” Note the asterisk. Another trip to the fine print. (In this case, the phrase “up to” has already hinted that I just might qualify for much less than $50,000, but one can always hope.) And there it is. “Your actual credit line could be lower than $50,000.” Oh, darn. I’ve got a feeling one has to have a large income to borrow that much. There goes my chance to buy the National Champion Arabian horse I’ve always wanted.

Still, I do have a little bit of credit card debt on another card and I can pay that off at “competitive, non-variable rates.” I might even be approved for their lowest APR (Annual Percentage Rate) of 7.99%††” Darn, there are two daggers this time.

Back to the fine print. “We may set your initial APR between 7.99% and 19.99%.” Whoa! That's quite a spread. What rate are we actually talking here? And what do they mean by “initial?”

Well, surely I can find out before I agree to the deal. After all, these are “non-variable rates.” I mean, any stays-the-same rate lower than what I’m paying now will still be a great deal, right?

Except that--when I check--I find that this rate isn’t actually fixed. The folks at the bank can change my interest rate whenever they want. They can change the fees involved. They can change the terms “at our discretion.” Says so, right in that half-the-size-of-everything-else fine print.

So how is this rate “non-variable?" Search, search, search....ah-hah! You see, it’s not tied to an index, such as the Prime Rate. It doesn’t vary automatically. It only varies when the bank decides to vary it. Got the difference?

Oh, there’s also a 3% transaction fee on any advance, and the loan length run from 5 to 8 years. So if I borrow $50,000 (I’d really, really like to have that horse and a barn and a trailer to go with it) I get to pay a $1,500 fee up front, then pay up to 19.99% per year interest for between five and eight years.

And I can call and set all this up in “as few as 10 minutes.”

Yep. Ten minutes to set up a loan that could leave me owing a huge chunk of money, for as many as eight years, at a rate that the bank can change any time it wants, that starts as high as 19.99% APR....and might just go higher. (I’m still worried about that word “initial.”)

What a deal! What a “major opportunity!”

What a crock.

Don’t assume that because a company is large and well-known, it won’t use tactics that would make a con artist blush. These days, you just can’t count on any organization (even, sadly, some that call themselves “non-profit”) being more honest and aboveboard than is legally required....and remember, such regulations are usually put in place in response to a lot of people being fooled first. And the flim-flam companies (and their lawyers) are always searching for new ways to not quite tell you the whole truth.

So always, before you sign anythng....

... check the fine print!

Credit: Do You Shop at the "Special Sale" Store?

Imagine this scenario:

You're driving down a street, in a section of town you haven't visited lately, when suddenly you see an immense new store with huge display windows. As you drive past, you're astounded to see merchandise in those windows that's exactly what you want: the new stainless steel refrigerator you wish you could afford, the living room furniture you've been dreaming of, the power tools your husband's always wanted, the very toys the kids have been begging for. The models, colors, sizes and styles are all precisely what you want. Best of all, there's a huge banner hung over the entrance that reads "Special Sale Today!"

Do you park and go in? Of course! How could it hurt? Maybe you can afford to buy a few things, just a few.... depending on how much they've been discounted. Eagerly, you start looking at price tags.

But something's wrong. Something's very strange. You check a dozen tags, then, puzzled, flag down a sales associate.

"There's been a mistake," you say. "Everything's been marked up. This shirt was $22. Now it's priced at $26.18. These shoes were $40. Now they're $47.20. " You point at a tag, bewildered. "This recliner-my husband would love it-but the price has been changed from $425 to $493. I don't understand. The sign outside says you're having a sale."

"We are," says the sales associate brightly. "It's a very special sale. Everything has been marked up. That's what makes it so special. Now-what would you like to buy?"

Think about this very carefully. Would you shop in a store like this? Would you pay prices that had been increased? Or would you turn around and walk out?

Most people would swear they'd walk out.

And they'd be liars.

Why? Because people shop such "special sales" every day. They pay 6%, 12%, 16%, 18%, even 20% or more for much of what they buy, without even blinking.

They do it every time they use a credit card.

Think about it. Do you pay off your card balances in full each month? Few of us do. But somehow we never quite visualize interest as "real" money. And that costs us-a lot.

We're thrilled with a new outfit bought at 10% off- and paid for with a credit card that charges 12% interest! We use a card that promises to refund us "up to" 1% of the cost of what we buy-then turn a blind eye to the rest of the interest charged. And we pay interest, without protest, not only on the cost of each item itself, but on any sales tax as well.

At 12%, every $1000 worth of average balance on a credit card costs you $120 per year. At 21%, that cost soars to $210 . How high an average balance do you carry on your cards? $2000? $4000? $6000? With a $6,000 balance, a modest 11% interest rate means you pay $660 a year in interest alone! Pure waste, pure waste, pure waste!

So put away your credit cards. If you're planning to buy large ticket items, start stashing money in a savings account now. Then get in the habit of paying cash.

You'll be astounded how much money you save when you don't shop at the "special sale" store.

Safety Doesn't come in Plastic

I had a friend say she uses credit cards because they're safer. If her purse gets stolen, she won't lose so much money.

She couldn't understand why I bent over laughing.

Yes, if someone steals your cards and you're lucky enough to discover this fairly quickly, and you can find the special number you have to call to report a lost card (that number came with your credit card; you tucked it away in a safe place, right? Next to the list of all your credit card numbers?) you probably won't be on the hook for more than $50 .

Per card.

How many cards do you have in your wallet? Three or four general cards? (Discover, Master Card, Visa.) Two or three gas cards? Four or five store cards?

So, let's say you're carrying ten credit cards and $20 cash. And your pocket is picked, your purse is yanked, or your friendly neighborhood mugger requests that you hand over your wallet...or else.

You've lost $20 cash....and potentially $500 or more in false credit card charges that the card issuers won't cover. And you have to call those ten credit card issuers, plus your banks, plus your mortgage company. And you have to pray that you get all this done, and the word gets out to thousands of merchants and financial institutions that your cards have been stolen before the thief uses your cards to obtain other cards. And charge thousands of dollars in merchandise. And open checking accounts in your name. And makes your life a living hell.

For years.

By contrast, suppose you only carriy two cards, a Master Card and a Visa. You also have $200 cash in your wallet, which is what you estimate you'll need per week for basic shopping.

Your purse or wallet is snatched. You're out $200. A definite financial "ouch," but hardly a disaster. Plus you're out another $100 in potential uncovered charges. $300 at risk instead of $500.

And the only credit card companies you have to call are Visa and Master Card.

Why does anyone need a dozen credit cards in the first place?

The answer is, of course, that you don't.

I've yet to run into a mainstream retailer who wouldn't accept one of the major cards, especially Master Card and Visa.. So I--and you--don't need their cards. There's no benefit for us.

There's a however, a big benefit for them. When someone uses a credit card, the merchant involved has to pay the card issuer a percentage of the purchase price as a fee. Contrast that with a merchant who is also a card issuer instead getting all that nice interest that you pay. Plus, you're more likely to spend money in their store-—or at their gas stations, restaurant, etc. etc.—if you have their card. No wonder they'll give you ten percent off your first purchase. (Then charge you considerably more than that for any balance you don't immediately pay off.)

These days, you almost have to have credit cards to establish credit. Otherwise, so far as the financial industry is concerned, you're well-nigh invisible. But you don't need more than one or two of the major cards. And there's no law that says you have to use them more than is good for you...which, frankly, should not be very often.

Another advantage of not having a wallet full of credit cards? Information on all those cards' credit lines goes on your credit record. Even if you don't charge much on each card, a potential lender knows that you can....and may decide that you're therefore a poor credit risk. Keep the two or three low-interest cards you've had the longest, especially if you've paid faithfully on them (establishing that all important good credit record.) Pay off and close the cards you don't use.

It's Still a Bad, Bad Idea to Pay Late! (Sneak!)

Ah, the credit card companies are doing it again....figuring out ways to charge you very, very high rates. And it's all legal.

I was watching TV a while back when I saw a commercial for a bank card that basically said that if you pay your credit card bill late, you won't be charged a late fee as long as you've made a purchase with the card during the billing period.

What a deal! Just use your card once a month and you don't have to worry about paying the bill on time!

Well, not exactly. You see, with most credit cards these days, when you pay late, two things normally happen. First, you're charged a late fee that can typically run from $15 to $35. But you can also have your card's interest rate hiked to the issuer's "default" or "penalty" rate....and in this particular instance, according to information on the card issuer's website, this rate is 30.74%! The info doesn't specify how many times you have to pay late before this kicks in, but often it's as little as once or twice during a six-month period.

No wonder this company wants you to "not worry" about paying late! 30.74% is a juicy return on investment for them....and to make this even more fun, they state that this rate may apply "if you default on any Card Agreement that you have with us." (The italics are mine.)

They can also hike the rate if you pay late to any creditor!

When you get a credit card, whether at the bank or by responding to a mail offer, forget about the large headline hype. Check the fine print, especially that contained in the here-you-gotta-tell-the-truth "grid." And don't trust credit card issuers to have your best interests at heart.....the interest they really care about is the interest they can make you pay.

(Note: Since I first wrote this piece, I notice that the commercial in question seems to have disappeared from TV. Could it be that someone pointed out to the upper management of the bank involved that this particular marketing ploy was just a bit too far to the wrong side of sneaky? I hope so.)