things you don't want to buy on credit

for me, there are very few things that i don't buy on credit because i pay off my balance every month, no matter how painful it is (some months, like january after christmas purchases are more painful than others).

my understanding is that this is not the norm. here are the things that i would hate to go into debt to buy:

1. food. unless you really are in extremely dire straits, i'd say buying food is probably a very bad use of credit, but it's something that i'd guess happens pretty often. i've personally observed a lot of my friends that dine out every day, morning, noon, and night. for the most part, these folks are buying meals that they aren't going to remember after a few hours, but they'll be paying for them for a lot longer. you think that $1 value meal is a good deal? what about after your revolving debt, late fees, and interest turns it into $25? you could have had a gourmet meal!

2. entertainment. this is the same story as above. it's already way too expensive to go watch a movie, but to put it on a credit card that you are only making minimum payments for? i hope the dark knight is worth $25.

3. gas. paying for gas at the pump is really convenient. but with gas at $4 a gallon, it costs me about $50 to fill up. how about twice that amount if you just making minimum payments?

now, i'm exaggerating a bit, but a good rule of thumb on revolving debt is that making just the minimum payments is going to end up costing you at least twice the amount of your original purchase. that's just the high level, though. think about the opportunity cost -- you could have put those fees to work for you, instead of paying someone else!

1.65% return with cc

i have been carrying and using an amex cash rebate card for quite some time and have been pretty happy with it -- last year, i got a refund of some $750 by putting absolutely every purchase on the card.

well, thanks to the handy tools available right on the amex website, it was easy for me to calculate that i actually earned a 1.65% return on that money. i pay my balance in full every month, so it's really free money.

rewards cards

i carry a few credit cards, but my primary one is an amex cash rebate card. with it, i get a graduated cash back reward that goes from 0.25% to 1.5% (when i spend more than $5,000 in a year). i am thinking about switching over to the amex blue cash card. it pays 0.5% to 1% until you spend $6,500 in a year and then it bumps that up to 1.5%. then it bumps the reward to 5% on purchases at gas stations, drugstores, and supermarkets. it's got no annual fee and a 0% APR for the first 15 months.

sounds like a decent way to 'save' some money on money that i'm going to be spending anyway.

late fee

well, it's totally unlike me, but i entirely forgot to pay by credit card bill last month. it was a big one, too. but, i got on the phone to my credit card company and asked that they waive the late fee, which they were happy to do. sometimes, you just have to ask.

of course, i don't know that they view me as a great customer -- i always (okay, not this time), pay my balance on time and in full. so, they're really not making any money off of me in terms of finance charges or late fees, but they always do get a small percentage of the cost of the goods that i am buying. this percentage is actually paid by the retailer and in the early days of credit, you would often see discounts when you were paying by cash versus credit. today, it's not really something you hear much about, but you can still get some discounts if you pay with cash -- you just have to ask. try it when buying big ticket items like furniture or other major appliances. i don't know that big retailers want to negotiate, but smaller shops are generally happy to give you a bit of a break when you pay cash.

credit score

well, i've been pretty busy lately with the new house move and haven't had much time to post, but i finally found some time today, and i thought i'd share some interesting information. i've created a lot of stress by changing lenders at the last minute, but i am saving about 1/4 of a point.

anyway, during the loan process, my lender pulled my credit report and while my credit is okay, something very interesting came up -- a collection filed against me.

well, i have hardly ever been late on a payment in my life, so i was very surprised to see that i had a balance so old that it was kicked over into collections. it turns out that after i moved out of a place i was sharing with my brother, i never filed the appropriate change of responsibility forms so that he would take over the utilities, etc. it turns out that after he moved out, he didn't pay the last bill, so there is a mark on my credit for collections on a $119 light bill.

i don't know what to really do about it. the collection agency has never contacted me and the debt really isn't mine. should i really bother about a 6 year old collection? from my limited research, paying off the collection won't erase it from my report -- it'll stay on there for 7 years!

it hasn't impacted my life or my ability to acquire credit. either way, let it be a lesson to you -- these little things can have side effects that you have no idea about.

you're a credit to your . . .

about 3 weeks after we bought our first house, my wife and i were laid off from our respective companies within a few hours of each other. it was a pretty stressful time, but we made it. imagine draining your savings to put into a down payment and taking on the responsibility of a mortgage with no job and very little cash on hand. it was quite an experience, but we definitely learned a lot from it. here's how we did it:

the day i found out we were going to be without a job, the very first thing was call my credit card company and ask for a credit limit increase. crazy? maybe so, but i figured that if i was going to need some leverage to handle any type of emergency, i should have some more credit. this wasn't for going out or having fun, but basically a very high priced insurance policy, in the event of some major emergency.

the very next thing we both did was file for unemployment. unemployment insurance is something that you pay for in every paycheck, so it's not something that you should be ashamed of collecting. it's not much, but it helps with the necessities.

the next thing we did, obviously, was get our resumes together. considering the state of the economy at the time, we weren't going to be bombarded with job offers, or even interviews for that matter. we made finding jobs our jobs. it was a tough time, but we didn't mope about it. we sent our resumes out, made calls, went out on interviews, and made it our daily routine.

we also learned how to live on very little. it was spring time, so the weather was pretty mild. we opened the windows to cool the house, we prepared food at home, we cut out all non-essentials, but we still treated ourselves and went out every so often. i think it was important that we did that. just because we were jobless didn't mean it was the end of the world, and it helped us break the monotony of the everyday.

since we had just moved in, we didn't have a mortgage payment due immediately. you'll get one or two months after you close before you have to pay, so we didn't have that looming over our heads. and, in the end, we made it through, but what we learned was we could deal with being out of work, we could manage and make it through, and the next time we'd buy a house, we'd have more of a savings cushion on hand after our down payment to deal with just these types of emergencies.

0% credit

i was trolling the web the other day and came across a number of 0% credit cards. there are quite a number of cards out there offering 0% balance transfers for up to a year or longer. their rates then jump back up to typical credit card standards of 10-15%. well, i figure there are enough cards out there that i might could just revolve some credit around and never have to pay . . . never really tried to take advantage of the system like that, but i imagine it would work for a while.

anyway, i have taken advantage of this before. once, we were organizing a trip, so we collected money from all the people on the trip and booked everything through my credit card. well, instead of paying that off right away, i transferred the balance over to a 0% card for about a year while i had the cash stashed away drawing interest. it wasn't a lot, but it amounted to enough to buy a nice dinner or two at the end of the year (it was a trip to hawaii for about 25 or so, so it was a decent chunk of cash).

actually, my credit card is always has a 0% interest rate on it because i pay my balance in full every month. i still get to take advantage of 2 weeks of float . . . and while it's not a lot, it's a lot better than paying 15%!

maxed out

i sometimes come across shows on tv like maxed out, suze orman's show, and personal finance shows of that ilk. they're not bad, but they're all alike and they're a lot like other kinds of advice shows -- people call in, describe a pretty dire situation, and the host says something like: you can't do that, you can't live like that, you need to save, blah, blah, blah.

yes, it's all true, but the key to helping people to me is not to tell them what to do, but to teach them how to do it. when it comes down to it, over extending and over spending seem to be habitual, practiced, almost unconscious behaviors. if you don't realize how you got into your current situation, it's going to be easy to find yourself back in the same situation a year or two down the road.

fortunately, i think we as people are pretty stuck in our ways, so, if you can reverse max-out type behavior and turn it into savings, i find that it's pretty easy to get out of debt, and start building a nest egg or a rainy day fund.