In George Orwell’s “1984,” the totalitarian regime often confused the populace by using contradictory phrases such as “war is peace” and “freedom is slavery.” The common credit card term “minimum payment” might contain a similar sort of contradiction, because by making minimum payments, you’ll find yourself shelling out the maximum amount of money.

The reason is that the longer it takes you to pay down a credit card balance, the more interest you will pay on that balance. Thus, making the minimum payment each month will mean racking up more in the way of interest charges. Just how much more may surprise you.

The true cost of minimum payments

Suppose you shell out $1,500 for a home theater system. It’s a big investment, so you put it on your credit card so you can pay it off over time.

For this example, let’s assume your credit card charges a minimum payment equal to the larger of 3 percent of your outstanding balance, or $10. These are fairly typical minimum payment terms.

Under those terms, if you make just the minimum payment every month (and assuming you add nothing else to your balance) it will take you over ten years to pay off that $1,500 purchase. Meanwhile, interest charges, at a fairly typical 15 percent rate, would have totaled $810.41. Thus, you would have increased the total cost of that home theater system by 54 percent, to $2,310.41.

Bringing those interest costs down

Making some simple tweaks to the minimum payment can really bring those interest costs down. For example, suppose you consistently pay 50 percent over the minimum payment. Using this approach would eliminate that $1,500 debt in just under six years, with a total interest cost of $441.90, as opposed to the $810.41 you would pay in interest by making the minimum payments.

Suppose there isn’t enough room in your monthly budget for you to pay 50 percent over the minimum payment. There is another approach which will stress your budget less in the short term, but allow you to pay off your balance faster in the long term.

Under the credit card terms described above, your initial minimum payment would be $45; i.e., 3 percent of $1,500. This minimum payment would then decline slowly as your balance declines. However, assuming you can afford to pay that initial $45 minimum, suppose you keep your monthly payment at that amount in subsequent months. This way, you would keep the payment at a level you can afford, but you would be steadily paying more and more over the minimum as it starts to shrink.

The results of this approach? You would pay off your $1,500 purchase in about three and a half years, incurring just $384.44 in interest charges – less than half the interest you’d pay by sticking to the minimum payment all along.

Other factors that can jack up your credit card costs

Besides making minimum payments, there are other things that can substantially raise your interest expenses:

• Missed payments. On many credit cards, missed payments invoke a double-whammy: a penalty fee, plus a shift to a higher interest rate going forward.
• Poor credit. In general, the worse your credit rating, the higher the interest rate you’ll pay. Remember, you can get a free FICO credit score report to check out any potential problems with your credit rating.
• Balance transfers. Zero percent balance transfer offers sound great, but there may be an upfront fee for each transfer, and the zero percent applies for a limited time only. After that, interest rates on balance transfers are often higher than rates on purchases, so be sure to read the fine print of your credit card agreement.
• Rewards/cash back programs. Make sure these incentives are worth it to you, because these credit cards often carry higher interest rates.

Remember, minimum payments do the opposite of minimizing your credit card costs. Larger payments, good payment and credit histories, and careful attention to credit card terms are the things that will bring those costs down.

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

Source URL: Credit card debt: The less you pay, the more it costs

Copyright Protected © 2011 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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By Tom Tennant

You’ve got bills to pay and a creditor or two reminding you that you’re a couple weeks behind on your payment. Maybe your car is in desperate need of repair. Or, heck, could be that vacation is around the corner and you’d like some extra “walkin’ around” money.

No matter the reason, the promise of quick cash by way of an “instant tax refund” is pretty darn alluring. The problem is, that fast federal tax refund isn’t a refund at all. It’s a loan – and an ultra-expensive one at that.

We’re talking tax preparation fees, interest rates that could soar into the triple digits, and the possibility that your refund will be less than your loan amount.

Which begs the question, if you can file your taxes electronically, possibly for free and with help from local non-profit groups and the IRS, and then have Uncle Sam direct deposit your refund straight into your checking account in under two weeks, why give so much of that refund away to get cash in your pocket the same day?

It just doesn’t make sense.

Government intervention in Refund Anticipation Loans

Consider, too, that the government is so down on these types of loans it won’t even allow businesses to call the loans “instant tax refunds” anymore. Which is good, since they’re not refunds at all. They’re now called Refund Anticipation Loans, or RALs. And in 17 states RALs are highly regulated to protect consumers.

Starting this year, the IRS won’t tell tax preparers and financial institutions whether a person’s refund could be garnished for unpaid taxes or child support. This makes underwriting the loan risky for lenders, because they’re taking a chance that refund will come through and the borrower will pay back the loan.

Lenders responded by lowering the amount you can borrow to about $1,500 and jacking up the interest rate on the loan to anywhere from 50 percent to – get this – 500 percent. Yes, you read that right: 500 percent. This, according to the Center for Responsible Lending.

To get an RAL, you often visit a tax preparer who charges you $50 or so to prepare your taxes and then works with a bank to lend you the refund. Pay the tax preparer’s fees with your refund, and that’ll cost you a little extra, too.

Then there’s the off chance that your refund amount will be less than the amount your tax preparer “anticipated.” Or that a snafu holds up your refund for a short period of time. Or the IRS denies your refund altogether.

No matter the reason, you’re still responsible for paying the loan in full. And if you can’t … ouch. That’s going to cost you.

The more you know, the less you spend

But if, after all that, you still want to pursue an RAL, the City of Chicago suggests you ask for this info in writing from your tax preparer:

• Fees that the preparer charges for tax preparation
• Fees that the prepares charges for facilitating the RAL
• The RAL’s Annual Percentage Rate (APR)
• The RAL’s total cost
• The estimated date the consumer can obtain their RAL money

If the tax preparer balks, go elsewhere. No matter how good the deal sounds. They could be up to no good.

Remember, if you are pursuing an RAL just to pay down some bills, you could be making things worse. Before you take out another high interest loan, talk to your creditors to see if they’ll give you an extension. Most creditors will work with you, if you’re not too far behind. Wait for your full refund and pay down even more.

And look into free tax prep help by visiting www.irs.gov or calling (312)-566-4912.

Source URL: Can’t wait for a refund? Refund Anticipation Loans will cost you

Copyright Protected © 2011 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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By Tom Tenant

You’ve got bills to pay and a creditor or two reminding you that you’re a couple weeks behind on your payment. Maybe your car is in desperate need of repair. Or, heck, could be that vacation is around the corner and you’d like some extra “walkin’ around” money.

No matter the reason, the promise of quick cash by way of an “instant tax refund” is pretty darn alluring. The problem is, that fast federal tax refund isn’t a refund at all. It’s a loan – and an ultra-expensive one at that.

We’re talking tax preparation fees, interest rates that could soar into the triple digits, and the possibility that your refund will be less than your loan amount.

Which begs the question, if you can file your taxes electronically, possibly for free and with help from local non-profit groups and the IRS, and then have Uncle Sam direct deposit your refund straight into your checking account in under two weeks, why give so much of that refund away to get cash in your pocket the same day?

It just doesn’t make sense.

Government intervention in Refund Anticipation Loans

Consider, too, that the government is so down on these types of loans it won’t even allow businesses to call the loans “instant tax refunds” anymore. Which is good, since they’re not refunds at all. They’re now called Refund Anticipation Loans, or RALs. And in 17 states RALs are highly regulated to protect consumers.

Starting this year, the IRS won’t tell tax preparers and financial institutions whether a person’s refund could be garnished for unpaid taxes or child support. This makes underwriting the loan risky for lenders, because they’re taking a chance that refund will come through and the borrower will pay back the loan.

Lenders responded by lowering the amount you can borrow to about $1,500 and jacking up the interest rate on the loan to anywhere from 50 percent to – get this – 500 percent. Yes, you read that right: 500 percent. This, according to the Center for Responsible Lending.

To get an RAL, you often visit a tax preparer who charges you $50 or so to prepare your taxes and then works with a bank to lend you the refund. Pay the tax preparer’s fees with your refund, and that’ll cost you a little extra, too.

Then there’s the off chance that your refund amount will be less than the amount your tax preparer “anticipated.” Or that a snafu holds up your refund for a short period of time. Or the IRS denies your refund altogether.

No matter the reason, you’re still responsible for paying the loan in full. And if you can’t … ouch. That’s going to cost you.

The more you know, the less you spend

But if, after all that, you still want to pursue an RAL, the City of Chicago suggests you ask for this info in writing from your tax preparer:

• Fees that the preparer charges for tax preparation
• Fees that the prepares charges for facilitating the RAL
• The RAL’s Annual Percentage Rate (APR)
• The RAL’s total cost
• The estimated date the consumer can obtain their RAL money

If the tax preparer balks, go elsewhere. No matter how good the deal sounds. They could be up to no good.

Remember, if you are pursuing an RAL just to pay down some bills, you could be making things worse. Before you take out another high interest loan, talk to your creditors to see if they’ll give you an extension. Most creditors will work with you, if you’re not too far behind. Wait for your full refund and pay down even more.

And look into free tax prep help by visiting www.irs.gov or calling (312)-566-4912.

Source URL: Can’t wait for a refund? Refund Anticipation Loans will cost you

Copyright Protected © 2011 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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In recent months Americans in general have been making a determined effort to pay down their credit card debts. Maybe you’ve been part of this, changing your spending habits, and using your paycheck to pay down your credit card debt along with your student loans. That effort will only be helped by new legislation passed last year to combat some of ham-fisted habits of credit card companies.

How do these new regulations affect you?

New financial regulations to limit customer exposure to fees and rate hikes

New restrictions on credit card companies–and credit card users, for that matter–come from a combination of the 2009 Credit Card Accountability Responsibility and Disclosure Act and new Federal Reserve regulations mandated by the law. The Fed’s rules, according to the law, must make sure that late charges and penalties–a major source of taxpayer headache and credit card company income in recent years–are “reasonable and proportional.” The rules apply to many types of credit cards, from high interest credit cards to zero balance transfer cards to even the best cash back credit cards.

Just how effective the new law and regulations will be remains to be seen. But as a consumer, it’s important for you to keep in mind what your rights are.

Credit cards and credit scores

Some of the new regulations are related to not only to credit cards but also to your credit scores. Here’s what you have coming to you:

• Each year you can get a free copy of your credit report from each of the three major credit bureaus–Equifax, Experian and TransUnion–at AnnualCreditReport.com.
• If you get turned down for a mortgage, credit cards, insurance policy or an apartment because of your credit score, or if you’re charged a higher premium, you have the right to ask for a copy, for free, of the credit score that did you in. You can then check it against your free FICO credit score to understand what happened.

A new sheriff in town

Your credit card company–as well as your bank, mortgage lender and student loan company–will have to obey rules set out by the new Consumer Financial Protection Bureau. Your auto dealer, however, won’t report to the bureau. But retailers will have to follow certain rules, such as:

• Merchants who set a minimum amount for credit card purchases now have the freedom to continue to do so, provided the minimum isn’t higher than $10. So learn to carry some cash. The Federal Reserve can raise the minimum if it wants to. Also, the federal government and universities can limit how much you put on your credit card.
• Merchants can provide incentives to people who pay in cash or use a debit card instead of credit cards. Previously, contracts with credit card companies prevented that, even though increasing credit card charges made goods more expensive for everyone. Now when a merchant saves on those credit card charges when you pay with cash, you may get to share in the savings.
• Merchants won’t be able to charge less for people using one type of credit card than people using another. And they can’t give discounts for certain banks that issue debit or credit cards.

Credit card penalties and interest rates

Credit card companies will be on the lookout for new ways to recover the profits they are losing to the new regulations, so you should be on the lookout for them. One example is Alliance Data Systems, which issues private label cards to specialty merchants. Alliance made a lot of money penalizing its customers, so when the new rules went into effect, it announced a $1 monthly surcharge on customers who want to get an account statement by mail.

The start of something big? It’s hard to say. But in the meantime, here’s what your credit card company can and can’t do:

• Credit card companies can’t raise interest rates on your account for at least 12 months after the account is opened. After that, a higher rate only applies to your new changes, not an existing balance.
• People who are late on their credit card payments are still going to face some stiff penalties; card companies can still double or even triple your interest rate if you fall behind on payments by as little as two months. They have to give you 45 days notice, however, before raising your rates.

The new rules also bar companies from issuing cards to minors without establishing their ability to pay or getting the co-signature of an adult.

Late fees can no longer exceed the amount of the payment due and can’t be higher than $25 in one month unless one of previous six payments was late or the company proves your tardiness cost them the amount they’re asking.

Where should you go from here?

If you’re just starting out after college in the midst of these regulatory changes, the best advice out there is to live below your means and pay down your credit card debt. Trust me–this temporary sacrifice will save you lots of financial heartache in the future.

Source URL: How do the new credit card rules affect you?

Copyright Protected © 2011 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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If you feel awkward getting asked to open a store credit card when you’re shopping for blue jeans, imagine what happens when you get the same offer in the emergency room.

Medical credit card applications abound at the offices of dentists, doctors, and even veterinarians. While relaxed approval processes make these cards appealing to Americans in need of urgent care, critics of medical credit cards warn that the cure for long term medical debt might be worse than the disease. Do these credit cards deserve their bad rap?

How medical credit cards hit the market

It was unheard of for earlier generations of Americans to let medical bills go unpaid. Our parents and grandparents couldn’t run the risk of bumping into the neighborhood doctor at church or in the supermarket with outstanding invoices hanging over their heads.

Over the years, deductibles and co-insurance ceilings got larger, forcing health care providers to take on greater risk. Practices got bigger, too, enabling more of us to slide our medical bills to the back of the stack without feeling very guilty. Lenders partnered with medical providers to offer easy applications, using many of the same techniques perfected in retail stores.

Shifting medical credit cards from emergency coverage to elective financing

With finance charges and payment options similar to retail credit cards, most consumers found terms reasonable enough to get them through a crisis. However, the medical credit card market kicked into high gear as American culture glamorized elective procedures, ranging from cosmetic dentistry to plastic surgery.

Instead of utilizing medical credit cards as a last resort to spread out unexpected health care costs, patients started using the unsecured loans to budget for voluntary procedures. Just as auto dealers and home improvement centers use favorable credit terms to encourage us to splurge on ourselves, some doctors have marketed financing to patients as an easy way to pay for planned operations and upgraded hospital care.

Pitfalls of medical credit cards

Opening a medical credit card carries the same risks and rewards as any other kind of unsecured loan. Except, according to critics, many consumers may not be totally thinking straight when trying to juggle the thought of a new monthly bill with a major illness or injury.

• Many patients make decisions about opening a medical credit card without considering how long term illness might affect their earning potential.
• Some health care practitioners not only get commissions on new accounts, they use headroom on the credit line to suggest expensive upsells like private hospital suites and enhanced recovery programs.
• Applying for a new medical credit card can affect your credit score. Maxing out your new account can cause some scoring algorithms to think you’re overutilizing your credit.

Just as you’d weigh the pros and cons of opening a traditional credit card account, you should think about whether the benefits of a medical credit card justify the risks.

Keeping control of medical credit cards

Few of us plan to rack up substantial medical bills. However, a little advance planning can prevent medical credit cards from dominating your financial life. Use these tips to minimize your risk when considering a new medical credit card account:

• Open a medical savings account. Even if you don’t qualify for a tax-favored savings plan, a basic online savings account can help you stash an emergency fund to cover co-payments.
• Review your health insurance deductible. A higher deductible can help you retain more of your monthly health care budget. Otherwise, a low deductible insurance plan can help you avoid the need to borrow more than a few hundred dollars per year.
• Explore all options for covering medical costs. Doctors who market medical credit cards often extend short term credit directly to patients who ask.
• Use balance transfer offers to bounce bills from medical credit cards to traditional cards.
• Consider opening a medical credit card account when you’re not under duress. The best medical credit card programs allow you to apply for a line of credit at a time when it’s less likely to impact your credit score.

Just like other unsecured loans, medical credit cards can help you get through unexpected tough times while letting you invest in a better quality of life. Treat a medical credit card account with the same respect as the credit cards in your wallet. Otherwise, you’ll just end up replacing one kind of pain with another.

Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.

Image: Ambro / FreeDigitalPhotos.net

Source URL: Like surgery, medical credit cards offer risks and rewards

Copyright Protected © 2011 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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Our family loves the holidays, but every year after the tinsel and pine needles have been vacuumed up, we find ourselves with a couple of small problems: Too much credit card debt and a couple of heart-felt gifts we really don’t want and can’t return.

The answer for us has been pretty simple: eBay. By selling some of our unwanted stuff–sometimes it’s Christmas gifts and sometimes it’s just items we find in the garage when we put the decorations away–we’re able to put a dent in that debt, even when we’ve used zero percent credit cards.

If this sounds like something you’d like to try, here’s a 12-step program to help you use eBay to whittle down that credit card debt:

1. Start small. If you’re new to eBay, begin by selling something that’s easy to price, easy to photograph and easy to ship. This way you can practice setting up an auction, monitoring your sale and making sure you get good feedback from your first buyer right off the bat. This small transaction will also give you an idea about how costs and commissions work on eBay.

2. Sell something new. New goods are easier to price and sell than used goods. If your Aunt Florence gives you linen napkins every year and you’re starting to run out of drawer space, sell them on eBay.

3. Factor in the costs of selling on eBay. It costs between $0.25 and $4.80 to list an item, and then eBay charges a 5 to 8 percent commission on the selling price. Make sure you’ve checked how much it will cost to ship and include that cost in your listing price.

4. Take good photographs of your product. One photo is usually enough, although you can add more for an extra charge or even direct buyers to a website to find more photos of your item.

5. Take your time writing a description. It’s important to write a good, accurate listing that contains the keywords a shopper might use when searching for an item. Headlines should also contain the keyword, and some eBay veterans also include common misspellings of their keywords. Avoid cheesy sales pitches or exclamation points. If you keep getting the same question from buyers, add the answer to your listing.

6. Describe the item in detail and don’t overlook any defects. Offering next-day shipping or money-back guarantees will help separate you from competitors selling similar items. This will also push your item higher up in the “Best Match” search results on eBay, as will high feedback ratings.

7. Price it right. Check previous sales to see how much similar items have sold for. You can do this by searching “completed listings” on the Advanced Search page.

8. Make sure bidders know you are fair and trustworthy. Don’t overcharge for shipping or ask for a mysterious “handling fee,” as these fees can make buyers inclined to shop elsewhere.

9. Time your auction to expire when activity on eBay is high. This can result in a bidding war on your item–something that isn’t likely to occur at 4 a.m. on a Tuesday morning. You can research the best times to sell by visiting on such websites as Terapeak.com and HammerTap.com, which require a subscription.

10. Include your contact information and answer all inquiries quickly. If buyers can get in touch with you, they’ll feel more comfortable bidding on something or paying the price you’re asking. Ship your items as quickly as possible and keep the customer informed about when it went out and when it’s expected to arrive. All of this will help give you a good rating.

11. Don’t get nervous if the bids don’t roll in right away. Most buyers wait until the last few minutes of an auction before making a bid. If you need reassurance, include a “counter” for your auction so you can see how many people view your item.

12. Use PayPal. It’s fast, secure and easy to use.

In no time at all, these tips should help you rid yourself of post holiday clutter while helping you get extra cash to tackle that holiday debt.

Jim Sloan is a free-lance business writer and a higher-education communications specialist. He has worked as a business editor and writer for various newspapers and magazines. He is the author of two books, and his stories have been selected for a number of anthologies. He has a degree in journalism and environmental science from the University of Maine.

Image: Filomena Scalise / FreeDigitalPhotos.net

Source URL: 12 easy steps to use eBay and pay down holiday credit card debt

Copyright Protected © 2010 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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If you are like most people, you probably cringe when it is time to pay the bills. It is a chore almost as dreaded as spending a Saturday afternoon at the post office and dry cleaners. Perhaps the most frustrating and stressful bills to open are those from credit card companies.

If you carry a balance like most of us do, every month you may be battling the disappointment of a cemented balance. This means that you are actively trying to reduce your credit card debt by sending more than the minimum payment each month, and have vowed to no longer use your cards unless absolutely necessary, but your balance does not budge – it seems to be stuck in the cement. In fact, it may even increase due to steep interest rates that outrank the amount you are paying every month.

Several years ago, the credit card bills stuffed in your mailbox were probably accompanied by an equal number of offers to transfer your higher-interest balances to zero interest credit cards with no balance transfer fees. This could have certainly helped you chisel your balances out of their concrete cells.

While those zero percent balance transfers are no longer weighing down your mail carrier’s bag like in years past, there are still a few out there that can help you pay down your balances more quickly.

Zero interest credit cards – not zero risk

While there is no doubt that zero percent credit cards can benefit your budget’s bottom line in the long run, there are several important things to keep in mind before accepting any balance transfer offers:

• Zero interest balance transfers are, in fact, less available then they once were. If one does come your way, take out your magnifying glass and read the fine print – carefully! Pay special attention to the consequences of defaulting on a monthly payment. Missing a due date by just one day has the potential to lead to a dramatic jump in your interest rate, maybe up to a whopping 30 percent. Also, inquire about the interest rate you will be paying following your interest-free period. Unexpected expenses have a way of popping up and, even if you have the best intentions, you may not be able to pay down the entire balance before the zero-percent term expires.
• Balance transfer fees are another trap many of us get caught in. A dangerous transfer fee is usually one that calculates the amount you will pay based on a percentage of the amount you are transferring to the new card. Ideally you will want to find zero interest credit card offers that feature no balance-transfer fees. In today’s market, this may be tough to find. Your next best bet is to find an offer that caps the transfer fee at a certain dollar figure. For example, three percent of the balance but not more than $400.
• Once you have been approved for a zero interest balance transfer, be sure to confirm the credit limit before actually transferring the money from your higher interest card or cards. If the amount you are transferring puts you over the limit, you will face over-the-limit fees that can keep appearing until your balance falls. Even if the transfer will not put you above the approved credit limit, beware of balance transfer fees that, combined with the card balance, have the potential to push you over the limit.

Finding the right zero percent balance transfer options can help you knock out credit card debt, manage large balances and even improve your credit score. Many resources are available to help you find the right card for you, such as MoneyblueBook’s list of zero balance transfer credit cards–a great perk considering zero percent offers are no longer crowding mailboxes.

Lisa Tortorello has been a Director of Public Relations and Marketing within a large East Coast health care system for more than 11 years. She has an associate’s degree in Liberal Arts and a bachelor’s degree in Public Communication.

Image: Salvatore Vuono / FreeDigitalPhotos.net

Source URL: Pay off debt with 0 interest balance transfer credit cards, but read the fine print

Copyright Protected © 2010 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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During the real estate boom of the early 2000s, paying off a credit card with help from a home equity loan seemed like a no-brainer. After all, housing prices in most parts of the country were skyrocketing. Why would you pay double-digit interest rates on a credit card when you could cut those finance charges in half or more?

In hindsight, all those refinance deals might not have been the best ideas. Where property values declined, some homeowners found themselves underwater on second mortgages and home equity lines of credit (HELOC). Now that banks have recapitalized and mortgage rates have dropped to all-time lows, home equity loans look attractive again.

Benefits of paying down high interest debt

With many credit card issuers changing their business strategies after the financial crisis of 2008, interest rates rose while credit limits dropped. Meanwhile, new federal regulations forced banks to increase monthly minimum payments on most unsecured credit card accounts. For some consumers, this double whammy wrecked monthly budgets and even caused a cascade of late payment and over-the-limit penalties.

If that scenario sounds familiar, a home equity loan could help you reboot your personal finance portfolio. Instead of surfing balance transfer credit cards and making multiple minimum payments, a mortgage refinance lets you pay just one or two lenders. Because the FICO score and other credit reporting tools review the percentage of utilized credit, paying down high balance cards without cancelling them can look good to your other lenders.

So why wait? Why not open up a HELOC now and pay off credit card debt? There are a few things that may give you pause.

Risks of opening new home equity lines for debt reduction

Even though nobody ever intends to default on debt, very few charged-off credit card accounts result in lawsuits. Most states protect cardholders from malicious debt collectors, and limit the length of time collectors can sue for unpaid damages.

However, miss a payment on your home equity line, and you can find yourself in serious jeopardy. Not only can you trigger penalties, you could also lose your preferential interest rate. Instead of worrying about debt collectors, you could face eviction from your home.

In addition, opening a new home equity line of credit doesn’t eliminate the lines of credit you’re paying off. Cancelling a credit card completely can negatively impact your credit score, forcing some homeowners to keep their cut-up cards active. However, the temptation to request a replacement card for an unused credit line can overwhelm many of us.

If you have little liquid cash in savings, don’t prepare to rely on untapped credit cards in case of an emergency. Banks have started decreasing credit lines of customers who pay off accounts to mitigate their own risk.

Your debt reduction strategy impacts your personal finance goals

When bloggers J.D. Roth and Jim Wang debated the issue, Roth revealed his past decision to roll $16,000 of unsecured credit card debt into a home equity loan. The strategy worked because Roth, now the editor of GetRichSlowly.org, made a conscious decision to focus on eliminating his debt instead of using the loan as a short-term fix. Although he made interest-only payments for the first few years, it took nearly a decade to pay off the loan completely.

Factors to consider before applying for a debt reduction loan

Figuring out your own personal finance story can help you understand whether you can manage a debt reduction strategy that includes a home equity loan. Answer these questions to help yourself decide:

• Do you have the strength to cut up your credit cards once you’ve paid down your balances?
• Will your current cash flow support the higher payments you’ll need to make on your home equity loan, compared to a typical minimum credit card payment?
• Does your current source of income seem stable, with no signs of trouble on the horizon for your employer or your industry over the next five to ten years?
• Can you qualify for any zero interest credit cards with no balance transfer fees that can cut the amount of home equity at risk?
• Have you checked your FICO score to see what the impact of a new home loan or a new credit card would have on your credit profile?

If you can answer “yes” to all of the above questions, it might be worth exploring a refinancing deal or a home equity line of credit to pay down your unsecured cards. Start the process by shopping rates online. Review your budget to see where you can pay down your debt over time while building an emergency reserve fund. Most of all, talk to your family and friends about the changes you’re making to your spending habits.

As Roth discovered, getting out of debt requires more than just a one-time loan. It forces you to focus on cutting back your spending and increasing savings, changes that will likely impact how you spend your time with the people closest to you.

Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.

Image: Andy Newson / FreeDigitalPhotos.net

Source URL: Should you pay off credit cards with a home equity line of credit?

Copyright Protected © 2010 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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Everyone needs a little extra cash sometimes. Whether your car breaks down, your cousin unexpectedly announces wedding plans, or your best suit get splashed with grape juice the day before a job interview, you’re bound to find yourself getting hit with a financial curve ball from time to time.

When that happens, it can be tempting to borrow the money you need. It’s best to avoid any new debt if possible, even when you’re dealing with an emergency.

In some cases this applies especially if you’re dealing with an emergency. If your family has experienced a job loss or a major health problem, there could be long-lasting impacts on your income and living expenses. Now is not the time to destabilize your financial situation even further with a new debt to pay off.

Borrowing money means paying interest and fees on the money you need, and it saddles with you a new monthly expense. Worse, borrowing when you’re already strapped for cash can trap you in a cycle of debt.

Problems with quick cash

Most of the regular sources of quick cash come with built-in problems. Let’s take a quick look at a few:

• Borrowing from your retirement funds. Not only will you pay interest on a 401(k) loan, you’ll lose the opportunity to earn money on that investment during the time you’re repaying the loan. That will cost you big when it comes time to retire. Additionally, many 401(k) loans require you to pay back the full amount all at once if you part ways with your current employer.
• Getting cash advances on credit cards. You do not even want to know how high the interest rates on these are. Taking a cash advance on your credit card is quick and easy, but it should be an absolute last resort. Never do this unless you have a clear plan for how you will pay it off, preferably within the month, and before your next payment is due.
• Taking out payday loans. Like credit cards, but much worse. These businesses essentially exist to trap you in debt: they charge such exorbitant interest rates, that the only way you can pay it off is to bring them your next paycheck, which they’ll also be taking a large cut out of.
• Getting money from relatives and friends. If you must borrow money in a financial emergency, this is probably your best bet. Just be sure you are very, very clear about the terms of the loan. Put it in writing. To make it fair for everyone, plan to repay the money with a reasonable amount of interest.

How to find fast cash

Rather than taking on new debts, your best bet is to find other sources for cash. There are plenty of quick, creative ways to get the money you need.

• Plan ahead. The very best way to have the cash you need in an emergency is to have a well funded emergency fund with ready cash waiting in it. By saving a little in a high-interest savings account each month, you’ll soon have a nice nest egg built up that can help cushion any financial blows your family takes.
• Sell some stuff. Everyone has things they don’t need. You have them in your garage, in your storage areas, cluttering up your spare room or sitting in drawers. The DVDs you haven’t watched in a year, the exercise bike you haven’t touched since grad school, and the business clothes you’ll never wear again can all be liquidated for extra cash. This won’t get you money today, but it could give you cash this week. Depending on what type of emergency you’re facing, selling off some extra possessions can be a fast, easy way to get on top of things.
• Moonlight. For a longer-term cash shortage, consider moonlighting with a side business or second job. Even a few hours a week of working at a side job can give you extra income to save for an upcoming trip or college textbooks for your kid.
• Find a way out of the expense. Often, we don’t need to spend as much money as we think we do. Do you really have to go to that cousin’s wedding? Or would a card suffice? Does that car repair have to happen this week, or can you limp through the next few weeks while you save up the cash to pay for it? Switching to a more frugal mindset will soon have you spending less, even when sudden needs arise.

Staying ahead of the game

Whatever strategy you choose to deal with your cash flow woes, your best bet is to create a well-funded emergency fund so that you can deal with any future emergencies effectively. You’ll want to select a savings account with the highest interest rate, and then set some portion of your paycheck aside each month. Then when your rainy day comes, you’ll be ready.

Sierra Black lives in the Boston area with her family. As a writer, she focuses primarily on parenting, personal finance and green living. She writes regularly for Get Rich Slowly. Her work has appeared in the New York Times, Babble and numerous other publications. You can learn more about her at her personal blog, ChildWild.

Source URL: Get cash quick without getting stuck in debt

Copyright Protected © 2010 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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Instead of flooding my mailbox with balance transfer offers, lenders have been bombarding my web browser and my DVR with ads that make me believe that picking the right credit card can help me live the good life. And while I still would love some help knocking down the interest on a few emergency purchases I made with plastic, the Chase Freedom credit card could convince me to cash in on my love for keeping my wallet streamlined.

The recession forced many lenders to rethink their approach to customer service, and Chase certainly took its lumps after trying to swallow what some folks call a forced acquisition of Washington Mutual’s credit card portfolio. In line with the times, the Chase Freedom card forces critics to take a second look at five compelling features designed to help consumers use credit responsibly.

Getting debt-free beats no balance transfer fee

First, the down side. Chase Freedom is one of those cards that carry a five percent processing fee for balance transfers. Unless you qualify for the lowest possible APR on the card and you’re transferring a balance from a card with very high finance charges, switching to a Chase Freedom wouldn’t be a good move on that count.

However, Chase Freedom is the first card in a long time that helps you strive to become debt-free. Chase used the Freedom card to pilot its “Blueprint” series of online account tools. The “Finish It” feature allows you to pick a date in the future upon which you will have paid down your selected balance. It’s a great way to set clear goals for debt reduction without storing the whole card in the freezer.

Straightforward cash-back rewards

While not strictly a cash back credit card, Chase Freedom lets you earn a “point” for every dollar you spend on the card. You can turn around and cash in your points for a penny apiece, or stretch your rewards with merchandise deals. At the time of this review, one major clothing retailer was redeeming points at a 20 percent premium. With no tiers, blackouts, or redemption restrictions, Chase Freedom remains one of very few cards that let you rack up limitless rewards.

Generous bonus rewards for special purchasing categories

As if earning one percent back in cash rewards wasn’t enough, Chase Freedom encourages cardholders to patronize specific merchants throughout the year. In return, you can earn up to five points per dollar spent. The list of qualifying stores and service providers changes every three months, and promotions have so far included:

• Restaurants
• Grocery Stores
• Gas Stations
• Home Improvement Centers
• Hotels
• Movie Theaters

Get a little more precise with your spending plans, and you can really rack up some reward points with one of the best cash back credit cards on the market.

“Full pay” lets business travelers and savvy shoppers flex their wallets

Chase’s Blueprint program makes it easy to avoid unexpected interest with the “full pay” feature. Tell the website you expect to pay a recent purchase in full by the close of the next cycle. The system will keep you honest, requesting that amount instead of just the usual minimum payment. Again, it’s the first time in a while that I can recall a credit card company helping you stay out of debt.

“Split” and “track it” puts cardholders in control of budgets

Chase Blueprint gives Freedom cardholders the power to budget a major purchase, like a home improvement project or a new computer. Instead of letting that big lump sum sit in your active balance, Blueprint can “split” your purchase into its own dedicated payment plan. “Track it” allows you to keep watch over all your purchases and fees, alerting you when your Freedom card gets used or when you’ve got a payment due.

Even though Chase has started rolling out Blueprint to some of its other products, it’s the combination of online account management and special rewards that make the Freedom card live up to the hype. Catch one of Chase’s occasional cash bonus application offers, and you’ll enjoy an even better deal on a useful, money-saving personal finance tool.

Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.

Source URL: Chase freedom among best cash back credit cards

Copyright Protected © 2010 Money Blue Book: Personal Finance Blog. All Rights Reserved.

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