Will that be Debit or Credit?

The Consumerist describes 5 Situations Where You Shouldn't Use A Debit Card,

1. When shopping online or making a large purchase:
   If you use a credit card you may be able to dispute a damaged or missing item from your order through your credit card company. Some credit cards also offer extended warranties.
2. While traveling:
   Some credit cards offer services when traveling like insurance coverage and concierge services.
3. When worried about begin ripped-off:
   With a debit card you must report fraud within two business days of discovering the problem or you can lose up to $500. With credit cards, you're loss is limited to $50 for unauthorized purchases.
4. When you want to raise your credit score.
   Debit cards won't help your credit history.
5. When you want to earn money on purchases.
   Most debit cards are cutting back on rewards to save money.

Is Layaway a good idea?

“The man who never has money enough to pay his debts has too much of something else.”
-James Lendall Basford

This year Sears, Kmart, Toys “R” Us, Babies “R” Us, TJ Maxx, Marshall’s, and Burlington Coat Factory are offering layaway plans. What exactly is layaway?

If you can not afford the full price for an item but don't want to see it sold out and unavailable closer to Christmas you pay the store part of the price and agree to pay in installments. There is an initial deposit based on a percentage of the purchase price (perhaps 10-20%) and a service fee (say $5-10) to administer the plan and keep the item in storage for you to pickup later. There are no interest payments but you don’t get to take the merchandise home until you’ve paid for it in full.

Most stores offer 30 to 90 days for you to make all payments. Some require payments every week or two to keep the item in storage. If you miss a payment the item might be put back on the shelf; some stores will give a refund of partial payments (minus cancellation fee) but others will only give you a gift card of money paid. Some stores will honor a sale price after an item has been put on layaway - others have limited time windows for honoring sale prices (eg 7-30 days).

Bottom Line

It's important to ask for and read the complete terms and conditions of a store's layaway plan before using layaway. You might be in for a nasty surprise if you change your mind or the item goes to 1/2 off two weeks later.

Unless the item is really expensive you're better off using a credit card than layaway. Consider the Rock n' Roll Elmo doll for $25 at Toys "R" Us. The layaway fee is $5. Say you have 90 days to pay in full. The $5 can be thought of as a loan with 20% interest for 90-days. (5/25 = 20%).  This is equivalent to an annual loan rate of 107% APR. By law credit cards are maxed at 30% APR. If you used a credit card for Elmo and paid it one year later, the interest would be 25 * .3 = $7.50 which is higher than $5 but you also had 4 times as long to pay it.

Better yet, don't buy a toy if you cannot afford it. An estimated 13.5 million Americans are carrying debt leftover from last Christmas. Go simple. Give a gift with love instead of a gift with batteries. Make something or give a gift of time like a free message or painting a room.

When to Call your Credit Card Company

Remember that credit is money
- Benjamin Franklin

MSN Money suggests there are seven occasions when you should always call your credit card company.

1. When a new card arrives - most cards require a phone call to activate a new card
2. Unauthorized charge - if you see something on your credit card statement that does not make sense, call immediately. ALWAYS review your credit card statement line by line. You might have been enrolled in some monthly fee program by visiting a web site or responding to a text message on your phone. Or it could be fraud or identity theft. Years ago a restaurant changed the amount of the tip on my card to a higher value. That is illegal.
3. Lost card - If you're not sure where your card is it's safer to have it canceled and a new card number assigned.
4. Stolen card - call immediately to get the card canceled. File a police report and also notify the credit rating bureaus.
5. Change of Address - don't make the mistake of letting your bank and card statements go to an old address and into someone else's hands.
6. Missing credit card statement - if your monthly statement does not arrive on time, call. Someone can do a lot of damage if they steal your statement which contains card number, name, address, etc.
7. Before a vacation or big purchase - companies monitor cards for unusual activity and may shut it down if they suspect fraud. We have a friend who now lives in Florida but rents out his prior home in New York. While visiting New York to make house repairs, his card company froze his account because of all the "unusual activity" in New York. Before I traveled to Canada this summer I called my credit card companies to warn them about my travel plans. (And to find out their money conversion fees.)

Bottom Line

Credit cards are great to have when used responsibly. Card rates are outrageous so this is not the best way to obtain a "loan" when you're short of cash. Never pay just the minimum suggested - pay more, pay it all if you can.

Breaking up with your Credit Card

'The question is,' said Humpty Dumpty, 'which is to be master — that's all.'
- Lewis Carroll (Alice Through the Looking Glass)

We received a piece of junk mail at home from a company that said, "We miss you <sniff>", as if they were crying. I thought this was in rather poor taste but apparently it is not uncommon. The Consumerist tells of a credit card company writing like a spurned lover - "They promised that they'd change if we took them back. Things would be different this time." So Jon Acuff wrote back a reply in the same tone:

Dear (NAME OF CARD),

Wow, I don't really know where to begin. We've had some good times, haven't we? Remember that vacation I took you on? We had so much fun in (LOCATION). It wouldn't have been the same if you hadn't been there and had my back. And who can forget the time you helped me pay my (NAME OF BILL). That was a lifesaver!

But a few months later, I felt confused and hurt when you asked me for all that money back, plus 20% interest. I thought we had something special. I thought what we had was true. But now that I look back on it, for you, our entire relationship was about money. And it feels really one-sided. I give and I give and I give, and you just take, take, take. Sure, you give me small gifts here and there that you call "rewards," but even those I have to "earn."

I can't live this way. I feel like I don't even know you anymore. I want you out of my house, out of my life, and most importantly, out of my wallet.

I've found somebody else. Somebody I can trust. Somebody without hidden motives or hidden fees. He's simple but honest. Hardworking and true. I found someone who really cares about me and isn't into playing games.

I'm dating cash.

Don't call me anymore. I don't want you or your empty promises of frequent flyer miles. It's over.

Don't walk away mad. Just walk away, credit card... just walk away.

(YOUR NAME)

Bottom Line

Credit Cards are not your friend. Use them at your own risk and never mistake them for a cheap loan.

Debt

"Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you"-J. Reuben Clark Jr., 1938

If you have credit card debt and are unable to pay the full amount each month, then I highly recommend visiting the web site, The Real Damage

Enter in a amount of money for something you'd like to buy, click the "What's the Damage button?" and see how much you'll actually be spending by the time the debt is paid off. Not so obvious is that you should customize the parameters behind the calculation by clicking on the "Credit Cards" bar to the right. This allows you to enter your actual interest rates, outstanding balance, and amount you pay off each month. There is also an "Additional Payments" bar so you can see how paying a little extra can go a long way to reducing the total cost of debt.

The site does not ask for email or any personal info.

Bottom Line

Never pay just the minimum amount on a credit card bill. This will keep you in debt for years and cost you big time. With the default settings on Real Damage, a $75 purchase cost a total of $168 after all the interest payments.

Financial Mistakes

'Neither a borrower nor lender be' – Shakespeare’s Hamlet

Check out the USAToday article Eight Money Missteps that can really hurt you financially.

1. Don’t Raid your 401(k) – most states protect retirement accounts from bankruptcy claims. "Some people use their IRAs, and then they wind up in bankruptcy, anyway. So now, they're bankrupt and they don't have any retirement."

2. Don’t walk out on a mortgage – sell the house.

3. Don’t ignore your credit card balance

4. Avoid debt-consolidation firms – most are scams

5. Don’t co-sign a loan for a friend or relative – you’ll regret it later when they default. You’ll lose a friend and your money.

6. Don’t use Payday loans – the interest rate is an outrageous, 391% to 521% annualized.

7. Use a Reverse Mortgage only as a last resort – the fees are high

8. Don’t stiff Uncle Sam by not paying your taxes. He will catch you and the penalties are stiff.

Bottom Line

In short – avoid loans, pay your debts, don’t sacrifice your retirement.

Out of town and out of cash

"It's not hard to meet expenses, they're everywhere." – T-shirt quote

Sorry for the spate of volcano stories but this is too good an event to pass up for a preparedness blog. It is rare events like this that test everyone and highlight weaknesses and problems.

A few asides before jumping into the main topic.

1. There is grumbling in Europe about lack of governmental preparedness dealing with stranded passengers and managing transportation alternatives. The train system is great (compared to the US) but overwhelmed now. Each country maintains its own airspace so some nations are flying, others grounded. Five days after the volcano, a Euro-level meeting of Transportation Officials was held to discuss common standards for safe flying.

2. Lot’s of grumbling over the airlines. Most have a terrible track record of handling massive flight cancellations. To improve profitability, airlines now fly fewer planes but each at full or near-full capacity. This leaves them with little space to accommodate stranded passengers.
Europeans stranded in Japan were told by Taiwan's EVA Airways that the earliest flight with openings is May 12 - but only if they are willing to pay an extra 150 euros ($200). Otherwise, they have to wait until June.

3. This problem could continue indefinitely. Eyjafjallajökull may continue erupting for a decade and it has a big brother 15 miles away, under deeper ice, that will cause an even bigger ash cloud if it wakes up.

4. A common element of many disasters is price gouging. A French tourist in Hong Kong reports, "Yesterday, we had a hotel room at 250 euros. At midday, it was 460 euros, and in the evening, the price was 800 euros for a room - we can't pay that." The hotel's general manager replied simply, "We dynamically price much like the airlines do, according to how many rooms we have to sell in the hotel." A British family in Sydney, Australia, had the same problem. Their first night stranded cost 150 Australian dollar ($138); the next day the hotel raised the price of the same room to AU$350 - simply because it could.

Which leads to the main point – having access to emergency money on a vacation or business trip. Don’t be like the family who said, "We're at the end of the holiday so we've spent all our money ... Because that's what you do on holiday."

So what are your options when traveling out of the country?

1. Credit Cards – you will pay a modest currency conversion fee but credit cards are accepted around the world.

2. ATMs – ditto on conversion fee and there may be an “out-of-country” access fee. It helps to have your money in a bank that has a global ATM network. The following banks support the “Global ATM Alliance” of mutually compatible ATM machines: Bank of America, Barclays (England), BNP Paribas (France), Deutsche Bank (Germany), Santander Serfin (Mexico), Scotiabank (Canadian), Wespac (Australia & Pacific), ABSA (South Africa), UkrSibbank (Ukraine), China Construction Bank (China). This group has branches in most countries.

Other international ATM networks include:
PLUS (allows Visa card cash withdrawals in over 200 countries.)
Cirrus (allows MasterCard cash withdrawals) Call (800) 424-7787 for locations in 210 countries.

3. Before using your Credit Card or ATM card overseas, call your bank first to warn them that you are traveling. Otherwise they may freeze your card for suspicious activity. Also write down the phone number for calling your Credit Card company in case your card is stolen overseas. Keep this number in a safe place.

4. Travelers checks – I have not used these in years. Now I find that credit cards and ATMs are easier than obtaining and then cashing travelers checks. Often the fees are lower too. Still it might not hurt to have a few $100 available just-in-case the global ATM system or credit card system breaks down due to attack or severed undersea phone/Internet cable. Also American Express Traveler Checks can be replaced if stolen – you’ll need to store the check numbers in a different place (or with a friend) so you can make a claim.

5. Commonwealth Bank of Australia offers Travel Money Cards that work like debit cards but in preloaded foreign currency. I assume other banks have something similar.

6. It's best to use a combination of money sources: a small amount of cash, a debit card, two credit cards (in case one is declined or stolen!) and some travelers checks. Some travelers swear by the ‘two wallet' technique. Keep all your documents and credit cards safely in one wallet, and then use an everyday old wallet for cash and a few less important cards. If you get mugged, just hand over the second wallet to minimize your loss.

7. Before going to a foreign country, I like to convert some money (say $100) in advance. This way if I need cash immediately (like for an airport Taxi) I’m not dependent solely on the moneychangers at the airport and their fees. Ask your bank if they can get you foreign currency (and at what rate.)

Bottom Line

In a few places above I mention storing important contact information in case you are robbed or your luggage lost/stolen. You many lose your purse, wallet or suitcase. So what’s left – a tattoo? One option is the Internet – if you can get free (or cheap) access to it. You could Google for your credit card company number, or American Embassy location, etc. Before the trip you could email yourself the list of Travel Check numbers, your passport number, and other vital numbers and leave this in your in-box. Be careful opening your email overseas. An Internet café or wifi could have someone snooping on Internet traffic or have a keystroke recorder on the PC to copy your account name and password. As a backup I’d email this same info to a trusted friend or relative that you could call.

Resources

Volcano flight chaos leaves many passengers broke

ATMs Abroad

Accessing Your Money Overseas

International Money Transfers

Don't Share Personal Information

“Money isn't everything - there's also credit cards, money orders, and travelers' checks”

A few nights about I called my credit card companies and each one required that I answer the official security questions. What is your zip code? What is your card number? What is the mother’s maiden name for the primary cardholder? This last one is kind of tricky since I can never remember if the primary cardholder is me or my wife.

Sadly as security goes, the official questions are quite lame. Any store employee can steal your card number. Zip codes can be found via Google with person lookups. Mother’s maiden name could be found on ancestry.com or through a friend of the family.

What can your do?

1. Ask for different security questions. Some sites let you choose your question or write your own like, “You’re first pet’s name”, or “Your first friend”.
   
2. Make up an imaginary maiden name. You do not have to use your real mother’s name but you do have to remember the alternative you give.

Bottom Line

When teens, children (even adults) surf the Internet they should be taught that there is some information that is never shared on facebook, blogs, etc.

• credit card number


• social security number


• mother's maiden name


• debit card number and PIN


• bank passwords and logins


• internet account passwords

The end of my post Espionage has details on creating strong passwords.

Cedit Card Chargebacks

"Money isn't everything - there's credit cards, money orders, and travelers' checks" - anon
One advantage of using credit cards for purchases is the option of a Chargeback. When you feel that you have been defrauded by a vendor and the vendor is unwilling to refund your money or replace damaged goods, then you can ask your credit card to cancel the charge off your card.

However a chargeback is not a sure thing. Check out the Consumerist article, Top 10 Reasons Your Chargeback Will Be Denied.

1. You are lying. The vendor will present their evidence.
2. You waited too long. Most cards have a 60 day limit on chargebacks.
3. Not getting independent proof of damage/fraud for chargebacks over $100
4. You bought it overseas. (Chargebacks are only valid on US goods.)
5. You stayed in the hotel room. (No chargeback for a room, no matter how bad, if you spent the night there.)
6. No proof that you mailed back the goods. (Use registered mail.)
7. You don't remember the date or details. (Be as specific as possible. At the first hint of trouble, write down all details do you don't forget)
8. You did not allow the vendor a chance to fix the problem
9. You are disputing the wrong things (Don't try to use legal language you might get wrong)
10. You used Mastercard. With Mastercard (MC) the burden of proof lies on you.

Bottom Line

For more details, check out http://en.wikipedia.org/wiki/Chargeback. This site lists four general code categories for chargebacks:

Technical - Expired authorization, non-sufficient funds, or bank processing error.
Clerical - Duplicate billing, incorrect amount billed, or refund never issued.
Quality - Consumer claims to have never received the goods as promised at the time of purchase.
Fraud - Consumer claims they did not authorize the purchase, or identity theft.