When I moved to Japan in July, I was expecting to experience some differences in how America and Japan handled money.

For the most part, I got them.

Japan is mostly a cash society which meant goodbye efficient credit cards and hello piles of change that never seem to go away. There’s also the bank book – a check register that every person is issued with their bank account that is bloaty and reminiscent of banking in 1992.

On the other hand, there were some positive surprises that I didn’t expect to witness. As an American I’m used to people being bad with their money. We can just never learn how to handle our finances properly as a country.

In Japan, it seems the majority of the population has a little better handle on their money. The Japanese are notoriously more frugal and take on less debt per person compared to other large industrialized countries.

As I spend more time in Japan – up to 6 months now – I’ve noticed some personality traits of the Japanese that could be the reason for their improved money habits.

The more I thought about these 4 habits, I also realized that these traits could apply to someone who is attempting to defeat credit card debt. Let’s dive into these 4 cultural traits of the Japanese, and learn how they could help you better understand, and defeat credit card debt.

Patience

The Japanese take time to think and analyze situations instead of reacting immediately like most western countries. If you ask a Japanese person a difficult question, they will sit and silently think for up to ten seconds in order to provide the perfect response. They aren’t afraid of silence like other countries, and this creates analyzed plans of attack for difficult situations.

To defeat credit card debt, you also need a well thought out plan.

You can’t create outrageous and unrealistic plans like, “I’m spending $12 a month for 7 years so I can defeat my debt!” It won’t work because the enthusiasm will wear off and your morale will suffer. Instead, take some time and really analyze your debt situation.

Grab a pen and pencil and run the numbers. How much do you have? Where is it? How much can you afford to pay off every month? Give your debt situation the time it deserves and attack it appropriately so you can do away with it for good.

Hard work

Before arriving in Japan, I had heard that the Japanese workers had more days off than Americans. That may be true, but they work much harder and longer.

The word that describes their work ethic the best is resilient.

The Japanese can suffer poor conditions in work or life, and be fine with it. They can work 13 hours a day and be fine. They can fall asleep on a busy train and sleep soundly. It’s quite amazing. They power through, get the work done, and move on.

This may not fit your working philosophy, but it’s a lesson you can transfer as you try to defeat credit card debt.

Perhaps, a second job will provide you extra income to defeat your debt. Have you been procrastinating asking your boss for that much deserved raise? Are you wasting time by not getting your finances in order, even though you know you have a problem?

Work hard. Pay off debt. Live free. Enjoy life.

Pride

Losing face is a no-no in Japan. Often teachers won’t discipline students in front of their peers, instead opting to take them aside in private and scold them so they don’t embarrass the individual.

The Japanese have a respect and pride in the individual.

You also must have pride in yourself to defeat credit card debt. If you wear boots, pull up those boot straps and realize you can defeat debt. People overcome huge piles of debt every day, and they’re situations are no different than yours. Realize you deserve better, and your bank accounts deserve better.

A credit card debt free life is one that will provide pride and open up many parts of your life for the better.

Endure

One of my pet peeves is when people go on Facebook and complain about their money situations. No one wants to hear it, and you just look lazy that you’re too busy complaining about your money troubles online, instead of getting a second job or working your butt of to fix your problem.

The Japanese don’t complain – they endure. They cram 125 million people onto an island the size of California. They have horrible weather that is rainy, snowy, and windy for most of the year.

But they make do.

This is the cards they were dealt and they learn to love it.

Every one needs to let out some negative energy every once and a while, but repeated complaints get you no where and only prolong your poor situation.

Instead, do away with the complaints and get to creating a plan to overcome your credit card debt situation.

Your friends will thank you and offer their support when they notice your attitude change.

I expected to learn a lot of things from my time spent in Japan. Analyzing the cultural personality traits of the Japanese and using the lessons to inform people stuck in credit card debt was not one I expected.

Regardless, inspiration is needed and hopefully these 4 characteristics will make you look at your situation in a new light.

Good luck and get to work!

My work requires occasional business travel throughout the year to client sites and conferences. When I started traveling for business it was a much more enjoyable experience as airplanes were less crowded, served free meals (with silverware) and security screening was a breeze. We all know that’s not the case today.

I can’t really blame the airlines for packed flights and nickel and diming us when you look at the price of flights. Ticket prices were regularly 2-3 times higher 15 years ago than they are today (without adjusting for inflation).

Even so there are benefits to business travel as well as hidden costs. With planning and a few easy steps you can make business travel a better experience.

Loyalty Programs

Join all the membership travel programs you can whether its for airlines, hotels or rental car agencies. Not just for the miles or points which can result in free travel (like credit cards reviewed at Ask Mr. Credit Card). The other reason you want to sign up for these programs is the perks received during travel.

Hotels may offer free drinks, upgraded rooms or breakfast to award program members. Being driven straight to the rental car and avoiding the check-in line removes stress after traveling all day. All you have to do is sign up for the agency loyalty program.

Unless you accrue a lot of miles on a single airline being a frequent flyer is not likely to get you upgraded. But if they have to bump someone and if everything else is equal being a frequent flyer member may tip the scale so you make the flight.

Travel Timing

If at all possible avoid business trips during high-volume travel times. Spring breaks and two weeks before Christmas are awful. Not only are the planes full but the travelers are not experienced. Lack of experience results in these travelers’ transactions taking more time meaning longer waits at check-in, security and even food kiosks.

Another timing tip is being selective about which days of the week to travel. I loathe traveling on weekends and especially Friday nights because again this is a busy time for leisure travelers.

Choosing a Hotel

At first, it’s fun to stay in “fancy” hotels and order room service. That wears off fast and the priorities when selecting a hotel change. My priorities are breakfast, workout room, Internet access and a restaurant onsite or within walking distance. I don’t want to have to pay for the Internet access or breakfast either.

This means my hotel of choice is a Courtyard or Hampton Inn instead of the Four Seasons or Westin.

Advance Check-in

Part of the flight experience has to do with where you’re sitting. Business travel is often not planned far enough in advance to either be assigned a seat or avoid the dreaded middle seat.

Always check-in online as soon as offered by the airline and select a better seat. I do this even when I have my preferred aisle trying to score the exit row or at least be closer to the front of the plane for faster exit.

If you are checking baggage some airlines charge a lesser fee if done in advance online so you can save your company some money as well.

Be Prepared

When flying dress for a quick trip through security. It’s not the day to wear that studded belt. This means slip-on shoes and light jewelry for me. I also organize my carry on items in advance to ease the screening process.

If the travel day will last more than a couple of hours bring or buy food before boarding. Many flights I’ve been on sell out of the onboard food items leaving passengers further back with hunger pangs.

Summary

Business travel doesn’t have to be a bad experience. Use these tips and have an impact on your next trip.

For a change, let’s take a look at a special kind of pension plan, shall we?

There is a growing interest in a type of pension plan called the cash balance pension plan that was little understood till a few years ago. Small businesses have come to realize that a cash balance fund that guarantees a return of 4% annually, and which compounds over a period of 30 years can provide them with immediate tax savings and retirement benefits later on without much risk. So in 2009, most small companies started working with their actuaries to implement such plans for their firms.

Cash balance plans were actually a long-kept secret of companies looking to establish retirement plans. Also, it seems that not too many CPAs were aware of this plan until recently. So how about let’s take a look at how such a plan works? Given that a cash balance plan is a defined benefit plan rather than a defined contribution plan, it actually does not require annual employee contributions. This type of plan looks to benefit companies that have less than twenty employees with profits in excess of $50,000 annually; such plans are a great alternative to your traditional pension plan that’s based on terminal earnings formulas. The difference here is that cash balance pension plans are based on the average earnings of employees over the life of their career and the employer is the one who takes on the risks and rewards of the investments. Employees therefore benefit from this plan by receiving funds as a form of annuity. These funds are a great complement to an employee’s retirement program, that may include their own investments in high interest savings accounts, certificates of deposit, equities and real estate.

If you look at trends, many small business owners don’t save enough for their retirement and won’t start saving aggressively until they’re ready to hang their hat. Why? Because they tend to use their profits for the purpose of growing their business, which then leaves little or no money for their own retirement savings and discount brokerage accounts. Hence, we can see how a cash balance pension plan may actually be a blessing in disguise for such business owners. This gives them a chance to make up for lost ground while saving on their taxes (and nothing excites business owners more than increasing their profit margin).

Here’s another matter of note: such funds offer a guaranteed annual benefit which accrues until the time the participant reaches retirement or any pre-specified age. The participant can also set the investment amount they’d like to withdraw (whether lump sum or per annum), based upon their income and in consultation with an actuary. The benefits they ultimately receive are guaranteed throughout their retirement regardless of how the stock market behaves; the stock market is something that defined benefit plan participants need not worry about. It’s also worth noting that many of these plans are typically quite conservative and aim for slow and steady growth.

While employees can enjoy retirement benefits from such a plan, business owners and company sponsors of such a program can also enjoy tax savings. While plan owners have to invest a portion into employees’ retirement schemes, the tax savings derived from a cash balance fund still makes it worth establishing.

We all want to save for a rainy day, but we just cannot seem to find the money when the time comes to save it. Why? Well, it is because we are actually spending it. All of us have the capability of saving. We just have to learn to live well below our means. With that being said, here are the top 5 budget busters that prevent us from saving and building wealth.

1. Credit Cards – It’s unfortunate that many people won’t be able to qualify for a balance transfer credit card. They’re a great tool if you’ve got good credit and can pay off your card balance quickly during the intro period where you’ll pay 0% for a limited time. That would be one quick way of getting out of credit card debt. However, if you are sending payments out to credit card companies each month, and you are paying only the minimum, your balance amounts will barely budge. This is especially the case if you continue to charge on your card. If you’re unable to control your credit card debt, you will have a hard time building your savings. If you are paying 12%-18% interest on a credit card, you are already in the hole (so to speak) when it comes to savings. My suggestion? Take all the extra money you have and chunk it towards your credit cards first to get them paid off as quickly as possible. Think about your savings after you get out of this hole. Once your debts are paid off, you’ll free up a lot of money which you can then channel towards a high interest savings account.

2. Eating Out – Eating out is one of the largest drains on budgets. We choose the convenience of a drive through or restaurant over cooking a home cooked, healthier meal at home on most days. If you can cut your eating out completely or at least limit it to once a week, your budget and your waistline will thank you. A great way to do this is to plan your meals each week. Every two weeks, I sit down and plan what I am going to eat for the next two weeks. I create a menu and purchase the groceries I need to accomplish this meal plan. This saves time in deciding what to eat. It also allows me to eat healthier and save a tremendous amount of money from my food budget. I withdraw $20 from the ATM for eating out with friends and try to limit it to coffee, desserts, and appetizers. This way, I can make my money stretch, and also enjoy some social time with friends. When the $20 is gone, it’s gone.

3. Car Payments – I lived for 5 years without a car payment, and it was fabulous. I did drive an older car, but it got me where I needed to go and in the long run, it was much cheaper. Why? My taxes and insurance on an older car are usually lower because the value of the car is lower. Taking out an auto loan on an expensive car may not be the best idea. Having a car payment of $200 can put a major strain on a family that functions under a tight budget. Moreover, you are paying interest on an item that is actually depreciating each year, which is not really a great investment! It is far better to buy a cheap car, save your money and later pay cash when you decide to upgrade to better cars. This way, you can earn interest on your money instead of paying interest on your money. The whole point is to make your money work for you rather than you work for your money. If you take the $200 you are paying for a car payment each month and invest it in a mutual fund for 5 years at 12% average returns, you will eventually end up with $16,334. You could take half of this money and buy a pretty decent car with cash, and allow the remainder of your money to keep growing. Having no car payments is the way to go.

4. Cell Phones – As a financial counselor, I see many budgets from clients on a weekly basis. I have noticed that many have cell phone bills that are well over $100. What on earth are these people doing that they end up with a cell phone bill that is over $100? When cell phones originally came out, they were used for emergencies only. Now, we view cell phones as a necessity. They are not a necessity (well, unless you work in a field that needs you to stay connected for 24/7)! A lot of people have gotten through life without being easily contacted 24 hours a day. If you want an extra $50 to $100 a month, then ditch the cell phone. If you cannot ditch the cell phone, then search for a better plan. Many companies now offer unlimited minutes for a flat fee. Two great ones are Virgin Mobile and Straight Talk.

5. Gifts –- Despite what we think, we chunk a lot of change into gifts on a yearly basis. We do not really pay attention to this expense because it is not a regular monthly expense on our budgets. It is more of a sporadic expense that pops up now and again. How much do you really spend on holiday gifts? What about birthday gifts? Instead of treating these costs as last minute expenses, try to set a budget for these items each year and divide that yearly amount by 12. Then, put aside that amount of money each month to pay for gifts. Another way to do this is to purchase the gifts in advance. If you see something that you know someone will love and it is on sale, go ahead and buy it. I have created a treasure trunk where I keep all the gifts that I buy in advance. When that person’s birthday rolls around, I already have it ready to go. This is a great way to save and stay within your budget.

Even if they use cash all year, the holidays prompt many to whip out the credit card. Whether it’s for the rewards points, or just to ease the cash flow a little bit during the holidays, credit cards tend to make a regular appearance at the holidays. Even this holiday season, when more people in general are trying to stay away from credit cards, they are still very much a part of the holiday shopping experience. If you are going to use a credit card this holiday season, you might want to consider these tips for responsible credit card use during the holiday season:

In the end, you can ease your cash flow, and reap some rewards, if you use your credit card during the holiday season. However, you need to plan ahead and take precautions to ensure that you are using your card responsibly.

The heart of the article focuses on merchant fees that credit card issuers charge merchants for processing credit card transactions. For every $1 that a consumer spends using a credit card, the merchant only gets 98 cents. On average 2 cents goes to credit card processors like Visa and MasterCard and the banks that issue them. The was a law in Australia that was passed a few years ago that essentially put a cap on the fees that processors could charge merchants and effectively, the fees were halved!

Well, that was all good for the merchants as they could technically lower the cost, there were some unintended consequences about this law. Firstly, credit card processors and banks that issue credit cards saw their profits from processing fees cut. Hence, they resorted to other means of increasing their profits. Here are some ways which they have resorted to in Australia and we are already seeing this in the US.

Rise in annual fees – The article noted that on average, annual fees in Australia rose as a consequence of this rule. The post cited that the average annual fee for gold credit cards with rewards is now about $140, up from $98. The average credit card annual fee for a “vanilla” card with no rewards is $29. (bear in mind all these are in Aussie Dollars).

Declining Rewards – The post also cites a couple of examples of declining rewards. Here’s a direct quote from the article :“While it used to take 12,400 Australian dollars of spending on Visa or MasterCard from one of the country’s four biggest banks to earn a 100 dollar shopping voucher, for instance, now it takes 17,000 dollars.”.

Shortened grace period – Before these laws took effect in Australia, the grace period that Australian credit card companies gave their cardholders was about 55 days. They have now been reduced to between 33 and 44 days (which is still heck of a lot more generous than here in the US).

Retailers are finding other ways to charge consumers – What was really surprising (or perhaps it should not be) is that though retailers in Australia have had their merchant processing fees reduced, they still imposed surcharges on consumers for using credit cards (their central banks allow them to do so). Some hotel chains charge 1.5 cent surcharge fee for using credit cards and happily claim that consumers are OK with it and they actually earn a decent profit from it! Airlines also impose fees when folks use credit cards to book them.

I think this article serves as a great reminder of the consequences if we are to impose all sorts of regulations on credit card issuers. Yes, they have probably made lots of money through ridiculous charges (late fees, over the limit fees etc). But it also appears that imposing more rules and regulations will have the unintended consequences of raising the cost of using credit cards for everyone. For those who tend to get into credit card debt just from the mere presence of having them in their wallets, perhaps this is not such a bad thing. For for folks like me who pay in full and earn rewards, I can’t help but be against excessive regulations.

What are your thoughts on this?

Other interesting credit card and money posts

I spotted a few interesting posts this week. Kevin from Credit Shout wrote a very interesting post of whether it actually cost more shopping at bing.com with their cash back program?.

Miss M also just got her first credit card with rewards. It is a Starwood Amex and it looks like she will be putting some serious spending on house repairs on her card.

Finally, Matt Jabs also asking a similar question about whether credit card reforms will have unintended consequences.

Have a great weekend.

In the cash back credit card space, cards used to offer 5% rebates for gasoline, supermarket and drugstore and 1% for everything else with no tiers. Remembers Citi Dividend Card and the Chase Cash Plus Rewards Card? They both competed with each other to be the king of all cash back credit cards.

Both cards put a rebate cap of $300 of their cards, which means you can only earn up to $300 in rebates every year and then you can’t earn any more rebates. Well, the thing was that Citi allowed you to apply for more than one Dividend Card! Cardholders then got even smarter and had both spouses apply for the same card! Most cash back cardholders typically pay their bills in full every month. Since credit card issuers did not charge any annual fee, this became a losing proposition. Soon, the 5% cards went away. Citi Dividend’s rebate is now 2% on “everyday purchase items”. The Chase Cash Plus became the Chase Freedom Card (which initially charged 3% on gas, supermarket and drugstore). But soon, even that became a problem and now the latest freedom card resembles more of a Discover Card than what it was just two years ago.

Gas credit cards use to offer 5% rebates as well. But savvy consumers took advantage of it by simply charging gasoline to a gas credit card. Soon, these gas cards had to cut back on their rebates. Discover Gas started by allowing you to earn gas rebates for up to a certain amount of annual gas spending. But eventually, they had to reduce their gas payout from 5% to 2%. American Express had a few business credit cards that paid 5% on gasoline as well. Soon these will be paying 3%. Even some dedicated station specific gas cards started paying rewards based on the amount of gallon bought! Today, only a few gas cards pay 5%. Even then, cards like the Shell Credit Card (which still pays 5% on gas bought at Shell) closed many customers accounts abruptly recently!

Perhaps the most silly deals credit card issuers made were by offering ridiculous 0% interest credit card deals, with no balance transfer fees! Soon everyone was transferring their balance from their HELOCs to their new found 0% apr credit card! Credit card issuers thought that once someone switched over, they would remain customers for life (just like cable TV?). But switching cable TV was a little cumbersome (though not impossible). But switching to another 0% deal was much easier. So there was no customer loyalty in the end. Folks just kept playing the balance transfer game and credit card issuers were not making any serious or gaining permanent customer loyalty from these teaser deals. Instead, folks use them as a debt reduction tool! Some pf bloggers even recommended taking out 0% financing from these cards and then investing the proceeds to a high yield savings account like a HSBC direct (which paid 5% interest back in the good old days!

Soon, credit card issuers began imposing the standard 3% balance transfer fee again. But they capped it to about $75. Then they removed the cap altogether. And when the credit crisis hit, they shortened their introductory period to 6 months from the usual 12 months that was so common back in the good old days.

So in a very hilariously way, perhaps we have returned to more sanity. Credit card issuers in the era of easy money tried to gain new customers by offering deals and cash back deals that were too good to be true. Many folks have taken advantage of them. But now reality has set in and credit card issuers simply have to have a profitable operations with all their defaults and loan losses. Many of these rewards would have gone away even without the credit crisis because they were money losing propositions to begin with. There are still great cards out there. But many folks sure miss the good old days!

My Stance – Firstly, if you do not know already, check out the credit cards that me and my staff use (for full disclosure). For me, I belong to the “camp rewards”. I pay my bills in full every month and I also do pay an annual fee for my card.

I do realize that there are folks who hate credit cards, had bad experiences with them (by getting into debt) and swear never to use them again. Folks like Brad Chaffee who has just got rid of his credit card. I respect that decision. I myself have weakness for certain stuff. While I have never carried any credit card debt, can’t be bothered to gamble (too troublesome), I can’t say “No” to candies I love. I tend to buy the most expensive electronics! So for those who can get carried away with credit cards, don’t use them.

But the “anti credit card folks” don’t accept this argument” – If everyone was reasonable, this would be the end of the story and it is best summarized by JD Roth who says do what works for you.

But Adam has gone into the territory of saying credit card companies are “unethical”. To quote him: “For me, the credit card industry is on the same level with the gambling and tobacco industries. I don’t mind the rare celebratory cigar, nor do I object to mindfully spending some of the entertainment budget at a casino.

However, the blunt truth is all three of these industries derive a large percentage of their profits from a select group of people who are caught up in destructive, cyclical habits. They feed off their respective junkies.”

By the way, he left out alcohol (does he drink the occasional drink?)

The huge problem with this argument is that applies to almost every industry. Here are some examples.

Is the jewelery shop that sells diamonds unethical because diamonds add absolutely no value to the economy other than vanity? How about other high end brands that simply exploit our vanity?

How about restaurants that serve ridiculous portions and contribute to our nation’s health problems (most heart attacks in the world?). MacDonalds’ for selling cheap processed meat and process chicken fingers? Or the diner that slaps loads of fat laden bacon! Preying on the lack of discipline among those who are overweight? Hey, we don’t need to go to restaurants right, just cook at home! Could even follow some pf bloggers recipe!

Gym owners – because they know that a large portion of their paying members do not use the gym anyway? So are they unethical because they know folks sign up in January and forget about their new year’s resolution by February and still pay their membership fees. A business based on people’s needs but also on a lack of follow through?

Workout programs and DVDs! Everyone knows that only a small percentage of folks that buy workout DVDs actually follow them, diet and achieve real results. Are these business unethical because the majority of their customers probably bought their videos on impulse?

How about food manufacturers like Kraft. Maybe they should not make mayonaisse? Too fattening? Contributes to the nation’s health problems!

How about every tourist shop that over charges their goods because they can get away with it? And they cause folks to overshoot their vacation budget? Or the ice-cream vendor that charges you $2 for an ice-cream at the zoo?

Perhaps we can lump online stock brokers into this ‘unethical” category as well since “academic studies” have shown that the probability of individuals beating a “benchmark return” is really small!!

For those who hate credit card companies, including my friend Matt, the various reasons cited are credit card companies intentionally charge late fees, raise interest rates for no good reason. I have a few thoughts about this.

When credit card companies (ie Amex, Visa and Diners Club) first started in the 50s and 60s, all they issued was charge cards. The criteria to get those cards were strict. The on top of that, you have to pay an annual fee and pay in full but in return, you get the convenience of not having to carry cash all the time and earning rewards. In return, these companies got a nice cut from the retailers and merchants (and nothing wrong with that since we all have to make a living). In return, the more popular these cards got, the more retailers and merchants would benefit. Think of the time centuries ago when you actually have to carry silver coins! Carry a lot and the risk of robbery is great is the good old days.

As these pioneer companies got bigger, they realized that they could spread their product use faster if they allowed banks to issue their own cards but did the back end processing for them. Soon banks began issuing credit cards rather than charge cards and allowed cardholders to carry a balance.

Then, we reached a point where every bank was issuing their own credit cards. We reached a point in what economist would call perfect competition. And we know how things went from there.

I don’t know. Credit Card companies did not start out trying to make a living off charging late fees. In fact, in the corporate world, if a company issues debt and defaults on just one, it technically means that they have defaulted on all their debt and creditors can then pursue them. The term for this is cross-default. It is a standard term in any debt offering (which by the way makes the terms and conditions issued by credit cards a piece of cake). When a company is a day late in their bond interest payments, investors like PIMCO or Blackrock or even boutique hedge funds are not going to say: “It’s OK”, we’ll give you another day or two. They are going to take action and if it was due to some banking error, corporations have to pay some fee to creditors to prevent them from calling a default. It’s a tough world when you take on debt!

Also, as a corporation gets bigger, IT becomes a big challenge. Yes, it is scummy that they consider your payment late even if the check is dated before the payment deadline. But look at what happens to TD bank! Customers finding out their balance is zero, or that they have gotten an extra $200 in their bank accounts. When credit card companies merge, IT systems can really screw up customer service (see what happened to WAMU credit card holders when Chase took over them).

I’m going to state my view: I do not think credit card companies want to be making money mainly from charges and late fees. To think that would be insulting to folks in their senior management. OK, you could fault them for everything that happened in 2008 and their loose lending practice. But remember that many of them (or most of them) have MBA from ivy leagues. They can make mistakes but they are certainly not stupid. If you were the CEO of a bank, would you want to be making the majority of your credit card income from late fees! Come on, that is simply not sustainable.

If you start a gym, you probably did it with good intentions. You wanted the best gym environment and a core of loyal clients who value the workout environment. But what if you find that as your gym grows that only 25% of the people come to workout. The rest simply pay up, come for a month and then disappear (no follow through). Does that make you unethical as a gym owner? Would you give refunds to those who do not come but keep paying?

Or what if you sold a fitness DVD workout? Truth is that probably only 10% of the folks who buy your workout will actually do it and get great result. Does that make the producer and seller of DVD workouts unethical because the majority of folks who bought them do not workout.

Sports teams charge a lot for their ticket prices. Once you are in the stadium, you are subjected to ridiculous prices for food and drinks and not to mention their merchandise! Are sports teams preying on our love for the team to jam us with “high priced” products unethical? After all, a shirt’s a shirt and to pay $275 for a jersey with a name written at the back?

MacDonald’s target their ads at kids. They make marketing arrangements with movies to give their merchandise with every kids meal! They make your kids want to go to McDonald’s and eat their unhealthy processed meat! Is that unethical?

Places like Costco deliberate design their stores so you have to walk the whole place! The result, very few people leave without buying more than they planned when they entered the store. Is that unethical?

Nutrisystems’s diet system consists of nothing more than smaller portions of junk food like frozen pizza in smaller sizes, smaller bag of potato chips. Is that really ethical? Isn’t that a little deceptive? Well, I guess you could still lose weight eating “less junk food but still eating junk food!”

Many kids get addicted to video games and flunk high school. Does that make the whole video gaming industry unethical?

I think a lot of the unhappiness directed towards credit cards and perhaps some of the areas I mentioned can be traced to the fact that these companies grew too big. When a company grows too big, things that did not seem important all of a sudden becomes very important indeed.

MacDonald’s did not get movie toys as gifts for kids meal until recently. But when you have saturated the US market and are looking for “incremental growth”, I guess you think of every crook and nanny to increase your bottom line. To increase revenue, Norton and all other security suites charge $59 for 3 computers! I don’t have 3 computers and only have 1, but I can’t buy a license for one at one third of the price! Is that ethical?

Many folks also claim credit card terms and conditions are too difficult to read. Really?

Actually, contrary to many folks, I think reading a credit card’s terms and condition is one of the easiest things. But speaking about this matter. Let’s look at some other products with more complicated terms and conditions.

Mutual Funds and ETFs – Have any of you actually read the terms and conditions of any ETF or mutual fund you bought?

Terms of Agreement on software – Has any of you ever read the terms of agreement on a software you downloaded? Do you understand all the cookie jargon.

Cabla, Phone and Internet fees – Yes, only $49 a month for 1 year. But has anyone realized that cable and phone companies do not even disclose the “fee after the introductory period”! At least credit card companies do!

When you brand an industry to be unethical, very often, that view is shaped by one’s experiences. Adam’s view is shaped (at least partially) by his experiences with racking up debt. So is Matt. Matt has been cooled headed enough to keep a credit card and take responsibility for getting himself in to debt. Kudos to that. But to put a blanket “this industry is unethical” may be to blind ourselves to the fact that “the particular industry” may help someone people. I used to bitch about the high fees of sub prime cards. But then I hired a blogger (who is no longer working for me) who had been through bankruptcy and she was pleased she got get a high fee sub prime card to rebuild her credit! She did not mind paying those fees!

But people who have been scammed by say the internet with things like Acai Berry reverse billing fraud or “make money at home with google” and numerous other get rich quick scheme may be very wary and distrustful of buying any thing from the internet. And that would be a shame because there are great sites like Matts around that benefit so many folks.

For all the years that I have used the Blue Cash card, I’ve made over 2% in cash rebates and over $1000 cash back every year! Is that not frugal. But I guess folks who hate this industry will never see this benefit because they close their mind to the fact that credit cards can be useful.

Being ethical can have it’s cost? Why? Because the majority of people do not think about it or bother about it. In a competitive world where price and costs matter, firms will do anything to cut cost. Diners will get lower quality meat cuts to reduce cost. The “ethical restaurant owner” who wants to serve healthy food and use only olive oil will have a tougher time because of higher cost. And folks still want their greasy bacon and egg sandwich even though their heart is crying out load for them to stop! Consider how much more expensive are organic food than regular food. Goes in a cycle, the more expensive the item, the less people buy. They less people buy, it will not be economically feasible to reduce prices. You could buy a cheap computer from Best Buy. But to make it cheap, hardware makers sign marketing agreements with software companies and load up your computer with software you do not need! And to keep prices lower, they outsource tech support to India! (nothing against Indians but I’m sure Indians would not want tech support from Southern Texas cos they wouldn’t be able to understand us either!). Or you could buy from a great firm like Puget Systems, who custom makes your computer, install only necessary programs, does not upsell you, and has tech support in the US! But it cost more!

If every personal finance bloggers recommend getting a charge card, which has an annual fee and also requires full payment every month, everyone of us may be better off! Credit card companies earn their annual fee and there is much less default risk for them! There is no preset spending limit, so you would not have your limits cut! But hey, who am I kidding. Every pf blogger will say “get a no annual fee credit card instead”! But look at it this way, the more free stuff we demand and expect, the more creative ways corporations have to sell to us to make money. So you could sign up with mint.com for free and get ads and “questionable recommendations” for credit cards and other loans! That is what you get with a “free” and “cheap” mentality, corporations needing to “upsell” you with “backend poducts” to remain profitable! And this is where the temptation to cross the line comes into play.

For every person like me who is willing to pay an annual fee for my Amex charge card, there are probably 20 people who would never want to pay a fee for a credit card. For every person willing to spend more on organic food and healthy food, there will be more who just want their cheap greasy bacon and cheese bagel for breakfast or their Big Macs! For every person that values customer service and wants to buy a great computer, there will be dozens others who will settle for the “cheapest computer” that outsources tech support to folks who have trouble understanding us! For every Matt Jabs that realizes what a time waster cable TV is, the are dozens who would get the latest HD Plasma TV and veg out in front of the tube! For every serious person like Adam who is looking to build his blog and internet projects, there are dozens of people who are addicted to and just want to play their latest wii game (does that make wii an unethical company – after all, all they do is make young kids addicted to games?).

At the end of the day, most people know that they are doing or consuming stuff that they should not. Most of us know we should eat healthy food but don’t. We know we should pay our credit card bills in full, but many don’t.

But can we make a blanket statement and say credit card companies are unethical and say they belong to the tobacco and gambling group? Should we include all diners that serve greasy food and indirectly cause American to have the highest rate of heart attacks? Should we include video game manufacturers, though whose main aim is entertainment, ends up causing addiction to games and as a side effect destroys marriage and lose productivity at work?

The problem with labeling the credit card industry unethical is that you might as well label the capitalist system as unethical! Businesses are in the business of “selling their stuff”. We as consumers are responsible for doing our own research and figuring out if a product is right for us and how to use them!

But I guess the real problem I have when some one writes a post like that is this : it appears that the sole purpose of most post like these is just to get attention (or it could be unintentional and still get all the attention)! Write a anti credit card post and rest assured that frugal dad will stop by and pat you on the back. But if you really give it some thought, this line of reasoning would lead you to live like the Amish!.

So to all bloggers out there: If you want to write another posts about how evil credit card companies are (and there is nothing wrong with that), then please also write about the restaurant industry, the gaming industry, the “online broker” industry and how “unethical they”. And heck, you should be against Lending Club as well since it encourages folks to borrow and give them another outlet now that banks are starting to tighten the screws! Write about how the Federal Reserve printing money is unethical.

What is Lendingclub.com? – Lending Club is peer to peer marketplace for individual borrowers and investors (or lenders). It was formed in 2006 and after getting SEC approval in 2008, has seen its business grown leaps and bounds. Lending Club issued more than $6M in loans in October, which makes them the largest P2P lending operation in the world, while it keeps growing at an impressive 15% monthly.

How does it work for borrowers – For those who need to borrow, all you need to do is to sign up with some basic information. After the sign up process, you will be sent another set of questions to answer which contains more details like your salary, your job etc. Not everybody could be a borrower as there are criteria to meet. The two most important are your FICO score (which has to be at least 660) and your debt interest to income ratio (excluding mortgage) cannot exceed 25%. You can request a loan for up to $25,000 for a 3 year maturity. The interest is fixed and the loan is unsecured.

Based on the information that you give, Lending Club will run through a proprietary credit score system and assign the borrower a rating and an interest rate. Below is a screen shot showing what the ratings are and what rates are being applied.

How does it work for lenders and investors? – Once again, all you have to do is to sign up. The minimum investment is $25. All you have to do first is to deposit some more from your bank account to Lending Club. (Note that you do not earn any interest for any money sitting with them that is not invested).

You can browse the list of borrowers and even ask them questions about the reason for their loans, their past records etc. It is like being a credit officer.

Lending Club advocates diversification (who doesn’t) and claims that the the average net annualized return (after fees and defaults) is over 9.5%.

What happens when someone defaults? – According to Lending Club, the annualized default rate is slightly over 3%. Lending Club has a collection process if a borrower defaults. According to them, about 80-90% of missed payments are due to changes in bank account or temporary cash flow issues, and these loans become current again within the first 30 days of the missed payment. Late payment fees are charged to late payers and most of the fees goes into the investors pocket. Lending Club will also utilize external collection agencies if the note is deep on default.

Lenders and investors also have a choice of selling their loans in the secondary market. This requires a sign up with FOLIOfn (which is a member of Finra and SPI).

Lending Club is governed by the SEC – Lending Club is governed by the SEC. That that every loan is issued in the form of “notes” and is filed with the SEC.

Tools for Lenders – Lending Club has a statistics page which contains a lot of statistics for lenders. They contain some really cool date like

Below are screen shots of the stats page.

Why is Lending Club able to offer borrowers a lower rate and are they underpricing risk? – I asked Rob in the radio interview why was lending club able to provide a lower cost of borrowing to borrowers and if they were underpricing risk for their lenders. His answer was that Lending Club is not a bank and they do not take deposits or borrower money. Hence, they have no “funding cost hurdle” to overcome. They also do not have costs associated with having branches and a bricks and mortar bank have. Hence, they are able to pass these savings on to their borrowers and investors.

Who is Lending Club For? – On their statistics page, Lending Club has a breakdown of the use of the loans taken out by borrowers. By far and large, most borrowers make use of Lending Club as credit card consolidation loans. Some use them for small business, home improvement. This does not surprise me as credit card issuers have been clamping down on their 0% balance transfer offers. Hence, if you are looking to consolidate your debt, whether is it just credit card or other types of debt, Lending Club is a great alternative if you cannot get approved for these 0% offers. There are several advantages that Lending Club provide.

If you accidentally make a mistake and miss your payment by a day, credit card issuers can jack up your rates to “default rate levels” of 29%. With Lending Club, this will not happen (though you will be charged a late fee).

Overall, I think Lending Club is a great concept and marketplace and has been used successfully by both borrowers and lenders. I know of folks who have been denied a 0% interest credit card but managed to consolidate their credit card debt through Lending Club. It also gives lenders a chance to earn higher returns that they would if they kept their money in the bank. They key is to have a diversified portfolio of loans. I think Lending Club would continue to grow and become more mainstream. Whether you need money or are looking for a place to earn higher interest, Lending Club is the place to be. (note: I do not have an account yet with Lending Club because it is not yet available in my state. But I will open an account when it becomes available. I was told by Rob that I can still open an account but can only buy “secondary loans”)

Lastly, if you sign up through the link here on this page, your account will be credited with $25 bonus.

(note: Lending Club is not available in every state though they are working hard to make them available).

]]> http://www.askmrcreditcard.com/creditcardblog/lending-club-interview-and-review/feed/ 4 http://www.askmrcreditcard.com/creditcardblog/save-on-entertainment-with-coupons/ http://www.askmrcreditcard.com/creditcardblog/save-on-entertainment-with-coupons/#comments Sun, 01 Nov 2009 19:51:00 +0000 Mr Credit Card http://www.askmrcreditcard.com/creditcardblog/?p=9260 It’s Sunday so I’ll take a break from talking about credit cards. My Friend Kevin at www.satellitetvguru.net has some interesting tips for using coupons to save money on your entertainment cost. Many bloggers blog about supermarket coupons but very few blog about coupons for entertainment. So I thought it would be a good idea to ask him to write about this since everyone is in the “save money” mode these days

Earlier this week, Mr Credit Card featured a post about the importance of using coupons to save money on your daily expenses. Coupons are a great way to save on entertainment expenses as well, and are often overlooked. In fact it’s amazing just how much you can save on weekend entertainment by using the right coupons.

Movie Ticket Coupons

These days it costs more for a family of four to go to the movies, then to just buy the movie when it’s released on DVD or Blu-ray. We’ve talked about ways that your family can cut down on movie costs before, however one thing we didn’t mention in the previous post is that using online coupons to make going to the movies a little more affordable.

If you use Fandango.com and you’re a Visa Signature Card Holder, you can currently redeem this coupon that gives you a free second ticket with the purchase of any movie ticket up to $13.50 in value. There are quite a few other movie ticket coupons out there, most of which work with Fandango and give you free tickets, concessions, or a % off your purchase.

Concert Ticket Coupons

You can also use the same strategy to save on concert tickets you buy online. TicketsNow, Stubhub and RazorGator often have coupons that you can find online such as this one that allows you to save $20 on any purchase of $200 or more. While doing a quick search we also came across another coupon that gives you $15 off a purchase of $100 more more.

These coupons are widely available online and easy to find, the sad fact is that most people simply just don’t take the time to do a quick Google search and use them. By getting in the habit of searching for coupons every time before you buy anything online, you can save hundreds of dollars a year.

Satellite and Cable TV Coupons

If your looking to save money on Cable or Satellite service like Dish Network you can find a lot of promotions before signing up, again by simply doing a Google search. The important thing to note here is that you need to find these deals before signing up, if you’re already a subscriber there isn’t much you can do.

If your looking to order Dish Network, by using the promo code on that page you can save $45 and get a free DVR upgrade as well as free installation. You can also find similar coupons and offers when signing up for Comcast cable or Verizon FIOS.

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