How To Manage Your Credit Card Spending

By: Brooke Kaelin

01/17/2009

If your credit card spending is out of control, the tips below will help you get a handle on it – permanently!

Get your logic involved – 99% of your out of control credit card spending can be traced back to your emotions. I know, I’ve been there! Sit down with yourself and have a brief reality check. If you’re familiar with the excitement / spending / guilt / remorse pattern, jump off the roller coaster a second and take a look at your motivations. Why exactly are you impulse spending? What’s driving you? Is there some other way to satisfy that need?

Set a budget – Yes, I know it’s tedious. In the beginning you may have to alter it quite a few times. It really is like riding a bike though. Once you get your balance, you will never forget how to do it, and you’ll be cruising before you know it. Just don’t give up.

Grab a piece of paper, a pencil, and go to it. Don’t expect it to be perfect, just get something going that you can refer to when you want to something unexpectedly.

Next time an expense comes up, and you think you need to it right now, try working out a way to save for it instead. If you can’t you can’t, but the exercise in planning will get you one step closer to your goal. Success builds upon success – but you have to plan for it first.

Know your net worth – Your net worth is simply your assets minus your liabilities. If you haven’t already taken the time to do this, why not? Your net worth gives you a concrete way to measure your successes and failures.

Now, not everyone swears by net worth. One of my favorite blogs, No Debt Plan, looks at net worth this way:

Some argue that net worth is a meaningless number while others claim it to be the financial holy grail. I’m somewhere in the middle. To me net worth is simply a big picture, bird’s eye view, of where you stand financially. A lot of the numbers I use are estimates as there is simply no way to tell what our all of our assets would sell for if we had to sell all at the same time.

Additionally, I don’t track every single thing we own. The silverware in our kitchen doesn’t count toward net worth. Our television doesn’t either. I stick to the big items for the most part.

I’ve always found that my own net worth was a good indicator of my spending habits. If it’s shrinking, (and not as a result of my investments) it means I need to curtail my impulse s.

the more I monitor my own net worth, the more I want to see that number go up instead of down. It’s just like anything else. Whatever you devote your time and energy to is what you will see prosper. If you devote your time and energy focusing on the next new electronic toy, chances are you will get that toy.

However, if you devote your time and energy to focusing on your net worth, chances are you will find a way to make that number go up.

Pick your focus carefully, and find a way to monitor your progress.

Plan for emergencies, holidays and birthdays – Benjamin Franklin may have said that the only certain things were death and taxes, but I would personally like to add that emergencies, birthdays and holidays all happen regularly too. If you are using your credit to compensate for a lack of planning for these things – find a way to change your outlook. If you know these things will happen, then you can prepare for them. If you prepare for them, you won’t have to put them on credit.

The Ultimate Credit Card Secret – Don’t carry a balance. It’s that simple. If you have balances on your credit cards, make paying them off your first priority. When you carry a balance you are essentially paying someone else interest for your own lack of financial management. Take responsibility for those balances, and pay them down. Once you do, a whole new world will open up to you.

Once your credit card balances are paid down, you will see a number of things change. First and foremost, you won’t have revolving debt (besides a mortgage or car payment if you have them) that’s the immediate benefit. Aside from that though, your credit score will go up because you are no longer using as much of your available credit. This means that your future loans will be cheaper. Next in line is the ability to use reward credit cards, or cash back credit cards. Once you reach this point, you know you’re winning the credit game. This is the point where credit card companies begin to pay you for using their credit cards – instead of the other way around.

Simple tenets? Yes. Hard to do? Sometimes. Everyone’s situation is different. If you work through these steps in the order above, it will give you the greatest chance for success.

Mastering your emotions will eliminate more than 90% of your credit problems. The rest really is easy, and you will have a completely different financial outlook.

How about you? Do you have any tips for mastering your credit card spending? Leave us a comment below so that everyone can benefit!

Class Action Lawsuit Against The Credit Card Companies

By: Mr Credit Card

01/16/2009

This is an interview with Samuel Deskin of the Deskin Law Firm about the possibility of a class action lawsuit against the major credit card companies. Click to play the interview, or read the transcript below.

Connie: Hello everyone!

This is Connie Brooks from Ask Mr. Credit Card.com

We’re here today to discuss one of the problems created by the current downturn in the economy.

Credit card companies have been unexpectedly lowering consumer’s credit limits.

For some people this is an embarrassing situation because they have their card denied while they are trying to make normal purchases.

Even worse than the embarrassment, is that having your limit lowered unexpectedly can seriously damage your credit rating.

We’ve had dozens of people write in to us saying that their limits were lowered without notice, and asking about the possibility of a class action lawsuit against the credit card corporations.

So, in response to your questions we’re here today talking with Mr. Samuel Deskin of the Deskin Law Firm.

Are you there Mr. Deskin?

Samuel: Hello Connie

Connie: Hi! Thank you for joining us today.

Samuel: Sure no problem

Connie: Before we get into the details can you tell us a little bit about what a class action lawsuit is?

Samuel: Sure. A class action lawsuit is basically a lawsuit but brought by a small group of individuals or one individual against a big corporation that has in some way either defrauded or harmed the individuals.

And so this individual or small group of individuals come and represent a larger group of plaintiffs, and so they act as class representatives to a big group of people who have been harmed.

In this way the courts can handle one case against a particular company versus handling hundreds or thousands or millions of individual cases against a particular company.

Connie: Well that makes sense to me. It definitely sounds like it might fit this situation too.

Samuel: Well it makes things a lot more efficient and when something like this happens it hurts everybody a little bit but not enough for them to make a federal case out of it. But with a class action, but with aggregating all the people you can make a federal case out of it.

Connie: Ok. Well now the situation that we’re having here is that people’s credit scores are being damaged because it is affecting their debt to credit ratio.

So say for example, somebody had a $10,000 credit limit and they charged $800 of it, and then the credit card company lowers their limit down to about $1000 unexpectedly – Well on their credit report it looks like they are utilizing nearly all of their available credit limit.

Since that’s about 30% of your credit score, it’s having a big impact on the consumers that it’s happening to.

Do you feel like this situation would warrant a class action lawsuit?

Samuel: Well, I guess the answer is, it depends. There are a lot of factors that go into a class action. I guess I’ll speak a little bit to that.

The first factor that you really have to look at are the number of people that are harmed. So, if this is happening to five or ten people it’s not really the right venue to be able to bring a case. But, it sounds like it’s happening to a lot of people.

The other thing you have to look at is how common the claims are. So, if the claims are arising out of the same questions of law and fact then you could bring a class action.

So, we’ll look at this situation and say, “Ok, people are having their credit limit lowered. Is it because their contract allows the credit card companies to lower the limits? Or is there another reason why it’s OK for the credit card companies to lower the limits? ”

Some people will have credit card terms and conditions that will allow for the credit card to lower their limit, to change their interest rates, to do pretty much anything they want at will. Some people won’t.

So, we need to be able to look at that, and be able to understand what each particular situation is and see if there’s a pattern going across a large number of people.

Connie: Ok, so the first thing that our readers are going to need to do is to pull out their terms and conditions and take a close look at what their rights are.

Samuel: Right, because if there are ten different credit card companies they are each going to have different terms and conditions, and they may have different terms and conditions for each of the credit cards that they offer. So, each person may have a slightly different situation.

Now, the terms and conditions may be similar enough that we’d be able to bring a class across one company and say, “OK, you didn’t have terms in there that allowed you to lower the credit limit, and so you couldn’t have lowered the credit limit the way that you did.”

At first, it’s a case by case situation to be able to see what’s happening to individuals, and then we try to apply that to a large group of people.

Connie: I understand. One thing that I think our readers will need to know – especially anyone that gets their statements electronically – is that they’re going to definitely want to go back into their accounts and see if there was a notice of change of terms. They might not have gotten that in the mail.

Samuel: Right. Often times credit card companies are pretty sneaky about that. They put a clause in their agreements that says “We can change your terms at any time.” So, even if there isn’t a clause that allows them to lower the credit limit on the first agreement that you agreed to, over the time that you’ve had the agreements, excuse me, that you’ve had the credit card, they may have snuck one in.

So, you have to be very careful to be able to go across all of their agreements and make sure that they haven’t snuck that clause in there.

Connie: I understand. I know we have some readers out there that are very upset.

If they want to go back through, and check their terms and conditions and make sure that there’s nothing saying that they credit card company can do that, and they do want to be a part of a class action suite, how would we get that started?

Samuel: Well, your readers can look at their documents and then feel free to visit my website at Deskin Class Action Law.com or to call me at 800-709-8978.

I’ll be very happy to go over the agreements with them and we can read through and figure out what’s going on, and see if there is a case to be brought.

Oftentimes, we look at these agreements and we look at the situation and we find other things that are going on. Like, you mentioned earlier that they are lowering credit limits. Well, the effect of lowering credit limits may affect the person’s credit score. There may be some issues there. We should look over the entire agreement together and be able to understand what kinds of issues are being raised by these practices by the credit card companies.

Connie:Well, that sounds wonderful. We will put your information on our website as well as a transcript of this for anyone who is listening and wants the full report.

I really appreciate you joining us today Mr. Deskin. Is there anything else you think our listeners need to know before we sign off here?

Samuel: Well, there are many, many credit card companies out there and they are all hurting right now. And they’re all trying to find a way to be able to increase their bottom line. But, at the end of the day, them increasing their bottom line means taking money out of individual’s pockets to line theirs.

So, you should be very careful about the credit cards that you agree to take, and the effects of those company’s business decisions on your own credit and your lifestyle.

So, be wise about the credit that you spend, and be careful who you decide to do business with. So, that would be my two cents.

Connie: Thank you for joining us Mr. Deskin, we really look forward to talking to you again in the future.

Samuel: No problem, take care Connie.

Connie: Thank you guys for listening. If you have any questions about this broadcast, you can check out our website at Ask Mr Credit Card.com

Have a question for us? Leave a comment below!

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Chase Increased My Credit Limits

By: Mr Credit Card

01/15/2009

Just today, I got a letter from Chase. I opened it and was fearing the worst that they may reduce my credit lines and limits. We have heard in the press and lots of comments on this blog that credit lines have been cut for even people who have paid their bills in full and have good credit scores.

When I finally looked at the letter, it was actually them sending me my new cards which extended the expiration date! Phew! I also noticed that they increased my credit limit by $1,000. Wow! That’s a surprise. But I there is a more interesting story to this prior to me getting this letter. Back in December, Mrs Credit Card decided to an electronic (or digital whatever you call it) piano. It was offered at 50% off. Mrs Credit Card managed to bargain it down to $3,700. But the store only took Visa. So we decided to use our Chase credit card (I have the the Flexible Rewards card which is no longer offered – in name at least). But it did not accept the charge because it was over my credit limit! Previously, my credit line was a measely $4,500. I automatically charge some memberships I have to the card and use it as my spare card in case places do not accept American Express Cards. I was over the limit by only $70.

The customer rep told me that the transaction was rejected because it was an unusual one (and not because it was over the limit – which I’m sure they would have happily charged the me the over the limit fee). He said we would always apply for a credit line increase. But there would be a soft pull on my credit reports. I decided against it for “fear” (real or unfounded) that Chase might just use any excuse to cut my credit lines. I decided to charge it to my Merrill Lynch card instead. The main reason why I preferred my Chase to the Merrill Lynch card is because my payment to Chase is automatically deducted from my bank account. Merill Lynch (administered by FIA services) does not have this service! But I had no choice but to charge it to them.

What did I do to Get the Credit Increase?

I don’t know. But here is a background of the cards that I have and the credit limits.

1. American Express Platinum Charge Card – no preset limit
2. Blue Cash – $15,000 – raised from $10,000 last year!
3. Merrill Lynch – $14,000
4. Chase – $5,500 (from $4,500).

I have always paid my bills in full. I use very little of my Chase and Merill Lynch cards – maybe a couple of hundred dollars here and there. I mainly use the Blue Cash and the Platinum Card.

My credit score (since I last checked last August) is 793.

I did pay my bills late in September and October on my Merrill Lynch last month because they told me I could be set up on automatic bill pay. I sent in the forms – but it turns out that they had scrapped that service or it was never there. So while I thought my bills were automatically paid, I was actually late. I got my late fees and finance charged removed, but they had already reported to the credit bureaus my late payment. After some investigation, they agreed that I was misinformed and that they would correct my credit reports.

So that’s it. Got my credit increase. Hope all stays in the same with the rest of the cards. I do realize that many folks have got credit lines pulled. But to cheer things up, has anybody gotten any credit increases? Please share your stories and gives us a background on your credit card habits, scores etc so we can all learn.

Class Action Lawsuit – Tune In Tomorrow!

By: Mr Credit Card

Credit card companies have been unexpectedly lowering consumer’s credit limits. This is not only embarrassing, but it can seriously damage your credit score. Consumers who have made on time payments for years are still having their limits reduced.

Many of you have told us your stories, and requested information on a class action lawsuit against the credit card companies. We are pleased to announce that you can tune in tomorrow for the results of our investigation into this situation.

We have recorded an interview with Mr. Samuel Deskin of The Deskin Law Firm.

Mr. Deskin discusses the possibility of a class action lawsuit, and what you need to do if you would like to be a part of it.

The interview will be featured here on Ask Mr. Credit Card’s Blog, and you can listen to it any time after 8:00 am PST.

If you know anyone else who has had their credit card limits unexpectedly lowered, please invite them to listen to the interview as well.

Thanks,
Mr. CC

Fraud Alert vs. Freezing Your Credit Report

By: Brooke Kaelin

01/14/2009

If you have been a victim of identity theft, you may have seen conflicting information about how to handle the situation.

Most sites recommend placing a fraud alert on your credit report to prevent the identity thieves from opening up new accounts in your name. This is good advice, but it’s not the best advice.

What is a fraud alert?

Setting up a fraud alert is like placing a red flag on your credit report. It means that any time you (or a potential identity thief) attempts to take out a loan, the lenders are supposed to go back and re-verify all of the personal information. In other words, they are supposed to take several extra steps to ensure that you are the one applying for the loan, and not just someone else using your identity.

That sounds like a good thing right? Where’s the problem?

The problem with placing a fraud alert on your credit reports is simple: Too many loans are given electronically now. In the days where you actually had to sit down with a lender in order to get a loan, a person would have seen the alert and (hopefully) checked things over to make sure that the person applying for the loan was legitimate.

With so many things being automated today, a fraud alert means next to nothing. There is no person there reviewing your credit reports, and not everyone’s system is set up to recognize fraud alerts. An identity thief can be approved for a bank account, a loan or a credit card in less than 60 seconds using your identity – fraud alert or not.

So, what can you do about it?

The best course of action if you believe your identity has been stolen is to freeze all three of your credit reports, no simply place a fraud alert.

What is freezing your credit reports?

If you choose to freeze your credit reports it means that lenders will be unable to see your credit score. This works in favor of most automated systems because the make decisions based entirely on your credit score. If your credit report is frozen, they cannot access your score. If a potential lender can’t see your credit score, they will not issue a loan.

This is the most effective method of protecting your identity. Most automated systems don’t recognize the red flag from the fraud alert, but they will definitely not approve you if they can’t access your credit score!

How to freeze your credit reports:

You can freeze your credit reports by going online, or by calling each of the three credit bureaus. Make sure you do go through the process with all three bureaus too. Not every lender looks at the same credit report. You do have to freeze your credit reports at all three places if you want to shut down an identity thief.

Start by visiting the links below, and setting up an account with each of the three credit bureaus.

Once you have your account set up, you can view your credit report, and choose to freeze, or unfreeze your credit report. If you have been a victim of identity theft, it is free to freeze your credit reports. Usually all you need is a police report number.

If you’re reading this article because your identity has been stolen, and you do not yet have a police report number, you can visit our article on “What To Do If Your Purse Or Wallet is Stolen” for a complete list of steps you should follow to protect your identity.

If you’re identity has not been stolen (or you aren’t sure) and you want to freeze your credit reports just to be on the safe side it costs around $10 per bureau.

Unfreezing your credit reports:

You won’t want to leave your credit reports frozen forever – chances are you will need a loan yourself at some point. If lenders can’t pull your credit score, they won’t issue a loan to you either. So unfreezing is pretty much inevitable at some point.

Today most of the credit bureaus have the freezing / unfreezing process down to a single click of the mouse. When you know that you intend to apply for a loan, log back into your credit bureau accounts and unfreeze your credit reports.

Make sure you give the credit bureaus enough time to catch up with you though – Unfreeze your credit reports about a week before you intend to apply for a loan.

A word of caution:

Once your identity has been stolen, that information is out there pretty much forever. You will never be able to know whether or not the thief sold your personal information to someone else.

Once you decide that enough time has passed, and you no longer wish to have your credit reports frozen, I wholeheartedly recommend picking up a credit monitoring service.

For about $15 a month you can view all three of your credit reports any time that you want to. If you check them regularly you will immediately be able to see any new accounts that have been opened in your name. If you weren’t the one that opened them, you know your identity thief is back.

Also, right now Equifax has a program called ID Patrol that offers identity theft insurance as a part of the credit monitoring package. They also set you up with an advisor that will walk you through identity theft recovery step by step if it happens to you. (Those things are included in the $15/month price for monitoring all three of your credit reports.)

These type of services are not for everyone – but if you have had your identity stolen in the past, or you are afraid that it might have been stolen, then it’s a very good investment because it protects you from further damage to your identity or your credit scores.

Have a question for us? Leave a comment below!

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Transfering Miles Or Points Between Accounts

By: Jason Steele

01/13/2009

As you become a reward card aficionado, and begin to talk to others about it, you inevitably come up with situations where you would like to transfer points from one account to another.

While the possibilities for doing so are limited, they do exist. Here are a few of the ways:

American Express Membership Rewards

Amex Membership Rewards is a popular program, with points that can be redeemed for travel and other benefits among a variety of partners. Suppose you have a friend or family member that you would like to gift or donate points to. According to American Express’s website, this can only be done between cardholders on the same account. For example, if you and your spouse have two cards on the same account, you can redeem points for frequent flier miles in their accounts.

In theory, it is possible to add other people as cardholders to your account for the purpose of transferring miles, but I would strongly caution against doing so for anyone but an immediate family member. By adding a friend as a cardholder to your account, you are responsible for any charges made by that person, and your credit history is linked.

There is some indication that Amex’s rule about transferring awards is not enforced. Some people have reported being able redeem Membership Rewards points for miles in accounts of other people. It certainly couldn’t hurt to try, as the worst case scenario is that Amex merely declines the transfer.

Starwood Preferred Guest

Starwood’s American Express card earns members currency in the hotel chain’s loyalty program, called StarPoints. It is possible to transfer StarPoints from one member to another, provided that they reside in the same household. You simply have to call up Starwood and ask. Their agents are actually very courteous and friendly, and the transaction is no big deal. Unfortunately, Starpoint redemptions can only be made to a frequent flier account that has the exact same name as the Starwood Preffered guest’s account, otherwise they will be declined.

Transferring Airline Miles

Almost no airline will let you transfer miles between accounts for free. The notable exception is Hawaiian Airlines. They have a program called ShareMiles that allows members to pool miles between accounts. The only catch is that the members will all need to hold a Hawaiian Airlines Visa card. That’s what I call island hospitality!

Most other airlines offer some kind of program to transfer miles between members, but it is usually a terrible deal. For example, Delta Airlines has a program called Transfer Miles. For a $30 processing fee, they will happily transfer miles from one account to another at one cent per mile, plus taxes. Therefore, transferring 25,000 miles from one account to another will cost you $280, plus taxes, an amount pretty much equal to the value of the miles themselves. The only way this might be a worthwhile deal is if you were to transfer a small number of miles from one account to another in order to “top off” an account to get an award. On occasion, Delta and other carriers have been known to sweeten these deals significantly by offering bonuses of %100 or more.

The Easy Way To Transfer Awards

Any award on any airline program can be redeemed for ticket in anyone’s name. It is surprising how many people do not realize this. I can redeem an gazillion miles for a ticket in anyone’s name, if I so choose. While it is technically against the airline’s rules, it is even perfectly legal to sell the award.

In this way, it is very easy to redeem awards for family or friends. I have been known to trade awards between family members if I have mileage in a program they can use and vice versa.

The Way To Transfer Miles Or Points Between Programs

InsideFlyer magazine has a tool on their website that helps you to find ways to transfer points between one program and another. Sometimes it is fairly straightforward, and sometimes it can be rather complicated. For example, you may have to transfer miles or points into a third or even fourth party loyalty program in order to get them to their ultimate destination.

Above all, it is important to remember that points and miles are not currency. There are occasions where they can be exchanged, but it is never something that you should count on. By knowing your options, you can get the most our of your credit card reward program.

Increase Your Financial IQ Book Review Part 4

By: Brooke Kaelin

01/12/2009

increaseyourfinancialiq Every Sunday here at Ask Mr. Credit Card we review a personal finance book. This week we are reviewing Increase Your Financial IQ by Robert Kiyosaki. If you missed the first few sections of the review you can read them here:

Increase Your Financial IQ: Budgeting

A Budget is a Plan:

One of the definitions of the word “budget” is: a plan for the coordination of resources and expenditures.

Rich Dad said a budget is a plan. He went on to say “Most people use their budget as a plan to become poor or middle class rather than a plan to become rich. Most people operate their lives on a budget deficit rather than a budget surplus. Instead of working to create a budget surplus, many people work to live below their means, which often means creating a budget deficit.

A budget deficit is an excess of spending over income, while a budget surplus is an excess of income over spending.”

Well, this mode of thinking is definitely what sets Kiyosaki apart from the majority of other personal finance gurus. A quick search of the internet, or a glance at the finance section of any bookstore, will yield up hundreds of books and articles that focus on living below your means.

Kiyosaki on the other hand has always focused more on increasing your means. He believes that if you can’t afford to live the life you want to live you should earn more, not cut back.

I have to admit, that was a liberating idea for me when I first encountered it. While I do think it makes good financial sense to live below your means, (or at the very least within them!) it makes far more sense to make increasing your wealth the primary focus.

Think about this: I can spend ten hours a week clipping coupons, researching the best deals, travel to three of four different stores to maximize my savings, and I will be able to save money. Possibly a lot of money. People do it successfully all the time.

If we follow Kiyosaki’s mode of thought though, he would advise taking that same ten hours a week and putting it to use by finding a way to earn more money instead.

I do agree with Kiyosaki that this mode of thinking (he calls it “thinking poor”) traps people. It traps us into believing that we can’t afford things, that we must do without, and our quality of life suffers.

Instead of spending our time focusing on how we can acquire the things we want, we focus instead on how to min/max the small amount of money that we have and stay within our comfort zone.

Kiyosaki shares his own story within this book. He explains how he paid himself first, before anyone else so that he could create his own budget surplus.

Soon after we were married, Kim and I had the same financial problems many newlyweds have. We had more expenses than income. To solve this problem, we hired Betty the Bookkeeper. Betty was instructed to take 30% of all income off the top, as an expense, put that money in the asset column.

Using simple numbers as an example, if we had $1000 in income, and $1500 in expenses, Betty was to talk 30% of the $1000, and put that money in the asset column. With the remaining $700, she was to pay the $1500 in expenses.

Betty nearly died. She thought we were nuts. She said, “You can’t do that. You have bills to pay.” She almost quit. You see, Betty was a great bookkeeper, but she budgeted like a poor person. She paid everyone else first and herself last. Since there was rarely anything left over, she paid herself nothing. Her creditors, the government, and bankers, were all more important than Betty.

Betty argued and fought. All of her training told her to pay everyone else first. The thought of not paying her bills or taxes made her weak in the knees.

I finally got her to understand she was doing us a favor. She was helping us out. I explained to her that she was helping us solve a very big problem, the problem of not having enough money, and as you know, solving problems makes us smarter. When she understood she was actually creating income through expense, she was willing to go along with our plan to create a budget surplus.

For every dollar of income, Betty would take 30 cents and put it in savings, tithing and investing. She knew that saving, tithing, and investing were necessary expense to create a surplus, our first and most important expense.

With the 70 cents from every dollar left, she was to pay taxes, liabilities such as our mortgage and car payments, and then our bills such as electricity, water, food, clothing, etc.

Needless to say, for a long time we came up short every month, period. Although we had paid ourselves first, we did not have enough money to pay others. There were some months Kim and I came up as much as $4000 short. We could have paid the $4000 from our assets, but that was our money. The asset column belonged to us.

Instead of panic, Betty was instructed to sit down with us and let us know how sort we were each month. After taking a deep breath, Kim and I would then say, “It’s time to get back to Financial IQ #1: Making more money.”

With that, Kim and I would hustle around doing whatever we could to make more money. Kim, with her marketing background, often called businesses and offered to consult with them on their marketing plans. She also took modeling jobs, and sold a line of clothes.

I offered to teach investment or sales and marketing classes. For a few months, I trained sales teams at a local real estate company. I even made money by helping a family move, and by clearing some land for another family.

In other words, we swallowed our pride and did whatever it took to make the extra money. Somehow, we always made it; and somehow Betty stuck with us and assisted us with out problem, solution, and process, even though she worried more about us than we did.

Unfortunately, Betty could help us, but was unwilling to help herself. Last we heard, she’d retired and moved in with her single daughter. They share expenses, using Betty’s payments from Social Security to pay them. They do not have a budget surplus.

Ok, so that was a long section, and for most of us, I think the ideas there can be controversial. Instead of just telling you what I think of them, I would really like to know – What do YOU think of the way Kiyosaki created his budget surplus?

Do you think this is the right way to go about things? How do you approach the issue of building wealth? Please leave me a comment below, and I’ll respond!

This concludes our review of Increase Your Financial IQ by Robert Kiyosaki. If you’re interested in reading this book, don’t forget that you can a used copy off of Amazon.com for less than half price, or check it out from your local library. Financial education doesn’t have to be expensive!

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True Cost Of Credit

By: Jason Steele

01/09/2009

This morning, via the Consumerist, I found this site called, “The True Cost Of Credit.”

You Can’t Judge A Story By Its Title

With a title like that, I expected many things. Perhaps it was a detailing of the cost of credit cards to American consumers in interest and fees. Or, maybe it is the cost to the economy when people default on their credit cards. It turns out that the article is really the “true cost of credit” to businesses that accept credit cards.

The article has a tool that allows you to put in a portion of your credit card number, and then shows you the merchant fees assessed to the business making the sales. It turns out that merchant fees include both a fixed amount per transaction, as well as a percentage of the total sale price. This produces the odd effect of merchant fees consisting of a larger percentage of the cost for lesser priced items, and a smaller percentage of the cost for higher priced items. Overall, they estimate that merchant fees add up to a total of 50 billion dollars a year.

So What?

Credit cards are not a charitable organization, they are a business that makes a profit. This profit comes simultaneously from two sources, the merchants and the card holders. This site shows how the merchants are being charged. What do they get in return? They get several benefits from accepting credit cards. Obviously, it is a preferred method of payment for more customers, so they get increased sales. They also have their transactions conducted quickly. Consider that next time you are in line behind someone fishing through their purse for enough pennies to complete a sale, or when the cashier runs out of a particular denomination of currency. The merchants are also protected against fraud, just like we consumers are when we use charge cards. They do not have to worry if your money is counterfeit, if their employee counts it correctly, or even if the customer never pays their bill. In all circumstances short of a charge back, when the card issuer authorizes the transaction, the merchant is guaranteed payment.

Where Do These Fees Go?

A lot of it is profit for the card companies. If you play the reward card game successfully, some of that profit goes back to you. Take my American Express card for example. According to this site, Amex will charge the merchant 3.5% plus about 25 cents per transaction. In return, I am getting a Starpoint, a Delta SkyMile, a Membership Rewards Point, or some amount of cash back. With my Business Platinum Amex, I get 5% back on gas, wireless bills, and office supplies. In theory, Amex is actually loosing money on each of these transaction. In reality, I imagine they make it up on sales of other goods, and possible some other kickback from the merchants. If they do not, I am sure they turn a profit off of the interest and fees paid by others.

Are They Excessive?

Perhaps, however the merchants are free not to agree to take these cards, as plenty of business chose not accept American Express, Discover, or sometimes all credit cards. A bigger question would be: Is their anti-competitive behavior going on between the limited number of major card companies, Amex, Visa, Mastercard? I honestly couldn’t answer that question, however, if I was a merchant, I would probably resent 3.5% of my sales disappearing.

For better or for worse, I am not a merchant. While I know that Amex has the highest merchant fees, I also know that this likely explains why they tend to pay out the highest rewards. I didn’t invent the rules, but I am happy to play along and get points and miles often worth 5% of each transaction.

The key is that by always paying on time and in full, I become a “freeloader”. I earn rewards based on both the merchant fees paid by the business I spend money with, and the interest and fees paid by others. Beyond that, I always keep in mind the numerous non-reward benefits the credit card offers me over cash. These perks include, charge backs, fraud protection, and the ease and safety of handling as compared to cash. With up to 45 days worth of interest free “float” between my first charge of the month and my payment being due, I actually earn interest using my credit card that I would not have earned with cash.

Just like banks operate in the margin between the interest rates given to depositors and those charged to borrowers, credit card companies operate on a margin. They offer benefits to both merchants and consumers, while profiting from each as well. The rewards you can earn are merely a slice of that margin that you earn by avoiding fees and interest.

Now that you know how the process works, you will now be able to better understand how to play the game, and win.

Which Card Is The Best For Getting Reward Miles To Fly To Israel?

By: Jason Steele

01/08/2009

This question come from a reader. It is a good question that applies not just to travel to Israel, but to many other destinations outside the United States.

Where Are You?

First, it is important to know where you are in this country. That is because non-stop flights to Israel currently only depart from the New York area, Los Angeles, and Atlanta. No matter what airline you fly, a non-stop flight is always preferable. If you live in Atlanta, Delta is your airline, and there are many Delta reward cards to choose from. Another option would be the American Express membership rewards program or even the Amex Starwood Card, as both programs offer rewards for Delta. The Delta cards will have a greater sign up bonus, however the Membership Rewards and Starwood programs give you points that can be redeemed to many airlines.

If you live in New York, you have several non-stop flight options, including Delta from JFK, Continental from Newark, and of course, El-Al from both Newark and JFK. With Continental, there is also a variety of reward cards with generous benefits and sign up bonuses.

El-Al is actually one of a very few foreign carriers that offer an affiliated credit card to US citizens. The HAS reward card offers one El-Al “Matmid” point, the currency of their frequent flier program, for every 40 dollars spent. El-Al requires 1,400 Matmid points for a round trip from New York, and 1,800 from Los Angeles, so an award is achievable for 56,000 and 72,000 dollars spent respectively. That is actually the lowest spending necessary for round trip to Israel. For example, Delta requires 80,000 Skymiles to book an economy ticket in their “low category” which might be impossible to book in the summer.

In contrast, El-Al’s program has no blackouts and only one award level. This is also much better than the American Express Membership Rewards El-Al transfer option. This is billed as a “Limited Time Only” offer, and grants you a measily 15 Matmid points for 1,050 Membership Rewards points, hardly worth the effort.

For Those Of You Not In New York, L.A., or Atlanta

If you do not live in one of these cities, you will have to change planes somewhere to get to Israel. While this is not as convenient as a non-stop flight, you do get a lot more options. Where I live, in Denver, you can get to Israel with a domestic carrier with a stop in Atlanta on Delta, JFK on Delta or El-Al, or Newark on Continental. If I wanted to fly a foreign carrier, I could choose Air Canada via Toronto, Lufthansa via Frankfurt, or British Airways via London. Your options will vary based on your city’s connections to NY, LA, and Atlanta as well as it’s international flights to various European hubs, most of which service Tel Aviv.

Choose An Alliance

From here, things get more complicated. You will want to choose one of the three alliances to earn points with. Star Alliance will offer awards to Israel on Lufthansa, Swiss, Austrian, LOT Polish, Air Canada, and soon, Continental. SkyTeam will offer awards on Delta, KLM, and Air France. OneWorld offers awards to Israel on British Airways and El-Al. The mileage necessary for an award will vary based on the program. The best advice I can give you is to avoid earning miles on United. While they are part of the Star Alliance, they go out of their way to block you from booking partner flights. For more info on this, Google “Starnet blocking”. If you must fly on United, you can ask to earn miles on US Airways program instead (or soon on Continental). They are also part of the Star Alliance, but they do not excessively block partner award travel. I learned about this the hard way last year.

Do You Already Have Miles?

If you already have signifigant miles with an airline program, (hopefully not with United), it might be best for you to continue on with a credit card for that program, especially if you are in a city without non-stop service to Israel. You will already have a head start, and you can continue to earn mileage towards your award by flying. Unless you are a big spender, it will be difficult to get to Israel with mileage earned on a credit card by itself. What will help you signifigantly is earning a healthy sign up bonus. It may be advantageous to get both the personal card and the business card for your airline program if they both include a generous sign up bonus.

How Can I Apply These Lessons To Other Destinations?

Use this process. Ask yourself:

1. Do I live in a city with a non-stop flight to my destination? If so, chose the reward card affiliate with that airline. If not, try to find airlines with the most convenient links and go with the credit cards affiliated with their domestic airline partners.

2. Do I already have miles on a carrier that I fly often? Flying is still a good way to earn miles, and starting with a bunch of miles is a major consideration.

3. Which Program Offers Me An Award With The Fewest Miles and Restrictions? Even within the same Alliance, awards prices will vary for the same seat on the same airline. Spend some time comparing the different award prices before commiting to a program.

Good luck on your trip to Israel, or wherever your travels may take you!

Companion Ticket Offers

By: Jason Steele

01/04/2009

Every now and then you will see a “free companion ticket” offer by a credit card company. Skeptical consumers will likely find these offers too good to be true. Let’s examine three of the most popular “free companion ticket” offers to see if they hold any real value.

American Express Platinum

The Amex Platinum has lots of great features, yet it carries a hefty $450 a year annual fee. Many people try to justify this fee by thinking of the savings they could realize by taking advantage of the international business class companion ticket that is included with your card. Most are in for disappointment when they find out that the companion ticket is only good for “qualifying fares”. These fares are typically fully refundable tickets that are often double or triple the price of standard discounted business class airfare.

Are these certificates entirely useless? Not necessarily. If you are lucky enough to work for a company that will reimburse you for your business class airfare, then this would be a great way to bring along a companion with you. Not only does your company have to pay for your ticket to make this work, but they have to be willing to pay for a refundable fare. If you are asked to fly at the last minute, refundable tickets might be the only ones available. For the rest of us, there is simply no point in paying double for a ticket so that you can get one more for free.

Magazine Subscriptions That Come With “Free Companion Tickets”

As a benefit to my readers, I subscribed to Travel + Leisure magazine in order to receive the “free companion ticket”. There were a million restrictions, but what the offer boiled down to was that you called their travel agent, and they quoted you airfares that were almost exactly double what the airline’s websites offered for the exact same same flight. At least with the Amex offer, you ended up with two refundable airline tickets that you can change without penalty. With this offer, you simply had to pay double for your “free companion ticket”, making the certificate not worth the paper it was written on, if you ask me.

Amex Delta Gold, Platinum, and Reserve Cards

American Express and Delta have been offering domestic companion certificates with most of their credit cards for some time. With the Gold Delta card, there is a $99 charge, but the companion certificate is free withe Platinum and Reserve cards. For the Reserve Card, the certificate is good for travel in domestic First Class. I know several people with various Delta cards that report some success with these certificates. There are no fare class restrictions that force you to tickets that cost twice as much as what you can otherwise find. Some of the biggest drawbacks include the fact that the companion is not eligible for mileage or complimentary upgrades, a problem for travelers with Medallion status. Another quirk is that if the traveler who purchases the ticket cannot make the flight, the companion ticket is invalid. Overall, this is a fairly valuable certificate, especially when used with last minute travel, or travel to expensive domestic destinations.

Conclusions

When something appears too good to be true, it probably is. That said, there are some great deals out there for companion certificates. The burden is on you for looking up the terms and conditions in writing before committing to a credit card offer and it’s annual fee.