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Ask the Dolans: Should I pay for a credit monitoring service?

Ken and Daria Dolan — 2008-05-09T10:00:00+00:00

Filed under: Banks, Cards, Insurance, The Dolans, Fraud

Ken and Daria Dolan, America's First Family of Personal Finance, answer your money questions every Friday.

Dear Ken and Daria,

I realize it's important to stay up-to-date on your credit score, but is it necessary to pay for a credit monitoring service?

Jeff

Want to learn more about protecting and improving your credit score? Visit our Credit Center at Dolans.com.

Click here to ask Ken and Daria your question.

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Credit card disputes: Get your money back

Tracy Coenen — 2008-05-07T13:00:00+00:00

Filed under: Cards, Ripoffs and Scams

Consumers have rights when it comes to fraudulent credit card charges or charges for products and services that aren't what they paid for. The key to successfully challenging a charge is in knowing what to say and who to tell. That sounds elementary, right? Except Consumer Reports is saying that many consumers don't know their rights or how to enforce them.

Small dollar amounts are easy to dispute and resolve, as it's estimated that it costs a credit card company $25 for each charge it must investigate. This means they're likely to give refunds for small amounts without much work. It would cost more to investigate than to just give you your money. The credit card company also has to weigh the risk that you will close your account if your matter isn't resolved. They lose money when you do that.

Here are a few key points about your credit card: Report suspicions of credit card immediately to stop the harm. Most billing problems need to be disputed in writing, and many credit card companies don't recognize e-mail as "in writing." The credit card company must receive your letter within 60 days from the statement date, so don't wait. Include with your letter all copies of supporting documentation to help prove your claim.
Some of the most common billing disputes include: Unauthorized charges, which can often spring up because of an automatic charge that you've attempted to cancel, such as internet service. Failure to credit your account for returned items is common, so make sure you hang onto your receipt to prove the return. Issues with the quality of merchandise are harder to dispute, because once you've "accepted" the goods, many credit card companies won't give you a refund for low quality items.

A retail client of mine never successfully defended a claim by a credit card holder, even with all documentation intact. This suggests to me that consumers may have the upper hand in credit card disputes, so it pays to take the time to dispute bad charges and get your money back.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

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Tricks credit card companies play: Seven to watch out for

Ken and Daria Dolan — 2008-05-02T16:00:00+00:00

Filed under: Borrowing, Cards, Debt, Saving, The Dolans

Folks, we might have a new winner in the contest for the most hated consumer industry. For years, the hands-down winner was car dealers.

But we think that credit card companies are giving them a serious run for their money!

Most credit card companies are downright ingenious when it comes to cooking up sneaky new credit card fees and dirty tricks that take more money out of your pocket. If you've had enough, keep reading because today we are going to reveal seven of the industry's dirtiest tricks. We hope this list will help you protect yourself, slash your costs and be credit card smart.

Dirty Trick #1: Say "Bye-Bye" to Your Grace Period

No grace period means that you'll start accruing interest the moment you charge something. That can cost you a bundle of "extra" interest.

Most credit card issuers have already reduced their grace period from 25 days to 20 days. Many others have eliminated the grace period altogether. Now they are coming up with more and more reasons to take away your grace period. Miss a payment? Stop carrying a balance? Bye-bye grace period!

Dirty Trick #2: Punishing you when you are credit smart.

If you want to see my beautiful wife throw a complete fit, just mention any of these scandalous fees in her presence! These fees are the lowest of the low because they penalize you for being a responsible credit card user.

Some of the biggest offenders include charging you a fee for:

Closing your account
Failing to use a card for a period of time (such as six months or a year)
Not carrying a balance (how DARE you!)
Every transaction each and every time that you use your card

If your card charges you any of these fees, it's time to look for a new card! Click here for our tips on how to find the best card for you.

Dirty Trick #3: Doing you the "favor" of sending you "convenience" checks.

Credit cards often send you "convenience" checks so that you can write checks against your credit card account. Isn't that nice of them? Please!

DON'T do us any "favors"!

What they bury in the fine print is that these checks usually carry very high interest and fees -- even higher than regular credit card charges. Some cards also give you no grace period on convenience checks, so you start paying interest from the day you write the check! Shred these little "gifts" whenever they arrive.

Dirty Trick #4: Psst... Hey, buddy, want to skip a payment?

In their infinite generosity (ha!), some cards will "invite" you to skip making a payment. This "helpful" offer, which sounds great at first blush, often comes after the holidays when your balance is big and your wallet is feeling stretched. DON'T DO IT!

Skipping that payment can lead to a host of trouble -- from a higher interest rate to possibly having to make extra payments in the future.

Are you starting to notice a pattern? You should be skeptical whenever your credit card company does something "nice" for you without you asking for it.

Dirty Trick #5: Lowering your minimum payment due.

Another way some cards try to jack up their profits and lure you deeper into debt is by lowering the minimum payment due on your balance. It used to be cards required a minimum monthly payment of about 4% of your balance, but many now require as little at 2%. Don't fall for it!

Going from a $40 payment to a $25 payment on a $2,500 balance means it will take you an extra 19 months to pay off the debt.

Dirty Trick #6: It's 5 o'clock... Do you know where your payment is?

We all know that our payment is due on a certain date or it's late, right? But a new twist being thrown into the mix is having your payment due by a certain time on the due date. If your payment is due at noon and gets processed at 12:01, you get socked with a late fee AND likely a higher interest rate.

Gimme a break! Carefully check your statement so you avoid this trap.

Dirty Trick #7: "Over the limit" fees

Credit cards charge you a hefty fee for going over your credit limit. Look, we don't have a problem with penalties for that. But now these fees have gotten excessive -- almost $40! Plus, credit card issuers don't exactly discourage you from going over your limit when they approve charges and balance transfers that put you over your max.

Dolan Smart Credit Moves

So there you have it: Seven tricks and traps you now know how to avoid. But credit card companies will keep dreaming up new ones. So here's the bottom line on how to protect yourself:

Don't sign on with a card until you have a list in writing of all fees that the company charges. You can find these in the small-print section of your credit card application. Or, if you apply online, you will have to agree to all of the terms and conditions as part of your sign up process. You can always call the company, too. Whether in print, online or on the phone, read carefully before you agree!

Also be sure to actually read any notices your credit card company sends you about changes to your card agreement. That's your chance to catch any changes before they come back to bite you.

For more tips on being credit smart and successfully managing your debt, visit Dolans.com.

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Ask the Dolans: Should we take out a home equity loan to pay off debt?

Ken and Daria Dolan — 2008-05-01T10:00:00+00:00

Filed under: Banks, Budgets, Cards, Debt, Home, The Dolans

Ken and Daria Dolan, America's First Family of Personal Finance, answer your money questions every Friday.

Dear Ken and Daria,

My husband and I have $7,000 in credit card debt. Should we take out a home equity loan?

Lyndajoy

Ken and Daria Dolan offer advice on all of your debt concerns at their Credit Resource Center.

Click here to ask Ken and Daria your question.

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Entrepreneur's Corner: Can you boost sales by doing good?

Amey Stone — 2008-04-28T13:00:00+00:00

Filed under: Cards, Entrepreneurship, Charity

"Cause marketing" is a current buzzword in corporate circles. It stands for a simple idea: that you can convince more people to buy your products if you promise to give some of the proceeds to a social or environmental cause.

Consumers get to buy something they like and do good at the same time. Businesses fork over some of the profits, but get a halo effect (hopefully), for encouraging a greener planet, end to poverty, cure for breast cancer and the like.

Product Red may be cause marketing's most conspicuous recent example. It is a brand licensing effort started by U2's Bono and Bobby Shriver. Companies including Gap, Apple, American Express, Microsoft and Dell have participated, creating specially branded "(Product) Red" items and contributing 50% of the gross profits to the Global Fund for AIDS, Tuberculosis and Malaria. It has been criticized since such a small portion of dollars people spend on the products actually makes it to Africa, but also heralded as a huge success for raising $100 million for the Global Fund in just two years and generating goodwill toward the companies involved.

Here's a new cause marketing effort that may be the first aimed specifically at small businesses: Kiva.org, a microfinance site which allows individuals to make loans as small as $25 to entrepreneurs in developing nations, teamed up Advanta to launch the KivaB4B program in mid-April. Advanta issues a Kiva-branded small business card and will match grants made by cardholders to Kiva dollar for dollar (up to $200 a month). Entrepreneurs get to flash their Kiva credit card, which has no fee and low rates, plus they get an insignia to put on their web page or office that shows they are supporting entrepreneurs in the developing world. "Entrepreneurs recognize the value of getting a little seed money," says Ami Kassar of Advanta. "This program allows them to be the good guys and show they care about the community."

Can small companies create their own cause marketing efforts, while avoiding any potential pitfalls? Bryan Specht, an expert in corporate responsibility with Dig Communications in Chicago, believes it can be a terrific strategy for increasing sales and building customer loyalty if done right."There is a huge opportunity here for small businesses to gain market share and take on the big boys in whatever sector they are working in through smart cause marketing efforts," he says. Specht offers these tips for how small companies can benefit from cause marketing:

Don't just support your own pet cause. Make sure it is an issue your target market cares about. Cause marketing works best with young consumers and boomers.

Do it in a way that will provide real benefit to a cause (it can't be too small a percentage of profits to be meaningful, for example). Research from branding firm Cone Inc. finds that consumers believe the most important issues for companies to address are health, education, environment and economic development.

Don't think that you can charge more. Cause marketing is more about gaining a competitive advantage and building brand loyalty than it is charging a premium. Consumers won't necessarily pay more just to participate, Specht warns.

Start small. Try a cause marketing effort first on a local level. For example, a toy store could run a promotion where part of the sales goes to support a local school. If it works, you can build on ways to support educational efforts from there.

A recession may not be the ideal time to start a cause marketing effort, which can cost money and eat into profits. But if sales are slowing and you're casting about for a new marketing strategy, cause marketing may be worth a try.

"In most industries, it won't be the key to success," says Specht. "But it a competitive environment, especially right now, it can give you a real advantage."

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Debt Smarts: Credit scores and their myths

Lita Epstein — 2008-04-25T16:30:00+00:00

Filed under: Borrowing, Cards, Debt

Lita Epstein is WalletPop's resident credit score expert. Write to her in the comments box below.

Many of the questions I receive relate to credit scores and how to improve them. There are many myths out there which I debunk below, but first let's take a look at what a credit is and who creates it. Actually there isn't just one type of credit score. The primary driving force behind most of them though is the Fair Isaac Corporation, known by most as FICO.

Each of the three credit reporting agencies has a score developed by FICO. Equifax's is called BEACON, TransUnion's is called FICO Risk Score and Experian's is called FICO II. Each one is tweaked slightly differently, so you'll find your credit score is not exactly the same at each agency, but scores are usually within 20 points of each other. If you find a greater difference, one or more of the credit agencies probably have inaccurate information in your credit file.

In addition to these three types of scores, there are new scores from Fair Isaac called NextGen. The names given to these new scores are Pinnacle (Equifax), FICO Risk Score (Experian) and Risk Score Next Gen (TransUnion).

That's not all. In addition to these scores there is scoring done for insurance companies and others designed for different types of businesses that set up a different set of parameters they want monitored. Insurance companies believe that people with a low credit score tend to file more claims, so in many states your insurance premiums can be higher if you have a low credit score.

So what goes into these scores? Generally your payment history has the greatest impact. For the three key credit reporting agencies, payment history accounts for 35% of your score. The next largest piece of the credit score pie is the amount that you owe, which accounts for 30% of your score. Next in line is credit history, which makes up 15% of your final score. Applications for new credit and types of credit in your record each account for 10% of your score. So 65% of your final score is impacted by whether or not you pay your bills on time and how much you owe.

Here are some of the common myths that need debunking:

Myth 1: Lowering your credit limits can help your score

Myth 2: Close cards to improve your score

Myth 3: You must pay in full to get a good score

Myth 4: Shopping for the best rates can hurt your score

Myth 5: Checking your credit score can hurt your score

Myth 6 : Credit counseling hurts more than bankruptcy

Myth 7: Putting a statement in your credit file can help your score

The most important thing you can do to improve your credit score is to be sure your credit report accurately reflects your credit history. If you don't know, get a free copy of your credit report from each of the credit reporting agencies. If you see any errors take the time to correct them.

Lita Epstein is the author of more than 20 books including the "Complete idiot's Guide to improving Your Credit Score."

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Ask the Dolans: Should I close old credit card accounts?

Ken and Daria Dolan — 2008-04-25T15:30:00+00:00

Filed under: Banks, Budgets, Cards, Debt, Saving, The Dolans

Ken and Daria Dolan, America's First Family of Personal Finance, answer your money questions every Friday.

Dear Ken and Daria,

There is a lot of controversy over closing credit card accounts after the balance is paid. What should I do?

Alethea

Ken and Daria Dolan offer advice on all of your credit questions and concerns at Dolans.com.

Click here to ask Ken and Daria your question.

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How to solve the credit card regulation mess

Zac Bissonnette — 2008-04-22T13:30:00+00:00

Filed under: Cards, Debt

BusinessWeek recently asked two experts -- a college professor and a senior fellow at the Competitive Enterprise Institute -- about whether laws should be passed to protect consumers from sudden increases in the interest rates on their credit cards. The pro/con piece is a good introduction to this topic, and definitely worth a read.

Karen Gross of Southern Vermont College describes the current policy of disclosure as a "flawed paradigm," writing that that "We erroneously assume consumers read, understand, and act on the explanation of credit card terms they receive. Many consumers, even those who read what they receive, do not fully understand the disclosures, which are often in small print or legalese."Eli Lehrer counters that increased regulation that goes beyond disclosure laws will result in higher interest rates for everyone.

I think they're both basically right. The problem is that the current disclosure laws are grossly inadequate: too many consumers don't read them and oftentimes they're almost impossible to understand -- even if you are financially literate!

Here's my idea for how to fix this mess: a quiz! Before they receive their line of credit, consumers should have to answer 10 multiple choice questions about the specific terms of the credit card. This way, consumers would have to understand the terms. Under the current system, they sign a line saying they understand the terms but don't have to do anything to demonstrate that they really do. That's the equivalent of handing an elementary school student a page with hundreds of math problems on it and saying "Sign there if you understand it", and then giving them an A based on that. Except instead of giving out grades, they're giving out credit. Applicants should have to demonstrate that they understand what they're signing.

And yes: I know that will never happen. But I still think it's the most logical solution to the credit card mess.

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Should you take out a student loan to pay off credit card debt?

Zac Bissonnette — 2008-04-15T09:00:00+00:00

Filed under: College, Cards, Debt, Kids and Money

An undergraduate friend recently shared his financial woes with me. He's about $8 thousand in credit card debt and has fallen behind on his payments. His parents have suggested that he take out a student loan and use it to pay off the debt over a longer period of time at a lower interest rate.

In theory, this makes sense. Paying a lower interest rate is always nice, and replacing delinquent revolving debt with a loan will help out his FICO score. To make this an even more lopsided decision, interest on student loans is often tax deductible.

Even so, I don't think consolidating the debt with a student loan is the right move, even if it's a good idea on paper.

The problem is that people who consolidate delinquent credit card debt and find themselves once again able to rack up big balances tend to do just that. Instead of being $8 thousand in debt, they up $16 thousand in debt. $8 thousand seems like a lot of money but if he spends the summer working 60 hours per week at $9 per hour, he'll earn $540 per week. If he scrimps and saves, he'll be able to make a big dent in the credit card debt. Of course he could consolidate it and do the same thing, but I somehow doubt that that would end up happening.

Taking out a student loans seems like a cop out to me, and a way to avoid dealing with the actual problem: owing a lot of money. Eventually my friend, who I hope is not reading this, will have to grow up and take responsibility for his financial life. A student loan in the situation is essentially a shovel to dig a deeper hole, unless there's a real change in behavior accompanying it. But if he was really committed to turning the situation around, he could work a ton of hours and spend less money.

As for the tax benefits, a student loan in this context does not appear to be tax deductible, as the IRS states that the loan can only be deducted if used for the "total costs of attending an eligible educational institution," which include "tuition and fees, room and board, books, supplies, and equipment, and other necessary expenses (such as transportation)."

I don't see anything in there about paying off credit card racked up buying clothing, cigarettes, and pizza. Of course you could probably deduct it and nothing would happen, but it's not kosher.

Unless he's ready to make serious changes in his life, taking out a student loan is a terrible idea. He should be looking to fix the problem, not thinking up creative ways to prolong it.

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Begin your Christmas savings now

Tom Barlow — 2008-04-14T12:30:00+00:00

Filed under: Cards, Kids and Money, Saving

I've reached the age where the loved ones I gift are beyond toys, and I've taken to giving gift cards so they can buy their heart's desire. I'm also in the habit of dropping the day's pocket change into a jar on my dresser. Today, I realized this would be a great way to fund next Christmas.

What brought this to mind was an article about Coinstar, the automatic coin sorting machines seen in many groceries. I don't use them because I don't like giving up the 8.9% counting fee. However, instead of cash, one can choose gift cards for bookstores, theaters, restaurants and other merchants. When you buy one of these, the sorting fee is waived. I figure that, by the end of the year, the daily change from my pockets will buy enough cards for everyone on my Christmas list.

One-stop shopping and a painless savings program; now that's what I call a good Christmas shopping experience.

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Beware of great credit cards

Zac Bissonnette — 2008-04-12T11:00:00+00:00

Filed under: Cards, Debt

CNNMoney has a great list of 6 of the best credit cards out there, depending on your situation: one with a good interest rate for those who are unfortunate enough to carry a balance, and others offering cash back, lots of air miles, contributions to your retirement, and more.

That's all well and good if you're incredibly responsible with your spending, but numerous studies have shown that people who pay with credit cards rather than cash spend more money -- even if they do pay off the balance every month. A card that can add $75 to your retirement account if you spend $5 thousand isn't helping you out if it makes you spend $200 a month more than you otherwise would.

Remember: credit card companies wouldn't offer these great deals if it wasn't in their best interests. They know that, on average, these gimmicks will increase their profits, not the consumer's.

According to CardTrak, 60% of people don't pay off their credit cards every month. With the average credit card rate hovering around 13%, there is no perk in the world that makes carrying a balance a financially responsible thing to do.

Unless you're really sure that using a credit card won't increase your spending, I would recommend going with a no-frills card that won't subconsciously tempt you into spending more with promises of air miles and free toasters. Credit cards destroy more consumer wealth than they create, and I'm highly skeptical of clever plans to use them to better our financial lives.

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To save on gas, just use cash!

Danielle Deverell — 2008-04-08T11:00:00+00:00

Filed under: Cards, Transportation

I am an avid weekend commuter. With family and friends four states away, I get to see the varying gas prices along my weekend route.

Currently, the average price of car life giving blood is $3.28 in Maryland, and just last week I went in search of the ever elusive just-a-few-cents-cheaper gallon. I came across a rinky-dink station, with blaring red neon signs that read, "Regular $3.19", JACKPOT! Then I see the blaring blue sign, "CASH ONLY." Uhhh, seriously?

I realize it's one of those smaller chain gaseterias, and that I will now have to find my way to a bank to get, yick, "cash." I really do like the ease of swiping a debit card and being on my way, call it spoiled if you want. I guess being able to accept cards costs the station owners money, so if they're willing to pass on the savings for not using credit machines, I'll play along.My trip took me to New Jersey, where I noticed another small gas station posting two prices, yes TWO prices for each grade of gasoline. Cash price and card price. With the average New Jersey gallon going for $3.05, I was pleasantly surprised to see that I could get away with highway robbery at a mere $2.99! But this is hardly highway robbery ... I call it "industrial route" robbery. These cheap gas stations are usually on truck routes, or industrial park ridden roadways.

At the beginning of my return trip I'll avoid buying gas in Connecticut, one of the higher priced areas. CT station owners must be able to afford those card machine fees cause they charge a whopping $3.39 a gallon! Ride on fumes till New Jersey, fill up with cash, and fill up once more just before the "Delaware price jump" ($3.21 average there).

With the summer coming, weekend trips will become common place once again, so another trick will be to fill up on Thursday mornings, right before station owners, plastic accepting or not, hike prices for weekend travelers.
Check around your neighborhoods, there may be a "Cash Only" oasis near you!

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When credit cards are concerned, are college kids adults...or kids?

Tracy Coenen — 2008-04-07T18:30:00+00:00

Filed under: College, Cards, Debt

Are college students adults or not? Because the last time I checked, it seemed they were adults and capable of making their own decisions. In fact, they're capable of signing up for the military and capable of voting, so I'm thinking that the decision to sign up for a credit card might be within the realm of possibility for them.

But falling in line with our now-very-popular American way of blaming everyone else for our problems... credit card companies are taking heat for *gasp* offering credit cards to adults! How dare they!

A Milwaukee unit of the U.S. Public Interest Research Group is telling consumers that credit card companies are to blame for the debt of college students. And while I admit that the credit cards are the vehicle for racking up this debt, the blame must be placed squarely on the college students and their spending choices. How many college students do you know who got a new credit card and ran out and maxed it out almost immediately? But on the flip side, how many do you know who just held onto that credit card in case of emergency or for an occasional purchase? (Hint: There are lots more of the latter.)
The research group is blaming free t-shirts and free food for the boom in college students with credit cards. It seems that these students just can't stop themselves from signing up for a credit card when offered something as enticing as a t-shirt. Yikes.

I admit it: Credit card companies are out to make money, and they're willing to make a buck from anyone, at any time, for any reason. Many of the terms in credit card agreements are purposely confusing and punitive. But at some point, the consumer has to take responsibility for actually signing up for that piece of plastic and pulling it out of their wallet. Sorry, I'm just not buying the idea that college students can't handle credit cards and the credit card companies are to blame. It's time that these young adults start acting like the adults that they are, and that includes exercising some restraint over their spending.... even when a free t-shirt is on the line.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

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Debt consolidation might be the worst move you've ever made

Tracy Coenen — 2008-03-25T14:00:00+00:00

Filed under: Borrowing, Cards, Debt

Debt consolidation sounds like a good thing to do, right? You've got all your credit cards lined up, and keeping track of the bills and their payment dates is no fun. How much do you pay on this card? What about that one? Did you miss the other one?

So consolidating that debt, either with a home equity loan or some other type of loan, seems like a great idea, right? You get one bill and your burden seems much lighter. But here's the problem: Many people don't have the self-discipline to stop using the credit cards that got them in trouble in the first place.

You start out by thinking you'll just charge the groceries this week and will be sure to pay off that bill. Then your car needs new brakes, and you weren't planning on that expense, so you get out the credit card again to help you in a pinch. But little things like this keep happening, and before you know it, you've got a few thousand dollars on the credit card.
The fact is that debt consolidation doesn't make you a better money manager overnight. It is really just a band-aid for a bigger problem. I've seen plenty of people do multiple home equity loans to clean up credit card debt over and over, and they never learn their lesson about their credit cards. The debt consolidation was meant to help them get out of debt, but instead, they've got more than ever before.

Does that mean you should avoid debt consolidation all together? No. There are reasons why it makes sense, particularly if you're able to consolidate at an interest rate that will save you a lot of money in both the short-term and long-term. Just don't look to debt consolidation as the answer to all your problems. If you do consolidate, get yourself some education on financial management along with that, so that you'll become more responsible with your budgeting and spending. That's the best way to secure your financial future.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

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Data breach mystery continues

Tracy Coenen — 2008-03-21T17:00:00+00:00

Filed under: Cards

Earlier this week, it was revealed that a data security breach at Hannaford Bros. Co., a chain of East Coast grocery stores, put over 4 million customers' credit card numbers at risk. The company was quick to issue a press release about its commitment to customers and its cooperation with credit card companies and law enforcement.

But the Associated Press is reporting one additional small (okay, not so small) detail: Hannaford doesn't really know how the security breach occurred. Company officials know that it occurred during the transmission of data while processing credit cards for payment. But that's all they know. If the company doesn't know how the breach occurred, how can they fix it or assure customers that it won't happen again?

Even more troubling: The company supposedly was complying with the latest security standards required by the Payment Card Industry. So by industry standards Hannaford may be doing everything right, yet customer data could easily still be compromised.

This situation highlights the need for consumers to be proactive in monitoring their own credit. We obviously can't trust merchants to keep our details safe all the time, so we're forced to keep a watchful eye over our credit card statements, bank statements, and credit reports. At the first sign of any suspicious activity, consumers should immediately act, closing accounts, having new numbers issued, and disputing any charges or accounts that are not legitimate.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

No checking account? Last in line for the Economic Stimulus Rebate

Tom Barlow — 2008-03-18T12:20:00+00:00

Filed under: Banks, Cards, Tax, Recession

You'll note from my story earlier today that U.S. citizens eligible for the one-time ~~Election Year Rebate~~ Economic Stimulus Rebate will receive this money up to almost two months earlier if they have direct deposit than if it is sent by check. For many who can't afford a checking account or don't choose to have one, the delay is just another hidden cost of attempting to live out of the banking loop.

Perhaps these people are unimportant, or the IRS views this payment as good bait to coerce these people into getting with the documented money flow program. Paying them last seems wrong-headed, as these people are almost guaranteed to put the money into circulation quickly. I wonder if the IRS could have adopted a pre-paid debit card program similar to that announced by the Social Security Administration in January of this year. Such cards would have allowed the IRS to directly distribute funds to those without bank accounts, and given those recipients an easier way to spend their money.

There are other aspects of the rebate that might surprise recipients, such as:

Those who split their 2006 direct deposit tax refund this year among several accounts will receive a paper check rather than direct deposit.
Supplemental Security Income (SSI) doesn't count toward eligibility, although Social Security income and veteran's disability does.
You must file a tax return this year, even if you don't owe any taxes, in order to get your rebate.

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College credit card deals draw fire -- What's the solution?

Zac Bissonnette — 2008-03-18T11:30:00+00:00

Filed under: College, Cards, Debt, Kids and Money

Cozy relationships between big banks and universities are drawing the scrutiny of students, parents, and regulators, with New York Attorney General Andrew Cuomo investigating the matter. Hundreds of students at Portland State University protested the school's promotion of a bank account that was less attractive than those offered by competing institutions who weren't providing the school with cash.

I certainly agree with the students. The notion that schools are promoting financial products that aren't in the best interests of their students is despicable. But given the severe budget problems facing so many states, this is not something that's likely to change anytime soon.

The solution is education: As Beth Wechsler recently wrote on WalletPop, less than 20% of states currently have a personal finance education requirement. What this means is that, for many kids, the first bit of financial "advice" they receive is a shiny credit card offer -- bearing the logo of their new college.

If high schools focused on giving kids the firepower they need to fend off aggressive -- and often predatory -- financial services marketing, the effect of this marketing would be severely weakened. High school kids should be told about fees, compound interesting, FICO scores, investing, etc. They could also be shown videos featuring interviews with parents whose children committed suicide because of anxiety over credit card debt.

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Huge data breach may have put your credit at risk

Tracy Coenen — 2008-03-18T09:00:00+00:00

Filed under: Cards

If you've shopped at Hannaford Bros. grocery stores in the last few months and used a credit card or debit card, your identity and credit could be at risk. The store announced this week that over 4 million credit and debit card numbers have been exposed, and management is aware of 1,800 related cases of fraud so far.

All 165 Hannaford stores in the Northeast were affected, along with 106 Sweetbay stores in Florida . The security breach started on December 7, and wasn't discovered until February 27, which allowed so many account numbers to be compromised. The company says they've fixed the problem, but if you used a card recently at one of these stores, you should take steps to protect yourself.

Start by having your bank or credit card company issue you a new card. Double check account statements to be sure there aren't any unusual charges on your cards. Hannaford officials say no identifying information such as names or addresses were compromised, but it still wouldn't hurt to monitor your credit report.

You're entitled to one free credit report a year from each of the three credit reporting agencies. Space out those request so you can monitor your credit for free throughout the year.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

Spending down debt: The snowball effect

Lita Epstein — 2008-03-15T14:30:00+00:00

Filed under: Banks, Cards, Debt

This repost is part of our series on strategies you can adopt to free yourself from burdensome debt.

Do you want to pay down debt, but aren't sure how to do it? One of the best methods out there is called the snowball effect. This strategy of paying off debt focuses on getting rid of your highest interest rate credit cards first, which makes a lot of sense from a financial planning perspective because you reduce your interest expenses the fastest.

Think of the snowball effect as slowly building up the size of a your snowball then getting the snowball moving faster and faster by pushing it down hill. To use this strategy you start by paying the minimum amount on all but your highest interest credit card. Then use every extra cent you can find to pay the greatest amount you can on your highest interest credit card.

When you get that card paid off, then continue paying the minimum amount you were paying on your second highest credit card plus the larger amount you were paying on the highest interest credit card.

Let me show you how this works. Suppose you have three credit cards that you've maxed out. Credit Card A charges 18% interest and has a balance of $1,000. Credit Card B charges 15% interest and has a balance of $2,000 with a minimum payment of $20. Credit Card C charges 12 percent and has a balance of $3,000 with a minimum payment of $35. In addition you have a car loan that charges 6% interest and a payment of $150 and a mortgage with a payment of $1,000.

I'll assume this debtor has a total of $1,500 to pay bills to get the snowball started. To keep this simple I'm not going to calculate interest, but that additional cost will slow down the payoff because balances will not go down as quickly as shown here.

Month one you would use the $1,500 to pay:

Credit Card A $295

Credit Card B $ 20

Credit Card C $ 35

Car Loan $150

Mortgage $1,000

After these payments the balances (not considering interest) would be:

Credit Card A $1,000 - 295 = $705

Credit Card B $2000 - 20 = $1980

Credit Card C $3,000 - 35 = $2,965

Month two you would make the same payments and the balances (not considering interest) would be:

Credit Card A $705 - 295 = $410

Credit Card B $1980- 20 = $1960

Credit Card C $2,965 - 35 = $2,930

Month three you would make the same payments and the balances (not considering interest) would be:

Credit Card A $410 - 295 = $115

Credit Card B $1960- 20 = $1940

Credit Card C $2,930 - 35 = $2,895

Month four you would pay off Credit Card A and any extra toward Credit Card B. Payments (not considering interest) would be:

Credit Card A $115 - Paid off

Credit Card B $200 (extra from Credit Card A after payoff - $180 plus $20)

Credit Card C $35

Car Loan $150

Mortgage $1,000

Month four your balances (not considering interest) would be:

Credit Card A $0

Credit Card B $1960- 200 = $1740

Credit Card C $2,895 - 35 = $35

You can see that in four months you'd already have one credit card paid off. Starting with month five your snowball grows to $315 (the $295 that you used toward Credit Card A plus $20 (the minimum you were paying on Credit Card B)). In about six months Credit Card B would be paid off and then you could grow the snowball again to $350 toward Credit Card C ($315 you were using for Credit Card B plus $35 (the minimum you were paying on Credit Card B)). When Credit Card C is paid off than you can add the $350 to your $150 car payment and get rid of that more quickly. Finally you can use the extra $500 to pay down your mortgage more quickly.

Of course, in order for this to work you must stop charging to your credit cards until you get them paid off. Once all your cards are paid off, if you want to use them and pay them in full each month that makes sense, especially if you have a good rewards programs.

After reading this post, one of my readers, Theresa Bolton-Lynch, contacted me about a money management tool that helps you pay down your debt even faster - including your mortgage. At first it sounded too good to be true. But, after take a closer look at it, I've named it the snow ball effect on steroids.

Lita Epstein has written more than 20 books including the "Complete Idiot's Guide to Improving Your Credit Score."

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Spending down debt: Use the round robin plan

Lita Epstein — 2008-03-15T10:30:00+00:00

Filed under: Cards, Debt

This repost is part of our series on strategies you can adopt to free yourself from burdensome debt.

Are you thinking about buying a home, but you need to improve your credit score in order to get the best interest rate? Paying down debt using the round robin strategy can get you there the fastest. People with the best credit score only use 10% to 20% of their available credit, so the faster you can pay down your debt on each card, the better your credit score will be. (If you're looking to minimize your interest and a quick improvement in credit score doesn't matter, then use the snowball effect strategy instead.)

With this strategy you first focus on paying down all your credit cards to a debt level of about 30% of your available credit. For example, if you have a credit line of $3,000, to be at 30% utilization the maximum balance you should have on that card is $900. When you get all your cards paid down to 30% utilization, then start working on getting them down to 20%. Once they are all at 20% utilization then start paying them down to 10%. Your final round robin stage will be to pay off the cards completely. When you reach the 10% goal your credit score should be up by at least 30 points and could be up by as much as 70 points. If you've had a history of late payments and are now paying your credit cards on time, your credit score could improve by as much as 40 points.

Will that make a big difference when applying for a mortgage? People with a credit score of 730 or higher get the best interest rate offers. As long as your credit score is above 730 there's no reason to worry. Even if you push that score higher you won't likely get a better offer. But if your credit score is below 675 you will pay almost 2% more interest on a mortgage loan, which will mean thousands of dollars more in interest over the life of that loan. If your credit score is below 620, expect to pay 3% to 4% more interest on that mortgage loan. So taking the time to get your score up using the round robin strategy could make a huge difference in the loan packages you'll be offered.

Here's how you implement the round robin strategy. Suppose you have maxed out your cards. On Credit Card A you have a balance of $1,000 (minimum payment $10). On Credit Card B you have a balance of $2,000 (minimum payment $20) and on Credit Card C you have a balance of $3,000 (minimum payment $35). In addition you have a car loan payment of $150 and a mortgage payment of $1,000. The total cash you have available to pay bills is $1,500. To keep things simple I'm not going to include interest calculations in this example, but interest will slow down your pay off.

Month 1 you would use the $1,500 to pay:

Credit Card A $295

Credit Card B $20

Credit Card C $35

Car Loan $150

Mortgage $1000

Remaining balances after Month 1 payments (not considering interest) would be:

Credit Card A $1,000 - $295 = $705

Card Card B $2,000 - $20 = $1,980

Card Card C $3,000 - $35 = $2,965

Month 2 you would make the same payments and remaining balances after Month 2 (not considering interest would be:

Credit Card A $705 - $295 = $410

Card Card B $1,980 - $20 = $1,960

Card Card C $2,965 - $35 = $2,930

Month 3 you only need to pay $110 to reach your 30% goal on Credit Card A, so the extra money can then start working down Credit Card B. Your payments would be:

Credit Card A $110

Credit Card B $205

Credit Card C $35

Car Loan $150

Mortgage $1000

The remaining balances after Month 3 (not considering interest) would be:

Credit Card A $410 - $110 = $300

Card Card B $1,960 - $205 = $1,735

Card Card C $2,930 - $35 = $2,895

Month 4 you would pay all the extra cash you have toward Credit Card B, so you can start working that balance down to the goal of 30%. Your payments would be:

Credit Card A $10

Credit Card B $305

Credit Card C $35

Car Loan $150

Mortgage $1000

The remaining balances after Month 4 (not considering interest) would be:

Credit Card A $300 - $10 = $290

Card Card B $1,735 - $305 = $1,430

Card Card C $2,895 - $35 = $2,860

You would continuing making the same payments as you did in Month 4 until you get Credit Card B's balance down to the 30% goal of $600 ($2,000 x .30), which should happen in Month 7. At that point you make just the minimum payments on Card Card B and start paying down Credit Card C using the most you can. In about another five to six months you should reach the 30% goal on Credit Card C.

So in this scenario it would take a person about 13 months to reach the 30% goal. At that point, one should see a nice jump in credit score.Then you go back and start the round robin again paying down each card to 20% utilization to see an even bigger improvement in credit score. Ultimately you continue the round robin strategy until you get all your credit cards paid off and then use the extra cash to pay down the car loan. Once all other debt is gone you can start working on paying down your mortgage faster.

Lita Epstein has written over 20 books including the Complete Idiot's Guide to Improving Your Credit Score.

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