And the Best Cash Back Credit Card is…

Credit Cards… You didn’t think I’d make it that easy, did you? 

I would if I could. The truth is, I can’t claim that any one card is absolutely best for everyone.

I love rewards credit cards. Getting paid hundreds of dollars a year to use a credit card to buy things I would buy anyway is, well, rewarding.

I use three different cards as part of my strategy. One of those is the Discover More card, which has traditionally been a solid choice for an all-around great rewards card. I recently learned that Discover is shifting its strategy and will now market only one card, known as Discover it. Don’t ask me why “it” is lowercase.

This new card is much more customer-friendly than their previous cards. In the past, there was an initial tier that only gave you 0.25% cash back on the first $3,000 in purchases, and 1% after that. You now get 1% from the start. There’s also no fee for going over your limit or your first late payment. Other benefits include US-based customer service and the ability to choose your due date.

Discover cardholders have the option of converting to the new card or remaining with their old one (I chose to convert).

With these improved terms from Discover, how can you compare their card with the multitude of others out there?

Take a look at your spending patterns. Do you travel a lot? Are you a college student? Maybe the bulk of your spending is groceries and gas. For each of these situations, there are several cards that could potentially work for you.

Before I discuss how to find the best rewards cards, I should mention that if you carry a balance — no matter how large or small — rewards cards aren’t for you. They typically charge higher-than-average interest rates, so any rewards you might get are negated by fees and interest charges. In this case go with a low-interest card, perhaps from a credit union.

My favorite site for comparing rewards cards is CreditCardTuneUp.com. This site lets you input your average monthly spending in 15 categories such as restaurants, department stores and hotels. To get your monthly spending figures, I recommend looking at your credit card statements from the last 12 months.

Based on the information you provide, you get a list of the cards that best match your spending pattern. It’ll tell you what your first year rewards total would be, minus any annual fee.

Another great resource is NerdWallet.com. The idea is the same, but this site also lets you input your credit score and preferred network (Visa, MasterCard, etc.) You have a choice of either a customized list of your best matches or their list of the best credit cards of 2013. On this list they divide cards by category (rewards, no interest, college, etc.) and tell you why they love the card.

More credit card companies are offering a cash or gift card bonus to entice new members. I’ve seen offers worth as much as $625, but more typical offers range from $100-$200. These sign-up bonuses are definitely worth a look as you search for your best card.

There are other things to consider as well. If you frequently travel outside the country, look for cards with no foreign transaction fee such as Capital One and the Discover it. If you fly a lot, be aware of blackout dates and mileage redemption rates. If the card has an annual fee, make sure you’ll spend at least enough to offset the fee.

The key to finding the best rewards card is to look at your spending patterns. Then, use one or both of these websites to compare offers and find the best card for your lifestyle.

Photo by blog.chargesmart.com

How to Negotiate Credit Card Debt with Collection Agencies

Negotiating with collection agencies can be a challenging task.

When your credit card company realizes you aren’t going to pay up, they sell your debt to a collector at pennies on the dollar. The collector’s goal is to recover the owed amount in full. They know this won’t happen every time, but they’re confident they can at least make their money back in most cases.

Even if you have no legal requirement to pay the debt, you may decide to for moral reasons. If that’s the case you want your payments going towards principal and not to interest. What many people don’t realize is that you can negotiate with the collection agency to lower the interest rate on your balance, helping you pay it off faster.

To negotiate successfully, follow these steps:

1. Prepare a negotiation plan: You don’t need a law degree to negotiate successfully. However, you do need a plan. Educate yourself and know your rights under the Fair Debt Collection Practices Act. Find out whether your account has passed the SOL or Statute of Limitations for your state. Knowing what the law says about debt collection practices puts you on a level playing field with the collector.

2. Calculate the amount you can pay: You need to calculate the amount you can afford to pay to the collection agency before you negotiate a settlement. The total balance and age of the account may determine the amount a collection agency will agree to accept. The debt collector may want you to make a lump sum payment, so you need to offer what you can afford to pay. You can also negotiate with the collector to set up a monthly payment.

3. Provide a settlement offer: Call the collection agency and tell them you want to settle your debt. Include in your offer the amount you can pay and any evidence of hardship that is stopping you from making full payments on the debt. Be polite but firm throughout the process. As a last resort, inform them you may be compelled to file bankruptcy. That might make their ears perk up.

If they don’t cooperate, send a certified letter detailing the terms of your offer.

4. Require the account be reported as “Paid in Full”: What you want to see on your credit report is “Paid as Agreed” or “Paid in Full” instead of “Settled.” If the collection agency reports the account as “Settled” it will adversely affect your credit report.

5. Get the terms of the agreement in writing: When the collection agency approves your offer make sure you get the terms of the agreement in writing before you submit any payment. Before signing the agreement make sure you read it completely. If the terms meet your requirements, send payment via money order. Never give a collection agency your checking account or credit card numbers.

Follow these tips to lower your interest rate, settle your balance and pay off your debt faster.

Author bio:
My name is Marie Nelson. I am a finance writer from California. I write on debt related issues as well and to post on debt relief to personal finance blogs. Click here for more information.

8 Things You Should Never Keep in Your Wallet

The Ripoff Alert is a new series appearing once each week on Fridays. It alerts you to the latest scams and ripoffs trying to get between you and your money, and gives you information you need to stay safe. This is #15 in the series. 

With our crazy schedules, it seems these days our wallets and purses become collection bins for all types of stuff. Receipts, spare keys, password lists – anything you can think of. But I’ll show you why this isn’t a good idea.

We’ll start off with a list of 8 things you should never keep in your wallet from Kiplinger:

1. Social Security card

2. Password cheat sheet

3. Spare keys

4. Checks

5. Passport

6. Multiple credit cards

7. Birth certificate

8. A stack of receipts

  • Your Social Security card – along with your birth certificate and passport – are forms of identity you won’t need on a regular basis. They’re best left at home in a safe or at the bank in a safe deposit box. Anything with your Social Security number on it should also be removed. The only form of ID you should carry in your wallet is your driver’s license.
  • It’s a good idea to write down your passwords so you don’t forget them; just don’t keep them in your wallet. Even better, use an online password-management program like LastPass to store them securely. With LastPass you just have to remember your master password. Each time you visit a website it automatically fills in your username and password for you. Your passwords are encrypted with a special code, which means that even if someone was able to break into your account they couldn’t see your private data.
  • Being locked out of the house is annoying. But think about it – if your spare key is right next to your driver’s license (which has your home address on it) – you’re making it too easy for criminals. Instead, keep your spare with a trusted friend or neighbor.
  • Many of us have more than one credit card, but it’s best to leave most of them at home. By law your liability is limited to $50 if your credit card is stolen and used to make fraudulent purchases. If your debit card is stolen and you don’t report it within two business days, you could be liable for up to $500. I recommend carrying only the credit cards you use regularly (but no more than two total.) You can always call and cancel your cards if you wallet is stolen, but you want to limit the hassle you would have to go through.
  • Checks, especially blank ones, are an open invitation to loot your checking account. With your routing and account numbers, criminals have all they need to debit your account continually. They might also write checks as if they’re you, and if they bounce you could face a serious federal crime. Keep your checkbook at home to limit your risk.
  • Finally, get rid of those old receipts. It’s against the law for businesses to list your full card number on receipts, but the information on there gives criminals a head start in finding the remaining numbers. Keep important receipts at home in a safe place.

Bonus tip: After removing these items, make a copy of anything that’s left. That way if your wallet is stolen you won’t be left wondering what you had in there.

Pay Now or Pay Later?

Decisions, decisions.

Notice the title of this post isn’t “Buy Now or Buy Later.” That’s because you’ve long ago made the decision to buy. Now, you’re trying to decide how long you should wait to pay for it.

Should we pay now or later?

Recently my wife and I were doing a little furniture shopping. We had been saving for a new couch and recliner for our living room for a while, and we had finally reached our goal.

Strolling through the store, I saw a couple talking to a salesman. He was putting their information into a computer, getting ready to process an application for credit. I realized that these people had no intention of actually paying for their furniture that day – they had decided to buy and charge it to a store account.

Then I saw another such couple. It occurred to me that maybe saving up for a purchase puts me in the minority of customers at this little furniture store.

You mean I have to pay for it?

You see, when buying an item, you have to pay for it. The money has to come from somewhere. I don’t think some people get this simple truth. Your credit card company or the store where you’re shopping will gladly give it to you today, but you’ll pay dearly for this money in the form of interest.

Paying later ensures that you’ll always pay more than the asking price. It also means your obligations will increase every month. Essentially, you’re relying on your future self to consistently make on-time payments until the debt is paid off. The problem is, our future selves aren’t very reliable.

The alternative to paying later is paying now. But this is tough. It requires you to sit out of the game for a while until you’ve saved up enough to make the purchase. Who wants to do that? It’s not the glamorous thing to do, and it certainly won’t win you any awards.

But it does offer you some benefits

First, it allows you to remain debt-free. We all know the benefits of being debt-free.

Next, it allows you to earn interest on your savings instead of paying interest to someone else. Your decision to pay now completely transforms the equation. You go from paying more than the asking price and being a slave to your paycheck, to having control of where your money goes. From the back seat to the driver’s seat.

It allows you time to shop around, compare features and prices, and make sure you’re getting the best deal. Do you really need the $300 blender, or will the $60 one do the job just as well? Could you find a discount code to get it down to $50? What’s the price on Amazon? Take time to think about which features you really need.

Finally, paying now gives you time to practice good old-fashioned delayed gratification (DG). As you approach your savings goal, you’re constantly denying yourself the pleasure of having the item. The more you flex your DG muscle the stronger it gets.

Either way you’ll have your item. Paying now, with your own money, sets you free from debt and ultimately puts you in control of your finances.

Photo by smithfurniturestore.com

Accessing Your Money While Traveling Abroad

I love to travel. Seeing the world is one of my strongest passions. I’ve lived in two foreign countries for an extended period (Turkey and Germany) and visited several others. Stepping off a train into an unknown environment is both challenging and exciting for me.

I don’t get to do it much anymore because I’m in the “real world” now, where you don’t get to do such things often. My full-time job pretty much claims most of my time. But I can dream, right?

Traveling to a foreign country, especially if it’s one you haven’t been to before, presents many challenges. Two of the most common questions I hear are “When should I book my plane ticket?” and “How do I access my money while there?” I want to focus on the second question today by giving you the best ways to access your money abroad and things to think about before you leave.

First, get an idea of what the exchange rate is between your home currency and the currency of your destination country. The exchange rate is how much foreign currency your home currency can buy. I’ve always used XE.com for exchange rates, but there are several others out there.

Once you know the exchange rate, you can begin thinking in terms of the foreign currency so you don’t overbuy on your trip. When I was traveling in the UK, I was surprised by how cheap everything seemed to be. But it was deceiving – the pound is worth much more than the US dollar, so everything just seemed cheaper. In reality the UK is a very expensive place to travel!

One thing you never, ever want to do is to exchange currency at one of those airport exchange counters. While convenient, they include a hefty fee on top of the normal exchange rate. In fact, it’s best to avoid exchanging or accessing any money until you arrive at your destination.

The single best way to access your money while abroad is to use your debit card at an ATM in your destination country. Before you leave your home country though, call your bank and ask them what they charge to access an ATM abroad. Find out if there are any ATM networks you can use for free. If your bank charges a big fee, this may not be the best method for you.

Another good way to access your funds while abroad is to use a credit card that has no foreign transaction fee. Capital One, for example, doesn’t have a foreign transaction fee on any of their cards as far as I know. Again, call your credit card company to verify what they charge for foreign transactions.

Whether you use a debit card or credit card, the amount of your purchase or withdrawal is converted to your home currency using the daily exchange rate, then posted to your account.

One other thing to be aware of is that most developed countries outside the US use a more secure form of payment known as Chip and PIN. To make a purchase at some places using a credit or debit card, you have to enter your secret PIN. The card also has a small chip inside that makes counterfeit nearly impossible. This means that you may not be able to use your card in some places unless it has a PIN associated with it.

Finally, let your credit card company and bank know where you’re going and how long you’ll be there. This prevents them from placing a temporary hold on your account due to suspected fraud.

Accessing your money in these ways while abroad reduces your hassle and lets you keep more of it in your pocket.

Photo by blogs.babble.com

Paying Off Credit Card Debt Using Winter Weather Analogies

For those struggling with credit card debt, coming up with a repayment plan can be a challenge. Should you focus on the highest-interest card or the one with the lowest balance? What if you have student loans or car loans mixed in? Dealing with so many different monthly payments at once can be overwhelming.

The Motivational Perspective

Which credit card you deal with first depends on two factors. First, there’s the psychological aspect. Many people tend to pay off the lowest-balance card first because of something known as “debt account aversion.” That is, we aim to limit the number of open accounts we have.

Paying off the smallest card first means one less account we have to deal with. Getting rid of one balance is a small victory, which gives us motivation to move forward with our plan. Experts have come up with a cute name for this strategy: Debt snowballing. The idea is that you build momentum by paying off smaller accounts first, then putting those payments towards larger accounts.

This path certainly makes sense from a motivational standpoint, but is it best for you wallet? You also have to consider the financial aspect of debt repayment.

The Financial Perspective

From a purely financial perspective, paying off the highest-interest card first makes the most sense. Using this method you’ll pay less in total interest to the credit card company and reduce the time it takes to repay the debt.

Let’s say you have two credit cards. One card has a balance of $8,000 at 19% and the other is $5,000 at 15%. Both have minimum payments of $40. Psychologically, you’d be tempted to pay off the $5,000 balance first to eliminate one of the accounts. But I’ll show you why this is bad for your wallet.

Making the minimum payment, it will take you over 10 years to pay off both balances. But since you’re on top of things, you have an extra $300 to put towards the cards each month beyond the minimum. Where should you put this extra money?

By paying $340 to the $5,000 card and the minimum to the $8,000 card it would take you 49 months and cost $5,575 in total interest.

On the other hand, by paying off the larger card first it’ll take you 47 months and cost $4,754 in interest. Focusing on the higher interest rate first saves you $821 and will take you 2 months less to pay off both balances.

You’re probably thinking that $821 is a lot of money, and you’d be right. But let’s say you cut back on eating out, giving you an extra $100 a month to put towards the cards. It will now only take you 35 months to pay off both balances, a full year less. Not only that, it will save you another $1,343!

Applying every bit of extra money you have each month to debt repayment is known as “snowflaking.” Snowflakes can come from anywhere – income from a side job or savings from decreased expenses.

Which Strategy is Right for You?

Your repayment plan should depend on your personality. If you’re very disciplined with money, focusing on the highest-interest card first is probably your best strategy. On the other hand, if you think you’ll need small victories as motivation to stay in the game, paying off low balances first (the snowball method) might be your best bet.

No matter which strategy you choose, your goal is the same: to pay off the debt. Having the numbers in front of you will only increase your focus. Use a debt repayment calculator like this one to help you build and track your strategy.

Which repayment strategy makes the most sense to you?

Photo by blog.austinkids.org

Find the Best Rewards Credit Card for You

I love rewards credit cards. Getting paid hundreds of dollars a year to use my credit card to buy things I would buy anyway is, well, rewarding.

With a multitude of rewards cards available and so many categories to choose from (cash back, travel, gas, retail), it’s easy to get lost in the sea of rewards cards. So how do you know which one is best for you?

There isn’t one single rewards card that I can say is perfect for everyone. To find the one best suited for you, take a look at your spending patterns. Do you travel a lot? Are you a college student? Maybe the bulk of your spending is groceries and gas. For each of these situations, there are several cards that could potentially work for you.

Before I discuss how to find the best rewards cards, I should mention that if you carry a balance — no matter how large or small — rewards cards aren’t for you. They typically charge higher-than-average interest rates, so any rewards you might get are negated by fees and interest charges. In this case go with a low-interest card, perhaps from a credit union.

My favorite site for comparing rewards cards is CreditCardTuneUp.com. This site lets you input your average monthly spending in 15 categories such as restaurants, department stores and hotels. To get your monthly spending figures, I recommend looking at your credit card statements from the last 12 months.

Based on the information you provide, you get a list of the cards that best match your spending pattern. It’ll tell you what your first year rewards total would be, minus any annual fee.

Another great resource is NerdWallet.com. The idea is the same, but this site also lets you input your credit score and preferred network (Visa, Mastercard, etc.) You have a choice of either a customized list of your best matches or their list of the best credit cards for 2012. On this list they divide cards by category (rewards, no interest, college, etc.) and tell you why they love the card.

More credit card companies are offering a cash or gift card bonus to entice new members. I’ve seen offers worth as much as $625, but more typical offers range from $100-$200. These signup bonuses are definitely worth a look as you search for your best card.

There are other things to consider as well. If you frequently travel outside the country, look for cards with no foreign transaction fee such as Capital One and some Discover cards. If you fly a lot, be aware of blackout dates and mileage redemption rates. If the card has an annual fee, make sure you’ll spend at least enough to offset the fee.

The key to finding the best rewards card is to look at your spending patterns. Then, use one or both of these websites to compare offers and methodically find the best card for you.

Photo by blog.chargesmart.com