Jill Russo Foster

Do You Share the Credit Card Equally?

If you share a credit card account with someone else, you are either an authorized user or a joint credit card user. Knowing the difference can help protect your credit score.

If you’re an authorized user, it means you can use the credit card account, but you’re NOT responsible for the payments. You have a card with your name on it, but you’re not the “card-holder.” The account won’t appear on your credit report, so it won’t help, or hurt, your credit score.

In the past, parents could add a child as an authorized user. This helped the child start his credit history, making it easier to get that first car loan or student loan. Because of some abuse, credit reporting agencies stopped monitoring authorized users. It’s now more difficult for children to begin building their credit history, but not impossible.

If you’re a joint credit card user, you and the other person were considered equally when you applied for the account. You are both responsible for the payments and the account will show up on both your credit reports. Joint card-holders should make a habit of reviewing bills and payments together to help protect you both from mistakes or fraud.

New Credit Card Rules

Have you heard about the new credit card rules? Credit card companies must give you more time to review statements and rate changes, which helps you make better decisions when dealing with debt.

Statements must now be mailed at least 21 days before the due date. Credit card companies make a good profit from late fees and rate increases. To increase the amount of late payments, they began billing closer to the payment due date, sometimes forcing you to pay within a week. This allowed them to add fees and raise rates based on payment history. The new rule allows you a standard billing cycle to review your statement and remit payment.

Second, creditors must now notify you within 45 days of a rate change. This is better than the previous 15 days notice. The rule change gives you a chance to accept or decline the offer, and gives you time to shop for a new credit card company.

The rest of the Credit Card Act will go into effect next year, hopefully with more consumer protections. Remember: if you owe creditors a balance that can’t be paid in full each month, you give them power over your financial health.

You Won’t Get Far With Those Rates

Reader Question: My credit balance is $3,000.00. What will happen if I only make minimum payments each month?

A credit card minimum payment is usually about 1.5% to 2.5% of your balance. That’s a very small amount. Since I don’t know your interest rate, I’ll do calculations based on a 12% interest rate. In your case, that would be about $45 per month.

If you are paying the minimum payment it will take you a really long time to pay off your credit card in full – at $45 per month it will take you 411 months or 36 years. This is assuming that you will not be making any additional charges.

Credit card lenders make their money from the interest they charge you. Your objective is to pay as little interest as possible. When you pay your credit card balance in full each month you save yourself a considerable amount of money.

Leaking Energy Inside and Out

Reader Question: What can I do to make my home more energy efficient?

To make your home energy efficient, look to see where energy is being wasted.

If your house feels drafty, replace your old roof, windows or doors.
If your house is hot in summer and cold in winter, upgrade or replace your insulation.
If your energy bills are unusually high, you could replace your heating/cooling systems with more efficient versions which use less energy.

Making your home more efficient can reduce your monthly utility bills which could save you money in the long run.

There is a program available for a homeowner’s principle residence (not a second home or rental property) that gives tax credits for energy efficient improvements. You typically get a 30% credit from your costs (labor and material) for qualifying improvements.

The tax credit is available for 2009 and 2010 up to the sum of $1,500. If you use it all up in 2009, then you can’t use it again in 2010. Check out www.EnergyStar.gov for complete details.

12 Months Free Financing – No Money down

Reader Question: The store is offering a buy now-pay later deal – is there a catch?

The only catch is that you might cheat yourself.

Many stores offer these deals and they are legitimate. If you pay the loan off on time (and it is a loan) you won’t have to pay interest. If you don’t pay it off on time, you pay interest for the length of the loan – that could be 15% interest for 12 months on a $5,000 purchase. Ouch. Some bargain.

The real problem with these deals is that most people don’t pay off the loan on time. The rule is simple: if you can’t afford to save up for a purchase, then you probably can’t afford to make the payments.

I am not in favor of this type of offer. I strongly encourage you to start saving and wait before you buy. If you hate your furniture, take some pride in saving for a new set. In fact, brag it up. Saving for purchases is smart. You might find that you can get a deal on much better furniture if you save ahead of time instead of buying the sale items that the store is trying to unload with their “buy now-pay later” deal.

However, if this is truly an emergency purchase that can’t wait, like a furnace or hot water heater, then make paying it off a priority, even if it means cutting back. I’ll discuss clever ways to cut expenses in future posts.

Why Waste Time Balancing

Reader Question: I never overspend – is there a benefit to balancing my checking account? Do I have to balance it exactly?

Yes, to both questions.

You balance your checkbook for two reasons:

to prevent mistakes
and to prevent theft.

While you may have your budget memorized, your good spending habits won’t protect you if your account is being skimmed either intentionally or by accident.

A balanced checking account shows that you and the bank agree on your purchases and deposits. You keep track and they keep track, then you compare notes.

How do you keep track? You could write everything in a check ledger, or use checks with carbon copies. If you use a debit card almost exclusively, get a portable receipt holder for your car or purse, or make sure your wallet has a spot just for debit card receipts, and please double check your receipts or keep a ledger for that as well.

Times are tough right now and skimming accounts or padding transactions has become more common. It happened to me. I recently found that a restaurant overcharged me several dollars more than what I had on my copy of the receipt. By entering a “tip” or “cash back” amount to the register, a cashier can take money for herself from your transaction.

You should also assume that the bank will make mistakes. I recently deposited a check through the ATM, but it didn’t show up in my account. I had to file a dispute to reclaim my deposit amount.

Take careful notes of online transactions as well. You may mistakenly sign up for a monthly subscription instead of a single purchase. Or maybe the online vendor is from Canada or Australia and you didn’t realize your bank would add an international transaction fee to your purchase.

Keep track and balance. It’s the only way to protect your money.

Is My Bank Safe?

Reader Question: With banks failing, is my bank account safe?

Yes, but only if your bank is properly insured. Bank accounts should be in an FDIC insured bank (Federal Deposit Insurance Corp). Credit union accounts should be in an NCSIF insured credit union. (National Credit Union Share Insurance Fund).

The insurance will only cover checking, savings, and CD accounts. It will not cover investment accounts if your bank is also an investment house. For this year, the reimbursement limits have been increased to $250,000 per account holder. If you keep all your money in one bank, make sure that the balance of all your accounts is under that amount. If your total is more than $250,000, you should move some of the money to a different bank.

Remember, these limits go back down to $100,000 on January 1, 2010 (unless Congress increases them again), so make sure your money is divided accordingly.

Some of you may be thinking that you’ll never have more than $100,000 in the bank, so you won’t have to worry about it. But, there are circumstances that could make you the temporary holder of a large amount of cash such as a home sale with delayed home purchase, an insurance or legal settlement, or a pending asset distribution after the death of a relative. Even if you only have the money for a few weeks, that’s long enough for a bank to fail, so keep it safe by following these rules.

How Hard Is it to Market a Book?

This isn’t my typical finance topic, but Renee Giroux asked me to participate in her book marketing series and I thought I’d share the link here. If you’ve authored a book, or are considering becoming an author, please check out her series. I know I’ll be interested to read what other authors are saying.

To read today’s blog entry click here:
Why is book marketing and promotion so difficult?

To read the series, check this link every week:
Stimulating Conversations Blog

Refinance Now?

Reader Question: Mortgage interest rates seem to be coming down, how do I know if it’s a good time to refinance?

Refinancing is a long-term numbers game. Many people refinance thinking that a lower mortgage payment means they’re saving money. It’s not necessarily true. To find out if this is a good time for you to refinance, let’s do some math! Let your math savvy spouse, friend, or child help you with this if needed:

Take the refinance principle and interest payment and subtract it from your current principle and interest payment. This would be your savings per month.
Assume that the closing costs of the refinance will be about 4% to 6% of the mortgage amount. Example: Closing costs would $10,000 on a $250,000 house if they charge 4%. Figure out your closing costs and write that down.
Take the number from step 1 (your monthly savings) and divide that into step 2 (your closing costs). This is the number of months it will take you to recoup your closing costs.

Now that you know how long it will take you to recoup your loss, you should decide whether you’re going to be living in the house that long. If you are sure that you will be there past the months it will take you to recoup the closing cost, then refinancing might be a good idea. If not, then don’t refinance.

Good Credit Marrying Bad

Reader Question: I have excellent credit and have worked to keep it that way. I will be getting married to someone who has debt and past tax liens, will this affect my credit?

Fortunately, credit reports are by individual. A person with good credit will not be affected by their spouse’s bad credit UNLESS they have joint accounts.

For example, if you purchase a home together, the mortgage will be a joint debt. If your new spouse is handling the bills and often forgets to pay your joint mortgage on time, then his late mortgage payments will show up as late payments on your credit report. This applies to any other debts that have in both names. Any activity will reflect on both of your credit reports (good or bad).

Could his older tax lien prior to your marriage and mortgage come back and hurt you? Yes, I believe it could. If you purchase a new home together as I described above, your spouse’s old tax lien could be put onto your new house. This would definitely affect you. I strongly advise that you check with a real estate attorney before purchasing a home together.