Jill Russo Foster

What is the difference between a debit card and a credit card?

A debit card is a convenient way to make a purchase using your own money. When you use your debit card, you are authorizing the merchant to access the funds in your bank account. This is true even if you sign off on the purchase as though you were using a credit card (instead of using a pin number.) Always track your debit card purchases in a check ledger to avoid overdraft fees. A debit card has limited fraud protection, so know where your card is at all times and check your receipts against your bank statements.

A credit card (as the name implies) is a convenient way to make purchases using a credit company’s money. Every time you make a purchase with a credit card, you’re taking a loan that you will have to pay back – usually with interest. Credit cards are helpful for building credit and for the consumer fraud protection. But, they can be dangerous to your financial health if you use them to purchase items outside of your budget.

You CAN Lower Your Out-of-Control Expenses: Part 2

Using instructions from last week’s column, you figured out your average monthly expenses. Now, you need to ask yourself two questions:

1.) Are you spending too much on some items?

2.) Can you lower the amount you spend on some items?

Some fixed expenses can’t be lowered. Your loans and mortgage/rent are legal agreements, and full coverage insurance is mandatory with some loans. But, you do have some control over your utilities. You can choose a different phone company. You can also control how much water, gas, and electricity you use by making small changes. Try line-drying your clothes, using a fan instead of air conditioning, or running the dishwasher only when it’s completely full.

Look to your variable expenses to save money.

Do keep up your auto and home maintenance, but try to cut back on groceries, entertainment, gifts and clothing.
Try using the library, buying cheaper food brands, and buying seasonal clothes at the end of the season.
Instead of buying expensive gifts, give “service coupons.”
If you’re spending more than you earn, some of these changes will be mandatory.

With some creativity, it’s possible to reduce expenses without feeling deprived.

You CAN Lower Your Out-of-Control Expenses: Part 1

Not sure where your money is going? Let’s find out.

First, make a list of your fixed monthly expenses. (“Fixed” means the dollar amount is the same every month.) These include items like:

mortgage/rent
loans
and insurance.

Utilities go under fixed expenses because they only vary by season. If you’re on a utility budget plan then you already know the amount. If your utility bills vary month to month, then add up the last 12 months and divide by 12 to get your average for each utility company.

Now, make a list of your variable expenses. (“Variable” means the dollar amount changes every month.) These include items like:

your groceries
entertainment
auto/home maintenance
gifts
clothing
and more.

The amount will vary each month, so get the average monthly expense for each item by adding up the last 12 months and dividing by 12.

Were you shocked by how much you spend and how you spend it? Most people are. We’re busy people and we like convenience, which means we tend to spend more than we should. Check back next week for Part 2 to find out what to do with this information.

Your Money In Interesting Times

Have you ever heard of the old curse: “May you live in interesting times?” For the past ten years or so we’ve been obsessed with the Greatest Generation, a generation made famous by living through two World Wars and the Great Depression. What we loved about them, is that as the going got tough, they got tougher.

What we’re seeing now is hopefully not as bad as what they lived through, but we could still learn a lesson from them. This isn’t a great time for jobs, banks, investments, or mortgages. If you’ve been watching or listening to the news, you know that our country’s financial systems are in bad shape. Our government is working on saving the banks, but you’re probably wondering who’s going to save you? It’s not like the weather has been that great either in this La Nina year. So how do you keep your money and possessions safe in difficult times? By living carefully.

Banks

The Number 1 thing you must do is keep your hard-earned cash safe. You can do that by keeping your money in an FDIC insured bank. That means if the bank fails, a good portion, if not all, of your money will be refunded. For more information on this please go to my blog and read The FDIC: What You Need to Know.

Once your money is in an FDIC insured bank, then you need to make sure you would get a full refund if the bank fails. If you have over $100,000 in a bank, you need to talk to your banker. You may find that you need to move money into different accounts and maybe into multiple banks. Check out www.myFDICinsurance.gov for more information.

Home Disasters

If you were located in an area devastated by a hurricane, floods, or fire, and you had to evacuate your home, how would you access your money?

First, make sure that your income is direct deposited. It might be a while before you can get your paycheck by mail or pick it up at your company.

Second, make sure you have an ATM card. If you had to temporarily relocate to another area, you might not be able to cash your payroll check. You could possibly deposit it another bank, but taking money against it is something that not all banks will allow you to do if they don’t have a relationship with your employer themselves (or with you.) If you have an ATM card, there will be a machine somewhere that you can access. You might have to pay a fee if it’s not your bank, but at least you will be able to get cash for food, gas, and lodgings.

Mortgages

It’s going to be a lot harder to get a mortgage from now on. The best thing you can do for yourself if you need to refinance or want to get a mortgage is to protect your credit score. Read my article Fico Has Something to Say About You for more information on how a bad credit score can affect your chances to get a mortgage. Check your credit report 3 times per year, pay your bills on time and don’t over extend yourself.

Investments

I wouldn’t dream of advising you on investments. All investments are a gamble, with some bets beings safer than others. At this point, I’m not sure which investments are really the safest. We’ll have to wait and see.

I hope this helps you plan for interesting times. As always, the best thing you can do for yourself is plan ahead, take care of your credit, and choose your bank carefully.

What Is A Credit Inquiry Doing On My Credit Report?

A credit inquiry is when a potential creditor accesses your credit report. This can occur when you apply for credit.

For example, when you sign up for cell phone service, the provider checks your credit before they decide if they’ll work with you. If your credit is good, they’ll give you service. If not, they may refuse to work with you, or ask you to pay up front with a security deposit.

Your credit score is reduced every time someone makes an inquiry because each inquiry means a potential new account. As you’re wandering through the mall, allowing the check-out clerks to see if you’re eligible for a store credit card, you’re lowering your credit score. Please consider your priorities before allowing just anyone to check your credit. It’s not unusual to get declined for a reason of too many inquires.

Some types of major loan inquires will only count as one inquiry, as long as you don’t wait too long between. For example – if you are applying for a mortgage and are checking out several different lenders, then this is one inquiry as long as you’re doing it within a short period of time. Long periods will mean separate inquires. Note, that this is not true for student loans – each inquiry is separate and will reduce your credit score.

Why It Isn’t Enough to Pay the Minimum

“Can you tell me how long it will take to pay a $2,000 credit card balance? I’m paying the minimum every month and the balance doesn’t seem to be going down.”

You could be right about the balance. First thing that you should know is that credit card minimum payments are only about 1.5% and 2.5% of the balance. So for a $2,000 balance, that would be between $30 and $50 per month. Included in that minimum payment is the finance charges (that’s how the bank makes its income – from the fees). To let you know how long it would take to pay off, I would need your interest rate (which I don’t have), but here are two examples:

$2000 Credit Card Balance at 6% Interest

Rate	Minimum Pmt	Pay Off Time
6%	$30	80 months or 6 years
6%	$50	45 months or 3 years

$2000 Credit Card Balance at 12% Interest

Rate	Minimum Pmt	Pay Off Time
12%	$30	108 months or 9 years
12%	$50	51 months or 4 years

You can see that little of your payment is actually going towards reducing the $2,000 balance. The estimate above also assumes that you aren’t using the credit card to make more purchases.

You do have a couple options for a quicker payoff.

Option 1: Pay more than the minimum amount. Paying as little as $10 more per month will help you see some progress. You’re saying you don’t have an extra $10 to spend on your payment? Take a look at your spending habits and see where you can come up with that money. Bring your lunch to work, borrow books and movies instead of buying, and get your hair cut every 7 weeks instead of every 6 weeks. Little things add up. The great thing about this, is that it’s temporary. Once your debt is paid off, you can breathe a sigh of relief, and go back to the 6 week haircut or treat yourself to a rental. Or, you may find you have new habits that will allow you to start saving money.

Option 2: Lower the interest rate. You can do this by transferring the balance to another card that’s offering a zero percent rate or a low rate. These are limited time offers. If you don’t pay it off on time, you’ll get charged interest again. Make every effort to pay off the balance before the special offer is up. This way you can make sure that most or all of your payment is going toward the balance and not toward fees.

How to Establish Credit When You Can’t Get Credit

One reader asked, “I just got turned down for a credit card. How am I supposed to establish credit, if I can’t get a credit card?”

Great question! It’s very hard to get credit today with our economy the way it is.

First, I would have you apply for a credit card at your own personal bank – the one where you keep your checking and savings accounts. They may be willing to work with you because you already have a relationship.

If your bank isn’t willing to give you a traditional credit card, then you should apply for a secured credit card. A secured credit card is one that is secured or guaranteed by your own bank account.

For example, if you have a savings account with $1,000 in it, then you can get a credit card with a $1,000 limit. The bank will use your savings account as collateral to guarantee your credit card. If you are responsible with the card, you will eventually be eligible for traditional credit cards or loans.

You must ask your bank this one very important question before you apply for a secured credit card: Does the Lender report the secured credit card information to the three major credit reporting agencies: EquiFax, Experian and Trans Union? If they don’t, you’ll want to get a secured card at a different bank. You won’t “establish credit” unless your credit habits are reported to the right agencies.

Credit Report: How, Why and When

Credit Report Error

Looking at your credit report could be the most important financial thing you do this month.

How: To order a free credit report online go to www.AnnualCreditReport.com. To order by phone call 877-322-8228. To order by mail, send your request to Annual Credit Report, Request Services, P O Box 105281, Atlanta, GA 30348-5281. It’s that easy. You don’t have to pay a service to do it for you.

Why: Your credit report is so important to your financial life that I feel strongly that you should use your credit report as a tool to make your life better. What can it tell you?

Find out if your accounts are considered paid “on time” by your creditors.
Find out who has requested your credit history.
Find out if your personal information matches your real circumstances.
Find out if someone else has created an account in your name.

Once you have read the report, correct any errors by following the instructions there. Errors can keep you from getting good deals on loans, credit, insurance and even employment.

Make sure that you order a credit report for every person in your immediate family, including the children, because children’s ID theft is becoming common. We are given a social security number at birth, but it shouldn’t be used until we are old enough to apply for credit or benefits. Surprise, some young people are finding out that they have been the victims of ID theft when they apply for credit for the first time. Don’t let your child be one of these.

When: You can order a free credit report three times a year because each of the three major credit reporting agencies (EquiFax, Experian and Trans Union) have to give you one annually if your ask for it. Take advantage of this.

I personally order a free copy through EquiFax in January, Experian in May and Trans Union in September. I figure that I owe it to myself to protect my finances, don’t you?

Join our Free Credit Report Reminder Program by emailing Val@JillRussoFoster.com. You won’t have to remember when or how to order your credit report with this program. A reminder with instructions will be sent to you three times per year.

Fewer Distractions Equals More Time

Does this sound familiar? You come home from a long day and decide to pay bills. You sit down and find that you have to shred 20 credit card offers before you can find your actual credit card bills. While you’re shredding, the phone begins to ring with unsolicited calls. Then you check your fax machine and find pages of unwanted offers. You didn’t ask for any of this stuff. How can you make it stop?

Many choose to simply ignore the problem by hanging up on solicitors and throwing away junk mail and faxes. However, you can eliminate the problem altogether. If you haven’t heard the phrase before, it’s time to opt-out.

Opt-Out from Junk Mail. Following these steps will eliminate a good portion of your junk mail. First, go to https://opt-out.cdt.org/ and follow the directions there. This should stop most mailings. Next, pay attention to those annoying extra fliers and forms that come in your bill envelopes. When you enter a billing agreement with some companies, they take your contact information and share or sell it so that other companies can send you junk mail offers. Most of these accounts should include an “opt-out notice” form with your bill. By completing and mailing the form, you’re telling the company that they can no longer share your information.

Opt-Out from Phone Calls. Your telephone numbers (including your cell phone) can be added to the Do Not Call List. This should eliminate most sales calls. Unfortunately, this does not apply to non-profits and political campaigns. A few of the so-called “non-profits’ that call your home regularly asking for donations are barely legitimate, but that’s a story for another Quick Tips. Go to www.DoNotCall.gov, or call 800-382-1222, to join the Do Not Call list.

Opt-Out from Faxes. The Junk Fax Protection Act of 2005 worked to stop unwanted faxes from being sent to private fax numbers. If you do get unwanted faxes, the fax must include an opt-out option.

Credit Card Shaving is Cut & Paste Fraud

Credit Card Shaving – it sounds like what you would say if you were cutting back on your credit cards, but that’s not what it means. This is the latest credit card scam and there is nothing you can do to prevent it. Isn’t that scary?

Q & A on Credit Card Shaving:

How do they get your credit card number? The thief makes a random list of 16 digit numbers. Then he starts trying to make purchases online with different combinations. If one works, then he knows he has a legitimate account. He doesn’t need to steal your card, or go through your trash. You still have your card and have no idea that someone is using your card numbers.

Why is it called “Credit Card Shaving?” The thief literally shaves the raised numbers off of other credit cards (usually cheap gift cards) and glues them onto a new card in the correct order. He now has a legitimate-looking card with your number. He can even use his own ID with the fake card to charge everything to you.

What about the magnetic strip on the back? The thief doesn’t need to change the magnetic strip, he just “scores” or scratches it so it can’t be used in the automated stripe reader at the check-out counter. Whenever a magnetic strip is damaged, the cashier simply enters it manually using the numbers on the front of the card. We’ve all had this happen with worn out debit cards or poorly working stripe readers.

What can you do about it? Since you can’t do anything to prevent it, the only thing you can do is monitor your accounts. Check your credit card statements for unusual purchases as soon as they arrive. If you check your accounts online, you can check anytime during the month for new charges.

Too much work? We use credit cards for convenience. We treat them like pre-approved micro-loans, or feel they’re safer than carrying cash because they can be canceled if stolen. In reality, the more cards and accounts you have, the more work is required to watch over them. Unfortunately, many people only learn that after it’s too late. Don’t be one of them.