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The states with the two highest student loan burdens are Iowa and New Hampshire. Broke Grad Student and several commenters weighed in with their theories as to why. Not surprisingly, factors include the cost of the schools in the state, the extent of state support to the public schools, cost of living, and cultural factors.
Check out the carnival, article, and map. How does your state fare. Are you surprised at all by the results?
Of the more than 100 articles at the carnival, one immediately caught my eye: The Digerati’s Balance Transfer Credit Card Tips, Facts and Traps. While much has been written on this topic, few writers have tackled the balance transfer “opportunity” as succinctly. More importantly, Silicon Valley Blogger includes a little table summarizing where the current opportunities. Alongside, the accompanying text highlights your key personal considerations. Like most other personal finance considerations during a downturn, opportunities abound - just not in the same place nor in the same way as a few years ago.
For anyone with existing credit card debt, his article should be considered required reading. Note: your individual conclusion may be to do absolutely nothing. And that’s okay too.
Much has been written about the deceiving practices of credit card issuers and our government’s newfound desire to closely regulate them. make it harder for them to continue. In my opinion, some banks and bankers (like some politicians) are bad, greedy, and in need of some adult supervision. Most, however, play reasonably fairly, especially when considering the risks they take in voluntarily lending money to people they barely know.
So rather than focus on the periodic mischievous practices of the banks, let’s discuss the top five lies we tell ourselves about credit cards which are far more dangerous to our long-term financial health. After all, we can’t count on the government to protect us against thoughts in our heads, can we?
Top 5 Lies We Tell Ourselves About Using Credit Card Usage
Lie # 1. I can afford the big screen television/cruise vacation/lifetime supply of organic milk, just not now.
If you can’t afford the purchase right now without financing with your credit card, you can’t afford it. Period. While this doesn’t necessarily apply to big ticket items like a car and a house which will have unquestionable value a month from now, the logic holds for virtually everything else. Some people convince themselves that a credit card is a tool allowing themselves to re-define what it is they can afford. As such, they buy things that they honestly believe they can afford before they actually have the cash for the purchase. But it’s a big lie: if they could afford it, they’d have the cash to pay for it.
Lie # 2: I have a great rate - like 0% APR - so I’d be a fool not to use the card.
Wrong again, smart guy. There’s a reason why banks give you such generous rates and it’s called profit. Sure, they forgo some of the profit in the beginning while you rack up charges during your “teaser” period. But, after the teaser period expires and your rate goes up to some astronomical level, they make it all back and then some. Remember, same as cash is not the same as paying with cash.
Lie # 3: The reward points totally make it worth it.
After a few months you might, indeed, have enough points for a free airline ticket. Furthermore, after several hours on fourteen different web sites navigating dozens of blackout rules might actually leave you with a mid-December red-eye trip to Des Moines. But how much in interest charges, annual fees, and other miscellaneous expenses will you pay along the way? I’ll give you a hint: it’s almost never a free ticket. (That tee shirt you got when you signed up wasn’t really free either by the same logic, now was it?)
Lie # 4: I need to use my credit card and pay interest in order to build up my credit history.
While it is true that your responsible use of a credit card can improve your credit score, it’s also true that irresponsible use of a credit card can ruin your credit score. Furthermore, it is not true that you must carry a balance in order for the credit card to build your credit history. (I had several people in multiple cities last year tell me that was one of the reasons that they were carrying a balance. I don’t know the source of the rumor, but trust me, it’s total nonsense. In fact, whether you pay your full balance every month or simply make the minimum payment, as long as your payment is on time, you’re building up credit).
Lie # 5: Since I pay my balance every month, there’s nothing wrong with using credit cards for everyday purchases.
This statement is almost universally accepted. (I’ll admit I believed it for many years.) But it, too, is not true. Saving strategy number one is to stay emotionally connected to your money. When you spend cash, it hurts - right away. When you spend with a credit card, there’s no pain (at least not until you get the bill). The separation in time a credit card allows between when you make the spending decision and when you feel the pain allows you to spend more. Furthermore, the convenience of using a credit card allows you to spend more often. Taken together, the use of a credit card means you spend more money and you spend more often. That’s what it’s a lie to think that by simply paying off your credit card every month, your credit cards won’t affect your finances. Doubt me? Leave the cards at home for a week and see how much less you spend. The results just may scare you.
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What do you think? What other lies do we tell ourselves regarding credit card usage?
My wife and I took a “staycation” this weekend. I’ll admit we didn’t plan it that way. We had a busy Saturday planned but aside from a brief visit by family Sunday, little else scheduled for the weekend.
But sometimes you really can enjoy the place you live.
The weather in New Hampshire was stunning all weekend and so we were outside for most of it. We ate most of our meals outside (ranging from in town by the harbor to at a picnic by a lighthouse to our own backyard). We also spent a lot of time at the beach and took many walks with the kiddos to different neighborhood playgrounds. Each night, everyone (including me) fell asleep with a smile on their face and slept soundly. This weekend proved, once again, that some of the best things cost very little (or nothing at all).
Jeremy reminds us of an interesting and not well-known feature of credit card usage: tracking. A bank can learn a lot about the likelihood you’ll repay your debts based on the types of purchases you make - not just how much you charge and your recent repayment history. With the recent legislation capping fees and rate changes credit card companies can collect and modify, you can bet that the use of models like those Jeremy discusses will only increase as financial services companies quickly move to find ways to minimize their losses.
One of the best parts of the weekly personal finance carnivals, including this week’s carnival hosted by WiseBread, it the wide variety of personal finance topics covered. In addition, I always take the time to enjoy an article or two that I’ve been meaning to write myself but just haven’t gotten to. This week was no exception, even if my post about The New Frugality made the cut. Here are my three favorites of the week:
J. Money from Budgets Are Sexy presents Paying extra towards your loans now, goes a long way later! This is so true it hurts. How much pain? As J. Money says, “It’s like kickin’ compound interest in its head and getting away with it :)” How could you not enjoy?
Another favorite: Save Money By Buying the “Good” Toilet Paper by That One Caveman. Two very important lessons from this title. First, you can never go wrong putting “toilet paper” in a blog posting title, something I learned a while back when I wrote Toilet Paper As an Economic Indicator last fall - still is a bizarre way to look at the world. Second, sometimes paying for quality is actually cheaper than paying for quantity. (Amazingly, this was also the theme of the toast my brother gave for my wife and I at our wedding, but that’s another story for another day.)
Money Lessons from Monopoly is another wonderful article. Free Money Finance reminds us that Monopoly is a great teacher not only of the importance of cash-flow (how much fun is it to mortgage our properties?) but also of luck (the frustration of your opponent consistently missing your hotels as he marches around the board).
Quick FYI: The Total Candor web site was featured in the Philadelphia Inquirer over the weekend for savings help. Did you see it? If not, see it now.
This is a guest post from Grant Baldwin, the author of Reality Check, a book about helping students transition into the real world. His new website, BrokePiggy.com, answers questions from teenagers about personal finance, savings, and all things money.
This series “12 Things Every Teenager Needs To Know About Money (And How To Teach Them)” is a community blog experience. This post is only one of the 12 points in the series so to view the other 11, please visit the list of links below.
Living On A Budget Isn’t An Option
Ah, it’s time to discuss the dreaded ‘B’ word. Not that ‘B’ word you filthy animal…get your head out of the gutter!
In order to be successful with money, you really need to have a budget. It becomes a roadmap to guide your decision-making and your spending habits with your finances.
But I’m sure like most people, you and your teenager probably aren’t math nerds who stay up late into the night coming up with new ways to solve expert-level Sudoku puzzles.
I don’t do that either just so you know!
But whether you’re a math whiz or you still count on your fingers and toes, you need a budget. Most teenagers are more like free spirits who prefer not to live in the confines of a budget (I wonder if they learned that from their parents…hmmm…I’m just saying). So how do you teach a teenager to budget? Let me help young grasshopper…
· Start Now With What You Got – Budgets aren’t just for millionaires or people who make over minimum wage. Budgets are for anybody and everybody who has ever had a dollar (that would be all of us in case you missed it!). Same with the concept of giving, if you don’t budget when you make $100 per week, you’ll never budget when you make $10,000 per week (don’t forget about me when you do). I know expenses are limited and income is small, but establish that habit now to make a budget.
· Do It On Paper – I like gadgets and gizmos. And oddly enough, I kind of like spreadsheets. Spreadsheets are great for creating budgets, but don’t start off there. Start with good ole’ fashioned pencil and paper. Why? Something changes when you have to do the math by hand and see where your money is going. It forces you to really think it all through and make better decisions with your finances.
· Use The Envelope System – If you’re unfamiliar with this idea, basically the concept is to pay for as much as possible with cash. After you’ve helped your teenager to establish their budget, find categories that can be paid for in cash. Things like gas, eating out, movies, etc. Make an envelope for each of those categories and put the budgeted amount of cash in each. Then pay for items from their respected categories out of these envelopes. Paying with cash is tougher than swiping a piece of plastic and will also help your child to better manage their money, because when that envelope is empty, their spending is done.
Here are the rest of the articles in the “12 Things Every Teenager Needs To Know About Money (And How To Teach Them)” series:
This is a guest post from Grant Baldwin, the author of Reality Check, a book about helping students transition into the real world. His new website, BrokePiggy.com, answers questions from teenagers about personal finance, savings, and all things money.
A shocking title is more likely to be clicked on. The Dave Ramsey related article strikes a nerve with a lot of people.
You: What nerve is that?
Mr. Ramsey, who is thoroughly respected by the financial community and has an enormous fan base through his books and radio show, consistently tells his readers and listeners to pay their smallest debts first.
You: Why does that advice strike a nerve?
To some people, the guidance is at odds with sound financial logic.
You: Why?
Because, in debt management, the absolute best use of your finite money is to pay down the debt which charges the highest interest rates. Since the two (smallest debt and highest interest rate debt) are often not the same debts, Mr. Ramsey’s instruction is counter to pure financial calculations.
You: What do you think?
As I commented at the post,
Reasonable people can disagree.
For what it’s worth, I’m not with Dave Ramsey on this particular issue. I buy the importance of momentum and think seeing your success is an important part of continuing to achieve it. Still, I always teach people the correct habits right away. I don’t believe that “beginners” should start with the wrong habits solely for motivation/momentum’s sake.
The truth is, financially speaking, there is a right answer and that is to pay down your highest interest debt first. But, this isn’t strictly about finance.
People who go out of their way to listen to folks dispensing PF advice are already somewhat motivated. They are beginning to exit the denial stage. I say “Tell them the best way to do something.”
As far as that article about not being a woman, the author - not surprisingly - waters down his tone in the opening paragraph. Still, it’s a thought-provoking article, especially if you’re curious what others spend on beauty-related products and services.
Personally, I go to a barber and I’ve been told that it looks like I go to a barber.
You: I don’t think they meant that as a compliment.
Yeah, me neither. Yet somehow that doesn’t bother me. Your thoughts?
You can also listen to them on itunes by searching for Quicken. Or download them and listen to them later, like when you’re not supposed to be working.
Always welcome your feedback for new topic suggestions or anything else you have to say.
You must pay off your entire balance and then close the account.
You: What?
You must pay off your balance and then close the account.
You: I heard you the first time. I’m just a bit amazed that a credit card company would do that. Besides, I pay all my bills and no one’s offering me $300 to keep on doing so.
You: Oh yes, the stimulus. Big deal. Why is American Express giving away $300 to some customers?
They’re testing the waters. They’re going to see if the $300 incentive improves the repayment rates on some of their delinquent accounts.
You: They’re giving $300 to those who are behind on their payments?
Yes.
You: This is ridiculous. Will it work?
I have no idea.
You: Well, what do you think?
I doubt it will matter. It’s basically a $300 write-off of the outstanding balance. If you owe $10,000, it’s as though you now only owe $9,700. If you have $500 to your name, what’s the difference in your ability to repay?
# # #
What do you think? Will it work? Hoping for an offer? Hoping you never get an offer (since you know what that means)?
Bankruptcy is a serious decision with long-lasting implications. It is not something you simply declare, notwithstanding the following attempt:
Bankruptcy is an important and emotional decision.
You: Should I declare bankruptcy?
Probably not.
You: Why not? I have an unbelievable mountain of debt.
I’m sorry that you’re struggling. While it’s possible bankruptcy may be the only way out for you, it is critical to understand that bankruptcy is your last choice. Bankruptcy is not the silver bullet that will get you out of a financial hardship. Rather, it formalizes your previous mismanagement for life. Therefore, bankruptcy is something you choose only when you have exhausted all other options, not something you run to first when you conclude you can’t make ends meet.
You: How do I know if I’ve exhausted all other possibilities? I mean, I’ve been trying to get out of debt for a long time and I’m just not making any progress.
I get it. You’re living paycheck-to-paycheck. You’d rather liveBeyond Paycheck to Paycheck, a better choice to be sure. The first thing you must ask yourself is:
Are You Prioritizing Your Debt?
You: Of course I am. If I wasn’t paying it, I wouldn’t be having any problems and I certainly wouldn’t be asking about bankruptcy.
I’m not talking about making your debts a priority. Rather, do you prioritize certain debts over others?
You: I pay what I can afford when the bill is due.
That’s a common approach. However, paying your most expensive debt first greatly increases the speed you become debt-free. Furthermore, the total amount of interest you pay over the life of your various loans is significantly less when you prioritize your debt.
You: How do I prioritize my debt?
By paying the most you possibly can against the debt that charges you the highest interest rate - that’s your most expensive debt. Pay the minimum payment required on all the remaining bills. Following this path guarantees you that, for the rest of your life, the next month will be your hardest financial month. The month after it will be a little easier. Then, slowly, like a hamster on the hamster wheel, debt repayment will become easier and easier as more of your hard-earned money goes towards paying down your debt principal and less to interest expense. Remember, interest expense is the biggest suck of your paycheck.
You: Biggest “suck?”
Yes, because the interest expense sucks your money and you get nothing for it! You don’t get any good or services for the payment (you got them a long time ago) and the interest payment itself doesn’t reduce your debt. You’ve got to get your interest expense down. Once you do so, then you can begin to save.
If you can’t seem to make the numbers work even after prioritizing your debts,
Call Your Creditors
See if you can work out an arrangement.
You: An arrangement?
Sure. For example, they may be able to provide you with a longer repayment term or a lower interest rate, both of which mean lower monthly payments. Note: you prefer the second option over the first, since a lower interest rate means you’ll be paying less total interest over the course of your loan, whereas a longer term means you’ll eventually pay even more interest than you’d pay on your current loan agreement.
If, after making those calls, you still can’t pay your bills, it’s time to:
Work with a Qualified Credit Counseling Agency
Find a qualified credit counseling agency, preferably one available through your state at no charge.
You: No charge? Get out.
Seriously. Here’s the credit counseling agency offering free services to residents of New Hampshire, where I live.
Remember Saving Strategy # 4: Enjoy Free stuff: Meet with a counselor, who will review your income and expenses and recommend a course of action.
If you and your counselor conclude there just isn’t any way to survive without declaring bankruptcy, then do so.
You: I won’t need to.
I didn’t think so. But just in case someone else does, I’ll be continuing this conversation next week, discussing Chapters 7 and 13.
You: Of your new book?
No - of the bankruptcy code.
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What’s your take? Anybody think about declaring bankruptcy but then decide not to? Anybody declare and wish they hadn’t? Do share.
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