Cutting the Credit Cords

This weekend, the New York Times ran a series of articles on debt in America. It’s definitely worth reading, but if you don’t have the time to go through all of them, there are two paragraphs that I think are absolutely key:

Average late fees rose to $35 in 2007 from less than $13 in 1994, and fees charged when customers exceed their credit limits more than doubled to $26 a month from $11, according to CardWeb, an online publisher of information on payment and credit cards.

Mortgage lenders similarly added or raised fees associated with borrowing to buy a home — like $75 e-mail charges, $100 document preparation costs and $70 courier fees — bringing the average to $700 a mortgage…

Credit card interest rates are on the rise, as well, even for those customers with good credit.

It costs money to buy on credit, whether you’re purchasing a new home or just putting a bag of groceries on your Visa. Credit is expensive, and while various lenders work on recovering from the credit crisis, it’s going to get even pricier. It’s important to remember that credit card companies don’t send you all those preapproved offers out of the kindness of their hearts. They’re marketing their businesses in order to make money — from you.

There is only one way to avoid paying fees and interest, and that’s to stop using credit. Personally, I’m not entirely there yet, and I still have some debt I need to pay off, but I’m working on it. I know it’s the only way to go.

Very few people are ready to go completely cold turkey on their credit cards — very few can truly afford it. But there are steps that you can take.

• Use only one line of credit. You’ll still have to make payments on your other cards and lines of credit, but if you’re only adding to what you owe with one card, you will have a better handle on what you spend.
• Pay cash wherever you can, especially for anything beyond the bare necessities. You have to buy groceries and pay rent, but for consumer purchases, using only cash can help teach you to save up for purchases. Even better, you don’t pay any fees or interest on cash purchases.
• Don’t open new lines of credit. For mortgages and other loans, a big chunk of the fees occur whenever you get a new loan or open a new account. The same is true for refinancing and other major changes to your account.

There are plenty of personal finance advisers out there recommending extreme solutions. If you can handle an extreme approach to paying down debt and getting away from needing credit, I’m all in favor of it. Most of us need slower and steadier methods, though. We all have to look at our own financial situations and chose the best path for ourselves.

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The Dangers of Buying a Flipped House

Even with the rough spots in the housing markets these days, ‘flippers’ are still buying houses. These folks buy houses in poor condition, fix them up and sell them at a profit. Home buyers often like them because flippers need to sell their houses as fast as possible to avoid paying more than a month or two on the mortgage. If a house isn’t selling, flippers can get nervous and lower their prices.

But flipped houses aren’t necessarily good buys for homeowners that plan to stick around. If you’re shopping for a new home, there are a few reasons to skip the flip.

1. Flippers limit costs when fixing up houses. Not all flippers go for the cheapest building materials, but they do try to minimize costs wherever possible. To bring a house up to your standards, you might wind up tearing out some of a flipper’s work and paying for an additional remodel.
2. Flippers focus on the visible. Most flipped houses have awesome fixtures, beautiful paint jobs and other accents that convince buyers that the house is a beautiful piece of work. But slapping a fresh paint of coat on a wall doesn’t repair cracks or bring wiring up to code. And it’s the non-visible problems that can mean expensive repair work down the road.
3. Flippers do as much themselves as possible. Most flippers aren’t professional electricians or plumbers, but odds are they’ll try their hand at some wiring or plumbing, just to keep from having to call in a professional. That doesn’t mean that their work is bad but there won’t be any sort of guarantee.

If you’ve got your heart set on a house that was flipped, there are a few things you can do to protect your investment. The first is to check with the local permit office. If a permit hasn’t been closed, walk away. That means that the inspector doesn’t think the house is ready to sell. In some locations you can even get a copy of the inspector’s notes. You might also find that no permit was taken out. Maybe the flipper did only cosmetic work — maybe the house only needed some touch ups. But it’s more likely that the flipper went without a permit, which is illegal. That also means the work isn’t up to code and could be dangerous.

You can also ask your real estate agent to help you check out this particular house flipper. What other houses has he or she sold? Are the new owners happy with their purchase? A house flipper’s reputation is a good indicator of the work you can expect. Make the effort to learn about the house flipper in question. If necessary, ask them to show you around the house and give a detailed explanation of what work was done. Give them a chance to prove that their work really is worth an extra $50,000 or however much on top of the previous sale price.

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Protect Your Stuff: Avoid Moving Scams

I currently live on the third floor, with several heavy pieces of furniture. Next time I move, I promise you that there will be movers doing all the heavy lifting. I might pack a few boxes, take care of the dishes and other little stuff, but the furniture at least will be handled by professionals. When it comes to choosing my moving company, though, I plan to be very careful. We’re talking about my personal possessions, after all, and there’s been more than one scam perpetrated by household movers. I don’t want to have to ransom back my possessions. I don’t want to argue with movers that estimate one price and charge a much higher one. I don’t want to have anything go wrong with my move.

Take Action To Protect Your Possessions

When we move, we want the best movers we can afford. The easiest way to find them is to ask around. Who have your friends and family used? Did they have any problems? Does your realtor have a recommendation, or the apartment manager? Word-of-mouth is generally the best bet for finding a reliable company. After all, your friends won’t point you to a company that treated them poorly.

It’s also worth the time to do a little due diligence — a little research. Call the local Better Business Bureau and check if anyone has filed a complaint against your company of choice. Google their names, as well, and add in your city to make sure you get relevant results. If you hear any bad news about a company, cross them off your list and move on to the next. You don’t need the worry of dealing with a company you know has had problems in the past.

The Three Estimate Rule

You always want to get at least three separate estimates to compare. If one company is significantly more expensive, you’ll probably know to avoid them on your own. But you should also consider ignoring significantly cheaper estimates. If you get two estimates that are similarly priced and a third that is much, much cheaper, you should ask yourself why that company is so much less. Statistically, that’s the moving company most likely to cause trouble for you. It’s just like scams in any other industry: if it seems to good to be true, it probably is.

You should also ask for a contract that lists out all prices, rather than signing an estimate. It’s very easy to tack on extra surcharges to a signed estimate — perhaps there’s a per mile charge for driving or extra fees for packing. You want to know those in advance and have them in writing. Using a signed contract will protect you if your movers try to pull something. If nothing else, you have documentation if you wind up taking them to small claims court.

Ask Questions

You’re about to let people you don’t know into your home. You may have your children around; you definitely have your possessions around. Ask the moving company about the movers — do they conduct background checks? Does the company have insurance? What about a claims policy? You’re paying enough to be nosy.

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Carnivals on Memorial Day

Our article Pinching Pennies is in this week’s Carnival of Personal Finance, our article Saving Money on Groceries is in this week’s Festival of Frugality, and our article Do Bigger Payments Really Make For a Faster Payoff? was featured as an Editor’s Choice in this week’s Carnival of Debt Reduction. Check out both carnivals to see the best personal finance and debt reduction articles of the week!

Saving Money at Sale Time

Memorial Day is a day that is famous for more than its national importance. It is also famous because most of the major retail chains have huge Memorial Day sales! Summertime is rampant with sales—Memorial Day, the Fourth of July, Christmas in July, Back to School and Labor Day…The retailers will find any excuse to fling open their doors and cut their prices almost in half. They do this because they know that one of the best ways to get people to buy more merchandise is to make it cost less!

Think about it—do you really need those five white t-shirts? Probably not, but you’ll buy them all anyway because it’s buy four get one free. You probably don’t need a new spice rack, but if you buy one at regular price you’ll get fifty percent off any other item in the kitchenware department!

With all of the great sales happening, how do you survive them with your budget in tact, your credit not endangered and your lust for buying satisfied? Here are a few hints to help you out:

1. Do not drive to your local mall blind. Know which sales are happening ahead of time. This way, you can park next to the store you most want to shop at and can avoid having to walk past all of the other temptations in the shopping center.

2. Look through the sale ads before you leave the house so that you will have an idea of what is being offered. This way, if a store doesn’t have anything you really need or want, you will know that it is okay to just walk on by.

3. If you don’t have the cash on hand, do not buy it! That said—here’s a hint to help you save even more money: most stores offer an extra discount for people who have a charge account with the store. When you shop, use your department store charge card to get an extra percentage off of the sale price. Then, walk over to another cashier and pay the balance of your card with cash! You are still shopping with cash and saving money. Just do not fall into the “I’ll write a check when I get home” trap and don’t sign up for the card to get the discount. Only use the discount if you already have the card on hand.

4. If the sale you most want to attend is within walking distance, walk there! This will save you money on gas and fares for public transportation and it will provide incentive not to go overboard with your shopping. Think of it this way—if you walk to a sale then you will have to carry your purchases home. The more you buy the harder your load will be to carry!

5. Shop with a family member or friend who is also on a budget. The two of you can act as the voices of reason for each other!

4 Ways to Think Outside the Homeowner’s Box

We face enormous societal pressure for buying a house: it seems to be the major goal for just about every family. And those houses that we’re supposed to buy seem to all look pretty similar: a single family home with a nice back yard in the right neighborhood and with the right appliances. But if you’re planning to slap down a big stack of dollar bills, it may be worth thinking outside of that single family box. After all, that sort of home is guaranteed to be expensive — while it is an asset, beyond a little appreciation it won’t make you much money.

But there are some housing options that might be a better fit for you. Consider these four ideas.

1. Consider a multi-unit property. Most of us aren’t in the financial situation where we can afford to make payments on an entire apartment complex, but you may be able to find a duplex or other building with just a few apartments in it in your area. Then, while you live in one unit, you can rent out the others. In most areas, rent from another unit may be enough to cover your monthly mortgage payment. And depending on the size of homes in your area, you may even be able to convert a large single family home into multiple units. The house I grew up in was actually divided this way: the basement was a separate apartment from the main level.
2. Combine living space and office space. If you run your own business — depending on the type of business, of course — you may be able to use one property as both your home and office. Doing so even gets you an extra write off on your taxes. Having worked out of my home for several years, though, I do have one piece of advice: maintaining boundaries between ‘home space’ and ‘office space’ is crucial. Ideally, you shouldn’t even need to walk clients through your ‘home space’ to get to your office space.
3. Look at non-traditional living spaces. While most people seem to look for the largest house they can get for their money, it’s worth considering going for an unusually small home or even a space that wasn’t originally built as a house. A small house, for instance, is cheaper to maintain, heat and power. And if you were to choose a building with multiple purposes (a friend of mine lives in a converted garage, for example), you may have an easier time selling the property later on.
4. Join forces on a home. Rather than limiting your home to you, your spouse and your children, you have the option of sharing space with a few other people. In the past, it was perfectly normal for Grandpa or Grandma or Auntie to move in, and it’s still an option today. You may choose to make financial arrangements or agree on services, like childcare, that your new roomie might take on. But don’t limit your house to just you.

Budget Article In Carnival of Debt Reduction

Erin’s recent article Creating Your (Dreaded) Budget) was featured in this week’s Carnival of Debt Reduction. Check it out!

Our article Recipe for Success was in this weeks Carnival of Inspiration and Motivation.

And our article Save Money with Coupons made this week’s Festival of Frugality!

In The Carnival of Debt Reduction

The Carnival of Debt Reduction #136 is out, and our article on how to Eliminate Credit Card Debt is featured along with many other great articles on debt reduction. Check out the carnival!

Also, our article about Going Green In The Wallet was featured in this week’s Carnival of Personal Finance, which includes a total of 86 great personal finance articles! Be sure to stop by and take a look!

Automate Things

Today’s tip for financial freedom is: Automate things.

When you automate things, you don’t need to be disciplined about it consciously! That is why automating things is one of my favorite ways to handle my finances. Every pay period, before I receive my paycheck a big chunk of it is automatically taken out for the 401K and ESPP. The remaining amount gets split up into three different accounts – two for savings and one for regular bills. I have automatic payments set up for all the bills as well. So, by exercising discipline on one afternoon and setting up all these automatic transactions, I save myself the agony of having to be disciplined at the end of every month. Read more from Discipline (or Lack Thereof) and Personal Finance.

Courtesy of Grad Money Matters: This blog is written by a recent graduate, who has come to a stark realization that in the real world money matters! The blog covers a wide range of articles from how-to tips to random musings on diverse topics related to money, career, productivity, frugal living, debt, etc.

Stop Wasting Cash

Today’s tip for financial freedom is: Stop wasting cash. And cancel obvious cash wasters - like your cable TV subscription.

This will save you $40-$60+ per month - that’s an extra $500 or more per year you can use to pay off your bills. Money that you are basically burning.

Sure, you and/or your family probably like watching television. But consider an alternative: my wife and I recently bought a TV (we hadn’t owned one in three years) and bought a HDTV antenna for a $40 one-time fee. The picture quality is amazing and we get plenty of channels. Now we can watch all of our favorite shows on all of the major networks, and FOX, and it does not cost us a penny.

Think Before You Buy

Today’s tip for financial independence is: Think before you buy. (i.e. Don’t buy on impulse.)

You know all the times you saw something in a store and wanted your parent to buy it - but they said no? This is that same sort of thing, but an affliction that affects young adults.

Once I turned 18 and felt the power of a huge credit limit at my fingertips, I felt like I deserved to have some nice experiences. I told myself I was only going to be young once and I had plenty of time to figure out how to pay everything off. (Not terrible logic, when you think about it, but it led to my building up more than $10,000 in debt because I was living outside my means.)

The problem with impulse purchases is that they come out of nowhere and put a serious strain on your monthly cash. It is easy to get wrapped up in the emotional idea of buying something and to not think about the financial consequences about doing so. After all, how many people really need a timeshare in the Poconos?

So think before you spend money. Set a personal rule that anytime you are about to spend money you take a step back and evaluate whether or not you really need to spend money. You will be surprised how much you can save.

Save and Budget For The Holidays

Today’s tip for financial independence is: Save money and set a budget for the holidays.

Millions of households get caught in the same cycle every year. They buy holiday gifts for friends and family, get their credit card bills a few weeks later, and spend the whole next year paying off every dime they spent plus credit card interest. And when the next year’s holiday season rolls around, the cycle starts all over again.

Don’t let this happen to you! Do your best to save a small amount of money each week and set a budget for holiday spending.

My wife got me into this habit about six years ago, and it is a great habit to get into. Every week, we both transfer money into a separate savings account - say $25 per week, for example - and we let it compound, collect interest, and grow all year.

By the holiday season, you can have plenty of money for your gift giving needs and not get into debt. Just be disciplined about your gift purchases and plan ahead so you can stick to your budget.

Peer Pressure Is Dangerous

To celebrate and encourage Wealth Junkie readers to achieve financial freedom, we are celebrating the month of July at Wealth Junkie as Financial Freedom Month. Each day, I and/or other financial bloggers will be sharing one tip to help you achieve financial independence.

Today’s tip for financial independence is: When it comes to spending money, don’t succumb to peer pressure.

You know those Loews commercials where the neighbors keep outdoing each other, buying bigger grills, decks, a gazebo, etc.? In that neighborhood, the neighbors keep spending money to try to outdo each other, pushing each other into more and more debt in order to do it.

Though it is funny to see them competing on television for who has the most stuff, in reality it is a downward financial spiral for everyone involved except the store itself.

And yet that’s what people do. All the time. As a culture, we always need the latest gadget (iPhone, anyone?), flashy new cars, and an expensive new home that is really out of our price range.

The bottom line: peer pressure is a bad reason to buy a gazebo. If you really want to compete with your neighbors, compete for who has more money in the bank. If all you do is burn your money at Loews, the only winner will be them.

Tom LaSorda Should Be Fired

The Senate just passed an energy bill that would require automakers to develop cars that average at least 35 miles per gallon in the model year 2020 - i.e. 13 years from now.

I personally think that the bill is pathetic. The Senate should have pushed for tougher fuel efficiency NOW, not 13 years from now. This just shows how much the automobile industry is in bed with the government - and, even if passed into law, it gives the auto industry 13 years to get the law changed. (Does that smell like lobbyists and corruption to you?)

Mind you, the auto industry should have been doing this for decades already. Gas is getting more expensive every day, and the only reason cars aren’t more fuel efficient right now is because the general public has not voiced their demands loud enough.

What I find to be most disturbing, though, is that Bloomberg quotes Tom LaSorda, head of American operations for DaimlerChrysler AG as saying that this higher fuel efficiency requirement - which is not due for 13 more years - will cripple DaimlerChrysler’s business.

Who hired that executive? Does he not realize that a heck of a lot can change in 13 years? How can he possibly say that DaimlerChrysler’s business will be crippled?

Laptop or Desktop?

I own a 20″ iMac G5, which used to be my desktop, but I had it in storage for a little more than six months. In the meantime I had been using my 13″ MacBook exclusively.

Now I’ve just set up my iMac again, but I’m not sure I like it as much as my laptop - which pretty much does everything I need yet is portable enough to take anywhere.

Do you use a laptop or a desktop more? Which do you prefer?

Google Bows To eBay (And No One Else)

I read earlier today that eBay had abruptly decided to stop advertising on Google Adwords. I always wondered why eBay advertised on Adwords anyways - their ads tend to be vague and must have a poor quality score, considering that they always use dynamic keyword insertion to create ads with the same text every time: “Looking for ___? Find exactly what you need on eBay..”

According to ITWorld:

EBay Inc. has pulled all of its paid search ads from Google Inc.’s AdWords network in the U.S., an eyebrow-raising move likely to be interpreted in the industry as a sign of deteriorating relations between the two Internet giants.

It seemed pretty random to me at the time, but I’m not attending eBay Live. Had I been, it might have been more clear to me: Google tried to throw a Google Checkout party for merchants attending eBay Live.

And now this tail between the legs post on the Google Checkout blog:

eBay Live attendees have plenty of activities to keep them busy this week in Boston, and we did not want to detract from that activity. After speaking with officials at eBay, we at Google agreed that it was better for us not to feature this event during the eBay Live conference. Google is constantly reaching out to new users and sellers, and we are available to privately discuss any matters of concern with individuals as they relate to Google products. Interested parties may contact us at checkout-reply@google.com.

For those that don’t know, Google Checkout is a direct competitor to eBay’s PayPal service. Despite Google’s multi billion dollar market capitalization and world renown brand, eBay considers Google Checkout to be an unsafe payment method. eBay’s Accepted Payments Policy clearly states that Google Checkout is one example of a payment service not permitted on eBay - and any merchant accepting it runs the risk of listing cancellation and suspension of their eBay account.

Since Google Checkout is not an allowable payment method on eBay, I don’t quite understand - why was Google so ballsy as to try to promote Google Checkout at eBay Live in the first place? Even if every eBay merchant they met wanted to switch to Google Checkout, they have a zero chance of converting them since Google Checkout is expressedly forbidden on eBay.

The thing that amuses me the most here is that eBay is clearly not the world’s best Adwords advertiser. Their ads are all the same (with dynamic keyword insertion) - how great can their quality score be?

But do you think that eBay felt the recent Google slap that caused some advertisers’ campaigns to go from a “great” quality score to a “poor” one in just a few hours? I doubt it.

Biofuels and the Future

I’ve been a big fan of investing in biofuels for the past several years - and it has paid off handsomely for me, with returns in excess of 200% in just one year.

I think biodiesel and ethanol are great ideas in principle. But I think many people miss the big picture about biofuels in general because they focus on one small point: that there is not enough land in the USA to grow all of the crops we need to be energy independent.

Those folks are the same ones that would have shunned the Ford Model T because when Henry Ford first sold it, the car was only available in one color. They need to change the way they are looking at things, because the future for biofuels is far different from the present.

Biodiesel and ethanol technology has been available for some time, but the whole world was not focused on it like it is today. Now that the spotlight is on the issue, and the sum of all of the world’s knowledge, resources, and capabilities are focused on it as well, I think we will see some real changes happen in the next few years.

There are so many new technologies on the horizon - like algae-based biodiesel and cellulosic ethanol made from waste products. Both could completely change biodiesel and ethanol as we know it, and neither would require us to use every acre of America’s farmland to grow corn and/or soybeans.

And it is entirely possible that a better fuel source will emerge that we haven’t even thought of yet.

In my opinion, the industry is still very much in its infancy. It has boomed a ton over the past few years, mostly due to the incentives being given all around. And the future has a lot more in store.

Coolest Mobile Phone Feature Ever?

I just heard about Verizon Wireless’s new V CAST Song ID feature - and it sounds absolutely amazing. Check this out:

With Verizon Wireless’ exclusive new V CAST Song ID, you can now hear a song, hold the phone toward the music so it can identify the music, and purchase a full-track song, Ringtone or Ringback tone — all right over-the-air from your phone. Customers only need a V CAST Music-enabled phone to start identifying songs playing from any music source.

I’m curious if Apple and/or other mobile phone networks will follow suit and create a similar features. It is a brilliant idea to help consumers identify the name of songs they hear on the radio. This sounds like an amazing technology that could really help boost sales of ringtones and digital music songs.

Check out this Verizon news release for more info about V Cast Song ID.

Whirlpool Gives Back

I saw a commercial the other day which said that Whirlpool donates a refrigerator and a range for every home built by Habitat for Humanity.

I’m very impressed by this. It really shows that Whirlpool wants to give back.

You can read more about it on the Whirlpool web site.

Perspective on Iraq War Cost

The Iraq war has cost Americans roughly $456 billion so far. That’s enough for more than a year’s worth of gasoline for all American drivers.

I can’t believe how long the Iraq war has been going on. I still remember when the “Shock and Awe” campaign started because I was in the Navy at the time. This war has been going on for virtually all of W’s current presidency. And no endpoint in sight.