Buy Plane Tickets with Credit Card

If there's any lesson to be learned about Aloha Airlines wrapping up business and shuttering operations, it's that you should buy your tickets with a credit card.  Why?

Let's say you paid cash, check, or debit for your ticket.  Your money is gone - out of your bank account forever... at least until you file your claim with bankruptcy court.  So maybe a year later you might get your money back... or maybe just a portion of it depending on how the repayment proceedings go.

Now a credit card... all you have to do is contact your credit card company and voila.  You get a credit on your statement.  The credit card company now has to file in bankruptcy court to get their money back, but YOU don't have to worry about a thing.

Tax Rebate To Bolster Economy

Quickly, the tax rebate (if passed by Congress) looks to give up to $600 to singles, $1200 to couples and $300 to qualifying children assuming certain requirements are met.

1. If single and earned income greater than $75,000, every $1000 over subtracts $50 from your rebate


2. If married and earned income greater than $150,000, every $1000 over subtracts $50 from your rebate


3. If single and earned income greater than $3,000, you get the higher of $300 or the amount you owed in taxes (not to exceed $600)


4. Deductions like 401(k), Traditional IRA, Health Savings Accounts, etc. do not count to reduce your income for the rebate

Here is what I think you should do with the money:

1. Pay off credit card debt.  A $600 check will save approximately $90 in finance charges at 14.5% on the year.  For 17.99% and 21.99% that number jumps to $110 and $132 respectively.  A $1200 check will save approximately $175 in finance charges at 14.5%.


2. Save the money in a Roth IRA.  $600 growing in a 4% APY CD from now until you turn 59.5 (let's say 25 years) will be worth $1,600 which you get to take TAX FREE.  That same $600 in a mutual fund earning an average of 7% will be worth $3,250.  These numbers jump the earlier you start.  $600 earning 7% for 35 years instead grows to $6,400, more than 10 TIMES the original amount.


3. Save the money for down payment on a house allowing you to leverage tax deductions for home mortgage interest in the future


4. Take a trip.

I throw the last one in there because many people are guilty of not giving themselves a good break away from normal life.  I want to take more trips, and I spend far too much time at work as it is.  The memories from travel expeditions are often worth much more than the paltry sum spent on a reasonable vacation.

DO NOT BUY:

• iPod / iPhone


• Plasma/LCD/DLP TV


• Playstation 3/XBox 360 /Wii


• MacBook Air (or other non-basic computer)


• etc.

If you can afford these things with the money you've saved up for such luxuries (don't kid yourself - those things ARE luxuries) then fine.  Your tax rebate should be go to something useful in the long term.

Of course this legislation hasn't been passed yet, so we'll have to keep watching.

Disclaimer

What Isn’t

This blog is NOT financial advice. I am not a financial guru. I do not speak at seminars. I do not write books (yet). I am not a Certified Financial Planner (CFP) nor am I a Certified Public Accountant (CPA). I do not even have a business degree!

What Is

This blog is about MY money, usually focusing on how I spend less of it, how I invest it, and sometimes how I make more of it. This is that neighborly talk you have about money. Sometimes the advice is sound. Sometimes the advice is stupid. You judge that for yourself. What works for me may not work for you. This is an open discussion about my financial life and what I would do in certain situations. Agree or disagree, leave comments and I will respond to them or write further entries regarding them.

About Me

My name is Jason. I am 24 years old. I graduated with a Bachelor of Science in Computer Science, but I have an interest in money and things related to it. I am currently employed full time and single (from a financial standpoint). I want to know how to earn more of it, save more of it, protect it, invest it, avoid taxes, etc.

A Great Credit Card: The True Earnings Business Card from Costco and American Express

I applied for the TrueEarnings Business Card from Costco and American Express when I last wrote about credit cards.  Although extra work and responsibility has prevented me from writing here in a LONG time, it has given me the time to reflect on some things.  One of those things is what I think about this particular credit card.  I think it's a great one.  Here's why.

1. I love Costco and many things associated with being a Costco member.  One problem.  I don't have an American Express card, and now this is it!


2. This card is my Costco card and my American Express card.  That means one less thing in my wallet, and with all those club cards and such things, my wallet REALLY appreciates less cards.


3. This card gives me 1% off at Costco.  Most credit cards (including my Chase and Citi cards – useful at Sam's Club – do not offer their rebates when used at membership warehouses.


4. This card (unlike the non-business, personal version of the same card) gives me 5% cash back for gasoline purchases.  My Citi Dividend Platinum Select Cash card also gives my 5% back; however, 5% off Costco gas is quite the deal!  (Purchases must be less than 75 gallons and not at a warehouse club other than Costco, superstore, or grocery store).


5. This card gives me 3% back at restaurants.  My Citi Professional Cash card gives me the same 3% at restaurants, but unlike this card does not give me 3% back for fast food restaurants.  Score some extra money for using this AmEx card.


6. This card gives me 2% back for "traveling" (airlines, lodging, car rental, cruise line, travel agency, and tour operators).   I currently have no card that gives me bonuses for traveling so… yippie!  Since this is a Business card, you have access to OPEN by American Express which automatically gives you 3% to 25% off purchases at certain locations (see www.opensavings.com).   Notable, is the automatic 3% off Delta and JetBlue which is in addition to your 2% rebate.


7. There is no annual fee (not counting the $50 Costco membership which is obviously required).


8. Since I always pay off my card I'm not worried about the APR/APY, but it did come with a 3 month 0% introductory APY.

On the flip side, the reward is given annually (not the best I know) and only for use at Costco (which isn't a problem for me).  Additionally, since this is a business card it isn't hurting or helping your credit score.

How do you get a business card?  Simply put your own name as your business and your Social Security Number as your Tax ID number.  As a sole-proprietor you can own your own "business" in such a way that all your debts and profits for both your person and your business are one – under your name and SSN. 

Disclaimer

What Isn't

This blog is NOT financial advice.  I am not a financial guru.  I do not speak at seminars.  I do not write books (yet).  I am not a Certified Financial Planner (CFP) nor am I a Certified Public Accountant (CPA).  I do not even have a business degree! 

What Is

This blog is about MY money, usually focusing on how I spend less of it, how I invest it, and sometimes how I make more of it.  This is that neighborly talk you have about money.  Sometimes the advice is sound.  Sometimes the advice is stupid.  You judge that for yourself.  What works for me may not work for you.  This is an open discussion about my financial life and what I would do in certain situations.  Agree or disagree, leave comments and I will respond to them or write further entries regarding them.

About Me

My name is Jason.  I am 24 years old.  I graduated with a Bachelor of Science in Computer Science, but I have an interest in money and things related to it.  I am currently employed full time and single (from a financial standpoint).  I want to know how to earn more of it, save more of it, protect it, invest it, avoid taxes, etc.

When To Use Your Card

The simple and ideal answer would be “all the time.” Using a credit card for nearly all your every day purchases can be a great way to organize your finances and get some free rewards. However, it can become a huge disaster in the wrong hands.

Stop reading this article right now if you know you have poor impulse control. A credit card is not a blank check. You should only spend what you can afford, and always pay off your credit card every month. The government may be able to pass a budget with more spending than income, but if you try to follow their lead, you will find yourself in a world of hurt.

Protection is one of the strongest advantages of a credit card purchase. When you have a dispute with a seller you work with the credit card company. The credit card company will deal with working with the seller, and the company employs people to wrangle with fraudulent or unprofessional sellers. With debit, checks, or cash, the money is gone and unless you can twist the seller’s arm, a lawsuit becomes your only option for getting your money back. Consequently, all online purchases, auctions, marketplace sellers, or small business transactions should be charged.

Decreased liability risks prove to be another advantage of using a credit card. When giving your information over relatively unprotected channels (restaurants where the card is out of your sight, shared network connections, or computer systems you do not own) you should use a credit card. As stated in the previous article (The Dangers of Debit) your liability on a credit card is less risky than on a debit or check card. No one can steal your identity or funds if you use cash, but if you lose your wallet, the cash inside is hardly ever going to make its way back to you. For more security, many credit card companies offer virtual numbers for use online. Check with your credit issuer for such programs.

You can get free stuff when you pick the right cards. Using credit cards to rack up miles or get cash back will reap additional benefits for you.

The convenience of a credit card has become a much larger reason for using them. Nearly everything takes a credit card now. Many people like the convenience of carrying a card around instead of cash, travelers checks, or personal checks. Just like online banking, you will also receive statements summarizing your spending. Some companies can sort your statements by merchant categories to give you an idea of where your money goes, and some companies will send you quarterly and annual summary statements showing you your spending for the quarter or year. This information is extremely valuable to analyze your spending.

Bargaining may require you to trick with a credit card. Merchants pay a certain percentage of their sales to the credit card networks as fees for the service. Sometimes you can use this to your advantage. When paying with a credit card, ask for a discount if you pay cash. This usually works with smaller businesses that want to maximize profits. On average the processing fees cost the merchant around 2%.

The Dangers of Debit

The newfangled check cards are great. You can use them to get cash, as debit cards and get cash back, and at anywhere the credit network is accepted. However, these cards have one inherent danger: THEFT.

Before, debit cards were “protected” by your PIN (at 4 digits, its not GREAT… but it’s something). However, these newfangled check cards only require a PIN for debit transactions. Guess what thieves do then? They simply press the credit button. There goes money from your bank account. OH NO!

You see with a CREDIT CARD you are legally ultimately liable for a maximum $50 when your card is fraudulently used. If the thief spent $1000 before you reported the card stolen you can only be held liable for $50 (assuming your issuer even MAKES you pay the $50). Anything after you report the card stolen is handled by the issuer.

With a DEBIT CARD since the money comes directly out of your bank account, YOU ARE LIABLE FOR EVERYTHING SPENT UP TO WHEN YOU REPORT THE CARD MISSING. In other words – all the money in your checking account plus whatever overdraft fees may result. You can limit your liability to $500 by reporting the theft within 60 days of the mailing of your statement, and you can further limit your liability to $50 if you report the theft within 2 days.

If you are going to lose a card, let it be a credit card. This means…

1. Avoid carrying the check/debit card on your person


2. Always use CREDIT cards online rather than check/debit cards


3. Never let check/debit cards out of your personal sight (think restaurants)


4. Request a check/debit card not be issued


5. If you must get one, avoid activating check/debit cards you do not use

I Have Plenty Of Cards From Banks

Here is where things get a little crazy.

Credit cards versus debit cards. Both of these can issued by banks. Just because something LOOKS like a credit card no longer means it IS a credit card. By definition a credit card works on credit. The issuer pays for the things you charge on your promise to pay them back later. If you card deducts from a deposit amount or bank account, you do NOT have a credit card. This is a debit card.

ATM Cards. Long ago, ATM cards were all the rage. With these cards you could get money out of an ATM and that was it.

Debit Cards. Not long after that people wanted to the convenient ATM cards at other places. You could go to a store and have the money electronically debited from your bank account. At the store you would swipe your debit card at a POINT OF SALE (POS) terminal and enter your PIN to complete the transaction. You can think of this like an electronic check. This was the standard for a long time until…

Check Cards came along and made things more confusing. Your Check Card is an ATM card. It is also a debit card which works like a an electronic check with your PIN. Additionally it works like a credit card (press credit instead of debit). Anywhere the credit network you have is accepted so is your check card. By selecting the credit option you may not be charged the debit fees that used to be associated with debit cards, and you do not have to enter your PIN. Voila! Your purchase is paid for through the credit network, but it is not credit since the money is removed directly from your account. Hence the name check card.

Check cards do not build credit. You can have as many as you want from all the banks in the world, but you will not build credit at all. They are equally convenient, but you will not build credit at all.

In fact, in a future article, we will discuss how check cards are more DANGEROUS than credit cards.

To make things confusing, some banks that issue Check cards also issue Credit cards. Think of the major banks like Citi and Bank of America. Again note, that if your card takes money from an account immediately when you spend, this is not a credit card.

Get Your Own Credit Card NOW

You need a credit card. Now. And in your own name.

Why? You need to build credit. Did not the last article tell you that the longer you have credit to your name the better your score will be? Just make sure you do not rack up substantial debt and RUIN your credit.

Why now? Because the LONGER you have it… you know why.

The credit card HAS my name on it. But it STILL might not be yours. You must apply for your own credit under your own name and social security number. Just because your name is on the front of the card does not mean it is building credit for you.

The rules changed. Just a few months ago, having your name on a credit card meant you were building credit. No longer. If you are an authorized user on another person’s credit line, you are no longer boosting your own credit score. Some people were selling their good name literally. They were selling authorized accounts to people so those people could get credit. To stop this nonsense the rules changed, and authorized user accounts no longer benefit the authorized user.

I am an authorized user. This is good for you still, however. Since you built some credit in the past as an authorized user, you are not a new risk to credit issuers. By all means apply for a new credit line under your own name. This line may not have a credit limit high enough for you to survive, but fear not! You are still allowed to use your authorized card for most of your purchases.

Strategies. Keep your authorized user card for most purchases. Use your personal card here and there for little things. This way you maximize the difference between available credit and outstanding balance on your card. Use it every month, however, to show that you pay on time and begin to build a trend of doing so.

I have no credit. The good news is that this change in rule does not affect you. The bad news is now it will be much harder for you to begin to build credit. If you are a student go for a student card (more on this in a later article). If you have bad or no credit check out cards targeted for people like you (more on this in a later article). Of course you can still be added as an authorized user for emergencies or to make things work in your living conditions.

Raise Your Credit Score

Raise Your Credit Score
Credit scores are complicated things. Most everyone uses your FICO score generated by Fair Issac Co. The FICO score, however, is not the only risk score and the three major credit bureaus use different models combining various scoring models. This does not mean much except to explain why your scores from different agencies might be different.

Your FICO score takes into consideration many different things. Specifically your score breaks down into the following sections:

• Payment History 35%


• Amounts Owed 30%


• Length of Credit History 15%


• New Credit 10%


• Types of Credit in Use 10%

The quickest way to raise your score is to GET RID OF DEBT and PAY THINGS ON TIME.

Short of doing that, it’s just a waiting game. The longer you have your credit history (assuming you are paying on time) the better your score should be. The longer you have your credit accounts, the better off you are.

So what can you do to raise your score?

Avoid closing your credit cards unless you have to. Just lock the cards away in a safe and use that available credit to boost your score in the Amount Owed section. Avoid using the card, otherwise you might find yourself in debt. If you are tempted to use it then cut it up, and keep it in a safe place.

Along the same lines open up a few credit lines. Having too few credit lines can hurt your score since you do not have much credit available to you. It also limits the ability to track whether or not you can manage your debt and the number of opportunities to prove you can pay on time.

Negotiate for higher credit limits. Your credit score ignores the interest rates on your loans. If you do not need to negotiate lower rates to help you pay off a debt faster, then try to negotiate higher limits rather than lower rates.

Pay off debts intelligently. If you have two credit cards with $5000 debt each and a $15,000 limit you have $10,000 debt out of an available credit of $30,000. Let’s say that one card has a higher rate. While moving the debt to the lower rate card is smart you hurt your score if you close the higher rate card. You now have $10,000 debt out of available credit of $15,000. KEEP THE CARD OPEN but make DARN SURE you do not spend on it (cut it up and throw it in the safe).

Get smarter debt like an installment loan. Revolving loans are dangerous since you can always accrue more debt (see above if you do not cut up that card). An installment loan (personal loan, car loan, mortgage, etc.) is a set agreement and usually does not easily increase. Thus credit scores like to see this kind of debt rather than credit card debt. Get an installment loan for $5000 or $10,000 and reap the higher scores. Again, however, cut up those cards and do not spend more! By the way, your available credit increased.

Avoid opening lots of new credit. While diversifying yourself and getting more credit is good, avoid opening lots of credit all at once. Each application lowers your score some and suggests you will be a credit risk since you could potentially rack up substantial debt quickly.

Get a business card. I will talk more about how to get a business card in future articles, but a business card USUALLY does not go on your personal credit report. The $10,000 debt you have could be passed on to your business (even if you do not actually have a business – you do, you just do not know it).

For more information see: myFICO Understanding Your FICO Score Booklet (PDF file)

College Dos: Every College Student Should

Many finance options are limited to certain groups of students: athletic scholarships, academic scholarships, financial need grants, etc.  However, there every college student has a few smart moves that they can take advantage of to help them once they make it beyond the gates of academia.  Heck, some of these options even help WHILE your still in college.

TROLL FOR TEXTBOOKS.  My personal favorite way to save is to minimize the textbook hurt.  Sometimes literally.  Depending on your field of study, a majority of textbooks are huge hard cover behemoths that will place the hurt on your back as well as your wallet.  Check out aggregators like www.campusbooks.com to find competitive prices for your books.  They will nearly ALWAYS be cheaper than buying at your campus store.  For example Biology 7th Edition by Neil A. Campbell et al retails MSRP for $158.67.  Half.com by EBay offers used versions for $23.65 after shipping.  New text books can be had from Biblio.com for $59.10 after shipping.

INTERNATIONAL TEXT BOOKS.  International text books sell for much less than the United States.  The Supreme Court has ruled that the reimportation of these books does NOT violate copyright law (New York Times article “Students Find $100 Textbooks Cost $50, Purchased Overseas” by Tamar Lewin dtd 21 OCT 2003).  The same text book above retails new at Amazon.com for $124.34 but Amazon.co.uk sells the International Edition for £44.99 (90.78 USD at 1 GBP=2.01739 USD). 

Places that specialize in the importation and sale of International edition sell for considerably less.  TextbooksRUs.com sells the International edition for $70.53.  TextbooksRUs.com guarantees the book has the same pagination as the United States version or your money back.  Furthermore if you can read another language (especially one with compacted print like Chinese or Korean) you can find books in that language for even cheaper.  The pagination probably won’t match, however.

SHARE THOSE BOOKS.  Statistics show one in five students are not buying all the required text books.  I am guilty of this myself actually.  Sometimes you don’t need the book at all, and most of the time, you can get buy sharing books with your friends!

MINIMIZE THOSE FEES.  A whole new campus also probably means a new set of convenient banks.  Those convenient banks, however, are only worth your time if you can get access to your money without fees and minimum balances.  (You should not be paying these to begin with!)  If you cannot find a bank like this in your area check out online only banks like ING Direct (www.ingdirect.com) which has no fees or balance requirements and offers free withdrawals at more than 30,000 ATMs.

PICK PLASTIC IN ADVANCE.  If you’ve been on a college campus lately, you know that the only thing you see more of than iPods is credit card applications.  Students get bombarded with offer after offer for this and that credit card and it’s easy to leave college with not only a degree, but 15 credit cards and $20,000 in credit card debt!  Picking your plastic in advance will help you in so many ways!

First, apply for a credit card under your own name and not your parents.  It used to be that you could start building your credit as an authorized user of someone else’s card.  NO LONGER!  You need your own card under your own name to build your credit score.

Second, shop around for cards that give you things.  As a student you can probably only get cards with $500 or $1000 credit limits, but you can get these cards with other goodies.  Check out Citi’s mtvU credit card (www.citi.com) which rewards timely payments (up to 25 points month) and good grades (up to 2000 points per semester).  You get five points for every dollar charged at fast food, restaurants, bookstores, music stores, video stores, and movies and one point for every dollar spent elsewhere.  These points can be redeemed at the ThankYou Network (www.thankyounetwork.com) for gift cards to 50+ popular stores, cash, student loan rebates, statement credit, travel, etc.  You can also get more points by shopping through the ThankYou Network at places like Target, The Gap or 1-800-Flowers.  You can also get 25 more points a month by having a Checking, Savings and debit card (that you don’t even have to use by the way) with Citi Bank.  Note: Gift Cards and Student Loan Rebates give you the most back ($1 for every 100 points).

Third, remember how I said your credit limit is low?  What happens if you need to spend more than that in a month?  This is when you take advantage of your parent’s credit and carry an authorized user card on their account.  This way you can purchase that airfare home to visit and best of all hopefully do it such that you and your parents get benefits and/or free cash (parents consider getting a mileage card from Citi or Capital One to take advantage of your child’s – and your own – travel expenses.).

GET SOME SORT OF JOB.  I know that there are many things you would rather be doing than working, but getting a job will give you a HUGE head start.  I recommend a 10 to 20 hour job as a student assistant on campus as an easy way to do this.  First, not much is usually expected of you.  Sure it might be boring, but on the other hand you might have someone PAYING you to study when there’s not much to do.

Second, you have additional income to spend and save.  Try striking a deal with your parents to help you save some money.  For example, for every dollar you put into an IRA, they’ll put in a dollar or fifty cents or whatever.  Not only are you getting free money with this deal, you’re planning for your future which could (and probably will) take YEARS off your working life and allow you to RETIRE YOUNG!  The dollar you put into your ROTH IRA in college will probably turn into $15.34 by the time you retire and maybe even more*

Third, when you go into the job force a requirement job requirement might say Bachelor’s plus two years job experience.  Guess what?  YOU HAVE FOUR!  Sure it was at a nothing job.  Sure, you had very little responsibility.  But it’s still experience, and that counts.  Four years of job experience might also be the difference between starting at $35,000 a year and $40,000 a year.  That itself means you can contribute to your IRA with money you essentially would not have had.

READ MY BLOG.  I’m only halfway kidding here.  In all seriousness every college student should read websites or magazines that can tell you tons of ways to save money.  Just be sure to use your head to find out whether or not the technique or offer is illicit or not.

*Assumes you are 19 and put $2000 into a Roth IRA for four years while in college and then put in $4000 a year until you retire at age 62.  You will have put in $168,000.  Assuming 10% annual percent yield on your money your account balance at age 62 will be $2.5 million.

Quick Tips to Save MONEY, the environment, and your credit rating!

1. Need to find a phone number or get listings?  Call 1-800-GOOG-411 for FREE!  It's Google's no cost info line.


2. Buy a powerstrip for items that draw power all the time even when not used (TV/Cable/VCR or Microwave/Coffeemaker) and cut power on the strip when not using them.  You can save 10% of your electricity which could be a savings of $100 a year for some people.


3. Make the switch to CFL lightbulbs.  They use 75% less energy and last up to 10 times longer.  A six pack will run you about $20 but I recently picked up a bunch of 4 packs at Big Lots for $2.


4. Has it been a while since you've asked for an increase on your credit card's limit?  Applying for new credit lowers your score while having more credit open to you raises your score.  Increasing the limit on cards you already have boost your score without hurting it first.


5. Europeans have long known 10 euro or 10 pound flights, but Columbus, OH based SkyBus will be bringnig $10 fares (plus fees and taxes) to the US.  Every flight will have a minimum of 10 $10 seats.  All flights fly between some location and Columbus so from Burbank to Boston will cost you $20.  Hopefully this works out, but budget airline travel lacks a good track record.


6. Speaking of airlines, Yapta (Your Amazing Personal Travel Assistant) looks like just another price tracker for air fare.  But if you already bought your ticket you can enter your confirmation code and Yapta will tell you if that fare drops.  You have to buy your ticket from the airline directly for this to work, but if your fare does drop, you're entitled to a refund or travel credit for the difference.  Most airlines give you the travel credit.  As of now, this works on Alaska, America West, American, Continental, Delta, Northwest, Southwest, and US Airways.