Best Practices for Using Credit Cards

Credit Card Basics – Tips that Can Help

Guest post from The Simple Dollar.

Signing up for any one of the best credit cards is a piece of cake, but do you know how to optimize them? Unfortunately, figuring out how to use the features your credit card offers isn’t always easy. Many times, the terms and conditions of the most lucrative perks are buried in the terms and conditions. Meanwhile, the rewards programs can be difficult to decipher, and the points, hard to redeem.

If you want to get the most out of your credit cards, the first thing you should do is arm yourself with information. These tips and strategies can help you do just that:

Read your credit card’s terms and conditions

The easiest way to gain a full understanding of what your card has to offer is to read the terms and conditions front to back. Many times, a slew of interesting tidbits regarding your rewards program and perks will be hidden in there. And if you don’t read the terms, you may never know about them. The bottom line: Read your card’s terms and conditions, as well as any other applicable paperwork or information on their rewards program, if you want to fully understand all that your card has to offer.

Optimize card usage based on features

Let’s say you have a credit card that offers primary rental car coverage for free. Whenever that’s the case, you should always use that card for rental cars. Why? Because it offers coverage equal to, or better than, your own car insurance policy – and all for zero cost. Meanwhile, if you should happen to get into a wreck or take on damage, you wouldn’t even have to turn the claim into your own car insurance policy. This is just one example of how to optimize card usage based on features, but there are plenty of others. When you have more than one credit card, it often pays to use different cards for different purchases if they offer certain types of coverage you can benefit from.

Research your rewards program

I can’t tell you how many times I have heard someone complain that they had trouble redeeming their airline miles. The thing is, if they had done any type of research ahead of time, they would already know that airline miles are incredibly difficult to redeem, especially during peak travel times and within a few months of departure. This is where it pays to educate yourself. If you plan to sign up for a card that is tied to a specific program, such as an airline or hotel chain, you should first have an idea of what you would want to redeem your points for – and if it’s even possible. If you don’t want to be tied down to a specific rewards currency, you can also opt for a cash-back card, or a card that offers flexible rewards, such as the Chase Sapphire Preferred® card.

Report Unauthorized Charges Immediately

In a world where more and more purchases are being made online, it is actually quite common for thieves to get your credit card number and use it to make a “test” purchase to see if you’re watching. This has happened me several times. Even though I watch my credit card accounts closely, I have occasionally come across a charge I didn’t make. When that happens, you need to report it to your credit card issuer immediately. Call the number on the back of your card and tell them about the fraudulent purchase. You won’t be liable for a penny if you report it immediately, and your card issuer will rectify the situation by issuing you a new card with a new account number.

Keep a Folder for Travel Documentation

When you’re traveling within your own country or abroad, you should always use a card that offers trip cancellation/trip interruption insurance as a card member perk. However, if you need to file a claim, you will be much better off if you already have all of your travel documentation in one place. In most cases, filing a travel insurance claim is free and easy – you do, however, need to have all of your documentation ready. So keep a folder on hand, and use it to store every piece of documentation you come across as you prepare to travel. You never know when you will need to file a claim, and you may be asked to present things that are hard to replicate later – paperwork like your paper boarding pass, train ticket, hotel reservation e-mail, or flight cancellation notification.

Take Advantage of Your Free FICO Score

Certain cards, like the Discover it® card, offer a free FICO score as a perk for their members. This is a great benefit that is often overlooked. To get the most out of it, keep any eye on the fluctuations in your credit score as you receive it on your statement each month. Look for huge dips in your credit score, and if that happens, try to find out why. Meanwhile, if your credit score is slowly increasing, you can rest easy with that knowledge.

Don’t Be Afraid to Get Multiple Cards

A huge misconception in the world of credit cards is that it is bad for your credit to have more than one or two cards. Because a large percentage of your credit score is based on your balance-to-limit ratio, having a large credit limit spread over several cards and a zero balance can actually be better for your credit score than just having a few cards. Meanwhile, carrying more than one card can also help you leverage the different benefits and perks that different types of rewards cards have to offer. For example, you could get a hotel card for free hotel stays and a cash-back card to help you pay for the gas to get to your destination.

Check Your Credit Report Once Per Year

In order to get the most out of your credit cards, it is essential for your credit score to remain high. That’s why it’s important to check your full credit report at least once per year. Fortunately, you can get a free copy of your credit report from the three credit reporting agencies – Experian, Equifax, and TransUnion – once per year through the government-approved site, www.AnnualCreditReport.com. once you get your free copy, take some time to read through it and ensure that all information reported is correct. According to the Federal Trade Commission, you can dispute incorrect information found on your report with any of the three credit reporting agencies. The FTC offers information on how to dispute incorrect information on their website, and offers a sample letter you can use.

For more information on best practices for using credit cards, visit The Simple Dollar.

How to Balance Your Children’s Expectations and Financial Obligations During the Holidays

Financial Advice By: Carmen Rita Wong

Q: I’m going to be honest, the holidays are a scary time for me, financially.  I am a single mom with three children and I want to be able to give my children the best holiday possible and I definitely don’t want to disappoint them, but I also need to make sure that all of our bills are paid on time, too. I’ve read your post on using credit card rewards, but I have never owned a credit card and they are a little intimidating. Are there other ways that I can get more bang for my buck when it comes to holiday spending?  I know that you’re a mother yourself, so do you have any tips on how to balance the expectations of my children and still meet my financial obligations?

The holidays are a tough time for anyone on a tight budget. But, credit cards are not the way to go if you’re going to use them to spend money you don’t have. Credit card rewards are only worthwhile if you pay your bill in full and on time, before interest kicks in. If you carry a balance, those rewards go ‘poof’ in value!

This year, if you’ve got a small amount to stretch across those all of those kids, give them the best gift of all, the financial security of not going into debt to buy ‘stuff.’ That may seem like a hard concept to relate to your kids, but do not be afraid to let them know that Santa is on a tight budget this year so gifts will be limited– not because they’ve been ‘naughty,’ but because even Santa has a ceiling.

Of course, when shopping, you should max out tools such as price comparison sites and coupons. Some of my traditional favorites are PriceGrabber.com, RetailMeNot.com and FatWallet.com. And an app like RedLaser lets you scan barcodes and comparison shop right in the store.

But–and this is vital–I can tell you from nearly two decades of experience in this field that tools and sales are great, but by far the biggest way to save money over the holidays is to make sure that your limits are just that: limits. Set these amounts first, before you shop. For example, how much do you have for the holidays as a whole and then how much will go toward holiday travel, holiday gifts for non-family members or holiday cards? Then how much will you spend on yourself (we all tend to do this) and how much on each of your children?

Write this all down or do as I do, build a spreadsheet and enter the limits first. Then, as you shop and plan, enter what you’ve bought and how much you’ve spent. Take the list with you when you shop or have it on your cell phone so it’s always in hand and treat it like a contract with yourself– no violating it!

And next year, start saving for the holidays early. I usually start holiday planning when it comes to my budget as soon as school starts in September. You can even start putting aside money into a separate savings account with the start of the New Year.

We all want to make our children happy and give them a wonderful holiday season, but remember to keep yourself in good financial shape. This is one gift more valuable than anything Santa leaves under the tree.

Carmen Rita Wong is the President and Founder of Malecon Productions. She is the former co-creator and host of the only national, daily personal finance television show, On the Money, on CNBC. Carmen was also the co-founder and former President of an all-female financial planning firm and is currently Assistant Industry Professor of Finance and Risk Engineering at NYU Polytech.

The Most Important Lessons to Teach Your Child About Money!

Financial Advice By: Carmen Wong Ulrich

Q: My daughter is still quite young, but I want to make sure that when she’s older and ready to go off on her own that I will be able to send her off with a positive start to her financial future, so that she can be as independent as possible and can avoid some of the mistakes that I made.  What do you think are the most important lessons that I could teach my child about managing her money as she’s growing up?

My seven-year old daughter says loudly every time we shop for her, “Mom, what’s my budget?”  Onlookers twitter, but as you can imagine, it’s a proud moment.  No matter how old your child is, it’s never too late to begin.  Here are some solid to-do’s to teach your kids about money that will last a lifetime:

  • Limits:  As early as five years old, you can start a child with a budget.  For example, let’s say your daughter wants a toy and you say, “Your budget is $5.00.”  She then knows that she has to either find something close to that amount or two or more things that add up to that amount.  Knowing that money has limits—that you can’t just put a card into a machine and unlimited cash spits out—means that your daughter will be much more likely to respect limits when she grows up, such as avoiding the trap of overdrafts on her accounts or using too much credit. But the key here is you have to hold firm.
  • Earning and handling money:  This one is simple.  As soon as your child is old enough to make his or her bed, get dressed on her own, and do other small household chores, start them with an allowance.  Adjust to what fits your budget and child’s age.  Allowance isn’t just a way to make money to buy candy.  It’s a big and tangible way to teach that when you put in effort, you get a result—this result is your responsibility.  Start three piggy banks or boxes where you can put some of the money in one box, then a charity or church box to teach that you should give to those in need and, then, save money for something bigger down the road.  Which brings us to…
  • Delayed gratification, a.k.a. planning:  This one is a doozy and one that even many grown-ups fail at.  Part of your child’s allowance should go toward a goal.  Maybe it’s the ability to go to the arcade with friends or rent a movie on-demand.  Designate some spending as their responsibility.  For example, my daughter knows that any movie, show or app she wants comes out of her “bank.”  Recently, she spent all of her allowance on a movie rental then realized she had no money to play games at the arcade later that week.  She was very upset, but I held my ground and explained to her the need to plan for your money and use good judgment.  It wasn’t easy, but lesson learned.
  • No fear:  One last important lesson is to make sure that your kids are not afraid or ignorant of what it’s like to go to a bank or other financial institution and make a transaction.  Take your kids to the bank with you when you can, even if it’s just to sit in the lobby while you go over a few questions.  It’s important to see the role of banking in your lives.  And if you’re mostly an online-banker like I am, then show your daughter your cell phone bills, explaining charges, so she understands what bills are and just how much it costs to have cell service or other comforts such as cable.  Our kids should not fear bills or banks.  No fear means they can approach their money positively and with the confidence to manage what life has in store.

Carmen Wong Ulrich is a personal finance expert and author of “The Real Cost of Living.”

Alexa Von Tobel’s “Financially Fearless”

Let’s be honest.  We’ve all had a time when we’ve been guilty of trying to “keep up with the Jones.” And if you find that competing with Ms. Jones is more than just rare occasion, we have just what the doctor ordered—or in this case, just what the financial planner ordered! Financial planning is one of those concepts that we sometimes put on the back-burner in order to take care of our day-to-day responsibilities.  Alexa von Tobel, chief executive officer of personal finance website, LearnVest, struggled severely with this reality. As a certified financial planner and graduate of Harvard University, Alexa found that even after working a few years on Wall Street, she still didn’t know the basics of this important life skill.  Luckily, she turned her challenges into what could be major triumphs for you! Now at 30, she shares her answers and experiences in her book Financially Fearless.

Unlike most financial planning books, Financially Fearless is not only digestible, it’s also relatable. Alexa writes from a holistic view, but provides practical and engaging information that speaks to situations unique to a woman. Although the gap is slowing closing, women on average still make 77 cents to a man’s dollar and are not typically the target audience when it comes to managing finances and wealth. Alexa’s book changes this.

In a candid, but dignified voice, Alexa discusses how to build circumstances such as maternity leave, childcare costs, grad school and caring for aging parents into your long-term financial plan. Despite its playful chapter titles like “Therapy Sesh,” Alexa writes under the empowering assumption that women have careers, not sugar daddies.

Financially Fearless is meant to break down the barriers of intimidation surrounding finance with flexible, but effective methods based on Alexa’s core 50/30/20 philosophy. Her budget structures the division of your monthly pay into using 50 percent for essentials, putting 20 percent in savings and the other 30 percent is reserved for “happiness.” The plan is weaved into witty, easy-to-read steps, laced with narratives called “Money Mics” that provide real-life scenarios for inspiration. Graphs, charts and even worksheets are also spliced throughout the book so that you’re not just passively reading, but physically crafting a future plan.

All of Alexa’s advice is practical and adaptable to various lifestyles, such as how to choose the correct health insurance plan to fit your needs and budget. She even has a section that analyses the economics of packing a lunch. She shares the surprising brown bagging stats: brining your lunch to work four days a week saves on average $1,248 per year. Her quick tips let you weigh your “cost per happy,” as she calls it, helping readers cut out the frivolous extra cocktails or clothes that provide a short lived happiness return. A modern guide, Financially Fearless, takes the anxiety out of future planning and puts you on the path to financial freedom!

Want to win a copy of Financially Fearless? Tweet us your top money-saving tips at @dressforsuccess and we’ll pick three winters at the end of the month to receive a copy of Alexa’s book!

Choosing the Right Health Insurance

Financial Advice By: Carmen Wong Ulrich

Q: Whenever I have a job that offers health insurance, I definitely make sure to take it, but I have to admit that I don’t always understand what is actually being offered, I just know that health insurance is something that everyone needs to have.  Now that “Obamacare” recently launched, I’m just even more confused!  Is there a way that I can tell if I am getting the best coverage for the money that I’m paying with all of these different options now available?

No matter what age you are or even how healthy you are, life happens: accidents happen, illness happens.  Health insurance protects you from paying much—much—more out of pocket for health and medical needs than if you didn’t have insurance coverage.

Some employers offer health coverage as part of your benefits package, which can also include other benefits, such as 401k plans or disability insurance.  And coverage through your employer will most likely cost less than coverage you can buy on your own because employers are able to get lower rates as they pool together large groups of people.  The government now offers coverage (with uninsured Americans as their ‘pool’ of people) through Healthcare.gov though it still is most likely more expensive and restrictive than what you can get through an employer.

So, if your employer offers coverage, it’s a valuable benefit to sign up for and it’s usually through one overall provider who then offers various tiers of service.  Usually the tiers are split between:  1) the size of the deductible, 2) the ability to choose doctors/hospitals, 3) how much of the bill they’ll pay for you.

Essentially, the lower the deductible (say $2,000 vs. $5,000), plus the more choice you’d like to have with your network of doctors and providers and the more you’d like the insurer to pick up the bill (say 100% or 90% vs. 60%), the more you’ll pay monthly for coverage.  These choices make sense for someone who goes to the doctor often—for example, a pregnant mother with full family coverage—rather than a young, healthy, single adult who can afford to risk a much higher deductible and fewer choices for providers.

So when you’re shopping around with your employer’s coverage, think about what’s most important for you and do not be shy or lazy about scheduling time to talk to the plan administrators to answer your questions—they are there to help you.  And if you have to shop on your own at Healthcare.gov, anticipate spending some time with the sign-up process, but know that a couple of hours online or some minutes on the phone with someone to help you through the sign-up process can mean the difference between paying $250 a month, just in case, or tens of thousands of dollars should you not have coverage at all and you need medical care.

Consider health coverage as a protection of your finances now, as well as your plans for the future.  After all, health is wealth!

 

Carmen Wong Ulrich is a personal finance expert and author of “The Real Cost of Living.”

How to Start Saving Today!

 

Financial Advice By: Carmen Wong Ulrich

Q: I just got hired at my new job about two months ago and I want to make sure I’m not only spending my money wisely but saving it wisely as well. I haven’t had a steady income for awhile though, so I’m not exactly sure how to create a budget that’s right for me. I want to make sure that I have enough money saved up in case I become unemployed again. Is there a standard percentage of my income that I should be tucking away? If so, how much? When should I start and where should I put my money?

Congratulations on the new job!  It’s great to have some steady income, but you’re right to start saving up money right away just in case you find yourself between jobs again.  Some folks talk about a ‘standard’ goal of saving 10% of your income, but that’s simply a goal.  The amount you should save depends on your living situation and if you have any other demands on your money such as high interest debt– which should get paid off ASAP!

What you can aim for first with an emergency fund is a total goal of saving up three to six months’ worth of living expenses.  If you’re a homeowner and support children, you can keep on truckin’ to even nine months or a year’s worth of savings.  Once you have that total number in hand, crunch your monthly expenses vs. your monthly income to see just how much you can put away to reach your savings goal as quickly as possible.  Let’s say you make $2,000 a month after taxes and your monthly expenses are $1,800 a month.  For three months worth of living expenses, your goal would be to have $5,400 in emergency savings.  If you can take $200 each month and put it toward that goal, you’ll be all set in a little over two years.

Don’t get discouraged by the long time it may take you to save what you need!  Dedication is key.  To help, set up an automated savings deposit so that $200 is taken out right away from your paycheck deposit each month so you’re not tempted to spend it.  And don’t worry about wanting to earn any money on these savings by investing it, for example.  You need to protect this money so it can protect you.   That means looking for an interest-bearing savings account or money market account where you can at least earn a little interest (say 1%) but not risk money at all.  Shop around for free for these accounts at www.Bankrate.com or if you can use a credit union at www.NCUA.org.  Happy savings!

Carmen Wong Ulrich is the co-Founder and former President of ALTA Wealth Management and a Professor in NYU PolyTech‘s school of Finance and Risk Engineering. She is an author and the former host and co-creator of CNBC‘s “On the Money,” and currently the money advice columnist for Good Housekeeping, a contributor to MSNBC and CNN as well as a frequent expert guest on ABC’s “The View.

Make Quick Money on the Smartest Investment of All – Yourself!

Financial Advice By: Carmen Wong Ulrich

Q: I’m down to my last month in savings, and I need to make money fast! I’m having a hard time finding employment, but I heard that you can make money just by investing money. Should I invest my money to try to make a quick profit before next month? If so, where can I find the best investments with the fastest returns?

A: You know that old saying, “Too good to be true”?  Well, imagine if what you said was true.  Imagine if you could just invest some money and then make money, every time, in a short time.  Well, we’d all be rich! 

The truth is that investing means one thing:  No guarantees.  Why?  Because to invest money means to take on risk—the risk of losing money, sometimes, a whole lot or even all of it.  There is no guaranteed quick-money-making investment.  Not one.  Yes, some folks—few folks!—get very, very lucky and make a return on an investment over a couple of months or years.  But, certainly not weeks, which sounds like your time frame.

In your situation, you need the opposite of risk.  You need a guarantee.  You need income, real income, and quickly.  The only way to do that is to earn it.  But, you don’t necessarily need to earn it the usual way.  You can try legitimate sites on the web with hourly work such as TaskRabbit.com, where you can hire yourself out based on your skills such as running errands, putting together furniture, housekeeping or data entry.  Also, try your local message boards.  Yahoo message boards exist for thousands of neighborhoods around the country and AOL has the Patch network.  Sign up and scan listings for local jobs. 

And in the meantime, spend some time on your biggest investment—YOU.  Never stop reading or learning or building your network of friends and contacts.  Ask folks you admire for help with a solid career-growth plan.  Every person you meet and impress builds a framework to ensure your hard times of finding employment end up in your rear view mirror.  Now that’s an investment!

Carmen Wong Ulrich is the co-Founder and former President of ALTA Wealth Management and a Professor in NYU PolyTech‘s school of Finance and Risk Engineering. She is an author and the former host and co-creator of CNBC‘s “On the Money,” and currently the money advice columnist for Good Housekeeping, a contributor to MSNBC and CNN as well as a frequent expert guest on ABC’s “The View.

Marriage: Joint Lives and Joint Bank Accounts

Financial Advice By: Carmen Wong Ulrich

Q: I’m getting married in less than two months, and I have no idea what I’m doing when it comes to joining my finances with my future husband’s! Where do I even start? My fiancé and I have barely talked about money since we got engaged! Help!

A:  I wish you’d asked this question after your third date!  When it comes to money and love, it’s rarely too early to start even some discussion.  But it’s also never too late.

Start by pulling all your financial-facts together:  How much debt do you have and in what form?  What kind of savings do you have as well as any other assets?  What state is your credit record in?  Both of you should make this a starting point—the facts.  By being upfront, especially about debts, you can both avoid surprises down the road, say, when you buy a home together.

This is just a jump-off point.  From there, start talking about assumptions and expectations about household expenses such as who-pays-for-what.  Set up a system that you both can agree on, for example, maintaining one household checking account that you both contribute to in order to pay joint bills such as rent or the mortgage.  And just as importantly, discuss your financial goals:  Do you want to start up a joint annual vacation fund?  Or save up for a home or kids’ college education?

Come to the table with an attitude of partnership, not confrontation.  After all, if you’re partners in life and in love, you should also be partners in money.

Carmen Wong Ulrich is the co-Founder and former President of ALTA Wealth Management and a Professor in NYU PolyTech‘s school of Finance and Risk Engineering. She is an author and the former host and co-creator of CNBC‘s “On the Money,” and currently the money advice columnist for Good Housekeeping, a contributor to MSNBC and CNN as well as a frequent expert guest on ABC’s “The View.

Cashing Out Your 401K

Financial Advice By: Carmen Wong Ulrich

Q: I know that 401-Ks are supposed to be for retirement, but I could REALLY use that money today. Can you please explain the fees/taxes that are associated with liquidating your 401-K and are there any exceptions in the laws that would allow me to use my unemployment status to avoid them?

A:  I realize you may just need access to those funds to, for example, stay in your home.  Of course, I’d rather you not touch that money—it’s your future.  And if you simply cash-out a 401k or other retirement account, you can get hit not only with taxes, but severe penalties that can wipe out 40% or more of your balance.  If you need it that badly, get to it the right way—by applying for a hardship withdrawal.  This kind of formal withdrawal allows you access to the funds in your 401k, but without the penalties, only the taxes.  For more information on hardship withdrawals, you can read all about it on the IRS website!   Good luck!

About the writer: Carmen Wong Ulrich is the co-Founder and former President of ALTA Wealth Management and a Professor in NYU PolyTech‘s school of Finance and Risk Engineering. She is an author and the former host and co-creator of CNBC‘s “On the Money,” and currently the money advice columnist for Good Housekeeping, a contributor to MSNBC and CNN as well as a frequent expert guest on ABC’s “The View.