Free Money Finance

Credit Card Solicitations: The Answer

Yesterday I promised to tell you how many credit card solicitations I received in May.  After all, part of the problem with credit cards is that the companies marketing them are constantly bombarding the population with offer after offer.

Now for the results.

In May I received 21 credit card solicitations.  Yes, that many.  No one guessed the right number, though Common Cents did guess 19.

If I receive as many credit card solicitations every other month of the year, that means I'll get 252 solicitations in the mail this year for credit cards.  When you add in TV commercials, magazine ads, emails, banner ads, and the like, it's hard telling how many offers I get in a year.  Certainly hundreds, maybe thousands. 

I have lots of willpower (I only have two cards), but what about others that can't resist credit? Do they even stand a chance against this assault?

So what should we all do about this problem?  Get off as many mailing lists as possible.  Our postmen and our net worth statements will both thank us.

I Get Sooooo Many Credit Card Solicitations

I'd like to share some very interesting information today from my personal experience.

We all know the dangers of debt.  (If you don't, read this post.) And some of the worst and most abused debt is credit card debt. 

Now don't get me wrong.  I'm not anti-credit cards to the extent Dave Ramsey is. I've had a credit card for almost 20 years now and have NEVER paid one cent in interest. But I do know that many people can't manage credit cards properly.  And the credit card companies don't make it easy as they constantly bombard all of us with offer after offer.

I'll talk about our responsibilities with credit cards in a later post.  For now, I wanted to think about the role of the credit card companies.  Just how aggressive are they?

So I did a little experiment.  I counted the number of credit card solicitations that I received in the mail for one month (May, 2005). I thought I had been receiving a good number every month, but even I was surprised at the number. Want to guess how many? 

I'll tell you tomorrow. :-)

Just to make things fun, make a guess in the comments section below. If you guess correctly, I'll note it in my post tomorrow along with a link to your blog.  (Only one guess per person please.)

Update: Time to post to the Beltway Traffic Jam!

Get Out of Debt, Part 2

In the last post on how to get out of debt, we ended by saying we'd next be discussing some practical ways of cutting your expenses with the goal of using those savings to reduce debt.  As promised, here are a few ideas:

• Look at what you could do without. Involve everyone in the family to “sacrifice” something to get the family debt-free.  Perhaps eliminate the expensive vacation this year, limit children’s camps or activities for a season, and make simple presents instead of buying them.  Work as a team to conquer the “debt monster” and build family unity instead of resentment.
• Cancel your cable. Turn off the TV and spend some time enjoying your family, friends, and the beauty of the world around you.  You’ll be surprised how much more time you have.  At $30 per month (at least!), this tip will net you $360 each year.
• Take your lunch and snacks to work.  You’ll save $2-3 every day on lunch and a dollar or so on snacks.  That adds up to $500 to $1,000 each year!
• Stop smoking.  In addition to the health benefits and lower insurance premiums, you’ll easily save over $1,000 per year kicking a one pack a day habit.
• Reduce “small” spending.  Limit the hundreds of little purchases you make – candy bars, coffee, gum, lunches out, whatever.  Instead set a weekly allowance for such extras.  Saving $2 a day on snack breaks at work yields $500 a year.   
• Cut energy costs. Fans can reduce perceived air temperature by 10 degrees at one-tenth the cost of air-conditioning.  In winter, reversible ceiling fans help heat your house by gently pushing warmer air lower to the living area.  Inspect your home for leaks around windows, doors, pipes, ducts, electrical outlets, and vents that go through walls.  Simply caulking and weather-stripping can cut your bills up to 10%.  Close doors and vents in unused rooms.  Set your thermostat as high as possible in summer and as low as comfortable in winter.  Just a few degrees shift can save significant costs.   
• Reduce insurance expenses.  Shop around for coverage on life, health, car, and homeowner’s to save hundreds of dollars.  Consider raising your deductibles to save 15 to 30 percent on your insurance payments. Review your coverage annually to check rates, applicable discounts, and adequate coverage.   
• Be a savvy shopper. Avoid impulse buying.  If you see something you want, put it on your “wish list”.  If you still want it after two weeks, save when purchasing it by asking for discounts. Most stores mark prices up significantly, giving them plenty of room to lower prices and still make a profit.  Arrive armed with competitive prices from other stores or the Internet.  For best results, offer to buy an item in cash for lower than list price.  The powerful sight of five $100 bills for that $750 couch will be hard for many managers to refuse.
• Eat well and save.  One evening out at even an average priced restaurant can equal half a week’s grocery spending (not including the cost of the babysitter!).  Limit eating out to promotional specials and two-for-one deals.  Bag your lunch and snacks at work and eliminate expensive junk food. At home, cook from scratch as often as possible.  This can be up to six times cheaper than buying a mix, frozen meal or eating out, and is usually more nutritious.
• Buy used - Garage sales, flea markets, consignment sales and thrift stores are treasure chests for discovering great buys for pennies on the dollar.  Dave Ramsey, best-selling author of Financial Peace, regularly buys mint-condition men’s suits at thrift stores for $35 each – much less than their retail value of $500 to $800!

There’s no mystery to getting out of debt.  It comes down to disciplining yourself to spend less money than you make on a consistent, long-term basis.  The above are only a few examples.  Brainstorm with your family about all the potential ways you can save and then make a plan to do them!

Get Out of Debt, Part 1

Debt is smothering Americans.  According to the Federal Reserve, Americans carry an average credit card debt of $8,000.  The average household owes $69,227 for their mortgage and $19,000 in consumer debt (a 41% increase since 1998).  In addition, personal bankruptcies have doubled in the past decade.  Americans are truly living beyond their means to repay and it’s showing up in the form of troubled marriages, increased medical problems, and stressed-out lives.

Getting free of the debt monster’s grasp is the heart of Principle 3.  It will take some time and discipline, but everyone can take responsibility for their finances and live debt-free. This article will show you how.

Two Options

There are really only two sources to obtain the extra cash needed to reduce or eliminate debt: spending less from your current income to create a surplus (Principle 2); and finding creative ways to bring in more income to apply towards the debt (Principle 1). (See my previous post for some creative ways to create cash.)

Looking at Cash Flow

Before you can count on your cash flow to generate any cash, you need to know where you stand. This requires you to make a budget.  It doesn’t need to be complicated – even a simple listing of what you make versus what you spend each month can be surprisingly valuable.  We'll talk more about the b-word in a later post.  For now, here's a short primer.

On one page, list all the money you receive monthly (or monthly average if you’re income varies) to determine your “Monthly Gross Income”.  Subtract from this your taxes and automatic deductions (insurance, retirement, etc.) to get your “Net Income”. 

Next list all your monthly expenses – housing, utilities, food, transportation, clothing, medical, insurance, debts, entertainment, savings, charitable giving, and miscellaneous.  Record your average spending in each of these categories by reviewing your checkbook, bank statements, and receipts over the past three months. Remember to include things requiring annual payments, like insurance, additional taxes, or subscriptions.  Finally, track your cash spending for 30 days, adding every unaccounted-for penny to the proper category.  When finished, subtract your expenses from your Net Income to (hopefully) get a positive number.

If you find your monthly expenses are greater than your income, you’re not alone.  According to MSN MoneyCentral, 43% of American families spend more than they earn each year.  But never fear, you can get back to even – and even better – by evaluating your budget and taking some reasonable steps.  We'll discuss some practical ways of doing this in part two.

Eight Unusual Ways to Create Cash

If you've been reading this blog for any amount of time, you know that Principle 1 is to maximize income from all sources and Principle 2 is to minimize expenses.  But these are easier said than done.  After all, everyone would have more money if it was that easy to make more or spend less, right?

O.k., I'll give you that making more might be a bit tough, but it's also not impossible.  And spending less is relatively easy if you approach it with the right attitude and commitment.  In fact, here are eight ways you can create extra cash that you may not have considered -- some simple steps to help you uncover hundreds of dollars you probably already have!

Discover Antiques

PBS’ popular Antiques Roadshow has demonstrated that many people unknowingly have valuable antiques in their homes.  For instance, one woman discovered the “worthless” vase given by a friend was actually a rare piece worth $12,000.  Scour your closets, attic, and basement and take items you suspect are valuable to an expert for appraisal.

Or if you enjoy searching for treasure, hunt for antiques at garage sales, flea markets, and consignment stores.  An avid cookie jar collector, Tiana Brown of Jasper, Georgia recommends the following for new collectors: “Start off slow and small, and pick an area of antiques/collectibles that captures your fancy. Browse as many antique stores as possible to get an idea of where you would like to start, and what resale price range you can expect on your specialty.  Keeping in mind a small percentage for resale profit, set a limit of what you will bid for an item.”  For tips on how to find and buy antiques, check out the Antiques Roadshow section of www.pbs.org or read Buying and Selling Antiques: A Dealer Shows How to Get into the Business.  You may find something priceless!

Use Only Cash

It seems impossible to exclusively use cash in today’s credit-oriented world, but those who do “create” significant cash.  How? By spending dramatically less. Ron Blue, author of Master Your Money, notes that the mere use of credit cards causes a family to spend 34 percent more even if the statement is paid off monthly.  Author Nancy Dunnan agrees in Never Call Your Broker on Monday by noting, “People like your parents or grandparents actually went through life using checks or cash.  It worked then and it works now.  Do the same and you’ll wind up spending 20% to 45% less.”

So use cash and reap a windfall. Imagine how spending one-third less could impact your family finances!

Practice Self-Control

One of the greatest ways to save money is to avoid impulse buying.  Establish a rule that if you see something you want, you’ll wait at least two days before purchasing it.  If you still feel you need it, then buy it.  In most cases, the desire to have that item will be gone, and you'll have avoided an unnecessary purchase. 

Financial counselor Larry Burkett recommends a similar plan in Your Finances in Changing Times.  Larry comments he experienced dramatic results when he initiated a delayed purchase plan for tools (his weakness): “I continued that plan for over six months without purchasing a single item on my chart.  The reason was obvious: once I left the store, the impulse passed.”

Eliminate Debt

(yes, even Principle 3 is in this post)

Paying off a credit card charging 17% annual interest is equivalent to investing money with a before tax, guaranteed return of almost 20% -- a rate any investor would love. According to debtguru.com, the average amount of credit card debt in households with more than one card is now more than $8,000. That’s 167% more than the $3,000 average for households in 1990.  Eliminating this debt would save almost $1,400 per year!  If you need help getting out of debt, call the nonprofit National Foundation for Consumer Credit at 800-388-2227.

One way to lower debt easily is to refinance your mortgage.  By lowering your rate only 1 ½%, you’ll save over $64 a month over 15 years on a $75,000 mortgage (a total savings of almost $11,600!).  Many banks are so hungry for customers that they’ll forego the closing costs you’d normally pay.  (Your current bank may be willing to decrease your rate just to keep your business.)  But even if you pay these costs, it makes sense to refinance if you will own your house long enough to re-coup the expenses. 

Maintain Your Stuff

One way to create cash is to avoid major expenses.  Regularly maintaining the high-cost items you own can significantly increase their lives. This means servicing your car regularly, having the furnace and lawn mower cleaned seasonally, and vacuuming refrigerator coils monthly. Check owner’s manuals for maintenance specifics.  Maintaining your possessions can keep them running more efficiently and lasting longer saving thousands over the years on utilities, repair bills, and, of course, replacement costs.

Jodi Doyle (formerly) of St. Petersburg, Florida has reaped the benefits from this practice.  "My last refrigerator and washing machine each survived 20 years and a move to Europe because I took care of them regularly,” she comments with pride.  “It took some extra time and effort, but I even performed preventative maintenance.  And the appliances repaid me by lasting much longer than I expected.”

Get Money That’s Owed to You

Believe it or not, there are billions of unclaimed dollars in America.  They are held by federal and state governments as well as private companies in the form of pensions, bonds, taxes, real estate, and savings accounts.  These items have been forgotten, abandoned, or belong to unsuspecting heirs of someone deceased.  In Assets Unknown: How to Find Money You Didn’t Know You Had, David Folsom outlines the process people should follow to find assets owed to them.   Folsom notes that discovering these assets is easier than you’d think.  In addition to his book, he says a seeker simply has to use “her telephone, some stationery, and a little common sense.”

Folsom claims several success stories such as the retired school nurse who found $5,000 in retirement funds due her nineteen years after she left the job. Uncover any hidden assets you’re due by following Folsom’s advice or checking out www.unclaimedassets.com. 

Get Freebies and Coupons from Companies

Many companies will give you products just for asking because they want you to try their brand.  To find a list of freebies, call for Freebies magazine at 805-566-1225 or search under “freebies” at www.google.com.

Or if you’re more of a “show me the money” kind of person, simply ask companies for coupons. Getting coupons on products you always buy is money in the bank.  Check out the internet (www.valupage.com) or contact a company directly for coupons.  Sandi Johnson of Bloomfield, Iowa regularly writes companies and compliments their products.  She has received free products, coupons, and other offers for a small time investment.

Asking for Discounts on Purchases

Many retailers are willing to sell an item for less than the listed price, but most consumers don’t think of asking.  With mark-ups of 20-100%, stores have plenty of room to lower prices and still make money.  So ask.  Also, be knowledgeable.  Come armed with competitive prices from other stores or the internet.  And if you’re not satisfied, use the greatest power you have -- walk away.

One effective technique is to offer cash when negotiating.  Nancy Dunnan points out that “retailers, restaurants, and hotels pay 2% to 5% to the credit card company when you use your card.  If you pay cash, bargain for a discount.” But 2% to 5% is just a start. There’s something magical about cash that just makes people want it.  The powerful sight of five $100 bills for that $750 couch will be hard for many managers to refuse.

Dave Ramsey, best-selling author of Financial Peace, wholeheartedly recommends bargaining with cash.  And so he should.  Ramsey bought his three-year-old van for $4,000 below wholesale book value simply by “laying out sixty $100 bills in front of the seller.”  As Ramsey placed the last bill down, the seller scooped them up and said they had a deal.  Kelly Talcott from Nashville, Tennessee offered $350 cash for a $500 mattress.  The combination of a slow sales season for bedding (the holidays) and the offer of cash was enough for the salesman to accept immediately.  Talcott then got him to throw in bed rails and delivery for free.

These are just a few unique ways you can create cash.  Use them to give your family that extra cash you need.

Update: Check out Outside the Beltway.  I'm part of the Traffic Jam!!!

Principle 3: Getting Out of Debt

Not only do Americans have a hard time keeping expenses in line (Principle 2), but they go one step further, not only spending all they make, but spending more than they make.  Consider these facts from Debtguru.com:

• The majority of consumer borrowing, about 63%, is represented by so-called "non-revolving" debt such as automobile loans. But "revolving" credit, which most typically involves credit cards, is an increasingly significant part of the equation. Revolving debt currently totals $735.3 billion; that's about 31% higher than it was only five years ago. The figure has more than doubled in a decade.
• The average amount of credit card debt in households with more than one card is now more than $8,000, according to CardWeb.com. That’s 167% more than the $3,000 average for households in 1990.
• The most unsettling aspect of all these credit card transactions is that many Americans don’t see their income as a spending cap. About 43% of U.S. families spend more than they earn, according to a Federal Reserve study. And on average, Americans spend $1.22 for every dollar they earn, according to Myvesta.org.
• Personal bankruptcies have doubled in the past decade.
• American consumers owed a grand total of $1.9773 trillion in October 2003, according to the latest statistics on consumer credit from the Federal Reserve. That’s about $18,654 per household, a figure that doesn’t include mortgage debt. The number is up more than 41% from the $1.3999 trillion consumers owed in 1998.
• The number of personal bankruptcy filings in the fiscal year ended Sept. 30, 2003, rose 7.8% from the same period in 2002, reaching 1,625,813, according to the American Bankruptcy Institute (ABI). That’s twice the number of people filing for personal bankruptcy protection in 1993.
• The amount of debt as a percentage of personal income tends to track bankruptcy filings, the ABI said. And the amount of debt payments as percentage of income has steadily increased in the last 10 years, according to the Federal Reserve.

Unfortunately, I could go on and on.  The situation is very bad.  That's why Principle 3 is:

Control liabilities – eliminate liabilities and limit or eliminate borrowing of any kind

We must eliminate liabilities and limit or eliminate borrowing of any kind.  In short, we need to get and stay out of debt.  This includes all kinds of debt. 

Nasty credit card debt, hurtful debt, depreciating assets (can you spell c-a-r?), and on and on.  As we talk about Principle 3 over the next months, we'll give some handy tips for dealing with debt.

Click here to read about Principle 4.