As featured in The Wall Street Journal, Money Magazine, and more!

July 2007

Everybody Lies. That’s the mantra from House, a simple but entertaining television show, whose premises are strangely applicable to personal finance. Recently, Liz Pulliam Weston evaluated a survey about consumer credit card debt that used a mistaken assumption to create misleading data about average household debt.

When a survey says 90% of Americans are either liars or in denial about how much they owe on credit cards, you can bet it’s the surveyors who are the delusional ones. In June, CreditCards.com released a GfK Roper poll that purported to detail Americans’ relationships with credit cards. The survey contained plenty of interesting tidbits, but the poll takers went aground when they tried asking how the respondents’ credit card debts compared to the national average.

deviationThe survey started with the assumption that the average household owes $9,300. The surveyors then proceeded to ask respondents if they had less than $9,300 in credit card debt. When the good majority responded that they do in fact have less than that amount, the survey concluded that Americans are in denial or simply lying.

The problem is the $9,300 figure comes from a faulty or misunderstood study from CardWeb.com, which among other things, considers businesses in their end-of-the-year credit tally.

Well, for one, it’s irritating seeing a lie quoted in so many news stories, speeches and blog entries about credit card debt. Our national discussions about consumer indebtedness and bankruptcy are being distorted by the idea that we’re waddling around with four- and five-figure credit card debts.

The myth also gives false comfort to folks who think they’re “average” for having credit card debt, when they’re actually charging down the road to financial ruin. (Those folks are also the ones I’ll hear from after this column is published, by the way. Their arguments usually boil down to “I have credit card debt, so the myth must be true.”)

But mostly, the myth reflects badly on Americans. Most of us tell the truth, most of us aren’t in denial, and most of us aren’t nearly as stupid as some pollsters would like to think.

Liz also writes about how an “average” (mean) figure in populations with a high standard deviation can be relatively meaningless. If three three-year-old cousins spend the afternoon with their 85-year-old grandpa, you could say the average age of the four individuals is 23.5, but the number 23.5 is not representative of the four individuals in any way that’s relevant. It might be better to take Grandpa out of the calculation and focus on the average age of the children. Similarly, the CardWeb statistics include the year-end balances for those who pay their bill off every month. These are individuals who don’t carry credit, so they should not be included in the sample.

It’s very easy to simply trust numbers that are published in conjunction with a survey or scientific study, but that easily leads to misunderstandings. Misinformation can be distributed as easily as information throughout the world and applied to other data, as CreditCards.com did with this particular survey.

Now, here’s a question. Should people who play the 0% APR arbitrage game be included in statistics for credit card debt? They do hold the debt, but the debt was not obtained from a normal consumer action, like purchasing goods or services.

Photo: dan taylor


It pays to pay attention to letters from your banks and brokerages. If you don’t you could end up owing money to the government.

The Keogh Plan is a popular alternative to a traditional pension for individuals who are self-employed. It’s a tax-deferred retirement plan in which contributions are tax-deductible and mandatory distributions begin at age 70 years and 6 months. It was a popular option in the 1980s and 1990s, coinciding with a growth in 401(k) plans, although legislation established Keogh Plans in 1963.

In 2001, Congress enacted a law that changed laws pertaining to Keogh Plans. This change necessitated updates to account paperwork to be handled by participants, but many account holders were either uninformed or ignored notifications from their banks and brokerages.

If the Internal Revenue Service audits a retirement plan and discovers that its language is noncompliant under current law, any contributions made to the plan are not tax-deductible. All tax returns for the years affected must be redone, and earnings for the period of the audit, generally three years, are treated as taxable income. In addition, interest and often penalties, as well as taxes, are assessed.

TaxesThe bottom line is that all contributions made to the Keogh would be considered non-deductible, and anyone found to be out of compliance would owe taxes and penalities.

Professionals interviewed in a New York Times article recommend rolling Keogh Plan funds over into a SEP IRA. SEP IRAs, thanks to the same law that complicated the Keogh, now offer benefits above and beyond the older type. That won’t get you out of trouble if your Keogh was non-compliant. There is still a cumbersome process to clear if you haven’t been following the new rules.

It means assembling the original plan documents and all the amendments that the bank or brokerage offered for its prototype documents; filling out forms in a 70-page document, Rev.Proc.2006-27; and paying a $750 fee to the I.R.S. for plans covering 20 people or fewer. Most people will need a pension consultant to do the paperwork, he said, and that could cost several thousand dollars.

This is another reason amongst many arguing for the simplification of tax code.

For Keogh Plans, a Technicality Could Crack a Nest Egg [New York Times]


Earlier this month, I wrote about how overdraft fees are becoming more popular with banks finding ways to assess the fees more often, in tandem with raising what the customer owes each time — sometimes several within a day — an account is overdrawn. Laura Rowley’s latest column mentioned that a few congressmen are interested in restricting banks from certain practices.

Representatives Carolyn Maloney (D-N.Y.), Barney Frank (D-Mass.), and Julia Carson (D-Ind.) are sponsoring legislation (HR 946, or the Consumer Overdraft Protection Fair Practices Act) to protect consumers from abusive overdraft policies. The act contains four common-sense provisions to address some of the industry’s sneakier tactics. It would:

* Require written consent from the consumer before enrollment in an overdraft loan program.

* Require financial institutions to warn the customer when an ATM withdrawal will trigger a fee — and allow the customer to cancel the transaction at that time.

* Prohibit financial institutions from manipulating the order of check clearing or delaying the posting of deposits to increase customers’ overdraft loan fees.

* Amend the Truth in Lending Act to clarify that overdraft fees are finance charges, so that annual interest rates are reported. This would allow consumers to compare overdraft loans with other credit options — such as lines of credit, which typically offer annual interest rates of less than 20 percent.

U.S. CongressI think these are good changes, but shouldn’t replace the account owner’s responsibility to know their account balances — or a rough estimate — at any given time, as well as his or her responsibility to keep their account in good standing.

Banks may not be too keen to list their one-time overdraft charges as an annual percentage rate. I’m not sure it makes sense to do so, either. Perhaps seeing a 99% APR would be enough to discourage people from mindlessly overdrawing their accounts.

When I looked at Gary Coleman’s advertising for Cash Call, I saw that these short-term or payday loan outfits are required to list their fees as annual percentage rates. Although they are one time fees for each loan, the nature of the loans make the fees comparable to other loans’ annual percentage rates.

Some of those rates were above 150% APR. I’d be interested to see how banks calculate an annual percentage rate based on overdraft fees.

Photo credit: aewolf


Editor’s Note: Thank you for your interest, these offers expired and are no longer available.

Warning! Taking advantage of credit card companies may be fun and profitable, but it is dangerous if you don’t know what you’re doing, or if you do know what you’re doing but are not careful. If you miss one payment, in most cases, you will owe back interest at the default rate.

That being said, here are a bunch of credit cards offering 0% APR on purchases for a year or six months. Use these cards responsibly, and you can save yourself money two ways. First, you can earn interest on your cash while paying off the card, and second, you can use inflation to your advantage. For example, if you pay $100 each month for thirteen months, your last payment is worth about 3% less in purchasing power. Here are 50 cards that offer 0% interest on purchases or more.

Chase TravelPlus Visa
0% on purchases and balance transfers for 12 months
17.49% variable APR (standard)

This card, in addition to the introductory APR offer, provides 2 miles for every $1 spent on travel-related purchases and 1 mile for every $1 on other categories. There is a $29 annual fee for the rewards program, however.

Discover Business Miles Card
0% APR on purchases for 12 months
13.99% APR on purchases (standard)

You don’t have to have a business to apply and be accepted for this card, as with any business card. With this card, you also earn miles which can be redeemed for travel credits. The standard Discover Business Card offers a similar introductory rate, but rather than miles, earns the spender 5% cash back on office supplies, 2% on gas, and 1% on all other purchases.

SimplyCash® Plus Business Card from American Express
0% APR on purchases for 9 months
12.49% – 19.49% APR Variable on purchases (standard)

For a limited time, earn a one-time $250 statement credit after spending $5,000 or more in qualifying purchases on your card within the first six months of card membership. Your application must be received by August 3, 2016, in order to be eligible for this offer.
Plus, in addition to the 0% offer and the competitive standard APR, this card offers:
• 5% cash back on wireless telephone services purchased directly from U.S. service providers and U.S. office supply stores
• 3% cash back on the category of your choice from a list of eight select categories
• 1% cash back on other purchases
• The 5% and 3% apply to the first $50,000 in purchases per calendar year, then 1% thereafter.
• Cash back received is automatically credited to your statement
(Terms and limitations apply.)

American Express Platinum Business FreedomPass Card
0% APR on purchases for 12 months
12.24% APR on purchases (standard)

American Express offers points on the FreedomPass card, starting with a 5,000 point bonus just for making your first purchase. The points can be redeemed for travel.

Here are more 0% interest introductory offers for purchases. Some of these credit cards also offer 0% on balance transfers and cash advances.
Gold Delta SkyMiles Business Credit Card: 0% APR on purchases for 6 months
American Express Blue Cash Credit Card: 0% APR on purchases for 6 months
American Express Blue Cash for Business Card: 0% APR on purchases for 6 months
American Express Platinum Business Card: 0% APR on purchases for 12 months
American Express Gold Delta SkyMiles Business Card: 0% APR on purchases for 6 months

Chase Platinum Business Card: 0% APR on purchases and balance transfers for 6 months
GM Business Card: 0% APR on purchases and balance transfers for 12 months (no longer available)
Chase Business Rebate Visa Card: 0% APR on purchases and balance transfers for 6 months
Chase Business Cash Rewards Card: 0% APR on purchases and balance transfers for 6 months
Amazon.com Business Visa: 0% APR on purchases and balance transfers for 6 months (no longer available)

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Market Update: July 26, 2007

by Luke Landes

I wish I could have sold my second quarter ESPP shares when they were awarded earlier this month. By the time next month’s trading window opens, I won’t have made as much money unless things swing around fast. Dow down to 13,435.53, S&P 500 down to 1,473.04, Nasdaq down to 2,599.34. [CNN]

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Penelope Trunk’s Career Tips Don’t Always Apply

by Luke Landes

Penelope Trunk is an outspoken supporter of everything Generation Y has to offer. Most of the time, I agree with her. I do believe the workplace is changing to make the most out of the skills and behaviors of younger people — it’s “adapt or die.” But not all sectors of the working world are ... Continue reading this article…

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My MBA at the University of Phoenix Online, Part 5: The Team Experience

by Luke Landes

Last year, I began sharing the details about my experience with the University of Phoenix‘s online campus. I completed an MBA through this program, and experienced the best and the worst of what the school has to offer. Nowhere is the wide range of possible experienced more clear than in dealing with the university’s “learning ... Continue reading this article…

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Federal Minimum Wage Will Increase Today

by Luke Landes

Today, and every summer through 2009, the federal minimum wage will increase $0.70 an hour. For those working full time at the federal minim wage, the increase to $5.85 an hour will mean an extra $1,400 over the previous rate. This 14 percent raise is pretty significant, but it still keeps the minimum wage earner who ... Continue reading this article…

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Market Update: July 23, 2007

by Luke Landes

Bill Fleckenstein is seeing signs of a bubble. S&P 500 up to 1,540.92, Dow up to 13,934.56, Nasdaq up to 2,690.85. [CNN]

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ING Direct’s Electric Orange Send Paper Checks Feature

by Luke Landes

For the first time since opening my “Electric Orange” checking account at ING Direct, I used the account’s ability to send a paper check. I’ve never used similar bill payment options that have always been available with my banks because other, better options, like paying by direct debit or credit card, were also available. This ... Continue reading this article…

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Best Credit Cards for Airline Miles

by Luke Landes

If you use credit cards for regular expenses rather than excessive spending and pay your balance off each month, you should be getting something back for the money you’re making for the credit card companies. Some of the options out there include cash back, 0 percent APR balance transfers, 0 percent APR on purchases, and sign-up bonuses. ... Continue reading this article…

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10 Money Tips for Baby Preparation

by Luke Landes

Looking forward to that new baby smell? It’ll cost you… for years. USA Today has ten tips for “baby-proofing” your finances — the way you might baby-proof a kitchen — so you’ll be in a better position to part with $1 million over the next 18 years. 1. Review health coverage. Some new parents I’ve ... Continue reading this article…

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Market Update, July 19, 2007

by Luke Landes

The Dow closed over 14,000 at 14,000.41 today. When do you think it will close over 15,000? One cookie to someone who guesses correctly. S&P 500 at 1,553.08, Nasdaq at 2,720.04. [Reuters]

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Review: Complete Real-Estate Investing Guidebook by David Crook

by Luke Landes

Wall Street Journal Complete Real-Estate Investing Guidebook David Crook (9/10) Occasionally, publicity agents, publishers, or sometimes even authors, send me books with the request that I read and review what they send. That was not the case with this book. A few months ago, I wrote about the cost of owning a home over 30 ... Continue reading this article…

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The First Step to Cleaning Up Your Finances

by Luke Landes

A few years before starting Consumerism Commentary, I realized I was in a financial predicament. The salary I had been earning from my non-profit job was barely paying this bills in addition to the cost of commuting to the said job. I was relying more and more on my credit card to get by, ignoring ... Continue reading this article…

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Question for Readers: Get Rid of Debt Before Investing for Retirement?

by Luke Landes

Joe sent me a question about priorities. He feels his chosen career path is not one destined for the big bucks, but in pursuit of said career, he has racked up some debt. Fair enough, that’s a common situation. He also has some decent retirement investing options laid out in front of him by his ... Continue reading this article…

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Fund Companies Trying to Attract Younger Investors

by Luke Landes

A couple of brokerages and fund companies are courting younger workers just getting their feet wet with outside-of-401(k) investing. They’re lowering the barriers to entry in the form of minimum fund investments. * Charles Schwab lowered the minimum from $2,000 or $2,500 to $100. * American Century Investments established new funds with $500 minimums for ... Continue reading this article…

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4 Great Rewards Credit Cards for Drivers

by Luke Landes

Editor’s Note: Thank you for your interest, these offers have expired and are no longer available. Here are several credit cards the provide the best rewards for drivers through rebates on gas purchases as well as a few other benefits. It’s difficult to find good credit cards as the companies are pulling back their offerings. ... Continue reading this article…

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Go to College Without Going Into Debt: An Example

by Luke Landes

A couple of weeks ago, I wrote about options for going to college without going into debt, in response to an article about the near impossibility of doing so. Commenter “t” shared his or her experience: I also chose the state school route. I’m lucky enough to have grown up in a state (washington) with ... Continue reading this article…

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Market Records

by Luke Landes

Third day in a row with market records, but not on all indexes at closing. Toby thinks I’m crazy for thinking “bubble,” but I’m not really thinking it anyway. S&P 500 at 1,549.52, Dow at 13,950.98, Nasdaq at 2,697.33. [Yahoo Finance]

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