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March 2011


I always like questions about debt pay-off strategies because they’re partly about math and partly about psychology. The numbers are very important, and debt payoff strategies should not be planned or implemented without a good understanding of the long-term financial consequences. There are some cases where, from a personal perspective, it makes sense to formulate a plan that costs more in the long-run but alleviates other problems during its course.

That’s why I strongly encourage people to take a look at the Debt Avalanche method for paying off credit card debt before they blindly go with a different but popular solution. I understand why people are drawn to a strategy that theoretically takes longer to become debt-free and costs more in interest, and I have no problem with that choice as long as they recognize the long-term financial consequences of spending more money than necessary.

Today, a reader wrote in with a question about his debt payoff strategy.

I have $2,000 on a credit with 0% interest for a year and a car loan of $3,000 with 5.4% interest. My wife and I will owe big on student loans in Janaury and I want to get my car and/or credit card paid off fast. Should I pay extra on credit card payment or car? How important is it to pay off the 0% in one year, the interest will shoot up to 10% in April 2012.

I’ll answer the second question first, because it may have a bearing on the answer to the first question. It’s important to pay off the 0% balance in one year. First of all, although the credit card company is indicating the “go-to” rate will be 10% in April 2012, this is likely a variable rate. Most credit cards are using variable rates to get around the Credit CARD Act’s stipulation that makes it more difficult for credit card issuers to change (fixed) interest rates. It may be that when the introductory rate expires the rate on the balance is higher than 10%.

Also, when introductory rates expire before the balance has been paid in full, in some circumstances the go-to rate can be applied to the entire charged balance during the introductory period. That’s rarely the case with 0% APR balance transfer promotions, but it’s more common with deals that feature a limited-time 0% APR on purchases. I found that out personally with a store credit card once. Even with one dollar left of the original amount charged during the introductory period, one would likely owe back interest on the full $2,000 or more initially charged. Always pay off balances incurred during promotions before the introductory period expires. These 0% APR balance transfer deals are often great, but only if you abide strictly to the terms and take extra effort not to jeopardize your promotional rate.

I don’t know the rest of this reader’s financial situation, but given what was included in the note, my suggestion and my answer to the first question is to determine what payments are necessary to pay the $2,000 before the last bill is due in April 2012 and make that a priority. If the readers determines it would take $167 a month to pay the balance before the interest rate would increase, and if the cash flow is available, pay at least that much. Play it safe and get the balance paid off a little early, if possible. At the same time, pay the minimum or more to the car loan and student loan. When the student loan payments start in January, that will cut into your ability to pay off the car and the credit card. The reader can prepare for that by striving to pay off the credit card even faster.

Without knowing the reader’s cash flow, I wouldn’t be able to offer more specific suggestions.

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Paul La Monica shares my concern that today’s market is reminiscent of the dot-com bubble of 1999. The bubble, if it exists, would be evident in higher than expected valuations for private companies like Facebook ($75 billion) and Groupon ($25 billion), not to mention Huffington Post’s recent sale to AOL for $315 million. In his article, Paul also refers to a few publicly-traded companies whose valuations are extraordinarily high compared to their earning estimates.

For companies whose shares are trading on private exchanges like SecondMarket, the hypothetical bubble may not affect most investors. I’d be concerned once Facebook, Zynga, and Twitter go public, though. These companies will probably go public at some point to take advantage of an influx of cash from a wider array of investors.

It just goes to show that some things really haven’t changed since 1999. The dot-com sector, like any other, has its winners and losers. Investors have to do their homework to find the former and steer clear of the latter.

It’s easy to judge Pets.com as an imminent failure after the fact, but it’s much more difficult to identify over-exuberance when it is happening. Doing homework and studying financial reports isn’t going to be enough when and if the bubble bursts. Right now, most investments seem historically high — tech stocks, oil, and gold, for example — while the only type of asset that seems to be laying low, at least when compared to values for the past several years, is real estate.

Just as it might be the best time to buy houses, particularly as an investment, it’s more difficult to get loans to do so on a leveraged basis. Buying low and selling high isn’t always as easy as it sounds with certain forces, putting aside investor behavioral psychology, work against you.

CNN Money

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The small percentage of people who optimize their credit card rewards require using specific credit cards for specific types of purchases. Maximizing these rewards requires willpower, and possibly at least ten different cards. One travel rewards card would be used to book flights and pay for other travel expenses, one gas rewards card would be used to pay for gasoline, and so on. If you expect to spend a lot of time away from home in hotels, you’ll need a hotel rewards credit card to optimize your cash back and other rewards, like the Marriott Rewards Credit Card.

After you spend $1,000 in your first three months from account opening you can receive 30,000 bonus points on the Marriott Rewards Credit Card. After account approval Chase happily throws in two more free nights at a hotel in category one through four. The amount of points needed to redeem a free night stay varies on the quality of the Marriott hotel; the higher the category number, the more points needed to receive a free night’s stay.

The Marriott Rewards Credit Card awards all cardholders with points for every eligible dollar spent. The amount of points earned for certain purchases is as follows:

  • Three points for every $1 spent at over 3,600 Marriott locations
  • One point for every dollar spent on other purchases

There is no maximum to the number of points that cardholders can earn every year, and the points never expire as long as the credit card account remains open and in good standing. Your account must be in good standing at all times, and any missed payment or charge over your limit will forfeit your ability to earn points. One mistake will not close your account, but multiple mistakes could.

The Marriott Rewards Credit Card includes a variable purchase APR currently at 15.24%, and there is currently no introductory offer. There is a annual fee of $45, but there is a $0 introdcutory annual fee for the first year, after that, the annual fee is $45. Chase offers a couple additional perks worth mentioning with this card:

  1. Earn ten night credits upon account anniversary, toward your next Elite membership level
  2. Earn an additional Elite night credit for every $3,000 spent annually

Depending on where you stay when you’re traveling for business or pleasure, the Marriott Rewards Credit Card offers a great rewards program with an excellent up-front bonus. To apply, visit their secure application page.

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There’s good news for currency purists in Utah. If a shopper is so inclined, she could use gold and silver coins to make purchases. Technically, that has always been the case, but now there is a law on the books that makes it clear. There is a slight problem with this idea, however. The legal value of a coin is the face value, the amount that is listed on the coin through the minting process. The commercial value is not based on the coin’s intrinsic value. In other words, you may have paid $1,000 or more for an ounce of gold in coin form, but to a retailer, it’s only worth $50.

The true purpose of this law is to establish silver and gold coins or bullion as currency rather than an investment. With this in place, investors won’t owe state taxes for investment gains or sales taxes when they sell, but they will still owe federal taxes. Bullion is generally held for investment rather than transactional purposes, so until now, the capital gains tax would apply when gold and silver are exchanged for cash or other investments.

The secondary purpose of this law is to flaunt the state’s power in the face of the Federal Reserve. The Federal Reserve has effected the move away from using gold and silver as currency. Some influential people throughout the country are calling for abolishment of the Federal Reserve system and a return to a gold-based currency, but it’s unlikely such a drastic shift will take place.

Don’t start breaking your bullion out the vault for use at the grocery store, but with prices at historically high levels, it might be a good time to consider selling. This isn’t investment advice, though.

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Working With a Financial Adviser: Demystifying Certifications

by Luke Landes

This is a series on finding, selecting, and working with financial advisers or planners. Recently, I evaluated the types of financial professionals to help readers start on the right track. This article looks at the varied professional designations and certifications. With a number of organizations granting different types of financial certifications, it’s easy to get ... Continue reading this article…

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Charles Schwab Acquiring OptionsXpress

by Luke Landes

I’m not surprised that smaller trading firms attract the attention of the larger brokerages and banks. ING Direct acquired ShareBuilder (see my ShareBuilder review) in 2007. Today, OptionsXpress (see my OptionsXpress review) has announced that it will be acquired by Charles Schwab for $1 billion. OptionsXpress is one of the best discount brokerages, offering low ... Continue reading this article…

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How Much is True Love Worth?

by Luke Landes

Matchmaking is a big business, particularly when the matchmaking services are geared towards the wealthy. With these services, women join for free, and men pay hefty fees to be matched with these women. This is a one-sided arrangement, but it is based on the demographics of the clientele; for the most part, the dynamics follow ... Continue reading this article…

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Other Community Projects and Interests

by Luke Landes

When I’m not busy with Consumerism Commentary, I have a small window for working on other projects. Most of these have stemmed from Consumerism Commentary or focus on the personal finance community, but every so often I get a chance to focus on my other interests. Here are some of the other projects I work ... Continue reading this article…

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Podcast 101: The Squeaky Wheel, Guy Winch

by Luke Landes

Today’s guest on the Consumerism Commentary Podcast is Dr. Guy Winch, author of The Squeaky Wheel: Complaining the Right Way to Get Results, Improve Your Relationships and Enhance Self-Esteem. Guy received his doctorate in clinical psychology from New York University in 1991 and completed a postdoctoral fellowship in family and couples therapy at NYU Medical ... Continue reading this article…

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Should We Eliminate the U.S. Postal Service?

by Luke Landes
Mailboxes

I don’t bother checking my mailbox every day. Most of the paper mail I receive is junk, and I’m sure the same is true for most households. Unlike Gmail, I can’t create an automated filter to organize my paper mail, and there is no built-in junk-mail screen. As a result, 95 percent of what I receive ... Continue reading this article…

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Ink Plus℠ with Ultimate Rewards℠ $100 Bonus Cash Back

by Luke Landes

Editor’s Note: This limited-time offer has expired. One of the more difficult credit cards to be approved for is a small business credit card. Many small businesses that are just starting out don’t have the credit necessary to be approved for a high-end credit card. Therefore, small business owners often need to put their personal ... Continue reading this article…

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Potential Doctors Attracted to Primary Care Physician Jobs

by Luke Landes
Ambulance

The Health Insurance Reform Bill was signed into law a year ago. It’s already having an effect on the state of the medical profession. Thanks to some incentives, general practitioners or family doctors, typically the best choices when one is selecting a primary care physician, are becoming attractive jobs. It’s easy to see why, for ... Continue reading this article…

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ING Direct Electric Orange Raising Credit and Margin Rates

by Luke Landes

On May 16, ING Direct will change the rate is uses to determine the cost of overdrawing the Electric Orange checking account. ING Direct’s overdraft system is a little like Passover, where we ask how this bank is different than all other banks. Rather than charging an overdraft fee if you send an electronic check ... Continue reading this article…

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Why Airlines Continue to Add Fees

by Luke Landes

I don’t like the fact that when I think I know how much it will cost me to travel round-trip from where I live to where some of my family lives, New Jersey to California, there always seems to be new fees I hadn’t considered. I’ve managed to eliminate most of these extra fees by ... Continue reading this article…

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Blue Sky from American Express Review

by Luke Landes

Editor’s Note: Thank you for your interest, this offer expired and is no longer available. Most American own multiple credit cards, sometimes as many as ten. Is this overkill, even though credit cards can be valuable tools? Perhaps. For anyone who optimizes credit card rewards, while trying to minimize the typical effect of increased spending ... Continue reading this article…

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Are Stocks Too Risky?

by Luke Landes
Cliff climbing

When it comes to investing for the future, there appears to be an interesting dichotomy. The typical financial advice marketed to the middle class — upper and lower — calls for long-term growth through investing in the stock market. The typical sales pitch — and I use “sales pitch” as a general term, not necessarily ... Continue reading this article…

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Chase Eliminating Debit Card Rewards

by Luke Landes

JP Morgan Chase Bank is not done changing its programs in apparent response to new regulations against fees. The large bank is increasing ATM fees to $5 for non-customers and considering limiting debit card transactions to $50 or $100. Now, Bloomberg News is reporting that they are eliminating their debit card rewards program. Debit card ... Continue reading this article…

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Capital One ShareBuilder Review

by Luke Landes

Updated August 2014. I’m not a frequent stock trader. The closest I’ve been recently to stock trading is participating in a $1,000 investing competition with some colleagues this year. With my long-term view of investing, looking at stocks every day and executing costly trades does not make sense for my approach to my own finances. ... Continue reading this article…

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AT&T Acquiring T-Mobile USA: Today’s Mobile Phone Options

by Luke Landes
Telephone

This weekend, AT&T announced its plans to buy T-Mobile USA for $39 billion, pending regulatory approval. The new company would be the leading mobile telephone (and data) service provider in terms of customers. With the new AT&T soaking up 39 percent of the mobile market, and with Verizon Wireless at a close second at 31 percent, this ... Continue reading this article…

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Podcast 100: National Financial Capability Challenge

by Luke Landes

Today’s guest on the Consumerism Commentary Podcast is Carrie Schwab-Pomerantz, President of The Charles Schwab Foundation, which is sponsoring the National Financial Capability Challenge as well as the Make Change Count program. Consumerism Commentary Podcast #100 National Financial Capability Challenge: S04E22 / 124 Adobe Flash required Download – RSS – iTunes Table of contents [00:00] ... Continue reading this article…

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