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Cash Back Rebates Now Take the Form of Prepaid Debit Cards

by Flexo on August 24, 2009

in Credit

My girlfriend is an elementary school teacher in the New York City public schools. One of the benefits of her employment is the reimbursement for the purchase of supplies and materials used in her class. Any teacher will tell you that they are required to pay for many of their own materials, and the amount of the reimbursement is subject to a maximum that never covers their full expenses.

The reimbursements until recently were distributed via check, an old-fashioned method of payment. More recently, the City of New York switched to prepaid Visa debit cards, offered by Chase Bank. This must be the result of some sort of a deal between the city and the bank because it does not make much sense for the employee.

Debit cards are meant to be used for spending, but these reimbursements take place after the spending is completed. If you want to use the reimbursements to pay yourself back for your spending on items for the classroom, you must visit a Chase branch to convert the card to cash. We tried taking the debit card to her personal bank of choice, TD Bank, but they claimed to be unable to do anything for us with the debit card.

These prepaid debit cards seem to be the latest trend for rebates. Verizon Wireless, the cellular carrier of choice for both me and my girlfriend, offers rebates on a number of its phones. The last time she needed to purchase a new phone, the rebate came not in the form of a check as it had on prior occasions, but in the form of a prepaid debit card. These cards are touted for their “convenience,” but absent direct deposit I would prefer a check.

Verizon Wireless offers a feature where you can replace your debit card by entering your information online, thus deactivating the card and issuing the old-fashioned paper check to the address on your account. This is a better option but introduces an extra step that many people will simply ignore.

Checks find their way directly into bank accounts while debit cards only make appearances in stores for purchases. If your spending is tight, this might not make a difference. If you use the debit card to purchase something you would have had to purchase anyway, without the debit card, the form of payment won’t affect the amount you spend. Most people’s spending is not tight and controlled. When you send debit cards out to 80,000 teachers, I would believe that many will be used for extra spending and some will not be cashed or used at all. The same is true for wireless phone customers who receive those rebates.

There are reports that the debit cards issued for consumer rebates are unreliable. Some have no problems while others find that cards are declined when they should not be. Even worse, some of these prepaid debit cards have monthly fees. The new rebate debit cards offered by Staples charge a $3 monthly “account maintenance fee” after six months. In states where they are allowed, which I believe is every state except California, fees can eat away at your rebate card balance until you are left with nothing. It is best to cash these rebates or convert them into a check and deposit the funds as soon as possible.

Have you seen more rebates offered in the form of prepaid debit cards? What are your experiences?

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2007 New Jersey Homestead Rebate: Receive Up to $2,000

by Flexo on July 14, 2008

in Taxes

Homeowners in New Jersey are eligible for a partial rebate of property taxes paid. If you owned and lived in a house in New Jersey on October 1, 2007, you are eligible. Renters like me are eligible for a separate rebate up to $860.

If you haven’t received an application, you should shortly. The state suggests calling the Homestead Rebate Hotline if you haven’t received this application by July 23.

Tenants will not receive an application. The rebate form for tenants was included in the 2007 income tax package. I checked my state tax return, which I filed via TaxAct, and my rebate application was submitted with my income tax form. As I am neither disabled nor over the age of 65, the maximum amount I can receive for this rebate is $80, a 6.7% increase over last year.

The calculation for the homeowners’ rebate is different. For those under 65 and not disabled, you will receive either 20% of the first $10,000 of property taxes paid (if your income is below $100,000), 10% of your total property taxes paid (if your income is between $100,000 and $150,000), or nothing.

To receive your rebate, you muat file your application by August 15.

2007 Homestead Rebate Program

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What Size Bonus Would Convince You to Sign Up for a Credit Card?

by Flexo on May 1, 2008

in Credit

As a number of Consumerism Commentary visitors have mentioned over the past few months, it’s getting harder to find good credit card deals, including 0% APR no-fee balance transfer offers and worthwhile sign-up bonuses. Other commenters who have been successful milking credit card companies with balance arbitrage strategies have slowed down their pursuit with fewer deals and lower interest rates on savings.

Yet, there are still many credit cards, like the AmEx Platinum Business FreedomPass card, that offer sign-up bonuses in the form of cash back or “points,” though redeeming the reward may either be a hassle, require a waiting period, and/or take the form of a statement credit or retail gift card.

How effective are these bonuses, particularly when there are so many restrictions? What would it take to get you to sign up for a new credit card? You have to weigh the possibility of a temporary decrease in your credit score. You also have to keep in mind your predisposition towards credit use. With a new card, perhaps you would be tempted to spend more.

It’s important to note that $50 (for example) has a different “value” for different people. An extra $50 could be the difference between coming out ahead for the month and falling behind. Money received from a credit card bonus might be what enables someone to make their child support payment.

This isn’t lost on the credit card issuers. They know “low hanging fruit” will snag users more likely to become permanent and profitable customers. These customers pay for those who take advantage of credit card issuers by being smart and careful about rewards.

I have not seen any bonus available that would convince me to sign up for a new card at this time. For me, the threshold would be $300 or $400 in cash. I would meet the minimum requirements for receiving the bonus and then forget about the card unless it also offers cash back on purchases at a level higher than the cards I use currently (American Express Blue Cash for Business and Citi Dividend World MasterCard).

I would expect that some individuals will never be tempted to sign up for a credit card regardless of the amount of the sign-up bonus, while others have no qualms about gathering as many credit cards as possible to take advantage of the cash that is out there.

How much would it take for a credit card company to buy your patronage? Do you have a dollar minimum after which you’ll start to consider taking advantage? Or would a free flight be attractive to you?

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What to Do With Your Economic Stimulus Payment (Or Any Found Money)

by Flexo on April 28, 2008

in Taxes

This week, the Internal Revenue Service of the United States will begin sending direct deposits to those who qualify for the economic stimulus tax payment and checks soon after. Everyone who is interested in the tax ramifications of this payment should now know that the money received as a result will not be counted as “income” for federal tax purposes and that the payment is an advance of a new credit introduced for 2008’s income tax calculations.

The way I see it, the question in the minds of many is more immediate: What should we do with our stimulus payment? This deposit of $300, $600, or more is in some ways an unexpected gift. Though some could rightly argue that it is simply more of our own money returned to us, it is unexpected and thus not planned for. Some could also argue that it is wealth redistribution, as some low-income taxpayers may receive a payment larger than their total tax liability for 2007. (Note that the government changed their terminology for this program in March from “rebate” to “payment.”)

Regardless of opinions, here are some of the more popular options for dealing with an unexpected sum, either from the government or from any source.

If you have high-interest credit card debt, consider using your found money to reduce your interest payments. Credit card debt is an unnecessary expense. Unless you have an introductory rate or a special deal, chances are that you cannot earn a higher rate of return in an investment, particularly a liquid investment, than what you are paying in interest. Reduce your total debt and your interest payments by applying the total amount of your stimulus payment towards the balance on your credit card with the highest interest rate.

If you’re taking on the debt avalanche (a method mathematically superior to the snowball method), your payment will go far towards reducing your total debt.

If you have a mortgage on your primary home, consider making an extra payment to your principal this month. While it’s unlikely to make a noticeable dent in the short term, even one extra payment will reduce your total spent on mortgage interest significantly over the next few decades. To illustrate, a $500,000 loan over 30 years, starting June 1, 2008, with an interest rate of 7%, will benefit from a $8,400 reduction in total interest paid over the life of the loan if an extra payment of $1,200 is processed on June 1.

If you have no immediate savings, consider depositing the payment in a high-yield savings account. This is an important step to building a tiered emergency plan. While this money may not earn as much return over time as an investment in the stock market might, having funds available in a semi-liquid account allows you not to dip into debt as quickly or sell investments incurring fees and tax consequences.

You can count on an emergency arising at some point, and it’s advisable to be prepared.

If you are debt-free and you have an emergency fund, consider devoting this money to retirement. Saving for the future will increase the possibility of having the ability to stop trading your time and effort for money. In other words, if you’d like to retire from working someday, you’re going to need money to sustain your ability to pay for your expenses. Money invested in the stock market now has a good chance of earning a good rate of return when your time horizon for needing the income is several decades away.

I suggest opening a Roth IRA with Vanguard, invested in VTSMX, the Vanguard Total Stock Market Index Fund. (And no, they don’t pay me for this recommendation.) The fund has a low fee and a low barrier to entry for Roth IRAs.

If you have a Roth IRA, you can invest this money in your 401(k). This option isn’t as straightforward as sending a check to your 401(k) custodian, though. You can’t just deposit money into your 401(k) as you would be able to with another investment account. You’ll have to temporarily increase your 401(k) deferment by the amount of your stimulus payment and then reduce your deferment afterward. Assuming you’re not already maximizing your 401(k) contributions, this is a roundabout method of investing your found money in an tax-deferred account.

If you are set for retirement, consider saving this money for your children or other relatives to help pay for higher education. I haven’t decided whether I am a fan of 529 accounts which only offer tax-free earnings when funds are withdrawn for educational expenses (and in some cases, the rules are strict about which schools’ expenses will qualify), but helping to pay for education — so your children don’t have to work as much during the time they should be concentrating on learning — will be beneficial for their future earning potential.

And if you plan on growing old, your children’s future earning potential may be quite relevant. They may have to help support your health in your later years.

If you have no saving or investing holes to be filled, consider charitable giving. While $300 may not be much to you, there are many organizations who would be happy to receive the money to help fund a program. This is a highly personal decision, so you should find an organization that has personal meaning.

Religious organizations and churches are popular choices, and some people prefer to support scholarships pertaining to a meaningful field of study. Organizations that support social, arts, and athletic programs constantly require funding. If a health condition has affected your family or friends, chances are there is a related organization supporting research towards treatment and a cure.

All out of ideas? Buy something, either for someone else or for yourself. MyMoneyBlog has some tips on where your money will go the farthest, with several stores offering a 10% bonus on your money when purchasing a gift card or a pre-paid credit card. Watch out for these types of benefits. Often, and where not prohibited by law (ie., California), gift cards lose value over time or charge a fee, reducing your bonus (if any). Some of the stores offering a 10% bonus include Kroger Supermarkets, K-Mart, Sears, and Radio Shack.

In some cases, you have to bring your actual stimulus check to the store to receive the bonus. For those of us who are efficient and will receive their payment via direct deposit, we would not qualify.

The stated purpose of this economic stimulus plan, as devised by both the White House and the Congress, is to stimulate the economy by getting money into the hands of who might spend it, particularly on American-made products. The political purpose is deeper yet more superficial: to ensure that both the Democrats and the Republicans appear to care about the economy as the presidential election draws nearer.

The economy is often a matter of psychology rather than pure financial statistics, so it’s unclear whether these payments will have any measurable effect on the economy. If economic sentiment changes from negative to positive, it’s unlikely that one could prove that the stimulus package would be the cause.

How do you plan to invest or spend your stimulus payment?

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My First Economic Stimulus Payment Notice Has Arrived

by Flexo on March 24, 2008

in Taxes

Over the weekend, I received a notification from the IRS about the economic stimulus. The notice isn’t personalized; it contains only general information about the new law. The text of the letter is straightforward. Rather than get into the details, particularly the facts that the law authorizes a new credit to 2008 income taxes and that the “payment” referred to in the letter is a pre-payment of that credit, estimated based on 2007 income taxes.

The notification is a waste of money. Here is the final paragraph:

All individuals receiving payments will receive a notice and additional information shortly before the payment is made. In the meantime, for additional information, please visit the IRS website at www.irs.gov.

(Interestingly, the web address is underlined as if it were a hyperlink, but as this letter appears on paper. “Clicking” on the link will get you nowhere.)

If the IRS is sending out a second notification right before the payments are sent, I would say that this pre-notification notification is pointless. The opposite side of the letter contains some instructions for calculating this tax credit. Unfortunately, the instructions are far too simplistic to provide an accurate answer for most people. Even the calculator on the IRS website provides only an estimate. I’d have to say that the only calculator that follows the letter of the law is the one posted on Consumerism Commentary and provided by a reader. Of course, since the IRS is calculating the final credit amount on their own, and they probably won’t be using the calculator found here, we can’t guarantee that what you receive will be the same as the result from our calculator.

Here’s a schedule showing when the IRS will send payments to individuals, via check or direct deposit.

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8 Benefits to a Recession or Down Market

by Flexo on March 17, 2008

in Investing

Will politicians say the word recession? Not if they’re serious about helping their party get elected. Yet, it feels like we are in a recession — or at least, that’s what the media wants us to believe. The stock market, measured by the indexes, is certainly in a downward trend, but I suppose I agree with Kiplinger. There are some reasons to be happy.

1. The rebate check. Soon, most Americans will receive a check from the IRS, possibly for $300, maybe $600, or even $1,200 or somewhere in between. The government’s intention is to spur the economy — or is it? Perhaps it’s more of a feel-good measure in a year when Democrats and Republicans alike must create fan-friendly press. The last time the IRS sent rebate checks en masse, it didn’t have much effect on the economy. In fact, the economy was already recovering by the time the checks arrived.

If you’re wondering how much of a rebate you’ll receive, use this economic stimulus tax calculator. The “rebate” is an advance on a new tax credit that will appear when you file taxes for your 2008 income. If you qualify, you’ll get the rebate this year instead of next year.

bear market2. Undervalued stocks and bonds. Go for it. Yes, in general it’s bad to time the market. Yes, it’s possible stocks in general will go down more this year. But I believe that dips like the one we’re experience are perfect opportunities for long-term investors to pick some good values company by company or buy the overall market through a low-cost index fund like VTSMX.

3. Lower interest rates. Kiplinger says that as the Federal Reserve lowers the federal funds target interest rate, opportunities are available for those with good credit ratings to borrow cash as needed. I’m not quite sure this has played out quite yet. From what I’ve seen, banks are still being tight and not lending as much even to those who are well qualified. Interest rates on mortgages certainly haven’t dropped much. In fact, rates for a 30-year fixed mortgage, a typical loan for qualified home buyers, have increased in the last few months, from 5.5% to 5.9% (source: Bankrate).

4. New tax breaks. “You might owe less to the IRS this year thanks to a new deduction for private mortgage insurance, an extension of the sales-tax write-off and a boost in the alternative minimum tax exemption amount.” This is helpful for home buyers who couldn’t afford to put 20% down on their house and were required to resort to paying PMI.

5. Falling house prices. Well, at the moment, there are more people trying to sell homes then there are buyers. This inequity between supply and demand means that in order to sell houses, prices must fall. But as there are fewer people looking to purchase than there are looking to sell, this benefits fewer people than increasing house prices.

6. Higher retirement account limits. Kiplinger suggests using the rebate check to turbocharge your retirement savings. This year, you can invest $5,000 (or $6,000 if you’re over 50 years old) in a Roth, Traditional IRA, or a combination of the two. If you have a 401(k) you can contribute up to $15,500 (plus another $5,000 if you’re over 50). These limits will continue to increase, too.

7. Help with college bills. Got student loans? If you’re a teacher or if you work in public service, you may be able to receive grants. Those with high debt and low income will benefit the most.

8. New rollover option. If your adjusted gross income is $100,000 or less, you can now roll over your 401(k) directly into a Roth IRA without having your funds go through a Rollover Traditional IRA first. Not only that, but if your income is above the $100,000 threshold, just wait until 2010 when the income limit disappears. For any funds in your 401(k) from a pre-tax source, you will owe tax when you roll over into a Roth IRA, providing early tax income to the government, possibly to help pay for expensive programs like Social Security.

The option I’m most excited about is easily number 2, undervalued stocks. I was interviewed by Columbia News Tonight, a weekly television program produced by Columbia University’s Graduate School of Journalism the other day, and we talked about this topic. I’ve increased my 401(k) contributions to the maximum this year, a feat made possible thanks mainly to my additional income not from my employer, even though my retirement account’s value is down about 10% so far this year.

Image source: azrainman
Good News in Hard Times [Kiplinger]

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How to Waste $42 Million (and Blog Roundup)

by Flexo on March 7, 2008

in Taxes

“The check is almost in the mail.” Shortly, the IRS will send letters to everyone who filed a tax return for 2006 to let them know about the economic stimulus rebate checks. The actual checks won’t be in the mail until at least May. On one hand, it’s good to get information into the hands of people across the country who have been living under a rock, but it comes at a great expense — an expense of $42 million.

The letter will also explain how the tax rebates “work,” but I have no doubt the text in the letter will raise more questions than it will answer. Still not sure how much of a rebate you will receive due to this new stimulus package? You can calculate your refund here. This calculator has been viewed by over 240,000 people.

Let’s get away from taxes for a little bit and look at a few articles posted elsewhere: [click to continue…]

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Tax Rebate Calculator Updated (and Blog Roundup)

by Flexo on February 13, 2008

in Taxes

I’ve updated the economic stimulus tax rebate calculator. The old version, taken from PBS Newshour, did not take into account changes included by the Congress before passing the bill. The complete details of the economic stimulus package are provided at the Library of Congress. Take a look at the new calculator to find out how much you’ll receive from the U.S. government this summer, if anything.

Here are some articles from around the blogosphere: [click to continue…]

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