The idea of getting cash back for using your credit card sounds pretty good to most of us. It’s like free money! But, whether or not you get that “free money” depends upon the fine print in your credit card agreement.

That fine print reveals many terms, such as the annual fee you might pay for using the card. You need to do the math to see if you’ll really come out ahead.

For instance, if your credit card gives you 2% back on all your purchases and the annual fee is $29, you’ll have to charge $1,450 worth of goods before you break even.

But some cards don’t offer cash back on all purchases, and some have a tiered schedule. You might get only 1% back at first, then see an increase after you’ve spent more. Some can go as high as 5%.

Next look at the interest rate. If you pay your bill in full each month, this isn’t a concern, but if you carry a balance from month to month, your interest rate could wipe out all the savings from cash back.

The next bit of fine print to read is how and when you’ll receive your cash back. Do you have to spend a set amount in a certain time frame in order to receive it? Some cards will only give you money back if you’ve reached a pre-set threshold. If you fall short by even a dollar, your cash back dissolves into nothingness.

Some cards also limit the amount you can earn. So if you’ve been planning to pay for absolutely everything with your card and pay the balance in full each month – just to get money back – you may be in for a surprise.

Credit card issuers may also restrict the stores you can choose if you want cash back.
Your card may disallow groceries purchased at Wal Mart or Whole Foods because they don’t consider them to be “grocery stores.” The same goes for fast foods and gasoline – you may have to buy from their list of approved vendors.

The bottom line, as always, is that it is in your best interests to read and compare. So don’t fall for a flashy ad if you want a cash back card that meets your needs. Click here to compare cards and choose the one that’s right for you.

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When you’re in college you may believe you don’t need a student credit card. You don’t really want to go into debt any farther than those student loans, so you live on what you can earn.

That’s good. You shouldn’t go into debt. But you should own a student credit card, and you should apply for it now, before the new rules go into effect.

Once February rolls around, students will be severely limited in their access to credit cards, but those cards you have now will not be affected. Getting one or more now means less hassle.

But why do you want it?

Simply because you’ll need the credit history when you graduate and get out into the world of work.

Your first step when you leave college will probably be to find employment – and employers look at credit reports. If you have no credit, you’ll have no report. You may be overlooked for someone who not only has a credit report, but has a good report.

Next, most graduates want to find a place of their own to live. And guess what? Landlords pull credit reports. They want some assurance that you’re the kind of responsible person who will pay the rent on time every month. With no credit report, all they have is your verbal promise.

After that you might want a car to take you to and from that new job. And you know that before a car dealership will give you a car loan, they’ll look at your credit report.

So – the student credit card you get today is not for the purpose of spending money you don’t have. Its purpose is to help you begin to build a solid credit reputation and high credit scores.

Get it, put it in your wallet, and take it out only occasionally to use for a purchase that you will be able to repay when the statement arrives. You should use the card at least once per calendar quarter.

Be careful to charge less than 30% of your available credit line. If you have only $200 – never let your balance owed go over $60.

By using the student credit card sparingly and paying the balance each month, you’ll slowly build a credit history that will contribute to high credit scores by the time you graduate. Then, when your classmates are paying high interest for car loans and new credit cards, you’ll enjoy preferred treatment as a consumer with an already established good financial reputation.

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Prepaid credit cards are gaining in popularity as consumers are moving away from carrying heavy debt. Some are cards for specific stores – such as gift cards – but many are using pre-paid cards from Visa and Mastercard.

Pre-paid credit cards are really nothing more than debit cards, because you’ve put the funds in yourself and you aren’t actually “charging” anything. However, they can be used anywhere credit cards are accepted.

But what’s the point, when you have to pre-load them with your own money?

Carrying plastic is a convenience, and some feel it is safer than carrying cash. Plus, there are some purchases that simply can’t be made with cash. On line, for instance. Some retailers will accept an electronic check, but not all will.

And for consumers who can’t get a checking account because of a history of bounced checks, they’re the only way to make on line purchases.

Who else uses pre-paid credit cards?

Employees whose employers pay them via direct deposit on their prepaid cards.
Gift givers who want the gift recipient to have a choice of stores.
Parents of college students who want to hold down their child’s spending, but like the convenience of being able to “re-load” the card when funds get low.

Pre-paid credit cards are a little different from retailer’s gift cards in that they can carry fees. Thus it pays to shop around and compare cards before you choose.

The fees charged can vary widely and can mount up. Some card issuers charge for application, activation, and annual or maintenance fees. Some also impose a fee each time the card is used, each time you call for customer service, each time you make a balance inquiry at an ATM, and any time you request paper statements.

If you opt for a pre-paid credit card, be sure to register it when you receive it, and record the registration number where you’ll be able to find it easily. When you register the card you’ll be eligible for fraud protection if the card is lost or stolen. These cards carry zero liability policies, but only if you notify the card issuer right away.

As with all credit and debit cards, you could experience “holds” when you rent a car, check into a hotel, or fill up at the gas pump. Be sure you have enough money to cover both the hold and your purchase.

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Couples and Credit Cards

7 September 2009

Disagreements over the use of credit cards has led more than one couple down the path to divorce. One reason for that is a failure to communicate and come to an agreement about their use before trouble can begin.

Each of us has a difference tolerance for debt, so that’s the place to start. Look at your income, your other monetary obligations, and the amount of money you have left over each month. Then decide how much you can allow for payments on credit card debt.

Once you know the numbers you’re dealing with, you can try to come to an agreement about how much credit card debt is acceptable, and how much would be too much. Keep in mind the other ways you each like to spend money, and remember that paying the minimum balance on a credit card each month will keep you in debt for a long, long time.

Now decide when and how your cards will be used. For some, paying for gasoline and other miscellaneous expenses is a good bookkeeping move, while for others it means spending a little too much each month – and a gradual increase of debt when there isn’t enough money left at the end of the month to pay the balance.

Maybe it’s better to use the card only for major expenses or just keep it on hand for emergencies. You need to decide together.

Rewards points can become another point of disagreement, so if you have a rewards credit card discuss how you’ll “cash in” well ahead of time. One of you may be dreaming of using those points to get some cool new toy, while the other has been looking forward to turning them into cash to pay down your balance.

Someone needs to be the bookkeeper. Too often, both parties think the other one will keep track of the bills and make the payments on time, so neither one does. Then each blames the other for those late payment charges on the next statement.

Whoever is the most organized should be responsible for this task. However, both of you should review the bills and be aware of how you are jointly spending your money.

Couples should be open with each other about spending, because one partner’s excess debt will have a negative effect on the marriage. However, they should still have individual credit card accounts and individual credit worthiness.

No one wants to contemplate death or divorce, but they do happen, and the partner left behind still needs good credit. That doesn’t mean that the “bookkeeper” can’t be responsible for making sure the payment is made on time on all accounts.

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Credit card stocks rose recently as a result of reports that the number of charge-offs had slowed, but analysts are warning that this is merely a seasonal lull. The lull is likely the result of consumers receiving their income tax refunds and using that money to try to catch up with overdue accounts. Social Security recipients also received “stimulus checks” of $250 each – and those may have slowed the rate of delinquencies.

Accounts 180 days overdue generally turn into charge-offs, which are then handed to credit collection agencies. July reports showed that delinquencies 180 days overdue had dropped, but delinquencies overdue 30 to 59 days have increased. To many analysts, this is a forecast of charge-offs to come.

Depending upon the analysts, predictions are that charge-offs will rise from a current rate of about 10% to as much as 18 or 20%. Some, who are more optimistic, predict a peak of about 11% by early 2010. Charge-offs at some banks already reached 13.8% in June.

Charge-off rates have tripled since January 2007 – keeping pace with the unemployment rates. Unemployment, which was reported at 9.3% in June, is now the highest since 1983, causing many consumers to make tough decisions about paying bills. Unsecured debt is, of course, the last to be paid when income doesn’t cover all monthly expenses.

These numbers include credit card accounts which were included in consumer bankruptcy proceedings, along with those accounts which consumers have simply stopped paying. They do not include accounts subject to “workout” plans created individually by consumers with their credit card issuers, or with debt management plans administered by credit counseling agencies.

If your credit card account is overdue, or nearing the charge-off stage, consider a debt management plan.

Debt management plans call for some voluntary concessions from the lender, but allows for complete repayment of the loan. Thus, debt management plans allow consumers to regain control of finances without destroying their credit ratings.

Consumers should be aware that the legitimate Debt Counseling agencies do not charge for their basic services. Signing up with a company that offers to wipe out your debt for a fee is simply another scam, designed to part consumers with whatever funds they do have.

Rather than respond to an ad that arrives in your mailbox or you e-mail in-box, contact the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling to find a counselor near you.

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