Some friends and I were recently discussing rental car strategies, one of them was planning a vacation to Hawaii, when the subject of debit cards came up. None of us had ever rented a car with a debit card before (we did begin our personal finance development in the era of free and cheap credit after all!) and that was the only card my friend had! To be honest, I didn’t think it mattered if the card was a credit card or a debit card (and I erroneously said so!), but I was wrong.

I usually advise against the use of debit cards because the card is linked directly to your bank account. One erroneous or fraudulent charge can have a cascading effect that generates an avalanche of fees and penalties. I’ve read and heard many a story of a dozen insufficient fund fees and low balance fees following some key-in error, it’s terrible.

Anyway, it turns out that renting a car with a debit card is a big pain in the ass. The reason is because your “credit limit” is really the funds within your account, unlike with a typical credit card. The end result is that many companies will tack on a “reasonable premium” to cover the rental period and potential overages such as fuel and damage to the vehicle.

For your convenience, here are the policies of major companies:

• Hertz: You can reserve a car with a VISA/MC debit card and a hold will be placed for an “estimated amount of the rental charges plus a reasonable amount to cover any incidental charge.” No mention of what “reasonable amount” means though.
• Enterprise: Policies appear to vary from location to location so you’ll have to call the rental site for actual requirements.
• Budget: Again, like Enterprise, some locations accept them and some don’t. Under 25 can’t use a debit card though. The ones allow debit cards require a hold for the estimated charges plus the greater of 25% or $300 (or $500 in the Northeast and North Central regions).
• National, Alamo: These companies are both owned by Vanguard Car Rental USA Inc. so they have the same policy of allowing debit cards.
• Avis: They allow debit cards and they will put a hold for the estimated rental charges with a minimum of $500. If you don’t spend $500, the balance will be returned but may take up to two weeks!
• Dollar: They allow debit cards and will put a hold for the estimated amount of the rental plus 15% or a “minimum amount,” which isn’t specified. In that General Policies page, it’s section F. Credit Qualifications/requirement.
• Thrifty: Some locations will allow debit cards and may require a “debit card check and credit inquiry screening,” whatever that means. The debit card must also be a VISA/MC debit card, anything else isn’t accepted.

As you can see, using a debit card is a bit of a pain and sometimes the hold can last up to two weeks after the rental! That’s a very long time.

My advice? Get a credit card with auto rental liability insurance and use it to rent your car. The card provides some supplemental insurance, you don’t have to deal with debit card hassles, and maybe you earn a few points along the way.

With the price of food and gas where it is, everyone’s looking for an edge and for more and more people, myself included, that edge is in maximizing what you can get out of credit card cash back reward programs. Credit card companies charge vendors a hefty percentage to process credit card transactions (AMEX and Discover charge the most, that’s why they often have the best cashback programs), so doesn’t it make sense that they pass along some of that to you? Of course it does!

So here are eight tips I use to ensure I get the most cash back out of credit cards, hopefully you will find them useful as well.

1. Know Your Spending

Every card is tailored to a slightly different person and a slightly different spending profile. They’re looking to get a slot in your wallet or purse and so they sometimes offer strange groups of eligible cashback categories in order to get there. The best way for you to figure out which card is best for you is to check your budget and see where your spending is.

Unfortunately, gone are the days when supermarket purchases offered 5% cashback but purchases at gas stations and auto maintenance offers are still around. For me, the answer is combining Costco’s cheaper gas with either their Costco TrueEarnings card, which offers 1% cash back, or the American Express SimplyCash Business Card, which offers 3% cash back. You can get Costco gas without a membership in some areas.

Here are some popular categories and the cards I use (if applicable):

• Movies: Citi mtvU gives 5% ThankYou Rewards, which I turn into cash for student loans. You can also submit grade reports for free ThankYou points.
• Books (& anything at Amazon.com): Again, Citi mtvU card.
• Gas: Costco TrueEarnings card, I use it at Costco for 2% cashback on gas. This only makes sense if you already have a Costco membership.
• Everything Else: Citi CashReturns offers 1% plus a 20% bonus for the first year.
• Home Improvement: The Home Advantage Card from Bank of America offers 2% at home improvement stores in the first year, I don’t use this card because I don’t spend a lot in this category.
• Office Supply: If you buy a lot of office supply equipment, the American Express SimplyCash Business Card gives 3% cashback in this category, I don’t use this card because I don’t spend a lot in this category.

There are certainly more cards out there but those are the ones that were ever on my radar given my spending categories.

2. Skip Stuff, Get Cash

I always opt for cash back because it makes the math easier and you can never have “loss” in the conversion. I know some people like to get “stuff” but often times, if you check out the catalogs, the conversion of points to products is never in your benefit.

Let’s take the simplest example of a gift card on the Citi ThankYou network. Each ThankYou reward point is worth approximately a penny, meaning 100 points equals one dollar. If you were to trade in your points for a $5 Barnes & Noble Gift Card (Item 1111022), it would cost you 1,000 points - or $10 worth of points! Of course as you get to larger gift cards, the exchange rate is more favorable ($10 gift cards cost only $15 in points) and it only starts to become even when you reach the $25 gift card level, depending on the vendor. The loss is most obvious with gift cards but it happens with stuff too because you’re often paying retail value in points.

3. Don’t Get A Zillion Cards

In my list above, I mentioned that I didn’t get the AMEX SimplyCash or the Home Advantage card because I didn’t spend a lot there. From time to time I do spend money at Home Depot or Lowes in spurts, as I will soon do to repair drywall damage in the next week or so, but it doesn’t make sense to load down your wallet or purse with a ton of plastic you don’t use regularly.

First, applying for a lot of credit cards will damage your credit score for a little bit. Second, you risk losing track of them if you don’t use them regularly. Maybe you forget to pay a bill or one of the cards falls out when you’re running around, losing track can wipe away an entire year’s cash back in one unfortunate incident. Finally, who wants to carry around all that extra weight anyway?

4. Have Backup

You’ll want at least one card that will give you 1.2% cash back on everything (for the first year, there’s a 20% bonus on top of the normally 1% cash back offer) that you can turn to if you forget whether you can get better cash back rewards on a purchase. Most cards will have at least 1% cash back so finding one will be a cinch. The Citi CashReturns card is our backup 1.2% card because there is no limit (crucial) and they send a check automatically once you reach the $50 threshold. The only way you can do better is if you can find a card that will deduct the cashback right off the credit card statement (the American Express SimplyCash(SM) Business Card will do this) or find one with a higher cash back, which I haven’t seen yet.

5. Beware Low Limits

Discover Card’s Open Road card offers 5% cash back. Ordinarily that would be a screaming hot deal, but read the fine print and you’ll see “Earn a full 5% Cashback Bonus on your first $100 in combined gas and auto maintenance purchases each billing period.” Woah. $100 can’t even fill the tank for some people. So the 5% looks good at first glance but really isn’t that great.

6. Write Down Cashback Percentages

Get some scotch tape and write down all the categories and percentage cash back on the face of the card. Some cards offer rewards in categories you don’t normally spend in, by writing it down you can flip through your cards as you wait in line so you can maximize your rewards. For example, the Discover More card is part of a program where the 5% cashback reward categories change every quarter. There’s no way for you to keep track of what it covers this month because it changes four times a year, so rather than rely on memory, write it down and change it as the program changes.

7. Always Pay In Full

Never carry a balance. Any interest you pay will erase your reward totally and completely.

8. Stop Spending

What!? What kind of tip is this? It’s actually the best tip. On some things you can’t simply “stop spending,” like food and gas, but on others you might want to consider putting off the purchase for a few days, weeks, or months until the economic climate recovers a little. Skip that movie once a week or cook dinner more often, those little steps will save you more money than a few percentage points off your bill.

Do you have any tips or tricks to maximize your cash back? If so, please share!

(Photo by crocidillicus)

Occasionally on BFP I’ll write posts in which I list promotional offers such as a Sharebuilder promotion code or some free money credit card offers. With the RME offer or Sharebuilder codes, it’s a pretty straightforward offer with little downside. The credit card offers are different, they look soft and cuddly but they have some pretty sharp teeth you need to be aware of. I wanted to discuss those offers specifically because there are substantial negative impacts to taking advantage of them and you should be aware of them before you sign up.

The most significant of the negative impacts is on your credit score. Applying for credit cards will lower your credit score. That’s a known and accepted fact. Numerous inquiries in a short period of time is reason code Y in the derogatory statements for Experian (Y - Inquiries impacted the score but not significantly), I know because I saw it on my own report!

This makes sense if you look from the perspective of the lender. If you are making numerous loan requests, which is essentially what credit card applications are, in a short period of time, they want to know why. People who need money are the last people banks want to lend to and, in this credit environment, this could result in increased rates or even push you into a group they won’t extend a loan to! So a $100 gift card in your pocket today, may have a significant downstream impact in your life. If you’re planning any major purchases that require loans, such as a house or a car, don’t do these offers. A $100 gift card is nothing if it raises your mortgage rate by even a tenth of a percent (or makes you ineligible all together!).

Another negative impact is that you’ve just opened a credit card you probably didn’t need. In the best case, you stick the card in your drawer after you’ve fulfilled the promotional requirements and you cancel it (that’s another ding!). At worst, you start spending on it and it’s another piece of plastic taking up another spot in your wallet or purse and another spot in your personal finance mind. That’s one more statement you’re getting, one more bill you have to pay, one more bill you have to scan over for problems, and it’s complicating your life all for a $50 or $100 gift card. A hundred bucks is nice but there’s something very Zen about simplifying your finances and maximizing your life.

Finally, most of the gift cards are to places you normally won’t shop often at, like furniture stores. In some rare cases, you might be able to get gift cards to a restaurant you frequent (or would like to go for special occasions) but most of the time it’ll be to a place you wouldn’t have otherwise gone to and be, unconsciously, compelled to spend more than the value of the gift card. If you have a $50 gift card, how many times will you be able to walk out with exactly $50 of stuff? How many times have you had a gift card, gotten close, but then looked for some piece of junk little $5 or $10 item to clear out the card? I know I’ve done it numerous times because I didn’t need $2.49 on a Bed Bath & Beyond gift card. That extra spending is probably not in your budget (it might only be $5 over… but still) but that’s part of their plan! (I may not have needed to tell you that the credit card company’s plan is to try to get you to spend more money… haha)

Credit card offers are just one example, a big example, of how a promotion may not be all that it’s cracked up to be, but it’s certainly the biggest one. So the next time you see any kind of promotion, always be aware of the downside before you sign up.

This post originally appeared on Gather Little By Little.

(Photo by chalkie colour circles)

In the pantheon of credit card reward programs you essentially had those cards which offered you straight cash back or those cards which offered you points that could be redeemed for various rewards. Until the last year so, I’d always used a cash back credit card rather than a points reward card because I wanted the discount. 5% cash back is a 5% discount, 5% in points might be a 5% discount if the reward program offered rewards I would’ve otherwise purchased with cash, but there’s never a guarantee. With 5% cash back, I’m guaranteed to get the maximum value out of it.

A year ago I signed up for the American Express Business Gold Rewards card because I needed a business credit card to segregate expenses (their sizzling hot $250 promotion helped too) and kept using it because it offered 5% off Yahoo products such as their advertising network. Without the 5% off (this was a direct discount, not 5% in points), I don’t know if I’d still be using it because it’s a rewards card that gave you 1% in points.

One side effect of my business spending is that we’ve been able to convert those points into gift cards at restaurants we normally would go to (though we wouldn’t go as often without them!). One such restaurant is Roy’s, a well-known Hawaiian fusion restaurant chain located near the Inner Harbor of Baltimore. In fact, we used those cards twice in Hawaii (once in Kauai and once in Hawaii Kai, Oahu) to entirely pay for our meals.

I can see the allure of these types of rewards program though, you get to enjoy all of the spending without any of the guilt.

What’s your take on different programs? Are you a strict cash back person or do you like rewards? Both? It depends?

(Photo by crispyteriyaki)

A lot of my friends are thinking about buying, or have already bought, a home this summer. If you’re planning on buying a house in the next year, check your credit history right now for inaccuracies (it’s free!). According to Consumer Reports, about 13 million inaccuracies are discovered each year, which means there’s a uncomfortable chance your credit report will have something wrong on it. Hopefully it’s something harmless, but if it isn’t then you’ll want to correct it asap.

Not buying a house for several months? This is actually the perfect time to check because it can take as many as 90 days to correct error (yeah, ninety days) because the bureaus need to research your claim.

Check your credit history for free at the government mandated AnnualCreditReport website. You can get a copy of your report once every year from each of the three bureaus. If you’re buying a house, I’d get all three at the same time to verify accuracy. If you aren’t and just want to use it, I’d stagger them out a few months so you can get a rolling 3-month old view of your credit history.

Happy house hunting!

Getting a good gas cashback credit card is the easiest way to save on gas, bar none. With gasoline prices increasing every single day, everyone is looking for ways to save on driving. Since you probably can’t sell your car and get one of these highest mileage cars, the next easiest thing is to get a credit card that gives you a little extra cashback on gasoline purchases. At the moment, besides specific gas station branded credit cards, I think the two best options out there is an American Express card and a Discover card.

The best option right now has to be the American Express SimplyCash® card because it offers 3% cash back on gas, office supplies, and wireless services and it credits the cash back automatically on your statement. You don’t have to request or wait for a check, you don’t have to find out what reward you want, everything is credited automatically (totally hands off cashback system FTW!). That’s a 3% discount off your gas with no catches, no gimmicks, no BS. The tricky part is that it’s a business card but anyone can apply for a business card. This is the land of opportunity and anyone can hang out their shingle, so enter your Social Security number as your Federal Tax ID and you’re golden (you’re technically a sole proprietorship, there are no additional tax forms to fill out to identify yourself as a sole prop and this is perfectly legal, check with a legal or tax professional and they will confirm this). I don’t know the criteria for approval so it’s just you and your credit score from here.

Other salient details of the card are that there is no annual fee (I won’t recommend a card with an annual fee unless there is a compelling reason) and they have a 0% introductory APR on purchases for up to 12 months. The card also gives 1% cashback on all other purchases and offers all the features and benefits of American Express’ OPEN network.

A close #2 is the card my wife and I use, the Discover® Open Road(SM) Card. The Discover Open Road card is a consumer card, so you don’t have to play business owner, and it offers 5% cashback on both gas and auto maintenance purchases. Whereas the AMEX card only gave you 5% on gas (and other business-like services), this one includes auto maintenance. Unfortunately, the 5% cashback bonus is only on the first $100 of gas and auto maintenance purchases a month! (Thanks Joe!). This makes the AMEX card a much better card. However, one additional perk of Discover is that you can get anywhere from 5% to 20% cashback bonus when you redeem your cashback in the form of a gift card from one of their retail partners. I used to get double cashback when I sold stuff on eBay because I’d convert my cashback for gift cheques to various stores I frequented. This card also has no annual fee and does offer a promotional 0% APY balance transfer until June 2009. This the card my wife and I currently use for gasoline purchases, but given the new limitation we’ll probably look for another one.

Update: How could I forget the awesomeness that is the Costco TrueEarnings card? If you get the Costco TrueEarnings Business card, you get 5% cashback on already cheap gas prices; if you get the Costco TrueEarnings regular card, you get 3% cashback on already cheap gas prices. You also get 3% back at restaurants and 1% back on everything else. The only downside is that there’s an “annual fee” in the sense that you have to be a Costco member ($50 annual membership).

Beyond that, you have a few cards that give gimmicky 12 month promotional cashback offers or are specific to a particular gas station company. I am never a fan of the limited time promotions unless the offer is especially juicy and I don’t want to be tied to a particular gas station, I like freedom.

What gasoline card do you use?

If you had a credit card, loan or credit account between January 1987 and May 28th, 2008, you are eligible to file a claim in a preliminary settlement of a class-action lawsuit (though not slated to be approved until September, though it’s probably going to happen). That’s a whole lot of people. The lawsuit was filed eight years ago in Chicago and alleges that TransUnion sold consumer profile information to businesses, which is a violation of federal law. What started in Chicago certainly didn’t stay there, eventually there were 14 federal lawsuits. Yikes!

(Thanks to Cap, if you used TransUnion or TrueLink between December 1, 1999 and April 16, 2007, you can get three months of credit monitoring through a settlement in the Robert V. Townes, IV v. TransUnion, LLC and TrueLink, Inc. case, deadline for that settlement is July 22, 2008)

What Do You Get?

You may be eligible for one of two options:

(1) Basic relief. Free credit monitoring for six months, which gives you daily access to your credit report and credit score and 24-hour credit-monitoring service. This normally costs $59.75. Those who elect this option may get a cash payment if there’s money left from the $75 million settlement fund.

(2) Enhanced relief. An alternative enhanced set of services” in exchange for a full release of claims. This options includes nine months credit monitoring, a suite of insurance scores and TransUnion’s mortgage simulator service. This option normally would cost $115.50. You won’t be entitled to any cash payment under this option. [Source: Phuong Cat Le of SeattlePI.com]

What Are My Option?

Option 1, basic relief, is the only one where you could potentially get money (if there’s any left over). If you elect basic relief you can get the free credit monitoring for 6 months or a $59.75 cash payment. I don’t think there will be any cash left over in the $75 million settlement fund (there never seems to be, plus you figure with the internet and how fast information spreads, you’ll get a pretty high percentage of the estimated 160 million eligible Americans registering for this).

Option 2, enhanced relief, has no cash out option and comes with three aditional months of credit monitoring, and a “suite of insurance scores.” There’s conflicting interpretation of “suite of insurance scores.” Some news outlets are reporting that it’s your credit score, others call it a different score that insurance companies use to determine your rates. I didn’t know that there were even separate scores (there may not be) in the first place. Bottom line, you will get a credit related number for free that you otherwise would’ve had to pay for.

My Thoughts

1. All the estimates put the settlement cost in the billions, yet TransUnion said they’d earmarked $75 million (this could always go up). They must not think people are going to sign up for this.
2. Option 1 seems more like a waste of time for the consumer and a boon for TransUnion. Getting credit monitoring for six months and then not renewing is like getting life insurance for six months and then canceling. Sure, you’re protected for six months but then what? Maybe you forget to cancel something or end up renewing the service, both earn money for TransUnion (turn a big long lawsuit in a money making venture, brilliant!). I wonder if we’ll hear complaints in six months (maybe I’m just cynical) about it. Nix that, no credit card will be required.
3. Option 2 seems a little better, though it still has the failings of Option 1, but you get to see some credit related score for free.
4. If you aren’t interested in either option, I’d register for Option 1 and see if you can get cash; that’s likely what I’ll be doing. I think we need to see the options all spelled out and finalized before reserving judgment.

How To Participate

First, you’ll have to register. After June 16th, 2008, you can register online at www.listclassaction.com or by calling them up at 1-866-416-3470. As of May 31st, the website doesn’t work yet.

Lastly, you can always get a free copy of your credit report, thanks to Federal Law, through AnnualCreditReport.com.

Last Friday I discussed the CEO of LifeLock’s appearance on the Today Show and how many of the services they offer are things you can do yourself. So, rather than leave it all vague, here’s what you can do for a do it yourself solution.

AnnualCreditReport.com

Through AnnualCreditReport.com, you can request a copy of your credit report from each bureau once a year. I generally like to stagger it every 4 months so you can keep up to date absolutely free. For example, get your Experian in January, then your TransUnion in May, then your Equifax in September, then Experian again the following January.

OptOutPrescreen.com

Visit OptOutPrescreen.com and sign up. This will significantly reduce the amount of junk mail, including credit card offers, you will receive. One of the biggest ways for your identity to be stolen is by stealing your mail and applying for all those “pre-approved” credit card offers out there. By reducing the number of mailings you get, you close off this leak.

Opt Out Of Internal Marketing Lists

One loophole in the OptOutPrescreen system is that companies with an existing relationship are still permitted to contact you - which makes sense. However, that means that if you have a Discover card, Discover will send you those convenience checks. If you have a Citi card, they’ll send you convenience checks.

I called up Citi and asked them how I could stop receiving those convenience checks. As it turns out, Citi has a central ‘Citibank Marketing List’ and you just have to ask to be removed from that. It takes 30 days to take effect but that will stop those mailings from appearing. Simply ask to do the same at all your financial institutions and they should be able to take you off. Scratch another headache off the list (you shouldn’t be using those checks anyway, so it’s a total waste of paper too).

Fraud Alert

Anyone can call up each of the credit bureaus (TransUnion, Experian, Equifax) and ask that they put a fraud alert on your account. This is a notation on your account that tells the creditor requesting your report to do additional due diligence. These are absolutely free but expire after 90 days, so remember to call back (set it on your calendar). The creditor is not required to do any additional verification, but they don’t want to get screwed so it’s better than nothing.

Freeze Your Credit

If the fraud alert isn’t hardcore enough for you, you can also put a total freeze on your account. Freezing and unfreezing generally costs in the $10 range, though it varies with your state.A credit freeze will stop the credit bureau from releasing your report without your consent. There are a few loopholes though, so it’s not 100% bulletproof. In certain circumstances, an existing creditor can still request your report so who knows. Perhaps if a scammer gets the stars aligned (or the creditor doesn’t care), they can still bust through this.

Here is what you need to do to place a freeze:

• Placing an Equifax Credit Freeze
• Placing a TransUnion Credit Freeze
• Placing an Experian Credit Freeze

Defending Yourself

To be honest, defending yourself requires time and that’s really the only thing companies like LifeLock can offer that you can’t get on your own. You can lay the groundwork but it’s a numbers game, if your number gets called then you have to deal with the estimated 25 hours worth of work required to fix things. One great resources it the Identity Theft Resource Center, staffed with volunteers to help you resolve your identity theft issues.

So, is $10 a month worth them dealing with the headache? That’s up to you.

Update: Sounds like LifeLock’s protection only applies to their own screw-ups… so it’s not even an insurance! You’re paying $10 a month for something you can do yourself.

(Photo: JJ & Special K)