This week I had the pleasure of chatting with Tess Vigeland of American Public Media’s Marketplace Money show, BeingFrugal.net’s Lynnae and Steve of Brip Blap for an upcoming segment on personal finance bloggers. It was a lot of fun and an honor to participate in a show that I listen to every week (I listen to the Morning Edition and daily show every day, Money is only on during the weekends) and a lot of fun to chat with Lynnae and Brip Blap . I don’t know when it’ll appear but I’ll keep you all posted.

Why not start the roundup right with a couple posts from Lynnae and Steve? Steve’s latest post is about work life balance. We deal with it here as well, my wife has a 40 minute commute that artificially inflates her “at work” time by an hour and a half each way. Fortunately her office is moving to a new facility five minutes away, but for many the answer isn’t that easy.

Lynnae has a great vacation tip for her Tightwad Tuesday series: rent a vacation home. You pay a little more but you get a lot more than if you go the regular hotel route.

Interviews!
I also had a little three question interview with Shark Investor in which I bared my soul, shared all the secrets I knew, and gave away money. I actually didn’t do any of that but I did answer three questions and had a good time doing it, go check it out.

Preparation Is Crucial
What separates the people who are financially successful and those that find themselves always mired in debt? Preparation. Money Saving Mom is a blog I just discovered that I absolutely love. Besides compiling all the great couponing deals in an easy to read manner, she’s also what I consider financially successful. I have no idea what her bank account balance is but it’s not important because of how she responded to a negative comment on her site. A commenter lambasted her about van and how she should just buy a new car. She could buy a new car, but she hadn’t planned or prepared for it… so it’s not going to happen. “But here’s the deal: while we have money in our bank account, we don’t have money saved or allotted for a new vehicle or even a used vehicle.” That thinking separates those that are financially successful and those mired in debt.

Do Not Mix Business With Friends
A post on Alpha Consumer caught my eye this week, it was a sad story of a friendship gone wrong in a business transaction. If you want a legal perspective on the case, Kim called on Kathryn Dickerson, a partner at Smolen Plevy, a Vienna, Va., law firm.

If you want my opinion, it’s that if you mix friendship with business, be very clear in expectations and get everything in writing to avoid conflicts. I’ve heard many a story where friends thought there was an understanding… until there wasn’t, because nothing was written down and memories fade.

Unlimited Usually Doesn’t Work Out
We, as human beings, are really bad at predicting usage and so this Consumerist article about NYC Unlimited Metrocards, which is highlighting a NYTimes article, isn’t that surprising. We usually overestimate how much we plan on using something and so the a la carte option, of paying as you go, may usually work out better than the unlimited option. Ahhh we are so predictably irrational!

Here are a few other great posts in the blogosphere you should check out:

• Lazy Man is selling his endorsement of Prosper loans to the highest bidder! Buy his endorsement and pay a lower rate, it’s totally worth it! (it’s a joke)
• SVB writes about the MPG illusion, fuel efficiency is on everyone’s mind with high gas prices.
• Nickel discusses freezing your credit, a great preventative measure if you don’t foresee needing credit (or don’t mind the hassle).
• Flexo wonders if we’re turning it around or is our market optimism a little early. Personally I think it’s early, all these CDOs still have to get unraveled and considering how corporate accounting works…
• I haven’t seen it yet but guess what Kung Fu Panda can teach you about becoming a millionaire!
• Need something cheap to do this weekend? How about this list of 100 free things to do this weekend from The Simple Dollar?
• Last but not least, Jeremy of GenXFinance writes from the front lines: Changing Your Risk Tolerance Based on a Bear Market.

Have a great weekend everyone!

I was reading No Debt Plan’s post about how you should only by appreciating assets on credit when I came to two conclusions: there aren’t many appreciating assets and, given the first observation, an asset’s value has more to do with its utility than its resale value.

There aren’t many appreciating assets out there in the first place. Besides your house, I don’t think there are many things regular people buy that appreciate in value. Regular folks don’t buy art, rare stamps, or other exotic collectibles (the collectibles they do collect are often of dubious resale value and people collect them for the fun, or utility, they derive out of having the hobby) and even if they did, the prospects of those items appreciating are murky at best.

Asset value has more to do with utility than resale value. When I buy a car, I’m certain it’s a depreciating asset, but I buy it all the same because it provides utility. Economists will argue it provides as much utility as its value depreciates (otherwise, if it provided more then people would pay more for it, if it provided less then people would pay less for it) and they’re right. Remember that buying a car affords you the ability to widen your geographic reach. The most important reason for widening your geographic reach is that it increases your employment prospects (it also gives you more options when you buy more depreciating assets!). So, while you are buying an depreciating asset, it could be provided you with a job opportunity that earns you more than if you didn’t have the car.

Lastly, don’t call your car a depreciating asset, I’m pretty sure it hurts her feelings.

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)

Look! It’s a new credit scoring system for the credit bureaus! Isn’t that great!? It is, except it doesn’t address any of the problems I see with the credit reporting industry. In my mind I have a set of features I think all the credit bureaus should institute if they want to clean things up and make life easier for everyone. As great as that sounds in principle, the problem is that consumers aren’t the primary customers of credit bureaus; banks, credit cards, and other lenders are. All the features I’m about to list are ultimately great for both parties but I think the bureaus are too short sighted to realize this, but I’ll scream into the abyss and ask for these things. Maybe Congress can do something useful and force them offer these. (some of these features may or may not be already available, I haven’t checked, so let me know it’s already available!)

Easily Freezing and Unfreezing Your Account

This is one feature that companies offer nowadays and some states require it, but ultimately it’s very difficult to do. The bureaus should offer online account access that lets you freeze and unfreeze your account with the click of a button. You don’t want credit, tell them to freeze your account and not to let any requests through. If you want credit, log in, unfreeze it, apply for credit, when you’re granted it, freeze your account again. Yes, I understand that that credit bureaus want you to pay for this service but when they’re giving away your information for a fee, it’s not unfair for them to offer this simple service to you.

Email Notification of Inquiries

At a minimum, set up a service in which credit history requests trigger an email that gets sent to an email account of your choosing. Again, I realize that this has costs associated with it but roll that into the cost of a credit inquiry in the first place. It can’t possibly be all that expensive, per inquiry, to set up a system in which an email can be sent out.

Option To Accept or Deny Inquiries

Now, let’s say you opted to keep your account unfrozen, you get email notifications, what if you could accept or deny inquiries? You could deny all those unsolicited credit requests but keep all the legitimate ones, hopefully you can keep them straight in your head.

Reject Non-Perfect Inquiries

When I reviewed my credit recently, I had an incorrect address and two social security numbers listed on my account. I thought to myself - “how could I possibly have two social security numbers!?” When I asked the bureau, they said that sometimes that happens and that errors often result in inaccuracies in one’s history. The social security number was close but one number was wrong, isn’t that grounds to deny a request? Apparently not! Apparently, according to the CSR, it happens all the time. Well, I think it shouldn’t happen all the time and that it should happen, um, never.

If Nothing Else, How About A Password

So you apply for a credit card, enter in your credit bureau password. If nothing else, this is the easiest way to ensure that the request legitimately originated from you in the first place. This seems so simple to me that it should’ve already been implemented.

How This Helps Banks, Lenders, Credit Card Companies

Financial institutions shouldn’t be trying to deluge every single person in the world with credit card offers, they should be deluging those people who want to be deluged. It’s called targeted advertising, it’s why beer commercials are shown during football games, it’s why jewelry commercials are shown during the holidays and Valentine’s Day, and it’s why you see clothing and fragrance ads in men’s and women’s magazines. You might get a few errant signups by shotgunning the masses but it’s far more effective to send offers to those who are interested.

Lenders may complain that this will slow the credit process down (and these will), but if you’ve been reading the news, don’t you think it the market could’ve used some slowing down? Credit was flowing too fast for too long and now the likes of Citi, HSBC, Bank of America, Countrywide, and company are feeling the pinch. Slowing down isn’t necessarily a bad thing, unless you’re the one waiting to be bailed out. How is this related? Sometimes what you expect to be bad, in this case a slowdown in the credit approval process, might actually be good.

Most savvy consumers have learned that paying with credit cards can earn them hefty benefits such as points good for straight cash or other goodies like gift cards. While credit card companies do provide fraud protection, typically $0 liability but at worst $50 liability, there is something very protective and romantic about the old greenback. When you hand over a twenty dollar bill to the kid behind the register pay for something, your liability is limited to twenty dollars. That kid can run off with your portrait of Andrew Jackson and you never have to worry about him silently stealing more Jacksons (or Hamiltons or Benjamins) out of your wallet or purse. Moreover, you never have to call up the U.S. Mint and argue over how you never purchased that all inclusive vacation package to Antigua or the 9283049823″ television.

Now, there are a lot of good arguments for using credit cards, such as warranty protection, cash back, etc; but hardly anyone, except those fighting debt, argue the other side… the Devil’s Advocate side.

I drew the motivation for writing this article after reading another article elsewhere warning that you shouldn’t pay for a U-Haul rental with a credit card because they will charge you after the fact for add-ons and other “penalties.” (the website claimed this was a relatively standard U-Haul practice that I can neither confirm nor deny) While you can always challenge these fradulent charges, and you likely will, that takes time and will probably ruin your day. No one likes ruining their days.

Shady Businesses/Employees Can’t Screw You Over Later
This is the biggest reason why you may wish to consider using cash at some institutions. First, even if the business isn’t shady, a rogue employee can steal your credit card information and commit all types of fraud with it. Secondly, if the business wants to ding you for extra fees they have practically unfettered access to a pot of money with your name on it. Is that ethical? Perhaps not but that hasn’t stopped companies from doing it before.

Cash Is Very Real, Spending Is Very Real
Do you know why casinos use chips and not just cash? It’s because you don’t identify money with those chips just as you might not identify money with the credit cards when you spend it. It’s a very powerful concept that both industries have learned and it’s something many debt fighters out have been saying for years. It’s so much easier to spend on a credit card because you get immediate gratification but none of the “work” until the bill comes at the end of the billing cycle. If you use cash, you think twice before handing over real money (even though it itself is a symbol of purchasing power) because it’s real. You remember what you did to earn that dollar and you won’t let it go so quickly as you would with credit.

Liability Is Limited
As I mentioned earlier, your liability is limited to what you actively and knowingly hand over. Sure you give up that wonderful 1% in cashback benefits, but you also give up 100% of the possibility that someone can steal your card and buy all sorts of stuff with it without your knowledge. Even with $50 liability, that’s still a headache you can avoid if you just use cash.

Cash Is Faster
We’re not talking light years faster as studies have shown the difference between a credit card transaction and a cash transaction is only a few seconds (we’re talking retail sales) but when you add that up over your lifetime, that’s precious days added onto your life. You like extra days right?

Ultimately, the case against credit cards is tenuous because they truly are powerful vehicles if you are careful with them and use them responsibly (I sound like Yoda) but sometimes it may be safer just to use cash. You don’t have to swear off credit cards entirely but there may be situations where using cash is a safer option from a liability perspective. Thoughts?

There are many debt reduction strategies out there but the idea is that you should be using your extra money to pay off the debt. I know there are people out there who are making the mistake of opening an Emigrant Direct account, putting in extra money, and not paying off more than the minimum payment on a credit card bill. They want to believe they’re getting that 4% interest and the fact that their credit card is only increasing isn’t something that they consider. So let’s do something very simple, let’s figure out where your next dollar should go: savings or bills?

First step is the list all of your debt, its associated rate, and order them in descending order by rate (these are imaginary):

Now list all of your accounts (savings, checking, etc):

Now order the whole table together, coloring the assets in green and the debts in red.

If you have any red accounts above a green account and that green account isn’t your emergency savings or otherwise earmarked for something important, you should take all the money from the green account and pay off the highest red account on your list. You should also do this from the bottom up. So in the case above, I’d liquidate the Bank of America Savings account and put it entirely towards the Best Buy Credit Card. (I assume checking is merely for day to day needs and doesn’t hold a sizeable amount)

Why this strategy? Because the debt is growing at a faster rate than the asset, so it would make more sense to put that asset towards slowing down the growth of your debt. Putting money in a savings account while keeping a larger interest debt account is like taking one-step forward and five steps back.

If you want to take it to the next level, you should adjust the rates to reflect what they are after tax benefits (or disadvantages). For example, the mortgage interest rates are actually a little lower because you can deduct them from your income and receive a rebate of some kind. However, that also lowers all your interest-bearing accounts as well because you need to report those at earnings and they will be taxed.

This all seems like common sense but sometimes people just don’t list every account they have and don’t realize they’re saving money at 4% but paying a debt at 20%.