Grad Money Matters: Credit Cards

What to Look Out for Before Transferring Balance to a Credit Card

A balance transfer offer from a credit card is a great way to either save some money or to make some money. For example if you have $1000 in debt with 18.99% APR interest rate, and you estimate that it will take you a year to pay off that debt, then over the course of the year you will pay $105.82 in interest (using this calculator). By transferring that balance to a credit card with a low rate (more details about this in a bit) say 3.99%, over the course of the same one year, you will end up paying only $21.74 in interest. In which case you save $84 in terms of interest paid. If your debt amount is higher, the savings can be higher as well.

If you are debt free and want to leverage the credit card offers, then you could accept a credit card offer with 0% APR and transfer the money to a high-yield online savings account and make some money. Last year, I made around $2,000 from credit card arbitrage, so this can be quite lucrative if you follow the rules of the game. Anyway, irrespective of whether you plan to pay off your debt or make money using credit card arbitrage, here are some things to look out for before jumping on that balance transfer offer.

What is the interest rate?
Obviously the first thing to look for is the interest rate. If your intention is to do credit card arbitrage, then you want a card that offers 0% APR. There is no argument about that. If on the other hand, you are looking to do a balance transfer to reduce the interest you are paying on your debt, then you must go for an offer that provides the lowest possible interest rate, even though it may not be zero. If you do not have any offers in the mail yet, you might be able to call one of the credit card companies for the cards you already own and request for an “introductory” low rate for transferring balances. Make sure that the credit card you are transferring balances to does not already have a balance since the payment you make each month will always apply to the balance with the lowest interest rate.

What is the balance transfer fee?
Most credit card companies today charge a balance transfer fee. In some cases they may waive the fee for the first balance transfer, which is great. More often than not though the fees are around 3% of the amount transferred with a maximum cap of ~$50 to $75. You need to watch out for these fees carefully since they can completely obliterate any benefits you were expecting from making the balance transfer. For example, if you plan on doing a credit card arbitrage, paying 3% in fees while earning 5% in interest may just not be worth it! If you are planning to pay off debt, if your original debt was at 18.99% APR, but the new offer is for 16.99% with a balance transfer fee of 3%, you may actually end up paying more! So, pay close attention to the balance transfer fees.

How long is the introductory rate valid?
Most introductory rates are valid from 3 months to 18 months. If it is 3 months, it is probably not worth it to pay the fees and transfer balance. The 18 month balance transfers are a very rare breed. 9 to 12 months is more of the norm. So if you have an offer in mail for a 3 – 6 month introductory period, I would suggest passing it up and continue to pay your balances on all your cards. Sooner or later, you will start to receive juicier offers with longer introductory period.

What is the interest rate after the introductory period runs out?
If you are looking for a credit card arbitrage, then this should not matter since you will either pay off the balance or roll over the amount when the introductory period ends. But if you are looking to use a balance transfer to pay off debt you need to pay particular attention to it. Again, let us use the same example as earlier – a debt of $1000 with 18.99% APR, but assume that it will take you 2 years to pay off that debt. Now with all numbers rounded up, you will end up paying around $209.69 in interest over the course of the two years (again, using this calculator). Now, suppose you transfer the balance to a card with 9.99% APR for 9 months and 26.99% APR after that. Also, let us assume that the balance transfer fee is 3%. In that case, over the course of 2 years you end up paying around $215 which is more than what you would pay without the balance transfer!

What is the minimum payment?
Ideally, it is better for your credit score if you can always pay a little more than the minimum payment. So, irrespective of whether it is a credit card arbitrage or whether you are paying off debt, you need to be able to make a little more than the minimum payment. In the worst case, even if you can't make additional payments, you should always make at least the minimum payment before the due date in order to ensure than you introductory rate stays valid. Different credit card companies charge have different percentages for calculating the minimum payment usually in the range of 2 – 4%. So if you are transferring the balance from a company that computed the minimum payment as 2% of the balance to a company that computes the minimum payment as 4% of the balance, your monthly required payment doubles. If you have a very tight budget, make sure you have taken this into consideration.

Is there any requirement to qualify for the introductory rate?
There have been some credit card companies that offer an exceptional low APR with low balance transfer fees for a long term etc, but they come with a trap. You are usually required to make at least one purchase (sometimes three) using that card each month. The catch here is that, purchases are charged a higher interest rate than the balance transfer, and any time you make a payment, it will apply first to the amount at lowest interest rate (in this case the balance transfer offer). The trap here is that, if you forget and make a large purchase, you will end up paying a huge amount of interest on that purchase. Or, if you forget to make any purchases, your introductory APR is no longer valid and your interest jumps up quite dramatically. I personally stay away from such trap cards, but know of several people who have played the arbitrage game with such cards for years. So, it is up to you to decide if this is a biggie or not.

What are the default policies?
There are two things you need to be aware of here – the default rate, and the universal default policy. Default rate is the rate that applies if you do not meet the conditions for the introductory offer (eg. missed making the minimum payment before the due date). Universal default policy means that the credit card company can jack up the rates, even if you missed a payment on some other credit card, by an entirely different company! If you are doing a credit card arbitrage, then hopefully you have the money tucked away in a safe online account with relatively easy access. In that case, the default rate does not matter so much, but you may still want to avoid a card with the universal default clause, if your credit card arbitrage involves more than one card. If you are paying back debt, then you should pick a card with the lowest default rate that does not have the universal default clause.

If used properly, balance transfers are a great way to save or make some money. But the credit card companies have devised a ton of traps to make sure they can stay in business. If you plan to use the balance transfers to get out of debt faster or to make some money via arbitrage, make sure you know all the terms and be prepared for gotchas. Watching out for the items on the list above should be your first step. But do not stop at that. Keep reading on this topic and be prepared for whatever the credit card companies throw at you next!

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Low interest credit cards can help you to save money and prevent incurring of debts.

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Should You Get a Store Credit Card?

(This is a guest post by Jim Corbett.)

Sometimes it seems that, wherever you go, someone’s trying to issue you a credit card. This is especially true of discount and department stores, which tempt potential cardholders with promises of hefty up-front savings.

But what is the long-term value of these cards? How can you tell if they’re right for you?

Store credit cards have pros and cons. Experts agree that you should avoid them if you’re likely to carry a balance, if you already have several credit cards, or if your credit score can’t afford a twenty point bruise simply from obtaining a store card!

Interest rates are definitely something to consider before you get one of these cards. Store credit cards have interest rates that are, on average, six to ten percent higher than those of bank credit cards. This isn’t such a big deal if you pay off your balance in full each month. But cardholders who maintain a balance will quickly find that their initial savings are being lost to interest charges. This defeats the purpose of a store credit card, which is to help you pay less for your store purchases.

But there are some good reasons for getting store cards. If you have a favorite store where you’re likely to use the card on a regular basis, getting a credit card from them could be beneficial. Some stores offer substantial discounts to cardholders, in the form of specials, coupons, bonus points, advance notice for upcoming sales, and discounted goods and services. These savings can add up. They also tend to be easier to obtain than a bank issued credit card and can be good for those wishing to build their credit history.

It has been estimated that 500 million store credit cards are in circulation at any given time, and most of them were issued during the holiday season. When you’re frazzled from gift shopping and alarmed by your dwindling bank account, the ten or fifteen percent savings you could get by opening a store card might sound like a good deal. And it can be – provided you pay off the balance before you accrue interest.

Always read the fine print before filling out any credit card application.

Also remember, if you sign up for a store card, you might be signing away your privacy. Some stores are notorious for selling your contact information to third parties, who will then use the information to bombard you with marketing material. Once you are placed on a marketer’s list, you might find it difficult to get off again – and you might regret selling your privacy for that ten percent discount.

Jim Corbett is the CIO of Credit Web which offers Student Credit Cards as well as offering an in-depth supply of credit related information.

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How Much Credit Can a Student Get?

Turns out almost $130,000 based on what this high credit IQ student has managed to do!

First for some background information. As you might know I am a huge fan of credit card arbitrage. There are two ways to do this. (a) Build up your credit slowly and accept an offer every now and then (my preferred approach) or (b) an App-O-Rama. For those of you who are unfamiliar with it, an App-O-Rama, is a word coined on the Fat Wallet Finance Forums (as far as I know) and involves applying for many credit cards in a short period of time, mostly within a day or two. Since the credit enquiries will take at least a day to percolate back into your credit history, this gives you the best chance to get approved for multiple credit cards before your credit score takes a hit. This is the approach taken by Paul, the student mentioned above to obtain almost $130,000 in credit!

Now, maybe Paul knows what he is doing. In which case, I would like to say to him, congratulations and good luck. He has plans of parking the cash in a high yield savings account and earning $600 in interest per month. That is great! But for every student like Paul who makes $600 from credit card companies, there must be a hundred or maybe thousand more that pile up $600 in credit card debt. That bothers me!

Let’s take a closer look at the credit lines Paul was approved for. The highest credit line Paul received was $25K! There were 2 more cards with credit limits higher than $15K and 6 more with credit limit in the range of $8K - $10K. Agreed that not many students are going to attempt an App-O-Rama and gain access to a large amount of cash like Paul did but each of those individual credit lines, in the wrong hands is enough to ruin lives! It might be legal for credit card companies to grant such large lines of credit to cash strapped students. But is it moral?

Sometime back Golbguru at Money, Matter and More Musings had written a (sarcastic) article saying there must be a test to qualify people for credit. I had a good laugh at it then, but now I think I agree. Here is an example of a student that Golbguru mentioned –

“I had Visa, Visa MasterCard, First Financial Bank, Visa, Gap, Target” says college senior Sara Magee. She was lured at 18 by the promise of a free Frisbee. A dozen credit cards later, she’s working three jobs to pay down $6,000 in charges, fees and interest.

“I didn’t understand interest and what a high APR was — I really just didn’t understand the concept, and it seemed like a good idea — like (I) can’t afford it now, but I will pay it off later,” she says.

Now imagine if Sara was approved for credit cards with limits more than $10K!

So what can we do? Well, the qualifier test Golbguru suggested would be a good idea, even though it might be a difficult to determine who exactly offers those tests. Here are a few other ideas -

Parents should proactively teach children the intricacies of credit cards so they are prepared for and educated about it when it comes for them to get credit cards.

Colleges and universities should take proactive steps to ban credit card companies from luring kids to apply for credit on college campuses.

People should be required to use a debit card for a certain number of years before being allowed to apply for a credit card.

People should have small *combined* credit limits for a while and prove they can make payments on time and not carry balances before being approved for larger credit lines. These days credit card companies do check whether you should be allowed credit based on your credit history, but instead of declining you credit, many just offer you more credit with higher interest rates. That to me feels predatory!

Offering $25K individual credit lines to college seniors (and $130K in combined credit lines) sends out wrong signals - that it doesn’t matter how long it will take you to pay it back or even if it will ever be possible, but here you go, enjoy it now! How long before some "party animal" college students find out about the App-O-Rama and start abusing it? Here is a excerpt from Paul's introductory post -

I wanted to be able to have an online diary where I will be updating my progress every couple of days as I try to make thousands of dollars per year just like many others have successfully done so before me. I will share the good the bad and the ugly as I take on this new project and hopefully it will help everyone out there trying to make a few extra bucks whether it’s to help pay for their college, car, hour, or an expensive coke habit :)

(emphasis on the last part of that quote by me).

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Low interest credit cards will cut your expenses!

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Free Round Trip Airline Ticket + $100 Gift Card to Apply for a Credit Card

As of last month, I have $55,000 in credit card arbitrage. I started to get worried that I am getting addicted to this game and getting too greedy. So I resolved not to apply for any more cards until the offers on the current cards expire and I need to move the money. But then I came across the offer mentioned below and could not resist the temptation. I fought hard for a week and finally gave in. Now I put the ball in your court :)

Details of the deal -

The card: AMEX Gold Business Card. (Don’t shy away from the term “business” just yet).

The offer: 25,000 Membership Rewards bonus points (redeemable for one round-trip airline ticket or $250 Home depot gift card or $125 Amex gift card etc.) + $100 tigerdirect.com gift card. Annual fee waived for first year.

The icing on the cake: Easy online application process with instant approval.

The URL: Apply here (not an affiliate link)

Acknowledgments: The credit for this deal goes to Leeskey711 at Fatwallet who posted this offer in this thread. There is tons of information in that thread to answer most of your questions.

The FAQ: Questions below summarize some of concerns related to this particular offer.

I do not own a business. Can I apply for a business card?

If you have a blog, sold something online or offered any paid services (eg. lawn mowing) that can be verified, then legally you qualify to be a sole proprietorship. When you apply for the business card, use your full name as the business name and the SSN as the tax id.

What about the annual fee?

With this offer, the annual fee for the first year is waived. From the second year, the fee will be $125. I think Amex will offer you another 10,000 points for continuing to use the card beyond the first year of fee-free service. So it is up to you whether you want to continue to use the card beyond the first year or to cancel it.

How will this affect my credit score?

From my understanding of this thread, (and someone please correct me if I am wrong), the business credit is kept separate from personal credit. Your personal credit history will still be pulled (hard pull) before you are approved for the offer. However, the criteria used for personal credit such as utilization do not come into play while being approved for business credit. I have read in the above FWF threads that for the particular AMEX offer mentioned above, approval is fairly easy. I am not sure how the credit score will get affected if you cancel the card before the one year of fee-free service is up though. Frankly, in our case, we don’t plan to apply for any major loans in the near future and so if we don’t use our good credit scores to take advantage of offers like these, I don’t know what good a high credit score is for. If you have a different situation (eg. plan to buy a house or a car in the next year or so), I would highly recommend that you do more research into this and see if it is still worth it for you.

Do you believe everything that you read in the Fatwallet Finance forums?

Honestly? Yes :) But that’s just me. If you don’t, then you should look around of more information until you come around too :) Initially, I didn’t believe much of what I read, and spent hours browsing on the web to verify anything that I read on FWF. Now I am not so suspicious. And ever since I switched to the “finance” forums from the “hot deals” forums, I have managed to make quite a bit of money (mainly from CC arbitrage), instead of blowing it on junk just because it was on sale. There are a few guys out there whose opinions I really respect. And the community as such is obsessed with these games, and makes sure that they point out when someone makes a mistake. Overall, I think it’s a more reliable source for information (especially for credit related stuff) than random browsing on Google.

OK. I am done gushing now :)

Coming back to the offer, both the better half and I have applied for a card each and received the instant approval. We have also received an acknowledgment mail from tigerdirect.com to verify our email address. Now I am off to dream about what to do with 50,000 reward points and $200 gift cards :)

PS: If you are curious to find out more about the “business card” related issues, I highly recommend reading this thread the credit for which goes to MikeR397 at Fatwallet.

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Apply for a credit card with airline miles.

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Campaign Against Financial Myths:
Part 5 - Credit Cards & Credit Score

(This article is a part of the series aimed at dispelling some of the popular financial myths. Please refer to the full index for myths related to other financial topics. Oh, and a quick disclaimer: I am not a financial advisor. I have made every effort to research the facts before presenting them here. But, if you have a reason to believe any of the statements are incorrect, please feel free to correct me.)

Myth: “I need to carry a balance on my credit card to build credit history”

Myth: “I will be liable for all the charges if someone steals my card and runs up a huge bill”

here

Myth: “Checking my credit report will reduce my credit score.”

annualcreditreport.com

Myth: “I should cancel some of my cards since I have too many.”

this article

Myth: “I have fixed APR on my card – that means I have locked in the rate for life.”

Myth: “Once I payoff a collections account or an account included in bankruptcy, the negative record will be erased from my credit history.”

Experian FAQ

this article

Myth: “I only need to pay the minimum payments each month.”

the true cost of paying the minimum

Myth: “I cannot keep up with my credit card payments – so I will consolidate all of them using a HELOC.”

Myth: “Having a rewards card will save me money.”

Myth: “Credit cards are necessary for online shopping.”

must

Myth: “My divorce agreement states that my spouse is responsible for the debt on our joint credit accounts. If he defaults, I will not be responsible.”

divorce and credit

Myth: “If you are only an authorized user and not a joint owner or co-signer, then your credit report will not be affected if the primary holder defaults.”

this bankrate.com article

Myth: “If I marry someone with a bad credit score, then my credit score will go down.”

Myth: “Credit repair agencies can help fix my bad credit history.”

Myth: “Accepting pre-approved cards does not affect my score, since well, the offers are already pre-approved.”

Those are some of the popular myths and misconceptions about credit related matters. Over the next few weeks, I will cover more about the common myths in other finance-related topics - so stay tuned. Once the series is complete, you should be able to access the full list of myths via this index.

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It's time to dispel the myths about credit cards and credit scores. While student credit cards offer lower rates, they have lower limits and aren't available to everyone. Cash back credit cards are great too, but do some research before you sign up for one.

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Find out all you need to know about credit card deals on-line.

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10 Ways to Save Money While Using a Credit Card

(This is a guest post by Greg Mischio via mortgageloan.com. Greg has been writing financial articles for over 15 years. Based just outside of Madison, WI, he has written for several online financial news sources, including the CUNA Mutual Group, Parson Consulting, and MortgageLoan.com.)

Looking for surefire ways to eliminate some credit card expenses? Here are 10 tips that will prevent cash from jumping out of your pocket and into your balance.

You better shop around. It sounds simple enough, but for some reason, people go with the first company that grants them a credit card. Be patient, shop around, and find out who’s offering the lowest rate.

Use a balance transfer. If you’ve currently got a balance with a card that charges a high interest rate, consider transferring the money to another card. Many companies will give you an extremely low rate on your transferred balance.

Eliminate the annual fee. It used to be that annual fees provided the lion’s share of a credit company’s profits. Now that the market has grown so competitive, many companies no longer charge an annual fee for the card. Seek them out.

Cleverly handle multiple balances. If you carry multiple cards, pay off the balance of the card that charges the highest interest rate. Then, cut up the cards that charge the most.

Divide by two. Instead of carrying multiple cards, carry only two. Use one to take advantage of rewards programs offered by the credit card companies. The second can be used for emergency situations.

Don’t carry a balance. Credit cards aren’t the cheapest lending tool on the market. Interest rates are almost always higher than that of a home equity loan. As a result, avoid carrying a balance on your card. If you find you’re unable to pay off the balance at the end of every month, reduce your spending, increase your income, or better yet, do both.

Ask and ye shall receive a better rate. Don’t underestimate how important you are to a credit card company. Make them an offer: Tell them that if they can’t give you a better interest rate, you’ll be forced to take your business elsewhere. You’ll be surprised at how many companies will provide you with a lower rate.

Avoid the cash advance. Every time you receive one of those cash advance checks from the credit card company, deposit them in the recycling bin. The rates charged for a cash advance are much higher than the rate you pay on your balance.

Consolidate with a home equity loan. If you can’t make your monthly credit cards payments, perhaps you need to wipe the slate clean. Take out a home equity loan to consolidate your debts, and then reestablish a spending budget commensurate with your income.

Make your payments on time. There’s nothing more damaging to your credit score than making a late payment. If you’re late, your credit score will feel the impact, and your buying power will be limited down the road.

By following these tips, you’ll be able to keep more of your cash in your pocket. And that should reduce your dependency on plastic.

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Learn how to build credit!

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Make These Small Changes in Everyday Habits to Reduce the Risk of Identity Theft

It may never be possible to entirely eliminate the risk of identity theft. But you can make it harder for the thief to get to your identity. Hopefully, hard enough that he goes looking for some other easy victim and leaves you alone. At the very least, make sure you don’t serve up your identity to the thief on a silver platter. Here is a checklist of some of the small changes in every day habits that can reduce the risk of identity theft significantly.

Shred any documents containing personal information before throwing them away.

You can get paper shredders for as low as $7.40. And yet, I am surprised how many of my friends don’t use them! The mail you throw away everyday is a gold mine of information for an identity thief. Your bills and statements can provide a lot of personal information. If you have any pre-approved credit-card applications, the thief can easily open a new account with his/her address and you may never even find out about it until you apply for a loan and get rejected! If you can afford it, get a cross-cut (or confetti) shredder. If not, at least buy a cheap strip-cut shredder and make it a habit to run any papers with personal information through the shredder.

Be conscious about the places where you leave your personal information lying around unconsciously.

Most of us do not leave personal information lying around consciously. Its times when we are not consciously aware that can come and bite us in the back later. For instance, I had a bill that needed to be taken care of during business hours, a time when I am usually at work. So I took the bill with me to work but after paying it off, I put it in my desk drawer. Usually my desk drawer only has a bunch of office supplies and so I never really lock it. Over a period of time, several bills stacked up there. Recently, when I was cleaning my desk, I realized my mistake and brought it back home with me to be shredded. I don’t know how many people had access to that drawer in the mean time, and I sure hope to god, none of them bothered to open the drawer and look for forgotten bills! Watch out for such unconscious mistakes. Other common mistakes – leaving your wallet in insecure lockers at the gym, leaving your papers in your car where they can be read or stolen easily, leaving mail with your personal information in an unwatched “out” tray for pickup, leaving your computer unlocked when you step away from the desk, etc.

Do not carry more than 2 to 3 credit or debit cards in your wallet.

According to the myFICO website an average consumer has a total of 13 credit obligations on record at a credit bureau, of which 9 are likely to be credit cards. If you are an average Joe with 9 cards, I would recommend leaving 7 of your cards at home in a safe place. That way if your wallet is stolen, it will be a lot easier for you to contact your credit card companies in a timely fashion and put a hold on your accounts.

Check if the credit card receipt before discarding it away.

We have a small local deli near out office. The food is good and it is quite convenient to go there for lunch. After paying for my food, out of habit I routinely checked my credit card receipt before throwing it away. To my surprise, my *whole* credit card number was printed on it! Not many people realize that some older credit card machines still do this. And since the bill is usually for a small amount, they just throw away the receipt without paying too much attention. How much easier can it get for a thief looking for a credit card number?

Check your bills carefully.

This is in general a good practice – not just for preventing identity theft but even from a personal finance perspective. When you receive your monthly bills, make sure you look through all the charges. For an ID theft perspective, make sure that it was you that actually made those charges. A charge that you did not make could be the first sign of victimization. By taking immediate action, you may be able to nip it in the bud.

Be careful about information given on the phone.

First off, never give out any information unless *you* initiated the call. Second, before giving out the information, check what it is for. Especially, if the request is for your SSN, check if you can use some alternate number, and unless it is absolutely necessary do not give away your SSN. Third, make sure you are not within someone else’s earshot when you call out your SSN, credit card number, your mother’s maiden name, etc on the phone. Finally, do not have the person repeat back the information to you, since you don’t know who is within the earshot of that person.

Be careful while using debit cards at ATM's, grocery checkout counters, gas stations etc.

Watch out for "shoulder surfers" who can memorize your card number and the pin and have easy access to your money. Do not hold out your debit card in a position that it may be easy for someone to read the numbers. Shield the keypad with your body while you enter your pin. Do not hesitate or be shy to tell a person to back off if they stand too close to you wile your enter your information.

Utilize the security options provided by your credit card!

As soon as you get a new credit card, sign the back of it. I don’t know how much this helps though. A quick detour for a short story: Both my friend and I used to have a similar credit card. At a restaurant we both paid using our credit cards. When we put it away though, somehow the cards got exchanged. We used the other person’s card for two full days without either of us, or any of the cashiers noticing it. When the monthly statements came we checked to see if the credit card company had realized that the bills were signed by an entirely different person, but there was no notification. So, yes, the signature is out there to protect you. But no, it does not always do so. So if possible try and get a card with your picture on it. And when possible set up security questions for which the answers are hard to guess.

Freeze your credit report if possible.

Some states allow the credit report to be frozen. Here is a list to check if your state offers this. If so, consider freezing your credit report. What this does is, it prevents anyone from accessing your credit files unless you give explicit permission by unfreezing your account for a short period or by providing access to a particular credit. This can prevent a thief with your personal information from opening an account with your SSN and running up a huge debt.

Obtain your credit report from each of the three major credit bureaus once every year and review them thoroughly.

By law, you can get a free copy of your credit report each year from each of the credit reporting agencies. Since there are three credit agencies, once every 4 months, request for a copy from one of the bureaus. If you are unfortunate enough to be a victim, at least make it a little easier on yourself to recover by catching on as early as possible.

Do not use unlocked mailboxes.

Which one do you prefer? An ornate and pretty old-fashioned mail box in front of the house or the ugly post office installed box at the end of the street? Ugly it may be, and a lot farther from your home – but a post office installed mail box can be a lot safer than an old-fashioned box in front of your house. If you have to use a mail box in front for the house, make sure you install a locked box which is harder to tamper with. Also, before going away on long trips make sure you have your mail held at the post office.

Protect your computer

Set up firewalls. Install and regularly update your anti-virus software. Protect any files with sensitive information either with a password or encrypting them. Have a separate “guest” account for use by guests. Disconnect Internet connection when not using it. With so much of information available on your computer (not just the files you save, but cookies and other information that is saved without your knowledge also), think of protecting your computer in the same terms as protecting your home. Would you leave a door or window open? What kind of locks and keys would you use? Who would you let in? Did you realize that when you downloaded that freeware, the thieves may have installed a back door?

Be careful while creating and managing passwords (and PIN numbers).

Make it a habit to choose passwords and PIN numbers that you can remember without writing it down, but at the same time it is hard for someone to guess. Do not use birth dates, anniversaries, SSN(!), mother’s maiden name etc in your password or PIN. An easy way to make a password that is difficult for someone else to guess but easy for you to remember is to use a combination of small and capital letters along with numbers and symbols (@ instead of a, or $ instead of S, etc). Avoid dictionary words. As part of a computer security class I had taken in school, we chose to evaluate the security of one of the servers as our term project. One of our tasks was to try and crack passwords. I was amazed at how many passwords could be cracked by simple open source software while we enjoyed a cup of coffee and looked on!

Make sure you don’t write down your password. Especially avoid having post-it notes with your password or pin lying around on your table, in your drawer, stuck on the computer monitor, saved in the wallet ( yes, some people do that!!) etc. Whenever I create a new account, I usually mail myself very cryptic clue that will help me remember what password I used, but never actually save the password itself.

Avoid having a shared drive on a personal computer that also has personal information

When I was in school it was very common for everyone to have some sort of peer-to-peer file sharing software on their computer. Many of these software set up a shared drive on your machine. This can easily expose your computer to crooks and hackers. One does not even have to be too sophisticated these days to hack into a computer. Exploits for any computer with any configuration are easily available for download, if you just know where to look (ever heard of script kiddies?). Oh, and flash news – if you have a teenage child at home, you will likely have some of these peer-to-peer software already installed on you computer!

Do not click the links in an email to access you bank, credit card, brokerage account etc.

When you receive mails from your bank, credit card account, brokerage account etc, make it a habit NOT to click on a direct link in the mail. Most financial institutions these days have a policy that they will not send a link to you embedded in an e-mail. So the mail could very well be an attempt at Phishing. So, to be on the safer side, always type in the address directly, or use your stored bookmarks.

Finally, be careful while disposing or selling your personal computer.

This is not something you will probably do everyday, but when you do it, be very wary. I would recommend removing the hard drive before selling or disposing your personal computer. Also make sure you use a scrubbing utility to clean out the hard disk first. Here is a great article with details about scrubbing your hard drive to avoid data theft.

Small changes can go a long way in protecting against identity theft. In the US alone, every year millions are victimized. Take care not to become a part of that statistic!

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If identity theft is a big concern of yours, going to law school may help you achieve your dream of reforming security laws. While you will need a complete college education to become a lawyer, you may be able to get an educational grant to fund your security research.

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Apply for credit cards without any fear of ID theft.

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Three Words For New iPhone Owners: "Shame On You"

Finally, the iPhones are available in stores! Across the country in Apple and AT&T stores, people waited in line for days to be the first ones to own the must-have gadget of the year. The sleek sexy look, the enticing ads, the cool new touch pad technology, the 4 to 8 gigabytes of memory, the built in iPod -- just writing about it makes me drool! Fortunately, before my desire to own the device turned into an all consuming obsession, I came across this article which puts the cost of ownership of the phone over two years - the required contract length with AT&T, the exclusive carrier for iPhones - to as high as $3,000. Even if one were to buy the lower end model and the lowest cost service plan, they would still have to fork out close to $2,000!

We are so steeped in consumerism and advertisement induced materialism in this country that we seem to have lost sight of how big a number that is! $2,000 to $3,000 for a cell phone!!! Don’t you see how ridiculous that is? If not, maybe you should take a step away from the TV and the blogs touting the virtues of the iPhone and look at the world around you for a minute. Maybe things will start to fall in perspective...

According to this world bank map (click on it for an expanded view) other than the developed countries, most other parts of the world have at least 10% of the population living on less than $1 a day, the threshold for describing extreme poverty. In some parts of the world more than 50% of the population is below this threshold! That means $2,000 is equivalent to about seven years of subsistence for a large part of the world. And you still think nothing of blowing it away on one gadget!!!

OK, let’s leave the extremes behind and look at the averages. The June 11th edition of TIME magazine had an interesting article titled "How the World Eats" (available online as a photo essay). The article/essay shows photographs of average families from different parts of the world and their weekly food expenditures. One of these images remained with me, and I couldn’t help but think of it when I was musing about the high cost of owning the iPhone, and American consumerism in general. The Namgay family of Shingkhey Village in Bhutan, shown in the picture below, have a weekly food expenditure of $5.03. If you count carefully, there are 13 mouths to feed. The reason this photograph stood out for me was that, these people do not look "poor". Rather, they came across to me as fairly average family content with what they have. Who says (other than the marketing and media folks) that you need a $2,000 device to achieve simple joy and contentment?

If you are still not convinced, let’s try something closer to home. According to this article on MSN Money Central, the average American household carries $8,000 in credit card debt. Considering that statistic, I would assume that a lot of the people who bought the iPhone put it on the credit card, and will likely pay their monthly service fees using credit cards too. If they do not pay off the bill in full each month, the lust for one device increased their debt by over 25%. Was it really worth it?

Overall, I am quite convinced that unless a person has no debt, has made sufficient plans for a secure financial future and contributes to at least a few charitable organizations, he/she has no business buying an iPhone. Of course, if you were born with a silver spoon in your mouth go right ahead and buy that phone – an iPhone in your hand goes perfectly well with the silver spoon in your mouth :) But if you are an average Joe who now owns the over-priced over-hyped gadget and owes a tad bit more to the credit card companies than before, I have just three words for you -- shame on you!

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Getting out of debt can be easier if you have the right people helping you. If you need advice for couples in debt, for example, debt counselling might be your first step towards a debt free future.

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Credit Card Arbitrage (Plus an Image of the $2,000 we Made...)

They say a picture speaks a thousand words. So, here is a picture of my bank statement showing the passive income from credit card arbitrage in the short span of 9 months. I had mentioned earlier about my first attempt at credit card arbitrage. Well, the CD came due on the 1st of June and we made around $2,000 in free money (The picture does not show the interest payment for the last month).

If you are new to credit card arbitrage, here’s a quick and dirty explanation of how it works: Remember those 0% balance transfer offers you receive in your mail box every day? Well, you accept the offer and park the money in a safe place and earn interest on it. That’s all there is to it. But wait! Before you head off and take on a pile of debt, here are a few questions you should ask yourself to determine if you are suited to play this game.

Are you organized enough to make the monthly payments on time?

you must stop reading right now and forget that you ever heard about credit card arbitrage

all the time

Are you disciplined not to use the money for anything else?

please, do yourself a favor and stay away!

Do you have plans for taking any large loans in the near future?

will

after

Can you control the spending you charge to your credit card?

until you have paid the balance of $10,000 in full

Will the “debt” bother you?

here

Do you have a good credit score?

Can you keep learning without getting complacent or bored?

they hope to make money off of you

Fat Wallet finance forum

Overall, I would like to stress that this is not a game for everyone. That said, if your answers to the above questions have convinced you at that you are a perfect candidate for this game, then Congratulations! Welcome to ring of lion tamers that have found a way to make the big bad credit card companies purr and dance to our tunes. Here is a good place to start reading about it some more.

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Wondering about credit card arbitrage? Credit cards can be a confusing topic to comprehend sometimes. There are many cash back credit cards out there to pick from, and even more low interest credit cards that may be helpful. For more information about personal, student and business credit cards, just look online.

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Attitudes Towards Debt, Bills and Credit Card Arbitrage

Everyone has heard about making money using credit card arbitrage. (If not, you can read about it here). I finally got into the game last year, since that was the first time I had access to a 0% balance transfer offer on a large credit line. I don’t quite care to go through the arbitrage, if the returns are just a few hundred dollars – the effort and the management headache are just not worth it. But last year, with just three credit cards – two of mine and one belonging to the better half - we got access to $50K of credit at 0% APR. By adding $5K to it, we opened a CD for $55K and will now earn an interest of around $2K on it. I was very happy for being a smart enough credit card user and pulling it off.

The better half on the other hand, while glad to be making the $2K, is distinctly uncomfortable with the idea of carrying credit card “debt”, that too, to the tune of tens of thousands of dollars. I have mentioned before (here and here) that we had a bad run in with debt earlier. That, and way he was raised makes him cringe at the thought of debt even if it is good debt (in my opinion). I managed to convince him to jump on board initially, but ever since, he has been bringing it up on and off in our financial conversations with sentences like “…not while we still have so much debt”. It bugs me to no end. How can it be treated as a liability, if the money is sitting pretty in a CD and earning us interest, and in the unfortunate event that something goes wrong, we can just break the CD and pay off the credit card company?

The 0% BT term ends in a month or so. Instead of paying back the credit card, I want to roll it over to another credit card and keep the game going. Who doesn’t like free money? The better half on the other hand, just wants to pay back the credit card company and stay away from such “hustler” schemes! Not carrying any debt, to him is much better than making free money! While I have been saving the 0% APR credit card offers I have been receiving in the mail box for the past couple of months so I can choose the best offer to roll the balance into, the better half has signed up at an opt-out website and diligently shreds the offers that made it through the cracks of the opt-out system.

“Debt” as it turns out, means entirely different things to different people.

Here’s the neat thing though. The way we manage finances in our household - even though we have a common money pool, each of us makes our own financial decisions. So, I offered to roll over the balances from the better half’s credit card into my own cards. Turns out that while the better half has issues carrying balances on his credit card, he is not half as anxious about me carrying those balances! I don’t think it is a flippant “I don’t care what you do” attitude, since he will raise all hell, if I actually get into real debt, (instead of “arbitrage debt”). And it is a common money pool, after all. Which makes me wonder is he really against the debt, or is it the anxiety of managing the debt that is really causing the difference of attitudes here? I am fairly obsessive-compulsive about tracking my credit cards, and making sure that a little over minimum payments is sent out each month, well ahead of the due date. The better half on the other hand, hates this, and lesser the bills he has to deal with the better, even if the bill shows him the money that is earning interest for him!!!

That brings me to more general musings about “debt”. Maybe the reason why so many people are into debt is that they are a few steps beyond me in the spectrum of tolerance for the bills. While the better half is not OK with receiving any kind of bills, I am OK with bills indicating debt, as long as I am not paying any interest for it, and earning interest on that money instead. What if there are people who have an even more relaxed attitude towards handling the bills? – maybe they are OK with low interest instead of high interest. And then, at the other extreme end are the people who are perfectly fine with any interest rate since they do not perceive it as a threat at all. Our perception of “debt” and “debt management” seem to be intricately tied together.

This also explains why there are so many opposing opinions about whether to pay off student loans ASAP or keep them for longer. And whether to pay off mortgage ASAP or keep it for longer. People like the better half will try to pay off all these as soon as they can – even if it is a low interest student loan or a mortgage. People like me won’t stress it out too much. I personally prefer to make extra payments since the loan is not at 0% and I am not guaranteed that if I put the money in other investments I will receive more than the 5.125% interest rate we are currently paying on the mortgage. So, if I can comfortably make additional payments on the mortgage, I will. At the same time, if I find a good investment opportunity (our alternate investment vehicle is real estate back in home town where the market is hot, and it is essentially a wait-and-pounce game) I will pick that in favor of making the extra payment on mortgage. Then, there are some friends I know who will intentionally make only the minimum payments on their student loan and mortgage to keep it for as long as possible, so they can invest the money else where. Sometimes, they earn better interest on their investment than they are paying for their loans. Sometimes they don’t. But unlike me, they are OK with it. Finally, there are the people who do not perceive a high interest as threat at all. How they can do it, is beyond my understanding though, so I won’t even try to write anything about them.

I guess finally, it all boils down to one thing. Every person has to find his/her comfort zone, when it comes to financial dealings. And should try and maximize the returns within the realms of their comfort zone. There is no one right way of doing things. Every now and then, re-evaluate if you have stagnated and if so, see if you can push the boundaries a little. As long as we keep thinking and trying to the best we can within our abilities and try to push our limits a little every now and then, I think we should have a good chance to succeed – irrespective of what the exact approach is.

Related articles on this blog:

Large Credit Lines on Credit Cards: How to Make Some Easy Money

Building Credit History

7 Steps That Made Me Debt-Free

Debt – Were We Really Irresponsible or Just Ignorant?

Stop Blaming Your Credit Card!

Relationship Hack: “Independent Money Management, Common Money Pool” - How to Make it Work

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The best way to be a smart credit card user is to apply for the best credit cards for your needs. Airline credit cards are perfect for jetsetters, and those who make frequent purchases might enjoy the benefits of cash back credit cards.

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Three Words For New iPhone Owners: "Shame On You"

Credit Card Arbitrage (Plus an Image of the $2,000 we Made...)

Attitudes Towards Debt, Bills and Credit Card Arbitrage