1. Placing unfair time constraints on payments - While consumers may cheer this, I honestly think this is the most ridiculous thing I’ve come across. In the corporate world, if a company misses a coupon payment on the bond, the bond trustee would immediately act on behalf of the bondholders. Lawsuits will be filed, and the company has to negotiate with creditors if they want to avoid filing chapter 11. If payment was missed due to extraordinary circumstances, the borrower may have to pay a fee to the creditors. Why should consumers be given leeway. The Feds are proposing that payments are not considered late unless we have been given 21 days to make a payment. My experiences so far is that credit card companies will not report late payments to the credit bureaus unless you have been late by 60 days. Well, I guess consumers will benefit as we may not be charged any interest unless we are late by 21 days. I’m really not too sure if that is a good idea.

Unfairly allocating payments among balances with different interest rates. - Presently, when you have transferred a balance on a 0% APR deal and you carry more balance on top of that, the payments that you make above the minimum amount will be used to reduce your balance that is charged the 0% rate. That is how issuers make their money on 0% deals. If you charge more expenses to the card, they will earn that higher interest and you cannot pay it off. Well, under the new Fed proposals, this practice will come to an end. An extra payments above the minimum payment will be used to pay the higher interest balance.

Sounds good? But credit card issuers will suffer. One unintended consequence may be that banks stop offering good 0% APR deals.

Unfairly raising annual percentage rates on outstanding balances. - Under the first proposal, issuers cannot raise your interest rates unless you are late by more than 20 days. This proposal will prohibit issuers from raising your rates just because you miss your mortgage payments. This effectively bans the practice of universal default clause.

On surface this sounds great. However, credit card issuers do have a valid point in that you are a more risky borrower if you miss a payment on another debt obligation. In the corporate world, if a corporation miss one couple on one bond, technically, the company has defaulted - not just on their bond, but on every creditor.

I think another unintended consequence is that credit card issuers will have higher issuing standards and APR will be higher than what it would be without this.

Placing too-high fees for exceeding the credit limit solely because of a hold placed on the account, usually by rental car companies or hotels. - This is long overdue and a wise proposal.

Unfairly computing balances with methods such as “two-cycle billing - I definitely second this proposal. Most people do not understand APR or how to compute their monthly balance. Having 2-cycle methods only add to the confusion.

Unfairly adding security deposits and fees for issuing credit or making credit available - The rules would ban fees that consumed a majority of a new card’s credit limit. Sounds familiar. Yes, sub prime cards! Subprime cards normally charge a one-time application or processing fee, a monthly maintenance fee and high APR. Most will only given you a credit limit of $300. By the time the fees are taken out, a new cardholder only has an initial limit of $100!

One is tempted to think that it is great for sub prime borrowers because all sub prime credit cards charge these ridiculously fees. But having said that the reason they do that is because regular issuers will not even issue cards to sub prime candidates.

Question is what happens if they are forced not to charge these fees. Will these subprime issuers feel that they are compensated for lending to less than desirable candidates? I don’t know the answer to that but time will tell. Another unintended consequences.

Making deceptive offers of credit - Issuers have to state clear what you need achieve the APR or teaser deal that was advertised. This is a great thing because if prevents impulse purchases. If only they would enforce that with cell phone companies or cable companies (with all their pay so little for 6 months but do not tell you what happens after the teaser deal is gone!).

I would certainly like to hear your thoughts on these changes.

1. Do not carry your social security in your wallet.

2. Shred all your bank statements or bills if you decide to junk them.

3. Have strong passwords

4. Know what are phishing emails and do not reply or divulge any information over the email.

But, today while I was at the driving center renewing my driving license, the person over the counter told me that he just attended a course about identity theft. And he said that one of the easiest ways to get your identity stolen was through the hotel room swipe cards that the hotels give you.

It turns out that many hotels store information such as your name and even your credit card numbers. It makes it very easy for even an amateur to get someone’s credit card number! So I did some googling and true enough, there have been lots of articles written about this as early as three years back. Here are interesting posts :

Swipe here to steal ID at computer world

Hotel Key Cards : Identity Theft Risk or Not

Hotel/Motel Key Cards embedded with personal information.

Guess the lesson is to make sure you actually shred those cards after you have checked out.

1. Unintended Consequences - One of the things about this show that really intrigued me was this phrase called “reverse red lining” - which is a term used to describe mortgage lending to people like minorities and people with low credit. In 2002, President Bush announced his intention to help more than five million minorities to own their homes.

Great intention, but unfortunately, this ended up with disastrous consequences as we are witnessing right now. But this has led me to challenge every good intention that the three political candidates are proposing now. For example, is “universal health care” really great? Great intentions certainly. But just like the mortgage situation, is “universal health care” really desirable? I don’t know, but I’m looking to see the press ask tough questions about how the democrat ideas will be funded? Are there any “unintended consequences” we are not considering?

Beware of common assumptions - One of the common assumption on why we got into this whole mess is because of this common assumption - that housing prices will always go up. Well, unfortunately, because most people rely on leverage to buy a house, it does not take a large decline before everyone gets into trouble.

Another assumption common in the financial world - invest for the long run, stocks always go up. This may be true, but many people do not have the long run. For example, a 55 year old who is planning to retire in 8 years does not have time on his side. He or she needs a certain degree of protection against portfolio volatility.

Most people will never be financially savvy - CNN interviewed a lady who had her home foreclosed. Inevitably, the reporter asked if she knew that she was taking out an adjustable rate mortgage. Her answer was obviously NO! I’m pretty sure most people who took out interest only or adjustable mortgages will not know what they have gotten into. I can only shudder to think the majority of individual investors don’t know what to do and get scammed.

Alright, back to some tributes here. I participated some carnivals which you should check out :

Carnival of Personal Finance 150th Edition at Lazy Man and Money

Carnival of Personal Finance 149th Edition at The Happy Rock

carnival of Everything Finance #17

carnival of money stories

Carnival of Debt Management #49

Alright - good night and have a great week ahead.

1. Job Loss - Job loss was one of the reasons folks get into credit card debt. From the people that I spoke to, this normally came about after using up their emergency fund.

2. Medical Expenses - yes, sad as it may be, I know of a couple of folks with no medical insurance and had to charge their bills to their credit cards. Now, to be honest, the bill was probably lower for someone with no insurance!

3. Daughters Wedding - We all talk about saving for your kids college education. Nobody talks about their daughter’s wedding! And they do cost quite a bit (depends on the wedding obviously). But someone I know carried a balance because of this.

4. Start a business - Yes, many people do max out credit cards when they start a business. Guess the most important thing is to make sure you succeed in your business lest you be stuck with tons of credit card debt!

5. Buying Stuff on the Internet and QVC - Yes, there is true. But I guess they are people who are always buying stuff they do not need. And because there is a GREAT DEAL!

6. Taking Advantage of 0% Teaser Deals - Well, how can you resist it when it is 0% for 12 months! I guess that as long as you really have the ability to pay it back, then it is OK.

7. Buying Furniture - Yes, when we fulfill the American Dream of owning a house, it actually comes with increase expenses. We need to fill it with furniture. Hence, the expenses pile up and they go to the good old credit card.

8. Clothes, Shoes and Jewelery - Girls stuff I guess. But I guess that I would classify this as uncontrolled spending.

9. Tech Gadgets - Guys stuff. But a couple of guys told me that they got into carrying a balance when they started to put their Apple iMac on the credit card and other gadgets. I guess the people who got into this situation are “innovators”, always buying the latest stuff.

Well, this is what I got from my friends who have credit card debt and may not be representative of the average person with credit card debt. If you happen to carry a balance, I would love to hear the reason and the expenditure that got you here!

One of the effects of the weakening of the economy is that we are going to see people and household cut back on expenditures. For example, we are now cutting back on our Starbucks Coffee, purchases of SUVs are down, we are eating out less.

But then the question becomes why do we always increase our discretionary spending when our income goes up or if things feel better? Why do we not think about always being frugal? Mrs Credit Card and myself are always wrestling on this issue. For example, one of my goals is to pay off my mortgage as fast as I can. But I would also like to fund my retirement much earlier. While I have started putting extra money aside a month to pay off principal on my house, I have also recently just bought a new Lexus. I have noticed that we each out more often when our income goes up. I think part of the problem is that deep down inside, we always have a dream as to our ideal lifestyle. So a couple of nights ago, I sat down and took down some notes as to how I want my lifestyle to be if I had all the money I wanted.

Ideal Lifestyle

1. Job - Probably volunteer for a non-profit full-time plus maybe be a full-time blogger (if I’m any good at all). - Yes, that would be my ideal lifestyle. No more having to worry about putting the bacon on the table everyday or dealing with 9 to 5 corporate politics.

2. Car - Guess after my latest car purchase, I already have my dream car. (I’m not a very huge car fan!)

3. House - Oh, the house. I don’t know where to begin. Dream kitchen, dream master bedroom, dream fireplace. Guess I would like to have a Mansion with a pool, some expensive artwork around the house, acres of space (more like acres of land).

4. Have a personal fitness trainer - I know that I should be working out everyday to keep fit. But I really lack the discipline to do this. Ideally, I would like to be able to hire a fitness coach.

5. Have a massage twice a month - How nice would that be if I can pamper and indulge myself! Good for stress management as well!

6. Hire a full-time chef - how nice would that be? Mrs Credit Card would sure love that!

Consequences of living a larger lifestyle than you can afford

Part of the reason why I think people have credit card debt is because we choose to live our ideal lifestyle before we can actually afford to.

One of the biggest culprit is the desire to “renovate our house”. I know so many cases of folks who have credit card debt (or any other debt) and still are pretty relaxed about taking out a home equity line of credit to do some home renovations!

I guess living in a nice environment is important. But a home renovation can get really expensive and so this can really put a dent on your finances.

I also know many people who are in debt and drive an even more fancy car than myself. Or doctors who pull in seven figures every year and still have a six figure credit card debt.

How much can we upgrade our lifestyle when our income increases?

Here is the six million dollar question. When you get a raise or increase in your income, how much can you “upgrade your lifestyle”? Or rather, should you even upgrade your lifestyle.

Here is how I think most of us do it. We get a raise, so we eat dinner out 2 times a week instead of once a week. We get more generous with paying for kids activities. We spend more on organic food! We get a bigger car. We take a more fancy vacation.

But if we really think about it, if we use the extra income we have and put that into our retirement account, we will probably reach our retirement goals earlier. Or perhaps you can pay off your mortgage early, or fund your kids college education.

But What’s The Point Of Being So Frugal That You Do Not Enjoy Life?

That is such a valid question. Especially when you have kids. You are always tempted to get things for them, whether it is a book or a little treat or a vacation that they will enjoy. So what gives?

Your Ability to Upgrade Your Lifestyle Depends On Your A Few Things

Specifically, I think several factors affect your ability to live it up when you get a raise or when you fortune turns for the better. It really depends on

1. How reliable is your income?
2. What is your fall back when you lose your income.
3. Your potential income growth.

Let’s take a look at some examples.

Couple are teachers

I know of friends who are teachers (both husband and wife). In this case, we have a couple who are making a decent salary, but will never really be super wealthy. Yet, they have stable jobs. Hence, when they get their salary raise (can’t imagine it being much), this couple would probably well increase their quality of lifestyle modestly.

Couple who work on Wall Street

I do have friends who both work on Wall Street. They make lots of money. Having said that, they have very high risk as they could easily be laid off at the same time and they face the same industry risk. Folks like them can probably increase their lifestyle when they get their huge increase in bonus but would be wise to set aside lots of emergency cash. Many folks on Wall Street live on their base salary and save their bonus (very wise).

Couple who are both real estate agents

Almost the same situation as the above Wall Street example. But in this case, their incomes are more unstable (at least you get a salary on Wall Street and some bonus every year). When such couple have bumper years (like the first part of this decade, they should always save for the rainy day (like now).

Couple - One is a teacher and one is a doctor! - This may be the ideal situation. Teacher has a safe job and his or her salary can be base to set their basic lifestyle standard. When doctor earns more, they could conceivable feel free to increase their standard of living as the teacher has a safe and stable job.

THE TOUGH BALANCING ACT

When we get a raise, it is easy to simply “upgrade your lifestyle”. Yet, deep down inside, we know that “delayed gratification” is probably the better path to financial freedom and security. So what gives? I think due to human nature, it requires a tough balancing act on our part. When our economic circumstances improve, it is only natural and probably sensible that we reward ourselves a little but yet at the same time take advantage of it and set aside more money for the rainy day.

Steps I have taken to help control expenditure increase when my income increases

Here are a couple of preliminary steps I have taken to help me be a little more systematic about this thought process. I have written down how I will spend if I get more money every month. So here goes.

1. Put more payment to mortgage payment - if I manage to do that then perhaps I could give ourselves a treat and having a couple of extra nights out for dinner. (already doing this).

2. Put extra money into the 529 College Savings Plan (perhaps I should be doing this before the weekly dinners!)

3. Only start our kitchen and backyard renovations when we have cash to pay for it.

4. Live my ideal lifestyle only if we had $10mm!

So what did your expenditure increase when you salary last increased?

1. Many are in the process of some major decorations on their home - whether it be doing their yard, installing a patio. And some are certainly taking out a home equity line of credit.

2. Many have either bought or lease a new car - Here is another observation : Many of them are leasing new cars. I just wonder why don’t they buy a second hand car and take a loan? I’m sure it’s cheaper that way. And many of them are fancy foreign luxury cars as well!

3. Most take “normal vacations” like renting an apartment at the beach or shore for a month.

4. Many of them make purchases every month that goes into decorating their homes.

So here’s what I’m wondering? - If they are all have credit card debt, why don’t they make a little sacrifice and taking a less expensive vacation, get a second hand car or put off decorating or doing something with their homes?

Now, many have told me that they are embarking on a debt reduction program - AKA - they are paying more than their minimum every month on their credit card bills and at some point in the future, they will pay off their credit card debt.

So, you can’t say that they have no plan. It’s perhaps that looking at their existing lifestyle, they could perhaps be a little more aggressive in their debt reduction plan.

So how about myself? - Now firstly, I have no credit card debt. But I do have a mortgage and have just taken out an auto loan on my new lexus! And I sure do live a “normal lifestyle”, although my home is relatively new and unlike many people, I do not have many fix ups to do.

But then, I keep wondering, if I sacrifice my lifestyle, I could pay off my mortgage faster and even perhaps reach my retirement goals earlier.

Which brings us to the $6mm question: How Much Are You Willing To Sacrifice Your Lifestyle to Achieve Your Financial Goals?

After thinking about it for a while, I realize that whether you have credit card debt or not, if you have a huge mortgage or not is irrelevant, we are have some financial goals to meet whether it is debt reduction, building an emergency fund and saving for retirement.

The more sacrifice you make (in terms of lifestyle and money), the faster you will reach your goals. But having said that, I also feel that for some people, any heavy sacrifice may not be worth it. It may be the case that unless your income increases dramatically, putting too much of a crimp on one’s lifestyle may not be worth the effort (because we may end up living too frugally for our liking).

What do you folks think about this?

Here is the list. I do not think they listed it by preference but rather by alphabetical order. So here goes :

1. Blue Cash from American Express - They are definitely bang on this one. And they rightly stated that it pays (after $6,500 in annual spending) 5% rebates on supermarket, gas stations, and drugstores, and 1.5% rebates on everything else. What they failed to mention, and they should have is that before your spending exceeds the $6,500 threshold, you are only paid 1% and 0.5% respectively. Hence, those who do not charge a lot will not find this card suitable.

2. Capital One No Hassle Cash Rewards - To be honest, I’m not too sure why they included this card here. It pays 1% cash back on everything you spend on the card. And at the end of the year, you will be a 1.25% bonus. Well, that’s definitely better most cash rebate cards but, this is probably the least attractive card listed here and I think they could have very well left out this card.

3. Chase Freedom - Well, I definitely agree that this card should be on the list. In the table on the newsletter, consumer reports wrote “Can choose between cash back points. When rewards reaches $200, you’ll get extra $50 back”. While this is technically correct (as an introductory offer), it fails to precisely explain the cash rebate formula and policy of the card. There are 15 expense category that are eligible to earn 3% rebates for this card (including gasoline, supermarket etc). However, only your top 3 spending in a month for any of the 15 items will earn the 3% rebates. These items include :

grocery stores (that are not affiliated with or departments of superstores, warehouse clubs or discount stores), gas & convenience stores, quick service payment/fast food restaurants, telecommunications, cable/satellite TV/Internet Service Providers, video rentals, department stores, dry cleaners, drugstores, movie theatres, local and suburban commuter passenger transportation (including ferries, bridges, tolls, parking garages, taxis/limos), pet supply stores and veterinary services, utilities, beauty shops (salons and spas), or gym/recreation memberships.

There is also another catch that Consumer Reports did not mention. And that is there is a cap on the rebates you can earn on these 3% items (and the cap is $600 in monthly spending).

4. Citi Dividend Platinum Select Card - This card lets you earn 2% rebates on supermarket, drugstore, gas station and utilities spending and 1% on all other stuff. They also cap the rebates to $300 a year. The rebates are lower than the Chase Freedom Card but they do not impose monthly spending restrictions on items unlike the Chase Freedom. Overall, I would say that yes, they should have this card on the list.

5. Citi Professional Card - I’m really not too sure why this card was included since it is actually a reward card? Lets you earn 3 points/$1 at restaurants, gas stations, office-supply stores, auto rentals and 1 point/$1 for every thing else. It has a 100,000 cap and new cardholders get 10,000 bonus points.

6. Discover More Card - Well, in my opinion, this is a controversial card to include as a ‘top’ cash back credit card. The Consumer Report rightly states that “you get 5% back in designated categories like home or apparel, which changes 4 times a year, 5% through their shopping site; up to 1% on everything else.”

While what they stated is true, there more to it as well. For example, for the first $1,500 in your annual spending, you only earn 0.25% rebates! For the next $1,500, you earn 0.5%. Only after spending $3,000 do you earn 1%. Hence, the rebate formula is not very impressive. However, Discover allows you to exchange rebates for gift certificates (and presently there are about 80 partners) and you can double the value of your rebates for certain merchants. Hence, if you are a gift card junkie, this is actually a great card.

Discover Open Road Card - Consumer correctly states that you earn 5% cash back for gas and auto maintenance - 5% through shopping site - and up to 1% on everything else”. What it does not say is that you can only earn 5% on gas for up to $1,200 in annual spending. Given that is cost over $50 for most cars these days to fill up, that $1,200 limit could be a little bit low.

Other Cards They Should Have Included

Aside from some of the cards which I thought should not have included, I feel that they have missed out on a couple of gems. They include the :

Simply Cash Business Card from American Express - For gasoline savings, this card is probably the best. Why? because you can earn 5% on gasoline purchases. This is better than Chase Freedom or Citi Dividend Card which only lets you earn 3% and 2% respectively. Also, unlike the Blue Cash, you earn 5% straight away. Unlike the Discover Open Road Card, you can earn unlimited rebates. You also earn 5% rebates on wireless phone services, office supplies and equipment. Though this is technically a small business credit card, you can also apply as an individual.

True Earnings Card from Costco - If you are a Costo Member, this is a great card to have. You get to earn 3% rebates on gasoline purchases and restaurants, 2% for travel and 1% on everything else. Best of all, there is no cap on how much rebates you can earn. This I think will make a great rebate card for those looking to save money on gas, eating out and are Costco members!

So that’s my two cents worth on what Consumer Reports had to say. I thought they could have been a little more thorough and included a couple of better cards. What cash rebate cards do you have and should there be any more listed here?

As a credit card holder of American Express, you are automatically covered for the loss or damage to a rental vehicle. The basic coverage is for the following :

Standard Coverage

1. Up to 30 days of consecutive coverage

2. Secondary insurance (policy pays in excess of other insurance)

3. Up to $75k in coverage

4. Coverage for standard vehicles.

Premium Coverage

If I were to be upgraded to a premium coverage, the improvements will be as follows :

1. I will have up to 42 days of consecutive days of coverage (unless I am a Washington Resident - in which on 30 days apply).

2. The coverage will be primary - which means it will pay regardless of other insurance.

3. The coverage is increased from $75,000 to $100,000 for damage, theft or loss of the rental vehicle.

4. The coverage includes both luxury and standard vehicles.

Basically, the cost of this is $24.95 per rental, which according to Amex is a good deal because rental companies charge $20 a day for such coverage. I do not know about this because I never get any sort of premium coverage when I rent a car. But what really intrigued me is actually the definition of luxury vehicle. What is it? Guess I have to make a few calls to find out. But for now, I do not have any interest in this at all.

Unintended Consequences and Money from Flexo has got to be one of the best posts I seen for a while. Little known to most is the escalating cost of agriculture and food prices that is causing havoc around the world. If the price of potatoes ever got out of control, I shudder to think what will happen here.

The Cost of Boat Ownership by Lazy Man and Money will probably not apply to most of us. But if we just scale down a bit and think what a “second vacation home” will cost in terms of maintenance and opportunity cost, we may not be so tempted with unnecessary luxury items.

50 Fun Facts about Taxes by the Blueprint for Financial Prosperity is a fun and casual read.

10 Big Mistakes New Entrepreneurs Make by SVB is a compulsory reading for those looking to start out on their own.

Sacarsm at it’s best - Gen X Finance berates Yahoo for touting HELOCs. Whoever said that Yahoo has our interest in their hearts? After all, they are looking after their own wallets.

7 Energy Saving Tips from Fire Finance is especially written those who are frugal and want to save some money in the summer.

Lastly, please also make the effort to check out the carnival of Personal Finance #148 at Gather Little by Little. I had a post in the carnival and there are other great posts too.

I clearly recalled that during the closing of my house, the mortgage person said that at the end of my mortgage payments, I would have paid an amount that was almost double the price of my house. Yikes! Even if my house value doubles in 30 years, I would have actually made close to nothing.

Hence, I decided that I am going to pay off my mortgage as soon as humanly possible. I have never had any credit card debt and I really hate having a mortgage to think of every month. So I did a bit of research to find out how I could reduce the time to pay off my mortgage short of paying it off lump sum. Here are the options that were available :

1. I could increase my payments from a monthly payment to a bi-weekly payment. - By doing so, the math works out that we can take six years off our usual 30 years of mortgage payment. However, our cash flow is such that doing a bi-weekly simply does not makes sense for us.

2. Refinance - Our mortgage is presently a 30 year fixed rate at 6.25%. Presently, the 30 year rate is about 6.17% for a conforming loan. My present mortgage is considered non-conforming ie above $417,000). Hence, refinancing does not make sense even if it were for a 15 year loan.

3. Paying a principal lump sum at the end of the year - That could work but psychologically, I do not like having to pay a lump sum at any time.

4. Paying extra principal payments monthly together with my mortgage payments - I have decided to actually take this route. Because of our situation where our income has increased, we are able to make that extra payment we want towards our mortgage payment.

This is how the math works out. Presently, we are paying :

Current Monthly Payment = $3,327
Interest = $2,236
Escrow = 560
Principal = $$491

By adding an extra $1,000 to my principal every month, my mortgage will be paid off in 2022, about 13 years earlier.

But shouldn’t I invest and save for retirement instead? - Well, that may be the correct thing to do since I’m only paying 6.25% on my mortgage. Having said that, we have enough cash to actually put to work in our retirement accounts and extra savings in the taxable account as well. So we are still saving. And here is the thought process. If I am able to save and pay off my mortgage faster, why not have the best of both world. In fact, the faster I pay off the mortgage, the more disposable income we will have after we pay off the mortgage.

But as I mentioned before, I really hate having any sort of debt and while most look at their house as an “investment”, to be, it is a place to stay. In fact, if I could pay off my debt tomorrow, I would certainly do so.