Preventing Your Credit Cards from Getting Declined—Two Common Situations

Have you ever had your credit card declined?  It has happened to most people at one point or another for a variety of reasons, including President Obama when he tried to use it at a New York City restaurant this past year.

Credit card companies are increasingly looking for potential fraudulent transactions and will decline any charges they think are suspicious.  This often occurs when people are traveling.  For example, if you use your card in your home state in the morning and then use it that same day in another state, it can look suspicious.  This is particularly true if you are traveling to a foreign country where credit card fraud can be more prevalent.  The best way to prevent this from happening to you is to notify your credit card company about your travel schedule before you take your trip so they will not decline these charges.

Another situation that is fairly common is when you funds are on hold by a hotel or other company that has not yet charged your account.  These holds can count against your limit and prevent you from being able to use all of your credit.  Once again, the best thing that you can do is stay in contact with your credit card company so you know how much available credit you have before trying to make a major purchase, and can prevent your charges from getting declined due to hitting the credit limit.

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Do You Need a Venti Latte? Using Willpower and Developing Habits to Help Save

Take a moment to reflect on what you already know about effective personal finance. Odds are you already know that, if you are living paycheck to paycheck, you shouldn’t buy lattes everyday.  And most people think putting 5% of their monthly income into a savings account is a noble goal.  In the modern world, where entire libraries of financial advice can be accessed by a few Google searches, the hard part of money-managing is not finding information so much as applying it to our everyday lives. Although many individuals fall short of achieving their personal financial goals, the good news is that effective long term budgeting can be made easy by taking what we already know about human psychology and applying it to our day-to-day financial situations.

These days, a common adage is that we need more willpower if we wish to succeed in life and accomplish our goals. In fact, notable behavioral psychologists such as Daniel Kahneman and Richard Thaler have shown that willpower may be a limited resource. Put simply, we humans have only so much willpower we can spend on any given day and, although this amount varies from person to person, reaching long term personal and financial goals can become easier when we focus on conserving rather than recklessly spending that finite resource of willpower we all possess.

One convenient way to limit the amount of willpower-sapping decisions you make on a daily basis is by automating personal finances. Budgeting tools such as Mint (https://www.mint.com/) can allow you to automatically put a percentage of your income into long term savings accounts or 401k’s, making it unnecessary for you to use willpower to part with that percentage of your income on a monthly basis.

Also, a trick to conserving willpower is found in the creation of effective money-saving habits. Habits are developed over weeks and months rather than hours or days so it can be difficult to immediately change dozens of financially irresponsible behaviors without completely sapping your willpower after a few days and ending up back with the same habits as before. Instead of completely reworking your behaviors, try focusing on changing just one aspect of your day-to-day life (e.g., buying a small coffee instead of a venti latte) for several weeks. You will find it is much easier to maintain this change over time, with successively less willpower being spent on each money-saving decision as you build the habit. Over time, this tactic can increase the amount of money you save on a day-to-day basis.

The road to effective personal financial management doesn’t have to be a long and bumpy one. When you efficiently automate your finances and successfully develop day-to-day money-saving habits, there’s no pothole that can slow your forward momentum.

-Mac Z.

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What is the Best Age to Start Receiving Social Security Checks?

One of the most important decisions you will need to make as you approach retirement is when to start taking social security.  Generally, the longer you can wait to collect, the better off you will be at an older age because the amount of your monthly payment increases as you delay the start of your collection.

The earliest that you can start collecting social security is age 62.  If you need the money and do not have other ways of supporting yourself, you may need to start collecting right away.  However, there are financial benefits to waiting.

The Vanguard Group, Inc. recently published an article where it assumed that a 66 year-old person would collect a “full retirement” benefit of $1,000 per month from social security.  They then showed how this amount changed if the person changed the time when they started collecting their benefits.  More specifically, the article reported the following social security payments for specific ages: $750 (age 62); $800 (age 63); $866 (age 64); $933 (age 65); $1,000 (age 66); $1,080 (age 67); $1,160 (age 68); $1,240 (age 69); and $1,320 (age 70).

As you can see, there is a $570 per month difference between collecting social security at age 62 and age 70.  This is not an insignificant difference and is increasingly more important as you age.  For example, using the numbers from the article, if a person lived until age 80 and started collecting social security at age 62, their total payments would be $162,000.  If that same person waited until age 70 to start collecting their total payments would be $158,400.  However, if that same person lived until age 90 instead of age 80, the difference between collecting at age 62 and age 70 is $64,800.

It should also be noted that your options for working and earning money are generally better at age 62 than they are at age 70.  This can weigh in favor of delaying the time when you start collecting.  Thus, if you are in good health and financially secure, you should consider delaying the collection of social security to increase your monthly benefits.   If your health is poor and you don’t have any other income sources, you may want to collect right away.

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What Affects Your Credit Score?

There are many different factors that can influence a person’s credit score.  Paying bills late, filing bankruptcy, failing to make loan payments, etc. can all adversely affect your credit score.  There are also a few things that can adversely affect your score that may not be as obvious.   Let’s review a few of these:

  • Having high credit card balances relative to your credit limit. Even if you pay off your balance in full each month, if you charge amounts close to the limit on your cards, this can taint your credit score.
  • Closing old credit card accounts. Since credit bureaus look at the length of your credit history, if you had a long-standing credit card account that was in good standing and then closed it, that history may no longer be available to help boost your credit score.
  • Applying for new credit card accounts or loans. Credit inquiries can account for as much as 10% of your credit score, so only apply for a new account if you really need one.
  • Not paying a parking ticket. Some large cities will send unpaid parking tickets to collections and this can damage your credit score.
  • Credit report inquiries. If a potential lender pulls your credit report, your score may be negatively affected.  On the bright side, if you check your own score or report, that doesn’t negatively affect your score.

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IDAs: A Great Way for Low-Income Families to Start a Nest Egg

Most people have probably heard about IRAs (Investment Retirement Accounts), which are special savings accounts allowing people to save for retirement and earn a tax advantage while they save.  But there’s also a savings vehicle out there specifically designed to assist low-income individuals save money: the IDA, or Individual Development Account.  The first IDA was established in 1993 by the state of Iowa and since then, 33 states have laws governing the operations of IDAs.  States, non-profit and for-profit organizations may all administer IDAs.

An IDA is a savings account whereby the investor (who is low-income) deposits a certain amount of money in the account and the account administrator matches the deposit dollar for dollar (or in some states, up to five or six dollars per dollar!).  The money for the matching comes mostly from the U.S. government and partly from banks.  This is a great savings option because you can deposit a small amount, for example–$200, and get a match of anywhere from $200 to $1200.

To qualify to open an IDA, your income must be below a certain amount, and you must have assets of generally less than $5,000.  Withdrawals must be made to achieve a certain goal such as buy a home, pay for education, repair a home, buy a car or start a small business.  Usually there’s a one to three year probation period during which you can’t withdraw the matched funds.

To find an IDA program near you, go to http://cfed.org/programs/idas/directory_search/.

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The Emotional Stress of Bankruptcy

Going through bankruptcy can be challenging because it requires work (e.g., completing paperwork, meeting with your attorney, meeting with the trustee, etc.), and money (e.g., paying the filing fees, paying for your attorney, etc.).  But most people don’t really consider how emotionally stressful the experience can be as well.  Filing bankruptcy is often a last resort for people because they are ashamed of declaring bankruptcy.  They may be afraid that their family or friends may find out and look negatively upon it.  It helps to take comfort in the fact that millions of people have filed bankruptcy—maybe including people you know. 

In addition, some of the most common causes of bankruptcy are: job loss, divorce, and large medical expenses.  These types of events can happen to anyone and sometimes there is very little that can be done to prevent them from occurring. 

It’s helpful to view bankruptcy as a stepping stone toward achieving a more financially stable life and not to let it affect your own self-esteem or feelings of self-worth.  Joining a support group for people also going through the process or seeing a licensed therapist can help achieve this goal.  

-A. Geving, Ph.D.

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Spending Wisely on Pets

According to U.S. News, (http://www.usnews.com/news/articles/2013/05/22/americans-spend-61-billion-on-pets-annually) Americans spend an average of $61 billion each year on their pets, which winds up being about $500 per household per year.  Since so many households spend so much money on their furry (feathery, and scaly) little friends, it’s helpful to discuss how to spend this money wisely and save money where you can.  Here are a few ways to save:

1)      Consider buying a mixed-breed pet.  With dogs especially, pure-breds often get sicker more frequently and require more health care. 

2)      Trade pet-sitting services.  If you need someone to watch your dog or feed your fish while you’re away for a short while, ask friends and family if they will do it at no cost.  In return, offer to watch their pet while they are gone.

3)      Do the math before buying pet insurance.  Think about how much you usually spend each year on pet healthcare, and if the annual premiums are less, consider buying it.  If not, consider setting some money aside each year in case of an emergency rather than buying the insurance.

4)      If you need to buy medicine for your pet, shop around.  Buying meds at the vet’s office is often more expensive than buying them online or at a pharmacy.

5)      Buy pet food in bulk. Buying large amounts of pet food at one time from Costco or Amazon can often save you a lot of money.

6)      Go in for preventative care.  By taking your pet in every so often for a check-up and vaccinations, you can prevent them from getting sick later on.  

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