Job loss changes credit card usage rules

If you already lost your job or expect to get a pink slip in the near future, throw out some commonly held bedrock principles for using credit cards. Your No. 1 priority is to conserve cash (CreditCards.com Sept. 17).

In good times, the rules are clear: Pay credit card bills in full, or at least pay more than the minimum due. Use windfalls--tax refunds, bonuses, inheritance--to make extra payments and zero out existing balances as quickly as you can. Use credit cards for emergencies.

When faced with a job loss, the rules change. It's not a good idea to use credit cards as a fallback. If you've relied on credit cards because the equity in your home dried up, you already may be overextended. And lingering economic troubles could make it difficult to find another job--up to six months or more (Walletpop.com Sept. 20).

Follow these revised rules so job woes don't turn into credit card woes:

• Build an emergency fund first, then reduce card balances. When faced with the choice of saving vs. paying down debt, experts agree that beefing up your reserves--to at least six months of living expenses--takes precedence during hard times. At the same time, continue to make minimum payments on all debts: Draw up a budget and cut out or cut back on anything that's not necessary. Find spending leaks by tracking where your money goes each day. Stash the cash you save in an insured account. Obviously, building your emergency fund will be easier before you lose your job.
• Avoid late payments. The late payment fee is the least of your worries: Employers can look at your credit report before hiring you. If you're unemployed, missing payments, and your credit score drops, you're less likely to get hired.
• Drastically cut back on credit card use. You don't want your balances to balloon out of control if you're unemployed or think a layoff is looming.
• Don't use credit cards to prop up your lifestyle. The sooner you make changes to your spending habits, the less likely you'll wind up in credit trouble if your job search drags on for several months.
• Stop thinking of plastic as a financial backup plan. Card issuers can reduce your credit lines at any time, and new credit is not easy to get. Experts advise you use existing lines of credit wisely. Even a small increase in spending could trigger a review by some bank card issuers, and changes could result in higher interest rates or lower credit limits, which could hurt your credit score.
• Switch to cash when you can, but avoid cash advances. Pulling out cash makes you more conscious about your spending, but using cash advances will cost high interest rates and fees, leading to even more debt.

Finally, this rule holds true in good times and bad: Come clean with your creditors. Don't wait until you miss a payment. Call creditors and explain your situation--the advance warning likely will give you more leverage if you need to negotiate a payment plan. Ask if they'll temporarily lower your monthly payments and reduce interest. Do this before your situation becomes dire.

Act now for energy tax breaks

Act soon to save some green while going green. Energy tax incentive deals expire at the end of this year and it's unclear if Congress will renew them (msn.com Sept. 10).

Consider these tax breaks but be sure to read the fine print when making purchases. Not everything advertised as "energy saving" or "energy efficient" qualifies:

The nonbusiness energy property credit equals 30% of the cost of energy-efficient products. Qualifying products include energy-saving doors, windows, insulation, metal and asphalt roofs, water heaters, biomass stoves, and heating and cooling equipment. Basically you can spend up to $5,000 on single or multiple products for your principal residence that you own and live in and get $1,500 (30% of $5,000 = $1,500) back as a tax credit. This credit can be used in 2009 and 2010. If you got the entire credit in 2009, you can't get an additional break in 2010.

Shop carefully because not all products qualify. Check the Energy Star's website and ask for the manufacturer's certification statement that verifies the product qualifies for the tax credit. Be sure to check on installation costs; they aren't covered for all products. Projects must be completed by Dec. 31.

Use Internal Revenue Service Form 5695 to claim the credit. Remember to save your receipts, any contractor certifications, and the manufacturer's certification statement.

The energy efficient appliance rebate program provides an incentive to replace older, inefficient models. Each state and U.S. territory designed its own rebate program and a few already have used up allocated funds. Some rebates require preregistration with a mail-in rebate form; others provide a voucher to use at time of purchase. Check the U.S. Department of Energy (DOE) website for details. This site is the only official DOE-sponsored site; be cautious of fake sites.

Online car buying is growing

Will the car-buying process shift to the Internet in the next 10 years? That's the view of some analysts speaking with CNNMoney.com, which reported an increase in online car buying (CNNMoney.com Sept. 10).

Some large dealerships--Autonation, the country's biggest chain, and Sonic Automotive--are experimenting with upfront Internet pricing that serves as the initial point of contact for buyers.

Most consumers already use the Internet to window shop and gather information. But now more are completing the transaction online--hoping to avoid those dreaded face-to-face sit downs with a salesperson.

For consumers, the struggle between dealers and shoppers is shifting in favor of the buyer while dealerships, already faced with slim margins, look for a faster sales turnaround. The practiced online shopper can pit dealers against one another from home.

The appeal of online shopping is simple for consumers: There's less hassle. It's fast and convenient. Online car buying has become more streamlined and competitive, according to Edmunds.com. It has shopped online exclusively for its fleet-testing vehicles during the past eight years.

Michelle Dosher, managing editor of Home & Family Finance Resource Center and MoneyMix at the Credit Union National Association, Madison, Wis., offers this advice:

• Line up your financing so you can be a cash-paying customer. Shop around for rates, starting first at your credit union.
• Know exactly what you want to buy--the make, model, options, even the color.
• Avoid going to the dealership. Call, send an e-mail, or employ a car-buying website to get bids from competing dealerships. Ask them to send you a copy of the window sticker and the invoice price, which is what you are really after. You'll be surprised how many will do so when they know they are bidding against another provider.
• Don't fill out a credit application from the dealership before you have a firm price. Dealers use it to see whether you're a qualified buyer.
• Resist the temptation to go to the dealership before getting a firm quote. Remind dealers that other providers are meeting your request for a firm bid.

If you buy from an individual or through an unknown provider, Dosher also reminds online shoppers to beware of potential fraud.

Visit a loan officer at LifeWay Credit Union to discuss auto financing details.

Your portal to 'the land of the free'

The good old U.S.A. is called the land of the free, and no one knows this better than the smart consumer. Anyone willing to take the time to look--and ask--around is sure to find bargains at the best price of all: nothing.

Where to begin? How about the place that has catered to cheapskates since the days of Benjamin Franklin? As one Minnesota credit union member told readers of the Credit Union National Association's (CUNA's) Home & Family Finance Resource Center:

"Visit your local library--if you haven't been there for a while, you'll be surprised, as I was, to see what they have to offer. Aside from current books and magazines, you can get free or very cheap DVD rentals. In addition, our county libraries have free museum passes--they give you no-cost admission to many area museums and attractions. No strings attached. It's a great way to get truly free entertainment."

One library resource you're sure to find useful is the annual list of "fabulous freebies" from Kiplinger's Personal Finance magazine (Sept. 1). But there's much more.

Libraries all around the country are coming up with ways to offer unusual services for free or a small fee. For example, at many branches you can rent framed artwork for your home. Some libraries circulate toys for kids and household tools for grownups. You might even be able to check out an electricity monitor to modify your home electrical use or borrow an e-reader to take on vacation.

Ask library staff to help you track down free opportunities in your area. Many communities have neighborhood festivals and art fairs. Almost all museums have free days or partial days--find out when they are and arrange your visit around those days. See if your children's museum, science center, zoo, or aquarium has free times or free special events.

Depending on where you live, the opportunities keep coming. For example, if you're in a college town, find out about free performances by music department faculty or students. If your community has an orchestra or symphony, see if it allows free access--even if it's for rehearsal time.

Who has an 800+ credit score?

Some people go a lifetime striving to hit a hole-in-one in golf or bowl a 300 game. Others are reaching for an 850 credit score.

Ismat Sarah Mangla interviewed several individuals with high scores and asked them to share their success stories (Money Magazine Aug. 26).

Chris Peplinski, a stay-at-home dad from Rogers, Ark., has a score of 813. He reads up on the elements that make up a FICO credit score and checks his number every three months.

Leland Lim, 41, has a score of 806. The San Francisco Bay Area doctor checks his reports regularly. However, his score suffered from a single error until he had it corrected.

Brenda, 69, and Dick Husemann, 66, have matching scores of 818. The retired Wilmington, N.C., couple keeps balances low, charging less than 10% of their available credit. While this keeps their scores low, they also commit to never missing a payment. Payment history accounts for 35% of the FICO score, and making timely payments is the No. 1 way to improve a credit score.

FICO, the Minneapolis-based company that created the widely used credit score model, considers five elements when calculating a score:

• Payment history;
• Amount owed;
• New credit;
• Amount of available credit; and
• Types of credit used.

myFICO.com also offers information about the basic elements that determine a score.

Those interested in seeing their credit scores can request a free annual credit report from each of the three main credit bureaus from AnnualCreditReport.com. Users can report any errors directly to the report provider.

Mark September 16 for the "Money Talk"

Money skills are crucial to the next generation's ability to live responsibly and independently. Will they get all the important personal finance information they need at school this fall? Probably not. But, there's something you can do about it. Prepare yourself and your child for National Money Talk Night (Forbes Aug. 25).

Taking advantage of the back-to-school atmosphere, American Express, with Jean Chatzky, is sponsoring National Money Talk Night, a time for parents and their children to talk about personal finance on Sept. 16. The idea for the night arose from discussions Chatzky, a nationally known personal finance author and media personality, held with American Express, the Jump$tart Coalition and the Council on Economic Education.

Chatzky has prepared the tools, information, and even the words you need to have the Money Talk with your child. The information is available for three age groups: middle school, high school and college students.

Here's what you do:

• Visit MoneyNightTalk now. Download and view resources so you can get your own questions answered in advance. Pledge to have the Money Talk with your child. Print the talking points appropriate to your child's age group.
• Mark Thursday, Sept. 16 on your calendar and ask your teenagers and young adult children to do the same.
• On Sept. 16, sit down with your kids and have the Money Talk. You can use the MoneyNightTalk website or personal finance information on your credit union's website during your discussion to help answer your kids' questions.

Take note of the money attitudes and ideas that come out of your discussions. If you don't have children, invite your spouse or significant other to this national event. Use the talking points to help you discuss your financial goals.

Looking for a new car?

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How to NOT run short of money in retirement

What are the chances you'll run short of money in retirement? The Employee Benefit Research Institute, Washington, D.C., predicts that 47% of early baby boomers ages 56 to 66 and 43% of late boomers ages 46 to 55 are at risk of having insufficient income in retirement to cover basic retirement expenses, as well as uninsured health care costs (EBRI July 27).

To help, Smart Money.com (Aug. 20) identifies six relatively painless ways to close the income gap:

• Ditch high-cost debt. Aim to step into retirement debt-free. Pay as much as you can afford on highest interest-rate debts first while still making minimum payments on all other debts. Once you pay off the highest-cost debt, keep whittling away until you pay off all of them. Getting rid of mortgage, auto, and credit card payments in retirement could save you thousands of dollars or more a year.
• Weed out unnecessary insurance. You probably don't need a disability policy in retirement. Similarly, weigh the pros and cons of cashing in your life insurance policy if you no longer have dependents and your spouse could easily support him or herself. When making the decision, calculate the financial loss to your family if you die, and then factor in the cost of the premiums.
• Scale down this old house. Fewer rooms and square footage translate to lower expenses--upkeep, maintenance, utilities and taxes. Or, move to a less expensive area.
• Get rid of energy guzzlers. Replace older appliances with new Energy Star models, switch to compact fluorescent bulbs, and ask for a free or discounted home energy audit. Visit doe.gov for guidelines to conduct an audit on your own.
• Trim high investment fees. You may be paying too much if your fees are more than 1% of your portfolio value. Ask for a fee reduction if you think you're being overcharged, or search for a fee-only adviser at NAPFA.org.
• Lose the landline. If cell phone reception is a problem, consider getting a signal booster. Visit BillShrink.com for the low-cost cell phone plans.