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The Money Minute - September 2014

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Thermostat

5 Steps You Can Take Now to Reduce Your Winter Heating Bills

Most American’s cringe at the thought of opening their heating bills in the winter. Staring at a $250 bill can inspire you to act. You can immediately turn down the thermostat, wear sweaters, open your south facing windows during the day, and much more to reduce the amount of energy you use. However, to have the largest impact on your future heating bills, you should begin to act now.

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Credit Cards 101: Healthy and Responsible Credit Card Use

In previous Credit Cards 101 courses, we learned that credit cards and credit card companies are not evil. Credit cards are simply a financial tool that gives us access to credit as well as convenience. However, some people struggle to use their credit cards in a way that is healthy and responsible. So, what is the right way to use your credit card? Here are 13 ideas to getting a good start on using your credit cards correctly.

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 poll.jpg

One in Five People Could Not Maintain Current Lifestyle Without Credit Cards

The ability to put away the plastic and successfully live on a cash basis is an indicator of financial stability, as it proves a person’s lifestyle is in line with their income. However, a recent National Foundation for Credit Counseling® (NFCC) online poll revealed that one in five people could not make ends meet without the use of credit. Another twenty-two percent of respondents said that if asked to live on a cash basis they would have to make significant lifestyle changes.

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5 Steps You Can Take Now to Reduce Your Winter Heating Bills

Most American’s cringe at the thought of opening their heating bills in the winter. Staring at a $250 bill can inspire you to act. You can immediately turn down the thermostat, wear sweaters, open your south facing windows during the day, and much more to reduce the amount of energy you use. However, to have the largest impact on your future heating bills, you should begin to act now.

You should start with your heating ducts and insulation
Get up in your attic or down in your basement or crawl space to inspect your air ducts. Look for heavy black smudges around duct joints and in your insulation. This could be dust, which would indicate you have an air leak and are wasting energy by pumping hot air into spaces you don’t want to heat. Repair the duct leaks with metal backed tape that is available at most hardware stores.

Take a look at your insulation. Do you have enough insulation and is it located in the right places?

Don’t forget air ducts and water pipes. Consider applying an insulating blanket to air ducts located in cold spaces. If you have water pipes that run under the house or even worse, in the attic, you should cover them with piping insulation.

If your hot water heater is not insulated, put an insulating blanket around it. Hot water blankets are available at most hardware stores.

You can find out more about insulation and home sealing at http://www.energystar.gov/ia/partners/publications/pubdocs/DIY_Guide_May_2008.pdf

Seal your home
Heat that escapes through leaks around doors, windows and other areas is wasted money. Here are some areas that you can inspect and seal if necessary:

  • Inspect around your door openings. If you detect leaks, install door sweeps or caulk leaks as necessary.
  • Check for gaps and leaks around all of your windows. Once again, an inexpensive tube of caulk or a roll of weather stripping can save you a lot of money in the coming months.
  • Apply seals to electrical outlets located on exterior walls. These inexpensive gaskets are easy to install and inexpensive. Just be sure to turn off power to the outlet before installing the gasket.
  • Swap out your window screens with storm windows. If you don’t have or can’t afford storm windows, you could apply inexpensive plastic film to windows instead.

Have an afternoon of fall cleaning
Clean your vents and registers. Make sure they are not being blocked. The better the airflow, the more efficient your heating system will work. While you are cleaning, go ahead and tackle the air intake to your furnace and replace the air filter (you should replace air filters monthly). Ensure that nothing is blocking the air to your furnace as well.

Don’t forget your ceiling fans. While you are cleaning the blades to ensure efficient air flow, reverse the direction the fan turns so that it is blowing downwards. You want the fan to move the hot air from the ceiling back down to your level, where you want it most. With most fans, this means you want the motor to turn in a clockwise direction.

Have your heating system inspected
This is the perfect time to have your heating system inspected and maintained by a professional. Your inspector will ensure the system is operating at peak efficiency and will perform any maintenance or repairs that could prevent your system from failing when you need it most.

Consider your fuel costs now
If you use fuel oil or propane, the late summer is often the cheapest time of the year to buy fuel. Shop around by calling several suppliers and have your tanks filled before the price of fuel goes up.

Don’t forget that you can prevent spikes in your energy costs by entering into a bill leveling program with your local utility. Payment leveling plans even out your monthly bills by averaging your estimated energy use over a year. If you plan on living in your home for at least a year, you should consider this option.

Act now
Don’t wait until high winter energy bills arrive before you make changes to save money. While the temperatures are still warm, take steps to seal your home, maintain your heating system, and reduce your energy use.


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    Credit Cards 101: Healthy and Responsible Credit Card Use

    In previous Credit Cards 101 courses, we learned that credit cards and credit card companies are not evil. Credit cards are simply a financial tool that gives us access to credit as well as convenience. However, some people struggle to use their credit cards in a way that is healthy and responsible. So, what is the right way to use your credit card? Here are 13 ideas to getting a good start on using your credit cards correctly.

    1. When using a credit card, remember that it is the same as taking out a loan. Credit cards are not the same as cash and you should certainly not think of credit cards as free access to money. As with any loan, you will pay interest on the amount you have borrowed every month that you carry a balance.
    2. Any charges you make with your credit card should fit within your monthly budget. Would you take out a loan for a new car or for a mortgage on a home without first determining if the loan would fit within your budget? Anytime you take out a loan with your credit card, you should also ensure that paying off your credit card charges will fit within your budget.
    3. You should never carry a balance on your credit cards from month-to-month. You may use your credit card for convenience, online shopping, traveling or to build your credit history. These are all great ways to use your credit card. The key is to have that money sitting in the bank just waiting to pay off the bill as soon as it comes in. If you pay off your credit card each month, you will avoid being charged high interest rates. Essentially, you are using the bank’s money for free.
    4. Use your card regularly for small purchases and then pay the balance on time. Using your credit card is necessary to keep the account open, and paying the bill in full and on time will have a positive effect on your credit history. 35% of your credit score is based upon your on time payment history.
    5. Don’t use more than 30% of your available balance on your credit card. 30% of your credit score is based upon your credit utilization ratio. In plain English, this means that the less you use of the amount of credit available to you, the better. Low credit use means a lower credit utilization ratio and a higher credit score.
    6. Don’t close credit card accounts after you have paid them off. Remember your credit utilization ratio? When you close an account, you reduce the amount of credit that you have available. If you are carrying high balances on other credit cards, closing an account will make your credit utilization ratio go up and your credit score will go down.
    7. Use your credit card for larger purchases (if you can immediately pay off the debt). Use your cash or debit card for smaller, every day purchases. Credit cards offer consumers protection against fraud and quality issues. Not happy with that $2,500 car repair? If you paid cash, good luck getting the issue resolved. If you paid with a credit card, you only have to dispute the transaction to your credit card company and they will withhold payment on the repair until the issue is resolved.
    8. If you are a responsible credit card user, go for the reward points or the cash back. If you use your credit cards regularly and always pay off the balance each month, you should get a credit card that offers reward points or cash back. What could be better than getting points to buy plane tickets or 2% cash back….for free? On the other hand, if you don’t pay your bill when it is due, you may lose those points, you won’t get cash back, and you will start paying double digit interest rates and late fees. Suddenly, you understand why your parents always said that nothing is free.
    9. Read your credit card statement every month. The only way you will be able to catch errors in your statement or find fraudulently charged expenses is to read your bill. If you find something wrong, report it to your credit card company immediately. Just call the number on your bill or on the back of your credit card.
    10. Use your credit card while shopping online. Identity theft originating with online purchases is not uncommon. Using a credit card means that while the situation is being resolved, you are not out any of your own money. If you had used a debit card, it’s your money that is being held hostage while the situation is being resolved. You might be out that cash for two weeks before you get it back. A good rule of thumb is to never use your credit card on a web page that does not begin with https: (that s means secure).
    11. Be careful with same as cash offers or 0% offers. You will need to ensure that you pay the transaction off before the final payment is due. If you don’t, you will be charged the interest retroactive to the date of purchase. For example, if you borrow $500 at 12 months same-as-cash, divide the $500 by 11 and pay the resulting $45.45 every month and you won’t carry a balance into the 12th month. You will completely avoid interest charges along the way.
    12. Watch out for user fees or annual fees. Some credit card companies are charging a fee to users who pay their cards off in full each month. There are a few credit card companies charging annual fees upwards of $400.00 to make sure they make some “profit” off of you each year.
    13. Pay attention to the little small print booklets you receive in the mail. This is your credit card company notifying you of changes to your account. They may be telling you about interest increases, changes in default terms, etc. (they must notify you in writing per federal law). If you’re not sure what is changing, call them and ask. If you don’t like the change, tell them you don’t like it and ask what options you have. If you choose to close your account (and that is always an option you have) before an interest rate change goes into effect, they can’t raise your interest rate and you will be at your current rate as long as you pay them their monthly payment on time. Miss a payment or be late and they will immediately use the default rate based on the terms of your contract with them.

    Misuse your credit card and you will quickly find yourself in a mess of debt, fees, and high interest rates. Using your credit cards in a healthy and responsible manner will lead to convenience, flexibility, and a great credit history. Start a habit of good credit card use and you will have a future with sound personal finances.

One in Five People Could Not Maintain Current Lifestyle Without Credit Cards

The ability to put away the plastic and successfully live on a cash basis is an indicator of financial stability, as it proves a person’s lifestyle is in line with their income. However, a recent National Foundation for Credit Counseling® (NFCC) online poll revealed that one in five people could not make ends meet without the use of credit. Another twenty-two percent of respondents said that if asked to live on a cash basis they would have to make significant lifestyle changes.

Credit should be used as a convenience, not to supplement income. It is a warning sign if a person is not able to manage his or her daily lifestyle without the use of credit cards, as this is a dangerous habit that could lead to serious financial distress.

To illustrate the damage that can result from the overuse of credit, consider that in 2013 the average consumer who sought financial counseling from an NFCC member agency had between five and six credit cards with a total unsecured debt equal to half of their annual household income.

To help consumers know if they are entering the financial danger zone, the Apprisen uses the following red flags to indicate debt is becoming unmanageable:

  • Paying only the minimum on credit card bills each month
  • Credit card balances growing
  • Skipping monthly payments, paying late, or making short payments
  • Accounts going into collection
  • Moving debt around through the use of balance transfers
  • Seeking cash advances, payday loans, title loans or other non-traditional credit
  • Arguments in the home over money
  • Charging items that were previously paid for with cash
  • Attempting to obtain new lines of credit since existing lines are near their limit
  • Considering bankruptcy or debt settlement

People may feel as though they have no alternative to using credit to supplement their income, but that is a dangerous habit that can lead to financial ruin. No one ever intentionally digs a deep financial hole, but breaking one of the basic rules of personal finance – spending more than you make – is not likely to have a positive outcome.

The NFCC posed the identical poll question to consumers in 2012. Comparing the results only revealed one positive change: the number of people who would be able to maintain their same lifestyle without the use of credit increased four percent in the 2014 findings (27% versus 23%). There was no statistical difference between the two years in the remaining answers.

The actual 2014 poll question and responses are below, with 2012 data in parenthesis. 

If asked to live on a cash basis, I

A.    Would be able to maintain my same lifestyle 27% (23)
B.    Would make some changes, but basically be fine 32% (32)
C.    Would have to make significant lifestyle changes 22% (24)
D.    Could not make ends meet without credit 20% (22)

 

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