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Consumer Tips



Consumer Tips

Credit Cards

The first step on the road to financial security is to pay off credit card debt. Do not use credit cards as a form of borrowing; use them as a convenience. Credit card interest can be as high as 21 percent and up. You would be better off getting a loan from an employee credit union and having it deducted from your pay check and at a lower rate of interest and using that loan to pay off your credit card debt. But don't run the credit charges up again!

Credit cards, however, are an excellent alternative to carrying cash that can be easily lost or stolen. With credit cards, the most you can be liable for is $50 per card. Keep a record of all your credit card numbers and toll-free number to call in case they are stolen. Call immediately if your cards are lost or stolen, and follow up with a letter; then you won't be liable for purchases made after the date of that call.

Avoid fraud. Do not give your account number over the phone or Internet to someone who calls you to sell you something or to use to confirm that you have won a valuable prize. This is a common scam.

Credit cards are a good way to keep records for budget and tax purposes, but shop around for the best deal. Some have no annual fees. Some offer a rebate. Usually these will charge higher interest rates, but if you pay off your bill each month, you don't need to worry about high interest rates. If you have a card that offers a rebate, use it on all your purchases, including gas, instead of your gas card, which usually doesn't offer a rebate. Again, remember to pay the full balance on time, each month. Otherwise, a finance charge is applied to all charges.

Keep your receipts and check them against your bill every month. These companies do make an occasional mistake and credit card number theft and fraud are on the rise.

Destroy all carbon copies of your receipts. Thieves can obtain your account number and produce fraudulent cards so as to charge items to your account. Do not allow your credit card to be used out of your sight. Thieves are taking electronic imprints of credit card information using small scanners. The thieves then will use the information to buy other products or even steal your identity.

Try to refrain from borrowing cash on your credit card. There is often a transaction fee, and interest begins accruing the next day. Check with your bank or credit union to find an alternative to borrowing on your credit card.

Car Buying

One of the major causes of student loan default is the purchase of a new car. Borrowers are discovering they cannot afford a new car and keep up their loan payments. Student loan repayment has the highest priority. A new car is a luxury, not a necessity.

An important fact to remember is that buying a car is not an investment. It is a liability. The depreciation is so great that you could not hope to sell your car for a large enough amount to pay off the remaining debt. Your insurance costs are higher because you must purchase collision, which is the most expensive part of car insurance policies.

Insurance

Owning too much insurance can weaken your financial position, but not having enough insurance or having the wrong kind does not provide you with the "risk" management we all need.

Most people should only consider five policies:

1. Automobile (if you own a car).

2. Homeowners or Renters.

3. Health.

4. Life (if you have dependents)

5. Disability.

Automobile Insurance

There are five major coverages in a typical auto insurance policy:

1. Bodily injury liability (including Personal Injury Protection in no-fault states), in case you injure someone;

2. Property damage liability, in case you damage someone else's car or other property;

3. Collision insurance, in case you damage your own car;

4. Comprehensive insurance, in case your car is stolen, vandalized or otherwise damaged other than in an accident;

5. Uninsured motorists insurance, in case you are hit by someone with no insurance.

Some ways to save are:

  • Don't buy collision insurance if you have an older car. This is often the most expensive coverage.
  • Increase deductibles. Increasing the deductible from $100 to $250 could save you 20 percent, or increasing to $500 could save you about 35 percent.
  • Don't buy incidental coverage. If you have adequate medical insurance, consider skipping the medical payments coverage.
  • Memberships in auto clubs sold by agents often are of little value.
  • Check out different companies. Surveys have shown that the cost of identical coverage can vary by nearly 50 percent.
  • Choose the right car. Insurance companies give discounts for certain cars and add surcharges for others. Ask for a list of discounted or surcharged cars.
  • Beat the ratings game. Sometimes the youth factor can be countered if you are married, so be sure your agent knows if you are married.
  • If you car-pool or take a bus to work, be sure your agent knows. Your payments could be lowered up to 25 percent.
  • Avoid duplication. Policies can offer special coverage for limited life insurance, disability, towing, theft. They usually cover items stolen from your car. If you have life insurance and disability, you don't need it on your automobile policy.
  • Take advantage of discounts. For example: a 10 percent reduction for drivers who have completed an approved driver-education course, good students who have a B average or better, discounts for automatic seat belts, air bags and anti-theft devices, or a multi-policy discount if you also carry the company's homeowners insurance.
  • Obey traffic and highway laws. Every infraction counts as insurance points.

Disability insurance is a must once you begin full-time practice or employment. The odds are greater that you will be disabled before age 65 than die before age 65. The younger your are, the greater the odds. Assuming your medical bills would be covered by health insurance, you must assess what an illness or injury might mean to you in terms of lost income. You should have 80 percent of your total monthly expenses covered while you are disabled.

Facts to look for in a policy:

1. "Noncancelable"-Means the insurance company can't cancel the policy or change the rate. "Guaranteed renewable" is not the same thing. The company must renew, but it could change the rate.

2. Definition of disability-"Inability to engage in any occupation" is not a good disability definition. Find one that states "inability to engage in your own occupation" or words to that effect.

3. Does the policy make up for any differences if you can only work on a reduced schedule?

4. Does the company distinguish between disability as a result of illness and disability as a result of accident?

5. How long do the benefits last?

6. How long can you wait before you need disability payments to begin?

These last two questions will have a big impact on the amount of premium payment, so consider them carefully.

Also, Consumer Reports has special issues on buying insurance. The important thing is to know what you need ahead of time before you get calls from agents who may pressure you into buying insurance you don't really need.

Saving

If you have credit card debt, you should pay it off first. It is self-defeating to be saving at 3 percent to 5 percent when you are paying 18 percent and up on credit card debt.

Savings should be a habit. The secret to building healthy savings accounts is not so much the amount you save as in the regularity with which you save. When a small amount is regularly deposited into a money market account, U.S. Savings Bonds purchased on a payroll savings plan, or CDs, interest is compounded, so your investment grows exponentially.

Consider, if you had $10,000 to invest right now, in 15 years at 7 percent, it would be worth $28,489. On the other hand, if you invest $100 each month at 7 percent, compounded monthly over 15 years, it would be worth $31,696.

How do you find that amount to save regularly? You should review your budget over the last six to 12 months to get a complete picture of where your money is going. Find the leaks and redirect that money to savings. For example, could you cut back on the number of magazine and newspaper subscriptions? Could you stop the extra charges on your phone bill for "call waiting" and "call forwarding"? Do you impulse buy? Then don't go to a shopping mall unless you have a specific purchase in mind.

Smart savers are smart investors. You need to know how to manage savings just as well as you would manage an investment portfolio.

First-time savers usually must use a passbook savings account with a bank or a share account with a credit union. These kinds of savings accounts have very low initial deposit requirements (usually $25–$50). Money market accounts offer higher interest rates but usually require about $1,000 to open an account.

How do you start saving?

1. Set aside 10 percent of your net income every payday, before you spend it. The easiest way is to ask your employer to automatically deposit it to your savings or money market account. There is no charge for this service. This enforced savings will help you to live within your post-savings budget. The key to effective management of your savings is to consolidate savings in one place. Having them in one "vehicle" makes them easy to get to and easy to transfer to higher-paying investments.

2. When your savings account is large enough, move it into a money market fund that offers higher interest.

3. When your money market fund reaches $5, 000, for example, you could put $2,000 into a three-month DC and $2,000 into a six-month CD. These short-term CDs are still considered liquid. Shop around for the best rates. You will be surprised at the differences between banks and other financial institutions.

4. Always fully participate in your employer’s 401 (k) or similar tax-deferred pension savings accounts.

Seeing Your Credit Report

To obtain a copy of your credit report, write to the following addresses:

TRW Complimentary Report
P.O. Box 8030
Layton, UT 8041-8030

One free copy per year, even if you are not denied credit.

Equifax Credit Information Services
P.O. Box 740241
Atlanta, GA 30374-0241

Each copy is $8.

Trans Union Corporation
P.O. Box 390
Springfield, PA 19064-0390

Each copy is $8.

Include: full name; complete addresses for the last five years, including zip codes; Social Security number; spouse's full name, if applicable; year of birth; copy of driver's license or current billing statement.