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April 2009 - Posts - The Dollar Stretcher
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The Dollar Stretcher

The Dollar Stretcher blog will explore people and money.

April 2009 - Posts

  • Someone to Pay My Credit Card Bills?

    “Circumstances are the rulers of the weak; they are but the instruments of the wise.” Samuel Lover

    It doesn't take a genius to notice that our financial circumstances have changed in the last few years. But, it does take some thought to recognize which strategies are still sound and which ones need to be changed. Today we're going to talk about one that may need to be changed depending on your circumstances.

    For years credit card holders have had the option of buying 'credit card insurance' on their accounts. There are a number of different forms. Some pay your account if you die. Others pay if you're disabled. The one that we're going to consider pays if you lose your job.

    Before we begin, let's take a moment to discuss why we buy insurance. In it's purest sense, we buy insurance to pay for losses that we cannot afford to absorb ourselves. Often these losses are sudden, unexpected or out of our control. Think car accidents or a home fire or burglary.

    Typically, it's foolish to buy insurance for things that we can afford to cover. You wouldn't buy insurance to pay for your next tank of gas. Presumably you can afford it and the paperwork plus the insurance company profit would just add to the cost.

    The second thing to recognize is that it's usually cheaper to buy insurance that's broader. For instance regular term life insurance (that you can use however you like) is going to be cheaper than credit card life insurance (that will only pay your credit card bill).

    OK, so today we're going to look at "involuntary unemployment credit card insurance". That's insurance that will pay if you lose your job.

    For years, I've advised against this type of insurance. It's expensive. And, it's limited in what it covers. In fact, it's been a big money-maker for the credit card companies. Plus, you shouldn't carry a balance that you couldn't handle if you lost a job temporarily.

    But, circumstances change. Given the economy, many people are concerned about losing their job. And, they're right. There is more risk than usual. It's only smart to consider how safe your job is. If you're not sure, here's a simple quiz that can tell you how risky your situation is. It was developed by a group of mathematicians who specialize in forecasting.

    If you think that there's a reasonable chance that you could lose your job you should consider "involuntary unemployment credit card insurance."

    Let's learn a little more about it. In the case of layoff they will make your minimum payment. The insurance only covers the payment on that one specific card. So if you have more than one open balance, you'll need more than one insurance policy.

    Generally, they won't pay right away. You'll need to continue making the payment until you've verified that the insurance is paying your bill. If you don't pay and they don't either, you'll be facing late payment fees and a lower credit score.

    You will need to meet the involuntary unemployment standards. Usually the insurance probably will not pay if your hours are cut by less than 50%.

    The insurance will only make your minimum payment. It will not pay off th entire balance. That means that the unpaid balance will still be growing due to the interest charged.

    The insurance will only pay for a maximum number of months or a maximum dollar amount. So your payment is not covered forever.

    They will not make minimum payments on anything charged after you are laid off. That can be important if you plan on using that card to help tide you over after a layoff.

    Now that we know something about it, what steps would you take to investigate further? You'd begin by calling the credit card company. They'll put you through to someone who should know how their policy works.

    Ask them how much it will cost. They should give you a cost per $1,000 of account balance and also tell you how much it would cost on your current balance.

    Find out exactly what has to happen and what you need to do for them to make your payment. Know what is excluded. If you don't understand, ask questions until you do. Don't 'think' you know what's covered.

    Make sure you're clear who needs to be unemployed. Is it your account? Your spouse's? A joint account? Know who needs to lose their job for the insurance to be triggered.

    Find out what it will take to cancel the insurance later. Hopefully your job will be more secure at some point in the future and the insurance will not be necessary.

    Decide what credit card you would use for routine purchases. Would that affect which cards you insure?

    Once you've gathered your information give yourself a day to think about it. Discuss it with your spouse or a trusted friend/relative.

    One final warning. Scammers may call you and claim to be from the credit card company. Do NOT give them your card number. If you want to buy the insurance, make sure that you're the one doing the calling.

    Keep on Stretching those Dollars!

    Gary

  • Necessity? Or Luxury?

    I received an interesting call the other day. It was from a producer from an evening TV news show. They had an interesting question. Were people changing how they viewed their appliances? In other words, were there some things (like satellite TV, landline phones, dishwashers, clothes driers, etc) that people used to consider as necessities, that now due to the economy they consider them luxuries.

    It's an interesting question. And, I suspect that much of it has to do with your particular situation. If you've lost your job and are struggling not to lose your home, then things like satellite TV are definitely a luxury.

    One way to look at it is to compare the necessity/luxury item to what else you could do with the money. In our 'losing home' example, just about everything would be considered a luxury. If it's a choice between using the clothes drier and having enough groceries for dinner tonight, there's not much to decide.

    On the other hand, if using the drier means that I contribute a little less to my 401k retirement plan, then maybe it's still a necessity in my home.

    So the answer will vary from home to home. But, the underlying question is a good one. Are there some things in my life that should be treated as luxuries, but have become so common that I've assumed that they're necessary to a happy life. My guess is that most of us have a few things that we really could live without if that's what it took to keep a roof over our heads or feed our families.

    If you have some thoughts on the subject, I'd love to hear from you. Just send me an email.


    Keep on Stretching those Dollars!

    Gary                   

    Posted Apr 22 2009, 09:46 AM by Gary with 5 comment(s)
    Filed under: ,
  • What's Good About Tough Times?

    Hello to all my Frugal Friends!

    Guess we all couldn't help but notice the recent multiple murders that took place. It's really sad. And, I'm concerned that a tough economy is only going to contribute to more of the same.

    I wish could wave a wand and make the problems go away. But I can't. What I can do however is to encourage you to take the kind of financial steps that will make tough times (no matter how hard they get) a little easier to handle. We can share ways to be happy without spending money that we don't have. We can encourage each other and even share what we do have with those who need it.

    I've been accused of always looking on the bright side of things. And, to a certain extent, that's probably true. But, I think that's practical. You see I rarely find a solution by looking at the dark side. Only when I look for the positives can I find ways to handle the problem or at least live through it without being permanently damaged.

    Do you have a positive store to share? If so please send it to me by email. We'll find some way to share them with our readers.

    Keep on Stretching those Dollars!

    Gary

  • New Car Payments for Layoff Victims

     
    The new car market is dead. According to AutoData Corp in March 2009 auto sales were 36% lower than March 2008. So the manufacturers are trying to find ways to kick-start sales. And, being the marketing wizards they are, they came up with a beauty.

    Here's the latest from General Motors, Ford and Hyundai:
    "In GM's case, the automaker is offering to make up to nine months of payments of up to $500 each if you lose your job for what it calls "economic reasons." Ford says it will make up to 12 months of payments totaling $700 per month or less. Naturally, there are additional terms and conditions, starting with the time limit. GM's offer could be renewed, but for now it applies only to cars purchased before April 30. Ford's deal applies to cars purchased before June 1."


    Wow! What a great offer! Well, actually not. Yes, it would be nice if someone made your car payment for awhile if you got laid off. But, if you go for this deal and do get laid off, you'll still be in a heap of trouble.

    To see how, let's put together some hypothetical situations. We'll compare purchasing a new car (in this case a Ford Mustang 2 door coupe), buying a 5 year old used car (also a Mustang) and doing a little fix-up on your current wheels.


    A new Ford Mustang lists for $20,430. According to Cars.com invoice is $18,877. So let's say you negotiated a really good deal and got it for $18,800. And, let's further suppose that your trade-in or cash deposit was $1,000. So you were financing $17,800 for 60 months (5 years).
    A 60 month new car loan rate averages 7.38% according to Bankrate.com
    and their payment calculator says your monthly payment would be $355.66. So to put those new wheels in your driveway you've reduced your savings by $1,000 and committed to a $355.66 payment for five years.


    What happens if you bought a 5 year old Mustang? It would cost $8,004 retail according to Edmunds.com. You could expect to find 60 to 70,000 miles on the odometer. Hardly a new car, but still one that should be dependable and provide good transportation.

    Let's suppose that you paid full retail for the used car. And, you put the same $1,000 down. So you'd be financing $7,004. A 36 month used car loan averages 7.74%. Your payment would be $218.64. Those wheels cost you your $1,000 savings and a commitment to a $218.64 payment for 3 years.

    So what happens if you buy the new car and get laid off? Let's assume that six months from now your job disappears. So Ford graciously pays your auto loan.

    If it takes a year to find work Ford will have paid $4,267.92 (12 payments of $355.66 each) for you. That's the good news.

    But the bad news is that you still owe another 42 months (3 1/2 years) at $355.66 per month ($14,937.72). And, your new job might not be paying as much as your old job. Plus you accumulated some other bills while you were laid off. That car payment could look pretty steep. Selling the car is probably not going to be an option. You'll still owe more than it's worth at this point. Bascially you're stuck making the payments on a car you cannot afford.

    On the other hand, you could have bought the 5 year old car. You get laid off in six months just like before. No one is offering to make your car payment, but your Mustang is worth just about what you've borrowed on it. So you have the option to sell it and walk away.

    An even better option would be to keep the car you have now. Especially if it's dependable. Even if you have to put a few dollars into it. You'd have no car payment.

    In fact, let's suppose that you spent $1,500 fixing up the old ride. Put the whole thing on your credit card. Didn't even use the $1,000 that was the down payment when you were car shopping. If you're paying the national average of 12.35% interest (CreditCards.com), and you paid off $218.64 (what you would have paid monthly for the used car), you'd have the credit card balance paid off in 8 months (Bankrate.com calculator). So if you got laid off in six months you'd only have to face two payments.

    But, let's look at a more extreme case. What happens if you don't find a job for two years. Well, Ford is still going to start looking for your monthly $355.66 payment after 12 months. And, by that time you're probably going to be squeezed financially. Selling the car still won't be an option. You'll be upside down in it. Let's face it, you'll be cornered.

    So my advice to anyone considering GM or Ford's offer? Steer clear of it! This is an accident waiting to happen. And even airbags won't save you in this crash!

     

    Keep on Stretching those Dollars!

    Gary

     

  • Grocery Pricebooks and Coupon Use

    First of all let me say that I read your articles and enjoy each and every one.  But I have a couple questions about the price book.  I started my own version which is very much like the example I copied from your site yesterday.  One of the questions is:  do I get prices for EVERYTHING that I purchase or just the items that are on sale in the paper.  Also, do I consider in the price any coupons that I may have for that item.  Does each page represent one particular item?  These are a couple questions my daughter and I were trying to figure out.  Nancy B.

     

    Nancy,

    Good questions. Glad you asked them.

    Let's start by remembering our goal. We're trying to find out when the price that we see in the store today is a good deal and we should stock up. So we want create a tool that will help us make that decision.

    I never have listed every purchase. Just don't see how that helps me. I'm looking to see what the LOWEST prices are so I'll recognize them when I'm in the store. So there's no real need to list every purchase. However, you may want to add advertised prices (from sales fliers) even if you don't buy that day. 

    As to coupons, I leave them out. Two reasons for that. First, I'd use the coupon no matter when I bought the item. So it doesn't help me make a decision whether to buy or not. Second, I'd really be misleading myself by including it in the pricebook (especially if I didn't leave a note for myself that I had used a coupon). Suppose you did include that savings in the price you listed in the pricebook. Six months later you're expecting to be able to find the item for that price again. But you never will without the coupon. It could lead you to pass up a good sale waiting for a lower price that will not happen. If you really do want to include coupons, I'd add an extra column for coupons.

    One final thought about coupons. A pricebook will help you to decide whether you want to buy today to avoid letting a coupon expire unused. If you face that choice you can look at the store price and subtract the coupon savings. Then compare that 'after-coupon price' to your pricebook to see whether you can beat the price later even without using a coupon.

    Thanks again for some great questions!

    Gary


  • Homemade Seasoning Mixes

    Our recent poll on cutting expenses showed that many of you are trying to save on groceries. We also know that one of the things that makes a home cooked meal special is the seasoning. But prepared seasoning mixes can be expensive. So last Tuesday in Dollar Stretcher Tips (you can subscribe here) we asked readers to send us their best seasoning combinations so we can share them with you. We've had a nice response, so we're going to ask everyone to join in. Please send them by email   or you can join in the discussion in The Dollar Stretcher Community

  • Pricebook Pages

    If you're a regular reader you know that we've always been big supporters of grocery pricebooks. As an ex-purchasing manager, I feel that a pricebook gives the average grocery shopper the same tools that a professional purchasing agent has. And, based on what we hear many people save 15% or so on their grocery bills without changing what they buy.

    Back a few years ago we even offered a pricebook for sale. But we found that buying and assembling the parts plus the cost of shipping made them expensive for what they are - a simple tool to save on groceries. But, one thing stood out. It was easier for people if they had the pages designed for them. So we set out to create a pdf that would provide people with the pages that you use to create a pricebook. All you need to do is to find an old ring binder or even staple the pages together. The pages are free to download. You'll find them here. Please let your friends and neighbors know about them. You'll make lots of friends if you can help them shave 15% off of their food bills!

    Keep on Stretching those Dollars!

    Gary

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Gary is a former financial planner and purchasing manager who edits The Dollar Stretcher website <www.stretcher.com> and newsletters. You can follow Gary on Twitter.com/gary_foreman
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