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Confessions of a former debt snowballer

2012-02-08T15:58:57Z

A lot of time, money and energy go into figuring out why people make the wrong choices when paying off debts.

For example, when faced with multiple debts with varying interest rates, people tackle the debt using one of two strategies: paying the smallest debt off first (known as the infamous "snowball strategy"), or paying off the debts with the higher interest rates first (the more logical approach, which, if followed, gets you out of debt faster).

I'm ashamed to say that, for quite a number of years, if not decades, I was a snowballer.

I wasn't always a personal finance editor, but I was educated enough to realize that higher interest debt is more expensive. But that didn't stop me from doggedly pursuing the thrill of paying off as many small debts as I could first -- no matter their interest rates -- before I tackled any bigger ones.

The snowball method isn't new, but giving it a name was genius. It combines instant gratification with achievement, and it appeals to the emotional side of debt rather than the rational.

But after writing and editing about the right and wrong ways to pay multiple debts -- and after incurring some debt over several credit cards when I moved last winter -- I thought it high time I paid off debt the smart way.

Let it be known that I've not been an ostrich when paying attention to the interest rates on my cards. I know what they are, but that still didn't stop me from tackling the biggest debt last. But when actually writing down the balances of several cards and their corresponding APRs, I was a little shocked.

Case in point: Some of my largest purchases when I moved were a new refrigerator and a new washer/dryer. My washer was headed toward collapse after 20 years of use (when Maytag was actually manufactured by Maytag, not Whirlpool), my dryer didn't dry and my refrigerator was going to die at the least opportune time (like right after a big grocery haul). I scoured the ads and ended up at an appliance sale at Lowe's. Having always been a Home Depot customer, I didn't have a Lowe's credit card, so I opened one (yes, for the first-time discount).

The interest-free period for the card was 12 months, and I almost have the balance paid off already, but then the APR jumps to 24.99 percent! Might as well round that up to 25 percent. Geez. That's the highest APR card in my wallet. So that balance is going first. And I don't think I'll be using the Lowe's credit card for anything else.

Next, the Home Depot card. While not much better, the APR on that card is around 22 percent or 23 percent. Luckily, I paid what little I had charged on that card off this month.

So, I am left with my piddly-APR general use reward cards, whose rates are so much more reasonable than any retail card out there. Why I still use retail cards ... well, I know why. It's the incentives, like the frequent-use coupons, the first-time use discounts, the "no-interest" for 12 months teasers, etc.

But now that I'm applying a sense of economics to my debt paying strategy rather than paying by emotion, I'll never fall prey to those come-ons again.

Of course, that's not true, but then if we all approached our debts like economists, the card issuers would never make any money. You know they are banking on us to fall for the bells and whistles -- until the bills come in. But I'm glad I'm finally practicing what I'm preaching.

TV's 'Downton Abbey' mirrors today's financial turmoil

2012-02-08T15:56:42Z

Full disclosure: I have never read a Jane Austen novel, my forebears were murderous mountain Scots, not British dandies in ascots, and my Old Vic was an uncle who drank.

Nevertheless, I'm hooked on the BBC period drama "Downton Abbey" and I think I know why: "Downton" mirrors the financial and cultural turmoil of our times. Just with better hats.

For the uninitiated, "Downton Abbey" (carried on the PBS network in the United States) begins in 1912 on the selfsame fictional Yorkshire estate of the Earl of Grantham, a position currently held by Robert Crawley. Like many strapped British aristocrats of the day, Robert kept the place afloat by marrying a wealthy American heiress, Countess Cora, with whom he fathered three daughters.

"Downton Abbey" cast. Image courtesy ITV.

Since women cannot inherit under British law, family pressure quickly falls on eldest daughter Mary to find a suitable husband. The likely candidate is distant cousin Matthew, a solicitor from Manchester who has mixed feelings, both about Mary's motives and ascending to the aristocracy in general. Alas, all of their best-laid plans go awry with the outbreak of World War I.

What makes "Downton Abbey" so addictive is how series creator Julian Fellowes subtly weaves our current money miasma into his story lines to create a cheeky resonance rare on the small screen.

Robert and Cora? They could easily be today's baby boomer parents, stunned by the financial impact of the housing bust and trying to make their wealth stretch to the next generation. Be glad you don't own a manse.

Cousin Matthew's turmoil over leaving his life as a lowly 99%er to join the 1% throws a shout-out to the Occupy Wall Street movement. Younger sisters Edith and Sybil take jobs for the first time in much the same way many U.S. families have had to adapt to hard times. An Irish chauffeur's pursuit of Lady Sybil straddles the crumbling wall between the classes.

There's even an arch poke at our fascination with electronic gadgets in the Crawley household's tentativeness toward that baffling new invention, the telephone. Sadly, soldiers returning from foreign fronts disabled, disfigured and disoriented from shell shock are all too real today as well.

You don't have to look far to find the secret behind "Downton Abbey's" success.

It's all around us.

Emily's list: Reward tracker edition

2012-02-03T12:27:11Z

Last week at a happy hour, a friend told me that she is traveling to Paris later this year and is dreading the purchase of an expensive flight. When my friends and I found out that she didn't have a frequent flier credit card, we encouraged her to get one to help earn a free flight. There was some debate, however, about whether it's better to get one for a specific airline or for one that has general miles that can be used anywhere.

Matt Kepnes, the blogger behind the popular travel blog NomadicMatt.com, has been jetting around the world for five straight years. I've actually met him twice during that time. As long as I've been reading his blog, he has touted the benefits of frequent flier credit cards and actively works on earning frequent flier miles.

I received the latest issue of his email newsletter this week, and had a little smile when I saw that airline credit cards were one of the topics. Matt recommend a site I'd never heard of before called MileWise.com, which helps you track your reward programs. I know this concept isn't new, but the site does something I've never heard of before. MileWise.com's homepage says, "Search flights in cash, miles and points. We recommend the best way to pay, so you save money and earn more rewards." Yes, please! The site supports more than 300 airline reward programs, and it keeps track of all of your balances for you. It can tell you how much your miles are worth and warns you before they expire.

In his newsletter, Matt added this extra tip that you may find helpful:

"What I like to do when I call up whatever airline I have points with is to ask what their partners have available for flights. When using airlines that are part of the global international alliances (Oneworld, Star, Skyteam), you are allowed to use your frequent flier points with their partner airlines and, since not all redemption programs are the same, you can often get flights flying the same route for less miles."

I'm excited to try MileWise.com! I feel like I'll be far more likely to use my frequent flier miles if they are easy to track and if I can really see the value of them. Please keep reading for my list of my 10 favorite personal finance blog posts from the past week!

1. You may look at volunteering as a drain of income or time, but Cash Money Life explains why volunteering actually can teach you some very valuable skills.

2. Money Crush uses a startling example to explain why budgeting is more than just a chore; it can shock you into action when you begin to track your habits.

3. From debt repayment to credit scores to interest rates, Blonde and Balanced shares her first house-hunting experience by the numbers.

4. Careful Cents offers her fourth installment on how to pay down debt faster, and she explains when you should and shouldn't pause your investing and saving.

5. Travel eats up through money so fast it's frightening. Well Heeled Blog lists 10 ways to handle your wanderlust when you're low on money or time.

6. Newlyweds on a Budget discusses some of the various ways couples can communicate and stay on the same page about their finances.

7. Money Under 30 explains why the wisest and easiest way to handle your personal finances is to automate everything you can.

8. Sustainable Life blog recounts how severe his debt situation used to be and how his perspective has changed now that he doesn't owe quite as much anymore.

9. Little Miss Moneybags lists things that make her feel smart about money, plus the things that would make her feel broke.

10. Minting Nickels explains how she and her family cut out their favorite expensive activity and replaced it with something fun enough that it isn't a painful sacrifice.

The straight poop about fast-food self-service kiosks

2012-02-02T15:50:34Z

Looking for a place for my kid to use the potty, I managed to stumble across a quicker way to get through the line at a fast-food joint.

Most every parent has been there: You're on the highway, trying to make time, and a voice comes from the backseat, saying, "I need to go potty." Fortunately, driving between Austin and San Antonio, there are countless places to stop, so rather than pushing our luck that Saturday morning, we just took the next exit off the highway and stopped at a Jack in the Box in New Braunfels, Texas.

I've worked at fast-food places and, Lord knows, have eaten in enough of them to know that using the restroom without buying anything is definitely frowned upon. So, upstanding customer that I am, I went up to the front counter, while my wife took my son to the bathroom.

While figuring out what to order, I saw a maroon-colored kiosk, just to the right of the counter. It was about the size of your typical ATM. Its bright-orange screen said, in block letters, "Order and pay here." So I did. The line at the counter wasn't long, but I couldn't resist trying out some new technology.

I swiped my credit card, navigated through my choices using the kiosk's touch screen and chose what I wanted -- a sausage-and-egg biscuit. I then followed the on-screen instructions, finished my order and received a receipt for my efforts. Then, I just stepped away from the kiosk to wait.

A few minutes later, my wife and son emerged from the bathroom, I had my biscuit and we hit the road.

As we drove, I told my wife how cool I thought that was and questioned why we hadn't seen more of them. I've been in fast-food places all across the nation and had never seen one. Turns out that I apparently just hadn't been looking in the right places.

According to QSR magazine -- which covers the fast-food business -- these kiosks were rolled out in some Jack in the Box locations as early as 2009. They can now be used in more than 200 Jack in the Box locations. SelfServiceWorld.com says that they can also be found in California Pizza Kitchens in the U.S., as well as in more than 800 McDonald's locations in Europe. Don't hold your breath for them to arrive in your nearest neighborhood McDonald's though; that same SelfServiceWorld.com article quotes a company spokeswoman saying that no plans have been made to bring them to the U.S.

Surely, though, it is just a matter of time before these kiosks become as common as self-service lanes at grocery stores. I hope so. I love using them. However, I also know that the American credit card business tends to adopt technology somewhat glacially compared to our European counterparts. (Chip-and-PIN, anyone?)

Still, American businesses will likely come around sooner rather than later. After all, those companies know that Americans hate to wait, and anything that helps us avoid that -- whether it's for groceries, a sausage-and-egg biscuit or a little boy to finish using the potty -- is a welcome change.

Emily's list: Too reliant on plastic edition

2012-01-27T13:18:37Z

Earlier this week, I went to run an errand during lunchtime and stopped at a small neighborhood gas station. I swiped my credit card, entered my ZIP code and waited. Eventually, I was told there was a network error. I looked up, and people at the other pumps had puzzled looks on their face.

The station had a small kiosk with a cashier rather than a store. I saw a man yelling at the cashier. He was upset that he had swiped his card only to get an error message, without anything indicating that the transaction was completely over. He demanded to know if they still have his credit card information. Was it at risk of getting stolen? Would he be charged if someone else pulled up and tried to get gas? I hadn't been worried about that -- I just wanted gas -- but then he made me worried, especially when the cashier didn't know the answers. The man left in a huff.

I went up to the kiosk myself to see if my credit card would work at his station since I didn't have enough cash on me. He said he wasn't sure if my card would work or how long it would take. I only had $5 cash, so I needed the card to work, or I would have to go elsewhere. Luckily he was able to get it to process, but the line was growing and people were getting irritable or leaving.

I've always wondered what would happen if a crisis caused all network connections to go down or electricity to fail, which would prevent credit card processing from working. The amount of confusion and irritability I saw on a regular Wednesday afternoon at a gas station made me worried about what would happen in a real emergency. We have all become so reliant on our plastic. While my credit and debit cards have been invaluable tools in my personal finance arsenal, I may have to admit (much to my husband's excitement) that perhaps I really should carry a little emergency cash money. But unless I absolutely have to, I love paying for gas with my credit or debit cards so that I don't have to try to predict how much I need to spend ahead of time. Have you had an experience like this where you were caught off guard by technology failing?

For plenty of great personal finance tips and advice, read on for my list of my 10 favorite blog posts from the past week.

1. For those whose New Year's Resolution was to save more money, The Amateur Financier provides advice on how to stick to it and be successful.

2. Little House in the Valley shares some sneaky ways you can trick your mind into saving more money.

3. Len Penzo warns about several personal finance rules of thumb that may not be such good advice after all.

4. The Family CEO reveals an easy way to turn product rebates into extra debt payments.

5. You're finally debt-free -- now what? Financial Excellence discusses what your priorities should be once your debts are paid off.

6. A guest post on Sustainable Life Blog uses his own parents' financial smarts to explain how you can help your kids have a successful future.

7. On a very similar note, a guest post on Fiscal Phoenix discusses how you can raise a child who is so financially wise that he or she is equipped to become a millionaire.

8. In light of the recent Zappos security breach, Narrow Bridge Finance lists several ways to protect your financial data online.

9. Squirrels reminds us of the importance of thoroughly checking credit card statements to insure there are no unauthorized charges or errors.

10. Budgeting in the Fun Stuff features a guest post from a woman who thought she was gaming the system by playing balance transfer roulette, but soon realized it was a dangerous game.

You're Approved for Suze Orman's card (but only if you already have a card)

2012-01-26T16:50:27Z

The irony of it all. Financial personality Suze Orman's new and controversial prepaid Approved card has a glitch that few in the media have reported on: In order to load the card with your money, you need to already have another form of plastic.

Her prepaid Approved card has generated gobs of press and decidedly mixed reviews, mostly over its fair-to-middling fee structure.

But this one aspect of the orange-hued celebrity's purple-hued card launch irks me: the discussion of whether it has the potential to do a noble deed -- helping those with no bank account (aka "the unbanked") get a credit score. If you have to have a card to get the card, it's highly likely you're already "banked" and the point is moot.

Orman got the credit reporting agency TransUnion to agree to gather data on the transactions for a year or two, and then evaluate it, according to the press release, "to determine whether including this data in a credit report should impact access to credit products."

She trumpets this aspect of the card as a potential game changer, a helpful tool to get more people credit scores, and therefore access to credit.

"The majority of people who have these cards are called the unbanked and the underbanked," she told Good magazine. "They do not have a bank account at all -- unbanked -- and even if they do have a bank account, what's then happening is that they're not using all the services that the bank is providing."

She expanded on that point in a TV appearance last week on MSNBC's Morning Joe, "You have to understand that if all you ever want to do is spend money on a debit card or spend cash, that does not report to the credit bureau. If it doesn't report, you don't have a score. If you don't have a score, your car insurance premiums are higher, landlords may not rent to you, employers may not hire you."

Scary stuff.

Pretty much bogus, too, because the only way to get an Approved card is to have another card already.

I went through the application process, all the way to the point where you fund the card.
And that's where it requires a Visa, MasterCard, Discover or American Express card number (click the screenshot above to enlarge). If you have one of those cards, you're already "banked" -- with the exception of a very few cards that aren't connected to a bank. And if you're using a credit card to open your Approved card account, you also already have a credit score.

So to get an Approved card, you already have to have a credit card, in which case you already have a credit score, or a debit card, in which case you already have a bank, or you're one of the small fraction of people who already has a prepaid card, in which case you're just trading brands for a card that has a so-so set of fees.

And because most of the people who can get it already have banks, or credit scores, or both, the data generated by that set of people won't tell you much.

I don't have anything against Orman cashing in on her celebrity with a financial product, but an altruistic game changer, this isn't.

Emily's list: Inauguration Day edition

2012-01-20T13:00:41Z

Jan. 20 is Inauguration Day in the United States. One year from now, will President Barack Obama still be in office, or will we be watching a new Republican president sworn in? While incumbents are usually favored, who knows what will happen this time next year. I've watched bits and pieces of the Republican debates, and while some of it is painful to watch, it's been enjoyable to see my state's governor, Rick Perry, laugh at himself a little bit.

What I do know is that whoever is president plays a big role in our economy. It significantly affects our nation's finances, from how debt is handled to tax policies to how generous we are with social welfare. It can also affect our own pocketbooks. My husband was able to get reasonable law school loans through the government due to changes under the Obama administration, and he was able to get back on his parents' health insurance due to reformed health care laws. The current administration also helped make credit card agreements and statements easier to understand. If a new president takes over, will those changes go away, or are some changes positive regardless of your political party?

Then again, a new president could bring other changes that benefit Americans, like tax cuts. Of course, it takes a while for changes to go into effect, and as we've seen lately, Congress can grind to a halt and stop things from getting through. All I know is that I don't envy the job of the president, and especially don't envy the candidates having to circle the country and raise money and give repetitive speeches and debates. I'm happy to be an ordinary citizen and vote. We'll just have to see what happens!

Read on for my list of 10 of my favorite personal finance blog posts I found in the past week.

1. The First Million is the Hardest provides six steps for creating a budget that works, and no, he doesn't talk about cutting out your Starbucks drinks.

2. My Dollar Plan shares a reader's uncommon strategy for paying off his mortgage: using a 0% interest credit card.

3. Debt Free Hispanic offers several tips on how to reduce your credit card debt. While I don't think the tip on stopping your use of credit cards is practical for many people, many of his suggestions are spot on!

4. Finance Fox lists five rules you can use to teach your children about credit cards and debt.

5. The Debt Princess features a guest post that discusses five ways you can get out of debt, from getting organized to re-evaluating your social activities.

6. Well-Heeled Blog reveals how many credit cards she has, which ones they are and why that works for her.

7. So Over Debt shares a guest post from her 13-year-old son about what he has learned from her about money. He sounds wiser about money than most adults!

8. Narrow Bridge Finance discusses why New Year's resolutions are a waste of time and what you should do instead to fulfill your goals.

9. Beating Broke explains how being frugal can turn into a habit, which can actually become a bad thing.

10. 20 Something Finance tells readers how to get three free credit scores a year without any strings attached.

Diva in Debt sings about Thankyou rewards blog

2012-01-17T15:46:05Z

My blog about trying to set up a Facebook app to allow my friends to share my Citi ThankYou rewards points was featured in this week's Carnival of Personal Finance.

Hosted by Diva in Debt, the 344th edition of the carnival selected bloggers Matt About Money Intelligent Speculator and One Cent for Editor's Choice honors. A blog carnival is a compilation of the best blogs about a particular topic. Each week, a different blogger acts as host and selects what he or she feels are the best blogs related to that topic.

The Carnival of Personal Finance focuses on managing money, credit, budgeting, finance, real estate and saving.

Suze Orman's debit card: Is it a good thing?

2012-01-13T19:41:43Z

Suze Orman came out with her own debit card this week, called the Approved Card. It's received a lot of attention -- not all of it positive. Some people are aghast that a personal finance expert would push her own product to her loyal following. I have no problem with that. I don't even mind her making lots of money on it. But it had better be a good deal at the same time.

The Approved Card is a prepaid debit card, which works like a cross between a gift card and a credit card. You preload it with money and then use it online, by phone or at the store just as you would a Visa or MasterCard debit card. You must give your real name, address and Social Security number to apply, but you cannot be turned down because you're not borrowing any money.

Suze has always encouraged people to join the ranks of the banked, as opposed to staying unbanked and being at the mercy of check-cashing stores and other high-priced alternatives. She's also preached watching out for fees that add up over time.

So we would expect Suze's Approved Card to provide basic services needed by the people currently outside the normal banking system. It should be simple; it is being marketed to people who have shied away from traditional checking accounts, after all. And it should have very, very low fees.

I'm fine with reasonable fees. I even think ATM fees can be a bargain when you consider the costs of maintaining machines chock full of money all over town. Suze's card has a basic fee of only $3 per month, which isn't bad. The problem is that there are so many other fees, from fees for calling customer service more than once a month to fees if you don't make a direct deposit during the month.

My guess is that the targeted customer for this card will end up spending far more than $3. There's a bill payment fee for payees who take paper checks: $1. That second call to customer service in one month: $2. In a hurry? Same-day payments are $9.95. A copy of a check is $20. Payment inquiry: $30. Check out the list of fees if you still think you'll only pay $3 a month.

Plus, an Approved Card will get plastic in your hand, but it won't do everything a checking account does:

You can't write a paper check. You may only write one check a month, but if that means driving to town for a money order (figure 50 cents per mile plus the cost of the money order), it adds up. If you plan ahead and use the Bill Pay feature online, you can avoid this.
Debit cards are not accepted everywhere you can use a credit card. You may not be able to book a hotel or rent a car, according to the Approved Card website.
You can't "pay at the pump" when you buy gas. You can, however, go inside and pay for your gas.
You won't get a monthly statement. You can check your card activity online or request a paper statement for $2. This could be an issue if you ever need to prove you paid a bill.

I can see the value of the Approved Card as a transitional card for people who can't get a checking account or aren't ready for one yet. If I had a teenager, I might give him one for his spending money. But I couldn't give up my checking account for the Approved Card. My bank account lets me do everything I could do with the Approved Card and more -- for free.

Emily's list: 'Spontaneous Happiness' edition

2012-01-13T13:02:25Z

This week I've been reading "Spontaneous Happiness" by Dr. Andrew Weil, a book in which he explores what happiness is on a cultural, personal and biological/chemical level. He's a fascinating man who helped found integrative medicine, and he weaves in concepts from both the East and West.

In the book, he argues that we don't need to be "happy" all the time -- people misuse the term. Instead, the goal is to experience serenity and contentment on a day-to-day basis as our baseline. Then when something great happens, we're happy, and when something bad happens, we're sad. Then we drift back toward our neutral, yet peaceful, place of contentment.

I'm at a part in the book now where he's discussing numerous ways to find more serenity in your everyday life, and I'm amazed to realize that nearly all of his suggestions are free. So many people seem to be stressed out by money problems and debt, but there are so many ways to reduce this anxiety without spending any extra money. We don't need expensive vacations or costly therapy to get a little peace back in our lives.

Weil's only major suggestion that costs money is to take supplements such as omega-3 fish oil, and while that's ideal, it's optional. Here are just a few of his many free suggestions for boosting your mood:

Meditate. Just sit, close your eyes and breathe. Use a mantra if it helps. You don't need anything but a quiet room. The benefits of setting aside a few moments for this at the start or end of your day are endless. Do some yoga, too (you can get countless instructional videos on YouTube).
Spend more time with others in person. We get so isolated in front of our computers and televisions, but we are social creatures. There is a high correlation between depression and loneliness. Join a book club or a choir. Do a weekly game night or dinner club with friends.
Laugh more and smile more -- it's contagious. Join a free laughing club (an awesome tradition started by a man in India) or just watch some funny movies. Studies show that even the biological muscle movements of a smile can cause you to begin to feel happy, so fake it at first if you have to, and then you'll feel it!
Volunteer. Research proves that people get a "high" from helping others. But don't feel bad about that -- it's mutually beneficial. Find a local place to volunteer. You're helping people who greatly need it, you're feeling gratitude for what you have and you are, in turn, lifting your mood. If you have kids, find a project you can do as a family.
Spend more time outdoors. Our bodies and minds crave being around nature, but most of us don't give it that. We are not meant to be stuck inside all day! Don't eat lunch at your desk; have a picnic outside. Don't come home and sit on the couch; take a stroll around the neighborhood first. If you have a little money to spend, Weil suggests adding some plants or flowers to your home to bring some nature to you.
Unplug and experience silence. Weil says that our minds and ears were never meant to be subjected to such an onslaught of sounds and media. We spend too much time around blaring TVs, radios, video games and computers. Set aside some time to turn them off, or at least put on classical or ambient music. He also recommends not watching or reading the news as frequently, since it can actually be quite stressful.

I'm not quite done with the book just yet, but I've really enjoyed what I have read so far. He has a very holistic view of contentment and happiness, and I've already listened to less news, and replaced some of my rock music with classical music. I think it has helped! The daily stresses of work, money, family, pets, etc., can be a lot to deal with, so I love the idea that there are all of these free strategies available to help us feel like we're getting some of our life back.

Before you unplug, however, read on for my roundup of my top 10 favorite personal finance blog posts from the past week.

1. Credit Karma Blog discusses financial guru Suze Orman's new branded prepaid debit card and how it's different from other cards out there.

2. The winter blues got you down? Financial Highway lists some fun and frugal family activities you can do together this winter.

3. Moolanomy explains what number you should look for if you want a good credit score and which factors affect it.

4. Enemy of Debt reveals why following through with your New Year's resolutions will benefit your health and your finances.

5. Does this recession have you convinced that older generations had it better than we did? Tight Fisted Miser uses some anecdotes to show that we have it FAR better than our parents and grandparents.

6. The Consumerist tells readers about a new MasterCard that might just outsmart potential identity thieves.

7. No Credit Needed discusses the importance of an emergency fund, especially during the process of paying off debt.

8. Saving Advice lists 30 strategies you can use to make some extra cash and snowflake your debt away.

9. Money Under 30 explains why budgets don't work for so many people and why you should use automation instead.

10. The Finance Buff wonders why it sometimes seems that everyone else has more money than he does and suggests several reasons why this might be happening.

Which credit card would Mr. Spock pay off first?

2012-01-12T15:43:40Z

Guest blogger Rob Berger is the founder of the popular personal finance blog, the Dough Roller.

When it comes to financial decisions, are you more like Captain Kirk or Mr. Spock? If you make decisions based on gut feeling, you and James T. Kirk share a lot in common. On the other hand, if logic powers your financial moves, perhaps you have some Vulcan blood coursing through your veins. And that brings us to "debt account aversion."

Debt account aversion is best understood through an example. Let's assume that you have two credit cards. Credit Card A has a balance of $1,000 at 10 percent, while Credit Card B has a balance of $10,000 at the higher interest rate of 15 percent. If you had $1,000 to put toward your debt, which card would you pay? If your goal is to get out of debt as quickly and cheaply as possible, you'd apply the $1,000 to Credit Card B that charges the higher interest rate of 15 percent.

But apparently not all of us want to "live long and prosper." It turns out that many consumers will pay down a lower interest credit card before a higher rate card if they can reduce the number of credit cards they have with balances. In the above example, many consumers would apply the extra $1,000 to Credit Card A because it would reduce their number of accounts with balances from two to one. Although Credit Card A sports a lower interest rate, many find the satisfaction of paying off a credit card in full to be simply irresistible. And the experts call this phenomenon "debt account aversion."

In a 2011 study in the Journal of Marketing Research, a group of professors examined the psychology of debt management. Part of the study involved volunteers playing a "Debt Management Game." The study describes the game as follows:

In the debt management game, participants were saddled with multiple debt accounts that varied in amount [totaling $147,000] and annual interest rate [ranging from 2.50 to 4.00 percent]. The basic game lasted for 25 rounds, and each round represented one year. In each round, participants received a $5,000 cash allotment that they could use to pay down one or more of the open debt accounts. In addition, participants occasionally received cash bonuses that could also be used to pay off their debts ($20,000 in round 6, $15,000 in round 12, and $40,000 in round 19).

The results of the study confirmed the basic theory of debt account aversion. Two findings were particularly troubling:

First, not a single participant consistently applied the available funds to the debts with the highest interest rates. In one experiment, participants lost on average $12,051 because of nonoptimal debt repayment decisions.
Second, these costly mistakes occurred even when participants were paid bonuses based on how much they reduced the outstanding debt through the course of the game. Apparently their desire to see a balance paid in full was stronger than walking away from the game with some extra cash.

The study also discussed Dave Ramsey, who is famous for encouraging people to pay off small balance debts first, regardless of interest rates. While the study conceded that in some circumstances such an approach is not always a mistake, it concluded "that debt account aversion can systematically lead consumers astray when larger debts have larger interest rates. Ultimately, debt account aversion might enable consumers to win the battle but lose the war against debt." Sorry, Dave.

And for those still holding strongly to their debt account aversion, I leave you with this Vulcan proverb: "Challenge your preconceptions, or they will challenge you."

Citi's ThankYou rewards sharing Facebook app an exercise in frustration

2012-01-10T21:59:24Z

With dreams of cruise ships and camping trips in my head, I have tried -- mightily -- to sign up for and start the new Citi ThankYou rewards Point Sharing app on Facebook.

The new social media program announced Jan. 3, 2012, allows Citi rewards card owners to share their rewards points with their Facebook buddies. Members are supposed to set up so-called "pools" that indicate which reward they are trying to obtain and the number of points needed to redeem it. The app allows you to get points from friends or send some of your unused rewards points to them to meet their rewards goals.

But due to bugs in the app, privacy concerns and -- imagine! -- hordes of my Facebook friends aren't flocking to fling all their Citi rewards in my direction, my net gain has been ... zero.

Social giving is growing
More people are using social media to help them borrow or finagle cash from friends and strangers. Examples include websites making such appeals as help me pay off my house, pay for my boobs, pay for my wedding and pay my medical bills. Google it and you'll find more out there.

I've been a Citi rewards cardholder since 2009. I have used my rewards in the past to donate to the American Red Cross after the earthquake in Haiti in January 2010. I've also used my rewards to get gift certificates to some of my favorite family dining restaurants.

My current rewards bank has only 11,596 points. With that amount of points, I can buy some restaurant or retail gift cards, but none of the larger items, which may require more than a million points. For the big ticket stuff, I'm going to need a LOT of help from my friends.

Unfortunately, I encountered more than a few glitches and bugs in the app and sign-up process. I went to Citi's Facebook page and "liked" it and then clicked on the link for the Point Sharing . After searching around on Facebook and on the ThankYou website for more than 30 minutes, I couldn't figure out how to continue the sign-up process.

I called Citi's customer service hotline. A woman said she would have a technical person call me within 24 to 48 hours to help walk me through it. She noted that when she signed up for it, Facebook didn't immediately place Point Sharing among the choices on the "Apps and Games" page. Hmmm ... I waited until the next morning and tried again. That time, a pop-up window opened asking me to give Citi ThankYou Point Sharing permission to access my profile, birthday, friends list and basic information, send me e-mails and post to Facebook as me. They also wanted access to my data any time and indicated that "Citi ThankYou Point Sharing may post status messages, notes, photos, and videos on my behalf."

I agreed to it, gritting my teeth. I have limited the number of Facebook apps and games I use because of the potential invasion of privacy. But I wanted to see how this new program worked, so I pushed on. Plus, Citi is supposed to give me 2,500 points if I'm among the first 4,000 people to link their ThankYou accounts to the Facebook app before Feb. 3, 2012.

The app posted this message on my Facebook wall once I had linked my Facebook account to my Citi rewards account: "Now I can share ThankYou Points with my friends and ask my friends to share their points with me! Visit the ThankYou Point Sharing app to learn how."

The next screen asked me to provide my Citi rewards log-in and password. OK. It then took me through the steps of setting up a pool so my friends could contribute to my rewards goal. I had to select the reward I wanted. That meant shopping.

Time to go shopping for my wish list
On the ThankYou website, I clicked through several pages of goods, services and gift certificates. The rewards points required to redeem an item ranged from as little as 1,500 up to several million points. The highest that I saw was in the electronics category. For a mere 7,493,100 points, I could get a Cisco 32 Port 10Gb Ethernet Module - 32 x SFP - expansion module. Computer geeks know this is a PC add-on that allows you to install an Ethernet connection for wired Internet access. It was on sale, marked down from its regular price of 11.6 million points.

Other rewards I checked out:
â€¢   A pool table for 2.1 million points.
â€¢   A 10-foot-6-inch by 20 foot family tent with three rooms that sleeps 8 to12 people for 164,600 points.
â€¢   A K-12 Kajun kayak for 243,400 points.
â€¢   Exercise equipment for more than 100,000 points.
â€¢   A 36-inch propane gas grill island package for 2,751,500 points.
â€¢   A cast aluminum patio lounge table and chair set for 1,320,400 points.

I also found this gem -- literally: a two-carat diamond engagement ring with 14-karat white gold for 2,523,900 points.

This one caught my eye because I take camping trips several times a year: an outdoor privacy tent with a toilet. That requires 47,200 points. I'm only 35,604 points shy of getting that baby.

Still, if I shop around at the local camping stores such as Cabela's or even Walmart, I would likely be able to find a similar model for much less than it costs in reward points.

CreditCardForum.com's blogger warns about the best and worst ThankYou rewards redemption choices. He says avoid cash and most merchandise and instead choose music downloads and charitable donations to get the best bang for your rewards point bucks.

Maybe the Citi rewards sharing program should be renamed: Help me buy these overpriced services and merchandise.

Also among the redemption choices: Using rewards to make a monthly mortgage payment. For 100,000 points, Citi will write a check for $1,000 to your mortgage company. The fine print says recipients of this reward receive a letter and a check from ThankYou Network made out to the mortgage lender. Recipients have to contact their mortgage companies about whether there are restrictions on accepting multiple checks, partial payments or checks from third parties for the monthly mortgage payments.

Hmmm ... I'll pass on this one. One grand does not cover my monthly mortgage nut and, again, the number of redemption points needed for just $1,000 seems way too high.

Begging for things I don't need
At first, I thought I would be more than a little embarrassed to ask someone to contribute to a pool to help me buy something that wasn't a necessity. I know some of you are thinking that I'm looking at this in the wrong way. It's a reward. You take guilty pleasure from rewards. You're not supposed to NEED them. It could be thought of like Christmas gifts or gifts from your friends to help you buy something you wouldn't normally buy.

So, I picked a few rewards that I really didn't need and put them on my wish list.

Given the fact that so far none of my Facebook friends have signed up for the new rewards sharing application, I might have to lower my expectations and trim back that wish list. A $25 Red Lobster gift certificate might be more in line with what I could get from my friends.

Citi Rewards lets you get cash rewards. Although it says "there's no annual dollar cap or limit to the number of cash redemptions you can make," the pull down menu option limits you to 30 allotments of $100 denominations -- or $3,000. The redemption formula for cash is 16,000 for $100. If I choose the maximum quantity of 30 of these, that would require 480,000 points to get $3,000.

I chose a Royal Caribbean International cruise gift certificate for my wish list. They cost 10,000 points for a $100 gift certificate. I tried to select a quantity of 30 -- or $3,000 worth of cruising cash, but the ThankYou website would only accept and log one $100 gift certificate on my wish list. I will need 300,000 points in order to get the $3,000 amount.

I tried but failed to select the cruise certificate as my first Point Sharing pool goal.

Alas, the app kept giving me an error message (Invalid point goal) when I tried to select the 10,000 point cruise as a goal. (More bugs to be worked out.) I gave up and selected my second choice -- the family tent -- as a goal.

The program required me to select at least one friend to contribute to the pool, even though none of my friends have the app. I selected my boss, CreditCards.com editor-in-chief Dan Ray. Unfortunately for me, he is not a Citi cardholder.

When he got the Facebook message asking him to install the Point Sharing app, he balked at allowing the program to have free rein over his personal data and post on Facebook as him. He also didn't like the idea of opening a new credit card account -- which could potentially ding his credit score -- just so that I could cruise or go camping in luxury. Bummer. If I can't get any of my friends to join, I won't be able to coerce them out of their rewards points.

There's another point to consider about these rewards points. Almost everyone will want to be a recipient of the shared points. If you're a true rewards junkie, you hoard and hog those points. You're not going to want to give them up for just anything. The Citi app does allow you to create a group goal to send points to a single person. That would be helpful for perhaps a baby shower and wedding gift. A group of friends can also create a pool to contribute to a charity or help a family pay their mortgage.

Arm twisting friends
Citi is probably hoping that I will lobby my friends to sign up for the app and, if they aren't already Citi cardholders, sign up and start spending (earning rewards). My gentle arm-twisting didn't work on Ray. I doubt I'll have much luck with my other Facebook friends. Other Facebook users may have greater success, though.

I would caution anyone trying to get rewards points from friends to remind everyone that rewards cards make sense only if you pay your ENTIRE credit card balance off each month. If you don't, any gains from the rewards are offset and significantly diminished by the interest charges on the account. In addition, Citi can cancel any earned points if you pay your bills late.

The bottom line: Be prepared to spend a lot of time setting up this rewards pool. I'm not an Internet or social media novice. It took me hours to set this up and (as of this writing), I still don't have it set up. Citi may be working on some of the bugs I discovered behind the scenes. Let's hope so.

See also: Redeeming Citi rewards points rewarding for Haiti earthquake relief fund, 5 easy ways to get more credit card rewards points or miles, 8 creative ways to rack up credit card rewards points quickly

Were you scammed in 2011?

2012-01-06T17:20:52Z

"How could I have been so stupid? I should have known better."

That was the lament of a friend who was snookered by a "romantic" conman online in 2011.

She and many others: Dating and social media scams made the list of the Better Business Bureau's top scams of 2011.

There seems to be no shortage of scammers out there thinking up ways to help us part with our money. The BBB identified nine categories of scams that made the rounds in 2011. Among them: job scams that conned unemployed workers out of their personal information and bad check scams that used Craigslist ads to find sellers of merchandise. And if you get an email from Facebook founder Mark Zuckerberg inviting you to claim your $1 million prize, don't take the bait. It's not really Zuckerberg.

The BBB warns about putting too much personal information on social media websites. My friend met someone on an Internet dating site, befriended him and talked daily on the phone for several weeks. She was lonely, going through a divorce and vulnerable. He said all the right things to make her feel that he was sincere and cared for her.

They arranged to meet in person (he said he lived in Seattle and the United Kingdom; she lived in Texas). He claimed to have booked and flight and the date was set for his trip. But the day before his scheduled arrival, he called in a panic and in tears. He had been kidnapped and was being held by people who wanted money for his release. It seemed genuine and my kindhearted friend wired $4,000 to an offshore account. She never saw that money or heard from her friend again.

The BBB was itself the victim of a scam in 2011. In fact, the agency named it the "scam of the year." Someone sent millions of e-mails that looked like official BBB correspondence. The subject line read: "Complaint against your business." Merchants who opened the e-mail and clicked on an attachment launched a virus that infiltrated their computers and stole banking information, passwords and other important data.

According to the agency: "BBB is working with security consultants and federal law enforcement to track down the source of these emails, and has already shut down dozens of hijacked websites. Anyone who has opened an attachment or clicked on a link should run a complete system scan using reputable anti-virus software. If your computer is networked with others, all machines on the network should be scanned, as well."

Get alerts
For more on avoiding scams or to sign up for e-mail alerts about the latest scams from the BBB, go to http://www.bbb.org/us/scam-source/.

Emily's list: first-time homebuyer edition

2012-01-06T13:04:08Z

It's a buyer's market in the world of real estate right now, and many of my late-20s peers are itching to snatch up a house with prices and interest rates so low. But most of us either don't have enough savings or enough credit history to qualify. According to data from the National Association of Realtors, that means that first-time homebuyers are becoming rarer in the market, and those who do buy are turning to their parents for help.

"First-time home buyers fell to a 37 percent market share in the past year from a record high 50 percent in the 2010 study," said NAR President Ron Phipps in a release accompanying the November 2011 study. "Although last year's findings were boosted by the home buyer tax credit, long-term survey averages show that four out of 10 buyers are typically first-time buyers. This segment is critical to a housing recovery because they help existing home owners sell and make a trade."

Parents help out in a third of the first-time home purchases. Some give the funds as loans (7 percent), but most gift it (26 percent), according to NAR data.

Sometimes, that makes for difficult choices. I have several friends whose parents told them that if they agreed to elope instead of have a big wedding, the parents would contribute the would-be wedding money to a home instead.

What makes me nervous about this is that if you can't afford a mortgage on your own, can you really afford a home? Owning a home means you pay for homeowner's insurance, maintenance, any homeowner's association fees and property taxes. Even if my parents did help me buy a house, I don't think I'm financially prepared to incur all of those other costs that go along with being a homeowner, and I'm worried that some of my peers who buy homes with parents' help may not realize how much more expensive overall it can be than renting.

Don't get me wrong -- I'd love to own a home someday. But I'm in no rush. I'm still celebrating the fact that I escaped the holidays without credit card debt!

Keep reading for my list of my top 10 favorite personal finance blog posts from the past week.

1. I'm amazed by how much gift wrap and presents cost. Before Valentine's Day gets here, read this post by The Sun's Financial Diary about frugal gift-wrapping ideas.

2. Dinks Finance shares the ins and outs of her new budgeting challenge for the first six months of 2012: no nonessential spending!

3. If one of your New Year's resolutions is to shed your debt, read this post by No Credit Needed about how he managed to overcome his consumer debt.

4. Careful Cents explains why she loves goals, but isn't setting any New Year's resolutions this year.

5. Cash Money Life discusses the new "American Dream" and five ways to build financial security for yourself.

6. When does being frugal go too far? Blogging Away Debt shares an anecdote that reveals there is a line between being frugal and being cheap.

7. Rich Credit Debt Loan lists four ways you can improve your personal finances and better manage your money.

8. Frugal Dad helps readers who went overboard on holiday spending learn how to clean up the damage and get back on track.

9. Money Crush explains why budgeting doesn't have to be a chore and how to do it painlessly.

10. PT Money emphasizes the importance of reviewing your credit report and fixing any errors.

Emily's list: New Year's 2012 resolutions edition

2011-12-30T12:46:29Z

Each year feels like it passes faster than the next, and 2011 was no exception. So much changed for me when I got married in March. On that day, my husband's daunting law school debt became partly my responsibility (he is in his second year), and we then got on the same insurance plans. My emergency fund was also partly depleted in 2011 due to an unexpected laptop death.

On the bright side, I managed to go on an amazing trip to Costa Rica in October without incurring any debt due to diligent savings. I also escaped this past holiday season without any credit card debt -- a first for me.

Here are my three financial New Year's resolutions for 2012:
1) Add back to my emergency fund what I took out for my new laptop.
2) Contribute small amounts to my husband's student loan payments when possible.
3) Keep saving for travel through small automatic weekly deposits.

What are your resolutions this year? If one or more of your resolutions for 2012 is to improve your finances, read on for this list of 10 great personal finance blog posts from the past week.

1. Money Crashers lists 25 ways you can make extra money to use as "debt snowflakes" that will go toward paying off your balances.

2. Did you end up with some unwanted gift cards this holiday season? Smart Wealth explains how you can sell them online.

3. Don't leave money on the table! Out of Debt Again reminds readers to always open their holiday cards, as she once found $200 in a holiday card from two years ago.

4. Dough Roller discusses how you can use a three-step checkup to assess the health of your finances.

5. Afford Anything reveals how you can actually save money by traveling rather than staying at home.

6. The Digerati Life lists the pros and cons of debt settlement that you should consider before you take action.

7. A Wisebread writer argues why it is pointless to make big New Year's resolutions. Maybe we should all start small!

8. The Debt Myth explains one of the key components you need if you hope to eliminate your debt.

9. Invest It Wisely offers advice on how to get rid of student debt.

10. If you plan to ask for a raise in 2012, follow these steps from Prairie Ecothrifter and learn how to get a salary increase.