I mentioned in a recent post that we started using our credit card for transactions that we were making anyway, but instead of waiting until the monthly bill is due, I’m paying off the balance every week.

For me, this method keeps away the mentality of, “I’ll just use the credit card for now and figure out how I’m going to pay for it later,” but still allows us the bonus of racking up rewards’ points. (That I desperately want to use toward a DSLR.)

(Okay, maybe not desperately. But I want one really bad.)

I would not recommend regular usage of a credit card for everyone.

Before you think it might work for you to use a credit card on a regular basis and swear you’ll never keep a balance on it, I think you need to have a few things in place.

An Emergency Fund: A credit card is not an emergency fund! At least, it shouldn’t be. If you don’t have a liquid/cash emergency fund already in place, guess what you won’t be able to pay off when you have an emergency?

A HABIT of tracking daily transactions: If you don’t know where your money is going, it’s difficult to know if you’re spending more than you would than if you were paying with cash.

Willingness to test your credit card mentality: Going back  to #2:  if you really think that your spending habits are no different if you pay with a credit card vs. paying with cash, then I challenge you to…

give up the credit card for at least a month

Track your spending (see #2).

Compare cash spending with credit card spending.

Think about how you felt when you made the purchases.

Be honest with yourself.

Do you think credit card usage is ever okay? Would you add anything to my recommendations above? Or is cash the only way to go?

Our Current “Emergency”

We have been spending money lately like it’s going out of style, what with John moving to California and all. He’s getting ready to plunk a $1000 deposit down on an apartment, for instance. And another $1300 for a month’s rent. This is not even mentioning the costs of the DITY* move itself. I’m still waiting for some dust to settle before I tally up that total.

*DITY: Do It Yourself. As in a move. In the military, you can do a “partial DITY” and then have movers move the remaining bulk of your stuff. In our case, the “remaining bulk” is waiting until we sell this house…

The good news is that he found an “affordable” apartment close to work that will do a month-to-month lease for him.

And yes, $1300 for a one-bedroom apartment is very affordable in California. Especially in Monterey. Can I get an amen from California readers?

This Is Why We Have a Savings Account

I’m getting ready to pull a significant chunk of change from our savings account to pay off the credit card, which John has been using quite liberally. And yes, this hurts. We have been working so hard on bulking up our savings for the past six months. I have to remind myself that, this is why.

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That’s Temporary DutY for you non-military folks. Military-speak for a business trip.

Yea, yea… So he last went TDY, like, two months ago. But here are the numbers anyway.

• During his four-week TDY to Texas in August, John spent $1657.98 (excluding lodging).
• His reimbursement came in the next month at $2,300.45 (again, excluding lodging).

A difference of $642.47, obviously in our favor. This is pretty good considering a core requirement of the class he was attending seemed to be the socializing that went on after-hours. Oh, and also that the $1657.98 included $243.52 toward a new car stereo- so yay, for him!

Seriously, I’m not being sarcastic or begrudging him or anything. His car radio was just one of many things that has been falling apart in his 11-year-old Toyota 4Runner, still running strong though not without quirks that come from racking up some 144,000 cross (multiple-) country miles.

And about to rack up many more. How many miles between Ohio and northern California? I should look that up.

August was pretty tight financially, what with John’s TDY and the kids and I going to Maryland to visit friends and our nation’s capital. A whopping $85.01 went into our savings account that month. Seriously. When the $2300.45 travel reimbursement hit the account in September, every penny of it went into savings. It really annoyed me: I mean, we basically gave Uncle Sam a free loan for the month of August.

We’ve Resurrected a Credit Card

First, for the times when John is traveling and we’re footing the bill for weeks at a time before he has a chance to file for a reimbursement.

Yes, John has a government credit card. But don’t even get me started with the problems we’ve had with their inept billing and accounting services.

But I’ve also gone a step further: I’ve started using that same credit card again for regular purchases: mainly, fuel; groceries; and other regular, unavoidable, monthly bills.

Yea, yea, I know what they say about using a credit card…

…you use more than you would pay with cash. That’s why I am purposefully only charging purchases that I would be making anyway. Also. I’m paying off those purchases on a weekly basis instead of waiting for the credit card payment due date.

I got that idea from a reader comment (and I am so sorry I’m not taking the time right now to look again for which one of you made that comment. But if you recognize yourself when reading this? I thank you! And feel free to remind me of yourself and to take credit in the comments below) and I really can’t believe I never thought of doing it that way before. Paying off your credit card purchases as you make them totally takes away the mentality (for me) of putting off the purchases until the next month, but still gets you the rewards for using the credit card in the first place.

My goal? To rack up enough reward points to finally get my DSLR I’ve been jonesing for for oh, so, so long. Call it what you will: I want me my Nikon.

(And if you have a DSLR recommendation? Please comment away.)

Whew! Almost forgot this post in all the excitement of my guest post over at Get Rich Slowly. Man, I wish I had more traffic, even half a fraction of a fraction of GRS: the comments are so much fun! Even when it is, you know, about how you let $120,000 slip through your fingertips…

If you haven’t already, please go check out my post over there about How We Became Reluctant Landlords. And don’t forget to read the comments: they can be quite enlightening; and always interesting. I also know J.D. filters out any of the real nasty, crude comments, and I can’t help but wonder if I warranted any…

And thanks you guys who continue to be loyal commenters over here at my humble Budgets Blog. I  so appreciate you. Really.

Anyhoo. Here’s our numbers for the end of September. You astute ones (you know who you are!) might notice a few changes:

Debt Balances as of the End of September 2010:

1. First Mortgage:  $169,668.33
2. Credit Card Transfer: $23,975.00
3. Second Mortgage:  $7,106.09
4. Rental Property:  $107,319.92

Total Debt:  $308,729.35

This is a difference of -$660.01 in principle from the $308,069.34 owed in primary and rental mortgage debt at the end of August.

Yes, our debt snowball is still just sitting there until we sell this house.

Reminder: Regular Payments Breakdown:

1. First Mortgage: $1538.63
2. Second Mortgage: $283.90
3. Rental Property: $758.00

Total Monthly Payments: $2580.53.

$1,919.93 of this was toward interest alone. But we finally got it under $2000! Woo-hoo!

Quiz: What Changed?

Ooh, we racked up a credit card! But somehow we paid down almost $24,000 from our second mortgage…? Oh, wait. You guessed it! (Or remembered me telling you from last month.) We transferred a chunk of our 2nd mortgage balance over to a credit card offer of 0% interest for one year. And the fee was just $75 — which is made up for in about ten days of not paying interest.

We’ve done the 0% balance transfer before with great success, so I have confidence we can do it again, barring any natural catastrophes or personal disasters.

Changes in Interest Paid to Second Mortgage

After “paying off” $23,000 from our second mortgage, the daily interest that accrues on that account dropped by about $5.50! (To about $1.59 to date.) And the amount of the $283.90 payment that actually goes toward principle (and not interest) almost doubled.

I like that.

Until We Sell This House…

The question I have to answer, exactly:

• How much will we pay on the 0% offer each month?
• How much will we continue to put away in cash savings each month?

For the last six months, all available cash has been going into a liquid savings account until we sell this house. So far, we’ve built up $9,111.50.

Part of me didn’t even want to tell you that, because I feel like it should be at least $2k more. We’ve definitely loosened up our spending a bit since we eradicated our initial snowball and found out that we’re moving.

*sigh*

Technically, if we sold our house tomorrow, we’d only owe $176,774.42 to the bank from the proceeds of the sale (give or take some interest). After all, the bank doesn’t care if we have a credit card balance that we know came from the home’s equity.

That does free us from some financial complications in case we have to sell this home at a loss (to us).

Ideally, we will sell this house soon and pay off the first mortgage, what’s left of the second mortgage, AND the credit card transfer. In that order. BUT.

What if we don’t sell in the next few months? What if it takes until Spring? (Or *egads* longer?)

I really want to take some of our savings and max out at least one of our ROTHs by the end of 2010: $5000 worth. Currently, we are not contributing anything to either ROTH. And that’s not good.

We have until April to contribute to our 2010 ROTHs, by which time I’d like to have maxed out both: $10k total. But depending on what this house sells for, I understand that may not be possible. But I’m hopeful.

What would you do? Are you still with me?

Thanks guys, so much, those of you who are still hanging in there with me. I know this is so exciting. Don’t you all wish you were me?

Finance Updates Linky-Linky

Speaking of exciting, I hope you all will link up your own debt and networth updates to my linky-linky below. If you’re reading this by email or your RSS feed, you’ll need to click over to the post itself. But please do: I’m still hopeful that this will be a monthly get-together for all of us keeping track for all the web to see and cheer us on and gain motivation. This is inspiring, people! And if I may speak for myself and others, I’m needing all the inspiration I can get right now.

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Remember how I totally mis-managed my whole budget last week and overdrew our account? I thought I would still be okay because of my overdraft protection. I think I just figured out why I wasn’t.

“Under new Federal Reserve rules you must now give us advance permission to pay debit card purchases and ATM transactions that exceed your available account balance.

Without this permission, those transactions will be declined. With your permission, those transactions could be paid according to our standard overdraft practices …. This permission is known as “Opting-in”, and you must opt-in by August 15, 2010.”

This notice came from the banking institution that holds the mortgage for our rental home. I’ll need to check with USAA, which holds our regular accounts, to see what their “opting-in” might entail.

Interestingly, neither of the customer service representatives that helped me out of my bind mentioned this new regulation. The second one was downright puzzled as to why the ODP (overdraft protection) didn’t kick in; she mused that possibly it was because my primary overdraft account was already under $100 and the secondary was a credit card. It really didn’t make much sense at the time, but I was in no position to argue. Neither did it really matter in the moment: I just needed money. I didn’t care how she got it for me.

I wonder if the banks are still working on training and notifying their employees of the new regulations? Or if it’s just up to us, the clients and consumers, to educate ourselves?

Regardless, consider yourself educated. Hopefully you won’t have to learn this the hard way like I did.

Don’t Let Thieves Ruin Your Credit — Steps to Prevent ID Theft

Today’s post is from “Mr. Credit Card” of Ask Mr. Credit Card.  Today, he is going to list some steps you could take to prevent identity theft. While nothing is fool-proof, these steps go a long way to preventing it from happening to you. He has also recently compiled a comparison table of the available identity theft protection services available.

There are few things in life that are worse than a thieving, identity-stealing, credit burglar who lives almost solely off of ruining the identities and credit scores of those that work diligently through budgeting and sometimes pure financial savvy to maintain a clean credit report. Little do most of us know, it could take a few minutes and one fell swoop of one of these credit thieves to undo years of hard work. Granted, most credit cards have fraud protection and consumers are seldom held responsible for unauthorized charges, but it could take just as much work and time to repair what has been destroyed if you are a victim of identity theft.

So how do the financially savvy protect their credit from these thieves? Here are tips for protecting your identity and credit:

• Legitimate companies don’t ask for your information on the phone –credit card information, anyway. Do not give your credit card number out over the telephone, unless you have initiated the phone call and know it is a reputable company (say for instance, you call a store to make a purchase.) One of the biggest scams occurs when shady company calls inattentive card holder and says there is some kind of problem with the account and they need to verify the card information. Credit companies do not call customers to verify account numbers. Ever.

• Dumpster Divers/Credit Thieves Not all dumpster divers are credit thieves, but some are so it is a good rule of thumb to shred all credit applications and paperwork that includes your personal identification. Your complete identity can easily be stolen with just a couple pieces of paper, old bills, or applications. Buy a shredder.

• Check Over All Statements thoroughly. Go through all purchases and payments and make sure you can identify everything, even very small amounts. This will not only keep you on top of mis-billed activity, you may also be able to identify any funny business right away, as opposed to months later.

• Never Carry Your PIN It’s difficult to remember the PINs for emails, store accounts, bank accounts and everything else that requires a PIN. Do not ever write it on your credit card or carry it with you. If by some stroke of bad luck, your purse or wallet is lost or stolen, you’re giving identity thieves an open door to your finances and credit and in a matter of minutes, your credit could be headed for disaster.

• Check Your Credit Report Check your credit at least once a year (free at http://www.annualcreditreport.com/) to make sure there aren’t any extra accounts or errors included. Identity theft occurs most often between the ages of 18 and 29 most likely because this is the age range where the fraud will go on undetected the longest. If you find any errors or unidentified accounts, dispute them with the credit bureau immediately.

• Protect Your SSN Your Social Security Number is the prime target for credit thieves. Limit who you give it out to, if a company requires your SSN, ask if there’s another identifiable number that would work. If a job requires it on an application, you can ask to disclose it at the interview or if a background check is required. Additionally, do not carry your Social Security card in your purse or wallet and likewise, don’t keep it on slips of paper or on anything else you carry frequently.

• Watch Out for Phishing Emails Phishing occurs when someone pretends to be from a bank or retailer (eBay, Bank of America) and sends an email with a link to “verify” your account information. The message is usually some kind of emergency and requires you to respond right away, creating panic in many users who inevitably click on the link and fill in the information requested, giving the identity thieves all of the information they need to access your account.

• Safety Online Almost every bill and service is available online and requires a certain amount of trust just to deal with everyday bills and shopping. Anytime you’re paying online, make sure it is a secure website with strong privacy and security protection.

• Consider putting on Fraud Alerts Sometimes, things happen that are beyond your control. For example, a company might have an employee lose a laptop that contains their customers’ data including social security. When something like that happens, it could be a prudent move to actually put fraud alerts on your credit report. Once that is done, a creditor needs your approval to actually check your credit report. That is another barrier to prevent those who may have stolen your ID from actually getting credit under your name.

• Getting Identity Theft Protection Services For those of you who are really paranoid about ID theft, there are many services that will do a lot of monitoring for you and provide you with assistance in resolving any future ID theft issues. Many of these services monitor public databases, court records, public medical databases and other internet black market sites to see if your name or address is being used by others. Example of such services include Lifelock. While these services charge a monthly fee, they provide an additional layer of monitoring.

It is still safer to conduct business online and even complete a secure online form than to hand your card over to a waiter in a restaurant, but if you keep some of these tips for protecting your identity in mind, you may be able to outsmart some of the credit and identity thieves that are lurking out there. If anything, you will at least make their “jobs” a little more difficult.

Have any of you experienced Identity Theft? I had my wallet stolen once, years ago, and that was pain enough. I like to think that no one would want to steal my identity because, hey, I don’t have anything to steal! But the truth is, we’re all in danger of it happening to us. These tips are great common sense as well as extra precautionary measures that we should all think about taking.

Credit Card companies are not out for your best interest. (Pun intended.) This should be obvious, but it is so easy to get caught up in the glamour and convenience of using a credit card.

• Introductory Rates!
• No Interest for six months!
• Rewards Program!
• Cash Back!

It’s so easy to get sucked in, especially with the introductory rates and the idea of getting “paid” to use your credit card. After all, you’re going to make the purchase anyway, right?

Not exactly, if you pay attention to the studies that show how much easier it is for people to fork over a card at the checkout as opposed to cash for the same purchase. Studies are conclusive that people buy more when using a credit card — why else would merchants pay the 3% fee they lose on every transaction? They know they more than make up for it by the end of the day. Bottom line: People spend more when they use a credit card.

Debit Cards

Dave Ramsey argues the position that a credit card is completely unnecessary. For convenience, we have the debit card, which takes the transaction directly out of your checking account.

Others argue that the risk of using a debit card is too great in the event of fraud because your entire checking balance could get wiped out before you have a chance to notice. Yes, you may eventually get all that money back, but in the meantime you have no way to eat or pay your bills.

A way around this would be to set up another checking account with a debit card attached to use strictly for transactions of convenience, such as online or at the gas pump. Money can be transferred from your regular account to cover these planned transactions…

Planning Transactions

Aw, but there’s the crux of the matter, eh? Planning transactions. That means, like, thinking ahead, right? And what about in the case of an emergency? What about when you’re traveling? What about those great deals you happen across? What about…? What about…?

The Hubs and I have a credit card of convenience that we pay off every month. This works — for the most part. We would use it at the pump, for online transactions (Amazon, for instance), for vendors we make regular transactions to, such as Compassion International.

But what we were finding was that, for those transactions that come up — as transactions are wont to do — we would tend to hand over the credit card instead of the debit. It would go something like, “Hmm, I’m not really sure how this will affect our balance for this month, so I’ll just put it on the card and we’ll deal with it next month…”

When we started our debt-free journey, we made a decision: no more random credit card purchases. We even stopped using the credit card at the gas pump. We’ve kept our Compassion contribution on the card, and we still use it for Amazon. For instance, this month The Hubs needed a couple of textbooks for his Master’s course. I now leave my credit card at home. We haven’t made the leap completely to cash (which Dave Ramsey advocates) but even using the debit card instead of a credit card for purchases feels differently.

Planning for Emergencies … Er, What are Emergencies?

Our goal is to get to a point where we’re not only planning and budgeting for purchases, but also for emergencies. Which brings us to wonder, “What, exactly, is an emergency?”

In things I read, emergencies typically include these items:

• Medical Expenses
• Job Layoff
• Injury or Disability

Looking at these categories as a military family, I never felt like they applied to us. After all, my husband can’t get “laid off” from his job; we’re fully covered medically; and if something happened to my husband to where he couldn’t work for awhile — God forbid — we would also be covered by his status as active duty military.

It’s the PCS, Stupid

It wasn’t until I was reading Dave Ramsey’s The Total Money Makeover (tired of hearing about that yet?) that I had an epiphany. We experience an “emergency” every two or three years. It’s called a PCS*!

*A PCS, for those non-military, is a “Permanent Change of Station.” In other words, a move.

We have moved some 11 times in our 15 years of marriage. Mostly PCS-related, a few not. (Times when we’ve upgraded to a better apartment; a better neighborhood; etc.) We always handled these moves by flying by the seat of our pants, really: We put everything on the credit card, then once the dust settled, we looked at the balance and started paying it all off. Usually just in time for Christmas, or the next trip, which then went on the credit card to get paid off in the following months… You get the idea.

The military does authorize entitlements associated with PCS moves. But they come after the fact and never, ever cover all the expenses associated with a move.

Time and Money: Using Credit Costs You Both

All of this to say that credit card companies love us. We are their best customers: we have used them regularly and have always honored our obligations. They love people who, like us, occasionally carry a balance and always honor their debt. Our credit scores are through the roof. BUT — credit cards are still not our friends.

I have a dirty little secret to admit: Sometimes I forget to pay bills. Yes, I use bill pay. Yes, I have many, many payments set up automatically. But I have this thing with not wanting to grant individual companies access to my checking account (comes from moving so much and having utilities “forget” to turn you off promptly) so I always have bills I manually enter month-to-month.

One of these bills is on a credit card, “Debt #3″ (see sidebar). Last month, I completely blew off this payment. Not on purpose, of course. In fact, I had the payment sketched into our budget plan — I just never actually went into bill pay and paid it.

This came to my attention the day after the due date. A notice was sent to my email that a late fee had been charged and the minimum payment had gone up. I slapped my head, cursed muttered under my breath and made the new payment right away.

“Debt #3″ is basically our car loan, only now it’s on a credit card. As part of our debt-free plan, I paid off our car loan by responding to an introductory offer of 0% APR for 12 months. I assumed this late payment immediately voided that offer and the rate had gone up.

Now, I know from experience *ahem* that credit card companies will typically refund a late fee once per year for customers in good standing. That would be us. So I called to request this, and also to confirm that the interest rate had gone up. Good news! We actually have to be late twice in a row for the rate to go up. Yea! That saved me the hassle of transferring this balance to yet another card offer, as this is the debt that will be paid off last.

But whew! What a hassle. Are you seeing how using credit can cost you money and time?

But You’re Our Best Customer!

This is the kicker. By calling in, I opened myself up to their sales pitch for — you guessed it — yet more credit.

Um, shouldn’t I be embarrassed? Shouldn’t I be chastised for carrying such a high balance on a credit card and only paying the minimum each month? Isn’t debt a bad thing?

Why, no, actually — not if you’re a credit card company. It’s a very good thing for them. A very good thing indeed. I’m the best kind of credit card addict — the kind that pays them back, at least eventually.

At the end of the call the customer service representative started pitching me some New Great Thing. I was only half paying attention — kids were gaggling in the background and I could barely hear her. I caught something about “great deal” and “it’s rare for customers to receive this offer.” I assumed it was related to the credit card itself and vaguely wondered if it might involve an upgrade in the reward system. With only half realizing what I was agreeing to, I told her she could transfer me over.

Wait a minute, you’re offering me a $30,000 unsecured line of credit?? At a “low” 8.9% interest rate? Why on earth would I need a line of credit?

“This is a great opportunity to pay off some high interest debt.”

“Already have that covered.” I didn’t bother to tell her that the interest rate on the car loan I just paid off with their credit card had been lower than that.

“Well, what about some home improvements? If you have any of those this would be a great time to pay for them.”

“We’re going to save and budget for those.”

She paused then. I think she was flummoxed. And she sounded all of 12 years old. Had any one ever turned her down before? Did she herself buy into what she was paid to sell? I thanked her for her time and wished her a good day before she had a chance to say anything else.

Becoming debt-free is just the beginning of our journey. My hope is to reach a place where we are completely credit-free as well: no debt, not even “good” debt, to support our lifestyle. When we have a large purchase, we will save for it. When we have an emergency, however that is defined, we will reach for cash from our emergency account. Using the credit card for things that “come up” is so yesterday.

I challenge you to do the same. Is it really just a given that everybody has that car loan? Do you really need to pay a mortgage (and all that interest) for 30 years? If you’ve read this far, don’t stop — I’ve recommended some great books on my sidebar. Challenge your paradigm, think outside the box. This is possible! One. step. at. a time.

And if you’re on a financial journey of your own, let me know. I’d love to hear from you!