Prosper Newsletter: April 2008 > Financial

You understand that the following information is educational in nature and is not intended to be legal, accounting, or tax advice. You are responsible for your own financial decisions and should consult your own legal, accounting, and tax advisors before making your financial decisions.

Credit Cards

The Best Cards for Your Wallet

With spring in the air, there is no better time to clean out your wallet. Most of us have a credit card (or more) in our wallet. There are many different credit cards, and some are better than others.

With so many different cards, it can be challenging to find the best. There are no hard and fast rules about credit cards; however, based upon your credit characteristics, there are guidelines you can use to help you choose the best. As spring approaches, take the opportunity to clean your wallet and get rid of the ones you don't need.

If you have excellent credit, you can choose practically any credit card you want. A good credit rating means you can qualify for low interest credit cards. These are particularly useful for people who carry a balance on their credit cards. Cards offering incentives are also among the most popular cards for those with great credit. These are most beneficial for people who pay off their balances in full each month. There are several types of incentive credit cards from which to choose:

• Cash Back Credit Cards - Cash back credit cards offer a rebate to cardholders on purchases made (usually 1% to 5% of the purchase price). Different cards from different lenders have different terms and conditions, including maximum limits on rebates, minimum purchase amounts before the rebate applies, and others.
• Reward Credit Cards - Instead of offering cash rebates, reward cards allow cardholders to accrue points from purchases that can be applied to a variety of incentives, such as frequent flyer miles, gift cards, and hotel stays. Some of these cards require annual fees and/or have higher interest rates.
• Airline Reward Credit Cards - These cards are usually associated with a specific airline, and the cards allow holders to accumulate frequent flier miles on the purchases they make with the cards. They usually have higher interest rates, annual fees, and are only recommended for people who frequently use a particular airline.

If you have a high balance on a credit card, but otherwise have good credit, a Balance Transfer credit card can be useful. These cards typically offer an introductory period of low or no interest rates. These cards help you to pay down your balance quicker because no interest is being charged.

For those with less than stellar credit, there are some credit card options:

• Bad Credit Credit Cards - These feature high annual fees and high interest rates; however, these cards can be a vehicle for you to improve your credit score by paying them off in full each month. But be aware that it costs a lot to carry a balance on cards like these.
• Secured Credit Cards - These cards require a deposit or a collateral guarantee against their credit limits, which are used to protect against defaults. These cards usually also have high annual fees; however, if used correctly, they can help you reestablish a good credit rating.
• Prepaid Credit Cards - These cards act like debit cards and draw money from a prepaid account. They are often chosen by people who have no credit history. When the prepaid amount is depleted, the card no longer works.

Most experts recommend that you keep between two and six credit cards. They also suggest that you limit your cards to VISA, MasterCard, American Express, and Discover, because they are most widely accepted. Store credit cards are usually not recommended because they typically have higher interest rates and have a history of negatively affecting one's credit rating. As spring approaches, take the opportunity to clean your wallet. Rid yourself of the wrong cards, and make sure you have the right ones.

Financial Spring Cleaning

Most people will perform a "spring cleaning" of sorts this time of year—whether it be organization, a literal cleansing, de-cluttering, or sanitizing. Now is the perfect time to tidy your financial household. Below are some tips for sorting your stuff:

• Organize and de-clutter. "Have a place for everything and put everything in its place." Organization is the key to everything. Begin by de-cluttering. A good rule of thumb to follow is if you have not used it, worn it, played with it, looked at it, or missed it during the past twelve months, you probably no longer need it and can do without it. So get rid of it—toss it, sell it (on eBay, Craigslist, or a yard sale), or just give it away and save the receipt for tax purposes. If you have purchased something that you don't use, admit your mistake and move on. People who don't learn from their personal histories are destined to repeat them.
• Create a filing system. Begin your clean sweep by shredding old documents and statements that contain personal information, account numbers, or passwords. Continue with your ordering by filing away necessary documents and creating file folders for receipts, statements, and other important certificates and records (and keep them orderly by using a filing cabinet). Additionally, unless you are saving your utility bills for tax purposes regarding your home-based business, shred them as well after paying the bill.
• Calendar your bills and events. Note all money coming in, what bills are due, and when. Make sure to pay bills on time by mailing one week before the due date, or pay online the day before the bills are actually due. You can request a change in due date with most credit cards and utility companies to coincide with your paydays. Note appointments and other important occasions on your wall calendar, making sure that it is in plain view where you will be reminded regularly. You can also "go paperless" by opting for electronic bills and reminders to be sent to your email. This can help ward off identity theft — just make sure you keep your online bill payment method secure, and protect your passwords and sign-on information.
• Track spending and manage your cash flow. If you're not already in the habit, use a spreadsheet to record all of your daily expenses and the inflow and outflow of your money. Periodically (and regularly) balance your checkbook to account for debits, fees, and cleared checks. Apply for overdraft protection to further ensure that all bills are paid when due. If you ever have to use the overdraft, make sure you pay it off immediately.
• Refine your spending. By tracking your expenditures, you more easily discover those financial leaks and can begin using your money more productively. By focusing on the necessities (needs), rather than the luxuries (wants), you will have more money for savings, debt elimination, and investing.
• Save for something. Learn how to delay gratification and to save for a certain goal. Open a secondary account for savings with a direct deposit, and you likely won't even miss the difference. Your commitment to grow your savings will be automatic and create peace of mind in the process.
• Review your credit report/clean up your credit. The Fair Credit Reporting Act gives you the right to monitor your credit report regularly. Take advantage of this freebie by requesting a copy of your credit report from one of the three credit reporting agencies (TransUnion, Experian, and Equifax) yearly. You can spread out your requests, getting a report from one bureau every four months, for more thorough monitoring. If there are discrepancies or mistakes, take the requisite time now to remedy the error and improve your credit score.
• Rebalance your portfolio. Warren Buffet says, "Diversification is a protection against ignorance. It makes little sense for those who know what they're doing." Take the time to know exactly where your money is and how it is performing.
• Examine your insurance coverage. Complete an annual insurance "check-up" regarding coverage, premiums, rates, and beneficiaries. Secure quotes from several competing insurance carriers. Modify coverage as necessary and review beneficiary status and designations, as this information supersedes even a will.
• Maintain and get back on track with your finances. Keep up with your day-to-day financial management and create habits that will last a lifetime. If you fall out of habit, quickly reestablish your patterns. Reevaluate your spending habits monthly and update your assets and liabilities (net worth) scorecard quarterly. Reorganize your files as necessary and prioritize your tasks daily.

Make a recommitment to set your financial household in order by organizing and de-cluttering. Cleanse yourself of financial woes by tracking, managing, and controlling your cash flow. Free yourself of stress by being in charge of your choices and following through with your tasks and goals.

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*See the Elective Class Catalog in your Success Center for the latest dates, times, and class details.

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