Category Archives: Credit

Should You Save for Retirement or Pay Down Credit Card Debt?

Back when I was knee-deep in credit card debt, saving for retirement was about the last thing on my list of priorities. It simply made no sense to me to put away money for the future when my debt was costing me so much in interest.

However, once I fully reviewed my situation, I understood that there may be room for both. It ultimately depends upon your situation, and in order to make the right decision, you’ll have to take a good hard look at both your retirement plans and your current credit card debt.


  • Have You Started Saving? If you currently have nothing put aside for your golden years, then I would suggest starting a modest retirement portfolio, regardless of  your level of credit card debt. Because of compound interest, the earlier you start, the more your dollars will earn over time.
  • Does Your Employer Match? It is important to review your employer’s 401k plan. If they offer any sort of match, consider investing in this option up to the maximum. This is free money provided to you by your employer, and it just makes good sense to take advantage of it, regardless of the amount of your credit card balances.

Credit Card Debt

  • How Bad Is It? If your current situation is dire, and interest fees are eating away at your checking account, you may want to scale back or temporarily suspend retirement savings. If your situation isn’t quite this bad, continue to pay down your balances while still contributing what you can to retirement.
  • Can It Be Restructured? If your credit card debt is significant, you may want to consider restructuring it. There are numerous balance transfer options where you can reduce your interest rate to 0% for a short period of time. Do your research to see if you can save, and if so, you’ll have to decide where to apply the money you’ve saved: to  your credit card balances, or to your retirement portfolio.
  • Do You Have a Plan? If you currently have no plan to pay down and eventually eliminate credit card debt, it’s time you put one into place. Keep your monthly spending beneath what you earn, and figure out other ways to save in your everyday life. Commit these savings to your credit card debts until they’re under control.

Final Thoughts

You should continue to both pay down your credit card debt and also save for retirement. Where you focus the bulk of your efforts will depend upon your situation. However, you won’t be able to make an intelligent decision unless you truly understand the state of each in your life. Ask yourself the three pertinent questions regarding both credit card debt and retirement, and you’ll gain a clearer understanding of each and be able to decide where you should be applying more money.

What do you think? Should you prioritize getting out of credit card debt or saving for retirement?

Use Your Credit Card as an Emergency Fund?

A few months back when I wrote about how our small emergency fund saved us, No Debt Guy commented on how having an emergency fund in cash may be counterproductive. Here is what he said:

I have often wondered if having an emergency fund is the best way to pay off debt or is it counter productive?

For example if you are carrying at credit card balance of $2,500 and have $2,500 in your emergency fund you would be better off paying off your credit card and rebuilding your emergency fund.

What if you have an emergency? You can still take a cash advance from your credit card and you are no further ahead.

This does take some serious discipline, but you will save interest costs.

He does make some interesting points. However, I feel that one needs to be SUPER cautious with that type of system.

Most of you are probably in some type of debt. It’s why you’re here. You’ve probably overspent with credit cards and bought things that you didn’t need. I know I have. So, shouldn’t your main goal to be rid of credit cards forever? Like Dave Ramsey often says, “no one EVER told me they got rich by using credit cards”. I have to agree with that point. When I was using my credit card that gave me cash back, all I could think about was hitting that $50 mark so they could send me a check. So, I would spend more money to earn 1%-3% back. Talk about counterproductive! There was no way I was going to get rich by playing that stupid game.

So, I figured I would come up with a few reasons why it may be counterproductive to use a credit card (or any other line of credit) as an emergency fund. Here are some things to consider:

You May Redefine What an Emergency Is

It’s been said before that using a credit card makes you susceptible to spending more. So, wouldn’t using your credit card for an emergency be the same thing? If you car breaks down and you only have $1,000 to fix the problem, wouldn’t you shop around? I know I would. However, if I were using a credit card I would be more likely to just give in to the initial price and pay it. It’s only on a credit card, right?

I think you may also redefine what an emergency fund is. For example, would you typically use your cash emergency fund to pick up a small amount of groceries if you are out of grocery money for the month? Probably not. But if you have that credit card to fall back on, you might just head to the store when you may have some things to eat at home. If you are like me, you would probably pick up more items too!

You’ll Miss the Experience of Paying With Cash

Most people say that it’s harder parting with cash than it is using a credit card. I’m a little more skeptical but I still think it’s true. However, I think having a cash emergency fund makes you learn to handle money better. I mean, you got into credit card debt by using credit cards. How is still using a credit card in emergencies going to make you any better at handling money?

* * *

Personally, I love having a cash reserve. It just makes me sleep better at night knowing that I can actually hand someone cash if I have a financial emergency. Handing them a piece of plastic would be much harder to handle knowing what I’ve been through financially.

How about you? Cash or credit?

Cash Is King, But Do You Really Spend Less When You Pay With It?

I listen to The Dave Ramsey Show almost every day when I am walking to work. One of his favorite phrases is that “Cash Is King”. He also argues (with good references) that people spend more when they use credit. He states that a recent study found that individuals typically spend 12-18% more when they use credit vs. cash. It’s hard to argue numbers like that, but I am going to try!

Cash Burns a Hole In My Pocket

Yeah, you read that right. Cash burns a hole in my pocket and I always find something to spend it on. Whenever I carry cash, I just think of it as play money. It’s something that I can just take into a convenient store and spend until it’s gone. It’s just begging me to spend it! So, in the past few months, I have stayed away from cash and it’s devilish qualities. But why was I like that with cash? According to Dave Ramsey, it was supposed to help me curb my bad spending habits. 🙁

Credit Is Just As Bad

Back in the days when I was still using credit cards, my problems were just as bad as they were with cash. Everyone knows that easy access to credit can get you in deep trouble. To be honest, it got me in trouble quite a bit. I was buying things I didn’t need and adding things to the cart because I could. I guess you could say that I did spend more because I used a credit card. I spent more because I knew it wasn’t coming out of my checking account.

What’s The Answer?

I knew there was no way that I could handle the cash envelope system. It was just too tempting to grab some cash out of another envelope and spend it on something else. I know a lot of you are going to say that I had no self control, and I can tell you that you are probably right. However, I wanted to fix the money problems and I took the necessary steps to correct them. Today, we solely use our debit card and checks. We also are using a software program that allows us to spend all of our money on paper before the month is even over. Ever dollar is accounted for and if we spend more money on another category, we have to cut back on something else. It’s working for us and it seems like the ways of the past are gone!

Do you see a difference when you use cash vs credit? What works best for you when it comes to spending temptations?

Rent-to-Own is a Bad Deal

If you’ve never heard of it, rent-to-own (RTO) is a process where you rent an item (typically furniture or electronics) for a set amount of months and when you finish out the term of the rental agreement, you get to keep the item as your own. However, there are some things to consider when using their services such as the actual cost and what type of product you are getting. Chances are, you will get a slightly used product such as the one in the picture below. 😉

Finances Behind the Transaction

The majority of RTO transactions are weekly terms. In other words, you pay a weekly payment to the company and they allow you to continue to rent the item. These payments will continue until the end of the term which can be 12-24 months in length. After the end of the term, the renter is deemed to now own the product. However, if you miss just one weekly payment over the term, you are deemed to have broken the contract and they will repossess the item. You will also lose any “ownership” credits that you have earned for previous payments.

The real ripoff is in the amount of payments. Let’s look at an example given from a recent article at CNN Money. Let’s say that a company rents a $1,000 TV to a customer for $100 per month for a term of 24 months. At the end of the 24 months, the customer has paid a total of $2,400 for a $1,000 TV that is now 2 years old! That is like financing it at 103% over those two years! You want to know the real thing that bugs me about these RTO companies? They are doing well in this economy because they are preying on the weak.

With this type of transaction, you would be better off financing the item on a store credit card at 25%. However, I do not recommend that. I recommend that you delay the gratification of purchasing a new TV and save the cash for it. Better yet, why not purchase a TV from a site such as Craigslist or eBay? I have done plenty of deals on both sites and got some great bargains.

The Product That You Receive

Chances are good that the product that you rent has already been rented before. So, who in their right mind would want to pay the astronomical “finance charges” to own a TV that has been used before? I know I sure wouldn’t.

That goes with all of the other items that they sell such as furniture. There are so many other alternatives to RTO so why not explore them? I know some people do not have the cash or credit to pay for these items, but I would not call a TV or a barcalounger a “need”.

Has anyone had experience with a rent-to-own company? 

Credit Cards vs Debit Cards: Liability for Fraudulent Charges

This will probably be a short post but I still wanted to address this important topic. With many individuals now becoming victims of identity theft, it’s important to know the amounts that you may be liable for if your credit/debit card is stolen.

Debit Cards

As many of you already know, debit cards are typically linked to your checking account and give you instant access to the funds that you have in your account. It is different from a credit card because you are using your available funds to pay for the item and are not borrowing money. However, you should be careful of the unlimited overdrafts because those banks will just let you keep buying! That makes it possible to rack up hundreds of dollars in overdraft fees in one day.

Even though debit cards are typically praised for their ability to control spending, they can be rather costly if they are ever stolen. With a debit card, if you neglect to notify the bank within two days of it being stolen, you can be held liable for as much as $500! You may even have UNLIMITED liablity  if you fail to report an unauthorized transfer with sixty days of when the bank sent you the statement with the unauthorized transfer shown on it. Another bad thing about debit cards is that if your card is fraudulently used by someone that you previously gave your PIN to, you may be held responsible for all of their fraudulent charges. For example, if you gave your card to your nephew to use (and gave him your PIN) several months ago for $20 at the ATM and he later steals your card and wipes out $3000 in your checking, you will be held responsible for those charges.

My advice would be to contact your bank as soon as you notice that you debit card is gone. Even if you think you accidentally just left it at the grocery store, call them right away. It’s better to be safe than sorry and it might save you quite a few bucks. Both VISA and MasterCard have “zero liability” policies that limit fraudulent purchases used as a credit transaction (not using your PIN). However, they do not apply  when you use your debit card at an ATM and for many PIN purchases.

Credit Cards

Credit cards allow you to borrow money to pay for items. If you do not pay off the balance due at the end of the month, you will be charged interest on that borrowed money. While this can be risky (just ask the millions of Americans in credit card debt), the credit card does offer you better protection against fraudulent charges.

Thanks to the Truth in Lending Act, a credit card holders liability for a lost or stolen credit card is limited. If you notify the card issuer within two days of a lost or stolen card, you are not legally held responsible for any fraudulent charges. If you notify the card issuer after two days the most you can be held liable for is $50. Many credit card companies will waive this $50 charge as a good gesture.

Although you liability is more limited with credit cards, it’s still crucial that you contact the issuer as soon as you think your card has been misplaced.

Does anyone have card fraud experiences that would like to share? How much were you held liable for?

How to Choose Credit Cards With Rewards to Save Money – Part 2

This is the 2nd part of Mr Credit Card’s guest post. In the previous post, he focused primarily on how to choose a cash back card to save money. In this post, he is going to discuss more about reward cards that let you earn points. His site has lots of information and you can apply for a credit card there.

In this post, I am going to give a few tips on how to choose a credit card to earn reward points. The decision you have to make is what rewards you want to earn with your points. There are a few broad categories of rewards that are available with most credit cards.

Travel Rewards – These include airline tickets, hotel stays, car rentals, cruises etc.

Merchandise – Most credit card reward programs have partnered up with various retailers and brands to offer their products to their card holders who exchange them for reward points. For example, you may exchange a certain amount of points to get, say, a Nikon Digital Camera.

Gift Cards – You can also exchange points for gift cards. A typical example would be to exchange 10,000 points for a $100 Best Buy Gift Card.

Charity – Most reward programs also allow you to donate points (for cash) to charities (though I doubt that is the intention of most reward card holders).

Travel Rewards

Most people looking for a reward credit card want to redeem points for airline tickets. The decision they would have to make us whether to get an airline credit card or a credit card with reward programs.

This dilemma is probably the toughest to resolve in any credit card decision because it involves so many factors. You have to ask yourself the following :

1. How Often Do You Fly?

2. Do You Fly with Just One Airline or Many?

3. Do You Spend A Lot on Your Card?

If You Just Fly on One Airline

If you just fly on one airline, then it make sense just to get a frequent flyer credit card.

If You Have Fly on a Few Airlines

If you fly on a few airlines and are a member of a few frequent flier programs, there are a couple of alternatives. For example, the American Express Membership Rewards allows you to transfer points you earn on Amex charge cards to 17 frequent flier miles. This is very valuable and is the reason why Amex is so popular.

The starwood preferred guest program allows you to convert Starwood points to air miles on a one for one ratio for most frequent flyer programs and you even get a bonus 5,000 miles if you transfer 20,000 points. Many frequent travelers carry the Starwood credit card.

If You Are Not a Frequent Flier But Want to Use Points for Airline Tickets

For those do not travel but want to earn points for an airline ticket for a family vacation, most regular reward credit cards should work. These days, most programs allow you to book your own tickets and use points t0 cover for them. That is the advantage they have over frequent flier programs because there are fewer restrictions like blackout dates, etc. that come with regular frequent flyer programs.


Choosing a reward credit card for merchandise redemption is a little tough because it is very difficult to compare the breadth of products available in their catalogs as they are always changing. Furthermore, some programs require less points for certain items but more for others. But generally speaking, after much research, I’ve found the Membership Rewards from AMEX to have the best selection of merchandise in their catalog.

Gift Cards

For those who want to use points for gift cards, the best card to get is probably the Discover Card as it has over 100 partners. The Discover Cards allow you to earn cash rebates and if you redeem them for gift cards instead, you double the value of the gift cards you redeem for certain merchants.

Donating to Charity

If you are a charitable person and would like to donate to charities by your credit, most reward programs allow you to do that. Some have many partners while others have just a few. The better ones like American Express allow you to set up your card such that you automatically donate to charities every month.

Shopping With Your Credit Card

Most credit cards today have their own shopping site and partnerships with online retailers so that you can actually earn more points or get discounts when you use your card.

For example, Discover has this feature called The way it works is that you can shop at say (but going through the discover website) and you can earn 5% rebates when you use your Discover card to shop at their site. American Express has a shopping comparison site called, which lets you compare many items with different retailers. You can then shop at the cheapest online store and even use your reward points to shop.

Most card holders do not use this feature. But you should, since you can save quite a bit by doing so.

Other Considerations

When you are researching credit cards, other things to consider are:

1. Do reward points expire

2. Is there a cap to how many points you can earn?

3. How many points you do earn for every dollar that you spend on the card? For most, it will be one point, but many cards lets you earn more points for certain category in spending.

Final Note – While savvy frequent travelers have always used reward cards to their advantage, most credit card holders don’t. To fully take advantage of credit cards (rather than let them take advantage of you), make sure you pay in full, get a card with rewards (whether it be cash back or reward points). You will enjoy savings and perks in many interesting ways.