Survive the holidays — on a budget

This was originally published on Monday, October 16, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

I saw holiday decorations in stores as early as Sept. 25. It’s October and starting next month the holidays will be upon us once again. Unfortunately, for many, the most wonderful time of the year has become less about spending quality time with loved ones and more about overscheduling and overspending.

The hustle and bustle can cause anxiety and stress as we search for the perfect gifts, party attire, and festive decors, especially if money was tight before the holidays started. But you can survive the holidays and not completely break the bank.

  • Start early. There’s no better time than the present to start putting money aside for the holidays. The earlier, the better. Open a holiday savings account that you can deposit money in all year round. You may not be able to use it this holiday season, but it will be ready for next year’s holiday shopping.
  • Spending plan. Decide how much you can afford this year and stick to it. This should include gifts, food, party plans, wrapping paper, décor, postage, extra fuel for running around and energy costs. After you decide on your budget, start making your list of people you will be buying gifts for and how much you intend to spend on each of them. Don’t forget to purchase a few small gifts for surprise visitors and last-minute parties. Keep this list with you to help you stay on track while shopping.
  • Shop early. Don’t wait until the very last minute to buy presents or you may end up unintentionally overspending or buying items you don’t necessarily need. Having extra time to compare prices is especially helpful when buying big-ticket items such as electronics or even a new bicycle. There’s nothing worse than buying a gift at full price, only to see that another retailer is selling it cheaper.

Before you hit the stores, do your homework and compare prices for the gifts you know you want to buy. From newspaper ads to online shopping that offers free shipping and other holiday deals, do your research and create a “plan of attack” to help your money work harder for you.

  • Don’t forget about you. Why not? You earned it. While out and about, take some time to splurge on you. It could be a little something you have been eyeing for months — a new party dress, a moment of peace at the movies.
  • Pay cash. Take out a set limit from your account and use it to make all your holiday purchases. Once you run out, that’s it — the money is gone and your shopping time is done.
  • Credit cards. If you do use your credit cards, think of it as a short-term loan that you will pay off in a month or two. Use the card with the lowest interest rate. Keep track of what you spend so it’s easier to get caught up on holiday spending.
  • Shop online. It’s fast and easy, and you can easily comparison shop. By ordering from the comforts of your own home, you also resist extra temptations like eating out or making impulse purchases.
  • Get creative. Handmade gifts can be a special treat in this age of store-bought presents. Incorporate your own talents like baking cookies, creating a photo album or decorating a picture frame, knitting a blanket or scarf. If your skills don’t translate into a gift basket, create a holiday coupon for a free oil change, lawn cutting, house cleaning or car wash. My kids gave me “certificates” such as these for Father’s Day. I thought it was a great idea and it was much appreciated.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

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Talk to students about budgeting, credit cards

This was originally published on Monday, September 4, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: Our son is starting college off island this September. We have set him up with a new checking account and a credit card. He will be living in the dorms and is hoping to find a part-time job on campus. This is his first time living on his own and we want to ensure that he starts his financial well-being on the right track. Do you have any suggestions to offer that we can discuss with him?

Answer: I am thrilled to see that you are being proactive with your son’s financial well-being before sending him off into the real world. Many parents do not discuss this important topic with their new college students and many students leave college with a lot of debt and sometimes ruined credit scores. Managing their finances without a parent’s close supervision can be exhilarating and intimidating.

No budget. This is a mistake practiced by many adults It is because they have not made budgeting a financial habit. Learning this vital skill and making it a habit early in life will certainly help your college student beyond the college years.

Most students often have limited or sporadic income. It is easy to waste money on unnecessary items if they do not carefully track their spending. Sit down with your college student and show them how to create a budget. Inform them that they will have to revise this as their income and expenditures change.

Give them an understanding of needs versus wants and that they may have to be more frugal. Teach them about using coupons and how to take advantage of sales and looking for the best buys. Most millennials are tech savvy and downloading one of the many smartphone apps will make this task much easier.

Not planning. Many students get to college not certain on their major or they decide to change majors. Sit down with your college student and create a plan on how many credits a semester they need to take to graduate on time. Talk about ways that they can expedite their time in college by taking classes during the summer and winter breaks.

Also remind them that senior year will be more expensive with graduation fees and senior projects.

Peer pressure. Living on their own without parental supervision leaves them open for all sorts pf peer pressure. With their newfound independence, some students can get into financial trouble trying to keep up with their friends, who may not be financially savvy or have a larger spending limit from their parents. They may be pressured into eating out more often, buying more clothing than they need, going out on the weekends or planning a costly vacation during their breaks.

Talk to them about how to handle peer pressure and that they should not be concerned how others perceive them by being more financially responsible.

Credit cards. Help your college student understand the pitfalls of using credit unwisely. Credit cards have become a way of life and makes obtaining things extremely easy. Credit card debt that is created in college years can affect their credit score for years after college.

They are just starting their credit history. Many credit cards will offer them high interest rates and hard-to-meet terms. Explain to them how interest works and that making minimum payments each month prolongs the payoff making it much more expensive than the initial cost of the items.

Credit cards can help them build their credit history and improve their credit scores, if used wisely.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

The pros and cons of credit cards

This was originally published on Monday, August 21, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Almost everyone uses a credit card these days especially with the boom of online retail. You can’t rent a car or make a hotel reservation without one.

The ease of swiping your card makes it too easy to pay bills or cover you in case of an emergency. This ease of use can also land you in deep debt. Before making the decision to get a credit card, consider these pros and cons.

Pros

  • Purchasing power: the power to make a purchase while traveling overseas, online, by phone and of course in the store. Many of the large credit card issuers like Visa and Master Card are accepted nearly everywhere.
  • Financial backup: In case you have an unexpected event like a busted pipe in your kitchen, your credit card can be used to pay for parts and, in some cases, a plumber without going to an ATM. They can also help in case of a health care emergency or an expensive auto repair.
  • Rewards: Some cards will reward you for using their credit card for every-day purchases such as gas or groceries. Others will reward you when you travel or award cash back as an incentive.
  • Credit score: If you use your card wisely it will certainly help your credit history. It can also help repair your credit by showing how responsible you are by making your payments on time.
  • Expense record: Especially when you are traveling, a credit card can help you keep track of your expenses
  • Pay later: It has happened to the best of us, and we run short of cash and need to buy groceries or fuel. You are able to make your purchase and pay it off later.
  • Protection: Credit cards allow you to dispute billing errors and some even provide insurance for expensive purchases. Most credit cards are now equipped with an EVM chip. A Europay, MasterCard and Visa chip is a global standard for credit cards to authenticate and secure transactions. The EVM chip is much harder to hack than a swipe strip. In the case of a fraudulent transaction, the card holder is usually protected.

Cons

  • Interest: A high annual percentage rate can send you deep into debt if you do not make significant monthly payments or pay your balance off.
  • More usage: Studies have shown that people tend to purchase more when they use a credit card. Some feel compelled to spend more than what they have.
  • Late fees: If you do not make a payment you incur a late fee. Although it may be $30 to $50, it adds up quickly if you repeat this habit. Sometimes consumers will allow the balance to roll over for several months racking up interest and late fees.
  • Bad credit: Studies have shown that many people fall into serious debt due to poor credit card habits. Carrying a large amount of debt and acquiring too much debt can ruin your credit score.

After weighing the pros and cons and understanding the type of credit card that is suitable for you and your lifestyle, remember to keep track of your purchases, avoid overspending and make timely payments to avoid extra fees. Use your card with reputable businesses and if your card is lost or stolen, report it to your credit card company as soon as possible.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Variety of credit cards from which to choose

This was originally published on Monday, August 21, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

There are many types of credit cards and not all cards are for everyone. Before you begin applying for a credit card, you should check your credit score to ensure that there are not errors that could prevent you from getting the best interest rates.

Most people feel that the credit card company is the most important factor — Visa, Mastercard, etc. Although that should be factored into your decision, here are other types of cards you ought to consider:

Standard credit card. These are no frills and no rewards, just credit. If you simply want a credit card to make an occasional purchase, then this card is for you. They are relatively easy to understand and most financial institutions offer this type of card.

Usually there are different interest rates for standard purchases, cash advances and balance transfers. Your interest rates are determined by your credit history.

Rewards Credit Card. These cards encourage you to use their credit cards when you make purchases by rewarding you with cash back, points or merchandise.

  • Cash back. This reward is getting a certain percentage of your purchase back as cash. Most cards offer 1 percent to 3 percent for general purchases and sometimes a higher percentage at a certain store for certain purchases, such as groceries. Look for a card with low or no annual fees.
  • Travel. If you are an avid traveler, this card may be of interest to you. Many airlines team up with a bank to offer an exclusive airline credit card. Making purchases with these cards earns mileage or discounts with partner hotels and rental car chains. Some may waive baggage fees or access to airport membership clubs. Accumulated points can also be used to upgrade seating on a trip.
  • Merchandise. You receive points for your purchases, which can be exchanged for merchandise that the credit card issuer sells. These items can be small, like a watch, to larger items such as tablets, cameras and even jewelry.

Student credit cards. This card is designed for college students. Students usually must be enrolled in a four-year university. These cards usually have a lower interest and lower credit limits. Students should be careful they don’t go overboard and get into debt they cannot pay off with little to no income.

Premium cards. These are offered to those with high income and excellent credit. They usually enjoy perks such as personal shoppers, hotel room upgrades, access to airport lounges and priority airline boarding. These perks usually come with high annual fees.

Store credit cards. Some large retail chains offer in-store credit cards. Sometimes they are issued by a financial institution and not by the store directly. Usually, a clerk or manager can issue you a card right in the store. The card is issued after a quick credit check. Most of the time, a salesperson will offer you a discount if you open a card during your visit. Store credit cards usually have high interest rates, especially if you do not pay your monthly balance in full.

Retail credit cards. Large credit card issuers may partner with a major retailer. These are not like the in-store credit cards, which can only be used at the store. These can be used anywhere, like a regular card, but their rewards offer perks at their store or online website, such as free shipping and discounts not offered to other customers. You can only redeem the reward with the retailer and interest rates are usually high.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Differences between debit card and credit card

This was originally published on Monday, August 14, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Credit cards can be a great tool to build credit, but they can also be financially dangerous. A credit card is nothing but a tool. Depending on the skills, knowledge, and self-control of the user, it can be helpful or harmful. Understanding your credit card and its terms is vital to using it properly.

Your credit and debit cards may look very similar, but they work very differently. Credit cards are a revolving line of credit, credit that is automatically renewed as debts are paid off. Your debit card is electronically linked to your checking account. Here are some other differences:

  • Spending limit. Your credit card limit is set based on your credit score — the better your score, the higher your credit limit is. Your debit card is limited to the funds you have in your checking account. Both can be assessed an over-the-limit fee if you go over available funds.
  • Interest rates. If you pay your credit card’s full balance off each month, you won’t have to pay interest. If you make a monthly payment, you will be charged an interest fee based on your balance. A debit card has no interest changed. If you keep funds in your account, you may be paid some interest.
  • Payments. You can pay your credit card balance based on how much money you have. You can pay the minimum required monthly payment up to the full balance of your credit card. With a debit card, your account is debited almost immediately when you make a purchase.
  • Fees. Most credit cards charge an annual fee, late payment fees and over-the-limit fees. If you try to make a purchase using a debit card and don’t have enough money to cover the charge in your account, you may incur an insufficient fund fee.
  • Receiving cash. You can use your credit card to get money from an ATM, called a cash advance. Most credit cards charge a different, higher interest rate for cash advances. If you use your an ATM of your debit card’s financial institution, or a point-of-sales machine at a store, you may not have to pay a fee. For both credit and debit cards, there are usually fees associated with using a different financial institution’s ATM.
  • Effect on your credit. Your credit card affects your credit history. To build a positive credit history, you should use your card regularly, pay off your monthly balance in full, make your payments on time, and not close your account unless you absolutely have to. Your debit card may affect your credit history if you constantly go over your account balance and are charged overdraft fees.

Secured vs. unsecured

There are two types of credit cards, secured and unsecured. A secured credit card limit is determined by the amount of cash deposited before being able to make a purchase. The cash deposited acts as collateral, something provided to a lender as a promise of payment/reimbursement.

Secured credit cards are a great opportunity to establish a good credit history. Unlike a prepaid credit card, your cash deposit doesn’t run out. You continue to make payments and will incur interest if you don’t pay off your balance in full. If you cancel your secured credit card or transition into an unsecured credit card, you will receive your deposit back if your balance is paid off.

Unsecured credit cards don’t require collateral, so issuers take more of a risk. Because of this risk, issuers rely heavily on your income level and credit history.

Most first-time credit card users don’t have a long enough credit history for issuers to approve a large amount of credit. Many times, a co-signer is needed.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Find right credit card for you

This was originally published on Monday, August 7, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: I have never had a credit card and have always used cash. I am considering getting one to use in case of emergencies and for the trip I am planning next summer. I have considered several types but honestly, I find it all a bit confusing. Do you have any tips that could help me decide which credit card is a fit for a first-time owner?

Answer: There are many types of credit cards and looking for the right one can be perplexing and overwhelming. Taking the time to find one that fits your lifestyle and budget is essential.

When used responsibly, a credit card can help you build a good credit history. Good credit history can help you get loans with reasonable interest rates, insurance, cell phone plans and, in some cases, secure a good job.

Some cards reward you for using their cards and others can help you protect your purchases in case of theft or damage. In your case, you may need a credit card to secure your travel plans such as rental cars and hotels.

Before you decide, ask yourself three questions: Do you really need a credit card? How much of my budget can you commit to paying the credit card loan (because that is what a credit card is, a loan)? Can you save to purchase the item instead of using a credit card?

Answer these questions honestly. Knowing the answers to these questions will help you determine which card meets your needs. There are other aspects that you should understand before making a decision.

Short-term loan

A credit card is basically a short-term loan. Depending on the amount you pay monthly, you may or may not accrue interest. If you pay your entire credit card balance at the end of the billing cycle, you will not accrue interest. However, if you pay a partial amount of your balance, you will accrue interest on your average daily balance. The interest is a charge for borrowing the money.

 If you pay just the minimum balance each month, you could find yourself in a long-term cycle of debt. By law your credit card statement must show you the difference of paying off the minimum balance versus making a larger payment.

A normal billing cycle is usually 30 days. Most billing cycles will have a few days grace to pay on your loan. If you miss the cutoff date, a late fee will be assessed.

Credit cards use revolving credit that is automatically renewed as the balance is paid off and can be kept open indefinitely. Your credit limit, or line of credit, is the maximum amount you can borrow. If you have reached that limit, you must pay down the balance before you can borrow more. Some credit cards will assess charges that are beyond your limit and will charge you “over the limit” fees which can be a monthly or daily fee.

Why get a credit card?

There may be many personal reasons why you may need one, but from a financial point of view, a credit card is a method of building good credit. Your credit score is factored by your payment history, the amount you owe on your accounts, how long you have had the credit and the type of credit you use.

Another reason for owning a credit card may be the perks. Some cards offer cash, points or other bonuses. For example, if you travel a lot, consider getting a card that rewards you with airline miles or points for hotel stays. Some cards offer discounts at certain partnering stores or gas stations.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

 

A deceased loved one’s debt: Who pays what?

This was originally published on Monday, July 24, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: My sister passed away unexpectedly. She left behind a few loans, including a mortgage, a new car loan and a student loan. Some of the loans she took out were done by her, but a few were co-signed by family members. She passed with good credit and was up to date on her loan payments. Our family would like to get a better understanding of what we are responsible for and what happens to the loans she had acquired by herself.

Answer: Condolences to you and your family. Losing a family member is certainly emotional. Once the ceremony of the funeral and burial are done, the stress of finalizing your loved one’s estate can be overwhelming.

Generally, creditors get paid first from the estate and assets left behind; the beneficiaries receive whatever remains. The person who is legally appointed to be the executor will use the assets to pay off the debt. This can be done by using money left in a bank account or even selling off property or stocks.

If there are not enough assets to pay off the debt, creditors may get part of what is left and the family members may not be responsible to pay off the debt.

Sometimes it is not that straightforward. The type of debt may also play a factor as to who is responsible for paying off the debt.

  • Mortgage. If the mortgage has a joint homeowner, he or she will inherit the house and the mortgage. Federal law prohibits lenders from forcing a joint homeowner to pay off the mortgage immediately after the death of the co-owner. If the mortgage doesn’t have a joint homeowner the executor can continue to pay the mortgage from the estate. If the estate doesn’t have enough money, the person(s) who inherit the house can take over the mortgage payments.
  • Home equity loan. If someone inherits the house, they will also inherit the loan. A lender can request the inheritor to repay the home equity loan immediately. If the inheritor doesn’t have the money, the lender may require selling the house. Lenders do have the option to work with the inheritor to take over payments.
  • Credit cards. If the credit card has a joint account holder, he or she will be responsible for the unpaid bills. Authorized users listed on the account are not responsible to pay off the remaining balance. If the estate doesn’t have enough to pay off the credit card balance, the credit card companies absorb the debt. Credit card debt, unlike a car loan or mortgage, is considered an unsecured loan because the loan is issued on the borrower’s creditworthiness.
  • Car loan. If the car loan has a co-signer, the co-signer is responsible for continuing the payments or paying off the loan. If the deceased is the sole owner of the loan, the executor can pay the loan from the estate. If the payments stop, the lender can repossess the car. If the estate can’t pay off the loan, the inheritor of the car can continue making payments.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.