credit cards

5 Best Travel Reward Credit Cards

Jason Steele — Fri, 05 Apr 2013 09:48:24 +0000

Updated May 2013

There are few things as alluring as the promise of free travel to exotic destinations. The banks know this, and have long offered travel rewards to their customers for receiving and using their credit cards. In turn, savvy credit card users have learned how to exploit these offers to travel in comfort and style well beyond their means. (See also: 6 Ways My Family Scores Free Travel With Credit Cards)

Recently, I was explaining this to an European executive sitting next to me in Lufthansa’s Airbus A380 business class while returning home from a vacation in Italy. I told him that my family and I could not possibly have paid for our three, $7,000 tickets for this flight. But thanks to my travel rewards credit cards, my journey was all but free after some taxes and fees. Through careful selection and use of these product, these kinds of trips have become an annual occurrence for our family. While there are innumerable ideas, tips, and tricks to be gleaned from endless hours research, my mission is to do the work for you and deliver only the most valuable advice to busy people who lack the time and patience to discover and decipher these deals.

Choosing The Five Best Travel Rewards Credit Cards

It would be nice to pick the best travel reward cards in a purely empirical manner, the way one would choose a card with the lowest interest rate. Unfortunately, each travel rewards card offers a unique mix of benefits and drawbacks, and rarely is one card ideally suited for everyone's travel aspirations. I have read thousands of blog and forum posts, written hundreds of credit card reviews, and personally held dozens of different travel rewards cards over the last twenty years. In the end, I judge these cards based on three criteria:

Value –What is the most return you can expect from a credit card, in cents per dollar spent.

Flexibility – Since everyone hates earning miles that they can’t redeem, how can cardholders redeem awards for travel services from multiple providers.

Costs And Fees – A top travel rewards card should have reasonable fees that are more than justified by its rewards and benefits.

Of all the travel rewards cards currently offered, these are the five I find most rewarding:

Starwood Preferred Guest® Credit Card from American Express

If I had to choose only one travel rewards card, I would pick this one without hesitation. Hardcore travel hackers and newbies alike love this card as it combines exceptional hotel rewards with unparalleled options to transferring points to airline miles with 30 different carriers.

Here are the updated offer details:

Starpoints® bonus: earn up to 25,000 bonus points: 10,000 after your first purchase and another 15,000 after you spend $5,000 within the first 6 months of Cardmembership

That’s enough for a weekend getaway to a Category 4 Hotel like the Westin Savannah Harbor Golf Resort & Spa, or six free nights at a Category 2 Hotel

Earn up to 5 Starpoints® for each dollar of eligible purchases at participating SPG hotels and resorts – that’s 2 Starpoints for using the Card in addition to the Starpoints you earn as an SPG member. Earn 1 Starpoint for all other purchases.

Free Hotel Nights: redeem Starpoints at over 1,100 hotels in nearly 100 countries worldwide — with no blackout dates

Free Flights: redeem Starpoints on over 350 airlines with SPG Flights — with no blackout dates

Get 5,000 bonus Starpoints after you transfer 20,000 Starpoints to a frequent flyer program with more than 30 airlines

No limits on the number of Starpoints you can earn

$0 introductory annual fee for the first year, then $65

Terms and Restrictions apply

Click here to apply now

The Platinum Card® from American Express

This card is a must if you are one of the lucky few who enjoy frequent international travel. The Platinum card offers a list of features as long as the options on a high end luxury car. Perhaps that is why Mercedes-Benz just announced a co-branded version of this popular card.

Here are the latest offer details:

Earn 25K Membership Rewards® points when you spend $2,000 during your first three months of Card membership

Premium travel benefits: access over 600 lounges worldwide when you enroll in Priority Pass(TM)Select, no foreign transaction fees

Receive up to $200 annually in a statement credit with the airline of your choice to use towards baggage fees, flight-change fees, in-flight food and beverage purchases and more

Entertainment benefits: get Advance Tickets before the public and access once in a lifetime events with By Invitation Only®

24/7 Platinum Card® Concierge service for assistance with reservations, travel, gifts, and more

Terms and restrictions apply.

Click here to apply now

Capital One® VentureSM Rewards Credit Card

This innovative card offers two “miles” per dollar spent on all purchases. Capital One’s miles can then be redeemed for one cent each as statement credits against any travel related expense such as airfare, hotel, and rental car charges.

Simple award system grants two cents in value per dollar spent on all purchases with no limit.

Miles can be redeemed for travel with any company in the world, and award travel itself is eligible to earn miles and receive upgrades.

$59 annual fee that is waived the first year.

There are no foreign transaction fees on this or any other Capital One card.

Click here to apply now

Sapphire Preferred from Chase

Cardholders earn on point for most purchases, with double points for all dining and airfare transactions, and triple points for travel booked through Chase’s site. Points are then worth one cent each, or 1.25 cents for travel booked at their site.

40,000 bonus points after you spend $3,000 in the first 3 months- that's $500 toward travel rewards!

2 points per dollar spent on travel and dining at restaurants & 1 point per dollar spent on all other purchases

Get 20% off airfare, hotels, car rentals and cruises when you redeem through Ultimate RewardsSM

No foreign transaction fees

Receive a 7% Annual Points Dividend on all new points earned on purchases - even on points already redeemed

1:1 point transfer to leading frequent travel programs - that means 1,000 Ultimate Rewards points equal 1,000 partner miles/points

Direct access to expert service advisors anytime

Introductory Annual Fee of $0 the first year, then $95

Sorry, this offer is currently unavailable

PenFed Premium Travel Rewards American Express Card

PenFed is the Pentagon Federal credit union, but anyone can join if they are not already eligible. Like all of their products, this card offers maximum benefits with few hassles or fees.

Earn one point per dollar spent on most purchases, with five points per dollar spent on airfare.

Points are worth 1 cent each when redeemed for gift cards, but 1.6 cents towards airfare purchases.

Use this card to purchase airfare and you can earn eight cents per dollar spent (5 points x 1.6 cents per point) towards future airfare purchases.

20,000 points available as a sign up bonus; worth $320 towards an airfare purchase.

No annual fee and no foreign transaction fees.

Click here to apply now

Conclusions

No discussion of rewards credit cards is complete without the warning that these products are only best for those who always pay their balances in full and never incur interest. Everyone else should use the card with the lowest APR. That said, if you do pay your balance off every month, and you love to travel, then you have much to gain by applying for and using one of these top travel rewards cards. Join me in the exciting world of those who regularly travel for free.

My wife and daughter on one of our trips earned through travel rewards cards:

Back to the Credit Card Guide

Written by Jason Steele and published on Wise Bread. Read more articles from Wise Bread.

Ask the Readers: Should College Students Have a Credit Card?

Ashley Jacobs — Tue, 28 Aug 2012 10:36:41 +0000

Editor's Note: Congratulations to Ben, Guest, and rm for winning this week's contest!

Building credit at a young age is an important part of having a well-rounded financial picture. College students tend to get bombarded with offers from credit card companies offering incentives like free shirts if they sign up for a credit card. While some students can handle the potential risks of credit cards, others may fall into deep debt if they aren't able to properly use their credit card.

Should college students have a credit card? If yes, what are some good rules of thumb for them to follow? If not, at what age should people get their first credit card?

Tell us if you think college students should have a credit cards and we'll enter you in a drawing to win a $20 Amazon Gift Card!

Win 1 of 3 $20 Amazon Gift Cards

We're doing three giveaways — one for random comments, one for random Facebook "Likes", and another one for random tweets.

Mandatory Entry:

Post your answer in the comments below

For extra entries (1 per action):

Go to our Facebook page, "Like" us, and leave a comment on this article telling us you did, or
Tweet your answer. You have to be a follower of our @wisebread account. Include both "@wisebread" and "#WBAsk" in your tweet so we'll see it and count it. Leave a link to your tweet (click the timestamp for the individual URL) in a separate comment.

If you're inspired to write a whole blog post OR you have a photo on flickr to share, please link to it in the comments or tweet it.

Giveaway Rules:

Contest ends Monday, September 3rd at 11:59 pm Pacific. Winners will be announced after September 3rd on the original post. Winners will also be contacted via email.
You can enter all three drawings — once by leaving a comment, once by liking our Facebook update, and once by tweeting.
This promotion is in no way sponsored, endorsed or administered, or associated with Facebook.
You must be 18 and US resident to enter. Void where prohibited.

Good Luck!

Tell us if you think college students should have a credit card and we'll enter you in a drawing to win a $20 Amazon Gift Card!

Written by Ashley Jacobs and published on Wise Bread. Read more articles from Wise Bread.

Best Money Tips: The Credit Edition

Ashley Jacobs — Tue, 14 Aug 2012 09:48:42 +0000

Welcome to Wise Bread's Best Money Tips Roundup! Today, we are bringing you some of the best articles about all things credit!

News & Events

The Plutus Awards Voting — Be sure to vote in the 3rd annual Plutus Awards! Voting closes on August 14th.

Be sure to check out our News & Events Calendar to see all the awesome upcoming events in the personal finance world!

Written by Ashley Jacobs and published on Wise Bread. Read more articles from Wise Bread.

Security Breach Puts 50,000 Credit Card Holders at Risk

Ashley Jacobs — Fri, 30 Mar 2012 22:10:52 +0000

A security breach at Global Payments Inc., a third-party U.S. based processor, may have compromised 50,000 Visa and MasterCard cardholder accounts. According to ZDNet, both Visa and MasterCard have sent out non-public alerts to banks notifying them of the breach.

Krebs on Security reported that the breach was first detected by Global Payments in early March. The accounts were compromised between January 21st and February 25th 2012. The information obtained in the breach could be used to make counterfeit cards. It is unknown whether or not banks will issue new cards to cardholders as a result of the breach.

Affected banks have begun analyzing transactions on the potentially affected cards in an attempt to find common points of purchases. So far, the transactions of the cards that have been analyzed seem to share the characteristic that they were used in parking garages in the New York City area.

Visa has released information saying that the breach is being investigated by the Secret Service as well as an unidentified forensics company. The investigation is still in its early stages. Visa and MasterCard have both stated that their networks were not compromised as a result of the breach.

If you use a Visa or MasterCard credit card, you may be affected by this breach. The good news is that most credit cards have fraud protection, so even if you are affected by this security breach, you most likely will not be affected by fraudulent charges if you catch them early enough.

Make sure you spend some time this weekend checking your credit card statements either online or by phone to see if there has been any unusual activity going on. If there has been, get in touch with your credit card company ASAP!

Additionally, if you have yet to get your free credit report this year, get your free annual credit report to make sure there are no discrepancies on your report.

Be sure to share this article with your family and friends via Facebook, Twitter, and email so they know about the security breach and can check their credit card statements to make sure they were not affected.

Written by Ashley Jacobs and published on Wise Bread. Read more articles from Wise Bread.

5 Best Cash Back Credit Cards

Jason Steele — Fri, 18 Nov 2011 11:48:20 +0000

Updated May 2013

Many people prefer cash back rewards to other credit card perks such as frequent flyer miles. Cash has the advantage of being readily liquefiable and universally accepted. Unlike points and miles, cash back rewards earn interest when unused and is not subject to the constantly changing terms and conditions of corporate loyalty programs.

Furthermore, cash back rewards are considered to be a discount on a purchase, not income that needs to be declared for tax purposes.

My family is a perfect example of how you can use credit cards to receive cash back. Using our cards for day to day purchases, we may spend as much as $2,500 with them each month. When we are not looking for travel rewards, we use a card that returns 2% on all purchases in order to earn an additional $50 a month in cash back. That equals a return of $600 each year that we can add to our discretionary spending or apply to our savings.

Just one word of caution -- cash back credit cards should only be used by people who have always paid their credit card balances in full and on time. To do otherwise virtually ensures that you will owe more in interest and penalties than you will ever receive as cash back.

Once you have decided to earn credit card rewards in the form of cash back, you should definitely consider one of these top five cash back rewards cards.

The Current Top Five Credit Cards Featuring Cash Back Rewards

In my research, these are the best cash-back cards currently available.

US Bank Cash+ Signature

This new US Bank card is turning a lot of heads. It allows you to earn 5% cash back on any two categories of your choosing including department stores, restaurants, home improvement, airlines, and bill payment. You can also choose an additional category to receive 2% cash back from including gas stations, grocery stores, and drug stores. All other purchases earn 1% cash back. But then you also receive an additional $25 cash back when you redeem $100 in cash back. Therefore, the return on the 1% purchase is equal to 1.25%, the 2% categories are worth 2.5%, and the 5% categories are worth 6.25%. There is no annual fee for this card.

Click here to apply now

Fidelity Investments Rewards American Express

Outside of a promotional offer, the highest cash back rate available on all purchases is 2%. Fidelity Investments’ Fidelity Rewards American Express Card offers unlimited cash back at that rate with no annual fee. Your card must be connected to one of their cash management or brokerage accounts, but there is no other catch. You can also use this card as a savings instrument by directing the funds to a Fidelity IRA. Finally, they even offer a version that funds a 529 college savings account.

Click here to apply now

Capital One® SparkSM Cash for Business

Like the Fidelity card, Capital One also offers a 2% cash back rate, but in a Visa that is more widely accepted than Fidelity’s American Express. This is a business card, which is a great product for people who do some work on the side and want to separate out their expenses. Nevertheless, anyone can apply for this card as a sole proprietor and use it just like other credit cards. There is a $59 annual fee, but it is waived the first year. Another nice benefit is that cardholders will not be charged any foreign transaction fees, which normally run 3% on most other cards.

Click here to apply now

Blue Cash Preferred® Card from American Express

This card offers an outstanding 6% cash back on all purchases from US stand-alone grocery stores. It did not take many credit card holders long to figure out that they could better reap this benefit by purchasing other merchants’ gift cards at the supermarket, this card still returns 3% on purchases from US stand-alone gasoline stations and select major department stores, as well as a decent 1% on all other transactions. There is a $75 annual fee for this card, which is what users will earn when they charge just $1,250 at their grocery store.

Here are the updated offer details:

Earn 150 Reward Dollars after you make $1,000 in purchases in the first three months of Cardmembership.
Earn Cash Back: 6% US supermarkets up to $6,000 per year in purchases, 3% US gas stations & select US dept stores, 1% other purchases. Terms and limitations apply.
Cash back is received in the form of Reward Dollars that can be redeemed as a statement credit.
Simple and Straightforward: With the Blue Cash Preferred Card, you can start earning cash back. No rotating reward categories. No enrollment required.
Terms and Restrictions Apply.

Click here to apply now

Chase Freedom® Visa

The Chase Freedom card is an underdog that makes the list due to its generous sign up bonus of $100 in cash when you spend $500 in the first three months after opening an account. Think of it as a 20% cash back rate of return! Card holders are also eligible to receive 5% cash back on their first $1,500 of spending on different categories of merchants that change every quarter. All other purchases return a standard 1% cash back. This can really add up when the card is used often for small purchases.

With its significant cash sign-up bonus, but less-competitive standard rate, this card is best to maximize rewards for those who only charge a few hundred dollars a month to their cards, or customers who will only use it for purchases in the bonus categories that return 5%. There is no annual fee for this card.

Currently unavailable

Within the credit card industry, the term “deadbeat” is used as slang to describe customers who always pay their balances in full and on time. These customers don’t provide the banks with any profits from interest payments or late fees, but they are still valued customers due to the merchant fees their spending generates and their impeccable payment history. If you are a proud member of this group, and you have no interest in travel rewards, you should be using one of these cards that offer the maximum cash back for your spending.

Back to the Credit Card Guide

Written by Jason Steele and published on Wise Bread. Read more articles from Wise Bread.

Decoding The New Tax Rules For Merchants

Barbara Weltman — Wed, 09 Nov 2011 19:37:24 +0000

Link:

http://www.openforum.com/articles/decoding-the-new-tax-rules-for-merchants

Banks and other payment settlement companies processing credit cards, debit cards, and electronic payments online now have to report annually to the IRS the gross amount of merchant (seller) transactions. If your business accepts payment in any of these ways, expect to receive your first information return by January 31, 2012, reporting your 2011 transactions. Needless to say, this is going to complicate your tax reporting.

1. The Information Return is Month-by-Month

There is a new Form 1099-K, Merchant Card and Third-Party Payments that will be used to report these transactions. The form provides an annual total, but also breaks down the transactions month-by-month. You’ll need to check your transactions against the amounts reported on the form to make sure you don’t have to report more income than you actually received. For example, your processor may report that you had $10,000 in transactions in March 2011, when in fact you only had $1,000.

If you note any problem with the form, contact the issuer immediately to straighten things out and have an amended 1099-K issued to you. The contact information for the issuer is on the form.

2. Gross Amounts are Reported

The gross amount of merchant card payments reported on this form do not take into account any adjustments for credits, cash equivalents, discount amounts, fees, chargebacks, refunded amounts, or any other amounts. For example, someone pays you for a $30 item and asks that you process the transaction for $50, so you give the customer $20 in cash. The 1099-K will show this as a $50 transaction, even though the sale was only $30.

You will have to enter on your return the full amounts reported to you; the IRS computer is looking for the amount from the 1099-K. The reporting, of course, does not prevent you from making subtractions from the amounts reported to reflect chargebacks or other differences in what is actually taxable to you. Work closely with your CPA or other tax advisor to make sure you don’t overreport income and fail to take offsets, such as chargebacks and refunds, into account.

3. Tax Returns Have Changed

If your business is incorporated or you file a partnership return, there is a new line to enter the transactions reported to you on the 1099-K. The 2011 Forms 1065, 1120, and 1120S have a new look and must be completed in a new way.

For sole proprietors and one-owner limited liability companies who report their business income and expenses on Schedule C of Form 1040, nothing has changed. Still, you’ll need to include the amount of the transactions on the schedule as reported to you on the 1099-K.

4. Small Sellers Are not Necessarily Exempt

Sellers with annual gross sales on their merchant accounts of no more than $20,000 or 200 or fewer transactions are exempt from this reporting; only those with annual gross amounts exceeding $20,000 and more than 200 transactions will have their transactions reported to the IRS. However, this “small seller” exemption does not apply to payment card transactions, such as credit and debit cards; it only applies to third-party settlement companies, such as online payment processors.

Store-value cards and gift cards may or may not be treated as reportable payment card transactions. Check with your tax advisor on what to do about this issue.

5. Backup Withholding

If you fail to provide a correct taxpayer identification number, such as an employer identification number (EIN) or Social Security number (SSN), you may become subject to backup withholding. This means that 28% of every payment you process will be withhold as federal income taxes. This can severely impact your cash flow.

Again, backup withholding applies to payment card transactions, but not to small seller third-party settlement company transactions.

Backup withholding was supposed to start after December 31, 2011. Fortunately, the IRS has postponed backup withholding to payments made after December 31, 2012.

Final Word

Many sellers, particularly those selling online, who previously assumed that their sales would go unnoticed by the IRS will no longer be able to avoid reporting income. All sellers should work now with their tax advisor to get ready for 2011 reporting.

Written by Barbara Weltman and published on Wise Bread. Read more articles from Wise Bread.

6 Ways My Family Scores Free Travel With Credit Cards

Jason Steele — Wed, 02 Nov 2011 10:48:14 +0000

I travel a lot, but I don’t pay for most of it. In fact, my family and I often fly in business or first class. I used to look for coupons for 50 cents off of this or a couple of dollars off of that—but today it takes a few hundred dollars worth of travel savings to get me to raise an eyebrow. This is the lifestyle of a travel rewards aficionado.

What You Need to Know About Earning Free Travel

Earning free travel with rewards credit cards is legitimate, ethical, and profitable for all of the parties involved. Like many, my passion for reward travel was born of necessity. At first, I was just addicted to traveling in a style beyond my budget. Later, I married into a family that lives, in large part, on the other side of the globe. It didn’t take a calculator to realize that the three of us weren’t going to be able to visit my wife’s family every year or two at a cost of about $5,000 in airfare. Moreover, after enduring coach seating for 30 hours in the air, round trip, we felt like the airlines should be paying us.

Contrast that scenario with our most recent trip this September. We traveled on award tickets business class to see family in Tel Aviv and enjoyed a week long stopover in Italy on the return. In Milan, we used hotel awards to stay for free in a suite that normally costs over $400 a night. After touring Lake Como and the Italian countryside, we returned home to Denver satisfied that we had not just visited family, but actually had a vacation as well. Other reward trips we have taken in the last year include Brazil, the island of St. Thomas in the Caribbean, and more domestic excursions than I can count.

How do we do it?

1. Take Advantage of Frequent Flier Mile Promotions

US Airways offered a 250% bonus, at one point, for certain purchases made through their frequent flier program partners. Reward travel enthusiasts like me quickly figured out that a certain product (the TrackItBack recovery system) that normally returns 40 miles per dollar spent would now earn an additional 120 miles per dollar during this promotion, for a total of 160 miles per dollar spent. In fact, the miles were worth far more than the product itself!

I spent $3,000, and earned nearly 500,000 US Airways miles without stepping foot on an airplane. It was those miles that were redeemed for the three business class, partner award seats to the Middle East with a stopover in Europe. At 120,000 per ticket, we even had over 100,000 miles left over. Finally, the product itself was donated to charity for the tax deduction. Other recent promotions have included opportunities to buy and transfer miles at discount rates and offers that require earning miles from a selection of partners.

2. Find Credit Card Sign Up Bonuses

We are all incredibly lucky to live in a country where credit card issuers compete so hard to earn your business that they are tripping over themselves to offer the most valuable sign up bonuses. This year, my wife and I each earned 100,000 British Airways miles as sign up bonus during a promotion that lasted a few months. We also received serious bonuses from Southwest and American Airlines, as well as Capital One.

Does this hurt our credit score? Not at all. In fact, we always qualify for the most favorable mortgage rates. Our scores may suffer a few points at any given time due to too many recent enquiries, but we also have a large amount of available credit, reducing our utilization ratio. Keep in mind that this strategy is only wise for those who normally maintain excellent credit and who don’t view these cards as an invitation to spend more or incur debt.

3. Utilize Credit Card Spending

For those whose credit card is simply a method of payment, not a means of finance, each dollar spent equals more miles. We always use our credit cards when they are accepted. There are even some tricks to spend money on items that can immediately be redeemed for cash. In the past, reward travel experts have had traveler’s checks, coins from the mint, and other liquid able assets charged to their credit cards as purchases. As these loopholes were publicized, they were eventually closed, but new ones are inevitably discovered. Again, this strategy is not for anyone who ever carries a balance as interest payments will far exceed the value of the miles earned.

4. Get Bumped

Being bumped is the lingo for earning voluntary denied boarding compensation. When an aircraft is oversold, some travelers will volunteer to take a later flight in order to receive hundreds of dollars of compensation. The key to being bumped is to book flights that you know are oversold, don’t check luggage, and to be the first on the list of volunteers when the gate agents arrive.

5. Know How and When to Complain

When companies experience service failures, customers can earn valuable compensation if they play their cards right. Although poor customer service is more common in the airline industry, it does happen at hotels from time to time. Those who take the time to write a brief, polite, email to their travel provider will frequently receive vouchers and/or frequent flier miles for their troubles.

6. Use Miles and Points Creatively

When trying to use frequent flier mile programs, most people focus on the earning side of the equation. This is important, but no less so than finding the most strategic redemption opportunities. Finding the most valuable awards is an incredibly complex game, but if I had to sum it up in one word, it would be “Partners.”

Remember my 500,000 US Airways miles? The only way I was able to redeem them for our most recent trip was through their partners. In this case, we flew Star Alliance partners Continental and Lufthansa, without taking any US Airways flights. In an extreme example, I once transferred American Express Membership Rewards points to miles with Japan’s ANA airlines, to redeem an award on one of their partners, South African Airlines.

Conclusions

It took me years of trial and error to find the best ways to maximize all the credit card rewards. I'll be sharing my best tips in my new weekly column on Wise Bread. As you can see from the happy faces in these recent vacation photos—your family will love these free travel tips!

What is your favorite travel rewards card tip?

Written by Jason Steele and published on Wise Bread. Read more articles from Wise Bread.

Best Money Tips: Credit Card Tips to Live By

Ashley Jacobs — Tue, 19 Jul 2011 09:48:05 +0000

Welcome to Wise Bread's Best Money Tips Roundup! Today we found some awesome articles on credit card tips to live by, what to do if you hate your job, and road trip money saving tips.

Wise Bread Blogger on the NBC News with Brian Williams

Sarah Winfrey — Sun, 10 Oct 2010 11:54:40 +0000

On Friday, September 24th, my family was on the NBC Nightly News talking about changes we've made in the way we use credit cards because of the financial crisis. We'd interviewed with one of their L.A. reporters, Kristen Walker, a couple of weeks previous.

Filming was a blast. We were a little nervous, not knowing what they'd ask or, after the interview, what clips they'd use. While both my husband and I felt like we said some more intelligent, compelling things than were in the clips they actually used, overall the process was a blast. And shopping at Target with the camera guy was a trip, too!

Check out my clip from the show:

Sarah Winfrey on ABC News, September 2010

The topic was a timely one for us. My husband, a college professor, lost his job on July 1, 2010, because the college he worked for didn't have the incoming tuition to renew his contract. We knew it was coming and have cut back on our credit card use since early this year. While we've always been responsible with our cards, we wanted to be sure that we could pay the bill each month.

We've also found that it's easier to limit our spending when we use cash or debit cards instead of credit cards. When you actually have to hand over bills or when you know that the bottom line in your checking account will take a direct hit, you're less likely to spend money on things you don't need.

Related Articles

The Best Kept Secret to Frugal Living — Find out how to think differently in order to spend less. Turns out, spending is all about your motivations and your mindset.

5 Steps Toward Financial Independence — Credit card debt is often a problem for young people who don't know any better. Avoid this and other debt traps, and you're well on your way to financial independence.

Who Should Face the Music When the Banks Fail? — There's a lot of blame flying around during this financial crisis. Who do you think should be required to pay when things go this badly wrong?

Walking the Tightrope of Financial Recovery — Do you need to get back on your feet because of credit card or other debt? Find some practical advice here.

The Entrepreneurial Spirit and the Economic Crunch — Looking to start your own business even though the economic outlook is still bland? Hear from some people who've done it about the positives and the pitfalls.

Breathing Easy on the Financial Rollercoaster — If you're struggling with money, stop and take a deep breath. Taking some time to reassess your situation will help you get out of it stronger and recover faster.

Dealing With Financial Drought: A Recovery Plan — When things get tough, it's easy to panic. Instead of panicking, though, make a plan and stick to it.

To FAFSA or Not to FAFSA — Looking at taking out student loans? Before you sign on to debt, here are some things to consider.

Feeling Poor: Things I Forget About that Don't Cost a Thing — When hard economic times hit, it's easy to feel like nothing's going your way. Remembering the things that are can give you the perspective you need to get back on track.

Written by Sarah Winfrey and published on Wise Bread. Read more Credit Cards articles from Wise Bread.

Can Your Spending Patterns Affect Your Credit?

Silicon Valley Blogger — Tue, 01 Dec 2009 17:07:07 +0000

I am one who prefers to use credit cards over cash for the convenience and ease of use of dealing with the plastic. Since I always pay my monthly bills in full, using credit cards has never been an issue for me. In fact, I'm always on the lookout for good credit card rewards programs and I readily take advantage of those 0% interest credit cards that allow me to take out free loans for a limited period of time. No worries since I always pay off my balances in full before the intro periods are up.

But regardless of how fiscally cautious and responsible you are as a credit card holder, you may still be curious to know just how much credit card companies know about you through your card use. The truth is, our card spending patterns provide information that is monitored by issuers; and this data has been used to affect our credit ratings.

This article from CreditCards.com is quite telling: credit card companies are interested in where we shop, how much we earn (which they may try to verify based on activity in our accounts), where we live, how much we normally spend per year and even what nationality we are. So it's not just how you pay your bills that goes on record, but also how and where you use your money. These companies keep their eye on how you shop, and use this data to determine your financial health. Certainly, they are mining a lot of our personal information for a variety of purposes. Here are a few of those reasons.

To know which products to market to you

I've been receiving a lot more telemarketing calls from my credit issuers lately and it's no doubt linked to what they know about me as a customer. This is nothing new though, as many retailers use the information they get about you to pitch more products your way. If you use sales and store catalogs, then you know what I mean!

To monitor your account for possible fraud

I've been contacted more than once for possible suspicious activity in my credit card accounts. This kind of free monitoring is something I appreciate from the credit card companies. At least they're putting their information gathering to good use this way.

To manage risk

Here's where a lot of consumers may feel a bit uncomfortable about the extent of tracking that their credit card companies are doing. The truth is, these companies watch your FICO score and credit report like a hawk to gauge your credit-worthiness. Even financial accounts you have at different institutions may be subject to scrutiny by credit companies and agencies such that any financial transactions you make may influence your credit rating. You may be paying your card bills on time but if you're late on your mortgage payment, watch out! That just may be grounds for your card rates to go up or for your credit limit to get cut. It's therefore important to check your credit score on a regular basis to keep abreast of what it is that is visible to lenders and credit watchers. You'll want to ensure that these reports are accurate.

To monitor information that may be used for law enforcement.

If need be, financial data may be used for legal situations and cases. Our financial records may be utilized and entered as potential evidence in disputes, reviews or investigations of any sort.

That said, I'm not at all surprised that our financial behaviors are easily monitored by those we go into business with. When you enter into a relationship with a financial institution such as a credit card company, bank or mortgage lender, you should assume that your data is being tracked to form your profile as a debtor or consumer. It's the tradeoff we make to become borrowers or customers of companies that offer us the privilege of being part of a financial system that helps us thrive and prosper in the material sense.

Can You Avoid Being Monitored?

While it may be concerning that banks and credit card companies are aware of just how and where you spend your bucks, the good thing is that there have been steps taken by the government to pursue reform and regulate the card industry further. The Credit CARD Act has been put together to address the "abuses" that have been rampant in the industry for some time now. By early next year, the full effect of this legislation will be in place and may hopefully make a dent on some of the undesirable practices that card companies have been imposing upon their customers, including unpredictable rate increases, unfair changes in credit limits, and unfavorable adjustments to terms and conditions.

While the government is pushing for change in this area, there are things that consumers can do to protect themselves from this kind of scrutiny, if they so choose. It's always our prerogative to limit the use of credit cards when participating in financial transactions. It's simple: if you use cash, there won't be any data to track. As it stands, this could be one more reason for why using cash-only rocks.

So are you at all surprised by how much your spending behavior can affect how your lenders and card companies are viewing you? The bottom line is that there are both good and bad implications for having "big brother" watch how you shop. Well nothing's for free. In this case, we give away some of our privacy for the convenience of using the plastic.

Written by Silicon Valley Blogger and published on Wise Bread. Read more articles from Wise Bread.

10 Tricks to Save Money with Credit Cards

Silicon Valley Blogger — Mon, 24 Aug 2009 14:11:37 +0000

The most credit savvy among us have been able to use credit cards to their benefit in order to wisely and optimally save money even while charging on their cards. If you are careful about how you use your credit cards, you may actually come out ahead by using them, rather than if you just stuck to cash. I've written about the perks of using cards before and why I prefer credit cards over cash, but this time, I'd like to share some actual strategies we can use to get the most out of our credit cards.

10 Tricks To Save Money Through Prudent Credit Card Use

1. Consolidate your credit card debt with care.
Many consumers use a common strategy to trim what they owe on their cards: they use balance transfer credit cards, which offer 0% or low APR on the balance that is moved over, but for a limited introductory period. Make sure you perform a cost benefit analysis before executing this plan since most cards these days have a balance transfer fee (typically around 3% of your debt) that you'll need to pay when you do the switch. You should also assess if you'll be able to pay off your debt entirely before the promotional 0% rate period is up, in order to avoid any increases in the card rate. If you can't make this work, it may still be worth doing a balance transfer if the new card carries a much lower APR than your old one.

2. Use rewards cards only if you can pay your balance in full.
I'm a huge fan of credit card rewards. But to offset the rewards that they pay out, rewards cards tend to have higher interest rates than regular credit cards. For instance, it would only make sense to earn American Express rewards if you intend to pay your balance in full each month, no fail. If you can't commit to such a schedule, then it's better to apply for lower interest cards.

3. Be careful about participating in credit card arbitrage schemes.
Because of today's more restrictive credit environment, it's now tougher for shrewd cardmembers to execute any money making schemes using credit cards. In the past, it was fairly easy to make money with cards by taking borrowed funds and funneling them into a high interest savings account that sported an attractive yield. With savings accounts no longer yielding such great returns and balance transfer cards with awesome terms now dwindling in number, this strategy is no longer as lucrative as it once was. There are still people who play this game though, but it's a game that requires top notch organizational skills since any misstep (say a forgotten or late payment) can cost you much more than you'd earn in this plan.

4. Pay more than the minimum and pay on time!
By simply practicing good payment habits, you'll avoid exorbitant finance charges and penalties levied upon your account. It's best to pay off any monthly balance in full, but if you can't swing it, then paying more than the minimum will save you quite a bit in interest over the long term. There are also certain credit cards that will reward you for this type of good behavior (check out my Citi Forward credit card review for more details).

5. Do your research before applying for a card.
Compare credit card offers before signing up for anything. Have you read the terms carefully? Based on your shopping habits, you'll find that there are certain credit cards that will suit your spending patterns better than others.

6. Don't own too many cards.
I'd avoid collecting rewards cards simply because owning too many may prevent you from optimizing your rewards on any one card. Also, having too many cards may just encourage you to charge more than you should and to overuse your credit.

7. Avoid relying on credit cards to cover an emergency.
Some people I know don't have emergency funds and end up relying on their collection of credit cards to bail them out whenever the need arises. However, with no savings, you're likely going to keep a balance on your credit card as soon as you use it for any unexpected expenses -- and keeping a balance means paying extra in interest. So keep in mind that while depending on your cards as backup is quite tempting to do, it will certainly be expensive in the long run if you charge up a storm.

8. Carry a spare credit card.
Here's a great compromise: if you are interested in taking advantage of rewards, you can still own a rewards card but use it only for those items that you'll be able to pay off completely each month. You may want to consider applying for a second card which should be of the low interest kind; this is the card that you can afford to own with a balance given its lower rates.

9. Talk to your card issuer about lowering your rate.
If you've got a good history as a cardmember, you may have some leverage here. When you've been a customer for a while, give your card company a call to discuss the possibility of cutting you a break on the rates. They're more amenable to this type of request than you think since card companies would love to hold on to their good clients.

10. Don't use your card for cash advances.
Avoid using any free checks that come your way that draw from your credit card account. And try not to use your card for any form of cash advance -- it's not worth what you'll pay for the convenience.

Written by Silicon Valley Blogger and published on Wise Bread. Read more articles from Wise Bread.

The Three Interest Rates

Philip Brewer — Tue, 04 Aug 2009 13:00:33 +0000

I got a notice from one of my credit cards a bit ago, announcing that they were raising the interest rate. It's only of theoretical interest to me, of course--I use credit cards for transactions, not to borrow money--but looking at the rate they're charging reminded me that there are really three interest rates.

Of course there are an infinity of different interest rates, but I find I think of them in three broad categories:

The rate you have to pay
The rate the big boys have to pay
The rate you can earn on your savings

These rates used to have a particular relationship to one another. (People used to talk about bankers following the 3-6-3 rule: Take deposits at 3%, make loans at 6%, and hit the golf course by 3 PM.) Things haven't been that way in a long time--and it really bugs me.

Rates you have to pay

The credit card I just got new rate terms for has a variable rate. I don't know what the old rate was, but the new rate will be prime plus 9.74%, which currently works out to 12.99%. That's better than a lot of credit cards, but it's still a terrible way to borrow money.

The banks, of course, claim that they need to charge these high rates to cover the costs of running a whole transaction system, and to make up for all the people who don't pay their loans off. Personally, I'd find that a lot more convincing if I didn't know that they covered the cost of the transaction system by charging the merchants transaction fees and if they didn't load up even higher rates (along with a bunch of fees) on everyone who began to look like they might default.

Still--it's a free market and all that. If you don't want to pay those interest rates, you're free not to borrow money. That's what I do.

Rates the big institutions pay

The news often reports the rates that big institutions pay. The prime rate used to be big, although it's become less important of late. The US treasury has to pay just a fraction over 3% to borrow for 10 years. The Fed Funds rate (the rate banks pay each other when they lend/borrow overnight) is around zero (0.17% on July 29th), down from over 5% before the economic crisis hit and the Fed hit the panic button. During the crisis the Fed has been making money available via a temporary program called the Term Auction Facility. They just lent out $82 billion for four weeks at 0.25%.

Understand: the Fed has done this on purpose. A big part of the reason things are like this is that after the big financial institutions trashed their balance sheets by lending huge amounts of money to people who would never be able to pay it back, it became necessary to recapitalize the banks. The Fed and the Treasury lent them billions to keep them together during the crisis, but the only hope for the banks ever paying that money back is for the banks to be hugely profitable.

If you could borrow at 0.25% and lend at 12.99% you could be hugely profitable too. Of course, that's not going to happen.

Rates you can earn

For a decade or two, back in the 1980s and 1990s, savers had a pretty sweet deal. Savings accounts, CDs, treasury paper, even savings bonds paid great rates. Through most of the 1980s it was possible for ordinary savers to get 5 percentage points over inflation. That gradually narrowed--through the 1990s the difference was down to about 2.5 percentage points, but it was still pretty sweet.

Then, in 2001, rates that savers could earn collapsed. From a very satisfactory after-inflation return of over 3% in 2000, rates fell almost to zero. In fact, the after-inflation return to savers has often been negative, starting in 2002.

The fraction of their income that American's saved collapsed to around zero in 2005 or so. There's plenty of blame to go around for that, but you have to figure that an absence of any real return on savings didn't help. Savings have spiked up now, because everyone is afraid, but they won't stay up if savers can't earn anything.

What to do?

First of all, unless you can borrow at 0.25% or so, don't borrow any money. That's the easy part.

There's really no solution for the way savers are getting screwed. Reported inflation is momentarily low, but that's about to change (once last fall's big declines in fuel prices drop out of the year-ago calculations). I'll be very interested to see if savers put up with negative real returns, once the reported inflation rate surges.

Until rates for savers move up, about all you can do is shop around for the best returns on savings accounts and CDs, and invest some of your money in non-financial investments (such as stocking your pantry with stuff you're going to use anyway, and putting cash into things like better insulation and weather stripping that'll pay a return in the form of reduced future expenses).

Written by Philip Brewer and published on Wise Bread. Read more articles from Wise Bread.

Personal or Business? Parameters for Choosing a Credit Card

Silicon Valley Blogger — Tue, 14 Jul 2009 17:00:03 +0000

We've all got our different reasons for making a particular product choice, and it's no different when it comes to shopping for a credit card. These days though, many people are probably just happy they're able to qualify for any credit card at all, given just how much stricter card companies are these days about signing up new customers.

So what is it that draws you to any one card? Some people are attracted to certain credit cards because of their design and appearance. But some are very practical and look at the bottom line: they check the interest rates, APR, card fees and other terms that come with the card. And in my particular case, I look at a couple of things: the rewards and the annual fees. Since I pay my credit card in full each month and don't carry a balance, I'm after maximizing cash back rewards and minimizing those annual fees and grace periods. The best cards for me are those with $0 annual fees with decent terms and sign up bonuses (free money, why not!) and for this reason, I am partial to Discover card rewards programs and American Express rewards cards.

Differences Between a Personal and Business Credit Card

Now the aforementioned parameters are some of the more obvious reasons for picking a card. But there's something else you may want to consider before you fill up that credit card application. If you own a business, and would like to enjoy the benefits of a business card, there are a few considerations you may want to be aware of. Some people may not be aware of the differences between business and personal credit cards, which I'd like to clear up. Here are a few tips to consider when making a decision between these different cards:

1. Your personal credit standing is still on the line with a business credit card.

What a lot of people don't realize is that if you're a small business owner, you can still be personally held liable for how you handle your business card. If the card company asks for your social security number to open a card account, then you know you're on the line for it, and you'll remain liable for how you manage this credit line. Thus, any late payments on a business card will affect your personal credit score. In fact, many people confuse a "small business credit card" with a "corporate credit card." With a corporate card, the main cardholder's personal credit won't be affected with its use; any defaults on such a card won't affect the business owner's personal credit. But note that corporate cards are only available to big business entities and that the criteria that defines such businesses varies by card company (e.g. A card company might declare that a big business enterprise must have at least 20 million in sales and at least 200 employees, for instance).

2. Compare the rewards of carrying a small business credit card with those from consumer cards.

There are certainly benefits to getting a business card; just not what you may automatically assume. As a small business owner you may want to have a separate card for your venture to make financial planning easier. Also, some vendors only take business cards exclusively. And finally, there may be much better rewards available to you that are pertinent to your business if you use such cards.

Here's a case in point: many rewards business cards pay you extra points or cash rebates for so-called "business related items" (like buying your stationery at Staples). If these are huge expenses for you, this is something to think about. Amex business cardholders receive benefits like getting 5% discounts from Hyatt hotels or Fedex. Discover small business cards offer 5% cash back on office supplies and 2% on gas. These are things to consider when you are doing your research.

3. Your card statements may be presented differently.

Unlike consumer credit cards, business credit cards tend to give cardholders a monthly breakdown of expenses in categories. For those who like this feature, this might be a reason to lean towards a "small business credit card." While many consumer card statements have this feature as well, they tend to give you an annual statement summary rather than a monthly one.

4. Watch out for additional fees for employees.

Beware of any extra fees that a card company charges for additional cards. Some cards won't charge you any fees. Some have no fee for the first few additional business cards. But certainly, do some proper research on this point. If you have just a couple of employees whom you want to give cards to, perhaps even a personal card will do.

5. Most travel rewards are the same.

By this, I mean that there's really no difference between the frequent flier miles perks for personal vs business cards. Whether you get a United Airlines personal or business card, you will still be earning the same United Mileage Plus Miles.

6. Some business cards report to Business Credit Bureaus.

If building a business credit score is important for you, ask if a credit card issuer reports to bureaus like Dun and Bradstreet. But bear in mind that whether or not they report to D & B, any default (or other problems) will also show up on your personal credit score and report.

7. Leverage 0% offers when it makes sense.

Many personal and business credit cards offer teaser 0% APR for purchases for some extended time (the introductory period). I wouldn't recommend that consumers go on a 0% financing spree on a plasma TV, but for a business, 0% financing for some start up costs may make sense and may provide some breathing room.

8. Find out whether vendors will accept American Express or Discover cards.

Visa and Mastercard are the most popular credit cards. But you may want to get an Amex or Discover card if you find it more appropriate for your business spending habits. But before you do that, check with your vendors to see if they accept these cards (some don't).

9. Ask the right questions before applying for a card.

Here are a few questions to ask in order to find out whether a business card is something you should get:

What kind of expenses do you plan to put on your card?

Does your business require travel?

Will your business carry a balance on the card (do you need lines of credit)?

How many employees should your card be distributed to?

What kind of cards will your vendors accept (will they take Discover or Amex)?
Can you get better trade terms from a vendor?

You should take into account these concerns even as you look at each card's general terms, such as interest rate, fees, grace period and rewards program. For those interested, here's a sampling of some of the best business credit cards out there today.

Written by Silicon Valley Blogger and published on Wise Bread. Read more articles from Wise Bread.

Can credit cards be used for good, or are they just evil? (Answer to Win $10!)

Linsey Knerl — Tue, 09 Jun 2009 17:32:16 +0000

We hear both sides of the argument all the time here at Wise Bread. Assuming that you think credit cards can be used responsibly, how would it be done? And for those who think credit cards are evil, why do you think so, and what do you use instead?

Credit cards are not one-size-fits all, and either is the average consumer. We'd love to hear your stories of credit card use: what you think, what you’ve learned, what you wish others could know. Do you have special rules for using credit cards responsibly? Would you swear them off completely if you could?

Share your thoughts on this provocative question, and be entered to win one of two $10 Amazon gift certificates. The randomly-selected, winning answers will be read live on Wednesday’s Living Large on a Small Budget Blog Talk Radio Show (where we will be discussing starting a small business with Season 4 Apprentice Winner Randal Pinkett)!

Those of you who aren’t familiar with the “drill,” read below for full details:

Win a $10 Amazon Gift Certificate

We're doing two giveaways -- one $10 Amazon gift certificate for a random comment, and another one for a random tweet.

How to Enter:

Post your answer in the comments below, or
Tweet your answer. Include "@wisebread" in your tweet so we'll see it and count it.

If you're inspired to write a whole blog post, please link to it in the comments or tweet it.

At the end of the drawing, we'll update this post to include (and link to) all of your helpful responses.

Giveaway Rules:

Contest ends Wednesday, June 10th at 7:59pm CST. Winners will be announced June 10th between 8:00 – 9:00 pm CST during our live Blog Talk Radio broadcast, and will be contacted at the conclusion of the broadcast (or you can call in live to claim your prize!)
You can enter both drawings -- once by leaving a comment and once by tweeting.
Only tweets with "@wisebread" will be entered. (Otherwise, we won't see it.)

Good luck!

For additional reading on both sides, see these articles:

Top Seven Reasons Why I use My Credit Card for Everything

10 Reasons Why I Prefer Credit Cards Over Cash

The Dirty Secrets of Credit Cards

Cash Vs. Credit? Which Side Are You On? (ManVsDebt via BargainBabe)

***We have our winners! Congrats to these winning entries! (Your prize is on the way!)

@The_Weakonomist 55% of credit card users carry a balance, 45% do not. So yes credit cards can be used responsibly http://bit.ly/9NIdl

Comment #70 - Credit Card Trade Offs, Submitted by Jim

The concept of credit card abuse is actually pretty simple: we tend to spend what we have.

Give someone a $1,000 tax refund and they will immediately find something to buy for $1,000.

Instead, why not write down what you want, starting with food and a place to live. Adjust your spending to your income and available resources.

This way you get what you really want and not something that you just buy because you have the money.

Written by Linsey Knerl and published on Wise Bread. Read more articles from Wise Bread.

Borrowers, lenders, and others--beware trusting the government

Philip Brewer — Thu, 28 May 2009 15:10:27 +0000

Having a prosperous country (as opposed to having merely a prosperous elite) depends fundamentally on the rule of law. The system can work adequately well with various sets of rules, as long as they're known in advance and fairly applied. During hard times, though, there's a strong temptation to ignore the rules in a search for a less-bad result. Both borrowers and lenders need to watch out.

There has always been a fault line between creditors and debtors. There are usually many more debtors, which tends to give that side a certain amount of power--especially in a democracy. On the other hand, the creditors usually have a lot more money, which gives that side a kind of power as well. These divisions play out over time, changing the rules to favor one side or the other.

Changing and fudging

As I said, you can achieve prosperity under a broad range of different sets of rules. (Respect for private property is important, but you can be prosperous even with zoning, taxes, and eminent domain. Free markets are important, but it is probably better yet to have the government enforcing accurate weights and measures.) You can even change the rules, as long as the changes are done carefully, with a due respect for deals struck under the old rules. What really hurts prosperity is ignoring the rules--playing fast-and-loose with the rules so as to get an appealing outcome.

Right now we're definitely seeing the rules being changed--and possibly seeing them being fudged as well.

One example of rule changing is the new credit-card law. Generally, I think the changes are good changes. (The key test is: does the change bring the rules closer to what they should have already been? I think the restrictions on how banks can raise rates on already-existing debt fall solidly into that category, as do rules requiring that banks send bills well before they're due and apply payments promptly.) Of course, when the rules are being changed in your favor, it can be tempting to see only the upside.

Rule fudging, on the other hand, is almost always bad. Just now there's some possible fudging going on in the government-led efforts to reorganize Chrysler and GM.

Now, I'm not even sure that the rules are being fudged. The long-standing rules for chapter 11 bankruptcy already included a bias in favor of preserving the enterprise--even secured creditors could be made to accept equity instead of getting to grab their collateral, if the judge decided that keeping the company going could eventually provide as much total return to creditors. I'm not a lawyer, and I'm not knowledgeable enough about bankruptcy law to know if those rules are being followed or not. (Legally, the issue seems to have to do with whether the employee trust created to take over the costs of retiree health care amounts to a separate entity that should have to stand in line with other creditors, or if money owed to it should be treated like other employee compensation. I can certainly seem both sides of that issue.)

Be aware

But whether the rules are being fudged in that case or not, it's important to be aware of several things:

First, there's always more rule-fudging during hard times. During good times there's a tendency to just go with the flow, even when the results seem to drop an especially heavy load on one person or another. People can rationalize that, "Yeah, he got the short end of the stick, but he'll just have to pick himself up and carry on." During bad times, though--when maybe he can't just carry on--there's a greater temptation to bend the rules to produce a less cruel outcome.
Second, don't assume that the rule changes will all go one way. Both sides have political power and any particular rule change can have complex effects. As recently as 2005 the creditor class had enough power to push through punitive changes to the bankruptcy law. Now the debtor class has enough power to push through changes to the credit card law. (But not, so far, enough power to push through bankruptcy law changes that would allow a bankruptcy judge to reduce the amount owed on a mortgage.)
Third, although it's good when changing the rules produces better rules, just getting the rules changed in your favor is no cause for celebration. Rule changing does harm in several ways, one of which is that greater uncertainty makes everyone a little more cautious--which means that loans are harder to get and interest rates are higher. Everyone guessing what sorts of fudging are likely acts to change things even if the rule fudging doesn't even happen. (For example, because the action around the automakers favors unionized workers, the market seems to be pushing up the interest rates for broad swath of other companies with unionized workers, in anticipation that their workers and lenders might get similar treatment.)

Rule changes don't have to involve creditors and debtors. Anybody whose success depends on government policies is at risk. As just one example, a few years ago, when everyone was in a tizzy about a shortage of landfill space, Illinois created a package of tax breaks for people who built incinerators for solid waste. The political winds quickly changed, though, and solid waste incinerators began seeming like a bad idea. So the state repealed the tax break, leaving many companies with half-built incinerators in the lurch.

Diversification

Analyze how you would be affected if the government changed any rules that you depend on. If one or a few simple rule changes could cost you big bucks, the safe thing to do is to change your position so that you're not so dependent on those specific rules.

Note that this is not the same as the most profitable choice! If you align your finances to take maximum advantage of some special rules, you can often make a bunch of money--it's just that you're screwed if the rules change faster than you can adjust.

Sometimes, that's a risk worth taking. After all, you can often get a feel for whether the rule is vulnerable to change by looking at how many voters depend on it. But it's just plain safer to spread things around, so that any one rule change won't affect you too drastically.

For example, although it makes good sense to tax-shelter some of your income in 401(k)s and IRAs, I advise saving some money outside these plans as well. Yes, you're paying taxes that you could have deferred, but those big pots of tax-deferred money are a perpetual temptation for the government. (There has been more than one proposal for a "one-time" tax on retirement accounts to fund some spending priority or another.)

A little diversification--together with a healthy distrust of the government--will do a lot to keep you safe.

Written by Philip Brewer and published on Wise Bread. Read more articles from Wise Bread.

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5 Best Travel Reward Credit Cards

Choosing The Five Best Travel Rewards Credit Cards

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Security Breach Puts 50,000 Credit Card Holders at Risk

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Decoding The New Tax Rules For Merchants

6 Ways My Family Scores Free Travel With Credit Cards

How do we do it?

1. Take Advantage of Frequent Flier Mile Promotions

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Can Your Spending Patterns Affect Your Credit?

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Can You Avoid Being Monitored?

10 Tricks to Save Money with Credit Cards

10 Tricks To Save Money Through Prudent Credit Card Use

The Three Interest Rates

Rates you have to pay

Rates the big institutions pay

Rates you can earn

What to do?

Personal or Business? Parameters for Choosing a Credit Card

Differences Between a Personal and Business Credit Card

Can credit cards be used for good, or are they just evil? (Answer to Win $10!)

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How to Enter:

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Borrowers, lenders, and others--beware trusting the government

Changing and fudging

Be aware

Diversification