THE CREDIT COUNSELING PROFESSIONALS. AMERICAN CONSUMER CREDIT COUNSELING INC., 130 Rumford Avenue, Suite 202 Newton, MA

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2 AMERICAN CONSUMER CREDIT COUNSELING THE CREDIT COUNSELING PROFESSIONALS AMERICAN CONSUMER CREDIT COUNSELING INC., 130 Rumford Avenue, Suite 202 Newton, MA

3 Table of Contents Section 1: Household Budgeting Information...1 Introduction To Household Budgets...2 Consumer Spending Statistics...5 Section 2: Budgeting and Planning Tips...7 Valuable Tips to Save Money...8 Savings Strategies and Planning Goals...21 Tax Planning Tips...23 How to Check out a Company...24 Valuable Books to Read...24 Section 3: Information About Credit Cards...25 What is a Credit Card?...26 Qualifying for a Credit Card...29 What are the Costs Associated with Credit Cards?...30 Other Features of Credit Cards...31 How Many Credit Cards do you need?...32 Card Holder Protections...33 Kinds of Credit Accounts...34 Credit Cards...What to do if They re Lost or Stolen...34 Credit Card Blocking...35 Beware of Gold and Platinum Card Offers...35 Ten Tips to Save Yourself from Credit Card Fraud...36 Section 4: Information on Electronic Banking...39 Introduction to Electronic Banking...40 Electronic Fund Transfers...40 Electronic Fund Transfers Disclosures...41 Electronic Fund Transfers Errors...42 How to Deal with Lost or Stolen EFT Cards...42 Limited Stop-Payment Privileges...43 Other Rights on EFT...43 Tips on EFT...43 Electronic Check Conversion...44 Guide to Online Payments...44 Where to File EFT Complaints...46

4 A Personal Message From The Authors... If you re looking to create a brighter tomorrow for yourself and your family, it s time to further your financial knowledge by reading this book. Our mission is to arm you with the educational tools to improve your money management skills. This book will provide you with valuable information about financial assistance programs for students, choosing a lender, your responsibilities as a borrower, federal assistance and much more. We encourage you, your family and friends to read this entire book. Doing so will expand your financial knowledge and empower you to succeed in regaining contol of your personal and financial future. We wish you luck and much success! Third Edition - Rev Copyright 1999 Debt Alliance Service, LLC Disclosure Statement: The authors of this publication provide general information, not legal or accounting advice. These materials have been developed to teach, educate, and help individuals understand household budgets, credit cards and electronic banking. Always consult with your own fi nancial, tax or legal advisor when dealing with savings or investments.

5 Household Budgeting Information SECTION 1

6 SECTION 1 Household Budgeting Information Introduction To Household Budgets Most consumers in the United States have trouble paying their everyday household bills, not because they don t have the money, but due to improper budgeting of their money. Every day, thousands of consumers face financial crises at some point in their lives. Financial crises can be caused from personal illness, family illness, loss of job, death in family, or, the most common, overspending. We live in a society that has taught us to buy now, pay later. This method has caused consumers to overspend and allowed them to become knee-deep in debt. Consumers need to take control of their spending and realize that their financial situation can be overcome with proper planning and budgeting. The first step that a consumer should take is to prepare a household budget, which will identify these two areas: How much money (income) they deposit into their bank every week, every two weeks or a month; and How much money they spend on living expenses each month The goal in a household budget is to make sure that your monthly living expenses do not exceed your monthly income. 1. What is a household budget? A household budget is a spreadsheet that shows you the flow of money in your everyday life. A budget can help you determine where you are overspending as well as help you adjust bad spending habits. A budget is comprised of three areas: Net Income Means your salary, wages, child or alimony support, social security, pension, investment earning, etc. Net income is the amount you bring home after deductions (such as taxes, insurance, pension contributions). Net income is used to maintain a household budget, which pays all your living expenses in your everyday life. Living Expenses Means your house or rent payment, food, utilities, insurance (auto, life & health), education, auto payments, gasoline, credit cards, loans, entertainment, etc. Savings This is the amount of money that is left when you take your monthly net income minus your monthly living expenses. As a general rule of thumb, you should be saving 10% of your income each month into a bank account or other investment vehicle. 2. What is cash flow? When you prepare a household budget you can predict monthly net income and monthly living expenses. When you minus monthly living expenses from monthly net income, you can monitor your cash flow. Understanding your cash flow will allow you to have disposable net income each month for savings, vacations, gifts, etc. 3. What is disposable net income? Disposable net income is the amount of money that you are left with after you pay all your monthly living expenses from your monthly net income. Most consumers have a deficit each month instead of disposable net income. 2

7 SECTION 1 Household Budgeting Information 4. What is a deficit? A deficit is where your monthly living expenses amount to more than your monthly net income. Many consumers use their future paycheck to pay for past-due bills and living expenses. Sticking to a well-planned household budget can help you avoid a deficit. 5. What is the best way to keep track of my spending? The most common and simplest way to track spending is to take a piece of paper (or use a computer) and write down all your monthly living expenses and other monthly bills. Based on your monthly net income, you should set target amounts per month for living expenses (such as $200 for food, $100 for entertainment, etc.). By setting target amounts, you can monitor each month where you are overspending. Overspending leads to financial problems. 6. How do I figure out what my living expenses are each month? You can start by listing all of your fixed expenses each month (such as housing, auto, insurance, food, etc.) as well as non-fixed expenses (entertainment, personal care, auto repairs, medical, travel, etc.). The best way to predict your non-fixed expenses is to look at your check register for the past six months. This will give you a rough idea where to set target amounts for non-fixed expenses. 7. How much money should I be saving each month? Consumers should discipline themselves to save a minimum of 10% of their monthly net income. If you can save more, we encourage you. This savings should be put into a separate bank account from the account you pay bills from. Keep in mind that banks make it very easy to access your money through ATM machines. This savings account should not be tied to your ATM card. 8. How much money should I have for an emergency? You never know when an emergency will strike (loss of job, death in family, new car, etc.). It is always recommended that you plan for an emergency. The most common emergency that may occur in your life is a loss of job. As a rule of thumb you should open an emergency fund account at your bank and you should set aside two times your monthly living expenses. Meaning, if your monthly living expenses are $1,500 a month, you need to have $3,000 saved in your emergency fund account. 9. Is it good to keep all my money in a checking account? No. Checking accounts should only be used to pay monthly living expenses and other bills as they become due. It is recommended that you set up several accounts for different uses of your money. Here are some of the accounts that you might consider setting up: Personal Checking Account This account should be used to pay all monthly living expenses and other household bills. You should always deposit all your net income checks into this account and transfer to other accounts as needed. Entertainment Fund Account Each month, as you receive your net income check(s), you should transfer your target amount that you allocated for your entertainment into this account. The main reason for this is so you don t overspend your entertainment amount. If you know that there is only a certain number of dollars in your account, you will adjust your spending and your lifestyle. 3

8 SECTION 1 Household Budgeting Information Money Market Savings Account Each month as you receive your net income check(s), you should transfer a minimum of 10% of that income into this savings account. This money can be for a down payment of a home, fund an education, pay for a wedding, purchase a new car or pay for a vacation. Whatever it may be, you can rest assured that each month you are building a nest egg for the future. Emergency Fund Account If possible, each month you should put a portion (five percent) of your net income into this account. An emergency can strike at any time. You and your family need to be prepared in that event. Also, in this account you should deposit monthly payments for bills that are paid quarterly, bi-annually or annually (such as car registration, insurance, property taxes, etc.). By putting money away each month you will keep current when bills are due and you won t be stressing out at the last minute wondering how you plan to pay the bill. NOTE: All these accounts listed above can be set up at any major bank. Ask your bank representative for details. 10. How can I control my spending and budget? First, you need to control your emotion and impulse that stimulates your desire to spend money. Second, you should keep close track of what you spend every day. Ask yourself, What can I realistically do without? Maybe I should bring my lunch instead of eating out. You should start looking at your budget and see if you can cut costs on your fixed monthly living expenses. In addition, you should always be able to cut back on personal care, hobbies and entertainment. Don t stop completely, just cut back. This alone should increase your monthly cash flow. 11. I am always behind in bills. How can I fix it? Control your budget and it will control your spending. By controlling spending you can budget enough money to pay all your bills. As we indicated earlier you need to set target amounts for each monthly living expense. You must have the discipline to pay fixed monthly living expenses before non-fixed expenses. Personal care, hobbies and entertainment should be last on your budget after all fixed monthly living expenses are paid. If you can live by this method, you should never play the catch-up game again. In some cases, it might be wise to obtain a second job (part-time) in order to fix your problem. 12. I m addicted to credit cards. How can I control them? First, you need to remove all your credit cards except your ATM card from your wallet and lock them up in a safe place. You need to remove the temptation of buy now, pay later. You should create a spreadsheet of all your cards, balances owed, and interest rates. You should start paying down the highest interest rate card first. As a rule of thumb, take the minimum payment on the card and add it to the finance charge and that should be your fixed minimum payment each month until the balance is paid in full. Make sure that you make only the minimum payment on the rest of the cards. If you can pay more, that s great. Once you have paid the highest card off, repeat the process on the next card and so on. Note: Make sure that you do not incur late fees. This will only extend your payoff time. If you do not have the discipline to control your credit cards, you should consider a credit counseling program. 13. What is revolving debt? Anyone or any business who grants you credit and allows you to carry a balance each month is considered to have extended you revolving debt. Credit cards, and department store cards are considered revolving debts. 14. What is the difference between interest and finance charge? Most revolving debts like credit cards have a fixed interest rate such as 15.9%. The interest rate and unpaid revolving balance is used to calculate your finance charge. The finance charge is the creditor s profit margin that is added to your unpaid revolving balance each month. 4

9 SECTION 1 Household Budgeting Information Consumer Spending Statistics U.S. Department of Labor, Consumer Expenditure Survey, , May 2001, Report 949 The Department of Labor has put this chart together so you can review where consumers spend their money each year. This chart below is based on 100% of a consumer s monthly income. 5

10 NOTES: 6

11 Budgeting and Planning Tips SECTION 2

12 SECTION 2 Budgeting and Planning Tips 1. TRANSPORTATION Valuable Tips to Save Money Airline Fares: Tip 1 To obtain the lowest price on a round-trip airfare ticket, you should always, 1) stay over on a Saturday night, 2) purchase the ticket at least two weeks in advance. This information could save you as much as two-thirds on the ticket price. Tip 2 Shop around. After obtaining the lowest prices on the Internet, call a travel agent, then call the airlines direct and ask for the lowest airfare to your destination. Tip 3 Direct flights are usually more expensive than fights that have stopover connecting flights. You could save as much as 50% off the ticket price by obtaining airfare that has a stopover connecting flight. Car Rental: Tip 1 You should call the different car rental companies since rates can vary. When shopping around, ask if there are any additional charges (gas, insurance, mileage, etc.) besides the basic rental rate. Tip 2 Rental car insurance can add up to be quite expensive if you are renting a car for several weeks. Check with your automobile insurance company and see if your insurance policy covers what the car rental insurance covers. If so, you can save money and avoid duplicating any coverage you may already have. Purchasing a New Car: Tip 1 The first step in purchasing a new car is to select a car that has a low purchase price combined with low financing. Second, make sure that the car gets good gas mileage and has low maintenance upkeep. By selecting a car with all these guidelines you will save hundreds of dollars in insurance. Tip 2 Shop around. Some dealerships have a larger inventory than others, which means they are a volume dealership. Volume dealerships need to make sales quotas each month. They will usually sell a car for $300 to $500 over factory invoice. Tip 3 Terms to remember. Car dealerships usually have specific terms that you should learn when negotiating a purchase of a new car. Here are some of the terms to remember: Invoice Price is the manufacturer s initial charge to the dealership. This price is set high from the manufacturer to the dealership because the manufacturer offers rebates, allowances, discounts, and incentive awards. Also the invoice price includes destination and delivery from the manufacturer to the dealership. Note: Since destination and delivery is already added, make sure that the dealership doesn t add it again to the sales contract. 8

13 SECTION 2 Budgeting and Planning Tips Base Price is the cost of the car without manufacturer or dealership options. Base price will include all standard equipment and warranty from the manufacturer. This base price information is printed on the Monroney sticker. Monroney Sticker Price (MSRP) will show the base price, installed options from the manufacturer, manufacturer s suggested retail price, manufacturer s transportation charge, and the gas mileage per gallon. This Monroney Sticker Price is required by federal law to be stuck to the car window and can only be removed by the purchaser. Dealer Sticker Price is another sticker in addition to the Monroney Sticker Price, which outlines any options installed by the dealership, dealership preparation, undercoating, and lastly, the dealership markup (profit). Tip 4 Financing. We live in a world where dealerships and banks unite and make it easy to purchase a car the same day at the dealership. Dealerships usually have a dozen or more lenders to offer a consumer, depending on the consumer s credit history. The best financing usually comes from the manufacturer directly. Other affordable financing can be obtained from credit unions, and in some cases, your bank. When negotiating to finance a new car, you should consider these areas: The monthly payment, the length of the loan, and the APR on the loan. Keep in mind that the total amount you pay on the car depends on the price you negotiate, the APR, and the length of the loan. Tip 5 Credit insurance. This type of insurance is not required when purchasing a car. This insurance will usually pay off your loan in the event of death or disability. This insurance can be very costly over time. In some cases, it may be cheaper to obtain a large ($100,000) term life insurance policy. Consider the overall cost to your loan before you purchase it. Tip 6 Auto service contracts. A service contract is a promise to perform certain repairs or services. Service contracts are also known as an extended warranty. A service contract is not a warranty. A warranty only comes from the manufacturer and is included with the purchase of your car. Service contracts will always cost you extra above the manufacturer s warranty. NOTE: Before purchasing a service contract, make sure your read it carefully and understand what it covers in addition to the manufacturer s warranty, how long the contract last, who performs the repairs under the contract, and what is the policy for cancellation and refund. Tip 7 Trade-ins. If you have a used car to trade in, you should first negotiate the price on the new car and then tell the salesman about your trade-in. Make sure that you research the value of your used trade-in before entering the dealership. Check with your bank, credit union, or local library for trade-in value. Tip 8 Cooling off period. This means that when you sign a contract to purchase a new car, you are obligated to that car and you own it. Make sure that this is the car you want. 9

14 SECTION 2 Budgeting and Planning Tips Purchasing a Used Car: Tip 1 Before making an offer on a used car, make sure to compare the asking price with the retail price in a Kelly Blue Book, which can be obtained at most banks, credit unions, libraries, or on the Internet at Tip 2 Always have a certified mechanic inspect the used car. Make sure that your mechanic is knowledgeable with the make and model of the used car. Check the papers on the car, and make sure that it is not a salvaged car. Tip 3 When purchasing a used car it is recommended that you purchase from a well-known dealership that has been in business for several years and is well established in your community. Dealerships must disclose warranties, if any, as well as problems whereas a private party may not. Tip 4 Warranty protection. When shopping for a used car, make sure that you review the Buyer s Guide sticker posted on the car s side window. Federal Trade Commission (FTC) requires that all dealerships selling used cars must post this sticker. This sticker will outline if there is a service contract available or a warranty. Here are the different warranty options for you to look for: Auto Leasing: Warranty. If the manufacturer s warranty is still in effect on that used car, the dealership may have you pay a fee to obtain the coverage, making it a service contract. If the dealership absorbs the cost of the manufacturer s fee, the coverage is considered a warranty. This is what you want. Implied Warranties Only. Implied warranties are unwritten and based on the principal that the dealership stands behind the car. Under a warranty of merchantability, the dealership promises the car will do what it is supposed to do. For example, a car must run. If the car doesn t run, implied warranty law says that the dealership must fix it (unless it is sold as is). All used cars are usually covered by implied warranties under state law. As Is No Warranty. These cars are sold as is whether they run or not. If it breaks down, you must pay for all the repairs, not the dealership. NOTE: It is highly recommended that you purchase a dealer service contract within 90 days of buying the used car. This will give you some additional rights under state law implied warranties. Most states prohibit as is sales on most or all used cars. Check with your local state consumer protection office or attorney general for information about state laws on used cars. Tip 1 Most consumers lease cars because of the low monthly payment. Leasing is not always the best way to pay for a car. If you drive a lot, either locally or long distance, a lease is not for you. Leasing is good for people that drive short distances locally. Tip 2 Leasing a car can be very complicated. Here is an inside view on costs associated with vehicle leasing. 10

15 SECTION 2 Budgeting and Planning Tips Gasoline: The beginning of a lease. At the beginning of a lease, you may have to pay the dealer in advance your first monthly payment, a refundable security deposit, and, in some cases, your last monthly payment. In addition, you will pay other fees such as licensing, registration, title, a capitalized cost reduction (know as a down payment), an acquisition fee, freight or destination charges, and state or local taxes. The beginning cost in a lease could add up to thousands of dollars. During the lease. Once you sign the lease contract, you will be responsible to make the monthly payments and any additional sales or personal property taxes that were not included in your monthly payment. In addition to your monthly payment, you will have to pay insurance premiums, ongoing maintenance costs, inspection costs, any traffic tickets, and any fees for late payments. If you turn in your lease before it is up, you will pay a large early termination fee. This fee could be thousands of dollars. The end of the lease. Assuming that you have made all the required monthly payments, you may have to pay additional costs when turning in your car, a disposition fee, and charges for excess miles and excess wear and tear. The other option to eliminating these fees and charges is to purchase the leased vehicle out right. Tip 3 Your rights under vehicle leasing. When you lease a vehicle, you have certain rights. You can use the vehicle for a number of months and drive it a number of miles You can turn in the vehicle at the end of the lease and walk away. You may owe some end-of-lease fees and charges, depending on the miles You have the right to purchase the vehicle during and at the end of the lease You have the right to any warranties, recalls, or other services that apply to the vehicle Tip 4 You should understand the difference between leasing a car and buying a car. You can contact the Federal Reserve System, Mail Stop 127, Washington, DC for a brochure entitled: Keys to Vehicle Leasing A Consumer Guide. You can also go to their website at for information. Tip 1 Most gas stations have three octane grades to choose from; Regular (87 octane), mid-grade (89 octane), and premium (92 to 93 octane). Choose the right octane for your car. Check your owner s manual to see what octane your engine needs. Don t buy higher octane gas if your car doesn t require it. Higher octane, if not needed, offers absolutely no benefit. Higher octane can cost 15 to 20 cents per gallon more than regular octane. You could save hundreds of dollars a year by reading your owner s manual and using the recommended octane. Tip 2 You should shop around and compare the different prices of gasoline at different stations. You could save hundreds of dollars a year by shopping around, using and paying the self-serve prices instead of full-serve prices. 11

16 SECTION 2 Budgeting and Planning Tips Tip 3 Keeping your vehicle s engine tuned up every 3,000 miles and keeping your tires balanced and inflated with the proper pressure can improve fuel efficiency, which could save you up to $100 a year on gas. Car Repairs: 2. TRAVEL Tip 1 Each year consumers lose billions of dollars in unneeded or poorly done car repairs. To save money on car repairs, you should shop around and ask for referrals to locate an honest and skilled auto repair company that specializes in your make and model. Make sure that the car repair company you choose meets these criteria: Make sure they are certified and well established in your community Has done good work for someone you know. Don t be afraid to ask for referrals Gives you different repair options and cost Before you leave: Tip 1 Whether you plan to take a road trip or fly to a destination, you need to prepare a basic checklist to safeguard your home while away and to make your trip go smoothly. Here is a basic list to follow: Stop your mail. Have your post office hold your mail until you come home from your trip. Stop your newspaper delivery until you come home. Turn your water heater down to the lowest settings. Install light timers inside your home to automatically turn lights on and off. This will give a presence that someone is home. Do not change your answering machine message. You do not want to alert people that you are out of town. Road trip: You should plan out your trip route on a map, make sure your automobile as been taken in for service; make sure to pack a first aid kit, emergency road kit, cell phone and charger; food, water and supplies. Airline flight: Make sure to carry on the plane some basic items such as aspirin, upset stomach medicine, diarrhea medicine, cold medicine, bottled water, reading material, and snacks. If traveling with children, it might be a good idea to bring hand electronic games, CD players, laptop computer, etc., to keep the children busy. 12

17 SECTION 2 Budgeting and Planning Tips While on your trip: Tip 1 While on your trip, you should have the following items with you at all times, in your wallet, purse, fanny-pack, or backpack: 3. INSURANCE Driver s license Health and auto insurance cards A major credit card (Visa or MasterCard) Traveler s checks and receipts Airline, cruise, or train tickets Travel itinerary with confirmation number, addresses, and phone number of where you ll be staying Travel brochures and maps Eyeglass prescription Medications and prescriptions Name and phone number of contact person in case of emergency Auto Insurance: Tip 1 Purchasing auto insurance from a licensed low-price insurer could save you hundreds of dollars a year. We recommend that you call your state insurance department for a publication list showing the different auto insurance rates for the different auto insurance companies. Once you receive the list, you should call at least five of the lowest-price licensed companies to see what they would charge for the same coverage. Tip 2 If you have several cars, a trailer or a motor home, it would be wise to combine all vehicles with one auto insurance carrier. By combining vehicles, you will get a multi-vehicle discount, which could save you hundreds of dollars a year. In addition, you can even reduce your multi-vehicle discount premium by combining your vehicles with a homeowner policy and life insurance policy with the same carrier. Companies like State Farm, All State, and Farmers Insurance are well-known insurance companies that can help you. Tip 3 To keep your auto insurance cost down, we recommend that you purchase an inexpensive vehicle rather than an expensive, high-performance car. High-performance cars are fun to drive, but they are costly in gas, repairs, and the insurance premiums can be two to three times higher than an inexpensive car. Tip 4 When purchasing a new or used vehicle, you could save five to ten percent off your auto insurance premium by installing an approved alarm system. Tip 5 Another way to save hundreds of dollars a year is to call your auto insurance agent or insurance carrier and tell them that you want to increase your deductibles on collision and comprehensive coverages to $500 or, if you have an old car, drop these coverages altogether. Tip 6 Maintaining a good driving record could reduce your auto insurance premium. If you have traffic tickets, you could get a lower insurance rate by maintaining a clean record for 36 months from the date of your traffic ticket. 13

18 SECTION 2 Budgeting and Planning Tips Tip 7 Teenage drivers. If your teenage child maintains a good academic record, you could qualify for a discount. Also, you can add your teenage driver to your policy as an occasional driver of your least expensive car. Make sure that your teenage driver only drives that car. Tip 8 Important note: Don t ever drop your old coverage until your new policy is in effect. Speak to your auto agent or insurance carrier. Homeowner/Rental Insurance: Tip 1 Purchasing homeowner insurance from a licensed low-price insurer could save you hundreds of dollars a year and up to $50 a year on rental insurance. We recommend that you call your state insurance department for a publication list showing the different licensed insurance companies. Once you receive the list, you should call at least four of the lowest-price licensed companies to see what they would charge for the same coverage. Tip 2 When purchasing either homeowners or rental insurance, make sure to purchase enough insurance to replace the house and its contents. Replacement on the house means rebuilding it to its current condition. Tip 3 Important note: Don t ever drop your old coverage until your new policy is in effect. Speak to your agent or insurance carrier. Life Insurance: Tip 1 If you are looking to protect yourself and your home and not interested in savings and investments, you should buy level term insurance, 5, 10, 15, or 20-year level. Any licensed insurance agent can sell you this product. Make sure that you ask the agent to present at least five different life insurance carriers, their rates and coverage terms. Tip 2 If you own or plan to purchase a whole life, universal life or other cash value insurance policy, we recommend that you keep the policy in force for at least 15 years. If you terminate these cash value insurance policies after only a few years your life insurance cost could double. 4. BANKING & CREDIT Checking Accounts: Tip 1 Selecting the right checking account with low or no minimum balance requirements can save you more than $100 a year in bank fees. When comparing banks, make sure to ask for a list of monthly and yearly charges on their checking accounts. Tip 2 Direct deposit. Most banks and credit unions will lower or waive checking account fees if you have your paychecks deposited directly into your checking account by your employer. This method is convenient and allows you to have immediate access to your money, a great plus for you. 14

19 SECTION 2 Budgeting and Planning Tips Savings and Investment Accounts: Tip 1 There are several different accounts with little or no risk available to you for saving money: Regular savings, money market savings, certificate of deposit (CDs), treasury bills, or notes and bonds. These different accounts are available at most banks and credit unions. Tip 2 The most important question to ask your bank or credit union is, Are my savings and investment accounts insured by the federal government (FDIC or NCUA)? Some investment accounts are not insured, such as mutual funds and annuities. Be smart and protect your money. Tip 3 Within a bank or credit union, certificate of deposits (CDs) and treasury bills or notes will give you the highest return on your money with little or no risk. Tip 4 Before depositing your hard-earned money into a savings or investment account with a bank or credit union, compare interest rates and bank fees on those accounts. Some accounts over time can drain your account with high fees and charges ultimately affecting your interest earning. Credit Cards: Tip 1 If you can afford to pay off your entire credit card balance each month, you could save hundreds, even thousands, of dollars in interest charges. Tip 2 If you carry a balance on your credit cards, as a rule of thumb to help you power down your balance, you should take the minimum payment called for on your statement and add it to the current finance charge and make that your new minimum payment. By doing so, you are paying the creditor their finance charge (satisfying their profit) and the rest will be applied to the principal balance. This will get you out of debt quickly. Tip 3 If you carry a balance on your credit cards, it might be wise to balance transfer your high interest cards onto a low interest card. This could save you thousands of dollars in interest charges. For a list of low interest credit cards, you can contact RAM Research Corp. (for a small fee) at or you can access their website at Auto Loans: Tip 1 If you have significant savings earning a low interest rate, consider making a large down payment or even paying for the car in cash. This could save you several thousands of dollars in finance charges. Tip 2 Shopping for an auto loan could save you hundreds of dollars in finance charges. You should contact several banks, credit unions and the auto manufacturer s own finance company. First Mortgage Loans: Tip 1 By securing a shorter-term mortgage, you could save tens of thousands of dollars in interest charges. Remember, however, shorter-term mortgage will have a higher monthly payment than a longer-term mortgage. For example: If you have a $100,000 mortgage loan with an eight percent fixed annual interest rate, you will save around $90,000 in interest on a 15-year mortgage loan than on a 30-year mortgage loan. If you can afford it, a shorter-term mortgage is the better choice. 15

20 SECTION 2 Budgeting and Planning Tips Tip 2 You should shop around for the lowest interest rate mortgage loan with the fewest points being added. For example: If you lower a 15-year fixed $100,000 mortgage loan to eight percent interest, you could save more than $5,000 in interest charges. On this same $100,000 mortgage loan, if you pay two points instead of three points, you could save an additional $1,000. Just by shopping around you could save thousands in interest charges and points. Tip 3 When shopping around for a low interest rate mortgage, you should call at least five established mortgage lenders for rates, points, and fees. Take this information and ask your accountant or CPA to compute the different mortgage options and their tax implications to you. Tip 4 If you are considering an adjustable rate mortgage loan, you need to be aware that the interest rate can vary greatly over the life of the loan, causing your monthly payment to increase or decrease by hundreds of dollars. Mortgage Refinancing: Tip 1 You should only consider refinancing your first mortgage if you can lock in a new mortgage that is at least one percentage point lower than your existing mortgage rate. Speak to your accountant or CPA for advice. Home Equity Loans: 5. HOUSING: Tip 1 Home equity loans reduce your equity that you have built up in your home. If you can t afford to pay the home equity loan, you could lose your home. Don t ever risk your family home. A family home is your foundation in life. It s the American dream to own a home. Don t lose that dream. Think before you act. Tip 2 If you have decided that a home equity loan is best for you then you, should call at least four banks and other lenders and obtain their rates, points, closing costs, and other fees associated with an equity loan. Home Purchase: Tip 1 Purchasing a home will be the biggest decision in your financial life. You should seek advice and help from a qualified mortgage broker who works for you, not the seller. You should ask the broker if they are showing you a property that they have listed. If so, you should consider another broker, avoiding any conflict of interest. Tip 2 If you are purchasing a pre-owned home, you should hire a certified home inspector or inspection company to examine the property before you consider making an offer on it. 16

21 SECTION 2 Budgeting and Planning Tips Renting: Tip 1 When locating an apartment, condo, or house to rent, you should not only look in the newspaper classified ads, but you should drive through areas where you would like to live as well as ask for referrals from friends and family. Tip 2 When signing a lease agreement to rent an apartment, condo, or house, make sure that you plan to live there for at least six months to a year. If you want a better monthly payment rate, you will most likely have to sign a six-month or a one-year lease. If you only want a month-to-month rental agreement, then you should plan on paying a higher monthly payment. Home Improvement: 6. UTILITIES: Electricity: Tip 1 If you are considering any type of home improvements to your residence, you should only hire well-established licensed contractors that specialize in that home improvement. You could save thousands of dollars by using several contractors instead of one. Make sure that you obtain a written and signed estimate from each contractor and a written date of job completion. Tip 2 Never sign a contract that requires payment in full or pay a contractor in full before the work is done. You should work out a payment schedule as work is completed. Also, save the last payment until the job is complete to your satisfaction. Tip 1 You can save hundreds of dollars a year by replacing or purchasing new appliances, air conditioners and furnaces that are energy efficient. Energy efficiency information is usually located on the Energy Guide label on the major appliance. This label is required by federal law. Tip 2 Most utility companies have load management and off-hour rate programs that you can enroll in. These programs through your utility company could save you up to $100 a year in costs. Contact your electricity company for more information. Home Heating: Tip 1 You can request an energy audit on your home heating and air conditioning. This audit could identify ways for you to save hundreds of dollars a year. Most audits are free. Call your local electric company for more information. If your electric company does not perform audits, ask them for a company that does. Tip 2 You should check your attic, attic stairway, attached garage walls, and basement to make sure that your home is properly insulated to the Department of Energy recommended levels in your area. Call your utility company and see if they can help you determine if your home meets the recommended levels. Tip 3 You should consider wrapping your hot water heater with an insulating jacket. 17

22 SECTION 2 Budgeting and Planning Tips Tip 4 Call your utility company and ask them if they can inspect your heat pump, furnace, or boiler to make sure it is working properly. Tip 5 Call a heating and air conditioning company to make sure that your air ducts are cleaned, sealed, and insulated. By doing this, you will ensure that the airflow distribution system serving your heating equipment is operating at its peak for efficiency. Tip 6 On forced air furnaces, make sure to clean them or replace them if needed. Winterizing Your Home: Tip 1 On windows and doors, make sure to have them sealed with caulking and weather stripping. Air leaks can affect your efficiency, allowing heat to escape, which could increase your heating bill. Tip 2 Check your chimney. If you haven t used your fireplace in a while, it s a good idea to have it checked for animals, debris, and leaves. You should consider installing a screen over your chimney opening. Tip 3 Clean your gutters and ridge vents. If gutters are clogged, rainwater will back up. If water backs up and the temperature drops below freezing the water will freeze and may cause the gutters to expand and crack. Tip 4 Check the batteries in your smoke alarm detectors. Make sure that they are in working order. If your smoke alarm beeps, you may need to change the battery. Make sure that the light on your smoke alarm is on. Most smoke alarms have a button that you can push to test the alarm. Local Telephone Service: Tip 1 Call your local phone company and ask them which phone plan can save you the most money, a flat rate or measured service plan. Tip 2 If possible, you should always purchase your home telephones instead of leasing them. Tip 3 Check your phone bill each month for out-of-the-ordinary calls and phone call minutes. Also, check your bill and see what service options are being charged to your account. In most cases there will be options that you can eliminate. By eliminating unneeded options, you could save $40 or more a year. Long Distance Telephone Service: Tip 1 Try to make your long distance calls on a weekday rather then during evenings, or on weekends. The cost should be less for weekday calls. Tip 2 You should consider subscribing to a calling plan if you consistently make long distance calls. Try to shop around for the cheapest plan for the long distance calls you make. Tip 3 Long distance calls can cost you an extra $6.00 if you use an operator to assist you. When possible, dial your long distance calls direct without an operator. 18

23 SECTION 2 Budgeting and Planning Tips 7. SHOPPING: Food: Tip 1 Whenever possible, you should shop at lower-priced food stores instead of convenience stores. Convenience stores usually charge higher prices. Tip 2 When shopping, always shop by a list, not by impulse. When you stick to list, you can control your budgeting and spending. A list will help you spend less. If possible, try to avoid shopping with children. Children want snacks and toys, and this could increase your spending. Tip 3 A smart shopper will use coupons when possible and buy generic brands instead of brand names. Comparing prices can save you hundreds of dollars each year. For information on purchasing low cost savings coupons, go to You can also contact them by mail at: Online Coupons.com, Inc., P.O Middlebrook Pike, Knoxville, TN Prescription Drugs: Tip 1 Whenever possible, you should purchase generic drugs rather than brand name drugs. You should seek the advice of the pharmacist on the different drugs available for your condition. Tip 2 If you are taking medication over a long period of time you could save hundreds of dollars by purchasing through mail order from a reputable company in the United States. Check with your local Food and Drug Administration (FDA) office or visit the FDA website at for a listing of mail order drug companies. Tip 3 Be careful if you are purchasing prescription drugs from other countries through mail order or the Internet. The Food and Drug Administration (FDA) advises against purchasing medications from websites or mail order houses located outside the United States. The quality of foreign versions of prescription drugs is often unknown. In too many cases the drugs are counterfeits lacking any real similarity to the approved drug. Directions for these drugs are often inadequate and incorrect. Shopping from Home: Tip 1 Whether you re shopping online, by telephone, mail order, or door-to-door sales, here are some value tips to follow: Know who you re dealing with. Ask where they are located. Never deal with companies that only list a PO Box for an address and no phone number. Always check the company out with the Better Business Bureau. If not listed, contact another company. Make sure that your information is protected. Only give out your personal information if you know who s collecting it, why and how it will be used. If you are purchasing a product or service, try to always pay by credit card. Credit card payment is the best and safest way to pay. With credit card transactions, your transaction is protected by the Fair Credit Billing Act. Be smart. 19

24 SECTION 2 Budgeting and Planning Tips Make sure that you understand what you are purchasing or signing up for. Ask for a description of their product or service in writing as well as their refund and return policy before you pay. Discount Buying Clubs: Tip 1 If ordering anything by phone, be alert! If you are made an offer you are not interested in, make sure that you are very clear in refusing it. If not, you may find charges on your credit card bill. Tip 2 If you receive a package in the mail and you did not order it, you need to look at it and read the information. This package may come with a free trial offer membership. If you do not call and cancel the offer within a certain number of days, you may find yourself enrolled in a membership program and find charges on your credit card bill. Tip 3 Always check your credit card statements for unauthorized charges. You may have purchased an item over the phone several months ago and authorized them to charge your credit card. Note: Once someone has your credit card number, it is possible for them to charge your account in the future even if you never agreed to purchase their product or services. If this happens, you need to call your credit card company and dispute the charge. Also, you need to cancel that card and have the credit card company issue you another one. 8. PAYING BILLS ONLINE: Security: Tip 1 Make sure that the online company you choose to use for paying your bills protects your privacy and uses technology that gives you the most online security for safeguarding your financial information. Here are some tips to follow: Make sure that you have a valid password that can only allow you to access your account information. Make sure that your password is encrypted, making it unreadable to anyone else. Make sure that your information is transmitted using SSL, a standard secure protocol used to transmit data securely over the Internet. Make sure that your information is stored with a company that has their servers protected by network firewalls and monitored by state of the art network security systems. Companies like Microsoft have all these features above in place for consumers who wish to pay their bills online. You can check this service out at Also, most major banks are set up for banking online. Check with your local bank for information. 20

25 SECTION 2 Budgeting and Planning Tips Savings Strategies and Planning Goals Ten strategies to save money: Start Saving. Experts suggest that you start small by saving 10% to 15% of your net income each month. Establish a separate savings account, and get into a habit of putting small amounts of money away each month. It is easier to save small amounts instead of a large lump sum. Enroll into a 401 (k) plan at work. Try to put away a minimum of five percent of your gross income into a 401 (k) plan each month. In many cases your employer will match up to 50 cents on the dollar, which gives you an immediate return on your money. Keep track of your ATM withdrawals. Entertainment can drain your account. It s easy to access money from an ATM machine. You should set up a separate entertainment account that is only hooked up to your ATM. Over time, you will get into a habit to spend within your budget. Credit cards. Interest on credit cards is not deductible. Always try to pay more than the minimum payment each month, and try not to be late with your payment. Late fees can increase your balance. In addition, stay within your credit limit. If not, you could be charged an over-limit fee. Automatic investment plan. Speak to your local bank and see if you can arrange for your bank to draft $25 or $50 or $100 each month from your bank account and deposit it into an investment fund account. You work for your money. It s time to have your money work for you. Mortgage payments. If possible, try to pay extra money each month to your principal balance or make an extra mortgage payment within the year. This will cut years off your payoff time and save you thousands in interest over time. Car loans. Interest on car loans in most cases is not deductible. You should, if possible, make larger payments each month to pay off the loan. If you have equity in your home, it may be an option to take a loan against your equity and pay off the car loan. In this case, the interest may be deductible on your home equity loan. Open an IRA. Setting up a Roth IRA may be one of your best options. In a Roth IRA, you contribute after-tax dollars and when you reach retirement you can withdraw the money tax-free. You may be able to contribute to a Roth IRA even if you have a company 401 (k) plan. Many people set up a Roth IRA when they are maxed out in contributing to their 401 (k) plan. Term life insurance. If you are paying for annual renewable term life insurance, you should consider changing to a level (10, 15, or 20 years) term life insurance policy. Shop around. Call a local insurance broker, not an agent, and ask them to give you a comparison of companies and their rates. Money management. It is important to know where you spend your money each month. People who track their money usually spend less and save more. Keeping a budget with target spending amounts will keep you in the black and from having financial problems. Financial problems are one of the leading causes of divorce in the United States. 21

26 SECTION 2 Budgeting and Planning Tips Nine steps to help you meet your goals: Step 1 Use a computer to get organized. You should consider purchasing a financial software package like Quicken or Quickbooks to organize and list all of your monthly bills, home furnishings, assets, bank accounts, and investments. This program also allows you to print checks from your computer and printer. You can purchase this program at any computer or office supply store. Step 2 Prepare a livable household budget. Budgeting is the key to living a life free of debt. Their are many budgeting programs on the market that you can use, such as Quicken to help you get your budget under control. Quicken can be purchased at any office supply store. This program allows you to track monthly expenses as well as control spending. Step 3 Prepare for emergencies. You need to set aside a minimum of two months worth of income in a savings account. Emergencies can pop up when you least expect it. If possible, you should set aside as much as four months worth of income in case you lose your job. Step 4 Review your will and keep it updated. If you do not have a will, it s critical that you have one prepared, particularly if you have children. It s important to review your will each year and update, especially if you have had a child since you last reviewed your will. You should contact an attorney for information on wills, or you can contact pre-paid legal companies like Pre-paid Legal and LawStar.com. Step 5 Take control of your credit cards. If you are making minimum payments each month, it could take you over 20 years to get out of debt. Consider speaking to a credit counseling agency for consolidating credit cards into one payment as well as setting up a repayment plan with lower payments and interest with your creditors. Most consumers enrolled in a credit counseling program can be out of debt within 48 to 60 months. Step 6 Establish savings. Goals help you focus on priorities and offer a vision of what you really want out of life. Whether it s your retirement, a house, a car, or that vacation, you need to start preparing today. (As an example, if you re 35, you ll need to start with $50,000 in savings and consistently put away $11,000 a year for 20 years to have $1 million dollars when you are 55 years old). It s never too late to start. You may want to seek the advise of a financial advisor company such as Morgan Stanley Dean Witter, Merrill Lynch, Paine Weber, etc., for information on financial planning. Step 7 Set up an investment account. Where to start? The place to start is with your employer. Make sure that you enroll in the company s 401 (k) retirement plan. Second, you may want to open a managed account with a financial advisor company such as Morgan Stanley Dean Witter, Merrill Lynch, Paine Weber, etc. These companies will help you create an investment portfolio, stocks, bonds, mutual funds, etc., to fit your investment needs. Step 8 Build your net worth and track your investments. Retirement always comes sooner than you plan. Some experts believe that Social Security will be bankrupt by the year If this is true, you need to take control of building your net worth and making sure that you spend your money wisely on items that will build net worth; Real estate, stocks, bonds, CD s, annuities, etc. Buying cars, water sport toys, jewelry, etc., does not build true net worth. These items are luxuries that usually depreciate in value. Step 9 Protect your family, home and assets with insurance. Life insurance is designed to protect what you have worked so hard in your life to build, which is true net worth. It s important that your family maintains your true net worth in the event of death. Most people today don t have enough life insurance to fully protect their true net worth. For example, if your annual income is $60,000, you should purchase 10 times your income of insurance, which would be $600,000 of life insurance. The younger you are, the less expensive it will be. 22

27 SECTION 2 Budgeting and Planning Tips Tax Planning Tips Ten strategies to cut your tax bill: Mortgage interest and property taxes. You can deduct the mortgage interest (not the principal) that you pay on a loan secured by your primary residence or a second home. To claim the deduction, you must be obligated to pay the debt and you must actually make the payments. Charitable donations. You can deduct any cash or noncash contributions you make to a qualified nonprofit organization. Medical expenses and health savings accounts. You can deduct the amount of your medical and dental expenses that exceeds 7.5% of your adjusted gross income. Eligible expenses include both health insurance premiums and out-of-pocket expenses not covered by insurance for both you and your dependents. Child and dependent care. If you have to pay someone to care for your child (under 13) or a dependent needing care so that you can work or look for work, you may be able to claim a tax credit for those expenses. The credit is a percentage of your eligible work-related child or dependent care expenses, ranging from 20% to 35%, depending on your income. State and local taxes. Under the American Jobs Creation Act (AJCA) of 2004, taxpayers have been given a choice when it comes to deducting state and local taxes. For 2004 and 2005, you can choose to deduct either your state and local income taxes or your state and local general sales and use taxes, but not both -- an option taxpayers haven t had since IRA and 401(k) contributions. If your employer offers a 401(k), it pays to maximize your contributions, especially if your employer matches them. In 2004, you can contribute up to $13,000 to your 401(k); in 2005, the maximum increases to $14,000. If you are 50 or older, you can contribute an extra $3,000. For IRAs, you can contribute $3,000 in 2004 and $4,000 in 2005, and deduct that amount from your income. If you are 50 or older, you can contribute an extra $500 each year. Student loan interest. You can deduct up to $2,500 in student loan interest payment per year, for the lifetime of the loan. There are income limits -- you can t take this deduction if you make more than $65,000 as a single person or $130,000 as a married couple. Education expenses. You can currently deduct $4,000 for tuition-related expenses every year, or you may qualify for the Hope and Lifetime Learning credits, which are also for education. In addition, you can now contribute up to $2,000 to a Coverdell education savings account (formerly called an education IRA) each year. (The amount isn t deductible, but distributions from the account for payment of tuition are tax-free.) Job expenses. You can deduct education and training costs for your job if your employer doesn t reimburse you for them (and if the education is for your current job, not to get a better job later). Job-hunting expenses, including mileage, are also deductible. If you re a teacher, don t forget to include teaching-related expenses for a small tax break. Home office tax deduction. If you use a portion of your home exclusively for business purposes, you may be able to deduct home costs related to that portion, such as a percentage of your insurance and repair costs, your mortgage or rent, and depreciation. 23

28 SECTION 2 Budgeting and Planning Tips How to Check out a Company Locate a Better Business Bureau (BBB) near you: Tip 1 The first step to checking out a business is to locate a BBB in your area. You can go online at and there are several ways to search for a local BBB; By city, by zip code, or by State or Province. How to check out a business with the BBB near you: Tip 1 You can go online at and there are several ways to search for a business; By name, city and state, by phone number, or by web address. To increase the chance of finding the companies you are looking for, just enter a part of the company s name. How to file a complaint against a business with the BBB: Tip 1 You can go online at and file a complaint. The BBB does not take sides in a dispute. There are several ways to search for a business; By name, city and state, by phone number, or by web address. To increase the chance of finding the company you are looking for, just enter a part of the company s name. Valuable Books to Read Building Your Nest Egg with Your 401(k): By Lynn Brenner Personal Finance for Dummies: By Eric Tyson The Truth About Money: By Ric Edelman The Credit Jungle: By Robert Dietz, Michael Langer Stand Up to the IRS: By Frederick W. Daily, Robin Leonard Money Troubles: By Robin Leonard You Don t Need a Million to Retire Well: By Ralph E. Warner How to Buy Mutual Funds the Smart Way: By Stephen Littauer How to Buy Stocks the Smart Way: By Stephen Littauer Estate Planning Made East: By David T. Phillips, Bill Wolfkiel Saving on a Shoestring: By Barbara O Neill Stock Market 101: By Clark Holloway The Living Trust Revolution: By Robert A. Esperti, Renno L. Peterson The Living Trust Workbook: By Robert A. Esperti, Renno L. Peterson Protect Your Estate: By Robert A. Esperti, Renno L. Peterson The Investing Kit: By Bay Gruber How to Buy Bonds the Smart Way: By Stephen Littauer Personal Message: The authors of MakingCents have listed these useful guidebooks for consumers who want to take control of their financial life and plan for the future. These books can be purchased online at 24

29 Information About Credit Cards SECTION 3

30 SECTION 3 Information about Credit Cards WHAT IS A CREDIT CARD? A credit card defines life in our society today. This small, pocket size, plastic object allows people to purchase almost anything for sale: Cars, boats, jewelry, computers, clothes, groceries, etc. Millions of people in our society today carry some type of credit card. Credit cards make it convenient in our everyday lives. Everywhere you go, nationally or internationally, someone is using a credit card. Each day thousands of people are receiving pre-approved credit card applications in their mailbox. These pre-approved credit card offers usually have a low introductory rate (3.9%, 5.9%, 8.9% etc.) for a limited time (six months). The biggest problem we face with credit cards is that they are accepted almost everywhere and they are painless to use...not like paying cash or writing a check. We have been brain washed by credit card issuers to Buy now and pay later. This theory has made millions of people slaves to these credit card issuers. Each time you take a cash advance on your credit card or purchase an item with it, you re actually signing a contract between you and the credit card issuer for a loan, which consists of repayment of that loan plus interest. Credit cards are different from traditional bank loans. Bank loans issue money in lump sum amounts, but credit cards give you the flexibility at any time or anywhere to borrow money up to a specified credit limit. For example, if your credit card carries a credit limit of $2,500, you can purchase an item for $600 one week and purchase another item for $1,000 next week and so on, as long as you make the minimum payments called for on your creditor s statement. In addition to making monthly payments on time, you need to watch that your spending does not exceed your credit limit. Credit cards are a privilege, and consumers should remember that they are responsible for repayment to credit card issuers, not someone else. The credit card industry is big business and more and more financial companies are trying to get their share of the pie. Auto manufacturers, like General Motors (GM) and Ford Motors, are making it very attractive for consumers to apply bonus dollars to the purchase of a new vehicle each time they charge on their credit card. Gimmicks, perks, and bonus dollars have become standard among credit card issuers today. On the next few pages we ll review the different type of credit cards and how they work: Bank credit cards Department store credit cards Oil company credit cards Travel & entertainment cards ATM credit cards Secured credit cards 1. BANK CREDIT CARDS: Bank credit cards are the most commonly used by consumers worldwide. These credit cards are issued by banks and credit unions. These credit cards are issued under these brand trademark names: MasterCard, Visa, Discover, and American Express. These brand trademark names are actually financial companies that provide services to banks, credit unions, and other financial companies that offer credit cards to consumers. Bank credit cards are considered a revolving open line of credit account that doesn t have to be repaid in 30 days. These accounts allow you to carry a balance each month, while borrowing additional money (credit), at the same time you re making minimum payments back to the credit card issuer on your revolving balance. 26

31 SECTION 3 Information about Credit Cards Bank credit cards are considered a universal card and are accepted at many places worldwide, such as retail stores, restaurants, hotels, gift shops, car rental shops, etc. Important note: If you use your bank credit card and pay your balance off within the grace period term of the credit card issuer, most of these issuers will waive the interest (finance charges) on the balance owed, but if you carry a balance past the grace period term, the credit card issuer will charge you interest on the balance that you carry each month. Cash advances on your bank credit card have no grace period. Term and interest will accumulate on the amount of cash advance that you charged against your bank credit card. Bank credit card issuers in America today are pretty much free to set their own standards for interest (finance charges), line of credit terms, credit limits, special introductory rates and bonus perks. All bank credit cards are different in their standards. Each credit card issuer has their own guidelines for approving or declining credit applications. One thing is true about credit card issuers they all make profit on you by charging interest on revolving balances that you carry on your bank credit card and some make additional profit on charging you late fees, over-limit fees, and annual membership fees. In addition, most credit card issuers charge a small commission percentage (1% to 2%) to merchants who wish to accept bank credit cards from cardholders. Bank credit cards are big business in America today! The good news is that most bank credit cards are considered unsecured accounts, which means that you don t have to put up collateral, such as real property, to obtain one. As we mentioned earlier, bank credit cards are universal and can be issued to anyone, regardless of race, creed, or income level. Bank credit card interest rates may average anywhere from 5.9% (introductory rate) to 23.99%, but the average is close to 18.99%. 2. DEPARTMENT STORE CREDIT CARDS: Department store credit cards are considered revolving charge accounts that allow you to purchase many items on credit (clothes, cosmetics, etc.). These credit cards give you the complete flexibility to make monthly installment payments on the balance that you carry. In addition, you have the ability to add new purchases to your revolving account, while you make monthly payments, as long as you stay within your granted credit limit that the store has issued. Department store credit cards make it easy for consumers to shop and purchase items within their store. These cards are easy to apply for, and almost anyone can obtain one. Reality is, if a department store can get you to apply for their own store credit card, which can be used only in their store, then they have captured your business now and probably in the near future. Department stores are offering gimmicks, perks and other offers to take business from each other. Interest rates for department store credit cards are generally much higher than bank credit cards. These department store credit cards can range from 19% to 25% interest. Department store credit cards are a privilege, and you will pay dearly for the use of them. 3. OIL COMPANY CREDIT CARDS: Of almost all credit cards, oil company credit cards are by far the easiest to obtain. These oil company credit cards are not considered revolving accounts. They usually must be paid in full within 30 days. Most consumers depend on these oil company credit cards in everyday life to purchase gasoline for their automobiles and other items that use gasoline to power. In some circumstances, oil companies will extend a revolving account to large companies or corporations. 27

32 SECTION 3 Information about Credit Cards Oil company credit cards will vary from each oil company and can only be used at that specific oil company. These oil company credit cards are not universal and are limited only to purchasing gasoline and, in some cases, tires, repair work, batteries, and other items offered at that oil company gas station. Most oil companies will cancel your credit card privilege if your account goes past 60 to 90 days without payment unless an arrangement is made between you and the oil company issuer. Oil company gas stations are big business. Oil companies are now making it more convenient for the consumer, not only to purchase gasoline, but numerous other items, as they now act as mini markets as well. In addition to food and other items, most oil companies are now capturing additional business by offering a drive-through car wash. Gasoline, food, and a car wash - what s next? 4. TRAVEL & ENTERTAINMENT CREDIT CARDS: Travel & entertainment credit cards are not revolving charge accounts. They do not allow you to carry a balance each month. They require payment in full within 30 days. Examples of these are: American Express, Diner s Club, and Carte Blanche. These are the three largest and most well-known travel & entertainment credit cards on the market today. Travel & entertainment credit cards are usually used by businesses for travel purposes. These credit cards are a great source for tracking business expenses. These credit cards offer a grace period with no interest. You might ask How do these travel & entertainment credit card issuers make money? These credit card issuers make their money by charging you annual membership fees. The danger that consumers face with these travel & entertainment credit cards is that there are no specified credit limits and purchasing power is unlimited. However, most travel & entertainment credit card issuers, in practice, will monitor large purchases. Consumers can easily get into financial trouble because it s all too easy for them to spend more than they earn. Consumers need to remember that travel & entertainment credit cards don t carry the same theory as bank credit cards: Buy now, pay later! Travel & entertainment credit cards are definitely a privilege to possess and should not be abused. These credit cards are accepted worldwide just like bank credit cards. 5. ATM DEBIT CARDS: These cards are called automated teller machine (ATM) cards and are not bank credit cards. However, ATM cards are issued by your bank. These cards allow you to obtain cash (increments of $20.00) from your bank almost 24 hours a day. These cards also allow you to obtain cash from other banks, as long as they are compatible with your bank. Important Note: If you use your ATM card at other banks to obtain cash, please be aware that the bank may charge you a transaction fee ($1.00 to $2.00) for the privilege of taking cash out of their bank. Whenever possible, you should always use your ATM card at your bank to avoid these transaction fees. ATM cards work just like cash. We like to refer to them as plastic money. Each time you use your ATM card you re really using your own cash that is in your checking or savings account. As you purchase an item with your ATM card, the bank, in return, will draft the money out of your bank account and pay the merchant from whom you purchased the item. 28

33 SECTION 3 Information about Credit Cards ATM cards are convenient and make our lives easier. These cards, however, will not help the consumer build credit. These cards are accepted almost anywhere that bank credit cards are accepted: Gas stations, grocery stores, restaurants, etc. In many cases ATM cards are now taking the place of writing checks. ATM cards are great for merchants because they guarantee the payment on your purchase. Merchants don t have to second-guess whether accounts have funds sufficient enough to cover the purchases. 6. SECURED CREDIT CARDS: Secured credit cards are the complete opposite of unsecured credit cards. Secured credit cards are secured accounts. They require that you deposit an amount of money (typically $300, $500 or $1,000) into a savings or CD account at the bank that is issuing the secured credit card. In reality, you re putting your own money into an account as collateral against anything you purchase on that secured credit card. Secured credit cards are risk-free from the bank s perspective. Banks realize that if you don t pay your agreed payments back to the credit card issuer, that credit card issuer has the right to draft your payments against your deposit in your savings account. Keep in mind, when you put money (deposit) as collateral for a secured credit card, you will continue to earn interest on your money (deposit). Once you have deposited money into a savings account as collateral, you cannot withdraw the principal or interest accumulated on your principal without canceling your secured credit card. You might ask How do banks determine a credit limit on a secured credit card? Some banks will give you a credit limit up to 150% of your deposit (in savings). The norm for most banks on credit limits is the amount you keep on deposit (in savings). Almost anyone who has a job and can put up a deposit in a savings account can obtain a secured credit card. Usually the minimum deposit for a secured credit card is $500 to $1,000, depending on the bank. These cards look, act, and can be used just like unsecured bank credit cards. No one can tell that your credit card is a secured credit card when you make a purchase. Almost all banks and some credit unions offer secured credit cards. Terms and conditions may vary from each credit card issuer. In addition, secured credit cards are a plus for people that have filed bankruptcy and need to re-establish credit. 1. How do I Qualify? Qualifying for a Credit Card In order to qualify for a credit card, you must be at least 18 years old and have a steady source of income. If you meet these qualifications, you re well on your way to obtaining a credit card in your name. Even though you received a pre-approved invitation or an invitation to apply from a credit card company, you ll still have to demonstrate that you are a credit good risk that has steady income with the ability to pay before they approve and issue you a credit card. Credit card companies run your credit report with your approval, and your credit history will help the credit card company determine if you should receive a credit card. In addition, your credit history will show other debts that you are making payments on, car loans, student loans, other credit cards, etc. These payment histories, if current and on time, will show how responsible you ve been in paying your bills and helps the credit card company decide how much credit (limit) to extend to you on a credit card. 29

34 SECTION 3 Information about Credit Cards Note: Before you apply for a credit card, you should obtain a copy of your credit report from the three credit bureaus to make sure that payment information is being reported accurately. Here are the three credit bureaus and their phone numbers: Equifax Experian (formerly TRW) Trans Union What if my Application is denied? If a credit card company decides to not approve your application, they will send you a denial letter in the mail outlining why they denied your application. Different credit card companies have different standards for approving applications. You could be denied for these reasons: Have not been at your current address long enough Have not been at your job long enough Collection and charge-off accounts Late pays on your accounts Income doesn t meet the qualification requirements Recent bankruptcy Repossessed accounts If you have been denied credit because of information supplied by a credit bureau, federal law requires the creditor (credit card company) to give you the name, address, and telephone number of the bureau that supplied the information. If you contact that bureau within 60 days of receiving the denial, you are entitled to a free copy of your report. If you find an error in your credit report, you are entitled to have it investigated by the credit bureau and corrected at no charge. WHAT ARE THE COSTS ASSOCIATED WITH CREDIT CARDS? There are six costs associated with using credit cards. Let s review below the different costs and how they work Interest This is added to your credit card. Interest is usually around 18.9% and is compounded on a monthly basis against the balance that you carry on your credit card. Interest is how credit card issuers make money. Interest is also what makes up the finance charge. Annual Fees Some credit card issuers charge these fees ($75 or higher) to your credit card each year. Annual fees are also sometimes called membership fees. Credit cards that don t charge an annual fee will often charge a higher interest rate. They charge high interest to consumers in order to cover losses due to non-payments, collections, or bankruptcy. Each time a consumer doesn t pay, all cardholders suffer by increased interest rates. Cash Advance Fees These fees are quite simple. As you borrow cash against your credit card, the credit card issuer will charge you a fee. Cash advancements will accumulate interest just like a revolving balance on a bank credit card. The only difference is that credit card issuers don t waive interest if the balance is paid in full within 30 days. 30

35 SECTION 3 Information about Credit Cards 4. Transaction Fees These fees are sometimes charged to your credit card account if you change your payment due date, use your credit card, ask to lower your interest rate, transfer money, etc. Each credit card issuer has their own guidelines. These fees are rare and are not standard with national banks. 5. Late Fees Late fees are charged to your credit card account if your payment has not been received by the credit card issuer s due date, which is stated on the credit card statement. The fee can range from $20 to $29. These fees are very common and can add up quickly. Sometimes they can actually increase your overall balance. 6. Over-limit Fees Credit card issuers have the right to charge you a fee if you charge in excess of your credit limit. This fee can range from $20 to $40, depending on the credit card issuer. If you go over your credit limit, most credit card issuers may request that you pay the amount you re over the limit, in addition to the minimum monthly payment called for on your credit card statement. Other Features of Credit Cards A credit card is a form of borrowing that often involves charges. Credit terms and conditions affect your overall cost. The following is some important information that you should know about your credit card Free Period. This free period is also called grace period. A free period lets you avoid finance charges by paying your balance in full before it is due. You should know if your credit card gives you a free period, especially if you plan to pay your account in full each month. Without a free period, you will be charged a finance charge from the date you use the card or from the date of each transaction on your account. Balance Computation Method for the Finance Charge. If you do not have a free period or you plan to pay your credit card balance over time, it is important to know what method the credit card company uses to calculate your finance charges. This can make a big difference in how much of a finance charge you ll pay. (See Chart below for example) 31

36 SECTION 3 Information about Credit Cards 3. Average Daily Balance. This is the most common calculation method. It credits your account from the day the payment is received by the credit card company. To figure your balance due, the credit card company totals the beginning balance for each day in the billing period and subtracts any credits (payments) made to your account that day. While new purchases may or may not be added to your total balance, cash advances are typically included. The resulting daily balances are added for the billing cycle. The total is then divided by the number of days in the billing period to get the Average Daily Balances. 4. Adjusted Balances. This method is best for cardholders. Your adjusted balance is determined by subtracting payments or credits received during the current billing period from the balance at the end of the previous billing period. New purchases to the account during the billing period aren t included. In addition, this method gives the cardholder until the end of the billing cycle to pay a portion of the balance to avoid the interest charges on that amount. 5. Previous Balance. This is the total amount you owed at the end of the previous billing period on your credit card account. Payments, credits, and new purchases during the current billing period are not included. 6. Two-cycle Balances. Some credit card companies use this method to calculate your balance over the last two months account activity. Review your credit card statement to find out if your credit card company uses this method. If you cannot find it or understand how the balance is calculated, ask your credit card company to explain it to you. In addition, the credit card company must provide an explanation of this method on your billing statement. HOW MANY CREDIT CARDS DO YOU NEED? There is no magical number when deciding on how many credit cards you need. We believe that you should have no more than four credit cards. For example: Bank credit card (Visa or MasterCard) or a travel & entertainment credit card (American Express) Gas and oil company credit card Department store credit card ATM bank debit card Having more than five credit cards may affect your credit rating with other companies to whom you are applying for credit. Some companies may view you as someone who needs credit. This could send a message that you have no available cash and that you could be having or beginning to have financial problems. Having too many credit cards makes it easy for you to charge on all of them and before you know it, you re in over your head! Having too much debt can affect your credit rating when purchasing large items like a house or a car. When you have decided on how many and the type of credit cards you wish to use, you should keep a record of the following information in a safe place in the event that your wallet or purse is stolen or lost The name of the card or issuer The address of the card issuer The customer service phone number of the issuer The account number of the card Expiration date of the card 32

37 SECTION 3 Information about Credit Cards Cardholder Protections Federal law provides protection to consumers on their use of credit cards. Here are some of the protections consumers have available when using credit cards Errors on your bill. Credit card companies must follow specific rules for correcting billing errors. Most credit card companies will send you a copy in the mail of these rules, and in many cases, include a summary of these rules on your bills. If you find a mistake on your bill, you must notify the credit card company in writing within 60 days after the first bill containing the error was mailed to you. You have the right to dispute the charge and withhold payment on that amount while the charge is being investigated. Billing errors can be caused from the wrong amount being charged, for items you didn t accept, or for items that weren t delivered to you. Whatever the reason, you must still pay the amount of the bill that s not in dispute, including any finance and other charges. Unauthorized Charges. If someone uses your credit card without your permission, you can be held responsible for up to $50 per card. If you report your credit card lost before it is used, the credit card company cannot hold you liable for any unauthorized charges. In the worst case, if a thief steals your credit card before you report it, you will only be liable for up to $50 per card. If you lose your credit card, report it as soon as possible. Most credit card companies have 24-hour toll-free telephone numbers to report lost cards. Prompt Credit for Payment. The credit card company must credit your account balance the day they receive your payment. Mailing to the wrong payment address could delay crediting on your account and your account could result in a late payment charge. Refunds of Credit Balances. When you make a return or pay more than the total balance, you can keep the credit on your account or request in writing a refund. For a refund, the amount must be more than a dollar. A refund must be sent within seven business days from receiving your written request. Also, if a credit stays on your account for more than six months, the credit card company must attempt to send you a refund Disputes about Merchandise or Services. As a cardholder, you have the right to dispute any charges for unsatisfactory goods or services. To do so, you must: Have made the purchase in your home state or within 100 miles of your current billing address. The charge must be more than $50 First make a good faith effort to resolve the dispute with the seller Note: If these two conditions above don t apply, you may want to consider filing an action complaint in small claims court. 33

38 SECTION 3 Information about Credit Cards Kinds of Credit Accounts Companies that extend credit generally issue three types of credit accounts to consumers. Here are the three credit accounts available: Revolving Agreement. This type of agreement allows the consumer to pay in full each month or choose to make a partial payment based on the outstanding balance. Department stores, gas and oil companies, and banks typically issue credit cards based on revolving credit. Charge Agreement. This type of agreement requires the consumer to pay the full balance each month so the borrower does not have to pay interest charges. These accounts are considered charge cards, not credit cards, and charge accounts with local businesses. Installment Agreement. This type of agreement requires the consumer to pay a fixed amount each month under a contract over a specific period. Auto loans, furniture, and major appliances are often financed as an installment agreement. In addition, personal loans from banks, credit unions, and finance companies are usually paid under installment agreements. Credit Cards... What To Do If They re Lost or Stolen To limit your loss, you should report the lost or stolen credit card(s) and/or ATM card(s) to the card issuer (bank or credit union) as quickly as possible. Most card issuers have toll-free numbers that are hooked up to a 24-hour service that deals with lost or stolen cards. Note: Most homeowner s insurance policies cover the liability incurred due to card theft. If your policy does not cover it, it might be a good idea to change your insurance policy to include card theft protection Credit Card Loss. The Fair Credit Billing Act (FCBA) states that if you report your card(s) lost before the card(s) are used, you cannot be held liable for any unauthorized charges. If the card(s) are used before you report them lost, the FCBA states that you are only liable for unauthorized charges of $50 per card. Note: Be sure to review your credit card statements after you have reported the loss for unauthorized charges. If you notice any unauthorized charges, you need to send a letter to the card issuer billing errors address, not the payment address disputing those unauthorized charges. ATM Card Loss. The Electronic Fund Transfer Act (EFTA) states that if you report your card(s) lost before the card is used, you cannot be held liable for any unauthorized withdrawals. If the card is used before you report it lost, the EFTA states that the amount you can be held liable for depends upon how quickly you report the loss. Here are two rules to live by: Rule 1 If you report your loss within two business days after your card in missing, you will not be responsible for more than $50 for unauthorized use. Rule 2 If you report your loss after two business days, you could lose up to $500 because of an unauthorized withdrawal. You risk unlimited loss if you fail to report an unauthorized transfer or withdrawal within 60 days after your bank statement in mailed to you. 34

39 SECTION 3 Information about Credit Cards Credit Card Blocking Have you ever been told you were over your credit limit, even though you knew you weren t? Usually this will happen if you have recently stayed in a hotel or rented a car. This problem is known as credit card blocking. What s Blocking? If you use your credit card to check into a hotel or rent a car, that company will contact your card issuer and give them an estimated total of your expenses. If your card issuer approves it, your available credit is reduced by this amount. That s a block. For example: If you check into a hotel that costs $100 per night and you plan to stay seven days, the hotel will block $700 on your credit card. In addition, most hotels will include anticipated charges like food and/or beverages. Why Blocking Can Be a Problem: Hotels and car rental companies use blocking to make sure you don t exceed your credit limit before they get paid for their services. You need to be aware of your credit limit before checking into a hotel or renting a car. It can quite embarrassing to have your card declined because you ve reached your credit limit, especially if you have an emergency purchase. How to Avoid Blocking: To avoid the inconvenience and embarrassment that blocking can cause, you should consider these tips: Use the same credit card to pay for your hotel or rental car that you secured them with. Know your credit limit. Ask the clerk at the hotel or rental car company how much will be blocked on your card for their services. If you plan to pay with a different credit card or by check or cash, make sure to have the clerk remove the block on your card. Beware of Gold and Platinum Card Offers Some companies offer gold and platinum cards that seem like bank credit cards. In most cases they are cards that only permit you to buy merchandise only from specialized catalogues. In addition, these companies, state that if you obtain one of their cards, it will improve your credit rating and it will help you obtain major bank credit cards. This is not true. The only type of credit card that you might get is a secured credit card that requires a security deposit. Do not confuse these cards with true gold and platinum cards issued from major banks. These cards are typically reserved for more high profile clients with high credit limits and low interest rates. 35

40 SECTION 3 Information about Credit Cards These gold and platinum cards do not get reported to credit bureaus. Such cards are marketed through TV, newspapers, direct mail, or telephone solicitations. These companies usually target people who live in lowerincome areas. Don t be fooled by these companies. If you re planning to obtain one of these gold or platinum catalogue cards, here are some tips to watch out for: Tip 1 Be wary of companies who charge up-front fees without saying there may be additional costs. Tip 2 Be wary of companies that use 900 or 976 telephone exchanges. Tip 3 Be wary of companies that misrepresent prices and payments for merchandise. Tip 4 Be wary of companies that promise to help you improve your credit. Tip 5 You should think twice before obtaining the card. Contact your local Better Business Bureau, consumer protection agency, or state Attorney General s office to see if any complaints have been filed against that company offering the gold or platinum cards. Ten Tips to Save Yourself From Credit Card Fraud You think you re safe...and you probably are. After all, with more than 500 million Visa, MasterCard, American Express, and Discover credit cards in circulation, how likely is it that a credit criminal would steal yours? Considering that Americans charge more than $1.2 trillion on their Visa, MasterCard, American Express, and Discover alone each year, and that fraud costs less than two percent of that total, the odds certainly are in your favor. However... HERE ARE 10 EASY TIPS TO PROTECT YOUR CREDIT CARDS FROM FRAUD Sign your new credit cards as soon as they arrive. Minimize the number of credit cards you carry in your wallet. Store any cards you don t carry with you in a safe place. Treat all of your cards like cash. Install a locked mailbox at your home to guard against mail theft. If this is impossible, consider using a post office box. Remember to get your card and receipt after you buy something, and double-check to be sure they re yours. Never give your credit card number over the phone unless you initiate the call or you already have a relationship with the company. Take care with your credit card receipts, monthly statements, and pre-approved credit card offers. Never throw them, or anything else with an account number, in the trash without first shredding them. 36

41 SECTION 3 Information about Credit Cards 7. Keep a list of all your credit cards along with their account numbers, expiration dates, and customer service phone numbers. Store this list in a safe place. In the unlikely event of fraud, quickly notify all your credit grantors. 8. Don t write your account number or Social Security number on a post card or the outside of an envelope. 9. If your billing statement is wrong or your cards are lost or stolen, call your card issuers immediately. 10. Request a copy of your credit report at least twice a year, and check for any fraudulent use of your accounts. Someone may have applied for credit in your name. WHAT TO DO IF PRECAUTIONS DON T WORK If you find yourself the victim of credit card fraud, notify each credit grantor whose bills you receive that the account was opened or unauthorized charges were made by someone else without your permission or knowledge. The next thing you need to do is call the fraud department of all three major nationwide credit reporting agencies. Also, consider adding a fraud alert notice to your credit report. This will prevent future credit accounts from being opened without your permission. The addresses and phone numbers of the national credit bureaus are listed below EQUIFAX Credit Information Services PO Box , Atlanta, GA (800) TRANS UNION Corporation PO Box 1000, Springfield, PA (800) Experian (Formerly TRW) PO Box 9600, Allen, TX (888) CREDIT REPORTS You have a legal right to a copy of your personal credit report. Each national credit agency listed above will have a file on you. If you have been denied credit recently, you may be entitled to a free credit report. If you have not been denied credit recently you have the right to get a FREE copy once every 12 months from each of the nationwide consumer credit reporting companies. For instant access to your free credit report, visit Why Do I Need Three Credit Reports? Equifax, Trans Union, and Experian are three entirely different credit agencies. Different companies report your credit to different credit bureaus. Some companies report to all three national credit agencies. You need a copy of all three of your credit reports to make sure they are all reporting accurate information about you. You can almost be sure that there is a mistake on one or all of your credit reports. 37

42 SECTION 3 Information about Credit Cards These mistakes or inaccuracies affect millions of Americans in a negative way and most Americans are totally unaware of them. It is not uncommon to find someone else s negative information on your credit file just because you and that person have the same name. SUGGESTED PAMPHLETS TO READ For more information on budget management and maintenance, ways to save and other financial resources, contact the following: Your Legal Guide to Consumer Credit Available from the American Bar Association Credit and Divorce Available from the Bureau of Consumer Protection Federal Direct Consolidation Loan Program Will help consolidate your student loans and consider requests for changes in payment and interest Planning for College Available from Investment Company Institute Choosing a Mortgage That s Right For You Available from Fannie Mae, Consumer Education Group How to Dispute Credit Report Errors Available from the Bureau of Consumer Protection The Credit Union League Find the Credit Unions in your town to see if you qualify Guide to Free Tax Services Available from the Internal Revenue Service The Mortgage Money Guide Available from the Federal Trade Commission

43 Information About Electronic Banking SECTION 4

44 SECTION 4 Information about Electronic Banking Introduction To Electronic Banking Electronic banking to most consumers means 24-hour access to their cash through an automated teller machine (ATM). Having your paychecks directly deposited into your checking or savings accounts is also a part of electronic banking. Electronic banking uses highly sophisticated computers and technology to give you access to your cash. This technology is a substitute for paper checks and other paper transactions. Electronic banking is also known as Electronic Fund Transfer (EFT). Most banks, credit unions, and other financial institutions use an automated teller machine (ATM) card and a personal PIN number to allow you to gain access to your account and transfer your cash. Electronic Fund Transfers Automated Teller Machines (ATM) ATM machines or terminals allow you to access your cash at almost any time, anywhere to purchase items or secure services. With your ATM card and personal PIN number, these ATM machines allow you to withdraw cash, make deposits, or transfer funds from one account to another. Most ATM machines charge a usage fee ($1.50 to $2.00) to consumers who are not members of their bank, credit union, or financial institution. This usage fee will appear on the ATM computer screen, and you must agree to the usage fee before you can withdraw cash. This usage fee is usually deducted at the time of your ATM withdrawal, and it will appear on your monthly bank statement. Direct Deposit This method allows you to authorize your employer to deposit your paychecks directly into your checking or savings account. You can almost authorize any person or company that you receive income from to directly deposit into your checking or savings account. In addition to direct deposit, you can pre-authorize your banking institution to pay recurring bills, such as insurance premiums, car payments, mortgage payments, utility bills, etc. Pay-by-Phone Systems This method allows you to call your banking institution and instruct them to pay specific bills or to transfer funds from one account to another. This method requires that you set up an agreement with your banking institution to make such transfers. Personal Computer Banking This method allows you to access your bank accounts via your personal computer and conduct many electronic transactions, such as viewing account balances, transferring funds between accounts and paying bills electronically. Point-of-Sale Transfers This method allows you to make retail purchases with your ATM debit card. At the point of sale the money is transferred immediately from your bank account to the store s account. This method is growing rapidly with merchants nationwide. 40

45 SECTION 4 Information about Electronic Banking Electronic Fund Transfers Disclosures It is very important that you understand your rights and responsibilities regarding your EFT account. Before you contract for EFT services or make your first electronic fund transfer, the financial institution must tell you the following information in a form you can keep. A summary of your liability for unauthorized transfers. The telephone number and address of the person to be notified if you think an unauthorized transfer has been or may be made. A statement of the institution s business days, generally, the days the institution is open to the public for normal business and the number of days you have to report unauthorized transfers. The type of transfers you can make. The fees charged for transfers and any limits on the dollar amount of transfers. A summary of your rights to receive documentation of transfers, to stop payment on a pre-authorized transfer, and the procedures to follow to stop payment. A notice outlining the procedures you must follow to report an error on a receipt for an EFT or your statement, to request information about a transfer listed on your statement, and how long you have to make your report. A summary of the institution s liability to you if it fails to make or stop certain transactions. Circumstances under which the institution will disclose information to third parties concerning your account. In addition to these disclosures above, you will receive two other types of valuable information for most transactions: Terminal receipts You are entitled to a terminal receipt each time you initiate an electronic transfer, whether you use an ATM or make a point-of-sale electronic transfer. The receipt must show the amount and date of the transfer as well as the type of transfer, such as from checking to savings. Periodic statements You also are entitled to a periodic statement for each statement cycle in which an electronic transfer is made. This statement must show the amount of any transfer, the date it was credited or debited to your account, the type of transfer and types of account(s) to or from which funds were transferred, and the address and telephone number to be used for inquiries. You are entitled to a quarterly statement even if no electronic transfers were made. Note: You should keep and compare your EFT receipts with your periodic statements the same way you compare your credit card invoices with your monthly credit card statements. 41

46 SECTION 4 Information about Electronic Banking Electronic Fund Transfer Errors Under federal law, you have 60 days from the date a problem or error appears on your periodic statements or terminal receipt to notify your financial institution. If you fail to notify the institution of the error within 60 days, you may have little recourse. Therefore, the institution has no obligation to conduct an investigation if you have missed the 60-day deadline. The best way to protect yourself if an error occurs or your ATM card is stolen is to notify the financial institution in writing by certified mail, return receipt requested, so you can prove that the financial institution received your dispute letter within the 60-day deadline period. Make sure to keep a copy of the dispute letter and return receipt for your records. How long does an institution have to respond to your error? Once the institution has received your dispute letter about an error, the institution has 10 business days to investigate your error. Once the institution has completed their investigation on your error, that institution must notify you of the results within three business days after completing it and they must correct an error within one business day after determining that the error has occurred. Note: The institution can take an additional 35 days, if needed, to complete an investigation on an error, but only if the money in dispute is returned to your account and you are notified promptly of the credit. At the end of the 35th day investigation, if no error has been found, the institution may take the money back if it sends you a written explanation. How to Deal With Lost or Stolen EFT Cards If your credit card is lost or stolen, you can t lose more than $50. If someone uses your ATM or EFT card without your permission, you can lose much more than $50. If you report the card missing within two business days after you realize the card is missing and there is unauthorized use that occurred, you will not be responsible for more than $50. If you report the card missing after two business days, you could lose as much as $500 because of an unauthorized withdrawal. In addition, if you do not report an unauthorized transfer or withdrawal within 60 days after your statement is mailed to you, you risk unlimited loss. Therefore, you could lose all your money in your account and possibly some of your overdraft line of credit. Even though you are the victim, you could end up owing the institution money. Always report a lost or stolen card. Once you report the lost or stolen card, you are not liable for additional unauthorized transfers that may be made on your account. Most likely these unauthorized transfers will appear on your statement so you should carefully review each statement after you ve reported a lost or stolen card. 42

47 SECTION 4 Information about Electronic Banking Limited Stop-Payment Privileges The EFT Act says that when you use an electronic fund transfer to purchase items or services, you do not have the right to stop payment, even if the item is defective or the service wasn t completed satisfactorily. Electronic fund transfer is the same as if you paid cash. At this point, it is up to you to resolve any problem with the seller and get your money back. You can stop payment only one way through an electronic fund transfer. If you have arranged for a third party to draft regular payments from your account, such as a life insurance company, you can stop future payments by notifying the institution at least three business days before the next scheduled transfer from your account. The stop payment notice can be oral or written. We recommend that you put it into writing and either fax it or send it via certified mail, return receipt requested. Keep in mind that federal law provides only limited rights to stop payment on EFT s. When looking to set up an EFT account, you should shop around to be sure you are getting the best stop payment terms available. Other Rights on EFT The Electronic Fund Transfer (EFT) Act protects your rights in two situations regarding the use of electronic fund transfers: The EFT Act prohibits financial institutions from requiring you to repay loans by electronic transfer. The EFT Act also states that if you are required to receive your salary or government benefit check by EFT, you have the right to choose the financial institution that receives the funds to deposit into your account. Tips on EFT If you decide that EFT is what you need, here are four tips to keep in mind: Tip 1 Keep your EFT card in a safe place. If you lose it or it is stolen, report it as soon as possible. Tip 2 When choosing a PIN number, do not choose your address, telephone number, Social Security number, or birth date. Choosing a different number will make it more difficult for a thief to use it. Tip 3 Set up a file and keep all your EFT receipts with your periodic statements so that you can review them for unauthorized use and errors. Tip 4 Make sure that you know, trust, and understand the services that merchant is providing before you provide any bank account information to pre-authorize debits to your account. 43

48 SECTION 4 Information about Electronic Banking Electronic Check Conversion The next time you write a check to a retail store or local merchant, the cashier may hand your check back to you after the sale transaction. Why? More retailers and merchants are using electronic check conversion, which is a service that converts a paper check into an electronic payment at the point of sale. How does electronic check conversion work? At the point of sale, you write a check and give it to the store cashier. The cashier takes the check and processes it through an electronic system that captures your banking information and the amount of the check. Once the check is processed, you ll sign a receipt authorizing the retail store or merchant to electronically transfer from your account and deposit those funds into the merchant s account. The store cashier will give you your check back, which should be voided so that it cannot be used again. What does electronic check conversion mean to you? Electronic check conversion means that you cannot float money. If you write a check today, you must have the funds available the same day to cover it. If you do not have available funds at the time you write the check, your check will bounce and you will be charged a bounced check fee. Bounced checks can hurt your credit record. Tips from the Federal Trade Commission. The Federal Trade Commission suggests these tips when using electronic check conversion: Tip 1 Keep track of your deposits. Make sure that you record all in-person deposits as well as automatic or Electronic Fund Transfer (EFT) deposits to your checking account at the time of the deposit. You should save your deposit receipts. They can help correct mistakes if needed. Tip 2 Keep track of your withdrawals. You should record and subtract all of your all transactions, which include checks you write, ATM withdrawals, electronic check conversions, and debit card payments in your checkbook at the point of sale. In addition, remember to record any bank fees, services charges, and ATM withdrawal fees. Tip 3 Balance your checkbook. You should get into a habit of balancing your checkbook each time you receive a statement from your bank. Your bank statement, deposits, withdrawals, and checks should match your checkbook. If your checking account won t balance and you can t find the error, call you re customer service representative at your bank for help. In most cases people forget to record ATM withdrawals and debit card payments. Guide to Online Payments The Internet is growing and has taken its place next to the telephone and television. More and more consumers everyday are using the Internet to purchase items, services and other financial activities like investing and banking. Most consumers use credit or debit cards to pay for these online purchases or activities. The Federal Trade Commission has put together this information below on how to pay for goods and services online and how to make sure your transactions are safe and secure from theft or fraud. 44

49 SECTION 4 Information about Electronic Banking 1. Ways to pay online. Credit cards This is the most common method for purchasing goods and services online. This method is considered the safest way for online purchases. Once you give your credit card information, the merchant you are purchasing from will obtain pre-authorization to debit your credit card. If for some reason you do not receive your merchandise or it is damaged, you can file a complaint with your credit card company to investigate and have the debit amount reversed. ATM debit cards These cards authorize merchants to electronically debit your bank account. This method can be dangerous if you re dealing with a merchant that is scamming you. Debit cards are different than credit cards. The one important difference is when you use a debit card, the money for the purchase is transferred almost immediately from your bank account to the merchant s bank account. Once the money is electronically transferred it s gone. Stored-value cards These cards allow consumers to transfer cash value to the card. Some stored value cards work offline (to purchase items at a retail store); other work online (to buy items and services over the Internet); or they may have both features. Some stored value cards have computer chips contained within the card, which make them smart cards. Smart cards act like credit and debit cards, but contain stored value. 2. Paying safely online. Consumer should be aware when purchasing online. You need to make sure that all transactions are secured and your personal information is protected. Although you can t control fraud on the Internet, you can take certain steps to guard yourself from fraud. Here are some tips to follow: Tip 1 Use a secured browser. A secured browser has software that encrypts or scrambles the purchase information you send over the Internet, therefore, guarding the security of your online transaction. If your computer does not have a secured browser, you can oftentimes download a secured browser for free over the Internet. Tip 2 Keep records. You should keep a log or file of all your online transactions. Most merchants will send you an about your recent purchase. It s important to read these s; some may have information that you may need about the purchase. In addition, these s are great for your records. Make sure to print a copy and file it away. Tip 3 Review bank statements. Once your statements come in from your bank, you should review them for errors or unauthorized purchases. If you notice an error or unauthorized purchase, notify your card issuer immediately. Tip 4 Websites. Before you purchase from a specific website, be certain to review their policies and disclosures about their website s security, its refund and return policy, and its privacy policy on collecting and using personal information. If you can t find a privacy policy on the website, you should consider shopping elsewhere. Tip 5 Personal Information. When shopping on the Internet, don t disclose your personal information - your address, telephone number, Social Security number, or address - unless you know who s collecting the information, why they re collecting it, and how they plan to use it. Tip 6 Payment information. You should only give payment information to businesses you know and trust. 45

50 SECTION 4 Information about Electronic Banking Tip 7 Internet password. Never give your password to anyone online, even your Internet service provider. Tip 8 Internet files. Do not download Internet files sent to you by strangers or click on hyperlinks from people you don t know. Opening files you re not familiar with could expose your system to a computer virus. Where to File EFT Complaints If you think a financial institution or merchant has failed to fulfill its obligation to you under the EFT Act, you need to stand up for your rights and file a complaint. You can file a complaint with the federal agency listed below that has enforcement jurisdiction over that company. State Member Banks of the Federal Reserve System Consumer and Community Affairs Board of Governors of the Federal Reserve System 20th & C Sts., N.W., Mail Stop 800 Washington, D.C National Banks Office of the Comptroller of the Currency Compliance Management Mail Stop 7-5 Washington, D.C Federal Credit Unions National Credit Union Administration 1776 G Street, N.W. Washington, D.C Non-Member Federally Insured Banks Office of Consumer Programs Federal Deposit Insurance Corporation 550 Seventeenth Street, N.W. Washington, D.C Federally Insured Savings and Loans and Federally Chartered State Banks Consumer Affairs Program Office of Thrift Supervision 1700 G Street, N.W. Washington, D.C Important Note: You can also contact the Federal Trade Commission (FTC) on any fraudulent, deceptive, and unfair business practice in the marketplace. You can call toll-free at or use the online compliant form at 46

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