Entries for January 2008

If you've been wondering whether or not you need help—with your finances, that is—the National Foundation for Credit Counseling has just released a quiz to help you figure it out. The quiz, pasted below, asks about credit card balances and secret spending.

I answered yes to two of the questions—I sometimes hide purchases from my spouse, and losing my job would cause an immediate financial crisis in my life. But who wouldn't answer yes to those questions? The NFCC assures me that answering two or three questions in the affirmative just means you're normal, but once you get beyond a few, it might be time to seek credit counseling.

Whether you're meeting a blind date or a client, get-togethers at the coffee shop can be awkward. If you arrive first, do you buy yourself coffee, or wait for your guest? If you arrive second, do you stand in line to get coffee while your guest waits for you? Or do you follow the example of Lucy Liu's date on last week's episode of Cashmere Mafia? He got there first, ordered three different drinks for her, and let her choose which one to have. Expensive, yes, but also efficient. It seemed to win Liu over.

I first heard about this problem from Denise Baerg, owner of a marketing consulting company in Minneapolis. As someone who meets clients at coffee shops three or four times a week, she wanted to know how best to handle the potential awkwardness. To answer her questions, I turned to my favorite protocol consultant, Judith Bowman, author of Don't Take the Last Donut.

Bowman's advice is simple: Inviting people to meet you at a coffee shop is just like inviting them to your office. You should arrive early so you can get a table and greet them when they arrive, and of course offer to pay. Don't buy coffee for yourself until they get there, but if you know what they drink, then go ahead and have it waiting for them. If you arrive second and your guest already has a coffee, then either go ahead and buy a cup for yourself or skip it altogether. Standing in line can take a long time, warns Bowman, and it may be better spent getting down to business.

That sounds right whether you're meeting a potential client or a potential mate.

Attention eBay addicts: The company has announced that beginning February 20, it will cut the fees sellers pay to list items. At the same time, it will charge higher commissions when items do sell. The company says the new approach will reduce the risk for sellers, who don't want to pay fees for items that don't sell. Bill Cobb, president of eBay North America, explained online, "You said you'd prefer fees for success, not listing."

This sounds like a helpful move for heavy eBay users who list many items at once, but I'm not sure it's good news for more casual sellers. For example, say you sell a $500 wedding dress at auction on the site. Before the changes, you would pay a $4.80 listing fee plus $16.75 in commission on the sale for a total fee of $21.55. After the changes, you'll pay a $4 listing fee plus almost $19 in commission, for a total of almost $23.

But you have still unloaded a wedding dress you no longer want, so maybe the difference is just pennies to you.

The National Retail Federation reports that the average person will spend almost $123 celebrating Valentine's Day this year. But instead of buying candy or flowers, which will be slightly less popular, consumers will lavish the objects of their affection with nights out and even gift cards.

Have you decided what you're getting your loved one yet? Does it come close to the $123 average? I'm all for romance, but that sounds like a lot to me.

For the men out there, here's one more fact to keep in mind, based on the NRF survey: Men, on average, will spend almost twice as much as women to celebrate the day: $163 compared with $85. But before men feel pressure to keep up with that average, let's ask the ladies if they really want such lavish gifts. Personally, I'd rather my husband kept that money in the bank.

Dear Alpha Consumer,

Two years ago, my husband and I purchased a home for $217,000. My husband works in construction and is paid a salary plus a bonus, but the new-home-building industry in our area has hit an all-time low, and he has not received any bonus pay in at least six months. Also, part of his wages are garnished to pay child support fees. We are now unable to make our monthly mortgage payments, but the option to sell the house for something smaller is no longer possible. Our $217,000 home is now valued at $165,000. Our savings are depleted, and we have lowered all the other expenses that we can, but we still cannot pay our home loan on time this month. What options do we have besides foreclosure?

That's a tough situation, but you may be able to avoid foreclosure yet. The first step is to call your lender. Lenders don't want to see customers fail to make payments and lose their houses, either. Your lender will most likely work with you to get you back on track.

According to Pam Hamrick, vice president of LendingTree Loans, one option is forbearance, where borrowers temporarily make reduced payments or none at all. To qualify for this option, borrowers usually need to show that they are experiencing a temporary problem and that a tax refund, future bonus, or other form of income will let them catch up. Also, interest may still accumulate, so you may have to make bigger payments down the road.

Another option is to ask the lender to modify the terms of the loan so the payments are more affordable, Hamrick says. For example, you may be able to extend the term of the loan so monthly payments are lower.

When asking your lender for these options, Hamrick recommends showing that you are making a good-faith effort to pay your mortgage. "If you can demonstrate that you've reduced other expenses, the lender will be more inclined to negotiate," she says. If your situation is more long term, however, then it will be harder to persuade the lender to change its terms.

Can counting dimes and quarters really add up to big bucks? According to my colleague and blogger Russell Heimlich, it can. He estimated the value of his change jar through its weight and learned he had $30 sitting around. He's still saving it. He says emptying his pockets into a jar every day forces him to save money.

Another option for change collectors is to find a Coinstar machine and pay a fee for it to count your money for you. According to the company, the average household has around $90 in spare change lying around. Banks also often have coin-counting machines in their lobby, and account holders can frequently use them for free.

But is either method worth the time? I try to make exact change when I buy small items, which often stops me from breaking bills. In the end, that method should save as much money as counting piles of change.

The Consumerist, the site where "shoppers bite back," didn't like our recent articles on rebates. The bloggers there say we unfairly blame consumers for failing to redeem rebates, when it's really companies' fault for making the process so difficult. At least we got some love from the readers' comments, where some pointed out we were just reporting it as we saw it.

• Also in the blogosphere: You can check out this week's Carnival of Personal Finance for tips on retirement withdrawal, socially responsible investing, and why there's no need to feel embarrassed about not having new clothes.

It's a question that can reveal hidden financial desires: How would you spend your economic stimulus rebate check, now expected to be $600 for individual taxpayers and $1,200 for married couples without children?

Personally, I would like to devote it to either updating my wardrobe or getting a cappuccino machine—but in reality it should probably go into my future down payment fund. To get you in the mood to spend your own rebate, which, pending congressional approval and the president's signature, could be in your mailbox by summer, here are what personal finance and consumer experts plan to do with their checks:

Capital One's earnings call Wednesday underscored the fact that just because the Fed cut interest rates earlier this week doesn't mean consumers will find it any easier to borrow money. While banks can borrow more cheaply, they are worried that consumers won't be able to pay them back. So, in Capital One's case at least, it is lending to fewer customers or, in some cases, charging them more.

The company's top executives told analysts that particularly in Capital One's auto loan business, they had experienced an "unacceptable" degree of charge-offs because borrowers were unable to pay back loans. As a result, chief executive Richard Fairbank said the company was no longer lending to the riskiest subset of borrowers. Even for prime borrowers—those deemed low-risk—the standards have risen. On average, the credit scores of Capital One's prime borrowers were 30 points higher in the fourth quarter of 2007 compared with a year earlier.

In other words, if your credit score is less than impressive, you might have a tough time borrowing money to buy that new Jeep.

"In general, [auto loans] are performing poorly. The industry, as a whole, relaxed terms in the 2004-2006 time period. And now they're tightening back up," says Moshe Orenbuch, research analyst at Credit Suisse.

Fairbank added that the financial services provider had increased loan pricing—that is, it is charging higher fees or rates—"to build more resilience into our loan portfolios." Another reason not to expect the Fed cut to provide relief to your own debt portfolio anytime soon.

Tax season brings with it a variety of headaches, but there is one that can be especially costly for consumers: refund anticipation loans, or RALs.

These loans, typically used by low-income consumers who lack bank accounts, provide filers with quick money, taken out as an advance against their expected refund amount. They often carry annualized interest rates in excess of 30 percent, and sometimes as high as 500 percent. Many consumer advocates say they are so expensive that they should never be used.

"I absolutely think that they should be illegal," says Sally Greenberg, executive director of the National Consumers League. "Invariably, the interest charged is extreme, and it's yet another example of taking money out of poor people's pockets and robbing them of scarce funds."

My conversation on tipping with protocol consultant Judith Bowman generated so many questions from readers that I asked Bowman to tackle the subject again. Readers wanted to know what to do when they traveled, why they had to pay a 20 percent tip on meals that were already too expensive, and what to say when they weren't thanked properly for providing a tip. (Not surprisingly, the short answer to that last one is "nothing.")

I also received a plea from a reader who works in a large, family-owned restaurant in Delaware. She says most customers tip only 10 percent, which places a strain on the wait staff, who typically earn only around $2.35 an hour before tips, which are also shared with busboys. She wanted to remind others of the importance of tipping—and tipping well.

If the diamond ring you were lusting after didn't show up in your Christmas stocking, take comfort in the fact that you're not alone. In another indication of the slowing consumer economy, jewelry retailers reported disappointing sales for November and December, suggesting that shoppers resisted the temptation to load up on pricey gemstones.

Tiffany & Co. and Zale Corp. reported 2 and 9 percent declines, respectively, in comparable-store sales for November and December from the same period in 2006. Zale also announced this week that it will close 60 retail locations within the next 90 days. Jewelry retailer Finlay Enterprises similarly announced that comparable-store sales for November and December declined 5.9 percent, and at Signet Group, U.S. sales were down 8.1 percent for the period.

"Luxury is the first thing to go because it's totally discretionary," says Pam Danziger, president of Unity Marketing, a market research firm, and author of Let Them Eat Cake: Marketing Luxury to the Masses as Well as the Classes.

According to her research, spending on jewelry in the fourth quarter was down 23 percent to $2,655, compared with $3,468 in the fourth quarter of 2006. The percentage of wealthy households that purchased luxury jewelry was also down, to 13 percent in the fourth quarter of 2007 versus 25 percent during the same period in 2006.

There is one hot spot in the field of ice, however: Blue Nile. The online retailer, which prides itself on offering quality jewelry for good value, reported that fourth-quarter revenues increased 24 percent, largely because of strong holiday sales. If consumers were in the market for bling, it appears they wanted to comparison-shop online in an effort to get their money's worth.

Dear Alpha Consumer,

I was renting a storage room from a popular company. I set up automatic payments on my credit card to pay for it. After closing my account at the storage place and moving to another state, my card continued to get billed. I realized this about a month later and called to tell the storage company. The manager asked me to fax my paperwork showing I had closed the account. I did so several times, but the company continued to bill me for four months. I have tried calling the manager and filed a complaint with the Better Business Bureau. What are my options, besides just paying the bill?

The good news is that you paid with a credit card, which offers you extra protection. The bad news is that four months have lapsed, which might make it more difficult to get your money back.

Dear Alpha Consumer,

I was doing OK financially and paying off all my credit cards until I lost funding for my job retraining program. I've also recently had to pay for major vehicle repairs and my father-in-law passing away. Now, I'm carrying debt, and my husband works erratic hours and takes our only running vehicle. I'm trying to find a job online to help. We don't have any assets to sell.

Here is my question: With debt on multiple credit cards, all of which are at various interest rates, where should I put extra cash above and beyond the minimum payment? Should I pay down the card with the highest balance, which also carries the lowest interest rate? Or pay down the card with the highest interest rate and lower balance? Another option is paying down the cards that carry debt exceeding 70 percent of the credit limit.

Under normal circumstances, I happily live below our means, and we were doing so until several major blows, some of which I mentioned, hit our family. If you have any advice, barring winning the lottery, anything illegal, or filing for bankruptcy, I would most appreciate it.

I'm sorry to hear about your series of hardships, which sound as if they have placed a huge financial burden on your shoulders. Although climbing out of debt, especially while still looking for a job, is never easy, there are some smart ways to do it.

In Punching In: The Unauthorized Adventures of a Front-Line Employee, Alex Frankel works as a salesman at an Apple store, a Gap sales associate, and a Starbucks barista, among other positions at popular companies. While most of us interact with these companies only as consumers, Frankel explores what they look like from the other side of the counter. As someone who is always wondering what store employees are really thinking as they gather piles of clothes left in dressing rooms or froth our nonfat milk foam, I was eager to ask him about his experiences.

As an employee, what customer habits did you find most annoying? Have you changed any of your own behavior as a result?
There were certainly a few customers here and there who were clueless and demanding, but by and large, as a worker on the front lines at a handful of front-line retailers, I found customers to be surprisingly unobtrusive and generally patient. I was impressed by those customers who, when they felt they were right, argued calmly and clearly for what they felt they deserved (as opposed to those few who became angry and loud). The way in which my behavior has largely changed has been that now I understand that each company or store I frequent has a number of systems by which it operates.

Now that I know more about these systems, I can be a better consumer. For example, I now understand how the UPS routing system works, so I know when I can expect my driver to show up at my door. And I know how to make his job a bit easier by doing things like ordering in bulk instead of many packages, getting to the door as quickly as possible, and telling him my name when I sign for a package. At Enterprise [Rent-a-Car], I know how the employee will try to sell me insurance, so I beat them to the punch by initialing the lines on the contract that signal I will decline it. I typically decline most insurance if I know that I am covered by my regular car insurance policy or my credit card, two ways many people are in fact covered for renting cars.

It's a question that often comes up when I get together with friends who work for nonprofits: Do they sacrifice money for their idealism? Most nonprofits are dedicated to improving the world in some way, but many people who work for them say they could earn more if they defected to the for-profit world. So how much, if anything, are they sacrificing for their career choice?

A new study from Fidelity Investments answers part of that question: At least in the ways they save for retirement, nonprofit workers seem a bit more conservative than their for-profit counterparts—but may have less money to work with. "They tend to put away, in terms of deferral rates, a little bit more than corporate employees. However, their average balance is less than on the corporate side," says John Begley, executive vice president of Fidelity Investments.

With the recent reports of weak retail sales, here's an argument for why December may not be as important as you think.

Were holiday sales weak this year?
For the most part, yes. According to TNS Retail Forward, the December same-store sales growth of about 50 retailers weakened to 0.2 percent, down from 3.2 percent growth in December 2006. The research group found that while the same percentage of people bought presents, shoppers spent $635 on average, down $75 from last year.

To some extent, the soft sales were predicted: Way back in November, the Consumer Federation of America and the Credit Union National Association said that 1 in 5 shoppers planned to spend less than in the previous year, largely because of concern over growing energy costs.

If you've ever impulsively bought a muffin to go with your coffee, or surprised yourself by buying a whole new outfit when you meant to get only a shirt, then you will relate to the findings of a new study: Shopping, it turns out, leads to more shopping.

Before you beat yourself up for this kind of splurging spiral, know this: Researchers say that the forces at work are, in fact, psychological in nature and beyond our control. (Warning: That line may not work on spouses.)

Updated on 1/9/08

My husband received a letter in the mail yesterday with a $300 debit card enclosed. "Congratulations," it read. "You have been pre-selected by NCLI to receive $300.00 at NO COST TO YOU."

It was sent from the marketing department of the National Collegiate Lending Institute. To qualify, he simply had to take advantage of NCLI's "free service" and provide a "brief testimonial" about his experience. The letter promised it would take less than 10 minutes and the money would be processed the following business day.

We all know that waiters should get somewhere around 20 percent of the final bill. But what about newspaper delivery workers? Or the housekeeping staff at a hotel? Feeling perpetually confused about tipping myself, I turned to Judith Bowman, a protocol consultant and author of Don't Take the Last Donut, to go over the basic rules.

Can you please explain your basic tipping philosophy, including how you know when to tip and how much?
Tipping is not mandatory. Literally translated, to "tip" means "to ensure promptness." [But] tipping is also a way of saying thank you for services rendered.

There are no absolutes in terms of whom one should tip. However, generally speaking, service providers should be tipped anywhere from 18 to 22 percent. The 10 to 15 percent tip is archaic. That said, the elderly individual on a fixed income who offers $1 to the maitre d' should be applauded, and the service staff should accept the gesture as graciously as they would a $50 gratuity. Overtipping is never a negative, however, as this serves to help ensure prompt service, particularly if one is a regular customer.