Looking back, there were two merchants where I used the card most:

• Barnes & Noble: For textbooks, fun books, DVDs, Christmas presents. The card got me the same rates as BN members without paying their separate $25 membership fee.
• Amtrak: I found airfare during the holidays to sky rocket sometimes, making Amtrak my travel solution. The Student Advantage savings (it was around 10%) made the solution even sweeter.

The card has deals with even more merchants now and the savings are probably better too. Going to school in a city where there were no student rates on the subway, at the movies, or anywhere, the Student Advantage was my solution.

So for my student readers, have a look, it may just be worth your while.

No related posts.

A friend e-mailed me last week asking about her 401k options. She left her former employer, but also left her 401k plan with them. She was wondering if she should roll the old account over into an account with her new employer.

I let her know that while that is definitely an option, she may be wiser to move the money into a seperate IRA account. When done correctly, an “IRA rollover” has no penalities and no tax implications. In addition to the tax benefits, I have a three reasons why I prefer this option over moving to the new employer.

1. 401k plans are limited

Most 401k plans offer an average of 25 investment choices. This is true of my employer’s plan. Whether you are an active or passive investor, only 25 options can limit your diversification. Plus its difficult to know why these investments have been chosen for your firm’s employees. I’m not sure if my employer examined expense ratios when deciding on the funds to offer me or if they just picked the recommended options suggested by the brokerage firm.

 In an IRA plan you have almost unlimited options. I like to choose individuals stocks, ETFs, and mutual funds to create my own diverse account. I am an active investor and enjoy the control I can excerise over the account. I initially started as a passive investor, choosing a couple of mutual funds and just leaving the investment alone. I like that the IRA plan gives me both options.

2. All my money can be together

 Its very normal to change jobs every couple of years nowadays. For friends that plan on taking that route, I tell them to open a 401K at each new employer, but instead of rolling it along from one employer’s plan to another, I advise putting the funds from a past emplyer into one IRA account. This way, all funds from old employers will be in one place.

I view this as a better method to capturing long term returns because the money will only be cashed out from the 401k plan once or not at all. The 401K to IRA option allows for a whole investment portfolio to be moved without cashing out. When jumping from one 401k plan to another, the money must be cashed out everytime because its likely the new employer has a different set of investment options. This can have a large impact on gains/losses.

3. Roth funds can remain Roth funds

My employer offers a Roth 401K account in addition to a traditional 401K. I would hate to see anyone who took advantage of the Roth 401k move to an employer that doesn’t offer one and have to lose out on the tax benefit of that decision by converting funds to a traditional 401K. The great thing about IRAs, is that Roth 401K funds can be moved to a Roth IRA without losing the tax benefit (same goes for traditional).

What’s even better is that there is no limitation preventing me from having both a Roth IRA and a Traditional IRA (I have both). So according to whatever type of 401K plan I had at a previous employer, I can just deposit the funds into the corresponding IRA plan.

I hope this post will aid my friend in her decision making process. As for the logistics of the rollover, any full service or discount broker will be happy to help. They are usually so excited you want to move your money, so they try to make the process as painless as possible. Also, the IRS has a rollover chart on their website as a guide (though I find it a bit confusing).  If anyone has any follow up questions, I’m here to help.

Related posts:

1. Traditional vs Roth IRA Accounts
2. Help! My 401(k)/403(b) is plummetting!
3. Calculating 401(k) or 403(b) Contributions

My new year’s resolution was to stay on top of my credit reports. Unfortunately, Equifax put a snag in my plans when they refused to provide me with  my free credit report. I tried from January – March to get my report via www.annualcreditreport.com, by calling 1-800-FACT-ACT, and even by writing to them. I spoke with their not so excellent customer service department a few times, set up an account with them, and even offered to pay for my free credit report. I had given up on my resolution officially until today.

Today I went to annualcreditreport.com and gave it one last try. To my surprise, the process went smoothly, with no errors, no messages of a “hold” on my account, and no request to call customer service. I got my credit report and printed it.  For anyone out there that has had trouble with Equifax in the past, please keep trying! I may even be able to help.

Even after all of the frustration, I’m glad I was able to get my report because there was an error in it. I have put in a request to dispute it online, so we’ll see what happens. For everyone else following along, try to check your credit reports periodically, whether its all three once a year, one every 4 months, or your own time schedule. You never know which bureau a bank, management company, employer, etc. uses, so accuracy all around is the best strategy. Had any frustrations with the credit bureaus? Use this page as sounding board and let us know what happened to you.

Related posts:

1. Protecting Myself from the Credit Crisis
2. De-Mystifing FICO scores
3. Thinking of Opening Another Store Charge Card?

In a past post, I wrote about trying to stay on top of my free credit reportsevery fourth months. The first company I had chosen to request a report from was Equifax, after months of trying to track down my free report online and over the phone, I still have been unsuccessful (I even tried to pay for a report). They may possibly have the worst customer service I have ever dealt with. I won’t give up and will post an update when I can actually get my report from them.

For now, I want to explore the components of FICO scores and how exactly that great score that got me approved for my apartment may have been calculated.

How is my FICO score calculated?

According to Fair Isaac website www.myfico.com, there are 5 main components to a credit score. These components impact my score according to the weight each one carries. These 5 categories are:

• Payment History (35%)
• Amounts Owed (30%)
• Length of Credit History (15%)
• New Credit (10%)
• Types of Credit Used (10%)

 Payment History

This category is the one that comes to mind first. It reflects whether or not bills are paid on time, how many bills have been paid, if there were late payments, how late they were paid, if there are current payments past due, and if bankruptcy proceedings were filed. I got my first credit card in college (around 2003) and have been diligent about paying my balance in full each month and on time. I have benefited from the payment history component of credit scores because although I have a short history (which also comes into play) I have had less opportunities to tarnish it.

Amounts Owed

This component is where the ever mysterious Debt to Credit ratio come into play. In that previous post, I discussed the equation to calculate the Debt to Credit ratio, how cancelling an old credit card affects the ratio, a rule of thumb I like to use, and even calculated my own  ratio. In addition to the Debt to Credit ratio reflecting proportionate use of accounts, the amounts owed category incorporates data regarding the number of accounts with balances, amount owed on these accounts and whether these are a specific type of account (i.e. revolving credit, installment loans, etc.)

Length Of Credit History

This category is one that is both easiest and hardest to conquer. The easy part – leave all open accounts open for as long as you can. For these accounts, try to have at least some activity periodically. I have a credit card that only has my monthly cell phone bill automatically charged to it. Something is better than nothing.

For my young professional target audience, this category can also be difficult to conquer. I got my first credit card in 2003. Considering its only been 6 years, its going to be a long time before I have 20 years of credit history. The credit bureaus view my good but short history to be risky because they can’t predict how the next 10 years will turn out.

New Credit

This component not only involves the number of recently opened accounts that exist (I consider recent to be within the past year), but also the number of recent credit inquiries. I once heard a story about someone going from one bank to another to compare mortgage rates, only to find the rate was getting worse with each new bank. The morale of the story was that each new bank he visited, created a new recent inquiry on his credit report, thus lowering his score. Whether this is accurate or not, I do not know.

What I do know, is that too many credit inquiries can be seen as risky. For example, I participate in Lending Club and the credit information provided of the borrowers includes credit inquiries as a factor for me to assess. The new credit component of FICO scores not only considers how many recent inquiries I have, but also how recent they are and for what types of credit. This component is easy to forget when deciding on opening a retail store charge card.

Types of Credit Used

I found this category to be the most interesting. FICO scores are affected by what different types of credit we use (ex. credit card, retail card, installment loan, or mortgage). A couple years ago, I signed up for one of those 30 days trials from a credit bureau which showed me my report, my score, and how to improve my score. The report instructed me to open an additional revolving account. It said my current credit card did not have enough history at the time, and that it would be beneficial to leave that card open as well as obtain another card. I followed the instructions and subsequently saw that my score increased the following year. I’m sure that wasn’t the only factor involved and others may not see the same results I did, but it was still interesting.

These areas components of the FICO score are nothing to dwell about, but are helpful when making important credit related decisions.

Related posts:

1. Thinking of Opening Another Store Charge Card?
2. DON’T Cancel that Old Credit Card
3. Protecting Myself from the Credit Crisis

I have summarized below the 4 realistic repayment options discussed in the article (you’ll see why the 5th one doesn’t count).

Option 1: Repay as scheduled

This is your basic level repayment scenario. Receive a bill each month and pay it on time. The payment amounts can fluctuate quarterly or yearly if it is a variable rate loan (most private loans are).

Due to my personal experience with CitiAssist loans, I’m aware of an additional type of level payment system that Citi provides called graduated repayment. This option adjusts the payments so in early years the payments are smaller and in later years they are larger in order to still have the loan paid off in time.

Option 2: Consolidate Your Loans and Lengthen the Payment Schedule

I think this really applies to federal loans. I’m not sure if its possible to consolidate private loans because they are variable rate (if anyone knows, please post a comment). Federal loans, like my Stafford loans from undergrad were set up to have a 10 year repayment term. Consolidation provides the option to extend that time frame, lowering payments, but resulting in more interest paid over time.

When I consolidated my federal loans in June of 2006, I was able to get a better rate. I opted to keep the 10 year repayment schedule with the lower interest rate. Consolidation may be beneficial for older loans at higher rates, while current loans would maintain the same interest rate but have an extended repayment schedule.

Option 3: Income Based Repayment

This option is definitely only available for federal loans. It has been the topic of much news this past summer because of the cap on the loan payments as a percentage of gross income. Specifically 15% of the income that exceeds 150% of the federal poverty level (according to the article that comes to $16,245 for single individuals). The cap sounds good, but here’s the controversy, any debt not paid off in 25 years is forgiven. Forgiven DOES NOT equal free. The amount forgiven is still taxed as income (Uncle Sam ALWAYS has to get paid).

I think this sounds like an excellent idea for individuals with only federal loans. My concern lies in taking 25 years to pay off this student loan debt. That time span is much longer than I am comfortable with, plus there is the risk that the loan payments are increased for income increases. Graduating college at 22, I could be paying until age 47!

If this option has peaked your interest, Forbes has another article dedicated to the topic of income based repayment, along with a student loan calculator for this repayment method.

Option 4: Deferment and Forbearance

This section is where I learned the difference between two terms I always thought to be synonymous. These options focus on time spans when repaying is not a possibility (i.e. going back to school, getting laid off, starting your own business).

Deferment is when the lender allows the borrower to skip payments for a specific period of time. My CitiAssist loan allows me the flexibility to defer payments for up to 12 months. These 12 months can be used consecutively or intermittently as long as I speak with them in advance. Interest still accrues while payments are deferred and it may be capitalized at the end of each deferment period.

Forbearance is similar because payments can be skipped and interest still accrues. The big catch with forbearance is the final loan payoff date is not pushed back because payments are skipped. So in order to still be paid off by the same final date, the remaining payments are increased or a large balloon payment is added to the end of the loan.

When given the option, I would choose deferment.

Option 5: Defaulting

This one I would like to call the non-option. Defaulting on student loans, both federal or private gets you no where. Collection agencies step in, wages can be garnished, and filing bankruptcy doesn’t help. Student loans will haunt you for the rest of your life, so its best to constantly communicate with the lender and make payments when possible. They even have “rehab” programs to help with making payments.

I think the article provides a very organized breakdown of the choices. I’ve already excersized option 2 and am currently following option 1, but its good to know what other alternatives exist.

Related posts:

1. Want to Deduct Private Student Loan Interest?

It recently occurred to me that many of my peers have heard that it’s not a good idea to cancel an old credit card, but don’t know why. The reason unused credit cards with no balance can be beneficial lies in the esoteric Debt to Credit ratio. I discovered the Debt to Credit ratio after watching TV programs like the Suzie Orman Show and CNBC’s On the Money. These shows helped explain the logic, reasoning, and consequences that lie behind the common truism of not canceling an old credit card.

Initially, it seemed unnecessary for me to keep an open account with my first credit card from college.  I no longer use it due to the out of date rewards program, high interest rate and a low credit line. Thinking the benefits of keeping an unused card open to be a myth, I canceled my first credit card a few years after opening it. However, when I realized the adverse effect this action had on my overall credit score and available credit, I had no choice but to declare this myth a reality.

The Equation

The Debt to Credit ratio determines the percentage of total available credit a person is using. In this equation the total available credit serves as the denominator (read: bottom number), while the numerator (read: top number) is your total debt outstanding i.e. total amount owed. This equation can be applied on an individual card level, or as an aggregate. The sum of all your outstanding debt over the total credit available to you reflects the proportion of credit you are using – the smaller that percentage, the better.

How Does Canceling a Credit Card Hurt Me?

Canceling a credit card that is not being utilized does not change the part of the equation which reflects total debt (numerator). It does, however, decrease the total available credit (denominator). As a result, at a given amount of outstanding debt, a decrease in the amount of total available credit gives the illusion that a higher proportion of the credit available is being used.

Lets look at an example:

Say I have 5 credit cards with $1,000 available credit limits on each, giving me a total of $5,000 in available credit. I really only use 3 of them each month, with my total combined balance being $500 (it doesn’t matter if the balance is paid in full each month, the balance that existed at each statement date is used) So $500 / $5,000 = 10%, meaning, I am using 10% of the credit extended to me. Let’s say I decide to close the accounts of the two cards that I do not use ($1,000 available credit on each). Now my denominator is $3,000. That same $500 outstanding balance now represents over 16% of my available credit. My Debt to Credit ratio just increased by over 6% even though my spending habits have not changed.

Rule of Thumb

From the TV programs mentioned earlier as well as research I’ve done online, I find that its a good goal to keep the Debt to Credit percentage below 20%. This only represents revolving debt (i.e. credit cards) and not installment debt (student loans, car loans, etc). The 20% goal can apply to any particular card, as well as in aggregate.

It’s easy to forget about store charge cards (discussed in a previous post), which is troublesome since they negatively impact the ratio the most. The low spending limits on store charge cards mean that almost any spending can exceed the 20% usage goal. For example: A card with a $500 limit, restricts the user to keeping less than $100 balance in order to stay under the 20% usage goal.

My Percentage

I’ve decided to add up all my 2 credit cards and 1 store charge card to calculate my Debit to Credit percentage. I’m using the average monthly balance from Jan – July 2009 on each card to get a more accurate ratio.

Overall Total: 608 / 14,200 = 4.28%

After going through this exercise, I’m happy to see that I’m averaging less than 10% usage on each card. An area of improvement would be to even out the spending over the two credit cards or use the one with a higher limit more often. Keeping in mind that some months I spend more (especially when major purchases are involved), at least I have a good cushion to still stay under 20%.

Those are my numbers, I’m interested to see if anyone else goes through the exercise and has any findings you would like to share.

Related posts:

1. Thinking of Opening Another Store Charge Card?
2. De-Mystifing FICO scores
3. Protecting Myself from the Credit Crisis

I’m back from my studying hiatus and ready to dive back into the blogging world. A couple of months ago, I joined Lending Club , a peer to peer lending site. I was hesitant at first but after reading a lot about the site and finding out that it has registered with the SEC, I went ahead and took the plunge. From what I recall, Lending Club is the first peer to peer lending site to register and get approved by the SEC. The competitors are following in its footsteps.

Why I Joined

I was first attracted to Lending Club because of the principle it is based on. People helping people financially. Hearing about the chaos in the banking industry everyday does not make me, as a consumer, excited to get a loan from a major financial institution. And as anyone with a savings account knows, the banks are offering very minimal interest rates to savers. Those former killer online savings accounts are nothing like they used to be.

I’m glad there is a solution where I can invest my money for a great return, but find that it feels like an even better return, because I am helping others achieve their own goals.

Types of Loans

All loans through Lending Club are three year fixed rate loans, which in my opinion is good for planning for both the borrower and the lender. The site uses credit report information to put the borrower in a rating category and subcategory and advertises offering better rates than many banks. These loans are not backed by any asset such as a house or a car and are the bank equivalent to a personal loan.

From what I have seen most borrowers need the loans for repairs around the house, paying off credit card debt, or paying for a big event like a wedding.

Options

Lenders have many options available when contributing funds to one or many loans. I was able to choose a desired return level (13%!)  set by the borrower credit categories. These categories are created with the intention of offering more return for an increase in the risk that is undertaken (about 7% – 20%). The site even offers info regarding number and percentage of defaults in any given category, boasting a less than 2% default rate since inception.

One of the more interesting options is the ability to sort borrowers by commonalities. The areas of commonality include hometown, current town, college/university, employers, and other organizations or affiliations. The idea behind making these commonalities known is two fold. It can encourage individuals to lend to others as well as motivate the borrowers from defaulting, knowing the lenders are people just like themselves. This commonality removes the detachment usually felt with loans from big banks.

Lenders also have the option to decide how much to contribute to any one loan, from the minimum of $25 to the full loan amount (usually ranging from 5K to 25K). Some basic information regarding employment and income is shared and lenders have the option to ask borrowers additional information. I have seen this often when someone has a couple of delinquencies on their credit reports.

I think that peer to peer lending is an idea that is still just taking off and will explode as one of many solutions for consumers looking for liquidity options. At this time, Lending Club is offering a bonus for new members looking to invest funds and make loans. E-mail me (egger [at] westegger [dot] com) if you are interested and I can send you an invitation to Lending Club. I don’t get any referral benefits, but you get a monetary sign up bonus.

Related posts:

1. De-Mystifing FICO scores
2. Protecting Myself from the Credit Crisis

I remember that after my first full year out of college, I was eager to file my taxes anticipating a chunky return. The first obstacle in the path to my return was figuring out what program to use. To help out my fellow young professionals, I have laid some out different options for filing online (and offline too, but who uses paper these days). Each program below has an e-file component and a download option if you would like to backup your tax info on a personal computer and/or paper file.

The costs and benefits for each provider are totaled on an estimated need to e-file 1 Federal return and e-file 1 State return (regardless of filing status).

1. Tax Act

Online

Pricing:
- Basic edition (Total cost: $13.95)
- Deluxe or Ultimate edition (Total cost $16.95)

Features:

• Deduction Examiner
• Walk-through videos
• Accurately track & value donated items (deluxe and ultimate only)
• Complete the FAFSA with ease (for those who need it)
• Alerts for Errors and Omissions, Warnings, and Tax Saving Ideas
• Pay when you file

Download

Pricing:
- Basic edition (Total Cost: $13.95)
- Deluxe edition (Total Cost $26.90)
- Ultimate edition ( Total Cost $19.95). I’m not sure why the Deluxe edition is more expensive than the Ultimate considering the Ultimate edition offers exactly the same features as the Deluxe plus 1 state.

2. Tax Slayer

Online

Pricing:
- Classic version (Total cost $9.95)
- Premium version (Total cost $14.95)

Features:

• Business Forms (Schedule C & K-1)
• Investment Income
• Rental Property
• Itemized Deductions (Step by Step Deduction Finder with Premium version)
• Life Events Wizard (Premium only)
• Audit Assistance (Premium only)
• Priority Support and Message Center (Premium only)

Download

Pricing:
- Download of program: $19.95
- Cost per return: $9.95 up to 5 returns. Site does not specify if this is federal only or federal plus state. (Total cost for our purposes $29.90)

3. Turbo Tax

Online

Pricing:
- Free Edition (Total cost $29.95)
- Deluxe Edition (Total cost $64.90)
- Premier Edition (Total cost $84.90)

Features:

• Live Audit Support
• Audit Risk Meter (Deluxe or higher)
• Deduction Maximizer (Deluxe or higher)
• Guidance for Investments (Premier only)
• Rental Property Deduction Finder (Premier only)

Download or Physical Software

Pricing: Instead of purchasing the software on Turbo Tax’s website, I would suggest buying  TurboTax Deluxe 2008 at a discount on Amazon and getting free shipping.

4. H & R Block Tax Cut

Online

Pricing:

- Free Federal (Total Cost $29.95)
- Basic Federal (Total Cost $49.90)
- Premium Federal + State (Total Cost $69.90)

Features:

• 5 Federal e-files
• Worry-free Audit Support
• Ask a Tax-Advisor – 1 free session (phone or e-mail)
• Deduction Pro
• WILLPower (for estate planning needs)

Download or Physical Software

Pricing: Instead of purchasing the software on H&R Block’s website, I would suggest buying H&R Block TaxCut 2008 Premiumat a discount on Amazon and getting free shipping.

Which One?

I found that the main differentiator of the more expensive programs was the ability to get support from a live individual.  If that is something important to you, than your decision is made. Otherwise the less expensive options are more of step-by-step walkthrough of the paper forms, with instructions.

I have used both the IRS website and the Ernst & Young Tax Guide
to answer my questions while filing my taxes. If you have any questions about the costs/features outlined above or other tax inquiries feel free to e-mail me: egger@westegger.com.

No related posts.

Salary information is probably the most confidential topic that companies try to not share with employees. I’m a firm believer in transparency because it helps me know what I’m working hard to achieve. I saw a news report about a company that published salary information on the intranet. Employees of that company know how much each individual is compensated, letting them know what rewards are awaiting their hard work. Conversely, they know how much someone who is not pulling his/her weight is getting away with.

Overall, I think that knowing salary information can do more good than harm. I have found that Glassdoor.com does an excellent job of sharing real employee salaries while keeping the employees anonymous. To me, it achieves the goal of knowing this valuable information without invading privacy.

What can I do with Salary Information?

Even in these economic times where some people are happy to be employed, its good to know where you stand amongst your peers. I for instance work at a company that has over 100,000 employees globally. With the help of Glassdoor, I can see whether my salary falls in line with different groups of people:

• My peers in my department in my office
• My peers in other departments in my office
• My peers in my department in other offices

The list can go on and on with different combinations. But what I also find especially useful, is the information for the next promotion level. I have found myself adjusting the mental dollar figure I assumed for those at the level above me. People may speculate in the office about salary ranges, but the numbers speak for themselves.

The Key

The key to success at Glassdoor is that users must share information in order to access information. The site requires sharing salary information from an employer in the last 3 years. Every 12 months, users have to provide updated information. This requirement enables the salary information provided for various employers to be up to date at all times.

In addition, the site allows users to write anonymous reviews of companies including an approval rating for the CEO.  The reviews are a great way to see how others feels about their companies, especially for anyone interested in making a move.

I feel that knowing salary information can only be beneficial. I am interested in anyone’s opinion that differs.

Related posts:

1. Get Paid to Interview
2. A Little Less Social, A Little More Networking

I keep hearing on the news that 2009 is the year credit will dry up. Even with the TARP funds, banks are more conservative than ever before. They are on a path to reduce the amount of credit offered to consumers. It will be harder to get home and auto loans or even increased spending limits on credit cards. I wouldn’t be surprised if consumers find their extended credit on cards is reduced.

I think one of the best forms of protection against this current credit crisis is knowing exactly what is in my credit reports. Under the FACT ACT amendment to the Fair Credit Reporting Act, everyone is allowed a free credit report once every twelve months from each of the three credit bureaus.

The credit agencies have set up www.annualcreditreport.com as the site to get free reports each year. I know that many people have heard of another website with the word “free” in the domain, beware that this other website is not the one you want. It tries to sign you up for a 30 day trial of credit monitoring service in order to get a free report.

Stick with www.annualcreditreport.com (or call 1-877-FACT-ACT) because it has no strings attached and will never ask you for payment information. At the time of request, consumers can choose to obtain a report from one, two, or three agencies. At first it may seem like a good idea to get all three reports at once for comparison purposes. The problem with getting all three today is that 12 months have to go by before any of these credit reports can be examined without a fee again.

For my New Year’s Plan, I have decided to get one of the three reports every four months. I’ll have reminder posts if you would like to follow along with me in ordering your reports.

My proposed schedule:

• January 2009 – Equifax
• May 2009 – TransUnion
• September 2009 – Experian

I feel that this way I’ll always have an updated report to arm myself in case the credit card companies make any changes to my available credit without notifying me.

FYI – Just the credit reports are free. Getting an actual credit score will usual cost $ unless you sign up for a free trial of a service like credit monitoring. More about credit scores later.

Related posts:

1. Credit Report Update
2. Thinking of Opening Another Store Charge Card?
3. De-Mystifing FICO scores