Optimizing your Financial Resources

 By: Neil Pithadia

Getting back to our road map, we have finished with creating a Financial Plan and will be discussing optimizing your resources, then focusing on retirement, investing and finally automating your finances.

I.) Credit Cards

Good credit is the lifeblood of getting rich.  Most of our largest purchases are made on good credit and good credit can potentially save you a tremendous amount of money.

So how is your credit and how is it all based?

First, you can get your credit scores for free.  FOR FREE.  You can visit these sites:

1.) www.annualcreditreport.com

2.) FICO score: www.myfico.com

How it is based:

The Golden Rule for Credit Cards

Pay off your credit card bills regularly.  Missing a payment is the ultimate sin.  Not only does it lower your credit score but you will be charged with a late fee and your rates will likely crush you.

Choosing a Credit Card

Choosing a credit card can be an arduous task.  There are cards specifically for low interest rates, balance transfers, rewards such as travel and gas, etc.  Use this site to help compare different cards: http://www.bankrate.com/credit-cards.aspx.  If you received your credit score from above you can search for a credit card that corresponds to your credit score.

Chose the card that works best for you.  Be aware of common terminology:

Credit line/limit. The total amount you may charge, including interest and fees.

Annual percentage rate (APR). The interest charged on carried-over balances. It usually stipulates a higher rate for paying late.

Interest calculation. Most calculate interest charges by averaging the daily account balance, then multiplying that figure by the periodic rate (APR divided by the number of days in a year).

Fixed or variable APR. Fixed APRs have constant interest rates. Variable APRs are tied to an index (often the prime lending rate, which is set by the Federal Reserve) and thus fluctuates.

Grace period. The number of days (generally between 20 and 30) you have to pay in full before interest accrues.

Fees. Ordinary fees include those for cash advances, balance transfers, paying late, exceeding your credit limit, and sometimes an annual fee. Avoid cards with nonstandard fees, which Manning lists as application charges, not using the card, calling the creditor if they don’t have an 800 number, online account management, and terminating the account.

To optimize your credit, keep credit cards open (if you have no debt).  Ask for credit line increases, knowing well that you will not need it.  Also realize that credit cards extend warranties on some purchases like car rental insurance and will usually dispute charges for you.

The take away point to pay credit card debt aggressively for two reasons: 1.) interest is VERY HIGH 2.) failure to do so negatively affects your credit.  Pay off your cards with the highest APR first.

II.) Bank accounts

You want to maximize your savings.  However, with all the different types of banks, terms, accounts, it can be difficult to know which accounts are best for you.

Follow these simple rules: 1.) Make sure the account has no-fees 2.) Get the highest-interest accounts you can find.  3.) Make sure it is convenient: easy to get money in and out/access including a convenient website.

Get an account with no minimums and no fees, this includes monthly, overdraft and setup fees.

My suggestions:

Checking: Your local bank or credit union for convenience

Savings/High-yield accounts:  Ally Bank, Capital One Bank 360, Schwab Bank High Yield.

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