My brother's friend just bought a car. His father, a prominent physicist, took out $19,000 from home equity line of credit (HELOC) to pay for the car. No, his father is not buying him the car. As a college graduation gift, he waived $4,000 from the $19,000 and asked his son to pay back $15,000 plus the interest.
If you were in that situation, what would you do? Would you also use HELOC to pay for the car? Let me give you a few minutes, so you can decide what to do. Do not read any further until you decide. (Tip: this college graduate has no credit history.)
Here is what his father did not see: I know many people use HELOC or home equity loans for major purchases since the Internal Revenue Service usually allows taxpayers to deduct interest on up to $100,000 of HELOC balance. Not only that, equity interest rates are lower than most loans. So, if the car was for himself, the father made a great decision for buying the car with HELOC. But, it was not for him; it was for his son.
If I were his father, this is what I would have done: I would purchase the car using HELOC AND an auto loan that has my son as the primary borrower and myself as a co-signor, and possibly paying $15,000 with HELOC and borrow $4,000 in auto loan. Now, you are probably thinking, "why would I take out an auto loan when the rates are much higher?" The son has no credit and not having credit will cost him much more than thousands of dollars. Yes, the son can build his credit by getting a credit card, but credit bureaus prefer auto loans over credit cards when calculating credit scores. Not only that, auto loans have positive impacts on credit even after paying them off.
The reason the father paid for the car using HELOC was to save money. So, if you want to maximize the savings in this case, take out a small auto loan and pay the rest with HELOC. Having a small auto loan compared to a bigger one does not make significant difference in credit scores.
Sometimes, you may have to forgo visible gains for big hidden gains.
Disclaimer: The information on this blog is general information only and may not apply to an individual's circumstances. Please consult a professional regarding your particular circumstances.
Friday, April 24, 2009
Why Giving Gift Cards Does More Harm Than Good
I admit that I have given gift cards to others because the recipients can choose what they want, and honestly, it saves so much time by not shopping around for gifts. But, if gift cards are the only gift option, it is a better idea not to give anything.
Many people think that the main reason retailers are selling gift cards is to sell more merchandise by attracting shoppers through the cards, but that is not true. Retailers are selling them to
1. up-sell, making gift card holders spend more than their cards are worth;
2. borrow money without paying any interest; (According to Bloomberg, the parent company of Black Angus had $15.2 million in outstanding gift cards and certificates when they filed for bankruptcy. Imagine how much interest they save by borrowing at 0%.)
3. make money from unredeemed gift cards through fees such as dormancy fees; (Fees cannot be imposed in the State of California.)
4. and to make money from expired gift cards. (There is no expiration date on gift cards sold in California.)
That is why retailers do not want consumers to buy anything in their stores if they are only buying things that are equal to the card balance.
Many gift cards are never redeemed because many of us give gift cards from stores where the recipients never shop. For example, I got an iTunes gift card from someone and never used it because I do not use an iPod. To be honest, I was unhappy and frustrated after I got it. (I am very sure many feel the same way.) Moreover many suspect that you re-gifted the cards because you could not use it.
Once the recipients decide to shop with gift cards, most of them want to redeem the full balance. So, what ends up happening is that they spend more than the card balance (Most people cannot resist those up-sells). And if the recipients are having financial problems like many Americans do, gift-givers are destroying recipients' financials by forcing them to spend more money.
Gift cards are generating so much profit for retailers that they are willing to sell them at grocery stores. How much money are they making? Think about it this way. Retailers probably give grocery stores about 10% of the total cards sales. Then, they hire gift card processors to manage and process the cards. And, of course, they charge retailers for their services. So, why are they selling the cards even when they are paying so much in fees? I went to a meeting for a retail franchisor, and its officers talked about how franchisees would make a lot of money by selling and accepting gift cards. No wonder most retailers are pushing their gift cards.
We have witnessed bankruptcy filings of many retailers. Gift cards are considered unsecured debts and if retailers go bankrupt, consumers will be lucky if they get half the card's balance. There are many uncertainties in our economy and I ask everyone to avoid buying gift cards from retailers that are financially struggling. There are many ways to find out whether a retailer is in trouble. First, check the stock quote of that retailer and if it is publicly traded. If the stock price is below $1 or in the $1 range, most likely, that retailer is in serious financial distress. Then, search the web. You will find financial information about many retailers even though there are some false rumors. So, my advice here is if you have gift cards from troubled retailers, go redeem them now before they are gone, and do not even bother to buy cards from them. Imagine you give someone a gift card and the balance is later gone.
Do not give anyone a gift card because it will hurt them!
Disclaimer: The information on this blog is general information only and may not apply to an individual's circumstances. Please consult a professional regarding your particular circumstances.
Many people think that the main reason retailers are selling gift cards is to sell more merchandise by attracting shoppers through the cards, but that is not true. Retailers are selling them to
1. up-sell, making gift card holders spend more than their cards are worth;
2. borrow money without paying any interest; (According to Bloomberg, the parent company of Black Angus had $15.2 million in outstanding gift cards and certificates when they filed for bankruptcy. Imagine how much interest they save by borrowing at 0%.)
3. make money from unredeemed gift cards through fees such as dormancy fees; (Fees cannot be imposed in the State of California.)
4. and to make money from expired gift cards. (There is no expiration date on gift cards sold in California.)
That is why retailers do not want consumers to buy anything in their stores if they are only buying things that are equal to the card balance.
Many gift cards are never redeemed because many of us give gift cards from stores where the recipients never shop. For example, I got an iTunes gift card from someone and never used it because I do not use an iPod. To be honest, I was unhappy and frustrated after I got it. (I am very sure many feel the same way.) Moreover many suspect that you re-gifted the cards because you could not use it.
Once the recipients decide to shop with gift cards, most of them want to redeem the full balance. So, what ends up happening is that they spend more than the card balance (Most people cannot resist those up-sells). And if the recipients are having financial problems like many Americans do, gift-givers are destroying recipients' financials by forcing them to spend more money.
Gift cards are generating so much profit for retailers that they are willing to sell them at grocery stores. How much money are they making? Think about it this way. Retailers probably give grocery stores about 10% of the total cards sales. Then, they hire gift card processors to manage and process the cards. And, of course, they charge retailers for their services. So, why are they selling the cards even when they are paying so much in fees? I went to a meeting for a retail franchisor, and its officers talked about how franchisees would make a lot of money by selling and accepting gift cards. No wonder most retailers are pushing their gift cards.
We have witnessed bankruptcy filings of many retailers. Gift cards are considered unsecured debts and if retailers go bankrupt, consumers will be lucky if they get half the card's balance. There are many uncertainties in our economy and I ask everyone to avoid buying gift cards from retailers that are financially struggling. There are many ways to find out whether a retailer is in trouble. First, check the stock quote of that retailer and if it is publicly traded. If the stock price is below $1 or in the $1 range, most likely, that retailer is in serious financial distress. Then, search the web. You will find financial information about many retailers even though there are some false rumors. So, my advice here is if you have gift cards from troubled retailers, go redeem them now before they are gone, and do not even bother to buy cards from them. Imagine you give someone a gift card and the balance is later gone.
Do not give anyone a gift card because it will hurt them!
Disclaimer: The information on this blog is general information only and may not apply to an individual's circumstances. Please consult a professional regarding your particular circumstances.
Thursday, April 23, 2009
Introduction to Zillow, a Web 2.0 Tool
As you already know, my blog is heavily focused on the real estate side of the economy, specifically, the housing market. People have asked me why I have unique forecasts and opinions that are different than other experts.(By the way, I take that as a compliment.) First of all, I admit that I do not have a Ph.D (it doesn't mean that you should not trust what I say) so the way I do my research is different, using more of the media and interviews with people who are working in the field. Also, I am not using the theories economists use when they forecast, but I use the freshest data I can find. Now that I have revealed all my research secrets, let me introduce a Web 2.0 tool that I use for my research. Warning: you will be surprised that I use this tool for my research (hint: you probably have used it).
Zillow is a tool that stole my heart the first time I used it. It is a real estate tool (as specified by seomoz.org which awarded Zillow the number one Web 2.0 real estate site award ) where people can check the value of their homes, list homes for sale, and much more. Out of curiosity, I found out the background of this tool. Zillow was founded by Rich Barton, who also founded Expedia.com, and Lloyd Frink in 2005. When Rich and Lloyd were looking for a new business venture, they came up with the idea of real estate. (Obviously, the real estate market was hot back then and many were looking to profit from it.) Barton says he loves real estate and he wanted to create a tool where people can get information about their homes and obtain valuable resources.
At Zillow, you can find out about how much your home is worth by typing in your home address or another home you want to know about. Then, you will get a detailed analysis of the home's worth along with other information such as the sales history of the home. From that analyzed report, I particularly like the market value change chart that shows price trends for your home, state, and even the nation. This data is now being used by the media to see the conditions of the housing market. For example, CNN recently reported the decline of home values using Zillow's value calculations. Also, sign up for an account and you will be able to claim your home and make corrections to the data, if you would like. The great aspect of Zillow is that you can ask questions to homeowners, for example, whether they like neighbors. Additionally, if you are looking for a home, this is a great place to start your research. It has homes for sale (yes, they have foreclosure data) and you can get information about the neighborhood, mortgage rates, and so on.
That is not all, because there are more tools and information at Zillow.Do you need to sell your home? Zillow can help you. They have a tool called Make Me Move: you set a price for your home and if someone is interested, you can sell it without the fat commission! In addition, Zillow has a database of recently sold homes that was once available only to real estate professionals. The list goes on and on and you should check it out yourself.
Zillow is popular among homeowners and sellers. Since the market downturn has started, worried homeowners are checking their home prices regularly, and sellers check out how much they can get for their homes. Actually, they are not the only groups who use Zillow. People like me who do research on the housing market use this site not only because it provides home sales data, but also because I and others can read people's behaviors such as how people react to falling prices or particular market. Last but not least, buyers jump into it to chat with local real estate professionals, check data on homes they are trying to buy, and shop for a mortgage.
Since Zillow has been very successful at attracting users, other websites that are similar to Zillow are appearing online. A strong competitor is realestateabc.com, but people who have been using Zillow will immediately notice that it has a long way to go since its graphics look like a Web 1.0 site. Another competitor is Cyberhomes. I understand that it has very cool graphics and a variety of data;however,I checked the accuracy of the valuation tool and their numbers are way off than the actual numbers. For example, I entered a few home data into its valuation tool, and the estimates were off more than 15% of those homes' actual values. That is why Zillow is still the number one home valuation site.
Now that you have heard what I have to say about Zillow, go ahead and check it out. I promise you will not be disappointed.
Zillow is a tool that stole my heart the first time I used it. It is a real estate tool (as specified by seomoz.org which awarded Zillow the number one Web 2.0 real estate site award ) where people can check the value of their homes, list homes for sale, and much more. Out of curiosity, I found out the background of this tool. Zillow was founded by Rich Barton, who also founded Expedia.com, and Lloyd Frink in 2005. When Rich and Lloyd were looking for a new business venture, they came up with the idea of real estate. (Obviously, the real estate market was hot back then and many were looking to profit from it.) Barton says he loves real estate and he wanted to create a tool where people can get information about their homes and obtain valuable resources.
At Zillow, you can find out about how much your home is worth by typing in your home address or another home you want to know about. Then, you will get a detailed analysis of the home's worth along with other information such as the sales history of the home. From that analyzed report, I particularly like the market value change chart that shows price trends for your home, state, and even the nation. This data is now being used by the media to see the conditions of the housing market. For example, CNN recently reported the decline of home values using Zillow's value calculations. Also, sign up for an account and you will be able to claim your home and make corrections to the data, if you would like. The great aspect of Zillow is that you can ask questions to homeowners, for example, whether they like neighbors. Additionally, if you are looking for a home, this is a great place to start your research. It has homes for sale (yes, they have foreclosure data) and you can get information about the neighborhood, mortgage rates, and so on.
That is not all, because there are more tools and information at Zillow.Do you need to sell your home? Zillow can help you. They have a tool called Make Me Move: you set a price for your home and if someone is interested, you can sell it without the fat commission! In addition, Zillow has a database of recently sold homes that was once available only to real estate professionals. The list goes on and on and you should check it out yourself.
Zillow is popular among homeowners and sellers. Since the market downturn has started, worried homeowners are checking their home prices regularly, and sellers check out how much they can get for their homes. Actually, they are not the only groups who use Zillow. People like me who do research on the housing market use this site not only because it provides home sales data, but also because I and others can read people's behaviors such as how people react to falling prices or particular market. Last but not least, buyers jump into it to chat with local real estate professionals, check data on homes they are trying to buy, and shop for a mortgage.
Since Zillow has been very successful at attracting users, other websites that are similar to Zillow are appearing online. A strong competitor is realestateabc.com, but people who have been using Zillow will immediately notice that it has a long way to go since its graphics look like a Web 1.0 site. Another competitor is Cyberhomes. I understand that it has very cool graphics and a variety of data;however,I checked the accuracy of the valuation tool and their numbers are way off than the actual numbers. For example, I entered a few home data into its valuation tool, and the estimates were off more than 15% of those homes' actual values. That is why Zillow is still the number one home valuation site.
Now that you have heard what I have to say about Zillow, go ahead and check it out. I promise you will not be disappointed.
Wednesday, April 22, 2009
Restaurant Credit Card Tip Fraud
If you are using your credit card at restaurants, be aware. One time, I ate at this Greek restaurant and later found out that my credit card was charged for a tip amount of more than 40% of my check. I filed a complaint with the restaurant and got my money back, but I was furious with what they did to me and others. Okay, believe it or not, employees at some restaurants charge extra tips on your credit cards knowing that you do not compare your receipt with the credit card statement.
Even though I call myself a savvy consumer, I do not compare my receipt with the statement amount, and I know that I got ripped off many times at restaurants. The only way I found out that I was charged for tips that I didn't give was because I used my American Express card. Amex is the only card that breaks down the base and tip amount. But, if you don't write down the tip amount on your copy of the receipt, Amex is no use because you will not remember how much you have paid in tips once the statement arrives.
Yes, I caught another fraud two years ago. At that time, I placed a take-out order at this pizza kitchen place and did not leave any tip. A few days later, I found out that the amount on the statement was not correct and compared the amount with my receipt. I was charged two dollars extra! This time, even though I did not use my Amex card, I could find out that something was not right since I bought the same pizza at other locations before, and I knew the exact amount without the receipt. Then, horrible things happened. The manager at this restaurant accused me of having remorse after leaving a tip and for "customer courtesy," he was refunding the $2. When I asked for the copy of the sales receipt, he said he would send it me, but he never did and we all know why.
How can we protect ourselves from restaurants charging tips that we never give to them? My brother who works at a major credit card processing company agreed with my claim and said that he has seen some restaurant merchants charging tips that are not authorized. He also said that when cardholders dispute the tip amounts through their credit card companies, even though merchants fraudulently charged tips, but the tip amount is the usual (15%-20%), cardholders have a greater chance of losing the chargeback request.
Here's my advice on how to prevent restaurants from charging extra tips on your credit card:
1. If you are not paying the tip using your card, make sure you put 0 on the tip line and CLOSE the check by entering the total amount at the bottom even in quick-serve restaurants.
2. If you are paying the tip with the card, make sure you CLOSE the check by entering the total amount by adding the base and the tip amount and also write down the same information on your copy.
3. Although it is a hassle to keep your receipts, keep the restaurant receipts separately and make sure you compare the receipt with the statement, and report any discrepancy as soon as possible.
Restaurants manually enter tips after you leave, and if you are not nice to them, who knows what they will do to your tip amount? But remember, most restaurants are run by honest people and do not suspect them as if they are criminals.
Protect yourself by following the steps above.
Disclaimer: The information on this blog is general information only and may not apply to an individual's circumstances. Please consult a professional regarding your particular circumstances.
Even though I call myself a savvy consumer, I do not compare my receipt with the statement amount, and I know that I got ripped off many times at restaurants. The only way I found out that I was charged for tips that I didn't give was because I used my American Express card. Amex is the only card that breaks down the base and tip amount. But, if you don't write down the tip amount on your copy of the receipt, Amex is no use because you will not remember how much you have paid in tips once the statement arrives.
Yes, I caught another fraud two years ago. At that time, I placed a take-out order at this pizza kitchen place and did not leave any tip. A few days later, I found out that the amount on the statement was not correct and compared the amount with my receipt. I was charged two dollars extra! This time, even though I did not use my Amex card, I could find out that something was not right since I bought the same pizza at other locations before, and I knew the exact amount without the receipt. Then, horrible things happened. The manager at this restaurant accused me of having remorse after leaving a tip and for "customer courtesy," he was refunding the $2. When I asked for the copy of the sales receipt, he said he would send it me, but he never did and we all know why.
How can we protect ourselves from restaurants charging tips that we never give to them? My brother who works at a major credit card processing company agreed with my claim and said that he has seen some restaurant merchants charging tips that are not authorized. He also said that when cardholders dispute the tip amounts through their credit card companies, even though merchants fraudulently charged tips, but the tip amount is the usual (15%-20%), cardholders have a greater chance of losing the chargeback request.
Here's my advice on how to prevent restaurants from charging extra tips on your credit card:
1. If you are not paying the tip using your card, make sure you put 0 on the tip line and CLOSE the check by entering the total amount at the bottom even in quick-serve restaurants.
2. If you are paying the tip with the card, make sure you CLOSE the check by entering the total amount by adding the base and the tip amount and also write down the same information on your copy.
3. Although it is a hassle to keep your receipts, keep the restaurant receipts separately and make sure you compare the receipt with the statement, and report any discrepancy as soon as possible.
Restaurants manually enter tips after you leave, and if you are not nice to them, who knows what they will do to your tip amount? But remember, most restaurants are run by honest people and do not suspect them as if they are criminals.
Protect yourself by following the steps above.
Disclaimer: The information on this blog is general information only and may not apply to an individual's circumstances. Please consult a professional regarding your particular circumstances.
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