Sorry Dave.

…or Why I disagree with Dave Ramsey about Credit Cards

I am a big fan of Dave Ramsey, perhaps the leading exponent of common sense in the country. He has helped literally thousands of families out from under the yoke of debt-slavery. We have purchased – and given away – several of his books, and I regularly listen to his podcast. He is a constant source of encouragement to me and millions across the nation.

But there is one area in which I disagree with him, and that is in the use of Credit Cards. His position is simple: cut up the cards and close the accounts.

I understand and respect his position; the Credit Card companies have spent billions  to try to persuade us to live outside our means and use Credit to fund the deficit. As a result, many people do not know how to use Credit Cards responsibly; they use the Credit Card as their “Emergency Fund”; they carry a balance and pay finance charges; they pay late and attract exorbitant fees.

A good friend of mine got badly mauled by credit cards once, and considers them evil. He may be right. Rather than lending money only to those who can afford to repay, the moneylenders rewrote the bankruptcy laws instead. Under the new law, it becomes much harder to declare a “clean-slate” (chapter 7) bankruptcy; instead, people are boxed into a “repayment-plan” (Chapter 13) bankruptcy – which has the highly desirable side effect of securing their previously-unsecured loans by court order.

So why do I disagree with Dave on this fundamental issue? Because I don’t use credit cards like most people do. I have not paid any Credit Card interest or fees since 1999…and I never will. A years ago I had three cards. Now I have only one (the other two annoyed me and I dropped them). I have used it twice in the past year. I use my debit card for all of my regular bills and most of my purchases. Having said all that, the simple fact is that there are some situations where a it is more sensible to us a Credit Card than a debit card.

• Federal law protects you when you use a credit card. Your bank may extend the same protection to your debit card, but they don’t have to – and that courtesy may be withdrawn at will. Bottom line: Your Credit Cards are protected by law; your Debit Card isn’t.
• When you buy something with a Credit Card, it is not legally yours until you have paid the bill – which gives you some leverage if the item is not as expected. When you buy with a Debit card you bought it. If there is a problem, whose money do you think the bank will work harder to protect – theirs or yours?
• If you are buying something online from a seller you have not dealt with before. There are a lot of phishing scams and bogus websites out there – would you rather give them a credit card number or a direct line to your bank account? For this reason I have recommended that Internet Newbies use a low-balance ($100 or $200) Credit Card when ordering from unfamiliar online merchants.
• If you “overdraw” your Credit Card, the CC company will decline the transaction, which can be embarrassing. If you overdraw on your debit card, the bank will pay out… and then eat you alive with charges and fees.

And finally, Dave, this one’s for you: I’ve heard you say “No millionaire I talk to says they made it with Points”, but that is a straw man argument – it is not about “points” and never was. The real question is “How many millionaires do you know who use Credits Cards? How many don’t?”

Having said all this, I have to say that I do not recommend using Credit Cards. That seems an odd thing to say, but what Dave calls “snake charming” requires iron discipline and concentration, and most people cannot do it – giving them a credit card would be like giving a drunk a drink.

A credit card should only be used if :

• You have the money. You have the money in the bank to pay off the card. You have it now, not at some point in the future. Using a credit card to “live now, pay later” is courting disaster.
• You NEVER carry a balance. Only fools carry a balance on their Credit Cards.You pay off the bill when it arrives: Don’t play chicken when due dates. They are praying that you miss the deadline.
• You have zero tolerance for fools: The moment that they do anything that annoys you, you are willing to cut up and cancel the card. Of course you can only do this if you have a zero balance… in the last six months I have canceled two of my three cards because the card issuers annoyed me.
• You don’t care about your FICO score. Only people with money in the bank can afford to cancel their credit cards. Ironically this hurts your “I-Love-Debt” score (also known as the FICO score). I recently cancelled a year-old Discover card and my FICO score went down by 18 points.

My Credit Card purchases during the past year are as follows:

1. Water Heater (old one broke).
2. Dining Set.
3. Airline Tickets.

In every case, the money to repay the balance was already in savings (sounds odd, but it takes about a week to move money from my savings, which is by design). In every case the balance was paid off in full. Any other use is unacceptable.

Bob Hope once said “A Bank will lend you money if you can prove that you don’t need it“. To that I would add:

“Buy it with a credit card only if you can already afford it“.

Paperless redux

They get: Million-dollar savings on paper and postage.

You get: A vague “green” feeling and a loss of control over your paper trail.

This is an “upgrade”?

Uh… no thanks.

Recession or Reality Check?

No, I have not been living in a cave for the past year.

It is true that the economy is not doing too well these days. I would be remiss if I were to underestimate the tragedy of lost jobs, shuttered businesses and wrecked lives. But at the same time, I wonder how much of what we are going through is a simple matter of our reaping what we sow.

According to a recent statistic, the average Chinese person lives on 75% of what they make, while the average American family lives on 110% of what they bring home.

The problem is not just confined to the USA: When I left England fifteen years ago, there were few Credit Counseling firms; now, they are everywhere and are even advertising on TV. In the early 1990s, a Mortgage lender would lend you 3-5x your annual salary. In 2007 (the last time I was there) they were lending 8-10x your salary. How long did they think that this state of economic gravity-defying would last?

To make a few extra bucks, the corporations that used to employ us have happily outsourced our jobs to China. This sounds like a good thing, but when the lion’s share of our manufacturing jobs are elsewhere, how will we earn the money to afford the goods that they produce? For years I have been saying, half-jokingly, that one day we would wake up to find all of our money was over there, and all of their plastic crap was over here. Now it is not so funny.

Everywhere I look, new Mini-malls and retail parks are springing up on any bit of spare land that the developers can lay their grubby hands on. Before the economy tanked, I used to ask “Who is going to support these businesses with their purchasing dollars?” Nowadays I ask “What are the developers smoking?”

I am not mad at the developers – they stay in business by building stuff, whether it is useful or not. I am not mad at the Chinese, either. While I may disagree with their Government, the people strike me as hard-working, thrifty and industrious. I’m not even mad at the corporations; you can rely on them to go where the money is…

I’m mad at us.

We have been living it up since the 70s. This is not in itself a bad thing, but it does mean that a whole generation has grown up knowing nothing else. I have often mused that when a “starter couple” cannot afford a “starter home”, something is wrong. But that is not entirely fair, and it is not entirely true – today’s couple wants a 2500-square-foot four-bedroom MacMansion in the nice part of town in which to raise their 2.2 kids. Meanwhile, on the other side of town, Grandma still lives in the 700-square-foot two-bedroom house in which she and Grampa somehow raised six children and put them all through college… on one blue-collar salary.

It seems like everyone drives a nicer car than me. Given that my car is 17 years old, this is not exactly difficult, but I am constantly astounded at how many people’s wheels seem a little out of step with their earning power. In The Millionaire Next Door, Thomas Stanley draws a parallel between “Cadillacs” and “Clunkers”, both in terms of vehicle and lifestyle. In Grampa’s day, your status was reflected in the car you drive. This is still seen today in GM’s badge-branding; the same vehicle is often released with different trim levels and marketing under the Pontiac (young/hip), Chevrolet (Family) and Buick (Professionals/old folks) brands.

These days, however, your car does not reflect your status; not even close. I am amazed at the cars driven by some people I know. Look at the cars being driven out of your local High School at kick-out time; how many clunkers do you see? Not many – but there are a lot of late-model sports cars, lots of European Imports and not a few Lexuses (Lexii?) I don’t have anything against High School Students driving nice cars, but how many of the students driving them even have jobs? How many of them will be pushing a mower this summer? Precious few, if my neighborhood is anything to go by.

Whatever happened to the “start-at-the-bottom-and-work-your-way-up” mentality? What about “Paying your dues”? Where did Hard Work, Honesty, Attitude and Character go? Most of the High School Students that I meet are genuinely clever and intelligent, but have no clue of what is about to hit them when life drops them into the proverbial shark tank.

But they’re not to blame; for decades we have lived high on the hog, aided and abetted by a media that pushes the affluent lifestyle as the be-all and end-all of the American Dream. And we have ended up with a society whose drug of choice is the antidepressant.

The typical American family – and this includes people I know – have forgotten how to save. They live on more than they make, have no plans for retirement (spending all the money now – usually on the kids), and I am appalled to hear that most of them have little or no savings. Why are we so surprised that they are struggling?

Where did we go wrong? How can we get out of this hole? And how do you combat a multibillion-dollar industry that is set on sucking all of the money out of your wallet? Ben Franklin used to say “Out of Debt is Out of Danger”. He must be spinning in his grave.

President Obama is right – it will take time and hard work to turn this ship around (though I suspect that we lack the will to make the sacrifices to succeed). But it would be unfair to blame either him or his predecessor – we got ourselves into this mess. Theodore Roosevelt said that “The things that will destroy America are: prosperity at any price, peace at any price, safety first instead of duty first, the love of soft living and the get rich quick theory of life.”

Sound Familiar?

Communication lets me down…

…and I’m left here (with apologies to Spandau Ballet).

It seems like everyone and his dog has a cellphone these days. The morning drive to work is replete with drivers burbling away while driving with one hand; while on the sidewalk (pavement, if you are in England) teenagers yak happily about whatever vapid thought is filling their heads at that particular moment.

You would have thought that this constant communication would find its way into the businesses and industries where it might do some good… but you would be wrong.

For example, Rolls-Royce’s jet engines have the ability to relay diagnostic equipment from anywhere in the world. So if an engine develops a fault, there is a fairly good chance that a technician with the requisite parts will be waiting when the plane lands. This is a really cool thing…

…but…

…all that technology and communication will not help you if you are a passenger on said airliner; getting accurate arrival or departure information is like pulling teeth. This is surprising, since the Airline knows exactly where the plane is and how fast it is traveling.

After recently dropping my Mother-in-Law at the airport, I called my sister-in-law at the destination to let them know that she was on her way. I knew the flight had left late, as the passengers were still boarding at the scheduled take-off time. The information boards in the airport, however, did not mention this, and when I phoned the Airline, their automated system did not know either. It was not until I bullied my way through to a real person and they did a little digging that this little gem of information was finally unearthed. My theory is that if they don’t actually admit that the flight was late, then it wasn’t…

Another example is the delivery business. A delivery driver usually knows his route, he knows roughly how long it will take and when he will arrive at each stop. But that information is rarely communicated to those awaiting deliveries; even something as simple as calling ahead is apparently too much to ask.

The life of a cable guy is simple enough. Go to address A, fix that which needs fixing. Go to address B, fix that which needs fixing. Lather, rinse and repeat; you get the picture. These people are not amateurs – the dispatcher knows the routes, and if their business has a clue, they know where everybody is at any given time. And yet the cable company still insists on a four-hour window, which means that you, the customer, has to take half a day – or even a whole one – off.

Today my car broke down. I was at work. I called the towing company, and they said that they would call me on my Cell when they got here. Naturally, they didn’t. Fortunately I was watching out for them when they got here.

Why is this so hard?

Tax Day Tea Party Protests

Yesterday was Tax Day – the deadline for filing your taxes if you owe the government money. Curiously, I am told that if you are owed a refund, there is no mention of a specific deadline. One can only assume that old Uncle Sam is in no hurry to give you your own money back..!

However, the big story yesterday was the huge number of Tax Protesters attending “Tea Parties” across the nation.

Naturally the mainstream media did the best it could to downplay the protest – usually by picking on the wackiest, weirdest person they could find in any given crowd – but the fact is that the protesters collectively numbered well over a million.

And they had a point. Unlike the original Boston Tea Party, however, this one was not so much about “Taxation without Representation” as it was about “Expenditure without Limitation”; the reckless abandon with which Congress is spending the earnings of the next three generations trying to shore up the economy by throwing wads of cash at loss-making businesses and industries (for instance: the day after PNC Bank was told that they would receive $7.7Bn in Stimulus money, they announced the takeover of National City Bank for the bargain-basement price of $6Bn. To this day they maintain that the timing was entirely coincidental ).

Unlike many of the protesters, I have no complaints about the amount of tax I pay – compared to Europe, we have it easy, but as we slide slowly towards Socialism, this will change. I do, however, have a philosophical problem with the Income Tax (too big a discussion to go into here), and would prefer a National Sales Tax such as the Fair Tax.

What I find most interesting is that many of the people who complained (rightly) about the cost of the Iraq war remain strangely silent on the pork-barrel bailout/stimulus bills that Congress has been passing lately without even reading them, each of which has cost us more than the entire Iraq war. Where’s the outrage, folks?

Well, those of you who voted for “change”, now you have it…

A tale of two peripherals

Final Score: BFG 1, Logitech 0

Some years ago, I purchased a Logitech Cordless MX Duo Mouse/Keyboard combination. I already had two cordless Logitech sets, and was more than pleased with them.  The Cordless MX Duo went on to become my favorite mouse and keyboard.

Years went by. The left button of the mouse stopped working. I did a little Googling and found out that this was a fairly common problem. I called Logitech, and told them about it. The gentleman who took my call told me that the item was out of warranty and that he could not help, as the mouse is no longer made.

Now I am old enough to remember the days when things were built to last; when they broke you fixed them. Being an “old-school” geek, I have some soldering skills; not “mad skillz”, to be sure, but enough to desolder and replace a switch on a mouse. I asked if it was possible to get a new switch, but the answer was “no”. No service, no parts, no help, no way, no how. Good bye and have a nice day. What a way to run a railroad.

I also had a BFG Asylum FX5900 AGP Video Card whose fans were getting noisy enough to be annoying. I called up BFG, and told them about the problem. The part was no longer made, but they agreed to replace it. I mailed them the card, and a week later a shiny new replacement – a GeForce 7300GT – arrived in the mail. In spite of the higher number and the fact that the new card has four times the memory as the old (512MB instead of 128MB), it is not quite as fast as the card it replaced… but that does not really matter. BFG did the right thing. What a welcome difference.

Compare the two; both parts were out of production. The Video Card was still working; and BFG could have hidden behind that fact, saying that “fans are not covered” or somesuch, but they did the right thing, even though it cost them. The mouse, on the other hand, was clearly broken – and mice are not supposed to “wear out” (I have at least four older Logitech mice that work perfectly). But Logitech did not offer me a replacement – or even a discount on a replacement, which they easily could have done. Instead, they took the easy way out and did nothing. Perhaps their selling over a billion mice has gone to their heads.

Guess which one will continue to get my business?