By Michelle Singletary
Sunday, October 4, 2009
It used to be that our personal finances were so uncomplicated -- a simple bank account, 30-year mortgage, company pension.
That was then.
This is now: Our personal finances come with frustration, complication and financial products that seem incomprehensible. Just trying to understand -- and remember -- the new consumer protections for credit cards is enough to give yourself a headache.
With so much information to grasp and so many scam artists to avoid, you need CliffsNotes for your money, much like the guides that have helped students interpret complex literary works.
Well, as it turns out, there is the equivalent for personal finance. For the Color of Money Book Club selection for October, I'm recommending a monthly newsletter -- Consumer Reports Money Adviser -- which is as informative as it is visually appealing. The newsletter is published by Consumers Union, a nonprofit group that also publishes the wonderful Consumer Reports magazine.
The newsletter, which cannot be purchased at the newsstand, costs $29 for a 12-month subscription. To subscribe online, go to http://www.consumerreports.org/moneyadviser. You can also order by telephone at (800) 234-1970.
The typically 17-page newsletter covers personal finance topics in short, engaging articles -- from credit to investing to saving to insurance to real estate to retirement planning to taxes. In every issue, you'll find money tips. You'll find "Savings and Loans," a feature highlighting the best rates for putting money aside or borrowing. Two of my favorite features are "Behind the Hype" and "Gimmicks and Gotchas." Both expose the misleading ways companies try to get you to buy something.
"Wading through the fine print, hidden terms and other gotchas on mortgages, credit cards, bank accounts and student loans can be daunting for even the savviest consumer," wrote Noreen Perrotta in her editor's notes for the September issue.
Amen to that.
I was particularly interested in a feature story in the current issue that evaluates which strategy is best for paying off credit card debt. The options, as analyzed by the newsletter:
-- Pay off the card with the highest interest rate first. Mathematically, this option will result in the lowest amount of interest paid.
-- Pay off the card with the lowest balance first. You put the bulk of the money allocated for paying down debt toward the card with the smallest balance while making the minimum payment on other cards with larger balances. When the smallest balance is paid in full, you then put all your payback funds toward the card with the next-lowest balance. This is the method I recommend. In my experience of advising people how to pay off their debt, there's a psychological boost when people can quickly knock debts off their list.
-- Pay off the highest balance first. Consumer Reports Money Adviser says borrowers with large balances -- especially balances that are more than 50 percent of the total line of credit -- have become especially vulnerable to having their credit limits reduced. By concentrating on credit cards that are maxed out or close to being maxed out, consumers work toward getting their balances down to less than 30 percent of their credit lines, which helps boost their credit scores.
It's important for people to find the most effective debt repayment method, the newsletter points out, given that Americans currently owe $917 billion on revolving credit lines and almost all of it is a result of charging purchases to credit cards. It's also useful for the many credit card holders who are receiving notices of hikes in their interest rates.
So which debt repayment method is best?
"As long as you stick to it, any of the approaches we've highlighted here have merit," the newsletter found. "You can even change tactics midstream -- for instance, pay down a high-balance credit card first, then, when that balance is below 30 percent, switch to paying the card with the highest APR. The greatest challenge will be resisting the temptation to backslide toward making only minimum payments."
I know this is an unusual selection for a book club, but I've been reading the newsletter for some time and think it's so well written and easy to understand that it's a must-have in navigating the world of personal finance.
It's easy to be a member of the Color of Money Book Club. We don't meet -- at least not in person. We come together for a live online discussion. Join me at noon on Oct. 22 at http://www.washingtonpost.com/discussions. Perrotta will join me to answer your personal finance questions.
Every month, I randomly select readers to receive a copy of the featured book, donated by the publisher. This month, the publisher is offering a limited number of 12-month newsletter subscriptions. For a chance to win, send an e-mail to email@example.com with your name and address. If you don't win a subscription, there's still a chance you may receive a copy of the current October issue of Consumer Reports Money Adviser.
-- By mail: Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.
-- By e-mail: firstname.lastname@example.org.
Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.