Reader Hollie came to me with the following email:

I owe just under $1,000 on my credit card. They really got me this last time. In July they tacked on the late fee because I didn’t pay by 2:00 on the deadlined day!
Have you ever heard of this? Now it’s just getting worse every month. What can I do? My credit report is not excellent either and my future is grim? What can I do? Please help.
Thanks
Hollie

The usual disclaimer: I’m not a financial adviser, and even if I were, I don’t know the specifics of Hollie’s situation or anyone else’s who might read this. All I can do is tell you the processes I go through, and what I might do myself in Hollie’s situation.

First of all, Hollie’s future is not grim. There are no money problems that can’t be fixed with time and effort. Things fall off of credit reports eventually. Debts can be repaid. And late fees can be waived.

Unfortunately, the credit card companies are well within their rights to charge a late fee for not paying by 2:00 on the due date - assuming it’s in the lengthy and unreadable terms and conditions, which it probably is. Unfortunately it sounds like it might be too late to do this in Hollie’s case, but it might be possible to get such a late fee waived. A polite call or email to the credit card customer service might just get that late fee refunded.

Whether or not that late fee is refunded, it’s now time to take steps to make sure it doesn’t happen again. Here’s the system that I use to avoid late fees and overdrafts. In fact, the following is the basis for my whole financial plan (it isn’t really a “budget” per say, but it could be the basis for a budget):

1) Calculate how much you have to pay each month
This is the bare minimum you have to pay on every bill. For me, this is my minimum credit card payment, my car payment, my laptop payment, and my student loan. Later on in life, this will include rent, utilities - anything that absolutely must be paid each month.

I like to add a dollar to the minimum payments for the credit card and student loan, for credit reporting reasons - that way it won’t show up as “minimum payment” on my credit report. But if I were really strapped for cash, I could go back down to the absolute minimum payments.

Once I have all of those things written down, I add up the total.

2) Calculate how much you have coming in each month
This can include one-time “cash reserves” - in other hand, the money I already have in my wallet, checking, and savings accounts. I add that to the amount I expect to make over the next month. I keep in mind though, the cash reserves are “one time only,” - but I’ll come back to that in a later step.

3) Is the total from Step 2 more than the total from Step 1?
Hopefully, the total from Step 2 is more than the total from Step 1 without counting the cash reserves. If it isn’t, I have a small problem: eventually, I’m going to start running out of money and start falling into more debt than I’m already in.

The problem is even bigger if the total from Step 2 is less than the total from Step 1, including cash reserves! Either way, if the answer to this question is “No” (with or without cash reserves), then I need to go to Steps 3a and 3b. If the answer is “Yes,” then I can move right onto Step 4.

• 3a) Can I cut any expenses?
  Are there any expenses from Step 1 that I can cut or reduce? In my case, it would be rather difficult. I can’t return my laptop or my car, and I can’t stop making payments on my credit card or student loans.
  However, if I had things like cable, Netflix subscription, or anything else that isn’t completely necessary, I could find ways to temporarily reduce the price (drop down to a lower tier package) or I could temporarily cancel them.
• 3b) How can I make more money?
  If I can’t cut any expenses, or I do and it’s not enough, I absolutely need to figure out how to make more money. Pick up more hours on my job? Get a second job? Make some money online? Whatever I can do to get the bills paid.

4) Pay the bills when they come, not when they’re due
This step is key. Instead of opening my mail and saying “ok, the credit card is due on the 25th, I have to remember to pay that” - I ignore the due date completely. I head right to my computer and pay the bill online. Or I cut a check and mail it off right then.

Why? Because this completely removes the chance of late fees. And, as an added bonus, it gives the balance on my credit card less time to accrue interest. And it saves me from having to remember to do things “before they’re due” - which is something I’m horrible at!

What if I don’t have the money in my account to pay the bill the minute it comes? Well, I stick it in my “inbox” and as soon as the next paycheck clears, the second thing I do is pay the bill. What’s the first thing? I put 10% of the paycheck into my savings account. My savings are the most important bill of all - they get paid first.

5) Keep it going
Find a way to keep track of it all: “How much is going out every month? Do I have enough coming in to pay it? Did I pay that bill this month?” I keep track of everything in an Excel sheet I made myself, but there are many other free options available on the internet. The one I most recommend is Pear Budget. It’s free and extremely easy and simple to use. And it gets the job done.

Hollie: Don’t fret. You can do this, I can tell. Since you’re reaching out to me for help, I can tell that you want to fix this. And that’s all you need to get started: the will to help yourself. It’s where I started out, and it’s what helps me get through every single month.

I’ll admit, I was pretty suspicious of the rented textbook idea when I first heard about it. But I included TextBookFlix in my textbook search yesterday all the same. Just to see where it would fit in.

After visiting my school bookstore’s website and putting in my course numbers, I had a minor heart attack. I’ve never had five books cost so much. Switching majors really threw me a doozy - film textbooks were much cheaper than business textbooks are! (Offset, of course, by having to fund your own films.) Luckily, some of my friends have two of the textbooks I need. So that narrowed me down to three textbooks.

Three rather expensive textbooks.

Bought new, from the school bookstore, they would be $285 altogether. Not that I would ever buy new from the bookstore, unless I had to. The bookstore’s used total? $212.25 - only $72.25 less. Not that I’d mind saving $72, but it’s still far higher than I’d ever paid for one set of textbooks.

So I began the internet search. I scoured StarvingScholars and the Facebook Marketplace for used copies of the books. I checked Amazon and Half.com. And I pulled up TextBookFlix.

Amazon/Half.com total (they had very, very similar prices): $176.81

TextBookFlix total: $119.68

All of these prices include shipping, by the way.

So the question becomes: if I bought my textbooks used, online, could I expect to sell them again after the classes are done for more than $56? Probably, although selling textbooks can be rather difficult - the bookstore doesn’t exactly pay you top dollar, in fact, sometimes they just don’t accept it at all (”we’re no longer selling that edition”). And finding a buying can be a tedious process - I have a stack of unsold textbooks in my room to attest to that.

With all of that in mind, I think I might just rent my textbooks. None of them are ones I’m especially interested in keeping, and I love the idea that when I’m done with them, I’ll just drop them in the mail - they won’t add any height to my Tower O’ Unsold Textbooks. Plus, it requires less money up front, which is really good for my current financial situation.

Fall classes start in less than two weeks for me, and aside from asking myself “Seriously? It’s time to go back to school already? Has it really been 9 months since I dropped out?” - I have a lot to do in preparation for my glorious return. A lot of it is actually rather hard to do from my seat here in Los Angeles - there will be a lot of phone calls back home to my mom to sort out financial aid paperwork.

But mainly, there’s a difficult decision to be made. It bothers me more than all of the little paperwork problems. This decision comes from the fact that my financial aid award comes $3,500 short. $3,500 is almost exactly three times what the government believes my family should have to pay out of pocket.

This $3,500 actually does include “federal work study” (the amount I’m expected to earn myself by way of an on-campus job), which is $2,400 for the year. Of course, what this doesn’t take into account is that $1,200 of that is due in September. $1,200 that I simply don’t have.

So, here are my options:

1) Helpful family members
Parents, grandparents… maybe someone has some “family grant money” laying around.

2) Federal Loan
This is the option I’ve used every year in the past, when my financial aid has come up short. Of course, you can’t apply directly for an Unsubsidized Direct Loan (makes it kind of a misnomer, eh?), your parent has to be denied for a PLUS loan. Every year we’ve done this, and every year that a parent is denied is a black mark on the credit report. With my parents trying very hard to fix their credit, I’m more leery of this option than ever.

3) Private Loan
I have never used one of these, but I’m even more leery of them than anything else. Adjustable rates that can be as bad as credit cards? Jeeze, why don’t I just throw the balance on my credit card - at least then I’d know what I’m getting into! (Please, no one take that statement literally.) Also, I don’t really have anyone with good enough credit to co-sign for me, so I’d probably be out of luck, even if I wanted one.

4) Prosper?
An interesting thought. What type of interest rate would I get on Prosper? Would my loan get funded in time to pay my tuition bill? Although I wouldn’t get as good of a rate as a federal loan, it seems like a better option, simply because it wouldn’t hurt my parent’s credit. Also, the repayment period would be shorter.

5) More Scholarships
There really isn’t time for this to kick in this semester, but it’s worth looking into for the future, especially next year. It’s also worth a shot to send a letter to my financial aid office, simply asking them to increase my award.

6) Monthly Payment Plan
This goes at the bottom, because it really doesn’t help any. My total balance of $3,500 would be divided into 10 monthly payments of $350. That’s a tad high for a monthly payment for me. Still, it’s an option.

Any feedback or thoughts on my dilemma would be appreciated - maybe you guys will think of something I haven’t!

“So, Stephanie, if compound interest is so amazingly wonderful, how come people wait to invest? How come people don’t think about like, 401(k)s until they’re in their 30s?”

“My guess? People don’t realize just how amazingly wonderful compound interest really is. And they think they’ve got all the time in the world. Also, it’s not like this stuff is taught to us in high school - you either are lucky enough to learn it from a parent, or you sort of fumble your way through it, or you get some initiative and seek out the information yourself.”

“Alright, so, let’s say you were more awesome than you are. You’re what, 20 years old? Let’s say you had a tasty job with a nice 401(k) package. And let’s say that nothing else about your life changed - you still lived with your parents, so your expenses were minimal. What would happen?”

“Well, in that scenario, I’d be able to completely max out my 401(k) - assuming I made more than $15,500 a year at this imaginary job. That’s the 2007 contribution limit for a 401(k), by the way.

So anyway, I’ve got very little expenses and I’m making, let’s say… $25,000 at Imaginary Job. So I decide, yeah, I can max out that 401(k), put the full $15,500 in and use the remaining $10,000ish for my minimal expenses.”

“That sounds pretty nice… but how much does that translate to? In retirement.”

*calculator fun* “Well, assuming an 8% annual return on that, which is probably what we can expect… that’d be $494,766.97 when I’m 65.”

“What? Seriously? Maxing out your 401(k) now would mean half a million in retirement?”

“It only gets better. You said ‘nice 401(k),’ so we can assume there’s a company match to that money. So let’s say that company match is 50% up to 6% of my salary. That means if I contribute 6% of my salary (which I am clearly going above and beyond), the company will kick in 50% of that 6%. So that’s an extra $750 that they kick in. Doesn’t sound like much, but it’s free money, and let’s see how it affects the final number….”

*more calculator fun* “That’s $518,707.30 when I’m 65. That’s an extra $24,000 just because of the $750 that the company kicked in. And we can play with it a bit further - say we do just a teeny-tiny bit better with our return, and got 9%.”

*again with the calculator* “$785,318.40.”

“Are you kidding me? One percent point puts on like… another quarter million dollars?”

“That’s right. Want to take a guess at what a 10% return would get me?”

“… it’s gotta be more than a million.”

“Smart cookie. One last thing. Say instead of just doing the 401(k) for one year, let’s say I maxed it out again the next year. We’ll drop the rate back down to 8%, though - keep it as realistic as possible. So ok, I max it out two years in a row, with company match. How much do I have at 65?”

“Let me guess - a nice cool million?”

*calculator strikes again* “$998,991.84. And at 10%… it would be $2,261,261.60.”

“I’ve gotta get me a 401(k)!”

“You and me both, buddy. You and me both.”

This week, I’ll be helping The Boyfriend move (kinda rounds out the summer of moving, doesn’t it?). In order to help bridge the gap while I’m packing boxes and dodging traffic in a moving truck, Dale Yelich has kindly stepped in with a guest post for PTY. Dale Yelich is a member of Debt Management Talk - a debt management forum that shares its revenue with their members.

A lot of younger people wonder how to build credit when they have none to start with. There are a lot of pre-approved and ?zero credit? credit card scams out there, that need to be avoided at all costs. Many people have gone down those roads and have lived to regret it.

But there are several easy and safe ways to build credit, and here are some of the best.

Step Up
Have a checking and a savings account, and always keep money in both of them. What banks and lenders look for is stability, and to that end, a bank account that has a positive balance, is a good first step.

A steady job is an incredible tool for building credit. Working a fast food place part time, or a cashier, or a shelf stocker, all of these are as good as the next provided you stick with it and show, once again, stability in that job. A paycheck is a paycheck, no matter where it comes from, nor how many hours are on it, and that?s all that any credit institution wants to see.

Those are really the first two most important things to have going for you, and no, good looks and a great singing voice won’t do. The next step is taking the plunge.

Take the Plunge
The easiest people to get credit from are gas stations. Every one has their own dedicated credit card that you are only able to use buying gasoline or anything else they might sell in their store. These are close to being the perfect cards to get for first time card holders, and if you get one, they go a long way to building up a dynamite credit rating.

Generally, if you have a solid work record and a bank account, any gas station will send you a card. Just fill out an application, send it in, and see what happens.

These are the best cards to have for someone just beginning to build credit. You can?t spend all that much on one, so financially it will be hard to get into trouble, and just having to deal with the bill every month will give anyone the feel of what having a credit card is like, and if it is right for you.

If that first gas station credit card suits your fancy, charge on it for a good 6 months time, and keep the statements paid. Paying those statements on time is the key, and a minimum of 6 months will show, once again, how stable you are with employment and paying off financial statements.

Keep It Up
If this works for you, after 6 months, apply for a major card, MasterCard or Visa, and go from there. Always pay your statements on time, and never abuse this privilege that you worked so hard to get.

In my inbox this morning, I came upon a curious little message, which told me to “Rent your books this semester!” It came from Chegg, one of the many college textbook exchanges I joined while trying to sell my unwanted textbooks.

This Textbookflix idea intrigues me, but I’m not sure if it’s really a good idea. From the website:

Renting Textbooks is Smarter!

• Save up to 55-65% on books by renting.
• No waiting in line.
• Quick Delivery & Easy Returns.
• Reusing books helps the environment.

All good things - saving money, saving time, and saving the environment. But how is this better than using Chegg’s normal service? Or any of the many other sites that facilitate textbook exchange, like Starving Scholars or the Facebook Marketplace?

Buying your textbooks used directly from students also saves you money, and it’s also reusing the book, so it’s better for the environment as well. I suppose the only difference in renting books is that it saves you time.

So the difference here is, would you rather save more time, or more money? Personally, I’d rather take the time to hunt down the book from someone on campus, or a used copy on Amazon, and then sell it myself at the end of the semester.

Also, I find that with some of my textbooks, I don’t necessarily want to get rid of them at the end of the semester. A lot of my film textbooks were just downright interesting reads, or insanely useful for future classes, or a great reference for my future career. If I had rented them, I’d probably keep several of them at the end of the semester. 

It doesn’t say on Textbookflix’s website how much that would cost me (although it does say that you can do it), but I suspect it would be a premium price, costing me more in the long run.

I’m doing something I never thought I’d do: I’m going against “The Math.” “The Math” tells me that I should aggressively pay down my credit card as quickly as I can, throwing every spare penny at it. “The Math” says that because the interest on my card is nearly 18%, and my savings accounts only earn about 5%, that my money is better spent on that credit card balance.

And for several months, I’ve been listening to “The Math.” And it has, up until now, served me well: I’ve managed to get my credit card debt down below 75% of my limit. This isn’t great, as far as my credit score is concerned, but it’s a definite improvement.

But “The Math” does not know all, and it’s time for a change. A temporary change. I’ve reduced my credit card payments to the minimum plus $1. Why the minimum plus $1?

1. It looks better on my credit report, because it doesn’t show up as “the minimum payment.”
2. It makes me feel better, because I’m not making “just the minimum payment.”
3. It brings the payment up to a nice, round $40, which appeals to my number-based brain.

And the money that was previously earmarked for my credit card is now headed for my newly formed emergency fund. I want some security. I don’t want to worry that my car is going to break down and I won’t be able to pay for it.  I don’t want to panic if my income drops one month. And I definitely don’t want to have to borrow more money if I hit a rough spot.

But “The Math” shouldn’t worry - I’ll be back for that credit card debt soon enough.

I have a confession to make: I spent the day yesterday on Yahoo! Answers. I was having a bit of writer’s block for the blog here, so I headed over the the Business & Finance section to see if any of the questions there would spark an idea for me. And boy, did it ever.

I see one question asked over and over again in that section. In fact, from what I’ve seen, it’s the most asked question. It goes something like this:

I’m a kid/teenager (somewhere between 11-17) and I want to make money, but I’m too young to be hired, or I can’t find a job for whatever reason. What can I do besides baby-sitting/lemonade stand/mowing lawns?

I love this question. I see myself in it, except I never asked this question as a kid. I already had the answer. I’d started my own business when I was 6 years old, writing and selling my own newspaper in my town. And I continued that business up until I was 13 years old.

So here’s my answer to everyone one of those young business-persons-in-the-making: You can start your own business. And you can do just about anything you want for your business.

But where to start? The library or bookstore. Head out and get your hands on one or both of these books:

Fast Cash for Kids* by Bonnie and Noel Drew
and
Better Than A Lemonade Stand: Small Business Ideas For Kids* by Daryl Bernstein.

I read these two books when I was a kid, and they helped so much with developing my idea into a real business. And they both come with tons and tons of ideas for businesses to start, if you haven’t thought of one already. I’m talking hundreds of businesses that you could start!

And teenagers, do not be put off by the fact that these books are targeted toward kids. Think of it this way - if a kid can do it, so can you, and you can probably do it bigger and better!

I would love to hear some stories of kids who’ve started their own businesses - please let me know if you’ve ever known or been a kid entrepreneur!

*Amazon Affliate Links

If you found my post about the Citibank $100 bonus too late, and found that they had dropped it down to $50, you might be in luck (assuming you didn’t open the account for the $50 bonus). The $100 bonus is back! But who knows for how long?

Open a Citibank Ultimate Savings account and enjoy a 4.75% APY as well as a $100 bonus - read my review of this account if you’re unsure (there are, of course, pros and cons), or check out my post on online savings accounts if you’re confused!

Before I get into the carnival and point out my favorites, I’d like to issue an apology. RSS feed subscribers were subjected to some wonkiness the last couple of days - not limited to duplicate items and truncated articles. I apologize - the feed was the injured party in my server move. I hope no one unsubscribed because they thought I have moved to partial feeds - it was just a glitch! This article and all future articles should publish the full article! And now, on to my carnival highlights!

This edition of the Carnival of Personal Finance was hosted by the Frugal Law Student and is the BEST WEEK EVER Edition (one of my favorite shows - it will probably be one of the only ones I start watching when I return home and have cable!). My College Freshman Checklist was included. Here are the other articles that I thoroughly enjoyed:

The Dough Roller shares 10 Things I Now Know at 40 That I Wish I Knew at 20 - maybe some of us that are 20 can take this advice and run with it!

Plonkee Money gives a lesson in British Money Slang - something that interests the linguist in me quite a bit! (That’s why I took Latin in high school instead of an modernly useful language.)

Millionaire Mommy let loose the secret of How I Became a Millionaire While Working In My Pajamas - what I like about her story is that there really is no secret to it!

Saving Advice did a wonderful photo essay of 25 Money Confessions.

Thanks again to the Frugal Law Student for hosting the carnival this week!