Make Your Nut

It’s being reported that, over the next 18 months, credit card issuers will be reducing the limits on existing credit lines to the tune of $2 trillion dollars. I’ve already written about how Sears discontinued my line of credit - now it appears that many more consumers will be joining me in canceled-credit land.

Here’s the quote that shocked me the most, though, from Scott Hoyt, who is the senior director of consumer economics at Economy.com, a division of Moody’s:

“There are plenty of middle- to higher-income folks out there who may have a $20,000 line on their credit card but they rarely use more than $2,000 of it. If you knock that line down to $4,000 or $5,000, so what? There is another set of consumers who may have a $2,000 credit line and are borrowing $1,500, $1,800 on an ongoing basis. If you whack their credit line, that’s going to impact them pretty severely.”

I agree with Mr. Hoyt on the second part of his quote - folks who are running $1800 balances on $2000 lines are definitely going to be impacted by a reduction in their credit lines to $1500, from a cashflow management perspective. But his statement that a consumer with $2000 on a $20K line of credit is not going to mind a reduction in his or her limit to $4000 is way off base.

Your FICO score is based on a number of components, but one of the biggest contributing factors is your utilization level, or the percentage of your available credit that’s currently in use. The lower your usage, the better, with noticeable increases in your credit score occurring at the 50% mark.

Now, a family that’s bumping up against the limit on a $2000 card is running 80% to 90% utilization month after month - reducing their limit to their balance isn’t going to impact their credit scores much, if at all. But, if you take someone who’s running a $2000 balance out of $20K, 10% utilization, and then drop them to a limit of $4000, you’ve suddenly increased their utilization to 50%, which essentially tanks their FICO score. So, one day they’re a good to great risk, the next day they’re questionable - and they’ve done absolutely nothing differently.

These credit restrictions are going to toss the general notion of creditworthiness into a blender. Responsible credit users will suddenly seem less responsible because they’re going to be perceived as being heavier users of credit. And, with mounting job losses in an unstable economy, the credit issuers are pulling in the emergency lifelines just as people are most likely going to need them.

Another Thanksgiving, another Black Friday to plan. This year, though, is different because the economy is in such a death spiral, so put down your flyers, stop browsing the internet, and listen to me for just one minute.

Black Friday has always been about killer deals, and the reason why it’s called Black Friday is because the day after Thanksgiving is the day that most retailers make it “into the black” for the year because everyone starts their Christmas shopping. The term has nothing to do with the crowds, stress, and disarray - it is purely a euphemism for revenue turning into profit.

This year has been horrible for retail, though. With the economy so down, consumers just haven’t been buying much of anything above and beyond their food and gas, so pretty much every company in the retail sector is looking at a really bad year, and it’s a fair bet that some of them actually won’t make it into the black this Friday.

So, if you were one of these retailers, and you were looking at potentially not experiencing any profit this holiday season, how much, realistically, would you be willing to trim your margins for Black Friday? Exactly. Not much, if at all.

Black Friday is typically characterized by “loss leaders”, which are the door buster items that are severely discounted to get people to line up before the store opens. The retailer is willing to take a loss on these items because it means getting more foot traffic into the store, and those people are going to end up picking up additional gifts at no discount at all, while only 10 or 20 people actually end up with a loss leader item.

I’ve looked at the Black Friday ads, and this year I’m really not impressed. Among the loss leaders, there are a lot of smaller HDTVs, a few GPS units, but really not much, because the stores can’t afford to lose more money than they already have. Because of this economic climate, then, expect the sale prices to last well through the holiday shopping season - it’s not like retailers are going to jack prices up after they close on Friday. It’s going to be a bloody battle for your wallet, and if you can force yourself not to make impulse purchases, and do some comparison shopping, you can get the best price, and not necessarily on Friday.

Here are some things to watch out for - as I’ve written before, watch out for big discounts on previous-generation electronics, and if you’re going to buy, buy knowing that there’s a newer version out now. I almost decided to pick up a Netgear wireless N router tomorrow, but after doing some research I found out that it’s the model that’s been replaced by Netgear’s RangeMax line. Result - no router for me this week.

Also be aware that for a lot of items, there’s a mail-in rebate that you have to fill out in order to get down to the advertised price. Either you’ll completely forget to mail the thing in, or you’ll need the UPC code off of the package that’s now in your mother-in-law’s trash in another state, or you’ll actually jump through all the hoops for your $10 check, and the manufacturer can safely claim the revenue for 2008 and not have to mail you your money until next year.

As always, for most items, online resources will always beat retail store prices, and most times by double digit percentages (especially books and other media). If you would like to support Make Your Nut during your frenzy of capitalism, remember that each purchase made from a search in this site’s Amazon box goes towards paying server fees! So, if you were going to buy that George Foreman Grill from Amazon anyway, please do it here!

When we went to Charleston for our vacation, it was refreshing not to have to watch airfares for the best prices and spend a lot of money flying. The drive was fairly manageable, clocking in at around 10 and a half hours, with a few stops here and there for food and bathroom breaks.

Because we were driving down there in our neighbors’ vehicle, and also because we wanted to take a quick excursion to Myrtle Beach to visit relatives, we decided it would be appropriate to rent a car for ourselves once we arrived in South Carolina. We booked the car online at a good rate, and picked up the car on Monday morning.

Here’s the thing about renting a car - I have always declined the Collision Damage Waiver, because we’ve never had an issue with renting a car and it’s another $6 a day that I’d rather have in my pocket. So, we did the walkaround, checked the car, I signed and initialed where appropriate, and off we went.

We drove the car back to the beachhouse, parked it, ate lunch, and, during the drive into town afterwards, while cruising on the bridge that connects the island to the peninsula, a small rock kicked up off the road and made a small crack in the windshield.

We didn’t think it was a major deal, and we called the Enterprise office to inform them of the situation. They were really cool about it and said just to stop by and they’ll swap it out for another car. We were only ten minutes away from the office, so we got there quickly. All the while, when we were waiting for the replacement car, I was asking the representative whether we would be held responsible for the damage, because I saw it as a no-fault situation, and this has never happened to us before. His exact words to me were, “Don’t worry about it. It’s no problem.” The replacement vehicle arrived fresh out of the carwash, still covered in water. We did a quick walkaround, got in, and left.

Fast forward to Friday. We return the car, and when we walk into the Enterprise office, we are presented with an invoice for $290 for the cost of “Windshield Replacement”. We were livid, not so much at Enterprise’s attempt to charge us for the windshield, but more so at the fact that we were explicitly told not to worry about the damage. It would probably have been far less offensive if the rep had told us on Monday that we might have to pay some out of pocket costs. The rep had no explanation for why he would tell us not to worry about it on Monday and then present us with a bill for repairs on Friday.

I told the representative that they would not get paid for the windshield repair that morning, because I wanted to consult my insurance company first. Really, I just wanted to extricate myself from a situation where it felt like I was being mentally sucker punched in the wallet.

On the one hand, I knew that I had the opportunity to accept the Collision Damage Waiver when we signed the contract, and I didn’t, so from that standpoint I should be expected to reimburse the rental company for any damage to the car. On the other hand, the damage to the windshield was unavoidable and not due to any negligence on our part, plus we were told not to worry about it, which in my book means “you’re not responsible for the cost of repair”. I was pretty sure that my auto insurance deductible was more than the cost of the repair, so I was looking at shelling out nearly $300 right after coming back from vacation.

Just then, though, a small neuron fired in my brain. There’s a reason why I should decline the collision damage insurance, and it’s more than just being a tightwad who wants to save $6 a day. I read it somewhere, but where? It was at that point, sitting forlornly in the Starbucks on King Street, that I Googled ‘Capital One Collision Damage Waiver’ and my day instantly brightened.

My Visa card features a cardholder benefit - Collision Damage Insurance for auto rentals.

It’s not just Capital One. It’s all of Visa. I haven’t checked, but I’m pretty sure it’s also a cardholder benefit for Mastercard. That’s why the common rule of thumb is to decline the rental company’s collision damage insurance - because you likely have to use a major credit card to rent the car in the first place, you probably have the insurance as part of that cardholder agreement. For the rental agency, if you opt-in to the insurance, it’s free money for them. For cardholders that decline the agency’s insurance, and who don’t know about the Visa coverage, who knows how many have been arm-twisted into paying out of pocket unnecessarily?

Invoking the benefit has been easy, so far. I called the cardholder benefits department at Visa, and explained the situation. I can file the claim on their website, and fax them the supporting documents. Even better, it’s not even a reimbursement situation - I will incur no out of pocket costs, and will elect to have Visa deal directly with the rental agency.

Which is great, since, during our whole debacle at the rental counter, Enterprise pointed out that there was a scratch on the door of the replacement car - which we are pretty sure was already there when we received it, but didn’t catch because the car was dripping wet. I may have to file two claims with Visa, and combined they’ll probably be more than the finance charges that I’ve incurred year-to-date.