Logan Antill/Flickr

I’ve been fairly responsible lately with my credit card, perhaps owing to my monthly-long credit card ban in April. But last month I slipped up and forgot to pay my bill on time. I paid three days late, incurring a $12.15 interest charge. Blast!

Normally, I would call my credit card company and politely ask that they remove the charge, seeing how I am a loyal customer who pays in full. But I didn’t because I truly forgot to pay my bill.

Instead of automatically paying each month, I get two reminders to review my bill online, then pay via bank transfer. My first reminder comes about three weeks before the due date and I usually ignore it because the due date is sooo far away.

The second reminder is a note that pops up in my online Google calender about five days before the bill is paid. When I get this I log in, review the charges, and set a transfer from my bank to pay in full two days before it is due. If anything is amiss, I can contest without paying.

Last month, however, my second reminder popped up on a weekend, when I rarely check my online calender. My credit card due date sailed by before I remembered. I hate to pay the $12.15, but think it is fair. I’m more worried about how a late payment will affect my credit history so I’m considering putting my credit card on auto-pay. What do you think?

MyFico.com

There are five parts to your credit score. Payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and types of credit (10%). FICO, a financial analytics firm, uses these categories to rate consumers’ credit risk with a three-digit score. Within each category FICO outlines one to seven factors that come into play.

For example, in the payment history category, credit rating agencies consider how many accounts you are up to date on, whether you have any negatives like a bankruptcy or liens, and how long an overdue bill has been past due, among other factors.

In the length of credit history category, they consider how long it’s been since you opened an account, how long each specific account has been open, and how recently you’ve used each account. Read all the factors that are considered for each category of your credit score.

This is important stuff to know, but unfortunately the three credit rating agencies, TransUnion, Experian, and Equifax, don’t share specifics. How many points do I lose if I have a bill past due seven months instead of two? How many points do I gain if I am paid up on three accounts instead of one?

More information would help consumers improve their score. In the meantime, AARP shared tips for seniors and everyone else on how to improve your credit score or hurt your score. When in doubt, use common sense.

Related posts:

Best credit card rewards and perks

Get a free credit history report (sans FICO score) through the FTC

xJasonRogersx/Flickr

AARP is an organization for older people, but I love its pro-consumer bent. A recent AARP Bulletin shared tips to make yourself look better to lenders. The list regurgitates old advice but is a good reminder to maintain financially healthy habits.   Here are AARP’s credit tips on what harms your score and how to act:

Paying bills late - Car payments, electricity bills, even a late library fine can get reported to the credit bureau. Mark your calendar to pay bills at the same time every month or arrange automatic payments with your bank. My two cents: if you use Google calender, a reminder pops up for every item so you won’t miss a payment.

Closing credit cards - If you really want to close an account or two, close the most recently opened cards and the ones with the lowest credit limit. My two cents: doh! I just closed a longtime credit card because I no longer needed it.

Not checking your credit reports – Be vigilant about checking your credit reports at least once a year; nationwide consumer credit reporting communities such as Equifax, Experian, and TransUnion offer free credit reports. My two cents: true, but the free credit report does not include your credit score, which is like getting a paper back from a teacher marked up but without a grade.

Taking it to the limit- Aim to keep your charges to 30% or less of your available credit. If you’ve almost maxed out your cards, use them as little as possible for a while and pay them down.

Using cash over credit- If you don’t want to pay interest on credit cards, just pay the bill in full every month. My two cents: I disagree! My month-long credit card-less experiment revealed I spend significantly less – about 16% – when I use cash over credit. I think building savings is more important than building a high credit score.

Not shopping around for lower rates – Spend some time looking at cards and rates at Creditcards.com and Bankrate.com. My two cents: these are just two of the many great sites for finding a credit card that fits your habits.

Applying for extra cards- Too many inquiries at one time make you look desperate for credit. My two cents: but how many is too many? 2? 5? 13?

Anthrocopy/Flickr

Reader Diane sent me a darn good question via a comment on my post about approaching the end of my credit card ban. “When the experiment is over, will you go back to spending as before or will you make some changes,” Diane asked. “Either way, why?” My month-long cash-only spending experiment definitely changed the way I will spend money. Going forward I’m going to make three changes.

• I’m no longer going to rely strictly on credit cards because I scrutinize purchases more with cash. My goal is to use cash for everything under $50, which are the purchases that have the most wiggle room. Think I’m giving up a ton of credit cards perks? During the past seven months I earned an average of $16 in cash-back rewards each month. With cash I spent $200 less. That’s a much bigger perk!
• I’m going to strictly use cash for groceries because I spend so much more carefully with greenbacks. My dollars are finite no matter how I pay, but using cash makes my limits feel more apparent.
• I’m going to leave my credit card at home unless I specifically plan to use it. The more I pre-think about purchases before I leave home, the more likely I am to spend less.

Before the experiment I used to use cash for about 10% of my purchases and credit for the other 90%. Now I think my ratio is going to be closer to 60/40. What’s your ratio?

Clemson/Flickr

I was tempted to use my credit card four times this month, despite my pledge to spend only cash. None of the purchases were hard to push off or say no to. (I also put off purchasing airfare and making a hotel reservation for a blogging conference in July.)

1. A letter from my Alma Mater asking for money prompted me to pull out my credit card. Then I remembered my self-imposed ban.  The letter is in my queue for May.

2. A coupon to renew my BargainBabe.com domain made me seriously consider breaking my credit card ban to get the discount. But the URL does not expire until June, so I can re-up in May.

3. A deal for a haircut (which I’m in need of) and hair coloring (which I’ve been contemplating) for $95 (orig. $225) landed in my inbox via SocialBuy, a new Groupon-type site for Los Angeles deals. I’m glad I passed, however, because a few days later I got a recommendation for a woman in Glendale who  gives cuts for $20. My appointment is next week. (Full disclosure: SocialBuy’s founder is a friend of mine and is helping me improve my site).

4. Last year I forked over a whopping $400 over carelessly losing my iPhone. Ouch. A friend told me insuring an iPhone is super cheap, and indeed AppleCare costs $69 for hardware and software support, battery fixes, and phone support. The policy lasts for two years from the purchase date, so if I buy it in May I’ll get 19 months of coverage, which is less than $4 a month. The policy does not include damage from negligence, loss, or theft, however, so I may pursue other policies.

Frankly, I’m surprised that not a single purchase that required a credit card came up in April. I fully expected to confront 2-3 transactions that required credit. Is credit necessary after all?

Dplanet/Flickr

The day of reckoning is here. I sorted through my receipts and tallied my discretionary expenditures during my month-long cash-only experiment. The tally below does not include fixed bills like rent. (New to my forward-thinking budgeting system? It takes 15 minutes to set up.)

Overall, more than a third of my discretionary spending – 35 percent – is unaccounted for because I forgot to ask for a receipt. That means a picture of my spending provided below is woefully incomplete. This is also why some of my category totals, like meals out, seem low.

A number of seemingly random items sucked up my dollars – like bike repairs and gear in preparation for a triathlon May 1. I say seemingly random because unusual expenses like these pop up every month without fail. This is the main reason I created a forward-thinking budgeting system.

My totals for each spending category include tax.

Groceries: $172.22

Meals out, including coffee: $21.12

Drugstore items: $43.10

Bicycling gear and repairs: $169.38, including $100 to ship bike across the country and back

Business supplies: $15.86

Ski trip: $95

House and garden: $45.52

Gas:$41.57

Camping: $40

TOTAL accounted for spending for April: $643.77

TOTAL ATM withdrawals: $1,000

Cash left in my pocket: $11 (to last me until Saturday)

Total unaccounted spending: $345.23

Total rebates and gift cards earned: $29.69

Percent of spending unaccounted for: 35 percent!

My month-long cash-only experiment has taught me a lot about money. I dipped into savings only once, and that was to cover a $533 emergency mattress purchase. I’m telling you it really was an emergency! Grocery shopping takes longer because, with a finite supply of cash in my pocket, I add up the cost of each item I put into my cart so that I have enough money at check out.

sillygwailo/Flickr

I’m in the home stretch of my cash-only budgeting month and have four days before I can go back to using my credit card. What sweet relief!

Sort of.

I’ve come to appreciate cash for what it’s taught me. Using cash is messier and makes individual purchases harder to track, but it is easier to remember how much money I’ve withdrawn than to remember how much I’ve charged. If I forget, I can add up my ATM withdrawals online in less than a minute.

I am more conscious of how purchases add up as I contemplate them in the store. I am paying greater attention to prices because I am hyper-aware that what I buy today takes away from what I can buy later. With credit that seems less true. I am also scared of putting more into my cart than I can pay for. How embarrassing to not be able to pay the cashier and have to put something back. This means shopping takes a few minutes longer as I’m tracking the price of everything in my cart, but it is a cinch to stick to my list. During my last grocery trip, I took two items off my list even though I had enough money to pay for them!

Almost everyone takes cash, but there are exceptions. Some airlines do not take cash for in-flight purchases of snacks and drinks. Rental companies often require a credit card to place a hold in case you damage or lose the equipment.

Big purchases are easier with credit. With plastic, you don’t have to stuff wads of bills in your wallet and ask the cashier to count out high sums. If I lost my wallet, I have no recourse other than hoping an honest soul returns my wallet untouched. With credit I am well protected.

Cash has changed my spending habits the most when it comes to purchases under $50. Most of my big purchases, like a plane ticket to NYC for my sister’s graduation, are unavoidable because I am committed to celebrating her accomplishment in person. But the small purchases – like whether to order another drink at the bar, or whether to stock up on groceries – come with wiggle room. Using cash makes me more likely to wiggle my spending downward.

So how do these lessons add up this month? I am on track to spend $1,000 in April, which is well below my target of $1,200. My total spending does not include a $533 mattress, for which I used savings. I have four days left to go so keep your fingers crossed I will make it to May without going to the ATM again!

spiderpop/Flickr

At least one reader was shocked by my disclosure that my monthly budget is $1,200. In a comment about whether a $533 mattress purchase should come out of my budget or my savings, Cindy said, “If you easily have $1200 free cash to spend in a month…wow! That’s not being very frugal.”

Let me explain my budgeting system and why I give myself so much leeway.

I have tried many, many budgeting systems, from tracking every penny to estimating monthly costs by category. None of them worked because they all relied on past purchases to predict future ones. What I spend my money on varies widely. One month a plane ticket may eat up a good chunk of my dollars. During another month a wedding or home project may account for much of my spending.

What does not change is my total spending, certain fixed bills, and my income.

I decided to use this information to create a forward-looking budget (the pdf is safe to download). I start with my income, subtract my fixed bills, and am left with a monthly spending amount (my budget).

My fixed bills include basic necessities and any bills that must be paid including my rent, savings contribution, 1-tank of gas, student loan payment, cell phone bill, and regular prescriptions. Everything else comes out of my monthly budget.

• groceries
• second and third tanks of gas
• gifts
• travel
• clothes
• coffee
• movie rentals
• toiletries
• meals out
• drinks with friends
• hair cuts
• yoga classes
• gardening supplies
• car washes
• vacations
• anything else

Still think $1,200 sounds like a lot?

I gave up credit and debit cards this month to try to reduce my monthly budget. Previously, I went on a spending moratorium to learn new habits. My 15-minute budget may or may not work for you. The first month I used it I reduced my credit card bill by $2,000. Give it a try and let me know what you think.

Evil Erin/Flickr

I’ve gotten a lot of questions from readers about my month-long cash-only experiment. Why am I only spending cash in April? What is the goal? Did my “emergency” mattress purchase come from savings or the regular budget? How much money do I have left to spend this month? Answers below.

Q: Is the mission of your cash-only experiment to find out how much money you need to live on per month? How much you want to live on per month? Or some combination thereof? – Concetta

A: Neither. I know how much money I have to spend after bills and savings every month. And most months I’m good at staying within the limit I’ve set for myself.

Q: Is the point just not to use credit? Or is it more about how to use credit smartly? – Concetta

A: Yes and yes! I usually rely on credit heavily because I spend cash quickly, don’t like going to the ATM, and prefer not to carry gobs of money. But studies show people are more reluctant to spend cash over credit. An NPR story from 2008 says psychology is responsible. I was curious if spending only cash would change my habits and reduce my overall spending. In the process, I’m learning how to use credit smartly.

Q: Part of an exercise like this is to be able to defer those expenses until they do fit into the budget. Is the point of this to simply pay cash for everything (no matter if the budget is met) or is it to begin the process of defining wants from needs? – Janet

A: Yes, the point is to pay cash for everything, even major purchases. In my book, defining needs versus wants is unrelated to how you pay for them. Instead, defining needs versus wants is about sitting down with paper, pencil, and a calculator and creating a first budget. Once you have taken into account regular bills, irregular expenses, and fixed expenses, you will know how much money you can actually spend each month on fun stuff like meals out, movie tickets, and clothes.

Q: What happened to the mattress!? – Sarah

Back story: I put off buying a mattress for so long that after three sleep-deprived nights I had to start sleeping on the couch or shell out for a new mattress. I chose the latter, seeing how the couch is covered in dog hair. From browsing mattress sale flyers, I knew I could get one for under $1,000. I researched coils, padding, and natural fibers online and realized only two things mattered. Was the mattress comfortable? If so, did it fit my budget? A good friend highly recommended IKEA and from the website I was confident I could find a mattress within my budget, less than $500.

A: I went to IKEA, found a comfy mattress within budget, and lugged it home with the help of a burly friend. I’m sleeping easy, but debating whether the $533 mattress should come out of my monthly budget or savings? I tossed around the pros and cons for a week, asked readers to weigh in, consulted friends, and decided the mattress will come out of my savings.

Here’s why. I have ample savings to cover a big last-minute purchase like this. Even though I put off the mattress purchase until it became an emergency, for weeks I had been mentally preparing myself for the big purchase.

Q: What I want to know is how you researched this mattress for the features you wanted and price before spending the money. For example, did you consult Consumer Reports? Tell all, BB. – Diane

A: See above.

Q: So how much money do you have left to spend this month? (I submitted this one!)

A: My target spending was $1,200 for April. If that number seems high, hang tight. I’m writing a future post about my budgeting system and why my so-called discretionary spending is higher than other budgeting systems. So far I’ve made three ATM withdrawals totaling $1,200, but the $533 mattress came from savings so I have $667 left to spend this month. Not bad!

My mattress purchase leaves me with $157 for the month. Unless…I dip into savings to cover the mattress. Here’s how my spending looks so far.

Week 1 spending – $470 (including a pricey snowboarding trip)

Week 2 spending – $40 (just groceries)

Emergency mattress spending – $533

That adds up to $1,043. My target was to spend $1,200 this month.

UPDATE: For some reason the poll is not working. We made some tech updates recently on BargainBabe.com so I’m checking to see if those affected the polling features. Hang tight!

Sean Oliver/flickr

If there’s one phrase in the English language that brings more pain than others, it’s “late fees.” Nobody likes to hear the words, “I’m sorry, but we’re going to have to add a fee for your late payment” or see a late fee tacked onto their credit card statement.

It’s tempting to be apathetic and think, “Eh, it’s only another $15 I have to pay.”

Not a smart idea. Here are four late fees that add up quick:

Library Fees

With late fees racking up at around fifty cents per book per day, avid readers like myself can end up with a hefty bill for forgetting to return books. I have about ten books out currently (not past due, go me!) but if I were to bring them back a week late, that’s an extra $5 out of pocket though they started out free!

One week of late fees for 10 books = $5

Redbox Movies

Movies for a dollar? Or nothing if you have a Redbox coupon code? Fantastic! The kicker comes when we end up with no time to return the movie, which is a plague amongst many. Technically, you are not paying a late fee but re-renting the movie for a dollar per day each movie is past due. Soon you are close to paying theater prices.

Week of extra rental fees for one movie = $7

Credit Cards

I have a Best Buy credit card for my laptop that I’m still paying off. If I miss the payment date, they tack on $25, which is less than the average credit card late fee of $35. Not to mention the interest that adds up the longer I take to pay off the laptop. A year of late fees alone adds up to $300! That’s almost a quarter of what I paid for the laptop itself.

One year of credit card late fees = $300

Apartment Rent

First day late is usually around $15, and then another $5 per day after that. At least that is how it is for my apartment. I hope that all of us are timely enough to avoid late fees.  I don’t know about you, but an extra $20 in late fees digs into my wallet.

Two days late on rent = $20

Now that I’ve sufficiently depressed you with how quickly late fees accrue, how do we stop it? I set alarms and reminders for myself. If I get a movie from Redbox, I’ll post a sticky note somewhere I will see frequently to remind myself to return it. I’ll even schedule due dates into my calendar so a reminder of the due date pops up on my phone. Same thing with library books, credit cards, and other bills.

Being late is not worth the extra cash. Trust me, from my own personal experience, it adds up.

To reverse my spendy trend, I decided to carefully plan my errands and grocery trip yesterday so I would only have $5 extra with me. More often than not, if I always have an emergency $20 bill on me, I’m going to spend it. I estimated the cost of my errands ($5 – shoe repair guy; $25 – groceries; $5 – vitamins) and put $40 in my wallet.

The shoe repair bill was actually $7, raising my awareness of my remaining dollars. My first grocery stop added up to $11.87, an insane amount for three items (hummus, cheese, and salsa). I have a tasty hummus recipe and am debating making my own.

When I arrived at the second grocery store I was hyper aware of how much  money I had left over – $21.13. Having a finite amount of dollars influenced what I purchased. I bought super cheap in-season strawberries for $.99 instead of bananas, and passed on sliced lunch meat so I could buy chicken thighs and pork chops, the two most expensive items on my list.

As I put each item into my cart, I wrote down its cost. When I felt I was approaching my dollar limit, I added everything up, including tax. Having to pay close attention to – no, being controlled by my limited funds – was painful. With a credit card, I do not limit myself when it comes to food. I aim to spend about $27 a week on groceries, but if a staple is on sale or I see a good deal, I do not hesitate to overspend. With cash, I don’t have that option.

By the time I made it to the drugstore to buy vitamins, I had a little over $6 left. I could pay for the vitamins using a $4 off coupon and the spare coins in my wallet, but I walked out of the store emptyhanded. It didn’t feel right to go home penniless.

Andres Rueda/Flickr

One reader responded to my credit card moratorium with a detailed blog post about the cash back rewards I am giving up. The info was so useful I wanted to share it. Here is Marie’s post:

“Different strokes for different folks,” goes the saying.  And that applies most definitely to credit cards!  Now, I can see the benefits of trying to rein in one’s spending by using cash only for discretionary purchases.  If you leave your credit and debit cards at home and have only your available cash to use, you are obliged to be cautious about your spending.

But, when used for larger payments, credit cards that offer 1% to 5% cash back can be very rewarding.  Here are some approximate bills you probably pay and how much you can earn with a 1% cash back credit card:

• DMV ($2.50 rewards for $250 DMV payments)
• Car Insurance ($10 rewards for $1000 payments)
• Home Insurance ($15 rewards for $1500 payments)
• Home Earthquake or Flood Insurance ($15 rewards for $1500 payments)
• Renters insurance ($2.50 for $250 payments)
• Car dealer down payment ($50 rewards for $5000 down payment)

NOTE:  All these benefits can be nullified if you pay high interest rates.  So use your Rewards card wisely.  Make sure you budget to pay in full (or installments), just as you would do if sending the payment by check.

You can also earn cash back rewards on many regular monthly payments:

• Time Warner Cable fees (at $60/month payment, cash back of $7.20/year)
• Direct TV fees (at $60/month payment, cash back of $7.20/year)
• Cell phone bills (at $50/month, cash back of $6/year)

Some credit cards offer special quarterly 5% cash back offers for purchases made at specific types of stores, like grocery stores, drug stores, department stores, home improvement stores, and clothing stores. Three sites I like for these types of credit cards are CapitalOne, ChaseFreedom or Discover.com.  Spend $200-$400 per quarter on these special offers and the 5% cash back rewards will earn you $40-$80. You can also search for Visa and Mastercard reward cards at CardRatings.com.

That’s partly because I feel more generous with a fat wad of bills in my pocket. I’ve fronted a bar cover for friends, paid for breakfast at a coffee shop, and treated myself to a package of beef jerky at a roadside stand. Tasty – but pricey! There was a tank of gas and…I can’t remember the rest.

I’m used to having a neat record of all my purchases at the end of the month on my credit card bill. With cash I forget to ask for a receipt and often the cashier forgets to give me one. How much money at the end of the month will be unaccounted for? I’m guessing almost half.

As I said in an earlier post on preparing to go without plastic, I hid my credit and debit cards in my jewelry box. Later that day I opened a letter from my Alma mater asking for money. I thought, “I can charge this donation and get cash back!” (My credit card has a 1-3% cash back deal). When I pulled out my wallet to retrieve the 16 digits to write on the form, I remembered my credit card moratorium. Oops! I will have to wait until May to send my school a contribution.

The next day I pulled my debit card out of its hiding place. I was going on a solo road trip and decided to carry it as a backup, just in case. If for some reason my car broke down, I would most likely need more than $300 – my cash allotment for the weekend – for the fix. Not that I plan to spend $300 in one weekend. I’m carrying around extra cash because I’m worried about not having enough money, which leads me to spend more because I have so much money. How ironic!

I’m not quitting, however. Support from readers has helped, including this email from Ellen, who saw my column in the N.J. Star-Ledger:

I read your column on going plastic-free (a.k.a. sans credit cards) and wanted to throw you some words of encouragement from someone who’s been there, cashed that. About ten years ago I successfully completed a credit card counseling program, one which required me to surrender all my plastic for the duration it took me to pay down my debt.

It was a small price to pay for getting my payments consolidated, interest rates lowered and  getting those pesky collection calls to stop clogging my voicemail. So for three years, I went plastic-free all while I got my debt in order. Every transaction that required a credit card–like buying an airline ticket online–I simply used my debit card which contained a Visa logo. This win-win allowed me to make online purchases and have the money directly withdrawn from my checking account.

When I finally received the letter declaring me debt-free I eased back into just one credit card which I pay in full or darned-well near try. Since I’m still on a strict budget, I still try and use my debit card only. Good luck on your cash-only venture.

I’m rootin’ for ya.

me and the sysop/Flickr

The votes are in, I’m going credit card-less for one month beginning April 1 despite the disadvantages of giving up credit. Here’s how I’m going to prepare.

• Hide my two credit cards in my jewelry box so they are out of sight, out of mind.
• Average my credit card bills from Jan, Feb, and March and set that as my spending limit for April.
• Head to my local bank branch to withdraw a fat roll of cash (my average credit spending from the past three months).
• Carry around $100 at a time for security.
• Begin spending!

My biggest concerns are safety, not having enough cash on me, and figuring out what to do about online purchases that require credit. I’ve decided to keep paying two bills - cell phone and student loan – as I have in the past, through a transfer from my checking account. These bills are consistent month to month and I don’t have the option to not pay them. My focus is on how using cash changes my day-to-day spending, not my fixed expenses. Remember how I got into this mess?

Okay! Ready, set…cash!

UPDATE: Joe asks:

Does that also mean no debit cards? I don’t use credit cards often, but I live by my debit card.

Yes, Joe, that means no debit cards. I’m going to be free of plastic!

Janet has a neat system that tricks her brain into thinking she only has cash: