Originally created 11/30/97

CardTrak list loads of bargains

Q: There was a nonprofit organization called Bankholders of America in Virginia that issued lists of credit cards with no annual fee and low-interest rates. The organization no longer exists. Do you know where I could find such lists?

A: You must be referring to the Bankcard Holders of America, a Salem, Va.-based consumer group that published a booklet of credit-card deals. Sure enough, the group's phone number has indeed been disconnected.

But there are alternatives.

RAM Research, a leading credit-card consulting firm, publishes a monthly report called CardTrak that lists hundreds of the best credit-card deals, including Visa and MasterCard. The list includes low interest rate cards, no annual fee cards and rebate cards.

To order, send $5 to CardTrak, Box 1700, Frederick, MD 21702.

RAM Research also offers a free peek at a partial list of credit-card deals on its Web site at www.ramresearch.com.

Bank Rate Monitor also offers credit-card information on its Web site at www.bankrate.com.

The site has a search engine that allows consumers to find cards suited to their special needs, such as low interest rates, long grace period or special rebates.

Q: My house is appraised at $130,000. My mortgage balance is $85,500 and carries an interest rate of 7.5 percent. I contribute $300 a month to a deferred compensation plan. I'm considering whether to contribute another $300 a month. I hope to retire in about 11 years.

Would it be more practical to use that extra $300 or more each month to pay down the principal on my home loan?

A: It probably would be better to invest the extra $300 into your retirement plan rather than pay down your mortgage.

Interest payments on home mortgages are still one of the biggest tax deductions for most individuals.

Moreover, over the long run, you might be able to get a better return on your money by buying stocks and bonds than investing in your home, financial advisers are quick to point out.

You can make the comparison by analyzing the after-tax return of paying down the mortgage.

Let's assume you're in the 28-percent tax bracket. Your mortgage rate is 7.5 percent, but because you can deduct the mortgage interest costs on your federal income tax return, some of the interest has value. By paying early and avoiding interest, you are, in effect, getting an after-tax rate of return of 5.4 percent.

Now, by comparison, can you invest the same money and, after-taxes, get a higher return.

One place is the stock market. Historically, stocks have returned, on average, 10 percent each year.

Again, assuming you're in the 28-percent tax bracket, the after-tax return would be 8 percent.

Remember, savings in your deferred compensation plan, whether it's a profit-sharing plan or pension, presumably will build up tax-free until you withdraw the money, at which time your tax rate might go down.

Your retirement plan probably will return more than the 5.4 percent each year you'd get from paying down the mortgage.

John Finotti is a business writer for The Florida Times-Union in Jacksonville. Send questions about money matters to him in care of Business News, The Augusta Chronicle, P.O. Box 1928, Augusta, GA 30903. He can be reached on the Internet at tubiz@tu.infi.net.


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