Suze Orman Money Matters

Sometimes I wonder if Washington has a clue what regular Americans are dealing with financially. All those official pronouncements that inflation is "under control" or that the economy is "growing" don't seem to have much to do with the reality most of us know: Everything just keeps getting more expensive.

Lately, real life has been making some pretty emphatic pronouncements of its own. Here are a few I've noticed:

• Filling up your gas tank costs about 50 percent more today than it did two years ago. And with crude oil setting new price records, get ready for more increases.
• Credit card companies are doubling the minimum monthly required payment for many consumers.
• Skyrocketing home values have meant sharply higher mortgage payments (and bigger down payments) for home buyers. And rising interest rates are going to boost payments on any home equity lines of credit or adjustable rate mortgages.
• If you're lucky enough to have health insurance coverage through work, chances are you're being forced to pay more out-of-pocket.

That's why I think now is a perfect time to show you some ways to save smart. With minimal attention and effort, I bet you can reduce your typical costs by at least 10 to 15 percent -- maybe even a lot more. This stuff is not about making any major life changes. The truth is that you may well be needlessly tossing away a bucket of money each year, simply by being a bit careless here and there.

With that in mind, here are some simple and surprising ways to save.

Drive a Better Deal

Your car is full of money-saving moves. For starters, next time you pull up to the pump, think twice about paying for premium gas. The reality is that most cars operate just fine with the less-expensive grade. Check your owner's manual to see if premium is required or merely recommended. Then, keep an eye out for gas bargains in your area. You might even try a little research. Websites like www.gasbuddy.com specialize in providing neighborhood gas prices.

And keep up with simple auto maintenance that keeps your gas mileage as high as possible. When you fill 'er up, take another two minutes to check the air pressure in your tires. Underinflated tires can reduce fuel efficiency by 10 percent or more.

If you want to save some serious bucks, don't lease your car - buy it, even if you have to take out a loan. You'll be making car payments for three or four years, but then when the loan is paid off you can still drive the car for at least another two or three years (or more if you get a dependable car and keep it in good shape). That's two or three years you're car-payment free!

Take a look at your auto insurance policy, too. If your current car insurance deductible is just $250 or $500 a year, increase it to $1,000 or even higher. That can reduce your premium by 10 percent or more. The truth is a lower deductible can cost you a lot more in the long run. That's because if you make a lot of small claims-which is the reason for having a low deductible-pretty soon your insurance company is going to either hike your premium when you renew or decide you are too much of a nuisance and refuse to renew your policy at all.

Beyond that, you can shave off even more if you manage to get your FICO credit score into the 720+ range. Surprised to see your FICO numbers affecting your car insurance? Don't be. Your FICO score can affect almost everything you buy that you have to charge.

If you own a home, consider a combined premium option, where you get insurance on both the home and your cars from the same insurance company. You can typically reduce your premium costs by another 10 percent or so by simply having both policies with the same insurer.

Another great thing to do, if you can swing it, is to pay your premiums once a year, rather than quarterly. That way you avoid the typical $5 to $10 extra you get stuck paying each time you send in a payment every few months.

Take Credit More Seriously

We seem to be becoming a nation of reckless chargers. It drives me crazy how much money is thrown away because of sloppy card management, especially for those of you who carry a balance from month-to-month. If you aren't paying off your bill each month, you need to pay a lot more attention to your interest rate. The average is a whopping 15 percent!

Federal regulators recently put pressure on credit card companies to boost the required monthly minimum payment to 4 percent of your outstanding balance - that could more than double what you're currently paying. As painful as it may be to have a higher required minimum, it's actually a very good move in the long run, since it will force you to pay off the balance faster.

If your FICO credit score is above 720, push hard to get a lower rate. Call your current card issuer and tell 'em you're gonna move your balance to another card if they don't reduce your interest rate. (At Yahoo's Credit Card Center, you can shop for offers where you pay zero interest on a balance transfer for a set introductory period.) Make sure the rate you'll be paying after the intro period is still a good deal. You'll also need to be super-vigilant about paying all your bills on time-not just the credit card bill-when you get a balance transfer deal. Because the credit card company will be scouring your credit report to see if you trip up on any debt payments; often, according to the terms of the balance transfer, that's all the excuse they need to immediately ratchet up your interest rate.

Another costly credit card trap to avoid is the "Two-Cycle Average Daily Balance" method some cards use to calculate your interest. I know that's a mouthful, but it's worth knowing about, so stick with me for a sec. If your card uses the regular old "Average Daily Balance" method, and you start your billing cycle with no balance, then you will not be charged interest on any purchases you make during that month, assuming you get the bill paid off by the due date. But the Two-Cycle method is a bit trickier, in that the card company is going to look at your outstanding average daily balance over the past two cycles, not just the most recent month, to determine your bill.

For example, let's say that one month you had a $1,000 balance and you paid off $900 of it. The next month you didn't use the card, so you figure you simply owe the $100 on the remaining balance, plus the interest on that $100. But your card company has a sneakier idea: It is computing your interest based on the average daily balance for the past two months.

Check the back of your most recent card statement to see what method is used, or call customer service and ask.

Whatever you do, make at least the minimum payment on time. That means the payment arrives before the due date, not that you mail the check on the due date. The fact is the credit card industry is getting fat on consumers' tardiness, given that the average fee for a late payment is now more than $30. Screw up just three times a year and you are looking at paying close to $100 extra because you simply didn't pay attention to the due date.

Home in on the Right Low Down Payment Mortgage

With the average price of a home climbing above $200,000, it's understandable that many home buyers don't have the full 20 percent down payment that lenders want to see. That means more home buyers are getting stuck paying "Private Mortgage Insurance," an added monthly charge that protects the lender if you ultimately can't keep up with your mortgage payments.

Traditionally, lenders would just tack on the monthly PMI as an added cost to your mortgage. More recently, the piggyback loan, where you take out a home equity line of credit to cover the difference between your down payment and the magic 20 percent lenders want to see, has become a popular way to sidestep PMI. But the problem with a piggyback is that as Federal Reserve Chairman Alan Greenspan raises the fed funds rate, the interest rates on home equity lines of credit are going up, which means your monthly payments are going to increase.  That's not good.

My advice is to skip both the traditional PMI and the piggyback and instead ask your lender to roll your PMI into the cost of the mortgage; it can be the least expensive way to land a home when you have less than 20 percent to put down.

The cost of rolling the PMI into the mortgage is typically 1 percent of the mortgage amount, which will boost a $200,000 mortgage to $202,000. On a 30-year fixed rate mortgage charging 6 percent interest, that would raise your monthly cost from $1,199 to $1,211. That's $12 more a month. If you instead paid the PMI as a separate cost you would be looking at about an $86-a-month charge. So we just saved you $74 a month. And unlike straight PMI which is not tax-deductible, when it's rolled into your mortgage, the interest payments are deductible.

And I want to slide in another smart home-buying move that can save you big-time money. By now, you all know that your FICO credit score plays a major role in determining the interest rate on your mortgage. If your score is 760 or higher, you're in line for getting the lowest rate. But if you happen to fall in the next highest range (700-760) I want you to strategize in the two or three months before you intend to apply for a mortgage on how you can boost your score just enough to get into that top range.

One obvious way is to avoid putting any charges on your credit card; remember that a portion of your FICO score is based on the size of your outstanding card balance(s) compared to your total credit limit. So the lower your outstanding balance, the better your debt-to-credit-limit rating will be.

Speaking of credit limits, you might also try calling up the card and asking for your credit limit to be raised. That will help with the calculation too, by increasing the denominator used in the computation. It's a nifty little trick, but only so long as you don't fill up that extra spending space with new card charges.

Right now, if you are in the second-highest range you might qualify for a 5.81 percent interest rate on a 30-year fixed rate mortgage. On a $200,000 mortgage that comes to a monthly bill of $1,175. But if you can nudge your score up into the top range, the interest rate could be 5.59 percent, which lowers your monthly payment to $1,147. That's a savings of $28 a month, or $336 a year. If that's not impressive enough, consider that over the 30-year life of the mortgage you're looking at spending $10,000 less just because you were able to nail the lower interest rate!

Give Smart

Financially speaking, I can't make any sense out of garage sales. You have to invest a lot of time to hold one, when you could simply take all your unwanted stuff down to the local charity (or even ask them to come cart it away for you) and claim the donation as a tax deduction. Do you really want to spend a weekend holding a garage sale-with no guarantee you will clear out everything you don't want-when you can spend an hour or two gathering up your stuff and making a donation whose tax value will likely exceed the value of your garage sale's proceeds?

Kidding Around: A Capital Gains Idea

When you sell an investment for a gain, after having held the investment for at least one year, most of us will typically pay a 15 percent capital gains rate. Only individuals whose income tax rate falls in the lowest two brackets (10 percent and 15 percent) qualify for the 5 percent capital gains tax rate. But there just might be someone in your household who falls in that lower income tax bracket: Your child.  And if you "gift" the investment to your child, he or she will assume your cost basis and can then turn around and sell the investment at the lower 5 percent rate. Each parent can gift up to $11,000 a year to each child without running into the gift tax.

In fact, you might even be able to get the rate to zero with a bit of patience. A little-known fact is that the 5 percent long-term capital gains tax rate will drop to zero in 2008. Yep, you read that right. If your income is low enough to be in the 10 percent or 15 percent income tax bracket, your capital gains tax for any long-term investment you sell in 2008 will be zero. So if you give the stock to a kid, and then have your kid hold on to the stock until 2008 (assuming you still believe the stock is a solid investment worth keeping), you are potentially looking at a tax bill of zilch.

Those are some of my top picks for easy ways to save money by simply paying attention to the details. Put them to work and I know you will be surprised at how much money you will save, practically without changing your lifestyle one iota. Now that's smart money management.