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Financial Reform Bill; Traveling Health Insurance; Small Business; Student Operated Bank; Clutter Management

Aired June 12, 2010 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

POPPY HARLOW, CNN NEWS ANCHOR: Well, good morning, everyone. I'm Poppy Harlow and this is YOUR BOTTOM LINE. Coming up, a credit check. You probably heard never close a line of credit, but this morning we'll tell you which credit cards you need to cut up.

Plus, travel insurance for your summer vacation. We'll tell when you need it and how to get it. And pursuing your passion, we're going to show you how to turn your hobby into a small business. It's the show that saves you money, and it starts right now.

We begin this morning with financial reform. We spend so much time talking about what is in that financial reform bill, but let's talk about some things that are actually missing.

Jack Otter is the executive editor of MoneyWatch.com and he joins us with a lot of insights to this.

I want to start off, Jack, with consumer protection. The Consumer Financial Protection Agency, it is something that the president has pushed for. We'll see it in one form or another. But you say there are two big things you would actually change?

JACK OTTER, MONEYWATCH.COM: Sure. For starters, it's going to be housed within the Federal Reserve. I don't think that's a great idea. I think it would be a stronger agency if were independent. Plus look, the Federal Reserve is charged with big systemic risk, you know, the big stuff. The CFPA has got to make sure that the insurance salesman doesn't rip off grandma. Those are very different jobs, let's keep them separate.

But, the more important one, really, is that financial advisers ought to be held to a higher stand than they are, right now. I'm not confident that's going to be in there. Eighty-five percent of financial or people giving financial advice in this country are not required to act in their client's best interests.

HARLOW: And that's an astonishing statistic.

OTTER: It's nuts. Absolutely. So, really, the fiduciary standard, it's a big word, but what it means is that they are legally required to act in their client's best interest.

HARLOW: Like a doctor.

OTTER: Exactly, like a doctor or a lawyer that ought to be the standard and that means that someone can't sell a mutual fund just because he's making some money off it and it's not bad for you. He' ought to sell you the very best one for you. Imagine if a doctor can do an operation, well, it's probably not the ideal operation, but you know, it won't hurt you too much.

HARLOW: This bill doesn't change that.

OTTER: It does change that. And that's too bad.

HARLOW: Moving on, a lot critics of this reform of Wall Street say listen, this is going to impair an industry, say what you want about the big banks but they provide a lot of jobs and they really are the basis of this economic.

OTTER: That is true and you know what, they've gotten too big, frankly and it's going to be a painful movement away from that. but, part of the reason they've gotten so big was because they borrowed too much money. Just as, frankly, most American citizens borrowed too much money. It's been a 20, 30-year move where we've become overleveraged. The financial industry became more than 20 percent of the S&P 500. I think 15, 12 is closer where it's going to be and yeah, it's going to be painful.

HARLOW: What about small businesses? We rely on small businesses for more than half of the jobs in this country; they are certainly what will get us out of this big recession. Is financial reform going to boost lending to small businesses or in another way could it hurt small businesses?

OTTER: Well, it doesn't directly direct small businesses. There are a few little things that I think are kind of interesting. For one thing, it changes, it will regulate the amount that bank, allowed to charge every time you and I use a debit card.

HARLOW: Sure.

OTTER: And the retailers have been begging for this for years. They think they're being overcharged on this. And let's face it, you know, money is sort of going from paper to plastic. So I think this is a good idea. Retailers will be happy and ultimately the savings will probably be passed on to regular people.

HARLOW: For consumers, thought, there is a lot of concern, I think it's very legitimate that getting a mortgage will become more expensive, more difficult, a car loan, higher APRs. That's a reality isn't it?

OTTER: I think that's true. I think it's going to be split between people with really good credit who probably won't be affected. Let's face it, the banks make money off of lending people money and if they have a fairly good sense of that they'll get paid back, they're going to compete for that customer, that completion will keep rates low. If you have lousy credit, I think we've all been burned on giving, extending credit to people who been deserve it, so, that's going to be harder. But again, you know what? I think in the long run that's going to be good. It might be tough if you're told, you know what, you don't qualify for a house, but that's a lot better than getting the house, not able to afford it and being foreclosed upon.

HARLOW: And we it has happened since then. A lot to watch out for in the coming weeks. The president has asked for that Wall Street reform bill to be on his desk by July 4th. We'll, of course, be on it for what it means for consumers. Jack Otter, thanks a lot, appreciate it.

OTTER: Absolutely, great to be here.

HARLOW: Well, from Wall Street to your wallet and from high APRs to crazy fees. If you're sick of deal with your credit cards you need to know which one are worth keeping, and which ones you should just cut up.

Donna Rosato is a senior writer for "Money," she joins us not to talk about it.

Yeah, people should probably cut up some of those credit cards. But I want to start, Donna, with an example. You've got two credit cards. Both have a $5,000 limit. Card one, a $2,000 balance, card two, you don't have any balance. You're using up about 20 percent of your credit limit, there, of your limit. What does that even mean for folks using up this percent, using up that percent and why do they care about that?

DONNA ROSATO, MONEY: Well, that's a very good question. It's a very fancy term called the credit utilization ratio. But, all that really means is you have a certain amount of credit available and it's how much you're using of that credit. The less you use, the more available, that's considered less risky, the more you use of it, it's like maxing out a credit card, the more risky your considered. So you want to keep that utilization low.

HARLOW: And I think you know if people are looking at which to cut up, as we're talking about the average person might say cut up card two. Is that the right move?

ROSATO: Not necessarily. And it's a good question. A lot of people are thinking about cutting up some credit cards and getting rid of some of them because credit card companies are adding fees, and you know, boosting rates. So, you might want to shut down a few cards and it makes sense, oh, maybe I'll just shut down the one that has nothing on, but you really want to go about it a little bit more strategically. First think you should think about is another important part of your credit score is how long you had a credit account open. It's called your length of credit history.

HARLOW: And that's very important.

ROSATO: Yes, it's your track record, how long you've been keeping debt and holding it, making it hopefully a good record of paying down debt. So when you're thinking about which cards to close down, want to keep the ones that are open, the ones you've had the longest open. You don't need a lot, maybe just one, two, three cards.

HARLOW: But, what if the APR on the card you had the longest is just too high. Are you stuck?

ROSATO: Not necessarily. It's a really good question, because a lot of companies are raising the APR, the interest rates that you pay on whatever balance you have.

HARLOW: Yeah.

ROSATO: The good news is, the longer you've had a card, the people who have had a card the longest have much more success in lowering the interest rate, calling up the credit card company, negotiating with that. and if you have a history of on-time payment, you're more likely to get that lowered. And credit card default rates are falling, the economy is getting a little better, you might have a little bit more leverage today.

HARLOW: That's a good point. There are some credit cards that folks have that they never use. What should they do with those? I mean, do you always want to cut them up? Doing that could hurt their credit score, so it's a fine line?

ROSATO: That's right. That's right. So, you want to keep the ones that you have open the longest open, but if you have a bunch of small cards, it's a good idea to simplify your financial life. And if you slowly close down the newer accounts, say cards that you've only had open maybe a year or two, it really shouldn't hurt your credit score overall.

So slowly close them down's. Pay off the balance first. Close them down. One exception to this rule is, if you're applying for any kind of loan or credit, a car loan, student loan or mortgage in the next six months to a year, don't shut down anything yet. That's going to have a short-term affect on your credit score. So, there's no need to shut it down, but that's the only exception to that rule. Otherwise, just close down a couple of those accounts.

HARLOW: That's a very good point, if you're trying to get a significant loan, wait and don't shut down your cards, wait until you get that loan, then take care of it.

That's great advice. Donna, thank you so much.

ROSATO: Thanks Poppy.

HARLOW: We appreciate it. Thank you.

All right, go to CNNmoney.com, right now. Check out our must-read article of the week, "Financial abuses of deadbeat parents." Our Blake Ellis reports that because of poor credit scores more and more parents are committing identity theft on their own kids. We are not kidding. You don't want to miss this one. Check out the home page at CNNmoney.com right now, you can see it right there.

And coming up, do you really need extra health insurance for your next vacation? We have the answer to that straight ahead in 90 seconds.

(COMMERCIAL BREAK)

HARLOW: On this show we talk about taking a vacation on a budget, but what about health care when you're vacationing outside of the United States? Andrew Rubin is with NYU's Langone Medical Center. He's also the host of "Health Care Connect" on Sirius XM Doctor Radio and he joins us to talk about all of that.

You know, you always get asked should you buy travel insurance, should you get extra medical insurance when you're traveling? What's the bottom line here?

ANDREW RUBIN, HEALTH CARE CONNECT: The bottom line here is people don't think about this when going on a vacation.

HARLOW: I do. Not always.

RUBIN: Most people don't think about health care and the answer is you should always have health insurance whether in this country or leaving this country and going on a vacation.

HARLOW: When you look at Medicare, for example, this is something you really have to be careful about. It doesn't always cover you when you're out of the country?

RUBIN: This was really surprising to me. When you leave the United States, and a lot of people do, particularly this time of year, Medicare, traditional Medicare, not supplemental plans or advantage plans, but a lot of people get their straight Medicare, Medicare does not cover you when you're outside of United States. So, if you're traveling through Europe, you're out of luck if you get sick.

HARLOW: And what about specific illnesses to watch out for this summer when traveling abroad? Obviously, swine flu a big scare last year, a lot of issues with illnesses on cruise ship, anything that's come up this year?

RUBIN: Listen, I'm not a doctor, but nothing that's been in the news that people need to be worried about, but what's important here is that people, again, don't plan on getting sick. So, what you want to be prepared for the event that you do get sick. But, that could be running around a cruise ship deck and twisting your ankle. You may end up in on the cruise ship infirmary and have bill medical bills.

HARLOW: And what about COBRA? Some people are using time between jobs, they're covered by COBRA, they're using that time to take a trip?

RUBIN: So, what's important here is to understand what your coverage is. so, before you even get to COBRA you need to understand if your existing medical insurance has a benefit if you're traveling outside the United States. So, you need to check with your employer and if you buy insurance directly through the insurances company, check with your insurance company. If you're on COBRA, that means you've lost your job, but your existing insurance plan continues. So, if you have the benefit when you were working, you have the benefit now when you're not working.

HARLOW: I think a lot of people go on vacations and they just assume, well, if something dramatic happens to me I'm going to be taken care of. It's just not always the case. Often times you're going to pay out of pocket. It's worth buying health insurance generally traveling outside the United States, somewhere especially foreign. You want it, where can you buy it, right now?

RUBIN: It's actually really easy to get, and, but, again, the devil's always in the details on this information. So, you can buy it through the travel company you booked your vacation with. You can, a lot of credit card companies sell this when booking on your credit card and you can go an the Internet do an Internet search or you may even be able to get a supplemental policy through your insurance company.

The key is know what you're buying. So, like any health insurance plan, they're going to have deductibles and co-pays and they're going to exclude certain services. And remember, we've talked about this on many shows, if you have a pre-existing condition you're automatically disqualified from the health care. So, the key here, know what you're buying before you buy it. It can be very inexpensive and it can be expensive. So, read the fine print.

HARLOW: Read the fine print, know what you're buying, but it can certainly be worth the time and the money to look into it.

RUBIN: I always say, be prepared. Never not have health insurance if you can avoid it.

HARLOW: That's great advices, thanks so much Andrew, appreciate it. Thanks for being here.

All right. How to turn your favorite pastime into a business that you are passionate about? We'll tell you, straight ahead.

(COMMERCIAL BREAK)

HARLOW: All right. Well, let's be honest, everyone wants to do something that they're passionate about for a living. But, have you thought of turning your hobby into a business? Rod Kurtz is the executive editor of AOL Small Business here to tell us all just how to do that.

ROD KURTZ, AOL SMALL BUSINESS: Good to see you. We were just talking about our favorite hobbies.

HARLOW: I know mine's running, but you said you can't make any money doing it.

KURTZ: Unless you won a marathon.

HARLOW: Yeah, that's not going to happen. OK, you say there's some important questions, though, that you have to ask yourself if you really think you're going to turn what you really like to do into a business. What are those questions?

KURTZ: Well, absolutely. The most important question is do you really love it? Because when you turn something you love into a business, when you're an entrepreneur it's a 24/7 activity, you're going to be surrounded by this all the time. And something that you think might be fun once or twice a week, when you're doing it day in and day out, all day, all night, if you don't love it, this is not the career for you.

HARLOW: If you don't like walking your dog, you might not want to be a dog walker.

KURTZ: Right.

HARLOW: What hobbies do you think really parlay into a small business venture, because certainly they don't all.

KURTZ: Yeah, well, we're seeing, you know, the Web has obviously changed the face of business, and I think it's done that for hobby entrepreneurs, as we call them. You know, music is one area. It's become very easy to not only build sort of a relatively basic recording booth in your home for a few hundred dollars, but then you can take it and you can actually sell it on the Web through iTunes and things like that and you can actually take a bigger cut of profits.

We're seeing, you mentioned dog walking. You know, there a lot of these doggy daycare centers that are popping up, people are very passionate about their pets. Arts and crafts, we're seeing sites like ETSY (ph), provide a platform for people to sell these crafts that they couldn't, you know, even five years ago. So, it opens up the access for kind of a solo entrepreneur to reach the masses.

HARLOW: And speaking of music, wasn't that Justin Bieber (ph) a YouTube sensation sensation?

KURTZ: An Internet sensation. Did I spy some Justin Bieber in your iTunes, yeah.

HARLOW: I'll show you that after the show. You know, also you've got to consider when using social media, because it can really help, FaceBook, Twitter, you've got to consider the best way to use it to market your business. Right?

KURTZ: That's so important. And I think this is a huge advantage, not only for hobby entrepreneurs, but entrepreneurs in general. That they have such a compelling story to tell, usually these are companies they started in their garage and they have now, with the social media, as you mentioned, a great way to connect for free with people and share that personal story. Something that you share over FaceBook and twitter is much more personal.

HARLOW: And in terms of all the legal issues, here, because you've got to get a good lawyer, or at least be a lawyer, yourself, know what you're doing. If you're an owner of a small business, you should have an LLC, right? I mean, that protects you? KURTZ: Yeah, that's usually the best structure for a small businesses. Again, if you take a hobby and you start sell it, you're suddenly a real company and the ramification if you don't form some kind of corporation. The reason LLCs are good is first of all the two "L"s stand for limited liability, which when it's just you, that what you want, but it also provides flexibility with taxes and how much money you can actually make.

HARLOW: Something you have to keep it in mind. You can turn something you love into a job, but legally you've got to watch out for yourself.

KURTZ: You got to see those dollar signs.

HARLOW: Thank you Rod, appreciate it.

KURTZ: Good to see you.

HARLOW: All right, up next, banking on a bright future. Why these kids are running their own bank. That's next.

(COMMERCIAL BREAK)

HARLOW: You know, we talk a lot on this program about kids and money and teaching them to be responsible with their finances from a young age. It's actually been proven that kids will learn faster if they're dealing with their own money. CNN's Stephanie Elam paid a visited to a Harlem high school that's opened a student operated bank. Take a look.

(BEGIN VIDEOTAPE)

STEPHANIE ELAM, CNN NEWS CORRESPONDENT (voice-over): Budgeting, saving, investing. Those aren't big priorities for most high school students, but things are different at Thurgood Marshall Academy in Harlem, New York.

Senior Matthew Reyes is part of a team of 10 student bankers helping their peers open bank accounts at a new Capital One bank branch inside the school.

MATTHEY REYES, STUDENT BANKER: What we do is anything a regular employee would do. I would take turns being either a teller or relationship banker, opening accounts or handling withdrawals and deposit slips.

ELAM: The bank is open three days a week, and both students and staff can open accounts with as little as $1. Just like any other bank, these accounts can be accessed at any Capital One branch.

(on camera): How do the other students respond to those of you seniors who are in this program? How do they see you guys?

REYES: Well, they laughed at me at first, because I had a shirt and tie, I had a suit on. They were, ha ha, you got a shirt, I'm like, but at the same time they were like, you look like a real banker, though.

ELAM (voice-over): Matthew also teaches financial literacy classes to younger students.

REYES: We try to show them a level of wants versus needs. It's OK to buy some things that you want, but it's more important to save.

ELAM: It's those practical lessons that next year's student bankers are exciting to be learning.

MATENIN SANGARE, PROSPECTIVE STUDENT BANKER: Every time I get money I'll just spend, spend, spend, spend, spend and me working at the bank is going to really teach me how to save and budget money.

ELAM: Money management skills aren't the only goal of the program, which involves working at a full-fledged bank and week-long training course.

SANDYE POITIER-JOHNSON, THURGOOD MARSHALL ACADEMY: It makes them more focused, it gives them a goal to work towards, it grows them up very quickly, they become adults.

ELAM: And perhaps most importantly, the student bankers are proud of themselves.

REYES: I used to have like 55s and 65s, and then after this program, I came back to school with 85s and 90s.

ELAM: Stephanie Elam, CNN, New York.

(END VIDEOTAPE)

HARLOW: Well, that is a very cool story. And if you're a recent high school grad and you're lucky enough to have gotten some money for graduation, here's some good tips to put in use. Don't spend it all right away. The No. 1 thing that you want to do is put a big chunk of that money into a savings account so you can start earning interest on it right away. Also, you want to think about setting some of that money aside for college supplies, room and board and all the other things that you're going to need come the fall when you go to college. And save even more for college on buying all those books, buying used books online, you're going to save a lot there. Also, remember to spend some of that money on yourself and celebrate, you deserve something nice, just don't go overboard.

And coming up next, it is time to declutter your life. We're going to help you lead a simpler life and maybe save some money too in the process.

(COMMERCIAL BREAK)

HARLOW: We've all got it, stuffed in your closet or in your garage, or right in front of your eyes, we're talking about clutter, but in this morning's "Free for All," "All Your" magazine's senior style editor Elizabeth Blake is going to give us some tricks if you want to free yourself from those pesky space stealers, and they are pesky. Thanks for joining us.

ELIZABETH BLAKE, ALL YOU MAGAZINE: They certainly are.

HARLOW: First, there's a great checklist in this article about what you need to ask yourself if you can throw something away or if you should keep it. What are big questions?

BLAKE: Absolutely. Well, it's really hard to determine, you know, if you want to hold on to something, it may have some sort of value to you, so we just wanted to simplify it and give you five quick points to go over. So, you're going to ask yourself: Have I seen this item in the past year? Did I even know I owned it? Which, If the answer is no to that, you can probably just toss it at that point, right there. Does it hold sentimental value? Will I be using it in the next year? You know, these are all things that you just need to ask yourself. It will help you get a sense of if it's worth it to you and if so, hold on to it, but if not, we have some ways to donate and dump and sell.

HARLOW: And if you answer no to two more?

BLAKE: It's a safe bet that you part with this item with really sacrificing it.

HARLOW: All right, what about two items that you can defiantly sell, you can get rid of them and they're just taking up a lot of space?

BLAKE: Right, so if you're paring down, you might as well try to earn some extra cash while doing it. And so, one Web site that we really like at "All You" is CashForBooks.com, and so they take everything from novels to textbooks. You'll just go onto the Web site, enter the ISBN number, they'll give you a value and a prepaid shipping label, so you can send in. When they get your book, you get your payment.

HARLOW: Also electronics, right? You have an old iPod, and old keyboard, computer.

BLAKE: You have so many gadgets these days and so what works in a similar way, you can go onto Gazelle.com or BuyMyTronics and both Web sties will pay for the shipping, you'll enter some information about the gadget. They'll give you a quote, you can send it out and rest assured that if it's a personal sort of device, that they wipe it completely clean, so there's no worry about identity theft or anything like that.

HARLOW: A lot of times we have all these household items, half a can of paint, you know, we've got light bulbs all over. You have to be careful how you get rid of these, right?

BLAKE: You do. I mean, compact florescent bulbs are fantastic for the environment in the sense that they're very energy efficient, but one bulb contains enough mercury to actually damage up to 6,000 gallons of drinking water. So, it's imperative to dispose of it in the right way. And what you want to bag it in a plastic bag and bring it to any Home Depot store, they have orange recycling bins all around the store, they dispose of them properly for you. However, if you don't live near a Home Depot, you can go online, it's epa.com/bulbrecycling, and they'll direct you to an area, a location in your area.

HARLOW: You have be really careful with those. Finally some other things that you can donate and obviously get a tax write-off for doing so, your glasses, old pairs of glasses or shoes. You know, one man's trash is another man's treasure.

BLAKE: Absolutely. Completely true. We have shoes in our closet that you know, bought, maybe we wear once or twice, we won't wear them again, and so why not donate gently used shoes to somebody who that will appreciate them. So, SolesForSouls is a Web site that will give you a drop-off location and they redistribute the shoes to people that need them.

HARLOW: SolesForSouls, that's great.

BLAKE: Yes, and then for eyeglasses, you just go on -- you can drop your old lenses at Lens Crafters or Pearle Vision, they'll donate them to One Vision who distributes them to needy people around the globe.

HARLOW: Great, and then get a receipt so you can write off on your taxes.

BLAKE: Exactly, so pare down your clutter, and you simplify your life.

HARLOW: And your house looks a lot better.

BLAKE: Absolutely.

HARLOW: Elizabeth, thank you so much.

BLAKE: Thank you.

HARLOW: We appreciate it. All we'll see you back here next week for YOUR BOTTOM LINE, the show that saves you money, same time, same place 9:30 a.m. Eastern on Saturday, right here on CNN. And don't miss Christine Romans and Ali Velshi on YOUR MONEY today at 1:00 p.m. Eastern and tomorrow at 3:00, but right now, it is time for a check of your top stories in the CNN NEWSROOM. Have a great weekend.