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Money Moves for Dec. 26

The weather outside is frightful, and the kids are a little less delightful. It's the day after Christmas, and you can either fight for a rock-star parking space at the mall to exchange one of the six iPods and personal shiatsu massagers left under your tree, or relax at home and rack up thousands of dollars in savings in a few hours.

No contest.

Here are four ways to put an extra kick in your step for early '06.

Pay less interest
You can save thousands of dollars with just one phone call. Yeah, it sounds like a line from a late-night infomercial, but this one's for real.

More than half the people who call their credit card customer service departments are successful in reducing their annual interest rates by an average of one-third.

How can lenders afford to take such a hit? Easy. Most people don't bother asking for a better deal. But you have the day off and leftover candy canes and fruitcake to fuel your resolve.

Open your last credit card statement, and look for the small, shadowy box that reveals your APR. You might be surprised to learn that the sweet rock-bottom rate that attracted you to the credit card is long gone. Sooner or later the blush of new love and that 0% loan comes due. That's when your banker reveals his true self -- interest rates at 12%, 15%, 18%, and higher.

With around one of every 20 American households owing $8,000 or more on credit cards, and nearly 40% carrying a balance from month to month, the math gets ugly.

For example, if you make minimum payments on $8,000 in credit card debt at 18% interest, it'll take 30 years to pay off and cost you $12,000 in interest. At 9% interest, we're looking at 18 years and less than $4,000 in interest payments. How did I do all the math? By using a handy-dandy calculator from Bankrate.com (Nasdaq: RATE  ) .

Before you compose your "Dear John" letter, see whether you can make the relationship work out. Frequent card-hopping can hurt your overall credit score. So it's best to have some consistency in your file.

But if your bank won't budge, it may be time to jump ship. Tell them you've got a better offer elsewhere and you're not afraid to dump them if they can't at least come close to it.

So pick up the phone, do whatever it takes -- psych yourself up, fake a British accent -- and start bargaining.

(Here's more on how to cheat on your lender.)

Spend less on health care
How does an extra $500 in your pocket courtesy of Uncle Sam sound? That's how much you could save if your employer offers a medical flexible spending plan.

Flex spending accounts allow you to put away pre-tax dollars to pay for everything from childcare to contact lenses to visits to the chiropractor. If you add up what you spend annually on such expenses, you might be surprised how much comes out of your pocket, even if you're covered by an employer-sponsored health-care plan.

For example, this year the average family of four is expected to spend about $12 grand on health-care costs, more than $2,000 of which will be spent on out-of-pocket expenses. Those in the 28% tax bracket who sock away this money in a flex spending account can save $560 annually on medical expenses.

While you're rifling through your files trying to find that gift receipt for the marabou dog bed that wasn't a hit with Fido on Christmas morning, go ahead and pull our your family medical file. Add up those receipts, write down the amount you want to withhold for next year's plan, and stick it in your briefcase so you'll have it handy when it comes time to sign up for those benefits.

If you're currently enrolled in a flex-spending plan, be sure you're going to spend every last dime before the deadline. Unlike vacation days that roll over to the next year, most plans like this come in the "use it or lose it" flavor. If that means you have to get four pairs of prescription sunglasses just so you don't lose the money you socked away, so be it.

(Here's more about FSAs -- and the new "grace period" offered by some, and information about HSAs -- health savings accounts.)

Don't pay taxes you don't owe
Whatever you do in the next week, don't buy a mutual fund.

Actually, let's qualify that: Don't buy a mutual fund if it will soon be making capital gains distributions or dividend payouts. Otherwise, you're really just buying a tax bill.

In December most mutual funds issue their annual distributions (aka: tax-triggering events). No problem if you've been invested in the fund long enough to enjoy the gains, or you own the mutual fund in a tax-deferred account (such as your IRA or 401(k)).

But if you buy a mutual fund in the next two weeks, you get none of the gains that long-term shareholders have enjoyed and get hit with all of the taxes as if you were.

'Tis the season of giving, but you're excused if you don't feel like paying someone else's tax bill. If you're looking for an investment for '06, spend these next days doing research. And wait until January to pull the purchase trigger.

(Here are more year-end fund tips as well as our best stock ideas for 2006.)

Make giving go further
This year we're hearing a lot about "donor fatigue." (Heck, you might be wondering whether your own household is going to need charitable contributions to cover your winter heating bill.) But charitable giving should be a part of any financial plan, even if you're donating your time.

If you're short on dollars but still want to contribute to a worthy cause, there's a way to get an extra boost from your contributions: Donate stock.

If a stock you've owned for more than a year has appreciated, you can donate the stock to a worthy charity. The way doing so makes your charitable dollars go further is:

  • You avoid paying capital gains taxes.

  • You get an income tax deduction for the full value of the stock (if you itemize and you've owned the stock for a full year).

  • You can make a larger gift than you might otherwise be able to at a lower cost.

Contact the charity for directions on how to donate stock. It can usually be done via electronic transfer (from your brokerage account to theirs) or by sending the physical stock certificates. Doing so may take one or two more steps than dropping a check in the mail, but it's worth it.

(We've picked five worthy causes for Foolanthropy, our annual charity drive. Learn more about them and how to donate by clicking here.)

Dayana Yochim's Dec. 26 to-do list included the aforementioned items as well as a complete Swiffering of the living room and kitchen and a visit to the recycling center with all of '05's unread magazines. The Fool's disclosure policy is as pretty as a present under the tree.


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