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The headline to this AP article made me cringe. “Savings Rate at Lowest Level Since 1933″. What was worse were the details in the article.

The Commerce Department said Monday that consumer spending rose by 0.9 percent in December, more than double the 0.4 percent rise in incomes.

Basically, that means for every $1 in additional income for the average consumer, they spent $2.25 in December. Wow, simply wow. Spending has been outstripping income for a few years now as consumers sucked their home equities dry to buy the biggest SUV they could find. But to have spending outstrip income by more than double, while home re-fis are dropping like a rock due to increased interest rates, means that consumers are coming up with a new way to pay for their spending. I’m guessing we’ll see the level of credit card debt boom in December along with this measure of increased spending.

Consumers went on such a binge in December that it pushed the yearly savings rate to -0.5%. The only other times in history that the annual savings rate has been negative were 1932 and 1933, at the height of the Great Depression where a quarter of all Americans were unemployed.

What does all this mean in plain English?

A negative savings rate means that Americans spent all their disposable income, the amount left over after paying taxes, and dipped into their past savings to finance their purchases.

*shudder* This measure includes retirement savings. So, if someone has 3% going into a 401(k) plan, they spent any increase in income *plus* another 3.5% of income in 2005.

There are only two ways to build wealth, save or win the lottery. As Americans we’re not saving, so we best win the lottery soon. And there aren’t enough lotteries to go around.

From the “if it sounds too good to be true, it probably is” file, Bankrate has a Q&A on the latest debt elimination scam sweeping the country.

One is that credit card lending is really illegal, so if you stop paying them and they take you to court, you’ll win with the secret, and expensive, legal strategy you will be sold. Yours is a variation on that theme — it’s a scam, pure and simple. They probably want a big upfront fee. Don’t pay it. A similar scam was circulating three years ago in the mortgage arena, where companies wanted you to believe that by waving their special piece of paper at your lender, you could *poof* make your mortgage disappear. At that time, government agencies issued a flurry of warnings. To quote the U.S. Treasury, such schemes “are worthless” and “using such fictitious instruments with the intent to discharge valid debts may be subject to criminal prosecution.”

If you get a solitication about magical ways to eliminate any debt, whether mortgage or credit card, assume it’s a scam and walk away. There are only two methods to reducing debt: paying it off or bankruptcy. Anything else is rubbish.

Well, I maxed out my first credit card last weekend. I know what you’re thinking “That goes against every single rule you and every other know-it-all preach!” Well, it does in a way. But I’m not paying 25% or 15% or even 5% on that balance.

When we purchased our house, we inherited the washer and dryer of the previous owner. They were of unknown age and, frankly, pretty crappy machines. The dryer had started to go down the path of replacement. It would take 3 or 4 cycles to effectively dry clothes and fixing it would cost the same as a new dryer. We decided to go ahead and get the most we could out of the current dryer until an opportunity presented itself to replace it.

Well, that opportunity came in the form of Best Buy’s offer of 36 months zero financing. We could easily pay cash for the washer and dryer that we purchased, but Best Buy’s offer allowed us to make monthly payments and keep the money in our account, where we can earn interest on the amount of the purchase.

Even if we only earn a 3% yearly return on the $1,300 purchase price paid over 36 months (assuming equal payment amounts of $36.11 per month), I figure we will earn $57. Investing that cash in bonds will realize an even better return.

In my mind, this isn’t bad debt. We could easily pay for the washer and dryer in cash, but there was no discount for doing so. This way, we’ve earned interest of $57 that we would not have earned by paying cash. All the while paying no interest on the underlying debt (though, make sure to watch expiration dates so you don’t get hit with back interest of 18% annually). $57 doesn’t seem like much, but it’s a dinner at one of our favorite restaurants with money left over to pay a babysitter.

It still makes me slightly nervous to have one credit account maxed out (though we could probably ask for an increase if we really wanted to). I am conservative with money and don’t like to have large debts. I wouldn’t suggest doing this without the zero financing (making 2% and paying 18% doesn’t make a whole lot of sense), but these offers provide an opportunity to use arbitrage to earn a little extra on purchases that you would make anyway.

It is also not a good idea to max out credit accounts if you plan to borrow money in the near future. The percentage of open credit used is one of the items that make up your credit score and the higher the percentage the lower the score. However, we do not plan to borrow in the next couple of years, so we will have the balance paid off or largely so before we borrow, which will not hurt our credit score.

In a later post, I will discuss why Best Buy is able to offer so many 0% interest offers on their credit cards and how to avoid becoming a casualty of these offers.

Money Magazine has an article on four steps you can take to improve your credit.

The last section is the most important, how to clean up your credit. The first three sections deal with obtaining a credit report, making sure only “good” credit shows up on your credit report, and protecting your identity.

Everyone that doesn’t understand what actually goes into a credit report needs to read this article. It’s a short summary of good credit habits that will allow anyone to repair their credit and maintain a good credit score. If yours is below 700, or worse you don’t know what it is, check out the article and follow their advice.

One of the stock values that I understand the least is Apple. While I would have loved to have owned a stock that has tripled in each of the last two years, the valuation now simply does not make sense to me.

I’m guessing that the P/E of 54 is due to the growth of the iPod. It’s true that sales of the little music player have been growing exponentially, but a P/E of 54 seems to say that will keep happening. The truth is that the growth has to stop slowing because of two reasons. One, there are only so many people willing to pay the current prices for a music player. Two, the “upgrade factor” will slow as features are as less cool.

Of the people I know with iPods, many are on their second or third, upgrading when the screen went color and/or when video was added. The next generation of iPod may only contain an FM tuner as a serious upgrade. While that will likely get me off the bench, I doubt many people will upgrade from earlier iPods just for FM tuning (see the sales of most other music players that already have FM tuning, for instance).

An analyst for the Motley Fool seems to agree with me and he has numbers to prove it! He estimates that Apple is about 30% overvalued unless they can continue to grow at 20% for the next decade. Hard for any company, much less a 30 year old one.

Another possible explanation is the hope that the iPod will spur sales of the Macs to users that would not have considered one previously. The truth is that sales were below Apple’s expectations, despite what the financial press may say. The Intel-based Macs may expand the market slightly, but by introducing the replacement for the Powerbook (starting at $2,000) rather than the iBook (starting at $1,000) I think Apple missed an opportunity to make a splash in the sweet spot for laptop sales.

Apple currently has a market cap that exceeds Dell. That’s insane, iPod or not.

Ah, the time of year when H&R Block and other accountants pray on those that hire them to prepare their returns. Their predatory technique is the Refund Anticipation Loan.

The Refund Anticipation Loan is sold as a “win” for the consumer. You don’t have to wait the six weeks to get your tax refund. Woohoo! Right? Wrong.

The interest and fees for them - which can run 30 percent or higher of the loan value

Let’s be generous and assume it takes six weeks to get a refund on a filed 1040 (with electronic filing and direct deposit I got mine in two weeks last year). 30% of the loan value for a loan of six weeks results in an annual rate of interest in the range of 250%. Would you accept a “loan” with a 250% annual percentage rate (APR)?

While not as bad as payday loan outlets that prey on the poor (who often have APRs in the 1000% range) the Refund Anticipation Loan is about the worst debt you could have (unless you are H&R Block).

To it’s credit, it appears that H&R Block has taken some of the criticism and changed their procedures. Have they stopped offering Refund Anticipation Loans? Well, no. It’s a lucrative business after all. They do require all preparers to go though a five-step presentation explaining all options. Have any readers gone through this presentation? How is it actually presented?

Never, ever take a Refund Anticipation Loan. You’d even be way better off to carry credit card debt than take on one of these. And that should tell you how horrible these “loans” are.