Any time you have some extra money, you may wonder if you are better off investing the money or paying off your debt. The basic answer is that you should apply the money to the higher interest rate, but, as you’ll see below, that may be more complicated than you think.

When I say to apply the money to the higher interest rate, I mean that you should pay off debt if it is charging you a higher interest rate than you can get from your investment. The opposite is also true: you should invest if your investment will earn you a higher return than the interest rate on your debt.

Keep in mind that even in cases where you decide that investing seems to be the better option, you should still make the minimum payments on your debt. Staying current is not only your obligation to your lender, but will also help you avoid fees and penalties.

There are two main reasons why the trade-offs are not as straightforward as you might think.

1) Interest Rates and Investment Returns Vary.
While there are some debts out there with fixed interest rates, like P2P loans from Lending Club, many forms of debt have variable interest rates. All investments carry some risk. It’s difficult to say for sure what your return on any investment will be. Aside from the risks of the investment, your assumptions about returns may be flawed as well. Without knowing the interest charged on your debt and the returns on your investment, it becomes difficult to compare the two. You’ll probably want to play it safe and overestimate your debt costs and underestimate your projected investment returns.

2) Taxes Can Affect Debt and Investments.
When comparing interest rates, you have to take taxes into consideration as well. Some debts, such as interest paid towards a home mortgage, may be tax-deductible. Similarly, there are some investments with gains that are tax-free. To make an accurate comparison between debt and investments, you should consider both rates on an after-tax basis. To aid you with these calculations, I wrote this java applet.

By making reasonable assumptions and taking taxes into consideration, you will be well informed to decide how best to utilize your extra money.

You'd be surprised how often smart people make bad credit decisions. Some of the most intelligent students at the best universities end up deep in credit card debt before they've even finished college—my brother even mentioned that some of the people he knows with the biggest debt were economics majors at top-tier schools.

Unfortunately, no matter how smart people are, they can always sink into a web of debt. Why? Some don't plan their spending well, some don't budget, and others think that they will easily be able to pay their bills later.

The saddest reason is that sometimes some people simply need the money.

A medical emergency, a hurricane, or other urgent situation can strike at any time, leaving victims in a precarious situation. If they take a loan, they will be in a tough financial situation. The ramifications are even worse, however, if they don't take a loan. For people already in debt, this can be the end of any chance of ever paying off their other obligations, especially if they are forced to take a high-interest loan.

For this reason, it's extremely important to have a decent chunk of money stored up. Take a few minutes and think about it---if your house and job vanished, would you be able to survive? Would you have enough money to last?

You should try to set savings goals such that you have at least a few months’ pay on hand. This money should be liquid enough that you can get to it quickly. I don't recommend the “under the mattress” approach --- putting your money in a high-interest savings account is a good way to earn decent returns.

Nowadays several banks pay interest rates above inflation, so you are making money by not spending it. You can also start making person-to-person loans on Lending Club, where the rates are even higher, and then put a share of the proceeds into this account each month.

Regardless of how you save your money, be sure that in case of an emergency, you won't have to risk your entire future to do what's necessary in the present.

If your credit or debit card is ever declined, despite your belief that you have sufficient funds or credit, then card blocking may be the reason.

Card blocking is a routine practice used by many hotels, car rental agencies, restaurants, and even gas stations. When you use your card at these establishments, they may preauthorize your account for the amount that they expect you to spend. You can imagine a hotel preauthorizing your entire stay when you check in.

Blocking is used to protect those providing goods and services from loss. It makes sense that they would want to ensure that you would be able to pay them when payment is due. For some items, like a hotel stay, the base amount may be easy to determine. Other transactions, like a trip to the gas station, may be more difficult. I’ve heard of some gas stations blocking $50 for all pump-based transactions. If you are only buying a gallon or two, for your lawnmower, for instance, you would still have the full amount blocked.

When you have blocks on your account, it will reduce your credit available (for credit cards) or you balance available (for debit cards). A problem arises when you are near your credit limit, or your debit balance approaches zero. Blocks tend to be removed within a day or two of purchases, but that’s only the case if you pay with the same card that was preauthorized. The block will be in place longer if you check into a hotel with one card and then decide to pay with a different one. In such cases, it can take two weeks or more for your block to be removed. Having blocks on your account for so long can be a problem, as they tie up your funds while they are in place.

As you’ll often hear me say on the Lending Club blog, becoming aware of pitfalls such as card blocking is the first step in ensuring you can avoid them. Review your bank or credit card issuer’s policy on blocking. Whenever your card is requested, don’t be afraid to ask if it is for blocking purposes, the amount that will be blocked, and the how long the block will remain. Try to pay bills with the same card that was blocked. If that’s not possible, ask to have the prior block removed.

For more information about blocking, and for some additional tips to avoid any issues that it may cause, see this article from the FTC.

Today, on my way home from New York, I got to the airport and realized something---I didn't have my wallet. Somehow I either misplaced it, or it was taken, between my friend's place in NYC and the airport. My immediate concern was getting through security, but my secondary concern might have been even more important--how would I protect my finances when someone else might have my credit cards and IDs?

This isn't the first time I've lost a wallet. A year and a half ago, someone stole my wallet during a midterm (made a bad day even worse), but I assumed I had just dropped it somewhere and I would get it returned to me. That was, until I got home and noticed some surprising charges on my credit card. (Who really needs $100 at Jamba Juice and $1,000 at Victoria's Secret, anyway?).

Fortunately, I was able to get all my money back and put a stop on my cards. Here is what you should do if you find that your wallet has been stolen or lost.

1) Check your credit card's history for any malicious activity -- When I got home from the midterm, I assumed I was safe. When I looked at my credit card profile, however, it was a different story. I immediately knew that my wallet was stolen, not lost.

2) Immediately call your credit card company and put a stop on your cards -- I had two cards in my wallet, a debit card and a credit card. I immediately called my credit card company, and they offered a cool service. They let me put my credit card on hold for 72 hours. Because I didn't yet know if the card was stolen or lost, my account was protected from being charged any money and I didn't have to immediately cancel my credit card and get a new number. If the card did turn up, I would have still had the same number. Unfortunately, I had to cancel my credit card, so I will have to get a new number.

3) If you don't find your wallet, make sure to check your credit in a few months’ time - Even if someone was kind enough to return your wallet, the person might not be as kind as you think. Identity theft can ruin your credit and your personal life, so make sure to check your credit report to see if someone stole your identity. Mike Smith explained how to do this in an earlier article.

4) Report everything that was in your wallet as lost to the proper agencies -- Make sure to report your identification (such as your license or, even worse, your Social Security card) as lost. Note: you might want to take the precautionary step of making a list of everything in your wallet right now, including account numbers and the lost/stolen phone numbers found on the back of each card. This way, if the worst happens, you will already have the information you need.

Following these steps will help protect you against identity theft. Unfortunately, you are never fully protected, so we here at Lending Club suggest that you make a habit of monitoring activity on your accounts.

http://ww.breakthechain.org/exclusives/lostcards.html has some good information as well.

Good luck!

Financial software has revolutionized personal finance. You can use it to simplify nearly every aspect of your cash management, budgeting, and planning tasks. I use Microsoft Money but other programs, such as Intuit’s Quicken, are equally capable. Here’s how I use it:

I have all of my accounts entered into the program: checking, savings, credit cards, mortgage, investment, and retirement accounts. Valuable personal property, such as my house, cars, etc., can be entered as well. The program calls these assets, but I hesitate to use that term. You could also add in other items, such as your P2P loan or lending account from Lending Club with relative ease.

When I make a purchase using my debit or credit card, I save the receipt. I download my bank transactions on a weekly basis and my credit card transactions on a monthly basis. I compare the downloaded amounts to my receipts to ensure accuracy. Then I categorize each transaction, trying to be as specific as possible. When I get my monthly statements, balancing my accounts tends to go very smoothly.

Once all of your transactions are captured and categorized, the real value of the program comes through. You can use your categorized income and expenses to set up a budget. By scheduling recurring income and expenses, you can forecast future cash flow as well as set up savings goals. If you’re in debt, the software can also help you to analyze your situations and help you make a plan to get out of debt.

As time progresses and you keep your transactions up to date, you can compare your budget to actual income and expenses. You can then make adjustments to your budget, or your spending, to bring things back in line.

Having all of you finances tracked in one location makes it much easier to stay on top of them. While the entire process may seem time consuming, it actually takes very little time at all. The initial setup does take a few hours, but that’s time that you’ll quickly make up through the increased efficiency of using the software. Adding financial software to your personal finance regimen will simplify your finances, save you time on routine tasks like balancing your accounts, and given you insight into ways to save yourself money. If that’s not incentive to start using it today, I don’t know what is!