November 17th, 2008 — Money, Personal Finance, holiday shopping
It is looking like the upcoming holiday season will be gloomy for many families, given the current state of the economy and continued bad news on many financial fronts. While this may not be a time to go all out with gifts, there are holiday shopping techniques that you can use to save money without scrimping too much. Thankfully, stores are lowering prices, which will make it easier to get your gifts and still have money left over.
If you are someone that maxes out a credit card and goes whole hog for the holidays, this is the perfect year to rethink that strategy. Interest rates on credit cards are quite high and this type of spending will only hurt you over the long term. While it is wonderful to see the looks of joy on the faces of your recipients, this should not be enough to warrant loads of debt.
Look for the Best Deals
The first technique you can employ is simply smart shopping. Take a look at the different ads and develop a strategy for finding the lowest prices. As mentioned previously, stores are running numerous sales at the moment and this is a good time to stock up on holiday gifts. While many people prefer to wait for those last minute sales, this year, it may be smarter to take advantage of the low prices right now.
Try Shopping Online
This is also a good time to think about doing more of your shopping online. As gas prices go up, traveling to numerous stores has become prohibitive for many people. Having the ability to shop tax-free in many cases, and saving gas money, has given online stores quite a boost. It is also quite easy to find money saving coupons from online retailers and many are also running special shipping deals to help their customers save money.
Think About Handmade Gifts
If you are in a bad financial spot this year, you may want to think about making gifts instead of buying them. Whether you have the ability to sew, make toys, or do anything handy, these gifts will show just how much you care without breaking your bank account. While you may not be able to make the latest toy or Wii system, you can make heartfelt gifts that will be appreciated.
Putting it all Together
No one wants to think about being frugal during the holidays, but this year, it may not be a bad idea, especially if you are struggling financially. Try to think of new ways that your family can celebrate the holidays on a budget and use this as an opportunity to teach children about the real meaning of the holidays, instead of the commercial interpretation. They may be a little resistant at first, but this is a good lesson to learn and may help teach them more about the value of a dollar.
With a little creative thinking and planning ahead, you can make sure that this holiday season is even better than the last.
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September 29th, 2008 — Goal, Money, Personal Finance, bad debt, credit score
In our last post, we covered how to begin the process of restoring your FICO score, as well as how changes can affect this score. Now that you are ready to begin, there are a few steps that you will need to take. Many of these steps require diligence on your part and a little hard work. However, they can result not only in a higher FICO score, but also lower interest rates on loans, and a higher chance of getting approved for loans in the future. It is definitely worth the effort, since higher FICO scores can actually help you save money over the long term. So, let’s get started.
Since collections have one of the biggest impacts on a FICO score, let’s start there. If you do have any current collections on your credit report, you will need to work to get those removed. Before you open your checkbook, there are a few options that you should consider. First, remember that collection agencies purchase bad debt from original lenders at a fraction of the cost. This means that any money they receive is pure profit.
This also means that are usually willing to work out a settlement with you. This may not always be the case, but it is definitely worth a try. The first step to take is to send out what is called a Pay for Delete letter, or PFD. This is basically telling the collection agency that you will pay the debt, but only if they agree, in writing, to delete the record from your credit report. Do not take any further action on the matter until they have agreed to this in writing. Send your PFD letter certified so that you have a record of when it was received.
If you do not believe that the debt from the collection agency is legitimate, you can send them what is called a Debt Verification letter. This is a request that will ask the collection agency to provide you with proof that you did indeed open the account and that you are responsible for it. The more detailed questions you ask in your debt verification letter, the higher your chances are of having them remove the debt since it will require a good deal of legwork on their part.
A DV letter will give the collection agency 30 days to respond to your inquiry. Again, you will need to send this letter certified so that you have proof of when the collections agency received it. They will have thirty days to respond from the date that they got your letter. If after that time period has elapsed, you have not heard back (you will need to wait around a total of 45 days from the day you mail your letter to allow time for the mail) you can contact the credit reporting bureaus to have them remove the entry from your report.
There are also a few other ways that you can restore your FICO score, which we will cover in final part of this post.
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September 4th, 2008 — Goal, Money, Personal Finance, credit cards, credit score
In today’s world, it’s easy to define your self worth by your FICO score. Whether you are trying to buy a house, get more credit or just get back on the right track, a low FICO score can really impact your entire life. However, there are some easy steps that you can take to increase your score and open up the possibility of lower interest rates, more approvals and an easier time of getting a mortgage.
1. Get your credit report.
You won’t know what you’re working with until you get an actual copy of your credit report. You are allowed one free each year from the three major credit bureaus. You can get it online by visiting AnnualCreditReport.com Make sure you save and print your report, since you may only be able to access it online once.
2. Find any errors and dispute them.
You’ll need to go through your entire report and make sure that all of the information is correct. If not, you can file a dispute to either have it corrected, or removed from your report. You can send in a dispute letter or you can even do it online. Results take about 45 days. You may not be successful, but it does not hurt to file a dispute.
3. Limit your new requests for credit.
Whenever you apply for new credit, an inquiry is placed on your report. Get too many in a short period of time and it will affect your score adversely. Keep all credit requests to one every three months if possible.
4. Get rid of your collections.
If you have collections on your credit report, this will hurt your overall score. You need to get them removed if possible. If they are inaccurate, dispute them. If not, you will need to send what is called a PFD letter to the creditor. This is a pay for deletion letter. Basically, you’re telling them that you will pay the debt only if they agree to remove it from your credit file.
This is vital! If you simply pay the collection, it will remain on your report, pulling down your score. It may be marked as paid, but it is still a collection and will continue to hurt your score for several years to come.
5. Pay down your high balances.
How you use your available credit has a factor on your score. If you have maxed out all of your cards, this will result in a low FICO score. Pay down those balances to free up some credit.
6. Pay your bills on time every month.
Three months of paying your cards on time can result in a jump of thirty points or more in your FICO score. This can be significant! Try to keep as current as possible and you will see a change in your score.
Rebuilding your FICO score takes time, but with these techniques, you could see a jump of 100 points or more in a few months.
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August 28th, 2008 — Banking, Income Streams, Money, Personal Finance
For many of us, saving is something that we always plan to do, but never quite get around to it. The bottom line is, if you don’t have a savings account and a regular plan for putting money aside, you may regret it in the future, especially as you get closer to retirement. A savings account can be incredibly useful in an emergency and it can also help increase your odds of getting a loan in the future when you may really need it. So, how can you start putting money aside right now, even if things are tight? Here are some tips to get you started.
First, it’s important to remember that saving money doesn’t necessarily mean putting thousands of dollars away every month. It’s ok to smart small, and in fact, this can help you build up some great saving habits. Even if it is only $5 a week, putting money aside is a great idea. It will add up, especially if you can find a savings account that has a great interest rate. Granted, you’re not going to get rich putting away $5 a week, but it is a start.
Next, you will need to open up a savings account. While it’s perfectly fine to put money in a drawer or just keep it in your checking account, it is simply too easy to access it. By putting that money into an actual account, you’ll be less tempted to pull from it, unless you absolutely need to. Shop around for a savings account before jumping in, since interest rates can vary greatly from bank to bank. If you have a habit of blowing through your money, you can put your savings account book away in a safe deposit box.
Once you’ve gotten into the habit of putting money aside, you can start looking at ways to make more money to add to that account. This can help increase your savings without scrimping. Unless you’ve already got a lot of disposable income, it can be tough to find enough money to save when you are buried in bills. This means that it may be necessary to investigate some money making options.
The most ideal option is to find a way to create another solid stream of income. Once again, you can start small with a little investment that will start returning money every month. Put that extra income directly into your savings account and watch it grow very quickly. The key is to keep making those investments and to keep moving forward. Never get stagnant or rely too heavily on just one income stream.
If you have a hard time finding any money to put aside each month, it may be time to revisit your finances. Whether you just overspend, or you are not making enough to support yourself at your current job, you’ll need to take a hard look at your finances and determine what can be changed to increase your ability to put money aside.
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August 19th, 2008 — Debt, Long Term, Money, P2P Lending, Personal Finance, loans
There are two new trends in the banking world that may actually be very dangerous for consumers. Long term personal loans and interest only loans are gaining in popularity, especially in the wake of the housing crisis. While these may seem to be a great option at the time, there are many risks from these loans that should be avoided if at all possible. If you’re considering refinancing your home to an interest only loan, or if you are looking at getting a personal or car loan, it is very important to understand exactly what you are getting into before you agree to any loan.
An interest only home loan means that each month, you only pay the interest that you owe. At face value, this can save a lot of money and it may help you keep your home if you are refinancing. Even though interest rates are going up, when you’re not paying on the principle, your overall monthly payment will be lower. However, the part about not paying on the principle is the kicker.
At the end of your interest only loan you will not own your home. Instead, you will have to pay the principle, in full, in order to get the deed. Now, if you’re planning on selling your home after the loan is paid off, this may not be as dangerous. However, with falling property values and a down market, this can be disastrous. In addition, by only paying interest, you will end up spending a lot more at the end for your home. In most cases, homeowners with this type of loan find that they spend $25k to $50k more for their actual homes.
Another issue with interest only loans is that you will not have the benefit of gaining equity in your home, even though you are making payments every month. If you end up with an emergency on your hands and need to get money quickly, you will not be able to draw on the equity in your home. This is a big problem that many people do not consider. Would you rather have lower monthly payments, or the ability to earn equity in your home with every payment that you make?
Next up, long term loans are becoming very popular as interest rates go up. Most people prefer to keep their payments as low as possible, but right now, that is pretty tough. The solution has been to roll out new long term loans, particularly for cars. As an example, you may be paying only $300 a month for your car, but you will have to keep making those payments for the next seven to eight years. Compare this to the usual time period of three to five years.
That is a lot of extra interest and many people may not even realize just how much extra they are paying. At the end of the loan term, you will have spent thousands more than the car is worth and by then, the vehicle has depreciated to the point where you will never get that money back. Long term loans do make it easier to make payments, but at the end of the day, you’re worse for the wear.
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August 17th, 2008 — Debt, Leverage, loans
Right now, the student loan industry is going through one of its worst periods in decades. New Federal regulations have forced many banks to stop offering student loans, and students are being forced to either find a direct loan or start paying back what they owe. Enrollment figures are being affected dramatically and right now, many students simply cannot afford to go to school.
This problem is extending to those that are already trying to pay on their student loans. It has become harder than ever to consolidate old student loans and the interest rates are not helping matters either. It is important to pay off your student loans as quickly as possible, especially if you want to save money over the long term. Here are some tips to help you accomplish this.
1. Try asking your family for help.
If your family is in the position to help you financially, this should be your first stop. No one really likes borrowing money from their parents, but if you can pay off all of your loans, it is worth it. You won’t have to worry about crazy interest rates and you’ll have a chance to make bigger payments on the loan. However, you’ll need to make sure that you can set up a payment plan and stick to it to avoid causing any family disputes.
2. Get a second job.
This is a tough one, especially if you are already working full time. However, it can mean the difference between paying on student loans for the next decade, or taking just a year to pay them off. For example, if you owe $98,000 on your student loans, and you get a part time job that pays an extra $1000 a week, you could pay off that loan in less than two years. There are many high paying second jobs, such as bartending, where you can easily work off that student loan in no time at all.
3. Leverage your debt.
If you don’t have the time to get a second job, you may want to consider a technique known as debt leveraging. This involves taking out a loan and making an investment. Whether it is in an interest bearing account, new business idea or stock is up to you. Just make sure that you can count on the returns. This will create a secondary stream of income that can be used to pay down your student loans in a lot less time.
4. Negotiate.
If all else fails, try negotiating with the loan company to get a lower interest rate. If you have been paying on your loan faithfully they will be much more likely to help you out. It never hurts to ask or to apply for a consolidation loan. The worse they can say is no, and you’ll still have a lot of different options out there. The important thing is that you don’t fall behind on your debts. It may take some hard work, but you’ll appreciate it once you’re free of the yoke of your student loans.
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June 11th, 2008 — Debt, Leverage, Money, Personal Finance, credit cards
Let’s face it, if you want to get ahead in today’s world, you’re going to need to go into debt, at least a little. The key is managing your debt properly and avoiding common traps. Not all debt is bad, even if we have been trained to think that it is. Going into small amounts of manageable debt with a goal of increasing your future income is known as leveraging your debt and this is a very smart practice.
Before you rush out and apply for credit cards willy nilly, there are a few things that you need to consider before going into debt. It is all too easy to fall into a bad debt trap, when you could have used those funds much more wisely. Let’s go over a few points that you must never forget when it comes to handling debts.
First and foremost, never go into debt beyond your means. This is not a good strategy and it rarely pays off. If you’re just starting out, you want to keep the amount of overall debt to a small amount that you could easily pay off if you had to. This helps you build up your credit score and helps you learn the ropes of proper debt management. It’s a good rule of thumb to keep your initial debts to less than three months of your current salary. This will make sure that you don’t get into too far over your head, but you should still have enough resources to leverage your debt properly.
Next, you never want to max out any credit card or blow through a loan. It’s easy to think of a loan or a credit card as free money, but it is anything but. Credit cards can have interest rates as high as 30% and once you start that process of maxing out a card, you’re going to have to deal with over limit fees (check out How A Credit Card Limit Is Determined), higher interest rates and it will take longer to pay back that debt. Use your loans and cards wisely, and leverage them to start making money for you. This means that you should avoid frivolous spending and focus on how to make that debt pay off for you in the future.
Lastly, it is vital to make sure that you are able to keep making your payments so that your debt doesn’t ruin your credit rating. One of the easiest ways to give yourself an insurance policy is to add up six months of your monthly minimum payments and put this aside in a savings account. If you should lose your job, you’ll have that six month cushion that will help you stay on track with paying your bills. This is a good strategy for all of your bills actually and can be very useful in many situations.
The key to proper management of your debt is using your debt for the right reasons. Spend that money wisely so that instead of ending up with a bunch of things you don’t need, you’ll have income coming in thanks to your leveraged debt.
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