Keys to Financial Success
Monday, April 30th, 2012Making resolutions to improve your financial situation is a good thing to do at any time of year. Regardless of when you begin, the basics remain the same. Here are a few tips to getting ahead financially.
Get Paid What You Are Worth and Spend Less Than You Earn
Make sure you know what your job is worth in the marketplace, by conducting an evaluation of your skills, productivity, job tasks, contribution to the company, and the going rate. Being underpaid even a thousand dollars a year can have a significant effect over the course of your working life. No matter how much or how little you’re paid, you’ll never get ahead if you spend more than you earn. It doesn’t always have to involve making big sacrifices.
Stick to a Budget
How can you know where your money is going if you don’t budget? How can you set spending and saving goals if you don’t know where your money is going? You need a budget whether you make thousands or hundreds of thousands of dollars a year.
Pay Off Credit Card Debt
Credit card debt is the number one obstacle to getting ahead financially. Despite our good resolves to pay the balance off quickly, the reality is that we often don’t, and end up paying far more for things than we would have paid if we had used cash.
Contribute to a Retirement Plan
If your employer has a 401(k) plan and you don’t contribute to it, you’re walking away from one of the best deals out there. If you are already contributing, try to increase your contribution. If your employer doesn’t offer a retirement plan, consider getting an IRA.
Have a Savings Plan
Make sure to set aside a minimum of 5% to 10% of your salary for savings BEFORE you start paying your bills. An even better approach is to have money automatically deducted from your paycheck and deposited into a separate account.
Invest!
If you’re contributing to a retirement plan and a savings account and you can still manage to put some money into other investments that is even better to your overall financial planning.
Maximize Your Employment Benefits
Employment benefits like a 401(k) plan, flexible spending accounts, medical and dental insurance, etc., are worth big bucks. Make sure you’re maximizing yours and taking advantage of the ones that can save you money by reducing taxes or out-of-pocket expenses.
Review Your Insurance Coverage’s
Too many people are talked into paying too much for life and disability insurance. What is important is that you have enough insurance to protect your dependents and your income in the case of death or disability.
Update Your Will
70% of Americans do not have a will. If you have dependents, no matter how little or how much you own, you need a will.
Keep Good Records
Keeping good records all year will save you time and money, instead of scrambling to find everything when tax season approaches.
11 Tips For Refinancing A Mortgage
Monday, March 26th, 2012If you are a homeowner who is thinking of refinancing, do not be intimidated about the process or the paperwork. There are professionals available who are trained and educated in the mortgage field to help you with the refinancing process. Chances are that over the course of a typical mortgage, a home owner will have an opportunity for refinancing.
Some Possible Reasons to Refinance a Mortgage May Include:
- Saving money by lowering the interest rate.
- Making monthly payments more manageable by stretching out the remaining loan term.
- Stabilizing the monthly payment by switching to a fixed-rate mortgage.
Refinancing can be broken down into a series of smaller steps, all of which are fairly simple. Following are eleven tips that can help you refinance a mortgage successfully:
1.Begin by getting all of your paperwork to the lender. The paperwork should include verification of all income and assets such as tax returns, W2s, paycheck stubs, and bank statements. Rates are consistently fluctuating, so if you are looking for a particular interest rate, your window of opportunity can be as little as a couple of hours.
2.What are your reasons for refinancing? Is the purpose to lower the interest rate, reduce the monthly payment, or lock in a fixed monthly payment? The type and terms of the refinance mortgage will depend on one of these or a combination.
3.Based on your goals, set targets for interest rates and monthly payments. Decide on the mortgage term and apply for a fixed or adjustable-rate mortgage. Using a refinance mortgage calculator can help you define your limits.
4.Check your credit rating. A low credit rating will affect the interest rate and the availability of a refinance mortgage.
5.Determine any changes in property value. A drop in property value can make it difficult to refinance a mortgage.
6.Inquire about any prepayment penalties on the existing mortgage. Some mortgages have penalties for early repayment which is important to know so it can be measured against the potential savings from refinancing.
7.Obtain refinance mortgage quotes from a variety of refinance mortgage lenders. Mortgage rates and lending standards vary from one institution to another.
8.Ask lenders for full disclosure of points, closing costs, and other fees.
9.Ask lenders how long they will commit to their rate quotes.
10.Use a mortgage calculator to compare monthly payment savings with closing costs and other upfront fees.
11.Remember it is important to assure the savings in monthly payments because they will, in time, compensate for the upfront costs.
5 Credit Myths that lead to disaster
Thursday, February 10th, 2011People are obsessed with getting and keeping an excellent credit score. We hear these statements regularly on our financial helpline:
A caller who can’t pay their monthly bills because their debt payments are so high says, “I can’t go to credit counseling because I heard it will damage my credit score.”
A caller who is not saving in their 401(k) and missing out on the company match says, “I don’t want to pay off my credit cards. I am keeping a balance to help my credit score.”
This makes no financial sense. People aren’t going to seek help getting out of debt — lowering the interest rate and possibly the balance owed — because it will hurt their credit score? How is this helpful? If people don’t get their debt under control, they may never retire. We’ll have a nation of people working into their 80′s with no savings but they can all come together and brag about their credit scores.
Don’t even get me started with the notion that carrying a balance on a credit card will somehow help the score. First of all it is wrong and secondly, people are actually harming themselves financially — thinking that paying high interest on credit cards instead of paying them off is a good financial strategy.
Don’t get me wrong, having a good credit score has value; it can save on the cost of borrowing money so it is helpful to have the best score possible. Just make sure you are basing your credit strategy on sound information — not common myths that get you nowhere.
Let’s examine some of the biggest credit myths that can lead to disaster:
Assuming if you pay your bills on time, you don’t have to do anything else.
Paying your bills on time accounts for about 35% of your credit score but there is another 65% which includes amount owed (30%), length of credit history (15%), new credit (10%) and type of credit (10%). Consider all of the other factors.
Also remember that there may be errors on your credit report so if you don’t check it, you’ll never know and your score will be affected. According to Deborah McNaughton, author of The Get Out of Debt Kit, 80% of credit reports have errors (as cited by Bankrate.com). Many of the erroneous reports had missing information that may boost a score, such as missing a revolving account in good standing, or miscellaneous incorrect information such as an incorrect birthday.
Check your credit report. You can receive a free report from each of the three credit reporting agencies once a year at www.annualcreditreport.com. Credit reports are unique to Social Security numbers, so if you are married, you may want to stagger your requests with your spouse every six months. You can also request your actual score for a onetime fee (which is less than $15 through most credit bureaus). Most credit monitoring services will provide your score for free when you sign up for their service.
Assuming when you divorce, your accounts automatically divorce with you. They don’t. If you have a joint account and one of the parties on the account is late, you are both late. With some types of loans, such as a mortgage or a car loan, the lender may not accept a letter asking you to be removed from the account after a divorce even if that property is going to your ex-spouse. They will need to qualify for the loan on their own before you will be removed from the account. Take this into consideration because if they don’t refinance, and then have late payments, you may find yourself with some credit issues. When possible, close all joint accounts and refinance any debt separately. If it is not possible, maintain some type of control, whether it is an escrow account or at least access to information to make sure the accounts are paid in a timely manner. Don’t assume. Also see the last point about closing accounts.
Avoiding consumer credit counseling because it will hurt your credit score. For someone with serious debt, working with a not-for-profit credit counseling agency to develop a debt reduction plan and get out of debt permanently should take priority over credit scores. Credit counselors will work with your creditors to try and reduce your monthly payments, or settle your debt altogether. Debt settlement doesn’t affect scores as badly as you would think. In fact, many people don’t realize that late payments affect scores more than a debt settlement. Here is an example of how a debt settlement can affect credit scores, and how that compares to late payments.
A late payment hurts your score more than a debt settlement if your score is in the 680 range; it only significantly pulls it down if you are in the 780 range. Let’s be honest here, people ready for credit counseling probably don’t have the highest scores anyways, and the bottom line is credit scores are fluid — they can be rebuilt. According to Credit.com, a debt write off can stay on your credit report from seven to ten years, but as the information ages, so does its negative impact.
Making late payments aren’t that big a deal. According to FICO, a 30-day late payment can affect your score by as much as 110 points. Late payments can have a huge impact on your credit score causing it to drop like a stone. This is one disaster that is relatively easy to avoid. Simply set up all of your accounts with an automated minimum payment schedule from your checking account. This way you’ll never miss a payment. You can always pay additional amounts through online banking. Set yourself up for success with this one because it can be an easy one to miss and makes a significant impact.
Closing accounts to clean up your credit. Closing an account may be a good idea if you only opened the account to get a discount on merchandise or have too many credit cards which is causing confusion, but it won’t clean up your credit or help your score. In fact, it can hurt your score when the account you close has a long credit history — especially a good one. Your credit history accounts for 15% of your score, so in making decisions which cards to keep and which ones to close, keep in mind how long you’ve had the account open and close the most recent ones first.
Are credit scores important? Yes, but they are not the “be all and end all.” Now that we’ve dispelled some of the biggest myths, consider what the “be all and end all” is for you. What are your biggest financial challenges and concerns? Our latest research shows that less than 18% of employees feel they are on track for retirement. Are you part of the 82% that isn’t? Do you have a personal net worth statement and is it going in the right direction? The point is when you focus on the important financial issues, you have a chance to meet your financial goals. Clean up your credit if you have to, and do your best to keep a good credit score, but let’s not go overboard and lose sight of everything for just one number.
8 Reasons to Ignore Your Credit Scores
Saturday, August 14th, 2010Your scores are important, but there are times when they shouldn’t even cross your mind. There can be bigger fish to fry that take precedence over your credit ratings.
By CreditCards.com
You know it’s important having and maintaining great credit scores, but there are times when concentrating on something else just makes more sense.
Here are eight occasions when worrying about your credit scores should be the last thing on your mind:
The debt-relief hoax
1. They’re already awful.
If your credit can’t get much worse, don’t worry about harming it further — just get back on track with your finances as a whole. Spend within your means, delete your debt, clean up old accounts and pay on time from this moment forward, and your credit reports will brighten up on their own.
In fact, says Bruce McClary, Seattle spokesman for Clearpoint Credit Counseling Solutions, fretting about “minutiae while your credit is already in the basement will unnecessarily fray your nerves and may even prevent you from taking important steps necessary for healing your credit.”
2. They’re already great.
Mistakes that mangle your credit scores
You’ve done it — achieved perfect or near perfect credit! Now go have fun. Yes, keep an eye on what’s going on over at the credit bureaus to make sure that there’s been no fraud and that no mistakes are happening, but if your FICO score is over 750 and you’re debt-free, relax.
“Just be happy with what you have and keep doing what works to maintain your healthy credit,” says McClary.
3. When they become an obsession.
Reviewing your credit reports at least annually is wise, but overdoing it can cause unnecessary anxiety. “It’s like checking your weight on a daily basis — it can be counterproductive,” says June Walbert, a financial planner in San Antonio who works for USAA, a financial-services company serving the military.
Fixation can also result in splurging on extraneous services. “I was once obsessed with checking my credit score,” says R.J. Weiss, a financial blogger at Gen Y Wealth from Chicago. “I was 19; I had a bill go to collections. Once I realized I couldn’t get a normal credit card, I started to monitor my credit rating heavily.”
Weiss began paying $15 a month for a monitoring service, but after about six months, he realized he was wasting his money. “The only thing I could really do at the time was to pay my bills on time.”
4. You won’t need them.
“How much does your credit score matter when you are getting a mortgage, financing a car, applying for a job or opening a line of credit? It’s the main event,” McClary says. “But how much does it matter when you have a steady job, you aren’t planning on moving, you won’t be refinancing your mortgage or you don’t plan on opening any new lines of credit? It’s virtually invisible.”
In short, good credit is inconsequential if you really won’t be using it in the foreseeable future.
5. You’re bankrupt.
File for bankruptcy, and your scores will plummet from wherever they are down to the very bottom. Bite your nails about the effect? Don’t bother. You’re filing because you need to (right?), so accept the consequences. It won’t be long before you can rebuild. When you’re ready, apply for low-limit credit cards and charge responsibly.
Though the notation will remain on your credit reports for 10 years, most people who file can increase their scores dramatically in just two years.
6. You’ve got more-pressing problems to deal with.
What takes precedence over your credit reports? Your health and that of your family, putting food on the table and keeping the lights on in your home, to name a few. In times of crisis, expending the effort to drive up scores may not be the best way to use your energy, says Walbert. “It’s a hierarchy of needs. You as a person — as a parent — need to do whatever you need to do to survive, and sometimes that means making ‘bad’ financial decisions.”
7. You’re using them as status numbers.
The only people your credit should matter to are you and your prospective lenders, employers and landlords. Forget trying to reach the scoring heights if it’s because you’re competing with someone else or you think it rates you as a human being.
“While a FICO score is a measure of how one has managed their debt, it should not be the equivalent of the scarlet letter or the golden ticket. Both a jerk and a saint could each do everything necessary to earn an 800 FICO,” says McClary.
8. You’re skipping the country — for good.
Relocating to Tahiti? Pack your sunscreen, but leave your credit behind. “The FICO model accepted in the USA is not a factor if you’re moving to a foreign country,” McClary says. However, Walbert issues a warning to expats: There might be a time when you choose to live in America again. “Maybe your kids need you, or you marry a U.S. citizen who wants to move home. Preserve your score so you can pick up again.” How? Just keep charging with your U.S.-issued cards, since they’re generally widely accepted abroad.
In general, developing a great credit history and high scores is advisable. With them, you have a better chance of securing premium financing, and you’ll keep employment and tenancy opportunities open, too. Equally important, though, is to know when to direct your attention to other areas of your life instead.
This article was reported by Erica Sandberg for CreditCards.com.
Published Aug. 12, 2010