How to get debt free

If you’re like a lot of people, the goal for the coming years is to be debt-free, or at least, on top of debt. I’m with you, if there’s one thing in life that hangs over me, it’s debt.

It doesn’t matter whether it’s a mortgage or a couple of thousand in consumer debt, if it’s causing you to lose sleep, now is the time to start conquering it. A fresh start, a fresh approach. Onwards and upwards to a debt-free existence.

Here are some tips to get you on the way.

Know What You Owe

Want a good credit report? What better way than to pay off your debts more quickly than minimum, eliminate high interest credit cards and pay your bills on-time or early?

Sit down and start working out dates. This is the first step. When are your bills due? Write it down in your diary and put a coloured Post-It next to it so you don’t forget.

When are your repayments due, and what’s the minimum you can pay? Write down how much you owe in total, and keep a progress report.

Get Organised

Pay your bills on the same day every month. That way, you’ll never be incurring late fees or being threatened with any utility being turned off. Pay your bills with cash, not credit.

The last thing you need to be doing is paying off debt on one hand, and increasing it on the other. Then organise to pay off your debt on the same day of every month (or with a credit card, paying off a little every week). The routine makes it easier, and makes it unlikely you’ll forget and get yourself a nasty late fee.

Know What You Can Change

How can you start to pay back your debt faster? Is there an expense you can eliminate, or some extra income you can channel towards repayments? Start thinking about how you can get rid of chunks of your debt. Maybe start with eliminating credit card debt, or paying off your higher interest cards. Choose one debt you are going to aggressively attack. Once you’ve gotten control of that debt, move onto the next one.

The Bare Minimum


Paying the minimum on your credit card isn’t going to cut it. If you want to get on top of your debt, you need to be repaying over the minimum repayments. It doesn’t have to be an astronomical amount, just enough to get a handle on your debt within a sensible timeframe.

Once you start getting somewhere, you’ll start feeling in control and finding it easier to control your debt.

Budget

You need a budget if you are going to get on top of the beast. Work out expenses, and some savings. There will always be a couple of variables, so ensure that you’ve left some space for them. Then budget everything else into your debt repayments.

Rewrite your budget once a month to make sure it’s completely realistic and has taken account of all the changes in your income or expenditure. This is your decade. Make it a debt-free one, or at least, a decade that’ll make the decades after that much more pleasant.

source: bigpondmoney.com.au

Structured Settlements in Workers’ Compensation

Self-insured employers often question how to resolve their high value and difficult to conclude claims. The financial expectations and medical needs of the injured employees create complicated issues preventing a claim settlement. Structured settlements can often be the bridge to achieving a settlement when the injured employee will have on-going financial and medical needs.

We have received many questions about the benefits of structured settlements and how to achieve a structured settlement.  Here are the most frequently asked questions about structured settlements.

















Q. Exactly what is a structured settlement?
A. A structured settlement is financial agreement for a series of periodic payments an injured person receives over a set time period, or over the person’s life time, to settle any legal obligation, including a workers’ compensation claim.

Q. Are all payments the same?
A. All payments can be the same, but often are flexible and will vary to meet the financial needs of the injured employee. For instance, in addition to biweekly or monthly payments to cover the employee’s on-going loss of income, an initial lump sum to cover transportation or housing needs can be included in the structured settlements. Other variations from the biweekly or monthly payment can be included, for example a future sum for the college tuition of the employee’s child.

Q. What about inflation? How does the structured settlement handle the future decline in purchasing power?
A. The structure settlement can be structured to increase the periodic payment amounts by a fixed amount on a fixed date(s) in the future.

Q. Workers’ compensation indemnity payments are “tax free”. Will the injured employee have to pay income taxes on the periodic payments?
A. No. Under the provisions of the Internal Revenue Code Section 104(a)(1), the periodic payments of a structured settlement are income tax free.

Q. Why would an employer obligate itself to a set of periodic payments that could last for many years into the future?
A. The employer purchases a fixed annuity from a life insurance company to fund the future periodic payments. The life insurance company assumes the responsibility of making all future payments. The employer obligation to make the payments is transferred to the life insurer eliminating the employer’s need to set aside any future reserves for the workers’ compensation claim.




Q. What type of workers’ compensation claims benefit from the use of a structured settlement?

A. An employer can reduce their long-term financial exposure on any serious or catastrophic injury claim with a structured settlement. Examples of cases that often involve a structured settlement include:

    Brain/brain stem injuries
    Spinal cord injuries
    Amputations
    Severe burns
    Multiple trauma claims
    Vision loss
    Hearing loss
    Occupational lung diseases
    Any type of injury that leaves the employee permanently and totally disabled or disabled to the point the employee is unable to return to meaningful employment.


Q. How do structured settlements account for the medical expenses of an injured employee that could last a life time?
A. A separate medical account is set up to cover the employee’s future medical expenses as established by medical actuary. A third party professional administration company oversees the payment of future medical expenses from the account.


Q. What about an injured employee who is eligible for Medicare and/or Social Security Disability? How does a structured settlement handle the requirements for a Medicare Set-Aside (MSA) arrangement?
A. A structured settlement is highly beneficial for a MSA. A structured settlement for the MSA benefits the employer as it costs less because the MSA benefits from the time value of money. Instead of the third party professional administration company receiving all of the money for the MSA up front, the structured settlement insurer funds the MSA periodically as needed.


Q. What information is needed by the structured settlement company before they can quote the cost of the structured settlement?
A. There are several factors that come into play in calculating the cost of the structured settlement including the injured employee’s age, the expected life expectancy of the injured employee, the anticipated cost of future medical care and the employee’s need for lump sum payments both at the start of the structured settlement and at future specific dates.


Q. How can the employer know the life insurance company will be able to make the periodic payments twenty, thirty or forty years in the future?
A. The employer can check the life insurer’s financial strength through the service of A.M. Best, an independent evaluator of the financial strength of insurance companies. We recommend the use of an insurer rated A, or higher, by A. M. Best.


Q. What benefits does a structured settlement provide to the injured employee?
A. There are many benefits to the injured employee, including:

    The structured settlement eliminates many of the financial concerns of the employee by allowing the employee to know what his/her future income will be.

    The employee can receive payments both for immediate needs and periodic payments timed to meet future anticipated needs.

    The employee does not have to worry about managing a large amount of money or fluctuations in the equity market or bond market.

    The employee is provided is a provided a good fixed rate of return on the money invested in the structured settlement.

    In most cases, the structured settlement provides the employee with more money over the long term than a lump sum settlement paid direct to the employee.

    The employee/employee’s attorney no longer has to interact with the employer where the relationship may have become strained, but instead will interact with the life insurer who provides the structured settlement.

    Also, if the employee invests a lump settlement on their own, the employee will be responsible for income taxes on the interest, capital gains or dividends earned by their investment.


Q. Are there any other reasons the injured employee would want a structured settlement?
A. There are several reasons an employee would prefer a structured settlement over the benefits provided by the workers’ compensation system. Structured settlements give the employee freedom from the restraints of workers’ compensation.

The workers’ compensation payments have a time limit in many states (often 400 weeks or 500 weeks) after which the payments cease.

Statutory payments in death claims normally cease upon remarriage.

Workers’ compensation indemnity payments can end if the employee is retrained for another job and returns to work in another field.


Q. The employee is represented by an attorney. How are the plaintiff attorney fees handled?
A. The plaintiff attorney fee can be paid as a lump sum settlement or the attorney fees can also be set-up in a structured settlement providing the attorney with a guaranteed source of future income.


Q. The closure of the claim through a structured settlement is the major benefit to the employer. Are there other benefits to the employer?
A. Yes. A structured settlement can avoid the uncertainty of litigation and end the on-going legal expense. In life time disability claims, the mortality risk and the investment risk is transferred to the life insurer. Also, the cost of funding a Medicare Set-Aside can be reduced through the use of a structured settlement.


Q. Other than workers’ compensation claims, are there any other uses for structured settlements?
A. Yes, structured settlements are often used to resolve a wide variety of litigated matters including:

    Long term disability claims
    Automobile injuries
    Product liability claims
    Slip and fall injuries
    General liability claims
    Medical malpractice claims
    Legal malpractice claims
    Errors and Omissions claims
    Wrongful death claims
    Nursing home abuse claims
    Punitive damage claims
    Slander and libel claims
    Construction defect claims
    Disputed property claims
    Sexual harassment claims
    Age discrimination claims
    Employment discrimination claims
    Wrongful termination claims
    Guardianship cases involving minors or incompetents
    Environmental pollution claims
        Asbestos
        Mold
        Lead
        Toxic chemicals

source: reduceyourworkerscomp.com

The benefits of novated leasing

A novated leasing is a tax effective way to purchase a motor vehicle. The finance and running costs of your vehicle are paid for by your employer who recovers these costs from your pre-tax salary. The associated tax benefit is what makes novated leasing an increasingly popular method of financing a car.

Novated leasing comes in a finance only arrangement and a fully maintained version. A finance only novated lease is an agreement entered into with a financier. The running costs, salary deductions and fringe benefit tax (FBT) requirements are managed by the employee and their employer.

Entering into a fully maintain novated lease allows these aspects to be managed by a company specialising in novated leasing. This simplifies the process and reduces the administration costs to the employer. A fully maintained lease also provides the employee with an estimate of the tax advantage they will receive.

How does a fully maintained novated lease work?

 

A fully maintained novated lease incorporates the finance for the vehicle and budgets for its running costs. These budgets will depend on the vehicle selected, the term of the lease and expected annual kilometres to be travelled.

The total vehicle cost is worked out over the term and then divided into equal monthly amounts. These monthly amounts are invoiced to the employer and recovered tax effectively from the employee’s salary.

Who can have a novated lease?

 

Generally speaking novated leasing is available to any employee with their employer's permission.

Where do I start?

 

Speaking with a novated leasing provider is the easiest way to get a better understanding of the process and the potential tax benefits. However, it is a good idea to do some research first. Start by investigating potential vehicles that suit your needs. It is wise to select a vehicle that has strong resale qualities as this will reduce the total cost of the lease.

The vehicle can be new or used and can be purchased from a dealer or private seller. It helps to have an idea of the annual kilometres you expect to travel and how long you intend to own the vehicle.

How much tax benefit can I receive?

The tax benefit from a novated lease is via savings in income tax and GST. This saving will depend on a number of variables including the price of the vehicle, the term of the lease and the intended kilometres travelled.

Although, a better tax advantage is generally gained the more kilometres travelled, significant savings can still be made for those who travel less kilometres. Below is an example of such circumstances.

Oliver has an annual salary of $90,000 and travels only 7,000 kilometres per annum. He is looking to lease a brand new $26,000 Corolla over a 3 year term. Based on this information his taxable income could be reduced by about $5,000 per annum.

By reducing his taxable income by $5,000, Oliver saves $1,925 per annum in income tax. Oliver also receives $500 of GST claimed back by his employer each year. The combined tax benefit for Oliver is more than $7,000 over the three year term.

If Oliver travels 20,000 kilometres per annum, he receives a much greater tax advantage. His taxable income is reduced by about $7,000 per annum and his employer can claim $700 per annum of GST on his behalf. This results in a tax benefit of over $10,000.

Novated leasing may not work in all financial situations and independent financial advice is always recommended when it comes to your personal finance matters. However, a fully maintained novated lease has the potential to provide significant tax advantages when purchasing a vehicle.

source: bigpondmoney.com.au

Happiness is not an Entitlement

For every minute you are angry you lose sixty seconds of happiness. — Ralph Waldo Emerson

I find it somewhat amusing and ironic that those of us who write about personal finance seldom get credit for why we focus on this very subject. We aren’t writing with the purpose of hoarding a large sum of cash to brag about. In fact, we write about personal finance so that financial issues won’t pose any threat to our inner purpose and to live a simple, happy life.

Perhaps, our politicians are to blame for a long list of entitlements, but they have not considered happiness as an entitlement yet.

Nonetheless, my experience at a restaurant recently made me think about importance of balance between happiness and hedonism.

I happen to visit a local restaurant that I like for lunch. I really enjoy their food and quiet setting. As usual, food was delicious this time, but quietness was lost in a vociferous conversation I was destined to listen. A couple was arguing about their personal affair so I tried my best not to tune in. But, my efforts were in vain.

Wife:  What have you given me in this six years of marriage? I asked for BMW and you gave me Honda Civic. I asked for Louis Vuitton watch and you gave me a cheap one. You’ve never given me happiness.

Husband: Honey, I have never turned you down, but I can’t afford those things. Besides, we have to think about our kids and their future. We are living on one income so that you can spend more time with kids.

Wife: I quit my job for you. Now I regret that I have nothing while you are making a decent income.

Husband: I am spending every waking moment of my life to ensure that our family lives a happy life. What I make is for all of us not just myself. But, we have to understand what is important in life.

Wife: I don’t want to hear your lectures on happiness. You can’t preach happiness as you’ve never taken time to understand what makes me happy.

Husband: I truly love you and I understand what makes you happy. Unfortunately, I don’t make enough to buy you happiness.

While this conversation continued, I requested a waiter to lend me a piece of paper and a pen.

 

I quickly scribbled: Happiness is not an entitlement. Learn to earn it.

I dropped the piece of paper on their table and quickly whisked away from the scene.

You won’t be happy if you decide not to. Those who decide to embrace happiness will not allow circumstances to sabotage their happiness; and those who decide not to become happy will do so even if happiness is starring right into their eyes. Happiness is a state of mind and happiness has no nexus to hedonism.

If this lady was born 100 years ago, she still would have found reasons not to embrace happiness that was starring in her eyes.

Think about it. Stand of living in America has gone up drastically in last 50 years yet stress has taken toll on our lives. We have everything that was considered a living standard for aristocrats just 50 years ago. Perhaps, we can learn from an old generation about the importance of  simplicity and focus on those values that are backbone of a moral and noble society.

We can chat with loved ones or talk with them no matter where we live on this planet. We can share our videos or even talk live to share happiness at no cost. Yet happiness is mere mirage for some who think that they deserve it.

I now have a new-found passion to write with the chief aim to eradicate this growing voice of entitlements.

 source: streetsmartfinance.org

How to Build Kick-Ass Credit Score

Let’s face it, unless you’ve hit the jackpot or you have patience to save enough money to buy your home or a car, you have no choice but to build kick ass credit score.

Whether you want a credit card or a mortgage, you will need to go through a credit check and general approval process.

If your credit score is about 740 and you do not have a high amount of debt, it is unlikely that you will be denied credit. If you aren’t certain what your credit is, credit scores free and credit history reports can tell you what your rating is.

With that said, life is not a fair game. If you have bad credit — likely due to financial hardship or poor choices you have made in the past — you will pay much more in interest so that same financial institution can offer amazingly low rate to someone with excellent credit score.

No matter how difficult your circumstances are, you can take charge of your financial future by taking very bold steps not only to free yourself from the ball-and-chain of debt but also to build a kick ass credit score – to become a recipient of the benevolence bestowed by the very same financial institution that once punished you for your poor choices of the past.

Tips to Develop Kick Ass Credit Score

I am ceaselessly amazed at the growth of credit card counseling industry in the recent years. Most of these companies claim that they have magic wand to move you from a poor house of credit in matter of days or months. Be ware! Building kick ass credit requires discipline and persistence for a long time. In fact, it requires you to change your financial habits forever.

1.  Old is gold.

In pursuit of getting out of the abyss of debt, it might be satisfying to bid adieu to the credit card you opened right after you received your first paycheck. But more history you have as a borrower or rather a prudent borrower, the better your score should be. Closing an old card not only makes you look like a newer borrower but it also reduces your overall available credit.

Instead of closing your account, cut your credit card in half!

2.  Be a prudent borrower.

A prudent borrower pays off entire credit card balance at the end of the month. You should not have borrowed more than 30% of your available credit limit. Over leveraged credit is a sure sign of the risk for the lending institution, so spend only what you can pay off monthly. Make a habit to treat your credit as your cash so that you won’t spend when you run out of your cash.

3.  Pay on time.

Your credit score is based not only on your credit history but also on how consistently you pay your credit card bill on time. Persistence is the key virtue to build a kick ass credit score.

4.  Check your credit history.

No one has more vested interest in your financial well-being than yourself. Assuming that the world works perfectly can cost you hundreds of dollars due to something fishy on your credit report, such as loan application you never filled out or a magazine subscription you never knew about. You can get one free credit score every year from all three credit card bureaus. Read each report carefully and dispute any errors with these bureaus.

5.  Ask for a credit increase.

After you establish a good credit history, call your creditor or lender and ask for a modest increase in your revolving credit line — one which requires no application process. Assume that you owe $300 on a $1000 credit limit. If you get an increase from $1000 to $1200, you just went from about 33% maxed out to 25% maxed out without spending a nickel more.

I strongly believe that paying interest is a sure path to a poor house. If you make a firm commitment not to pay a dime in interest ever for the hedonistic pleasures, you can build a kick ass credit score no matter how difficult your financial circumstances are today.

source: streetsmartfinance.org

How to Do Your Own Debt Consolidation and Get Out of Debt

Debt consolidation companies often give you a fantastic pitch that promises to help you lower your monthly payments and eliminate debt.  All you have to do is work with them, combine all your debt obligations into one low monthly payment, and save tons of money.  Is it really that fantastic, or just a fantasy?

Personally, I have heard both sides.  On one hand, I have heard of good stories where individuals successfully worked with one of these companies and got their debt problem under control.  On the other hand, I have heard of horror stories where individuals placed their trust in these companies, made a couple of payments, and later got late notices from their creditors. The debt consolidation company was a fraud and they got into more trouble because of it. So the question is not only: should you pay a debt consolidation company?, but also how can you find the right company?




 In this article, I am going to outline some steps where you can consolidate debt and get this problem under control on your own.

Change Your Attitude About Money

Before you even try to figure out how to get rid of your debt, you have to get rid of the habits and lifestyle that got you into this mess in the first place.  If you habitually spend more than you can afford, you need to fix this first.  Learn to manage your expenses and live within your financial means.  Otherwise, all your effort will be for naught and you’ll end up even worse.

How To Consolidate Your Debt

Now that you have your spending habits under control, it’s time to start working on your debt.
1. Make a list

Make a list of your debt obligtions with the creditor’s name, amount owes, interest rate, and type (i.e., secured loan versus unsecured loan).

Since your secured loans are collateralized, you could lose your home, car, or other valuables if you default on these loans. Therefore, these are the most important loans to keep your eyes on.  Whatever you ended up doing, your plan must be able to support the monthly payment of these loans.

Next, focus on debt obligations with the highest interest rates.  These are usually your credit card balances.  You want to get rid of your high interest loans as quickly as possible to save money on interest expenses.

In short, you should have a list grouped by secured versus unsecured status, and sorted by the interest rate.

2. Negotiate with your lenders

Many people often overlooked the option of negotiating with credit card companies and other lenders as a way to lower your interest rates and payments. Now call each of your lenders and ask them for a lower interest rate or a different payment term.  Some will work with you and some will not.  The important thing is to ask and see if you can lower your interest rates and minimize expenses.

3. Find Alternative Funds

You may think it’s crazy to borrow more money at this point, but the important thing to do is to lower your monthly expenses and interest rates as much as possible.  Therefore, IF you can borrow money at a much lower interest rate, you should do it and use that money to pay down your higher interest loans.  The primary goal is to reduce the number of loans and the overall interest rate.

Here are some alternative funding sources that you can investigate:

• Cash out refinancing — If you own a home, you could look at refinancing your home and cash out a portion of your equity.  Use this cash out amount to pay down your high interest loans.  The caution here is that your mortgage is a secured loan, so make sure you can afford to make the new monthly mortgage payment, or you could lose your home.
• Home equity loan — This is similar to cash out refinancing, but you are taking out a second mortgage instead of refinancing your mortgage.  The caveat is the same, a home equity loan is a secured loan.  If you do this, make sure you can make the monthly payments for both your mortgage and the home equity loan, or you could lose your home.
• Personal loan – Check with your local banks and credit unions for a personal loan.  Often, they can offer you a loan at a lower interest rate than what credit card companies normally charge.  If you can handle the fees and the payment term, consider taking out a personal loan to pay down your high interest debt obligations.
• Credit card transfers — The next option is to search for credit cards that offer 0% APR on balance transfer with minimal or no fee.  Use this as an opportunity to get rid of your higher interest loans.  However, note that the 0% APR offer usually last only 6 to 12 months and the interest rates could increase dramatically.  Be sure you know what the resulting interest rates will be, and be ready to go through another balance transfer cycle in 6 to 12 months.
• Borrow from social lending networks — A relatively new source of funds are peer-to-peer lending networks, such as Lending Club and Prosper.  With both of these networks, you can borrow up to $25,000 per loan with a fixed interest rate and a 36-month repayment term.  Interest rates depend on a variety of factors including your credit score, credit history, debt-to-income ratio, and the loan amount.  Be sure to study these networks carefully before asking for a loan.  If the loan works to your advantage, take out a loan to pay off your high interest loans.
• Whole Life Insurance – If you have a whole life insurance policy, it may be worthwhile to borrow against the cash value of the policy and use the money to pay down your highest interest loans.  However, this option will lower you death benefit and significantly stunt your insurance policy value.
• 401(k) Loan — This is an option, but considers it very carefully since there are many risks involved.  If you can execute it properly, this option could be very helpful.  Read Should I Borrow From My 401k Plan? for more information.

4.  Debt Snowball

 

With the first three steps, you should be able to eliminate a few higher interest loans and consolidated them into other lower interest loans.  Now, it’s time to pay them off in a methodical way.  Of course, you have to make the minimum payments on all of your outstanding debt.  But what should you do with the extra money?  The answer is to use any remaining money to pay down your highest interest debt.  If you prefer the original method proposed by Dave Ramsey, you can pay down your lowest balance debt first.

As you eliminate a loan, redirect the amount you normally pay to that loan to the next highest interest loan.  This is why the method is called a Debt Snowball.  As each debt is eliminated, you can pay the next debt down with more money and keep the momentum going.

Conclusion

If you want to get out of debt, these steps can help you accomplish your goal more quickly and efficiently.  Remember the key is to change your spending habits and not go further into debt, otherwise, you debt repayment plan will fail.  Once you have your spending under control, the key steps are to (1) list your debt according to the interest rates (2) negotiate better terms, (3) find alternative funding sources to lower your interest rates, and (4) to use Debt Snowball to pay down your debt quickly.

Lastly, you can build on your effort by making more money so that you can put even more money toward debt reduction.

source: moolanomy.com

Ten Practical Moves to Avoid Problem Debt in 2013

To avoid your own "fiscal cliff" in 2013, I suggest you stop arguing with yourself and take 10 -- and by that, I mean 10 positive steps for a better, more prosperous new year.

Tip 1: Develop a spending plan
If you don't have a plan for your money, you will end up following someone else's plan. That's no fun! A plan puts you in control of how much you spend and on what. Trust me, plan for spending, and you will have a much richer financial life.

Tip 2: Save for emergencies
If you don't have savings, you will fail. End of story. Life can't be totally predicted, so to avoid being in a hole every time a surprise happens, you must have savings. Your goal is to save six to 12 months' worth of living expenses. Not what you earn each month, but what you spend each month. They should be different, and what you earn should be more.

Tip 3: Study up before taking on student loan debt
Starting a working career with six figures of student loan debt drastically reduces your spending options once you graduate -- that is, if you graduate and if you get a job. Be smart. Limit your student debt to what your take-home pay in your chosen career can afford. Crunch the numbers before you sign on the dotted line. Remember, it is a bill you will have to pay no matter what. If you don't have a career field in mind, don't take on any debt until you do.

Tip 4: Don't try to borrow your way out of debt
Consolidating debts into one lower payment sounds like a perfect financial move. It may not be, however. The main reason is because many people continue to add to their debt burden after the consolidation and end up with more debt than they can manage. Restructure your spending instead of your debt, and make a concerted effort to pay down what you owe as quickly as possible.

Tip 5: Never co-sign on a loan -- never, ever
You have ample opportunity to mess up your finances. Never share that opportunity with someone else. There is a reason why a professional lender won't approve this loan. So, why should you? Lend your support and encouragement, but not access to your credit.

Tip 6: Payday loans: No, no and no
You need money that you don't have, so you borrow what you need for a very large fee and a promise to pay when you are next paid. The problem, and it's a big one, is you won't have the extra money to pay back the loan when you get paid next time, either. This begins a vicious cycle of ever-increasing fees. Do without, pay something late, borrow from a friend, work part time, but don't take out a payday loan.

Tip 7: Avoid an upside-down car loan
If you need to sell your car, you need to make enough from the sale to pay off your car loan. Because vehicles depreciate so much, a large down payment will give you the freedom to sell when you want or need to sell.

Tip 8: Pay off no-interest offers as soon as you can
Having 48 months to pay means having 48 chances to let a mistake happen. One late payment, and the retroactive interest payment will make your head spin!

Tip 9: Never turn your back on a debt
As much as we would like to believe an ignored problem will go away, it doesn't. Ignoring a debt means high interest rates, large fees, a summons to appear in court, years of bad credit and a possible wage garnishment. Look that debt in the eye, and get help if you don't know what to do now, not later.

Tip 10: File bankruptcy only as a last resort
Bankruptcy is a viable choice only after all other reasonable options have been exhausted. It may not get rid of all your debts, but it will ruin your credit and job prospects, and you'll have to wait from three to seven years before you are eligible to file again. Think of bankruptcy like a financial nuclear weapon. You may be worse off from the fallout than you were before.

Copyright 2012, Bankrate Inc.

source: foxbusiness.com

How to Use Your Credit Cards Wisely for Holiday Shopping

The year is winding down, and we are now in the midst of this year’s holiday shopping season. While we are still in the throes of the global economic recession, you and millions of other people will venture out to crowded department stores, malls, and boutiques in search of the perfect gifts for their friends and family.

Since most people know they will be spending money on gifts, the holiday season is one of the best times to take advantage of benefits offered by credit card issuers such as cash back, rewards points, and no interest on purchases. Keep in mind, if you were to make these purchases using cash, you would be squandering the potential benefits gained by using a credit card.

However, the holiday spirit and temptation to buy expensive gifts for friends and family members can end up causing shoppers to rack up significant amounts of credit card debt, simply due to failure to take adequate precautions when using their credit card.

Here is a list of simple questions that you should ask yourself when using a credit card this holiday season to minimize problems and maximize benefits:

 

 

    Am I already carrying credit card debt? If the answer to this question is yes, then you should probably stay away from using your credit card to make holiday purchases this year. While it’s easy to get carried away with wanting to make your friends and family happy with nice gifts, your financial security is more important, so scale down those gift purchases to something more affordable.

    Do I know my credit limit?  Knowing your credit limit is of utmost importance. This is because if you exceed your credit limit without knowing, you run a good chance of the credit card company charging you penalty fees, and harming your credit score. Do not spend more than your credit limit allows for.

    Do I know my interest rate on purchases? If you plan on carrying a balance whatsoever, you’d better know your interest rate, or you risk digging yourself into debt. If you have a high interest rate and you’re planning to use your credit card for holiday purchases, you should make sure to pay the balance off in full at the end of the month.

    Do I have a budget in mind? The easiest way to stay within your means this holiday shopping season is to create a list of gifts that you plan on buying for your friends and family including dollar amounts, and then adhere to that budget by all means.

    Can I use my existing credit card points to buy gifts? One of the main draws of a credit card is getting rewards points from your purchases that you can redeem later for items such as electronics, flights, hotel stays, and more. If you have a lot of points saved up from using your credit card throughout the year, you can use these points to buy gifts instead of having to use actual money. This can save you a lot. If you do not yet have a credit card that offers rewards points, you can compare credit cards  to find one that will benefit you the most.

    What do I say when a store offers me a store-branded credit card? No. That’s a simple answer. You want to make sure you stay away from retailer credit cards at all times. This is because their interest rates are extremely high, and they offer poor long-term benefits. In addition, applying up for too many credit cards in a short period of time has the potential to harm your credit score.

With the above questions (and answers) in mind, you are now ready to get out there and shop for your loved ones, while at the same time ensuring your financial security.

 

source: streetsmartfinance.org

Effect of Taxes on the Economy

I stumbled upon an interesting tidbit today; 103 US companies have announced special dividend to their shareholders. Obviously these companies are paying out this dividend to their shareholders to avoid imminent tax increase in the capital gains from 15% to 30%.

This news is a precursor to what may happen to the state of our economy if both personal and capital gains taxes go up. This news also reveals the unintended consequences of raising capital gains taxes. Most seniors will end up paying more taxes as a result of the increase in the capital gains tax rate on their dividend income.

The political gridlock in Washington has made it clear that the battle between raising taxes on the upper income families vs spending cut has taken the center stage.

Choice is clear and distinct for those of us who believe that living within your means is far more important than to increase income as no income is suffice for those who live beyond their means.

While political parties are fighting their holy war to avoid the looming fiscal cliff, I decided to explore history to find the effect of taxes on our economy and federal revenue.

It’s apparent that federal revenue has gone up for the past four years despite the great recession of 2008. On the same token, federal budget deficit has gone up from $9 trillion to $16 trillion in the past four years. No one denies that our federal government is in dire need of raising its revenue.




It’s worth knowing that federal revenue went up by 86% between 1964 and 1970 after Congress passed the Kennedy tax cuts. Revenue went up by 57% between 1982 and 1990 after President Reagan slashed the top marginal rate from 70% to 28%, and the history repeated again when President Bush cut taxes in 2001.

Government spending is at 24% of GDP. This shows that while it is important to raise federal revenue, it’s even more important to limit the runaway spending in the midst of the slow economic growth of our economy. That shifts focus back to spur job growth in the private sector.

Time and again, it has been proven that when taxpayers get more tax savings, they make prudent decision about the best way to invest and/or spend their own income.

The biggest folly is to believe and buy into notion that government knows how to spend our money better than we do ourselves.

If you are not convinced that raising revenue(AKA taxes) can do more harm to our economy, I have narrated some interesting thoughts for you to ponder about.

1.  Imagine that you are in debt up to your eyeballs. It’s time for your family to make some tough decisions about your personal finances. You have lot to pay in credit card debt. The good news is that you have some equity in your home. Is it a good idea to pay credit card debt by raiding equity in your home? I don’t think so. Most people who borrow money from their equity line to pay for their credit card debt end up revisiting same painful dilemma by raking up their credit card debt again. Why? They don’t address their Achilles hill — their hedonic spending problem.

In every second of 2011, for example, the government spent $114,253—even though it was only taking in $73,043 in revenue. According to Face the Facts, that means the federal government spent $41,210 every second that it didn’t actually have. – US News

Unless our government can address runaway spending spree, taxing every rich person won’t reduce our national fiscal woes; on the contrary, effect of taxes may cripple our economic growth.

2.  Imagine that you own a small business. You are selling widgets to your local customers. All of sudden, you have a conundrum to solve — your are only 30 days away from losing your business as your business is burning cash at a faster rate than your annual revenue. What would you do as a CEO? I don’t think you would contemplate charging more to your most profitable customers in order to raise your revenue. You would instead take some painful steps to cut spending drastically all the while focusing more on superior service to all of your customers.

Our federal government is one of the largest enterprises on the planet with revenue of $2.2 trillion in 2010. Since President Woodraw Wilson used 16th amendment to enact income taxes in 1913, personal income tax has become major source of government revenue. No private business can survive hundred years with growing revenue without controlling its costs.

3.  Imagine that you are a salesman for a major corporation. You also have a friend who is a stellar salesman in your organization. Obviously, he makes lot more than you with his hard work and skills. Will you gain anything if your boss informs you that your friend has been forced to let go some of his bonus to raise revenue for the corporation? Absolutely not. If anything, it will stop you from working hard to become a stellar salesman.

While our nation is at the brink of facing a daunting task of reducing national deficit, common sense approach would be to foster economic growth by helping small businesses grow — as they are the engine of growth and prosperity for this nation — to create more jobs and thus more revenue for our federal government.

Those of us who have replaced ‘more’ with ‘enough’ in our lexicon, it is time to let our leaders know that — sometimes — even our government has to learn some painful lessons of personal finance. Do you agree?

source: streetsmartfinance.org

Wells Fargo not modifying mortgages as required, lawsuit says

Accusing Wells Fargo & Co. of reneging on a sweeping mortgage-modification deal, a lawyer for troubled homeowners is trying to reopen a case involving risky "pick-a-pay" loans written during the housing bubble.

Legal filings last week claimed Wells Fargo failed to provide wide-ranging reductions of loan balances to delinquent borrowers as it had promised two years ago when it settled a combined national class-action suit. A bank spokeswoman strongly disputed the claim, saying it was riddled with errors.

The litigation illustrates how lawsuits continue to dog major home lenders more than five years after the mortgage industry imploded, including recent challenges to certain cases the banks thought had been put to rest.

The original lawsuits over pick-a-pay, or pay-option, mortgages contended that the loans were issued with inadequate notice to borrowers that the amount owed would rise if they chose the lowest payment among four options. The loans were made by banks later acquired by Wells Fargo.

"Hundreds of thousands of homeowners were suffering the effects of undisclosed negative amortization for their Pick-a-Payment loans, while the declining U.S. housing market was sucking the remaining equity out of their homes," plaintiffs attorney Jeffrey K. Berns said in a filing Friday.

The settlement was reached in December 2010 before U.S. District Judge Jeremy Fogel in San Jose. At the time, the San Francisco-based bank said it would provide at least $50 million and as much as $600 million in modification benefits to troubled borrowers with the pay-option loans, the Reuters news service reported.

Berns, of Woodland Hills, had calculated the number might reach $2 billion.

Of the 66,000 requests for loan modifications made in the 18 months ending Sept. 30, Wells Fargo granted 1,746, or 2.6%, Berns alleged.

"Thousands of people have been denied loan modifications -- people who, in our opinion, should not have been denied," Berns said in an interview Monday.

His filings included a new lawsuit accusing Wells Fargo of breaching the settlement, acting in bad faith and violating a state unfair competition law. In a separate filing, Berns asked the court to order the bank to stop all foreclosures on the loans to allow him to investigate the situation.

The pay-option loans were made by a large Oakland savings and loan, World Savings, which was acquired in 2006 by Wachovia Corp. of Charlotte, N.C. Wachovia continued to make the mortgages and was near collapse in 2008 when it was acquired by Wells Fargo.

In a statement, Wells Fargo said it would "immediately and forcefully" defend the new lawsuit, which it said "maligns a very effective consumer loan settlement program."

Wells Fargo didn't break out how many borrowers covered by the settlement had received reductions in the principal on their loans.

But it said its overall efforts on behalf of people with the tricky loans had been extensive, including many loan modifications that included principal reduction in the two years leading up to the settlement.

"We have provided modifications for nearly 110,000 borrowers with Pick-a-Pay loans and principal reductions of more than $5 billion for those borrowers," Wells said. "That means that more than a third of all Pick-a-Pay loans --  including those covered by the settlement and those not included -- have been modified since the beginning of 2009."

source: latimes.com

83 billion more reasons for national catastrophic insurance program.

As if the “fiscal cliff” negotiations in Washington weren’t tough enough, there’s a new $83 billion problem.

That’s how much politicians from New York, New Jersey and other states want for damages from Hurricane Sandy. Plus, they want approval by the end of the year. For those who lament the lack of bipartisanship in Congress, Sandy has brought the parties together. In normal times, Sen. Charles Schumer, D-N.Y., and Rep. Peter King, R-N.Y., might not agree on where to eat lunch. With Sandy, they are united in their demand for federal money.

President Barack Obama’s opening bid to the Northeast was $50 billion. At this point, no one can be sure of an accurate number. Different pieces of government are compiling damage estimates; mass transit in New York took an especially hard hit. Private insurance will cover some repairs, but some homeowners whose dwellings were washed away may not have had federal flood insurance. A construction trade group pegs the homeowner rebuilding cost at $15 billion to $20 billion. Some money will go not just for rebuilding but for hardening against the next storm.

Whatever the number, the issue will further complicate budget talks that reportedly now are between just President Obama and House Speaker John Boehner, R-Ohio. Whatever the number, the money will come out of the treasury at a particularly bad time.

As we have editorialized many times, it doesn’t have to be this way. Congress could create a national catastrophic insurance program for what the industry calls “uninsurable perils.” In shirtsleeve English, a normal market can’t provide reasonably priced insurance to cover storms like Sandy. A normal market also can’t provide reasonably priced coverage for acts of terrorism, which is why the federal government has a public-private terrorism insurance program. In 2007, President George W. Bush signed an extension through 2014.

Similarly uninsurable perils include an 8.5 earthquake in downtown San Francisco — the earthquake there in 1906 led to a nationwide financial panic — and a Category 5 hurricane striking Miami before moving across the state to Tampa. That’s why former U.S. Rep. Ron Klein sponsored, and the House passed, a national catastrophic insurance plan under which the federal government would underwrite private bonds to pay damages. Those billions would not come out of the treasury.

The plan was designed not by the insurance industry but by wonks at the Congressional Research Service. States would have to first create their own layers of coverage, as Florida has, for lesser storms. The main opposition continues to come from the global, unregulated reinsurance industry, which sells the coverage for those worst-case scenarios. That cost is the main driver of premium increases.

Sandy was a tragedy. Given climate change and weird weather, there will be more. Congress needs no more evidence to justify a national catastrophic insurance program.

source: palmbeachpost.com

Banks favor short sales over debt forgiveness

WEST PALM BEACH — Florida homeowners have received more than $3 billion in mortgage relief and benefits from the nation’s five largest banks since a landmark settlement was signed in March to atone for foreclosure-related offenses.

But the majority of the banks’ debt forgiveness has come in the form of short sales, a gesture that homeowner advocates say doesn’t match the goal of the agreement, which was to keep borrowers in their homes.

More than $2.2 billion, or 63 percent of Florida’s total take so far from the settlement, has been in deficiency waivers for short sales, according to quarterly progress reports submitted this week to settlement monitor Joseph Smith.

A short sale is when a lender agrees to take less for a home than what the borrower owes on the mortgage. Banks can still pursue borrowers for that unpaid debt, unless they waive that right in the deal.

As part of the nationwide $25 billion agreement with Bank of America, Ally Financial, Citimortgage, JPMorgan Chase and Wells Fargo, forgiving short sale debt is one way lenders can meet their financial obligations.

Nationwide, about 60 percent of the debt forgiven through Sept. 30 has been through short sale deficiency waivers.

“We believed the intent and motivation for this settlement was to keep people in their homes,” said Laura Johns, a community organizer with the Home Defenders League, a national organization whose Florida base is in Orlando. “What we see happening in Florida is people being pushed out of their homes and the homes going to investors.”

The average borrower’s relief in Florida from the settlement has totaled $74,673.

About 5,110 Floridians have received an average of $10,850 in “transitional” money to leave their homes, while $6.9 million in debt has been forgiven to homeowners who have deeded their property to the bank rather than going through a lengthy foreclosure proceeding.

Johns said banks should be focusing more on primary mortgage principal reductions that will leave fewer homes underwater and make monthly payments more affordable.

While principal forgiveness on first mortgages has totaled $386.7 million in Florida between March and Sept. 30, it makes up just 11 percent of the overall relief so far. About 3,240 Floridians have received a first lien principal reduction, averaging $119,256.

Banks have forgiven $2.5 billion in first mortgage debt nationwide between March and September for 21,833 homeowners. The average forgiveness amount was $116,929.

“First lien principals are our highest priority as it’s the one program that has a clear ability to prevent foreclosure and keep people in their homes,” said Bank of America Senior Vice President Eric Telljohann. “We expect one-third of homeowner relief to come from first-lien principal forgiveness.”

Bank of America, which services about 900,000 mortgages in Florida, has provided $113 million in first lien principal reductions statewide to 830 borrowers. That’s compared to $1.2 billion in short sale forgiveness to 11,170 borrowers.

The settlement requires 60 percent of each bank’s total commitment to be met by first- and second-lien principal reductions. No more than 10 percent can be met by deficiency waivers.

Smith said in a press release the banks’ progress is “encouraging,” but cautioned that he hasn’t confirmed the lender reports. Lenders have until March 2015 to meet the settlement deadline.

“No credit will be awarded to a servicer until I, as monitor, am satisfied that the servicer has met its obligations,” Smith said.

Paul Baltrun, director of homeowner assistance at the Law Office of Paul A. Krasker in West Palm Beach, said he had a client receive a $390,000 reduction on a Bank of America first mortgage, dropping the balance to $231,000.

A second client had his entire second mortgage of $63,252 forgiven by JPMorgan Chase.

“The majority of our clients come in our door and don’t even know what the mortgage settlement is,” Baltrun said. “Sometimes they just don’t believe they can qualify because they’ve been turned down so many times for other plans.”

Homeowners whose loans are backed by Fannie Mae and Freddie Mac do not qualify for benefits through the National Mortgage Settlement.

In Florida, about $383 million in second mortgages has either been forgiven or canceled by lenders.

Lenders do not earn a dollar-for-dollar match on relief provided to borrowers. For example, for every dollar forgiven by a lender on a second mortgage, it receives only a 10-cent credit toward its required settlement amount. Lenders and servicers receive between a 20-cent credit and a dollar-for-dollar match on short sales depending on the kind of debt being forgiven.

Baltrun said he agrees with the criticism that too much is being forgiven through short sales.

“The whole point of the settlement is to keep people in their homes,” he said. “The vast majority of short sales we’ve completed in the past year and a half have come with a full deficiency waiver anyway.”

source: palmbeachpost.com

Buying a Car with Bad Credit: Your Options

No matter how many times our mothers warned us to pay our bills in full and on time, some of us just had to find out for ourselves what the repercussions for making late and partial payments would be. Surprisingly, we’ve found that our credit cards weren’t cancelled and no one came knocking on the door to collect that brand new TV we bought and couldn’t afford. Nope, instead they hit us where it hurt the most. They lowered our credit score. And because they were so sneaky about it, we didn’t even realize it was happening until it was too late!

If you’ve got a broken down car, can’t get to work, and can’t get financing on a new car because of bad credit, don’t panic. There’s a way to drive yourself out of this mess, and while it may not be in a new Mercedes-Benz, no need to worry. You’ve still got that fancy TV.

First things first. Go online and get a copy of your credit report. Pay the extra fee to make sure the report includes your credit score. The score is reported by three bureaus, so get your score from all three (Equifax, Transunion, Experian).

Beg the Bank

Understand your credit score and decide the best way to proceed. Most banks won’t lend to people with scores below 640. However, if you’re within a reasonable range of that, many banks will still give you a car loan if you have a good history with that particular bank. If you’ve got $1000 cash, go to the bank where you have your checking account and see if that’ll do for a down payment. Depending on how close you are to 640, sometimes only $500 is enough. If they say no, don’t lose hope. Keep pressing on.

Buy in Cash

Depending on how mechanically inclined you or your friends are, you might want to check out what’s available within your cash range. $1000-2000 can often get you a decent 10 year old vehicle. Unfortunately, most 10 year old vehicles aren’t always in the best mechanical condition, so this is where knowing someone who’s good with engines will be of help.



If you don’t know a mechanic, usually it’ll cost you about $50 to have one accompany you to the dealership to do a thorough inspection on the car you are interested in. However, you should make sure he doesn’t have a connection to the dealership to ensure you’re getting unbiased advice. Older cars come with a lot of problems, so you might want to avoid this option and consider buying from a “Buy-Here-Pay-Here” dealership.

Buy from a “Buy Here Pay Here” Dealership

You know that annoying radio commercial? “Bad credit? No credit? No problem! If you’ve got $500 and job, you can ride away in a new car today!” These guys are what you’d call a “Buy-Here Pay-Here” dealership. “Buy-Here-Pay-Here” dealerships will finance a car purchase and keep the loan in-house, so you’ll owe them money, not some anonymous bank in Phoenix or Cleveland.

These dealerships get a lot of flak because they are in the business of selling loans, not cars. They’re taking chances on people with volatile credit and know that most of their customers will eventually get behind on their loans. Therefore, the cars they sell only have to last as long as it takes for the owner to default on the loan. If you buy from a dealership like this, make sure not to leave your mechanic at home. But not all Buy-Here-Pay-Here dealerships are dangerous. Some of the more reputable ones will offer mechanical warranties, so keep your eye out for those.

In sum, if you’ve got bad credit and you need a reliable way to get around, do your very best to obtain financing from a respectable dealership. However, if you can’t, purchasing from a Buy-Here Pay-Here dealer is a slightly better idea than paying for an old beater in cash, especially if you don’t have any mechanics in the family.

source: howisavemoney.net

Remember To Check Your Credit Reports!!!!

If you are not already monitoring your credit reports now might be a good time to start. I recently had a run in with someone who I advised to check his credit report. .He ordered his reports from annualcreditreport.com.…which gives you FREE credit reports from the three major bureaus every 12 months.



He found that everything on the report was what he expected with the exception of a newly opened credit card…at an address in a state that he had never been to.

The credit card had been opened about a year earlier and actually had a small balance on it that he did not know about. I quickly informed that person that he needed to notify the credit bureau so they could investigate the matter because he was sure it was not his card.

The sooner you find out about errors on your credit report the better it is for you. Early detection means you can get the problem taken care of soon and you can potentially avoid a big disaster later on.

source: howisavemoney.net

Why Your Credit Score Matters

How much do you know about your credit score? That three-digit number is tied inseparably to our financial lives, yet many young adults haven't given it the attention it deserves. Your score can play a role in your ability to rent an apartment, qualify for a loan or even get a job. It can also affect how much you'll pay on interest charges, insurance and even cell phone contracts.

Make building a stellar score a priority while you're young and you could actually save hundreds or thousands of dollars over your lifetime. However, if you don't take your credit seriously, a bad score -- or even a nonexistent score -- will cost you.

Who's keeping score?

Your credit score is basically used to predict the possibility that you won't pay your bills. They are compiled by Fair, Isaac & Co., and are sometimes called FICO scores. The top possible number is 850, but topping 800 is probably unrealistic. A median score usually falls in the 720-to-725 range, meaning half of consumers fall above that point, half below. Even if you haven't given your FICO score much thought, there are plenty of others who have or will, so you'll want to aim for the mid-700s to make the best impression on:

 1. Lenders. This group is the one most people associate with their credit score. Having a good rating can help you qualify for the best rates on a mortgage, car loan, credit card and even a small business loan if you've got that entrepreneurial spirit. A nonexistent score can make it impossible for you to qualify for a loan or credit card at all. (Learn how to overcome this obstacle below.)

2. Insurers. The majority of auto insurance companies use your credit score when determining your rates, and the practice is also common among home insurers. A recent survey by Consumer Reports among eight popular auto insurers found that drivers with top scores could pay up to 31% less on their premiums than if credit scoring wasn't factored in, while those with bad scores would pay as much as 143% more.

3. Landlords. Increasingly, you may need a good credit score to rent an apartment. Landlords view your credit rating as a measure of your responsibility to pay bills on time. If your rating is below par or you don't have a credit score yet, you may have to find a friend or relative to co-sign your lease, or you could be required to pay a higher rent or security deposit.

4. Employers. When you're applying for a job, potential employers can pull your credit report as long as they notify you first. And, in fact, about 35% of them do, according to the Society for Human Resource Management. Why? Bad credit can be a signal of irresponsibility, or employers might be worried you'll spend more time fretting about your financial woes than concentrating on the job.

5. Cell phone carriers. Even cell phone service providers may check your credit before signing you up for a plan. They want to make sure you're responsible and will pay your bill each month. Some utility providers may pull your report as well. If you have credit issues, you may not qualify for the best plan rates, you could be required to pay a deposit, or you could get turned down.

True cost of your score

So, how much does your credit score affect your finances? Say we have two friends, Jim and Mark. Both took steps right out of college to start building a credit report by getting their first credit cards and an auto loan. Jim made all his payments on time, never maxed out his credit cards and often paid more than the minimum required. Mark, however, frequently paid late, overextended his cards and applied for new credit to bail him out of his mismanaged debts.

Now both are ready to buy homes, and they each apply for a $250,000 30-year mortgage. Through Jim's responsibility, he's been able to build a score of 750, qualifying him for a loan with a 6.2% interest rate, according to Fair Isaac, a credit scoring bureau. Mark's score comes in around 650, netting him a rate at 7.3% interest. Jim's monthly mortgage payment is $1,536 while Mark pays $1,718 -- a difference of $182 per month. If they both live in their homes for ten years before selling or refinancing, Mark will pay $21,840 more in monthly payments than his friend. Ouch.

Mark also gets burned on a new auto loan -- paying $1,332 more over three years on a $20,000 loan than Jim. Plus, Mark probably paid much more for his car insurance than Jim.

How to get started

Even if you don't plan on applying for a loan, or getting a new apartment or a new insurance policy anytime soon, it's a good idea to start building your credit score now so it's there when you need it.

When you're starting from scratch, a good place to begin is in college where lenders hand out credit cards like candy. But don't rush to indulge. Janet Bodnar, Kiplinger.com's Money-Smart Kids columnist, advises students to get just one card their junior or senior year, use it occasionally and pay off the balance each month. It's much easier to qualify for a credit card while you're in school than after you graduate (lenders figure that Mom and Dad will bail you out while you're in college if you can't pay your bill).

If you're already out of school, or you don't trust yourself with a full-fledged credit card yet, a secured card will help you get off on the right foot. This card allows you to make a deposit with a lender (such as your bank or credit union), and the amount usually becomes your credit limit. The issuer takes on zero risk because if you don't pay on time, it can dip into your account to cover the bill. Most issuers require a deposit of $300 to $5,000. You build a history just as fast with a secured card as with a regular one. And after making payments on time for a year with a secured card, you should have an adequate history to switch to an unsecured card and get your deposit back.

A new scoring system from FICO may soon help young adults trying to build a credit history. It is based on alternative data such as whether you pay your electric bill on time and maintain a clean checking account (learn more.) So you'd do well to keep all areas of your finances in tip-top shape.

Boost your score

Knowing what goes into your credit score can help you manage your debts well. Here's how to make the best impression on your credit history:

• Pay on time. 35% of your score depends on your payment history.
  
  
• Don't max out your cards. 30% of your score is based on how much you owe. You want to keep your "credit utilization" ratio -- the percentage of your credit limit that you've actually used -- no higher than 30% of your available credit limit.
  
  
• Start while you're young. 15% depends on the average age of your accounts.
  
  
• Avoid opening several accounts at once. Not only will this lower the average age of your accounts, but lenders will worry that you might go on a borrowing binge. 10% of your score depends on new credit.
  
  
• Get the right kind of credit. This accounts for the final 10% of your score. Your experience with revolving credit, such as credit cards, on which you control how much you charge and pay off each month, carries more weight than installment debt, such as car loans and mortgages, with fixed payments. But don't simply stock up on a pocketful of Visas -- lenders like to see that your money skills are well rounded.
  
  source: kiplinger.com
  
  
  
  
  

What You Need to Know Before Going Into Debt

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.

source: richcreditdebtloan.com