loans http://www.wisebread.com/taxonomy/term/1008/all en-US How to Build Equity in Your Home http://www.wisebread.com/how-to-build-equity-in-your-home <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-build-equity-in-your-home" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/imagine_owning_our_dream_house.jpg" alt="Imagine owning our dream house" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Equity is the difference between what you owe on your mortgage loan and what your home is currently worth. Say you owe $150,000 on your mortgage and your home is worth $200,000. You now have $50,000 worth of equity built up in your home. Congratulations!</p> <p>Equity is important when you sell your home. If you sell the home in the above example for $200,000, you'd end up with a sizable check, whatever is left of that $50,000 equity after you subtract your real estate agent's commission and any other fees you might have to pay to close the sale. (See also: <a href="http://www.wisebread.com/8-unexpected-costs-of-selling-a-home?ref=seealso" target="_blank">8 Unexpected Costs of Selling a Home</a>)</p> <p>You can also tap your home's equity for home equity loans or home equity lines of credit. Maybe you want to remodel your bathroom. If you have enough equity, you can take out a home-equity loan of, say, $20,000 to pay for it. You can also rely on home equity loans to pay for a child's college tuition or pay off high-interest credit card debt.</p> <p>And if you ever want to refinance your mortgage loan to one with a lower interest rate, you'll usually need equity to do so. Most lenders won't approve a refinance unless you have at least 20 percent equity built up in your home.</p> <p>So how do you build equity? Mostly by making your mortgage payments on time and hoping that the value of homes in your local housing market continues to rise.</p> <h2>Keep making your mortgage payments</h2> <p>Every time you make a mortgage payment, you'll gain a small bit of equity, as long as your home's value isn't falling at the same time. But don't think that if you are paying $1,500 each month, you are gaining $1,500 worth of equity with every payment. Not all of your monthly payment goes toward reducing your mortgage's principal balance.</p> <p>There's something known as PITI, which stands for principal, interest, taxes, and insurance. This means that a portion of each of your mortgage payments goes toward paying off your loan's principal balance, interest, property taxes, and homeowners insurance. Only the portion that goes toward paying off your principal helps you build equity.</p> <p>In the earliest days of your payments, a greater chunk of your mortgage check will be used to pay off interest. The deeper you get into your mortgage's life span, the more principal you'll pay off with each payment &mdash; and the more equity you will gain.</p> <h2>Count on rising home values</h2> <p>When you buy a home, you hope that its value will continue to increase. If your home does rise in value, the equity you have will automatically increase.</p> <p>If your home is worth $200,000 and you owe $190,000 on your mortgage, you have $10,000 in equity. But if your home's value was instead $210,000, owing that same $190,000 would leave you with $20,000 worth of equity. Just be aware that your home is not guaranteed to rise in value.</p> <h2>Make a bigger down payment</h2> <p>If you are using a mortgage to finance the purchase of a home, you'll usually have to come up with a down payment. With some loan products, that down payment can be as low as 3 percent of your home's purchase price. For a home costing $200,000, a down payment of 3 percent comes out to $6,000.</p> <p>The larger your down payment, however, the more equity you'll have as soon as you take ownership of your house. When you reach 20 percent equity, you'll no longer have to pay private mortgage insurance (PMI). That's why if you can afford it, it makes financial sense to come up with as large of a down payment as possible. (See also: <a href="http://www.wisebread.com/do-you-really-need-a-20-percent-down-payment-for-a-house?ref=seealso" target="_blank">Do You Really Need a 20 Percent Down Payment for a House?</a>)</p> <h2>Take out a shorter mortgage</h2> <p>Taking out a loan with a shorter term means larger monthly payments. But it also means that you'll build your home's equity at a faster pace. If you take out a 15-year, fixed-rate mortgage instead of a 30-year, fixed-rate loan, your monthly payment will be significantly higher because you are stretching out your payback period over a smaller number of months.</p> <p>But that larger monthly payment also means that you'll be reducing your mortgage's principal balance by a greater amount each month, something that will help you build equity much faster. This is one reason why, if you can afford the larger monthly payment, a shorter-term mortgage is a smarter financial move. Just be careful not to take a shorter-term mortgage if the monthly payment will be a struggle.</p> <h2>Make bigger mortgage payments each month</h2> <p>You can increase the speed at which you gain equity by making larger mortgage payments each month, as long as you tell your lender that you want this extra money to go toward paying down your loan's principal balance.</p> <p>If you owe $1,700 each month on your mortgage, you might instead send a check for $1,900, with the extra $200 allocated to paying down your principal. Your lender's mortgage statement probably has a line that you can fill out stating that you want your extra money to go toward principal. Make sure to fill that out.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/how-to-build-equity-in-your-home">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-times-buying-a-home-with-cash-is-bad-for-your-budget">5 Times Buying a Home With Cash Is Bad for Your Budget</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/do-you-really-need-a-20-percent-down-payment-for-a-house">Do You Really Need a 20 Percent Down Payment for a House?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-biggest-regrets-of-new-homeowners">8 Biggest Regrets of New Homeowners</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-qualify-for-a-mortgage-with-a-small-downpayment">5 Ways to Qualify for a Mortgage With a Small Downpayment</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-questions-to-ask-before-selling-your-house">6 Questions to Ask Before Selling Your House</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing down payments equity homeownership interest loans mortgages principal Tue, 20 Jun 2017 09:00:08 +0000 Dan Rafter 1966194 at http://www.wisebread.com 8 Biggest Regrets of New Homeowners http://www.wisebread.com/8-biggest-regrets-of-new-homeowners <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-biggest-regrets-of-new-homeowners" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/house_key_on_keychain.jpg" alt="House key on keychain" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Buying a home is a big decision. When you buy your first home, it can turn out to be one of the happiest moments of your life, and set you and your family up for years of comfort. But there are also countless decisions to make during the buying process, and it's easy to make one you'll regret later.</p> <p>It helps to know common traps others have learned from. Try to avoid these mistakes that many new homebuyers have made. (See also: <a href="http://www.wisebread.com/what-you-need-to-know-before-buying-your-first-home?ref=seealso" target="_blank">What You Need to Know Before Buying Your First Home</a>)</p> <h2>1. You bought more house than you can afford</h2> <p>It's easy to purchase a home that may be out of your price range. Banks are known to approve homebuyers for loans that are way beyond what should be sensibly budgeted. It's also tempting to buy a more costly home than you need, based on the assumption that you will earn more in the future.</p> <p>A good rule of thumb is to avoid paying more than 30 percent of your gross income on housing. Anything more than that, and you may find yourself financially handcuffed. When searching for homes, be sure to have a budget in mind, and do your best to stick to that budget even if it means walking away from homes you like. (See also: <a href="http://www.wisebread.com/how-to-make-ends-meet-when-youre-house-poor?ref=seealso" target="_blank">How to Make Ends Meet When You're House Poor</a>)</p> <h2>2. You did not put enough money down</h2> <p>Making a big down payment can make things much easier for a homeowner in the long run. If you are able to save up enough to put down at least 20 percent, there's a good chance you'll avoid paying private mortgage insurance (PMI), which can add thousands of dollars in overall costs. Plus, a bigger down payment will help you qualify for a more favorable loan, and will reduce the amount you need to borrow.</p> <p>Homeowners who can't make a sizable down payment often find themselves struggling financially because the mortgage costs are onerous. The more money you put down, the more money you'll save &mdash; and the better off you'll be.</p> <h2>3. You did not get the right kind of mortgage</h2> <p>There are many different mortgage products out there. <a href="http://www.wisebread.com/fixed-or-adjustable-choosing-the-right-mortgage-loan?utm_source=feedburner&amp;utm_medium=feed&amp;utm_campaign=Feed:+wisebread+(Wise+Bread)" target="_blank">Loans with fixed interest rates or adjustable rates</a>, interest-only loans, <a href="http://www.wisebread.com/choosing-the-right-mortgage-loan-15-or-30-years" target="_blank">30-year loans, and 15-year loans</a>. It can be bewildering and hard to find the right mortgage for you. The key is to understand what kind of homebuyer you are.</p> <p>Generally speaking, if you want to build equity in your home and plan to stay a while, you will want a fixed-rate mortgage. A 30-year term is most common and often allows for manageable monthly payments, but shorter terms can make sense if you want to pay off your loan sooner and you can afford to pay more each month.</p> <p>Adjustable rate mortgages, which often start with low interest rates that can change after a certain time period, make sense for those who think they may only stay in the home for a few years.</p> <p>Interest-only loans, in which you begin paying interest before any principal, tend to be riskier and don't help you build equity. But they might be right for people who want very low payments to start and think they can refinance or handle higher payments later.</p> <p>Do you plan to stay in the house a long time or move within a few years? What is your budget, both in terms of down payment and monthly payments? These are hard decisions, but it is important to research your mortgage loan options thoroughly before locking one in.</p> <h2>4. You didn't reduce debt and improve your credit before buying</h2> <p>The interest rate on your mortgage is based on a variety of factors, most importantly your current debt level and credit score. If you already have a high debt load and your credit score is mediocre or poor, you may end up with a higher interest rate. This could add thousands of dollars to the overall cost of your home.</p> <p>You may be eager to buy that first house, but you should first take time to pay off any current debts and <a href="http://www.wisebread.com/how-to-rebuild-your-credit-in-8-simple-steps" target="_blank">improve your overall credit picture</a>.</p> <h2>5. You should have continued renting</h2> <p>There is a lot of pressure on people to buy instead of rent, because it can be a path to long-term financial security. But there are many cases where it's perfectly fine &mdash; and perhaps wiser &mdash; to continue renting.</p> <p>If your income is inconsistent or your job security is in question, renting is a better option. If you expect you may need to move within a short period of time, renting makes sense. If you don't have enough money for a sizable down payment yet, continuing to rent is fine. Renting offers flexibility and is often cheaper, so there should be no rush to buy if you're not comfortable doing so. (See also: <a href="http://www.wisebread.com/rent-your-home-or-buy-heres-how-to-decide?ref=seealso" target="_blank">Rent Your Home or Buy? Here's How to Decide</a>)</p> <h2>6. You bought a home that needed work</h2> <p>A so-called &quot;fixer upper&quot; can be a great bargain for those willing to invest the time, sweat, and money on making necessary repairs. But this type of home isn't for everyone.</p> <p>Purchasing a home that requires heavy renovation can be a source of stress, and if you're not handy enough to fix things yourself, it may be more expensive for you in the long run.</p> <h2>7. You waived the inspection</h2> <p>During the housing boom a decade ago, competition for homes was so fierce that buyers were willing to forgo a routine inspection in order to close a deal. In fact, some sellers saw a demand for an inspection as a deal-breaker. Today, this is a recipe for potential disaster.</p> <p>An inspection should be an essential part of the homebuying process, allowing you to learn about any problems before you make a financial commitment. No homeowner should find themselves stuck with a house full of problems simply because they waived their right to inspect the property beforehand. (See also: <a href="http://www.wisebread.com/thinking-of-skipping-the-home-inspection-heres-what-it-will-cost-you?ref=seealso" target="_blank">Thinking of Skipping the Home Inspection? Here's What It Will Cost You</a>)</p> <h2>8. You researched the house, but not the area</h2> <p>It's a beautiful house and you got it for a great price. But after moving in, you realize that your commute to work just doubled. Or maybe you learned that the school system is not well-regarded. Or that the neighborhood has a high crime rate. Or the home backs up to the wastewater treatment plant.</p> <p>Remember that when you buy a home, you're not just buying a property. You're selecting a place to live and possibly raise your family. There's more to home than just the structure and the yard. If you don't do the research on your new neighborhood, you could end up sorely disappointed. (See also: <a href="http://www.wisebread.com/how-to-evaluate-a-neighborhood-before-you-buy?ref=seealso" target="_blank">How to Evaluate a Neighborhood Before You Buy</a>)</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/8-biggest-regrets-of-new-homeowners">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-build-equity-in-your-home">How to Build Equity in Your Home</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-surprising-ways-real-estate-cuts-your-taxes">10 Surprising Ways Real Estate Cuts Your Taxes</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-qualify-for-a-mortgage-with-a-small-downpayment">5 Ways to Qualify for a Mortgage With a Small Downpayment</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-times-its-actually-okay-to-be-underwater-on-your-home">6 Times It&#039;s Actually Okay to Be Underwater on Your Home</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/should-you-ever-consider-a-balloon-mortgage">Should You Ever Consider a Balloon Mortgage?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing house house poor inspections interest loans mortgages new homeowner payments regrets renting Tue, 06 Jun 2017 09:00:09 +0000 Tim Lemke 1959133 at http://www.wisebread.com 8 Reasons You're Still Stuck in a Financial Hole http://www.wisebread.com/8-reasons-youre-still-stuck-in-a-financial-hole <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-reasons-youre-still-stuck-in-a-financial-hole" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/frustrated_intern_working_on_line_at_office.jpg" alt="Frustrated intern working on line at office" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Being broke sucks. There are a million reasons why you might end up in a financial hole, and it always feels awful. The good news is you can often pull yourself out of these bad situations, especially if you make wise decisions with your money.</p> <p>On the other hand, there are also some really poor money decisions that can set you back even further. Avoid these bad calls when you're broke, and you'll stop digging yourself even deeper into debt.</p> <h2>1. Thinking nothing has to change</h2> <p>The minute you realize you're broke, your mindset has to change. How did you get here? What led to being broke? Think long and hard about these things, and understand that something has to give. Telling yourself you can continue your everyday spending habits as if nothing is wrong is only going to dig yourself deeper into a financial hole. And ignoring the problem altogether certainly won't help, either; it'll just make things much, much worse. As unpleasant as it might be to face reality and change the way you spend, it will be much more unpleasant to stay broke. (See also: <a href="http://www.wisebread.com/7-biggest-ways-procrastination-hurts-your-finances?ref=seealso" target="_blank">7 Biggest Ways Procrastination Hurts Your Finances</a>)</p> <h2>2. Emptying the emergency fund</h2> <p>Realizing you're broke can lead to feelings of panic &mdash; being broke is an emergency, right?! Hold on. The last thing you should be doing is raiding your emergency fund to pay everyday expenses, or to continue funding the frivolous spending that landed you here. The truth is, when you're broke, you need a sound emergency fund more than ever. What happens if you lose your job, or your hot water heater dies? Without that money put away, you'll have nothing to help you get by. So, leave your emergency fund right where it is and make other changes in your budget.</p> <h2>4. Taking out a loan</h2> <p>You don't need the financial burden of new debt when you're already broke. Assuming you get approved for a loan, there's no guarantee that you'll even be able to pay it back. That puts your credit score at risk of a critical hit, and can ruin your chances of getting approved for financing in the future.</p> <p>In the same vein, never fall for a payday loan, either. Predatory lenders often target people in times of financial trouble, and are experts at marketing an attractive offer that sounds like the answer to your money troubles. In reality, the obscene interest charges and terms and conditions will leave you way worse off. (See also: <a href="http://www.wisebread.com/how-to-protect-yourself-from-predatory-lending?ref=seealso" target="_blank">How to Protect Yourself From Predatory Lending</a>)</p> <h2>5. Getting buried in overdraft fees</h2> <p>When there's less money in your checking account than you're used to, take extra caution to avoid overdrawing. Overdraft fees can quickly multiply, shooting up to hundreds of dollars and putting you in an even worse financial situation. Your bank may be willing to waive some of the fees if you ask, but it's not a guarantee and certainly not a regular courtesy. If you're not sure how much money you have in your account, check it daily. With technology, there is no excuse. You can either log on to your bank's website every morning, or download your bank's app. (See also: <a href="http://www.wisebread.com/9-ways-to-avoid-overdraft-charges?ref=seealso" target="_blank">9 Ways to Avoid Overdraft Charges</a>)</p> <h2>6. Lying about your financial state</h2> <p>Don't lie to yourself and don't lie to other people. It's hard to admit when you're in a bad money spot. But the truth is that you <em>are</em> broke, and lying will only cause more problems. Take a deep breath and be honest. Politely turn down your friends' invites to go shopping or out to dinner, and explain that you simply don't have the cash right now. They won't hold it against you. You will respect yourself more for being straightforward, and you might even pave the way for someone else to feel comfortable admitting their hardships, too.</p> <h2>7. Gambling</h2> <p>It's easy to think that one big win could solve all of your financial difficulties. But the fact of the matter is that hitting the jackpot in a casino or by playing the lotto is unlikely &mdash; very unlikely. More often than not, people lose tons of money gambling, sometimes in the blink of an eye. This certainly won't make your money troubles any easier. Think of it this way: gambling is for people who can afford to lose money. You can't, so stay away.</p> <h2>8. Refusing to give up luxuries</h2> <p>Maybe you have a maid service clean your house once per week, or you like to have your car professionally detailed. Maybe you love grabbing takeout for lunch, or eating at that great Italian place for dinner every Friday night. Maybe you love your premium cable package, and all your fun monthly subscription boxes.</p> <p>Guess what? All of these luxuries cost money you don't have, and you can go without. Clean your home and car yourself. Clip coupons and use cash back apps at the grocery store, and meal prep all your food at home. Get rid of monthly subscriptions and memberships you aren't using, and think long and hard about cable &mdash; do you really need it?</p> <p>None of these have to be permanent changes. By giving yourself a financial buffer for even a few months, you'll get back on your feet much faster.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/sarah-winfrey">Sarah Winfrey</a> of <a href="http://www.wisebread.com/8-reasons-youre-still-stuck-in-a-financial-hole">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-an-all-cash-diet-right-for-you">Is an All-Cash Diet Right for You?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-resist-the-expensive-once-in-a-lifetime-mentality">How to Resist the Expensive &quot;Once in a Lifetime&quot; Mentality</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-parenting-mistakes-to-avoid-when-teaching-kids-about-money">4 Parenting Mistakes to Avoid When Teaching Kids About Money</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/39-mindless-ways-youre-wasting-money-in-every-part-of-your-life">39 Mindless Ways You&#039;re Wasting Money in Every Part of Your Life</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-budget-overhaul-tricks-for-the-recently-unemployed">5 Budget Overhaul Tricks for the Recently Unemployed</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Budgeting being broke daily expenses habits loans overdraft fees procrastination saving money Spending Money Thu, 25 May 2017 08:00:09 +0000 Sarah Winfrey 1953936 at http://www.wisebread.com 5 Ways to Turn Credit Card Rewards Into Real Wealth http://www.wisebread.com/5-ways-to-turn-credit-card-rewards-into-real-wealth <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-ways-to-turn-credit-card-rewards-into-real-wealth" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-623196850.jpg" alt="Man turning credit card rewards into real wealth" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Using a rewards credit card is an easy way to pocket a few hundred dollars a year in cash back rewards, or earn free travel. And if you're willing to put in the effort, you'll find there are plenty of ways to parlay your points into something more meaningful and long-lasting.</p> <h2>1. Invest your cash back for the long haul</h2> <p>The simplest way to make <a href="http://www.wisebread.com/5-best-cash-back-credit-cards?ref=internal" target="_blank">cash back rewards</a> even more rewarding is to put the money into a retirement account and let compound interest work its magic. For example, we've worked out how to save <a href="http://www.wisebread.com/how-to-save-an-extra-109486-a-year?ref=internal" target="_blank">over a thousand dollars a year</a> using credit cards.</p> <p>Let's say you banked your $1,000 in rewards and savings and invested them in a Roth IRA each year for 20 years. If you earned an average return of 6 percent, you'd have almost $40,000 after 20 years, before fees.</p> <h2>2. Invest in experiences</h2> <p>Ask any dying person what they value most, and it won't be money they speak of. Most people look back on their lives and cherish the memories they've made &mdash; the sight of beautiful places, the laughter of their children, and the life-changing moments they've spent with the people they love.</p> <p><a href="http://www.wisebread.com/top-5-travel-reward-credit-cards?ref=internal" target="_blank">Travel rewards cards</a> may not help anyone grow rich, but they can help them afford a wide range of experiences that may otherwise be out of reach. An Alaskan cruise may fit into even a modest budget with the smart use of credit card rewards. Meanwhile, a $1000+ economy flight to Europe can be had for as little as 45,000 American Airlines frequent flyer miles, which you can earn with an <a href="http://www.wisebread.com/which-american-airlines-us-airways-credit-card-should-you-get?ref=internal" target="_blank">American Airlines credit card</a>.</p> <p>Used wisely, travel rewards can help families make memories they'll cherish for a lifetime. At the very least, they make it possible to travel farther, participate in more activities, and stay longer once you're there. (See also: <a href="http://www.wisebread.com/5-steps-to-getting-a-free-or-close-to-free-vacation-in-9-months-or-less-with-credit-cards?ref=seealso" target="_blank">How to Earn a Free Vacation in 9 Months With Credit Card Rewards</a>)</p> <h2>3. Donate rewards to a worthy cause</h2> <p>Even if you aren't remotely interested in spending rewards, you can make a difference. Some <a href="http://www.wisebread.com/best-credit-cards-that-give-back-to-charity?ref=internal" target="_blank">credit cards give rewards directly to charities</a>. Other credit card programs let you donate your points to charity, letting you turn your regular spending into a boon for someone else.</p> <p>While each credit card rewards program works differently, most make it possible to donate your rewards to causes you believe in. And if you don't want to donate through your issuer's official program, you can always simply give the cash back you earn to your favorite charity.</p> <h2>4. Use rewards to pay down debt and save money on interest</h2> <p>If you have credit card debt, you shouldn't be chasing credit card rewards. But if you have other debt that you'd like to pay off sooner, like a car loan, you can rack up cash rewards and make an extra payment each year. This will help you reduce interest on that debt as well as pay it off sooner.</p> <h2>5. Avoid a high-interest loan</h2> <p>If you have a huge expense coming up and need to take out a loan, you can avoid interest payments and earn rewards in one fell swoop. With a credit card that offers <a href="http://www.wisebread.com/5-best-credit-cards-with-0-apr-for-purchases?ref=internal" target="_blank">0% APR on new purchases</a> you essentially get an interest-free loan for a limited time.</p> <p>For example, let's say you plan to finance a roomful of furniture to the tune of $5,000. You want to pay it off over a year or so, and hope to avoid huge interest payments. You can get a card that offers 0% APR for the first 15 months, allowing you to pay off that $5,000 interest free. Remember though that you have to stay committed to your plan to pay off that amount during that period. Rewards cards typically charge higher interest rates. If you don't think you'll be able to pay off your balance, you'll want instead to look into <a href="http://www.wisebread.com/the-best-low-interest-rate-credit-cards?ref=internal" target="_blank">low interest credit cards</a> to keep a handle on your debt. Before you pursue rewards, make sure you're prepared to use credit responsibly.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/holly-johnson">Holly Johnson</a> of <a href="http://www.wisebread.com/5-ways-to-turn-credit-card-rewards-into-real-wealth">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-things-you-should-never-do-with-your-travel-rewards-credit-cards">7 Things You Should Never Do With Your Travel Rewards Credit Cards</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-save-frequent-flyer-miles-that-are-about-to-expire">How to Save Frequent Flyer Miles That Are About to Expire</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-ways-to-use-travel-rewards-cards-to-get-free-trips">How to Use Travel Rewards Cards to Get Free Trips</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-ways-to-use-miles-and-points-for-holiday-gifts">9 Ways to Use Miles and Points for Holiday Gifts</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-credit-card-transactions-that-dont-earn-rewards">4 Credit Card Transactions That Don&#039;t Earn Rewards</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Credit Cards cash back charity experiences interest loans miles rewards travel wealth building Mon, 22 May 2017 08:30:16 +0000 Holly Johnson 1946267 at http://www.wisebread.com Should You Ever Consider a Balloon Mortgage? http://www.wisebread.com/should-you-ever-consider-a-balloon-mortgage <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/should-you-ever-consider-a-balloon-mortgage" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-641329694.jpg" alt="Person wondering if they should ever consider a balloon mortgage" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Balloon mortgages have some tempting qualities. They come with lower interest rates and, because of this, smaller monthly payments. This can help borrowers get into a pricier home that they might not have been able to afford otherwise.</p> <p>But balloon mortgages come with one huge risk: At the end of a set period, borrowers must pay off the remaining balance on these loans in full (the &quot;balloon&quot;). And these balances can be quite large.</p> <p>So, how exactly do these mortgages work, and who do they work best for? Let's break it down.</p> <h2>How balloon mortgages work</h2> <p>A balloon mortgage comes with two parts. First, there's the standard repayment portion of the mortgage. For a set period of time, usually five to seven years, homeowners make monthly payments just like they would with a standard 30-year or 15-year fixed-rate mortgage.</p> <p>During this period, homeowners' interest rates remain the same. This is a positive because the interest rates on a balloon mortgage tend to be lower than on standard fixed-rate loans or adjustable-rate mortgages.</p> <p>After this period ends, though, the second part kicks in: You'll have to pay the balance of what you owe (the balloon payment). So if, for example, you still owe $130,000 on your mortgage at the end of your five- or seven-year period, you'll have to pay that entire $130,000.</p> <p>Obviously, that's a lot of money. But most people who take out a balloon loan never make that payment out of their own pocket. Instead, they typically plan to refinance or sell their home before the balloon payment comes due.</p> <p>If they sell the home, they can use the proceeds to pay off the loan in full. The same thing happens in a refinance: Once the refinance closes, borrowers pay off the remainder of the balloon and settle into making monthly payments on their new loan.</p> <p>Sadly, unforeseen problems can ruin this plan.</p> <h2>Problems</h2> <p>What if, during the five or seven years after taking out a balloon loan, your FICO credit score falls? Now, lenders might not approve you for a refinance. The same could happen if your monthly income drops after taking out a balloon mortgage. Lenders might worry that you no longer make enough money to afford your monthly payments, and they won't approve you for a mortgage loan.</p> <p>Then there's the question of home value. If the value of your home drops after you take out a balloon mortgage, you'll again struggle to refinance. Most lenders require that you have at least 20 percent equity in your home before they'll approve your request to refinance. If your home's value has fallen, odds are you won't have the equity you need.</p> <p>Even if you are approved for a refinance, consider that interest rates can rise between the start and end of your balloon loan. If they rise significantly, you could be stuck with a much higher monthly mortgage payment.</p> <p>If you can't refinance, you'll face some dismal options, assuming you can't afford the balloon payment on your own. The main option would be selling your home. That may not be an issue if you were planning on selling anyway, but what if you weren't? And what if you can't find a buyer? If your home has fallen in value since you took out your balloon loan, you might be forced to sell your residence for less than what you owe on your mortgage. If that happens, you still won't have enough money to pay off the balloon.</p> <p>If you can&rsquo;t make that balloon payment, either from your savings, refinancing, or selling, your lender can begin foreclosure proceedings. You could end up losing your home and watching your FICO credit score fall by 150 points or more.</p> <h2>What should you do if you can't pay the balloon?</h2> <p>If you can&rsquo;t afford that balloon payment and you can&rsquo;t refinance or sell, your best bet is to call your mortgage lender immediately. They might be willing to work with you. Maybe your lender will shift your balloon loan to an adjustable-rate or fixed-rate loan, or even extend the term of your balloon loan, giving you more years to either sell, qualify for a refinance, or save up enough to make the payment.</p> <h2>Is it ever a good idea to take out a balloon mortgage?</h2> <p>Given the risks, the short answer is: Maybe.</p> <p>If you absolutely know that you will sell your home before that balloon payment comes due, this kind of mortgage can work. You&rsquo;ll get the benefit of homeownership at a lower interest rate and lower monthly mortgage payment. The lower payments might even give you the opportunity to live in a home that you otherwise wouldn&rsquo;t have been able to afford. Then, you can sell, pay off the balloon, and move on.</p> <p>It's difficult to call a balloon mortgage worthwhile otherwise. There are positives to this type of home loan, but they can easily be outweighed by the risks.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/should-you-ever-consider-a-balloon-mortgage">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-build-equity-in-your-home">How to Build Equity in Your Home</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-biggest-regrets-of-new-homeowners">8 Biggest Regrets of New Homeowners</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-times-a-refinance-is-the-wrong-move">3 Times a Refinance Is the Wrong Move</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-times-buying-a-home-with-cash-is-bad-for-your-budget">5 Times Buying a Home With Cash Is Bad for Your Budget</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-questions-to-ask-before-leaving-your-house-to-your-kids">4 Questions to Ask Before Leaving Your House to Your Kids</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing balloon mortgage buying a home homeownership loans payments refinancing Tue, 16 May 2017 08:30:14 +0000 Dan Rafter 1943631 at http://www.wisebread.com How to Face 4 Ugly Truths About Retirement Planning http://www.wisebread.com/how-to-face-4-ugly-truths-about-retirement-planning <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-face-4-ugly-truths-about-retirement-planning" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-155373418.jpg" alt="Learning ugly truths about retirement planning" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Most working Americans still have a long way to go to ensure a comfortable, financially secure retirement. But, with consistency and dedication, retirement planning can be a feasible project. Let's review some of the ugly truths of retirement planning, and the strategies you can use to conquer them. (See also: <a href="http://www.wisebread.com/7-things-financial-advisers-wish-you-knew-about-retirement?ref=seealso" target="_blank">7 Things Financial Advisers Wish You Knew About Retirement</a>)</p> <h2>1. Employer matches require work</h2> <p>While people often like to think of employer matches as free money, the truth is that you do need to do some &quot;work&quot; to earn those matches.</p> <p>First, your employer may require a minimum period of employment or contribution to your retirement account before you become eligible for employer contributions. According to a Vanguard analysis of 1,900 401(k) plans with 3.6 million participants, 27 percent of employers <a href="http://money.usnews.com/money/retirement/articles/2015/06/29/how-does-your-401-k-stack-up" target="_blank">require a year of service</a> before providing any matching contributions. And that waiting period may be on top of the waiting period to be eligible for an employer-sponsored 401(k) in the first place.</p> <p>Second, once you're eligible for the employer match, you may have to contribute a minimum percentage from each paycheck yourself to get it. According to Vanguard, 44 percent of employers required a 6 percent employee contribution to get the entire 401(k) match on offer.</p> <p>Third, only 47 percent of surveyed employers provide immediate vesting of employer contributions. Since only moneys in your retirement account that are fully vested truly belong to you, you may have to wait up to six years to get to keep it all. If you part ways with your employer earlier than that, you may have to say goodbye to some or all of those employer contributions. (See also: <a href="http://www.wisebread.com/15-retirement-terms-every-new-investor-needs-to-know?ref=seealso" target="_blank">15 Retirement Terms Every New Investor Needs to Know</a>)</p> <h3>How to handle it</h3> <p>Find out the applicable rules for employer contributions under your employer-sponsored retirement account. Ask about the waiting period for eligibility, how much you should contribute to get the full employer match, and what is the applicable vesting schedule for employer contributions. This way you'll know how to make the most (and keep the most!) of any employer contributions.</p> <h2>2. Full retirement age is higher than many of us think</h2> <p>According to the 2016 Retirement Confidence Survey from the Employee Benefit Research Institute (EBRI), one in every two American workers expected to retire <a href="https://www.ebri.org/pdf/briefspdf/ebri_ib_422.mar16.rcs.pdf" target="_blank">no later than age 65</a>.</p> <p>The problem with that plan is that only those with born in 1937 or earlier have a full retirement age of 65. Your full retirement age is the age at which you first become entitled to full or unreduced retirement benefits from the Social Security Administration (SSA). Retiring earlier than your full retirement age decreases your retirement benefit from the SSA.</p> <p>For those born 1960 or later, full retirement age is 67. If this were your case, retiring at age 62 or age 65 would <a href="https://www.ssa.gov/planners/retire/retirechart.html#chart" target="_blank">decrease your monthly benefit</a> by about 30 percent or 13.3 percent, respectively. (See also: <a href="http://www.wisebread.com/13-crucial-social-security-terms-everyone-needs-to-know?ref=seealso" target="_blank">13 Crucial Social Security Terms Everyone Needs to Know</a>)</p> <h3>How to handle it</h3> <p>If you're one of the 84 percent of American workers expecting Social Security to be a source of income in retirement, then you need to keep track of your retirement benefits. There are two ways do this.</p> <p>First, since September 2014, the SSA mails Social Security statements to workers at ages 25, 30, 35, 40, 45, 50, 55, and 60 and over, who aren't yet receiving Social Security benefits and don't have an online &quot;my Social Security&quot; account. Here is a <a href="https://www.ssa.gov/myaccount/materials/pdfs/SSA-7005-SM-SI%20Wanda%20Worker%20Near%20retirement.pdf" target="_blank">sample of what those letters look like</a>. Second, you could sign up for a my Social Security account at <a href="http://www.ssa.gov/myaccount" target="_blank">www.ssa.gov/myaccount</a> and have access to your Social Security statement on an ongoing basis.</p> <p>Through either one of these two ways, you'll get an estimate of your retirement benefit if you were to stop working at age 62 (earliest age you're eligible to receive retirement benefits), full retirement age, and age 70 (latest age that you can continue delaying retirement to receive delayed retirement credits). That way you can plan ahead for when it would make the most sense to start taking your retirement credits.</p> <h2>3. Retirement accounts have fees</h2> <p>One of the most common myths about 401(k) plans is that they don't have any fees. The reality is that both you and your employer pay fees to plan providers offering and managing 401(k) plans. One study estimates that 71 percent of 401(k) plan holders <a href="http://www.aarp.org/work/retirement-planning/info-02-2011/401k-fees-awareness-11.html" target="_blank">aren't aware that they pay fees</a>.</p> <p>While an annual fee of 1 to 2 percent of your account balance may not sound like much, it can greatly reduce your nest egg. If you were to contribute $10,000 per year for 30 years in a plan with a 7 percent annual rate of return and an 0.5 percent annual expense ratio, you would end up with a balance of $920,000 at the end of the 30-year period. If the annual expense ratio were to increase to 1 percent or 2 percent, your final balance would be $840,000 or just under $700,000, respectively.</p> <h3>How to handle it</h3> <p>One way to start minimizing investment fees is to pay attention to the annual expense ratio of the funds that you select.</p> <ul> <li>When deciding between two comparable funds, choose the one with the lower annual expense ratio. Research has shown that funds with a lower expense ratio tend to better performers, so you would be minimizing fees <em>and </em>increasing your chances of higher returns.<br /> &nbsp;</li> <li>Explore index funds. For example, the Vanguard 500 Index Investor Shares fund [<a href="https://finance.yahoo.com/q?s=vfinx" target="_blank">Nasdaq: VFINX</a>] has an annual expense ratio of 0.14 percent, which is around 84 percent lower than the average expense ratio of funds with similar holdings. The Admiral version of this equity index fund has an even lower annual expense ratio of 0.05 percent.<br /> &nbsp;</li> <li>Check the prospectus of your funds for a schedule of fees. From redemption fees to 12b-1 fees, there are plenty of potential charges. Review the fine print of any fund that you're considering investing in and understand the rules to avoid triggering fees. For example, you may need to hold a fund for at least 65 days to prevent triggering a redemption fee. (See also: <a href="http://www.wisebread.com/watch-out-for-these-5-sneaky-401k-fees?ref=seealso" target="_blank">Watch Out for These 5 Sneaky 401(k) Fees</a>)</li> </ul> <h2>4. 401(k) loans are eating away nest eggs</h2> <p>According to the latest data from the EBRI, 23 percent of American workers <a href="https://www.ebri.org/pdf/briefspdf/ebri_ib_422.mar16.rcs.pdf" target="_blank">took a loan</a> from their retirement savings plans in 2016. On top of the applicable interest rate on your loan, you'll also be liable for an origination fee and an ongoing maintenance fee. Given that origination fees range from <a href="http://www.nber.org/papers/w17118.pdf" target="_blank">$25 to $100</a> and maintenance fees can go up to $75, 401(k) loans are one expensive form of financing. (See also: <a href="http://www.wisebread.com/5-questions-to-ask-before-you-borrow-from-your-retirement-account?ref=seealso" target="_blank">5 Questions to Ask Before You Borrow From Your Retirement Account</a>)</p> <p>Additionally, when you separate from your employer, the full unpaid balance is due within 60 days from your departure. If you don't pay back in time, that balance becomes taxable income, triggering potential penalties at the federal, state, and local level. One penalty that always applies is the 10 percent early distribution tax for retirement savers under age 59-1/2.</p> <h3>How to handle it</h3> <p>Don't borrow from your retirement account. Studies have shown that 401(k) borrowers tend to come back for additional loans, increasing their chances of default. One study found that 25 percent of 401(k) borrowers came back for a <a href="http://www.nytimes.com/2013/08/17/your-money/one-dip-into-401-k-savings-often-leads-to-another.html" target="_blank">third or fourth loan</a>, and 20 percent of 401(k) borrowers came back for <em>five </em>or more loans. Borrowing from your retirement account should be a very last-resort option because there are few instances when it's worth it. (See also: <a href="http://www.wisebread.com/this-is-when-you-should-borrow-from-your-retirement-account?ref=seealso" target="_blank">This Is When You Should Borrow From Your Retirement Account</a>)</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/how-to-face-4-ugly-truths-about-retirement-planning">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-traps-to-avoid-with-your-401k">7 Traps to Avoid With Your 401(k)</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-early-retirement-might-be-financially-risky">4 Reasons Early Retirement Might Be Financially Risky</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-tax-day-is-april-15-and-other-weird-financial-deadlines">Why Tax Day Is April 15 and Other Weird Financial Deadlines</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-inventor-of-the-401k-has-second-thoughts-about-your-retirement-plan-now-what">The Inventor of the 401K Has Second Thoughts About Your Retirement Plan — Now What?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-reasons-every-millennial-needs-a-roth-ira">6 Reasons Every Millennial Needs a Roth IRA</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) contributions employer match fees full retirement age loans nest egg social security ugly truths Fri, 07 Apr 2017 08:00:13 +0000 Damian Davila 1922316 at http://www.wisebread.com 7 Traps to Avoid With Your 401(k) http://www.wisebread.com/7-traps-to-avoid-with-your-401k <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-traps-to-avoid-with-your-401k" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-163904271.jpg" alt="Finding traps to avoid with your 401(k)" title="" class="imagecache imagecache-250w" width="250" height="142" /></a> </div> </div> </div> <p>More and more Americans are choosing an employer-sponsored 401(k) as their preferred way to build up their nest eggs. As of 2014, an estimated 52 million Americans were participating in a 401(k)-type plan.</p> <p>When used properly, a 401(k) can be a powerful tool to save for your retirement years, but there are a couple of crucial pitfalls that you have to watch out for. From high fees to limited investing choices, here is a list of potential downsides to 401(k) plans &mdash; and how to work around them.</p> <h2>1. Waiting to set up your 401(k)</h2> <p>Depending on the applicable rules from your employer-sponsored 401(k), you may be eligible to enroll in the plan within one to 12 months from your start date. If your eligibility kicks in around December, you may think that it's fine to wait until the next year to set up your retirement account.</p> <p>This is a big mistake for two main reasons.</p> <p>First, contributing to your 401(k) with pretax dollars allows you to effectively reduce your taxable income for the current year. In 2017, you can contribute up to $18,000 ($24,000 if age 50 or over) to your 401(k), so you can considerably reduce your tax liability. For example, if you were to contribute $3,000 between your last two paychecks in December, you would reduce your taxable income by $3,000. Waiting until next year to start your 401(k) contribution would mean missing out on a lower taxable income!</p> <p>Second, your employer can still contribute to your 401(k) next year and make that contribution count for the current year, as long as your plan was set up by December 31 of the current year. Your employer contributions have to be in before Tax Day or the date that you file your federal taxes, whichever is earlier.</p> <h3>How to work around it</h3> <p>If you meet the requirements to participate in your employer-sponsored 401(k) toward the end of the year, make sure to set up your account by December 31st. That way, you'll be ready to reduce your taxable income for the current year through your own contributions and those from your employer before their applicable deadline (December 31 and Tax Day or date of tax filing (whichever is earlier), respectively).</p> <h2>2. Forgetting to update contributions</h2> <p>When you set up your 401(k), you have to choose a percentage that will be deducted from every paycheck and put into your plan. It's not uncommon that plan holders set that contribution percentage and forget it. As your life situation changes, such as when you get a major salary boost, marry, or have your first child, you'll find that your contributions may be too big or too small. (See also: <a href="http://www.wisebread.com/5-times-its-okay-to-delay-retirement-savings?ref=seealso" target="_blank">5 Times It's Okay to Delay Retirement Savings</a>)</p> <h3>How to work around it</h3> <p>To keep a contribution level that is appropriate to your unique financial situation, revisit your percentage contribution every year and whenever you have a major life change. Don't forget to also check whether or not you elected an annual increase option &mdash; a percentage by which your contribution is increased automatically each year &mdash; and adjust it as necessary.</p> <h2>3. Missing out on maximum employer match</h2> <p>Talking about contributions, don't forget that your employer may contribute to your plan as well. In a survey of 360 employers, <a href="https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/bigger-401k-matches.aspx" target="_blank">42 percent of respondents</a> matched employee contributions dollar-for-dollar, and 56 percent of them only required employees to contribute at least 6 percent from paychecks to receive a maximum employer match.</p> <h3>How to work around it</h3> <p>Employers require you to work a minimum period of time before starting to match your contribution. Once you're eligible, meet the necessary contribution to maximize your employer match. One estimate puts the average missed employer contribution at $1,336 per year. This is free money that you can use to make up for lower contribution levels from previous months or years.</p> <h2>4. Sticking only with actively managed funds</h2> <p>When choosing from available funds in their 401(k) plan, account holders tend to focus on returns. There was a time in which actively managed funds were able to deliver on their promise of beating the market and delivering higher-than-average returns. That's why 401(k) savers often choose them.</p> <p>However, passively managed index funds &mdash; funds tracing an investment index, such as the S&amp;P 500 or the Russell 2000 &mdash; have consistently proven that they can beat actively managed funds. Over the five past years, only 39 percent of active fund managers were able to beat their benchmarks, which is often an index. That's why over the same period, investors have taken $5.6 billion out of active funds and dumped $1.7 trillion into passive funds.</p> <h3>How to work around it</h3> <p>Find out whether or not your 401(k) offers you access to index funds. Over a long investment period, empirical evidence has shown that index funds outperform actively managed funds. Review available index funds and choose the ones that meet your retirement strategy. (See also: <a href="http://www.wisebread.com/3-steps-to-getting-started-in-the-stock-market-with-index-funds?ref=seealso" target="_blank">3 Steps to Getting Started in the Stock Market With Index Funds</a>)</p> <h2>5. Chasing high returns instead of lower costs</h2> <p>When reading the prospectus of any fund, you'll always find a disclaimer warning you that past returns aren't a guarantee of future returns. So, why are you holding onto those numbers so dearly? As early as 2010, investment think tank Morningstar concluded that a fund's annual expense ratio is the only reliable indicator of future investment performance, even better than the research firm's well-known star rating.</p> <p>And guess what kind of funds have the lowest annual expense ratios? Index funds! For example, the Vanguard 500 Index Investor Shares fund [Nasdaq: <a href="https://finance.yahoo.com/quote/VFINX?p=VFINX" target="_blank">VFINX</a>] has an annual expense ratio of 0.16 percent, <a href="https://personal.vanguard.com/us/funds/snapshot?FundId=0040&amp;FundIntExt=INT" target="_blank">which is 84 percent lower</a> than the average expense ratio of funds with similar holdings. If your 401(k) gives you access to lowest cost <a href="https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&amp;FundId=0540" target="_blank">Vanguard Admiral shares</a>, you would shed down that annual expense ratio even further to 0.05 percent.</p> <h3>How to work around It</h3> <p>When evaluating a fund in your 401(k), look for comparable alternatives, including index funds. To maximize the growth of your nest egg, chase funds with lower annual expense ratios and investment fees. Regardless of their performance (which tends to be better anyway!), you'll minimize your investment cost. (See also: <a href="http://www.wisebread.com/watch-out-for-these-5-sneaky-401k-fees?ref=seealso" target="_blank">Watch Out for These 5 Sneaky 401(k) Fees</a>)</p> <h2>6. Not periodically rebalancing your portfolio</h2> <p>Even when choosing index funds, you still need to periodically adjust your portfolio. Let's assume that you follow this investment recommendation from Warren Buffett for your 401(k): <a href="http://www.berkshirehathaway.com/letters/2013ltr.pdf" target="_blank">90 percent in a low-cost index fund</a>, and 10 percent in government bonds. (See also: <a href="http://www.wisebread.com/the-5-best-pieces-of-financial-wisdom-from-warren-buffett?ref=seealso" target="_blank">The 5 Best Pieces of Financial Wisdom From Warren Buffett</a>)</p> <p>Depending on the market, your portfolio allocation may be way off as early as one quarter. If the S&amp;P 500 were to have a huge rally, you may now be holding 95 percent of your 401(k) in the index fund. That would be much more risk that you may be comfortable with, so you would need to take that 5 percent and put it back into government bonds. On the other hand, holding 85 percent in government bonds would make you miss your target return for that year. Forgetting to <a href="http://www.wisebread.com/the-most-important-thing-youre-probably-not-doing-with-your-portfolio?ref=internal" target="_blank">rebalance your portfolio</a> once a year when necessary is one easy way to derail your saving strategy.</p> <h3>How to work around it</h3> <p>Many 401(k) plans offer an automatic annual rebalancing feature. Review the fine print of this feature with your plan and decide whether or not it's suitable for you. If your plan doesn't offer an automatic rebalancing feature, choose a date that makes the most sense to you and set it as your day to rebalance your portfolio every year.</p> <h2>7. Taking out 401(k) loans</h2> <p>Treating your 401(k) as a credit card is a bad idea for several reasons. Doing this:</p> <ul> <li>Creates additional costs, such as origination and maintenance fees;<br /> &nbsp;</li> <li>Becomes due in full within 60 days of separating from your employer;<br /> &nbsp;</li> <li>Turns into taxable income when not paid back, triggering potential penalties from the IRS and state and local governments; and<br /> &nbsp;</li> <li>May quickly turn into a bad habit: <a href="http://www.nytimes.com/2013/08/17/your-money/one-dip-into-401-k-savings-often-leads-to-another.html" target="_blank">25 percent of 401(k) borrowers</a> go back for a third or fourth loan, and 20 percent of them take out at least five loans.</li> </ul> <h3>How to work around it</h3> <p>Treat your 401(k) as a last-resort source of financing. There are very few instances when you should <a href="http://www.wisebread.com/this-is-when-you-should-borrow-from-your-retirement-account?ref=internal" target="_blank">borrow from your retirement account</a>. Make sure that you go through all of your credit options and include the opportunity cost of foregoing retirement savings, including potential taxes and penalties, when comparing a 401(k) loan against another type of loan.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/7-traps-to-avoid-with-your-401k">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-face-4-ugly-truths-about-retirement-planning">How to Face 4 Ugly Truths About Retirement Planning</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-reasons-every-millennial-needs-a-roth-ira">6 Reasons Every Millennial Needs a Roth IRA</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-warren-buffett-says-you-should-invest-in-index-funds">Why Warren Buffett Says You Should Invest in Index Funds</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/15-retirement-terms-every-new-investor-needs-to-know">15 Retirement Terms Every New Investor Needs to Know</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-signs-your-retirement-is-on-track">8 Signs Your Retirement Is on Track</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) actively managed funds contributions employer match employment fees index funds loans rebalancing Thu, 23 Mar 2017 09:00:15 +0000 Damian Davila 1909973 at http://www.wisebread.com 8 Signs You're Paying Too Much for Your Mortgage http://www.wisebread.com/8-signs-youre-paying-too-much-for-your-mortgage <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-signs-youre-paying-too-much-for-your-mortgage" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-495980844.jpg" alt="Learning signs that you&#039;re paying too much for your mortgage" title="" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>Buying a home can be a great step along the path to financial freedom, but it can also become a burden if you're not careful. A mortgage can be a heavy weight on your finances if you either buy a house you can't afford, or get locked into unfavorable loan terms.</p> <p>Here's how to tell if your mortgage is too expensive.</p> <h2>1. You Are Having Trouble Making Ends Meet</h2> <p>No matter what you do, you feel like you're struggling to get ahead financially. It always seems like there's only a small amount leftover at the end of each month to pay bills or place into savings. It could be that your house is weighing you down. If you're working too hard to get ahead with your money, it may be time to <a href="http://www.wisebread.com/refi-shy-how-to-determine-if-now-is-the-time-to-refinance?ref=internal" target="_blank">refinance your mortgage</a> or move into a less expensive home.</p> <h2>2. It's Eating Up More Than 30% of Your Income</h2> <p>The federal government advises that homeowners should avoid paying more than 30% of their income on housing. The theory behind this number is that for most people, keeping payments below this level will leave them with enough to pay for other non-discretionary spending. Keep in mind that many lenders will approve prospective homeowners for a loan even if their payments would be above that 30% threshold. Lenders will often instead refer to a person's &quot;debt-to-income&quot; ratio, and will lend if that ratio is as high as 43% &mdash; and banks went even higher during the housing bubble.</p> <p>Even if you are comfortably able to make your mortgage payments, it's wise to try and get under the 30% threshold. After all, more money in your pocket means more money to take care of your other financial obligations, invest for the future, or simply enjoy life.</p> <h2>3. Your Interest Rate Is Higher Than Everyone Else's</h2> <p>It's very easy to get a fixed-rate mortgage, make the payments, and not concern yourself with how interest rates are going up and down. But you never want to be locked into a higher rate than necessary. If you bought your home more than a decade ago, chances are your interest rate is higher than what's available now. The rate on a 30-year fixed rate mortgage is a little over 4% right now. If your rate is considerably higher, look to refinance and see what you can save.</p> <h2>4. You Are Barely Making a Dent in the Loan Principal</h2> <p>You've been making mortgage payments for years, but every time you look at your account statement, it seems like the principal balance barely budges. What gives? It's normal to pay mostly interest when you first get a loan, but over time your money should increasingly go toward paying off principal. If you find that you're not paying down the loan as quickly as you want, it could be because your interest rate is too high or your term is too long (or both.)</p> <h2>5. Your Income Has Gone Up</h2> <p>When you bought your house, your interest rate was based at least partially on your household income. But if you've received multiple pay raises since, you might qualify for a lower rate. Or, you may be able to refinance into a shorter loan term, thus saving you money in interest over time.</p> <h2>6. Your Credit Score Has Improved</h2> <p>A mortgage interest rate is also partially based on a homeowner's credit score when they apply for a loan. If your credit score was mediocre back then, there's a chance you got stuck with a high rate. If you've worked hard to be financially responsible ever since, your credit score may be much higher. Thus, you may be able to refinance your mortgage into a lower rate. According to FICO, a person with a credit score of 650 might pay as much as $100 more per month on a $200,000, 30-year fixed loan than someone with a score of 800. That could add up to tens of thousands of dollars over the course of a loan. (See also: <a href="http://www.wisebread.com/7-easy-ways-to-raise-your-credit-score-this-year?ref=seealso" target="_blank">7 Easy Ways to Raise Your Credit Score This Year</a>)</p> <h2>7. Your ARM Just Adjusted</h2> <p>During the housing bubble, many homeowners were lured into adjustable rate mortgages that offered low interest rates initially and then jumped after a certain number of years. (In 2005, these loans made up nearly 40% of the mortgage market.) Many families saw their payments increase sharply and beyond what they could afford. If you currently have an adjustable rate mortgage, make sure you are prepared to make payments once the interest rate adjusts upward. Otherwise, consider refinancing to a fixed mortgage with a low rate.</p> <h2>8. You Are Paying for Mortgage Insurance</h2> <p>Many lenders require borrowers to pay <a href="http://www.wisebread.com/what-is-private-mortgage-insurance-anyway?ref=internal" target="_blank">private mortgage insurance</a> (PMI) if they put less than 20% down on a home. This is to protect the lender if a home ends up in foreclosure. Mortgage insurance essentially adds to your cost of homeownership, often to the tune of hundreds of dollars annually. This requirement goes away once your principal balance drops below 78%. Ideally, you want to avoid paying PMI altogether by putting more than 20% down. This also means you're borrowing less overall and will save money in the long run. But if you can't quite save that much up front, work aggressively toward paying off your loan so you can get rid of the PMI requirement sooner.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/8-signs-youre-paying-too-much-for-your-mortgage">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-build-equity-in-your-home">How to Build Equity in Your Home</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-biggest-regrets-of-new-homeowners">8 Biggest Regrets of New Homeowners</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/do-you-really-need-a-20-percent-down-payment-for-a-house">Do You Really Need a 20 Percent Down Payment for a House?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-qualify-for-a-mortgage-with-a-small-downpayment">5 Ways to Qualify for a Mortgage With a Small Downpayment</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-is-private-mortgage-insurance-anyway">What Is Private Mortgage Insurance, Anyway?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing adjustable rate down payment fixed rate interest loans mortgage pmi private mortgage insurance saving Fri, 10 Mar 2017 10:00:23 +0000 Tim Lemke 1902766 at http://www.wisebread.com How to Protect Yourself From Predatory Lending http://www.wisebread.com/how-to-protect-yourself-from-predatory-lending <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-protect-yourself-from-predatory-lending" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-479413254_0.jpg" alt="Man learning how to recognize predatory lending" title="" class="imagecache imagecache-250w" width="250" height="142" /></a> </div> </div> </div> <p>Predatory lending has long been a problem for consumers. There is no exact definition of a predatory lender, but in general, these lenders either try to overcharge consumers for loans, or talk them into riskier loans that come with higher interest rates. Predatory lenders have one goal: They want to make as much money as possible on their loans, regardless of whether the loan product actually makes financial sense for the consumers.</p> <p>How, exactly, do people fall for this? It's actually not surprising when you understand the degree of manipulation predatory lenders will use. By targeting mainly elderly, low-income, or simply uninformed victims, these financial predators bank on convincing folks with poor or no credit that they have no other options for obtaining financing.</p> <p>If you don't fit the above criteria, don't think you're completely off their radar, either. Should you ever lose your job, need cash for an emergency, or suddenly find yourself facing steep medical bills, you just might be the next target of a predatory lender.</p> <p>Worried that a predatory lender might have targeted you? Here are the warning signs.</p> <h2>The Lender Wants You to Sign Now</h2> <p>Honest lenders will never pressure you to sign loan documents before you are comfortable. Legitimate lenders give you time to study the paperwork and research the fees and rates associated with the loan.</p> <p>Predatory lenders want you to sign paperwork as quickly as possible. That way, they can stick you with their high-cost loans before you have the chance to research lower-cost alternatives. Never do business with a lender who pressures you to act quickly. The odds are high that such a lender is a predator.</p> <h2>The Interest Rate Suddenly Rises</h2> <p>Predatory lenders like to entice new customers by advertising below-market interest rates on their websites or print ads. But when you actually call these lenders, you're told that you don't qualify for these low rates. Once these lenders have you on the phone, they'll try to convince you to sign up for a loan with a far higher rate.</p> <p>Don't fall for this trick. Companies that advertise interest rates that are far lower than their competitors are usually not trustworthy. The odds are high that these are predatory lenders trying to trick gullible borrowers.</p> <h2>They Tell You Not to Worry About Your Credit Score</h2> <p>Legitimate lenders rely heavily on your FICO credit score to determine if you should qualify for a loan and at what interest rate. This score tells lenders how well you've paid your bills in the past.</p> <p>Beware of lenders who say that your credit score doesn't matter or that they can approve you for a loan no matter how low your score is. Lenders who make these promises will charge you sky-high interest rates because they know that you're desperate for a loan. You're much better off working to <a href="http://www.wisebread.com/how-to-use-credit-cards-to-improve-your-credit-score?ref=internal" target="_blank">improve your credit score</a> than taking out a costly high-interest-rate loan. Pay all your bills on time and pay down as much of your credit card debt as possible. Slowly, but steadily, your credit score will start to rise, and you can avoid the high rates of predatory lenders. (See also: <a href="http://www.wisebread.com/5-ways-to-pay-off-high-interest-credit-card-debt?ref=seealso" target="_blank">5 Ways to Pay Off High Interest Credit Card Debt</a>)</p> <h2>The Lender Asks You to Lie</h2> <p>Making false claims about your income or debt on a loan application is a crime, and you could face significant fines if you do. Predatory lenders, though, might encourage you to inflate your income or provide other false information.</p> <p>Ignore this temptation. No legitimate lender will ask you to lie on an application. Instead, lenders will take extra steps to make sure that the information you do provide on an application is true. For instance, they'll ask you to provide copies of your most recent paycheck stubs, bank account statements, and tax returns to verify your income.</p> <h2>Your Lender Tries to Talk You Into a Riskier Loan</h2> <p>Be careful if your lender continues to push a loan that sounds risky. Maybe you want to apply for a fixed-rate loan with a term of 15 or 30 years. If your lender pressures you to instead apply for an interest-only loan with a balloon payment &mdash; or something equally as complicated or risky &mdash; walk away. Legitimate lenders will never try to talk you into a loan that you don't want.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/how-to-protect-yourself-from-predatory-lending">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-the-age-of-your-credit-history-matters">Why the Age of Your Credit History Matters</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-you-shouldnt-panic-if-your-credit-score-drops">Why You Shouldn&#039;t Panic If Your Credit Score Drops</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-surprising-ways-revolving-debt-helps-you">5 Surprising Ways Revolving Debt Helps You</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-avoid-a-sweetheart-scam">How to Avoid a &quot;Sweetheart Scam&quot;</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-surprising-things-lenders-check-besides-your-credit-score">4 Surprising Things Lenders Check Besides Your Credit Score</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Consumer Affairs credit score interest rates lies loans manipulation predatory lending risk scams warning signs Tue, 07 Mar 2017 10:31:34 +0000 Dan Rafter 1901334 at http://www.wisebread.com Why the Age of Your Credit History Matters http://www.wisebread.com/why-the-age-of-your-credit-history-matters <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/why-the-age-of-your-credit-history-matters" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-472468032.jpg" alt="the age of your credit history" title="" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>A healthy credit score shouldn't be underestimated.</p> <p>This three-digit number plays a pivotal role in your financial life, including whether or not you'll qualify for auto loans, mortgages, or credit cards, and if so, what interest rates you'll pay. It can even affect your career, particularly if it's in the finance field: A brokerage firm isn't likely to hire a candidate they suspect isn't good with money. (See also: <a href="http://www.wisebread.com/15-surprising-ways-bad-credit-can-hurt-you?ref=seealso" target="_blank">15 Surprising Ways Bad Credit Can Hurt You</a>)</p> <p>Given how much weight your credit score carries, you should do everything within your power to maintain a high score. Yet, before you can maintain a good score, you have to understand the components that make up your credit score.</p> <h2>What Makes Up Your Credit Score</h2> <p>Credit scores aren't determined by a single factor, but rather multiple factors. Once you open a credit account, your creditors report account activity to the credit bureaus on a regular basis. The bureaus compile data related to your accounts, and based on reported information, the bureaus formulate a credit score.</p> <p>It probably comes as no surprise that your payment history and the amounts you owe have a tremendous impact on your personal score. Your payment history makes up 35% of your score, while the amount you owe makes up 30% of your score. If you pay your bills on time, avoid delinquencies, and keep your balances within a reasonable range, you'll eventually build up to a solid score.</p> <p>But even when you take these measures, good credit doesn't happen overnight. Because there's another factor that contributes to your overall score: When credit bureaus formulate credit scores, they also take into account the <em>age </em>of your credit history.</p> <p>The age or length of your credit history &mdash; which makes up 15% of your credit score &mdash; doesn't have as big an impact on your score as your payment history and amounts owed. Still, you shouldn't downplay the importance of credit age.</p> <h2>How Credit Age Relates to Credit Risk</h2> <p>Most of us rely on credit for an auto loan, a house, and a credit card. Even so, being a creditor is risky business, and banks don't arbitrarily approve credit applications. They consider several factors before approving financing, such as your income and your credit score. Even if you have adequate income and pay your bills on time, the bank might reject your application if you don't meet the minimum credit score requirement for a loan. This can happen if you have a young credit history. (See also: <a href="http://www.wisebread.com/why-you-need-credit-and-how-to-build-it-from-scratch?ref=seealso" target="_blank">How to Build Your Credit From Scratch</a>)</p> <p>The age of credit history affects overall scores because a longer history provides a better assessment of risk level. Credit age takes two elements into consideration: the age of your oldest account, and the average age of all your accounts. The longer accounts remain open, the more your credit matures. And as your credit matures, credit scoring models slowly add points to your score.</p> <p>To illustrate, if you've had a credit history for the past six years with no negative activity appearing on your credit report, credit bureaus evaluate your entire borrowing pattern, and based on your history and record, deem you a responsible borrower. This is a fairly accurate assessment given the length of credit history. As a responsible borrower, you're rewarded with additional credit score points.</p> <p>But let's say you've only had a credit file for six months or a year. Given your short credit history, credit bureaus can't accurately rate creditworthiness. Despite paying your bills on time, you don't have a long borrowing track record. There just isn't enough evidence to gauge how well you manage credit &mdash; this happens with time. You have a short credit history, and unfortunately, your credit score pays the price. The good news, however, is that this is a temporary problem.</p> <h2>What Can You Do?</h2> <p>Credit scores range from 300 to 850. If you're aiming for a <a href="http://www.wisebread.com/5-ways-life-is-amazing-with-an-800-credit-score?ref=internal" target="_blank">perfect credit score</a>, understand that it takes years of responsible credit habits to achieve. It doesn't matter how well you manage your credit accounts in the first one or two years, you probably won't have as high of a credit score as someone who's had A+ credit for eight or nine years &mdash; but you can get there.</p> <p>Remember, your payment history and the amount you owe make up 35% and 30% of your credit score, respectively. So while your credit score might be low due to a short credit history today, keeping your credit card balances low and making timely monthly payments will gradually increase your score. (See also: <a href="http://www.wisebread.com/how-to-use-credit-cards-to-improve-your-credit-score?ref=seealso" target="_blank">How to Use Credit Cards to Improve Your Credit Score</a>)</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/mikey-rox">Mikey Rox</a> of <a href="http://www.wisebread.com/why-the-age-of-your-credit-history-matters">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-protect-yourself-from-predatory-lending">How to Protect Yourself From Predatory Lending</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/heres-why-credit-scores-and-reports-are-not-the-same">Here&#039;s Why Credit Scores and Reports Are Not the Same</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-you-shouldnt-panic-if-your-credit-score-drops">Why You Shouldn&#039;t Panic If Your Credit Score Drops</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-surprising-ways-revolving-debt-helps-you">5 Surprising Ways Revolving Debt Helps You</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-why-youre-too-old-or-too-young-for-a-mortgage-loan">4 Reasons Why You&#039;re Too Old — Or Too Young — For a Mortgage Loan</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance age credit bureaus credit history credit score interest rates loans on time payments risk Tue, 07 Mar 2017 10:01:04 +0000 Mikey Rox 1901331 at http://www.wisebread.com Why You Shouldn't Panic If Your Credit Score Drops http://www.wisebread.com/why-you-shouldnt-panic-if-your-credit-score-drops <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/why-you-shouldnt-panic-if-your-credit-score-drops" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/woman_shocked_bills_183361464.jpg" alt="Woman learning not to panic after a credit score drop" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Credit scores matter &mdash; in a big way. Mortgage lenders rely on these numbers to determine who qualifies for home loans and at what interest rates. You'll struggle to <a href="http://www.wisebread.com/5-best-credit-cards-for-people-with-excellent-credit?ref=internal">qualify for the best credit cards</a> if your score is too low. And getting an auto loan? A low score will leave you again with higher interest rates, if you can find financing at all.</p> <p>So what if your credit score takes a fall? First, don't panic. Second, it's time to take the steps necessary to <a href="http://www.wisebread.com/how-to-rebuild-your-credit-in-8-simple-steps?ref=internal">boost your score</a>.</p> <h2>How Scores Work</h2> <p>Before panicking over a credit score drop, it's important to learn how scores work.</p> <p>The most important credit score is your FICO credit score. Generally, lenders consider a FICO score of 740 or more to be in the top range. But if your score is under 640, you'll struggle to qualify for mortgage or auto loans. And when you do qualify, you'll pay high interest rates because lenders view you as a risky borrower.</p> <p>Your credit score is a quick representation of how well you've handled your credit in the past. If you have a history of mailing in credit card payments late, your score will fall. If you've missed payments on your auto loan in the recent past, your score will, again, take a tumble. A large amount of credit card debt could hurt your score, too. (See also: <a href="http://www.wisebread.com/this-one-ratio-is-the-key-to-a-good-credit-score?ref=seealso">The Most Important Ratio That Determines Your Credit Score</a>)</p> <p>If you instead have a history of paying your bills on time and have a manageable amount of credit card debt, you should have a solid FICO credit score.</p> <h2>Checking Your Score</h2> <p>You can order one free copy of each of your three credit reports &mdash; maintained by the national credit bureaus of TransUnion, Experian, and Equifax &mdash; each year from AnnualCreditReport.com. This report will list your credit card, auto, mortgage, and other open accounts. It will also list any of your missed or late payments from the last seven years.</p> <p>This is important information to have: It can tell you quickly why your credit score might be lower than you thought. A single missed or late payment can drop your credit score by more than 100 points.</p> <p>But a credit report doesn't list your credit score. To get your score, you'll usually have to pay. You can spend about $15 to order your FICO credit score from Experian, Equifax, or TransUnion. Each of the scores from these credit bureaus might be slightly different, but they should all be fairly similar.</p> <p>Your credit card provider might <a href="http://www.wisebread.com/the-5-best-credit-cards-that-offer-free-credit-scores?ref=internal">provide your credit score</a> with each bill it sends you, too. A growing number of card providers are doing this. Be careful, though: This score might not be your official FICO score, but instead an alternative score. These alternative scores do generally sync up with what your actual FICO score might be, but it's best to order your FICO score if you want to see the same credit score that mortgage and auto lenders will see.</p> <h2>If Your Score Has Dropped</h2> <p>What if your score has taken a fall since the last time you reviewed it? What if it's much lower than you expected?</p> <p>Again, this is not the time to panic. It's the time to act.</p> <p>First, try to determine <a href="http://www.wisebread.com/10-surprising-ways-to-negatively-affect-your-credit-score?ref=internal">why your score might have fallen</a>. Some reasons are obvious: If you forgot to pay your auto loan earlier this year or if you sent in a credit card payment more than 30 days late, your score could dip by 100 points or more. But smaller dips &mdash; ranging from 10 to 60 points or so &mdash; can be the result of less obvious financial missteps.</p> <p>Did you close a credit card lately? You might think that's a smart financial move. After all, once you've paid off a credit card account, you don't want to run up its balance again. By closing it, that can't happen.</p> <p>But closing a credit card can ruin something called your <em>credit utilization ratio</em>. This ratio measures how much of your available credit you are using at any one time. Using too much of your available credit can cause your FICO score to fall. Closing an open credit card account can immediately weaken this ratio. (See also: <a href="http://www.wisebread.com/5-times-its-okay-to-close-a-credit-card?ref=seealso">5 Times It's Okay to Close a Credit Card</a>)</p> <p>Here's an example: Say you have three credit cards all with an available credit limit of $3,000. This gives you a total available credit of $9,000. Say you also have $3,000 worth of credit card debt. You are now using 33% of your available credit.</p> <p>If you close one of those cards, you'll immediately lower the amount of credit available to you by $3,000, from $9,000 to $6,000. If you have the same $3,000 of credit card debt, you are now using 50% of your available credit, for a significantly higher credit utilization ratio.</p> <p>Another reason for a sudden fall in your FICO credit score: Have you been applying for several new credit cards? If you are, your score can fall. Every time you apply for a new form of credit, something called an <em>inquiry </em>is filed on your credit report. Each inquiry can cause your credit score to fall by a small amount, maybe one to five points. If you make several inquiries for new credit at the same time, this can cause a bigger drop to your score.</p> <p>The good news is that inquiries don't always hurt your score by much. Say you are ready to apply for a mortgage loan and you are shopping around with different mortgage lenders. Each of these lenders will run a credit check on you. Each of the inquiries that these lenders make, though, will be counted as just one total inquiry. That's because you are applying for one mortgage loan, not several new credit cards.</p> <h2>Fixing a Drop</h2> <p>Once you determine why your credit score has fallen, it's time to fix the problem.</p> <p>Realize, though, that if your score has fallen significantly from a missed or late payment, it will take time to recover. Pay your bills on time and cut back on your credit card debt. Do this for a long enough period of time &mdash; several months, maybe a year or longer &mdash; and your FICO credit score will steadily improve. (See also: <a href="http://www.wisebread.com/7-ways-to-increase-your-credit-score-quickly?ref=seealso">How to Improve Your Credit Score Quickly</a>)</p> <p>If your score has fallen by a smaller amount, say 10 to 50 points, your recovery period will be shorter. Often, these drops will fix themselves. Pay down a good chunk of your credit card debt &mdash; without closing any credit card accounts &mdash; and your score should improve. Keep paying your bills on time every month, and, again, your score will rise.</p> <p>There are no quick fixes for drops in your credit score. But there are also no scores that can't be rebuilt. All it requires is patience, a willingness to <a href="http://www.wisebread.com/fastest-way-to-pay-off-10000-in-credit-card-debt?ref=internal">pay down large amounts of credit card debt</a> and a vow to pay all of your bills on time every month.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/why-you-shouldnt-panic-if-your-credit-score-drops">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-surprising-things-lenders-check-besides-your-credit-score">4 Surprising Things Lenders Check Besides Your Credit Score</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/heres-why-credit-scores-and-reports-are-not-the-same">Here&#039;s Why Credit Scores and Reports Are Not the Same</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-the-age-of-your-credit-history-matters">Why the Age of Your Credit History Matters</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-surprising-ways-revolving-debt-helps-you">5 Surprising Ways Revolving Debt Helps You</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-protect-yourself-from-predatory-lending">How to Protect Yourself From Predatory Lending</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance credit history credit score FICO score interest rates loans qualifying Thu, 15 Dec 2016 10:00:09 +0000 Dan Rafter 1852821 at http://www.wisebread.com Earn More Interest by Reducing Savings Friction http://www.wisebread.com/earn-more-interest-by-reducing-savings-friction <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/earn-more-interest-by-reducing-savings-friction" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/woman_shopping_phone_513937132.jpg" alt="Woman earning more interest by reducing savings friction" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Friction is the small resistance that stands between you and a transaction. Think of the way your favorite e-tailers remember your credit card information, saving you the hassle of having to get up, find your wallet, and type in your information. Those e-tailers are reducing the friction of your purchase, making it that much more likely for you to buy.</p> <h2>Transaction Costs</h2> <p>We've talked before about how friction is another term for <a href="http://www.wisebread.com/save-more-and-spend-less-by-increasing-your-mental-transaction-costs">mental transaction costs</a>. These are the nonfinancial costs associated with making a purchase or transferring money to a savings account. There are several types of transaction costs that increase friction, but the two that are most likely to affect your ability to save money and control your spending are time costs, and search and information costs.</p> <h3>Time Costs</h3> <p>Any time you have abandoned a purchase in the store because the checkout line was too long and you were unwilling to wait for the slow-as-molasses staff to help you, then you have felt the impact of <em>time costs</em>. Time costs can keep you from saving money because you are unwilling to put in the time to manually transfer the funds.</p> <h3>Search and Information Costs</h3> <p><em>Search and information costs</em>are the work you do to figure out the best course of action for your money. If you have to think about what kind of savings product to use or how much money to transfer to savings, then you are less likely to actually save the money.</p> <p>Friction can help or hurt your bottom line, depending on what type of transaction is affected by it. In general, you want to reduce the friction you feel when you save money, and increase the friction you feel when you spend it. Read on to find ways to use friction to your advantage to increase your savings and reduce your spending.</p> <h2>1. Automate Your Savings</h2> <p>The ultimate way to reduce friction when you save money is to make it automatic. Setting up an automatic transfer from your paycheck into your savings account means that you don't have to think about putting the money aside, find the time to set up the transfer, or agonize about the amount to save. It's a seamless transfer of your money to savings.</p> <h2>2. Move Your Savings Account to Another Bank</h2> <p>For some savers, putting money aside is no problem. The issue is that it's far too easy to access that money. Increase the friction involved in accessing the money in your savings account by opening an account with another bank &mdash; preferably one with no branches near you. Generally, it will take a couple of days for a fund transfer between banks, whereas a transfer within a bank is instantaneous. The time cost of waiting for your savings to transfer from the inconveniently located bank to your checking account will be enough friction to keep you from raiding your savings.</p> <h2>3. Have Your Paycheck Deposited Into Your Savings Account</h2> <p>Many prolific savers put their pay directly into their savings account and then transfer the amount they need for monthly bills into checking. This harnesses both the reduction in savings friction, and the increase in spending friction. Since the money is already deposited into your savings account, there is no friction on that portion of the transaction. Placing the friction on the transfer-to-checking side of the equation allows you to keep more money in savings and lessen the chances that you will spend your money mindlessly.</p> <h2>4. Use an Automatic Savings App to Round Up Your Purchases</h2> <p>Starting with Bank of America's Keep the Change program, which launched back in 2005, technology has been working hard to remove the friction from your savings habit by making it automatic. There are now a slew of different automatic savings apps that do everything from rounding up your purchases and placing the excess into savings (Bank of America's <a href="https://www.bankofamerica.com/deposits/manage/keep-the-change.go">Keep the Change</a> and <a href="https://www.acorns.com/">Acorns</a>), to analyzing your cash flow to determine an amount that's safe to transfer to savings (<a href="https://digit.co/">Digit</a>), to letting you know the amount of money that is still safe to spend in your account (<a href="https://www.getpennies.com/">Pennies</a> and <a href="https://www.levelmoney.com/">Level</a>).</p> <h2>5. Bill Yourself for Savings</h2> <p>If you already have a solid bill-paying routine in place, add one more obligation to your list: yourself. Making &quot;savings&quot; a bill can actually reduce your savings friction because you will complete the action while you are already paying all your other bills. Set up a bill reminder to transfer money to savings on the same day you pay your other regular bills. It will be surprisingly easy to pay yourself if you treat it like a bill.</p> <h2>6. Continue Making Payments on Your Paid Off Loans</h2> <p>Once you have finally sent your lender the last payment for your car loan, your student loan, or your credit card balance, it may be tempting to just enjoy the extra money each month. But a savvier plan would be to continue paying that amount to yourself. As you come to the end of your loan, set up an automatic transfer of the payment amount into your savings account on the same day of the month you paid your loan. That will reduce the friction of saving the amount, because you will not even notice a difference in your monthly spending.</p> <h2>Harnessing Friction for the Win</h2> <p>It is truly amazing how unmotivated we all can be in the face of transaction friction. Increasing your savings and reducing your spending is just a matter of strategically tweaking the friction you will feel when you save or spend money.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/emily-guy-birken">Emily Guy Birken</a> of <a href="http://www.wisebread.com/earn-more-interest-by-reducing-savings-friction">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/these-apps-turn-saving-money-into-a-game-are-they-worth-it">These Apps Turn Saving Money Into a Game — Are They Worth It?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/everyones-using-spare-change-apps-are-they-really-worth-it">Everyone&#039;s Using Spare Change Apps — Are They Really Worth It?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-surprising-ways-summer-will-cost-you">7 Surprising Ways Summer Will Cost You</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-money-saving-habits-you-should-never-apologize-for">10 Money-Saving Habits You Should Never Apologize For</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-ways-for-college-students-to-save-loads-of-money">10 Ways for College Students to Save Loads of Money</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Frugal Living apps automating savings friction loans saving money search and information costs time costs Mon, 28 Nov 2016 11:00:09 +0000 Emily Guy Birken 1839211 at http://www.wisebread.com How to Manage Your Money During a Spousal Separation http://www.wisebread.com/how-to-manage-your-money-during-a-spousal-separation <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-manage-your-money-during-a-spousal-separation" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/rope_cash_stretched_23510828.jpg" alt="Learning how to manage your money during a spousal separation" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>When your marriage isn't working out, a separation might be in order. While you might not be certain whether you'll reconcile or move forward with a divorce, there is still an important matter that needs to be addressed together &mdash; your finances.</p> <p>Dealing with finances in a separation can be messy and lead to a lot of arguments. Use these tips to help you and your spouse manage your money during a difficult time.</p> <h2>1. Don't Be Afraid to Get Help</h2> <p>If you and your spouse cannot sit down and talk about your finances without raising your voice, then seek help. A marriage counselor can help you hear each other out and keep the room calm.</p> <p>Talking with a family law attorney can help you understand how costly a divorce can be and give you both a better idea of where you would be financially if you made your split official.</p> <p>Finally, a financial adviser can provide insight on the ramifications of separation and divorce. The goal is to leave both of you in a stable financial situation if you do make your split final. Look for a financial adviser that has some experience dealing with separation or divorce cases. (See also: <a href="http://www.wisebread.com/5-money-moves-to-make-the-moment-you-decide-to-get-divorced?ref=seealso">5 Money Moves to Make the Moment You Decide to Get Divorced</a>)</p> <h2>2. Establish a New Budget</h2> <p>It is important to establish a new budget together. For couples without children, this should be relatively easy. You should each be responsible for half of all shared bills, and agree to take care of your own food and shopping needs.</p> <p>When children are involved or when one spouse does not earn income, then establishing a new budget can be tricky. You have to both admit that you cannot enjoy the same luxuries during this time of separation. Basic bills need to be paid, and of course, all of your children's needs should be met.</p> <h2>3. Aim for Financial Independence</h2> <p>Close as many accounts possible that contain both of your names. If you pay off and cancel credit cards in both of your names, it can protect you from taking on further debt if you move forward with divorce.</p> <p>Having separate checking accounts can also make life easier. If both of you earn a paycheck, set up direct deposit into each of your own accounts.</p> <h2>4. Deal With Mutual Debt</h2> <p>If you decide to move forward with a divorce, know that your debt might be split down the middle along with your assets. Any debt, including student loan debt that was taken on after saying &quot;I do,&quot; is considered mutual property. This means you can get stuck paying off debt that your spouse essentially racked up.</p> <p>While you are still together, make it a goal to tackle your debt. Agree on an amount that each of you should pay toward the debt each month. If money is tight, try putting saving goals on hold for a few months.</p> <p>If managing mutual debt payments is becoming a hard task for you, both of you can apply for a free or low-fee <a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards?ref=internal">balance transfer card</a> to split up the debt in your own name. You can do this with a personal loan, as well. The point is to split the debt and put it in each of your names so that you can eventually close out accounts that are in your shared name. This can prevent your spouse overusing a credit card for revenge purchases.</p> <h2>5. What About the House?</h2> <p>If your house is too expensive for either of you to keep separately, then you need to consider selling it. Taking your home into a divorce can be messy and complicated. A divorce can also put a tight deadline on both of you to sell your home, causing you to get less than the full value for it.</p> <p>If you cannot sell your home for the value of the property, try renting it out to pay the mortgage payments. This can take a huge burden off your shared financial situation and you can wait to sell at a better time. If you end up staying together, your home is still there for you to live in.</p> <p>If you both want to live in the house while separated, then you need to know your state's laws. When you file for a divorce, you will need to establish a point of separation. Some states count that point as when one spouse announces they want to pursue divorce, while other states require proof of living separately. (See also: <a href="http://www.wisebread.com/heres-what-happens-to-a-mortgage-in-a-divorce?ref=seealso">Here's What Happens to a Mortgage in a Divorce</a>)</p> <p>Nothing about separation or divorce is ever simple. Every couple's situation will be different based on finances and personalities. Dealing with a hard spouse is not easy, but going through a divorce isn't always the quick fix that it appears to be, either.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/ashley-eneriz">Ashley Eneriz</a> of <a href="http://www.wisebread.com/how-to-manage-your-money-during-a-spousal-separation">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-reasons-average-people-should-consider-a-prenup">6 Reasons Average People Should Consider a Prenup</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/11-secrets-you-need-to-tell-your-financial-adviser">11 Secrets You Need to Tell Your Financial Adviser</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/reach-your-money-goals-faster-with-a-simple-naming-trick">Reach Your Money Goals Faster With a Simple Naming Trick</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-money-moves-to-make-the-moment-you-decide-to-get-divorced">5 Money Moves to Make the Moment You Decide to Get Divorced</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/does-divorce-affect-your-student-loans">Does Divorce Affect Your Student Loans?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Family advisers budgeting counselors debt divided assets divorce financial help loans marriage separation Fri, 11 Nov 2016 10:00:08 +0000 Ashley Eneriz 1830852 at http://www.wisebread.com Does Divorce Affect Your Student Loans? http://www.wisebread.com/does-divorce-affect-your-student-loans <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/does-divorce-affect-your-student-loans" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/broken_heart_cash_25865628.jpg" alt="Learning if divorce affects your student loans" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Going through a divorce can get messy, especially when there are a lot of assets to divide and financial matters to take care of. Even worse, couples often forget that debts &mdash; and not just assets &mdash; must often be split. And student loan debt can be especially hairy. Understanding the ramifications of divorce on student debt is essential to negotiating a mutually beneficial split. (See also: <a href="http://www.wisebread.com/heres-what-happens-to-a-mortgage-in-a-divorce?ref=seealso">Here's What Happens to a Mortgage in a Divorce</a>)</p> <h2>When Did You Take on the Debt?</h2> <p>If you took on your student loan before marriage, then the debt is considered separate property, and you are solely responsible for it. Similarly, you won't be held responsible for any debt taken out by your spouse before marriage.</p> <p>However, if you or your spouse took on student <a href="https://www.nolo.com/legal-encyclopedia/debt-marriage-owe-spouse-debts-29572.html">loan debt while married</a>, then the debt is considered your shared property. As a matter of fact, any debt taken on in a marriage is considered shared property, including the following:</p> <ul> <li>Mortgages</li> <li>Car loans</li> <li>Personal loans</li> <li>Sometimes business loans</li> <li>Credit card debt</li> </ul> <h2>It All Depends on Your State's Laws</h2> <p>Many states are <a href="https://en.wikipedia.org/wiki/Community_property">community property states</a>, which means everything is split down the middle. If you live in a community property state, the student loan debt (along with all other debt) will be split 50-50. Even if one party will suffer financial hardships from the split debt, the court will still hold them liable for half of it.</p> <p>Of course, it is the court's discretion how they split marital property, and each state has unique rules in place. In <a href="https://www.legalzoom.com/knowledge/divorce/topic/equitable-distribution-community-property">equitable distribution states</a>, such as New York, each divorce is weighed differently. According to The Wall Street Journal, &quot;If it seems like one spouse will have high income after a divorce and another will struggle to make debt payments, the higher earner may end up having to fork over some <a href="http://www.wsj.com/articles/SB10001424052702304626804579363253873904162">temporary spousal support</a> to cover the ex's debt payments.&quot;</p> <h2>Consolidated Student Loans</h2> <p>Before 2006, married couples were able to consolidate their loans. Many couples did this to get a lower interest rate and save money &mdash; but for couples that did this, they had to permanently attach themselves to the loan.</p> <p>Unfortunately, if one party does not pay their assigned portion of their loan, the other party will still be held fully responsible. Married couples can no longer consolidate their student loans, so if you were married after 2006, then this does not apply to you.</p> <h2>How to Avoid Problems Before Marriage</h2> <p>No couple wants to think about divorce before they get married, but if student loan debt is worrisome to you, there are a few things you can do before tying the knot. First, it is important that both you and your potential spouse know how much debt you each have. Everything should be laid out on the table. Secondly, to protect yourself, sign a prenuptial agreement that states how debt is supposed to be split in the case of a divorce. (See also: <a href="http://www.wisebread.com/could-a-divorce-improve-your-finances?ref=seealso">Could a Divorce Improve Your Finances?</a>)</p> <h2>So How Much Student Loan Debt Will I Be Responsible for After Divorce?</h2> <p>When it comes to figuring out how much student loan debt you will be responsible for after a divorce, it all depends on your case and the state you live in. It is important for you and your spouse to know <a href="http://www.wisebread.com/life-after-bankruptcy-whats-next">the financial weight of your divorce</a> before committing to one fully. Talk with a divorce attorney to find out more information that relates to your specific case.</p> <p>If the court does hold you responsible for your spouse's student loan debt after divorce, then it is important to pay it. If you don't, you will be held liable, your wages could be garnished, and your credit score can suffer.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/ashley-eneriz">Ashley Eneriz</a> of <a href="http://www.wisebread.com/does-divorce-affect-your-student-loans">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-manage-your-money-during-a-spousal-separation">How to Manage Your Money During a Spousal Separation</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/11-secrets-you-need-to-tell-your-financial-adviser">11 Secrets You Need to Tell Your Financial Adviser</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-pay-off-your-student-debt-faster">5 Ways to Pay Off Your Student Debt Faster</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/could-a-divorce-improve-your-finances">Could a Divorce Improve Your Finances?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-every-parent-should-know-about-the-new-college-financial-aid-rules">What Every Parent Should Know About the New College Financial Aid Rules</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Education & Training consolidation court divorce loans marriage state laws student debts Tue, 08 Nov 2016 10:00:15 +0000 Ashley Eneriz 1827231 at http://www.wisebread.com 3 Sources of Fast Cash Besides Your 401K http://www.wisebread.com/3-sources-of-fast-cash-besides-your-401k <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/3-sources-of-fast-cash-besides-your-401k" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/handling_cash_780905671.jpg" alt="Finding sources of fast cash outside of 401K" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You're in the middle of a remodeling project, and due to unforeseen circumstances, your money runs out early. You can't live with a half-completed kitchen, but you can't pay for it to be finished right now. And while you have plenty of equity in your home and a healthy retirement account, there's nothing in the bank.</p> <p>Once you've decided to take out a loan, what is the best source of funds? Are 401K loans or borrowing against home equity ever a good idea?</p> <p>&quot;The best option is of course is your parents,&quot; says financial planner Bob Goldman. But if you can't tap the bank of mom and dad for an interest-free loan, your other best options are probably a cash-out refinance, a secondary mortgage, a home equity line of credit, or a 401K loan. Deciding which one to use requires some number crunching and a hard look at your personal situation, including your job security, your repayment timeline, and your will power.</p> <h2>Cash-Out Refinance</h2> <p>Mortgage interest rates are at historic lows, making now a good time to think about refinancing. When you refinance your home, you are replacing your current loan with a brand-new one, preferably at a better interest rate. Depending on how much equity you have in your home, you may have the option of borrowing cash at the time of the refinance &mdash; so that once all the paperwork is done, you'll have a lump sum in your bank account, which you will pay back as part of your regular mortgage payments.</p> <h2>Cash-Out Refinance Pros</h2> <p>A cash-out refinance has a lot going for it.</p> <h3>1. Low Rate</h3> <p>A mortgage often offers the lowest interest rate you can get, outside of promotional offers. And because rates are near historic lows, a lot of people feel that locking in a low rate now for a long loan term is a good call.</p> <h3>2. Low Payments</h3> <p>Because the payback period will be long &mdash; generally 30 years &mdash; a cash-out refi can ease the month-to-month strain of repayment, especially if you are able to lower the interest rate. If you are paying, say, 5% interest on your mortgage and you are able to refinance to 3.77%, you could add $50,000 to your loan principal while only adding about $100 a month to your payment.</p> <h3>3. No Surprises</h3> <p>As long as you take out a fixed-rate mortgage, you know what your payment will be for the life of the loan.</p> <h3>4. Tax Benefit</h3> <p>The interest you pay on your refinanced mortgage will be tax deductible. According to this <a href="http://www.calcxml.com/do/hom09">mortgage tax savings calculator</a>, if you add $50,000 to a $200,000 mortgage, you could save about $10,000 in taxes over the life of the loan, more or less depending on your tax bracket and the interest rate.</p> <h2>Cash-Out Refinance Cons</h2> <p>As great as a cash-out refinance is, it's not free money.</p> <h3>1. Risk</h3> <p>Your home is on the line. For most people, your house is your biggest asset, and putting it even at slight risk isn't a decision to take lightly. Far too many homeowners ended up losing their homes during the financial crisis when they overborrowed against their homes' value.</p> <h3>2. Fees</h3> <p>You have to pay closing costs, which average about $1,800 on a $200,000 loan.</p> <h3>3. Qualifying</h3> <p>You need good credit, especially for the best rates.</p> <h3>4. Starting Over</h3> <p>One thing people often overlook when refinancing, Goldman says, is that taking out a new 30-year loan pushes out the date when you'll be done paying off your mortgage. &quot;You reset the clock on your mortgage,&quot; Goldman says. &quot;You're back to Day One, where you're paying mostly interest.&quot;</p> <h2>What's the Total Cost of a Cash-Out Refinance?</h2> <p>Getting $50,000 this way would cost a typical borrower about $30,000 in interest and fees over the course of 30 years at current interest rates. I calculated this using a mortgage calculator to compare the lifetime cost of borrowing $200,000 versus $250,000, keeping in mind that getting cash out usually increases your interest rate by about ⅛ percent. I added $2,000 in closing costs and subtracted $10,000 in tax savings.</p> <h2>Home Equity Loan</h2> <p>A home-equity loan is so much like a mortgage that it's also known as a &quot;second mortgage.&quot; The only difference between this and a cash-out refinance is that instead of replacing your original mortgage with a new one, you're adding a second loan also using your home as collateral. But everything else &mdash; the fact that you're taking a fixed amount of money, usually at a set rate, and paying it back over time &mdash; remains the same.</p> <h2>Home Equity Loan Pros</h2> <p>A second mortgage is a lot like a cash out refi, but with some wrinkles.</p> <h3>1. Simplicity</h3> <p>If you have a great mortgage rate on your home and don't want to change it, this is a way to borrow money while leaving your original mortgage untouched.</p> <h3>2. Shorter Time</h3> <p>If you have a 30-year mortgage but only want to borrow money for five to 15 years, you can do that with a home-equity loan.</p> <h3>3. Tax Benefit</h3> <p>Like a regular mortgage, your interest is usually tax deductible.</p> <h2>Home Equity Loan Cons</h2> <p>You'll need to be sure you understand the downsides of this kind of loan.</p> <h3>1. Interest Rate</h3> <p>Data from Bankrate shows home equity loans averaging at least a percentage point higher than mortgage rates.</p> <h3>2. Qualifying</h3> <p>You need good credit, especially for the best rates.</p> <h2>What's the Total Cost of a home-equity loan?</h2> <p>About $11,000 in interest and fees to borrow $50,000 for 10 years.</p> <p>If you borrow $50,000 for 10 years through a second mortgage, you would pay about $13,000 interest over the life of the loan. Closing costs would be similar to a mortgage refinance, about $2,000. During that time, the mortgage interest deduction could save you about $4,000 in taxes.</p> <h2>Home Equity Line of Credit</h2> <p>Like a home-equity loan, a Home Equity Line of Credit (HELOC) is a secondary loan that piggybacks on your original loan. As with both types of loans discussed above, your home is still the collateral. The big difference is that while you can get cash out of a first or second mortgage only once, a HELOC is a revolving credit line, meaning that you don't need to know upfront exactly how much you'll need over the life of the loan. You can borrow $10,000 this month for a new furnace, and then $5,000 another month for landscaping.</p> <h2>HELOC Pros</h2> <p>The key advantage of a HELOC is its flexibility, but there are others to consider, too.</p> <h3>1. Borrowing Flexibility</h3> <p>Experts recommend these loans for ongoing expenses such as college tuition, rather than a home repair that you might pay for in a lump sum. If you do a refinance and then realize you'll need to borrow more money, you would need to pay closing costs all over again and might not be able to lock in the same rate.</p> <h3>2. Tax Benefit</h3> <p>Like the above loans, the interest paid on a HELOC is usually tax deductible.</p> <h3>3. Payment Flexibility</h3> <p>Your loan may allow you to pay interest-only for a certain amount of time.</p> <h2>HELOC Cons</h2> <p>As with the other home loans discussed, a HELOC carries some costs.</p> <h3>1. Risk</h3> <p>Like both the above loans, your home is on the line.</p> <h3>2. Rate Uncertainty</h3> <p>Since HELOCs often have <a href="https://www.consumer.ftc.gov/articles/0227-home-equity-loans-and-credit-lines#lines">variable interest rates</a>, and rates are currently at historic lows, they will probably rise in the future. By law, how much the rates go up is capped &mdash; the lender must tell you the maximum potential rate when you take out the loan. The average HELOC rate at the moment is similar to home equity rates, or around a point above 30-year-mortgage rates.</p> <h3>3. Balloon Payments</h3> <p>Many HELOCs start out requiring only interest payments, then expect the borrower to pay the whole principal at the end. If you can't, Goldman said, you'll probably end up refinancing the debt into a much longer, more expensive loan.</p> <h3>4. Temptation</h3> <p>As with credit cards, having a line of credit to draw on can encourage overspending. &quot;It's one thing to be on a diet when the refrigerator is empty. It's another thing to be on a diet when the freezer is full of ice cream,&quot; Goldman said. &quot;You'll have this money available to you, so it will require a great deal of discipline to manage it.&quot;</p> <h3>5. Qualifying</h3> <p>You need good credit to qualify, especially for the best rates.</p> <h3>6. Fees</h3> <p>You may or may not have to pay closing costs, and may be charged ongoing fees such as annual maintenance fees and transaction fees.</p> <h2>What's the Total Cost of a HELOC?</h2> <p>Rough estimate: $9,500. It's more difficult to predict the lifetime cost of a HELOC if the rate is adjustable and the amount you owe on it varies, but this <a href="http://www.calcxml.com/calculators/adjustable-rate-mortgage-calculator">adjustable mortgage calculator</a> figures that with steady, modest interest increases, a 10-year, $50,000 HELOC could cost $14,000 in interest. Fees vary, but if your bank charges a $50 annual fee, that adds $500 to the cost. Subtract an estimated $5,000 in tax savings.</p> <h2>Borrowing From Your 401K</h2> <p>If you have a 401K retirement account through your employer, you might have the option of &quot;borrowing&quot; from its balance. This is not a true loan, since the money in your 401K already belongs to you. In reality, what you're doing is getting an exemption from early withdrawal penalties and taxation, as long as you promise to put the money back and pay yourself an interest rate &mdash; generally one to two percentage points above the prime rate.</p> <p>Despite all those articles out there warning you to avoid borrowing from your 401K, Goldman says this can be a good option if conditions are right.</p> <p>&quot;If I had my choice, I would definitely borrow from a 401K,&quot; he said. Although neither borrowing against your home or borrowing against your retirement are without risk, at least if you fail to pay back your 401K loan, you're not out on the street.</p> <h2>401K Loan Pros</h2> <p>This type of loan may be the easiest of all to get &mdash; it's your money, after all!</p> <h3>1. Qualifying</h3> <p>You don't need good credit to qualify for a good rate, making this an attractive option for folks who wouldn't qualify for a regular loan.</p> <h3>2. Risk</h3> <p>If you fail to pay it back, it won't affect your credit score or send collection agents after you. You also don't risk having your home repossessed.</p> <h3>3. No Bank</h3> <p>You pay the interest to yourself, which is sort of like not paying interest at all.</p> <h2>401K Loan Cons</h2> <p>There are not too many downsides to borrowing from your 401K &mdash; but there's a big one you should think very carefully about.</p> <h3>1. Risk to Your Retirement Savings</h3> <p>Failure to pay back this loan could cause great harm to your retirement account. For instance, if your employment ends for any reason, the loan becomes due immediately. If you can't pay it, it's converted to a distribution, which means that you pay taxes and (if you are under age 59 &frac12;, a 10% penalty). So you're basically stuck at your job while you have a 401K loan out; you might end up turning down a new job offer if you don't have the cash to pay the loan. Worse, if you get fired and can't pay it, you could be out of a lot of money in addition to having no job.</p> <h3>2. Double Taxation</h3> <p>The disadvantage that people often don't consider with 401K loans is that while you filled your account with pretax dollars, you repay the loan with post-tax dollars &mdash; but you'll have to pay tax again on the money when you eventually withdraw it in retirement. How much you can get: While home loans let you borrow a percentage of your home equity, 401K loans are capped at $50,000 or half your balance, whichever is less.</p> <h2>What's the Total Cost of Borrowing From Your 401K?</h2> <p>It would vary greatly depending on how close you are to retirement and how well the market does during your loan. Using <a href="http://www.calcxml.com/calculators/impact-of-borrowing-from-my-retirement-plan">this calculator</a>, I came up with an estimated cost of $25,000 in lost investment and tax benefits to borrow $50,000 for five years. That assumes your retirement account would have $10,246 less in it at the time of retirement, and that you lost out on $15,000 worth of tax benefits.</p> <h2>Bottom Line</h2> <p>By these calculations, home equity loans tend to be less costly than mortgage refis or 401K loans. You should run the numbers using your own circumstances before making that determination for yourself.</p> <p>Cost is not the only thing to consider when deciding how to borrow. There's also the degree of risk involved, and the amount of time you have to pay the money back. Again, personal circumstances will dictate your choice: If you only need the money for a short time, for instance, until your stock options vest next year, a 401K loan might be the best choice. If you can't afford to pay the loan off in the near-term, the refinance gives you the most time.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/carrie-kirby">Carrie Kirby</a> of <a href="http://www.wisebread.com/3-sources-of-fast-cash-besides-your-401k">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. 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