loans http://www.wisebread.com/taxonomy/term/1008/all en-US How Much Should You Spend on a New Car? http://www.wisebread.com/how-much-should-you-spend-on-a-new-car <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-much-should-you-spend-on-a-new-car" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/1584456085_e37c59807c_z_0.jpg" alt="new car" title="new car" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>Unlike many other expenses, you're in the driver's seat when it comes to the cost of a new car.</p> <p>If you live in an expensive area like New York City or San Francisco, you'll probably pay a lot for housing, but you don't have to spend a lot, or anything, on a car. You have plenty of mass transit options, after all. But if you live elsewhere, you don't have to pay a lot for a car, either. You <em>don't </em><em>need </em>all those options, a ton of horsepower, or the largest vehicle. Most car salesmen are paid on commission, so they're motivated to sell regardless of whether or not you actually need &mdash; or can afford &mdash; the vehicle. (See also: <a href="http://www.wisebread.com/17-things-car-salesmen-dont-want-you-to-know">17 Things Car Salesmen Don't Want You to Know</a>)</p> <p>Unfortunately, too many middle income families purchase vehicles they cannot afford. A study by Interest.com shows that median income families in all but one major city, Washington, D.C., cannot afford the average price Americans paid for new trucks and cars.</p> <p>The website's 2013 <a href="http://www.interest.com/auto/news/car-prices-outpace-median-income/" target="_blank">Car Affordability Study</a> used the 20/4/10 rule (more on that, below) and data on income, auto insurance, and vehicle sales tax rates from the U.S. Census Bureau, the National Association of Insurance Commissioners, and other information sources to determine what median income families in the largest 25 metro areas should spend on new vehicles.</p> <p>It found that affordability ranges widely. For instance, median income car buyers in the Washington, D.C., area could afford $31,940, enough for a luxurious BMW X1 crossover, while buyers in Tampa, Fla., could afford just $14,516, enough for a subcompact Chevrolet Sonic.</p> <p>The variations are due to wide ranges in incomes, tax rates, and car insurance. For example, median incomes range from $86,680 in Washington to $43,832 in Tampa. Sales taxes range from 9.8% in Seattle to 0.0% in Portland, Ore.</p> <p>&ldquo;What this research indicates, more than anything, is that a lot of Americans are spending too much money on their cars,&rdquo; says Mike Sante, managing editor of Interest.com.</p> <h2>Use the 20/4/10 Rule to Control Car Expenses</h2> <p>How to you know if you can afford a new car? The answer is the 20/4/10 rule.</p> <p>In a nutshell, the rule says buyers should:</p> <ul> <li>Put down at least 20%</li> <li>Finance the vehicle for no more than four years</li> <li>Keep total monthly vehicle expense &mdash; including principal, interest, and insurance &mdash; under 10% of gross income</li> </ul> <p>Let's take a closer look at each of those rules.</p> <h2>20% Down</h2> <p>Putting 20% or more down makes sure you don't assume a loan that's too large. A significant down payment reduces the amount of interest you'll pay by reducing the size of your loan. If you lack 20% of the price, in cash, it's a sign the vehicle is too costly for you.</p> <h2>Finance for No More Than Four Years</h2> <p>Lenders may offer longer loan time frames, but they're not to your advantage.</p> <p>The longer the repayment period, the more costly the loan and the longer you wait before the car becomes yours. A shorter loan also lets you cancel <a href="http://www.wisebread.com/4-tips-to-save-on-car-insurance">expensive collision and comprehensive insurance</a> that lenders require, but you may not need. The common guideline is to drop collision insurance if your car is worth less than $3,000 or the annual premium is 10% or more of the car's book value.</p> <h2>Total Expenses Under 10% of Income</h2> <p>You shouldn't put more than 10% of your monthly income into a vehicle. Less than 10% is even better. In fact, less than about 30% of your income should go toward repaying <em>all of your loans put together</em>. Lenders may offer loans with longer terms, as well as loans with no down payments, but that doesn't mean you should accept those offers.</p> <p>Of course, the 20/4/10 rule is only a guideline, not a rule set in stone. Another guideline says car expenses, including car payments, insurance, and repairs, should not exceed 20% of <a href="http://www.wisebread.com/10-ways-to-boost-your-take-home-pay">your monthly take home pay</a>.</p> <p>Instead of using formula as a one-size-fits-all template, use it as a guideline but also understand your expenses, talk to different lenders about loan options, and be honest about what you can afford.</p> <p><em>Are you in the market for a new car? How are you determining your budget?</em></p> <a href="http://www.wisebread.com/how-much-should-you-spend-on-a-new-car" class="sharethis-link" title="How Much Should You Spend on a New Car?" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/michael-kling">Michael Kling</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Budgeting Cars and Transportation Debt Management buying a car car financing loans Thu, 04 Apr 2013 09:48:34 +0000 Michael Kling 971530 at http://www.wisebread.com Life Insurance: What to Consider Before Replacing a Policy http://www.wisebread.com/life-insurance-what-to-consider-before-replacing-a-policy <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/life-insurance-what-to-consider-before-replacing-a-policy" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/family%20silhouette.jpg" alt="family silhouette" title="family silhouette" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>You might consider replacing your life insurance policy if you think you can:</p> <ol> <li>Get a better deal on a policy &mdash; that is, higher coverage for the same monthly premium or the same coverage at a lower price<br /> &nbsp;</li> <li>Buy a policy that is better suited to your financial goals, which may have changed since you signed a life insurance contract</li> </ol> <p>Life insurance policies and the regulations surrounding them, though, can be complicated. Replacing a policy with a seemingly better one is <em>not</em> like switching banks to get a higher rate on a savings account (a straightforward decision when you can earn better returns without adding risks).</p> <p>When evaluating a policy replacement, investigate and consider these issues. (See also: <a href="http://www.wisebread.com/financial-iq-test-how-healthy-is-your-life-insurance-plan">Financial IQ Test:&nbsp;How Healthy Is Your Life Insurance Plan?</a>)</p> <h3>The Incontestability Clause</h3> <p>If you&rsquo;ve had a policy in place for more than a couple of years, then the <a href="http://www.lifeinsurancehub.net/incontestability.html">incontestability period</a> has likely expired. That&rsquo;s good news for you and your family, because it eliminates the risk that the insurance company will dispute or deny a claim, except in the cases of fraud.</p> <p>Signing a new life insurance policy typically restarts the incontestability period. So, whereas you may be covered under your old policy if you forgot to disclose certain information, you will have to wait two years to have the same peace of mind.</p> <h3>Financial Stability of the Insurance Companies</h3> <p>You may be able to find a slightly better deal on the list price of a new insurance policy compared to your current one. But you should also be concerned with the financial stability of the insurer and its ability to pay claims in the future.</p> <p>To make comparisons, Life and Disability Insurance Analyst <a href="http://www.wisebread.com/questions-and-answers-on-life-insurance-book-review-and-money-saving-tips">Tony Steuer</a> recommends that you check out <a href="http://www.lifeinsurancetoolbook.com/2011/03/29/do-your-financial-homework-before-choosing-a-life-insurance-company-qa-with-tony-steuer/">measures of financial strength by rating agencies</a>, such as A.M. Best.</p> <h3>Your Health Status</h3> <p>You may want to buy a new policy because you are healthier now than when you purchased your current policy, even though you are older. For example, you may have lost a significant amount of weight or stopped smoking. As a result, you may be eligible for more favorable rates based on your current health status.</p> <p>However, the health problems that you had as a younger person may not have impacted the price of your life insurance policy. There may not have been a <a href="http://insurance.yahoo.com/lh/weight.in.html">penalty for being overweight</a> or a significant rating difference between <a href="http://money.msn.com/saving-money-tips/post.aspx?post=9e687f59-fec7-4b58-b36d-2a69e86dc0a2">smokers and non-smokers</a>, for example. So, even if <a href="http://www.wisebread.com/25-healthy-changes-you-can-make-today">your health has improved</a>, a new policy may not automatically result in a better deal.</p> <p>Alternatively, <a href="http://www.wisebread.com/defining-what-financial-success-means-to-you">your financial goals</a> may have changed dramatically and unexpectedly, prompting you to revisit life insurance choices. However, if your <a href="http://www.bankrate.com/finance/insurance/top-10-health-hazards-for-life-insurers-1.aspx">health has declined</a>, then you may not be eligible for coverage or the cost may be prohibitive because the policy is <a href="http://www.avweb.com/news/insure/185104-1.html">rated</a> (that is, the premium is higher than typical because of a health or lifestyle concern).</p> <h3>Outstanding Loans</h3> <p>Getting a new policy to replace the old may be complicated if you have an outstanding loan associated with the life insurance. Consider these issues if you have a <a href="http://www.bankrate.com/finance/insurance/are-life-insurance-loans-a-bad-idea-1.aspx">life insurance loan</a>:</p> <ul> <li>Surrendering a policy with an outstanding loan may trigger a taxable event</li> <li><a href="http://www.newyorklife.com/nyl/v/index.jsp?vgnextoid=291447bb939d2210a2b3019d221024301cacRCRD">Premiums may be higher than usual because of a loan</a></li> <li>Outstanding loan balances may reduce the cash value and/or death benefit</li> </ul> <p>So, if you have borrowed against the policy's cash value, apples-to-apples comparisons between your current policy and a proposed one may be difficult to make. Plus, you'll need to make sure you understand the financial consequences of giving up an existing policy for a new one.</p> <h3>Costs Embedded in a New Policy</h3> <p>New insurance contracts may have <a href="http://insurance.illinois.gov/Life_Annuities/replacing_life.asp">origination or acquisition costs</a> (such as underwriting fees and sales commissions) that must be covered. Such costs may not impact your premiums but still prevent the build up of policy value during its initial years.</p> <p>In contrast, you may have accumulated value in your current policy, after paying such acquisition costs years ago.</p> <h3>Length of Coverage</h3> <p>Compare the length of coverage between the current and proposed policy. You may have locked in a guaranteed rate and renewal for a long time (say 30 or 40 years) with your original policy but not have the same provision in a new one.</p> <p>Premiums and coverage amounts are major concerns, but they are not the only <a href="http://www.doi.idaho.gov/consumer/replacement.aspx">issues to consider when replacing an insurance policy</a>. Read the fine print on current and proposed policies. Talk with your insurance agent to get a full picture of your options; you might request an in-force illustration of your current policy, ask for a waiver of the incontestability period for a replacement policy, or negotiate a policy redesign with your present insurance company. Finally, consult with your financial advisor to make sure that you and your family stay protected in the way you intend.</p> <p>Have you considered these issues when buying or replacing a policy? Do you have an advisor who has helped you make a decision?</p> <p><em>This post is part of the </em><a href="http://www.goodfinancialcents.com/life-insurance-movement/"><em>Life Insurance Movement</em></a><em>. </em></p> <a href="http://www.wisebread.com/life-insurance-what-to-consider-before-replacing-a-policy" class="sharethis-link" title="Life Insurance: What to Consider Before Replacing a Policy" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Insurance healthy lifestyle life insurance loans Wed, 22 Aug 2012 09:48:43 +0000 Julie Rains 951917 at http://www.wisebread.com Best Money Tips: Pay Off Student Loans Now http://www.wisebread.com/best-money-tips-pay-off-student-loans-now <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/best-money-tips-pay-off-student-loans-now" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/6561935761_8a403107e4_z-1.jpg" alt="Pay Off Student Loans Now" title="Pay Off Student Loans Now" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Welcome to Wise Bread's <a href="http://www.wisebread.com/topic/best-money-tips">Best Money Tips</a> Roundup! Today we found some fantastic articles on paying off student loans, personalizing your office space, and questions to ask before you quit your job.</p> <h2>Top 5 Articles</h2> <p><a href="http://www.debtfreeadventure.com/how-to-pay-off-student-loans-now/">How to Pay Off Student Loans Now</a> &mdash; Get rid of your student loans now by taking on a second job and getting housing on the cheap. [Debt Free Adventure]</p> <p><a href="http://www.savvysugar.com/How-Personalize-Your-Office-23340112">Quick, Creative Ways To Personalize Your Office Space</a> &mdash; To personalize your office space, consider using colorful supplies and knicknacks. [SavvySugar]</p> <p><a href="http://www.consumerismcommentary.com/8-questions-before-you-quit/">8 Questions Before You Quit Your Job</a> &mdash; Before you quit your job, ask yourself whether or not you can continue to learn from your managers. [Consumerism Commentary]</p> <p><a href="http://www.freemoneyfinance.com/2012/05/30-steps-to-great-finances-steps-9-10-and-11.html">30 Steps to Great Finances: Steps 9, 10, and 11</a> &mdash; Have great finances by using your credit cards strategically. [Free Money Finance]</p> <p><a href="http://www.threethriftyguys.com/2012/05/grow-pounds-of-food-in-a-tiny-garden/">How to Grow Pounds of Food in a Tiny Garden</a> &mdash; Want to grow pounds of food in a small garden? Start by selecting the right containers and preparing the buckets. [Three Thrifty Guys]</p> <h2>Other Essential Reading</h2> <p><a href="http://www.dumblittleman.com/2012/05/save-money-and-stop-living-paycheck-to.html?utm_source=feedburner&amp;utm_medium=feed&amp;utm_campaign=Feed%3A+DumbLittleMan+%28Dumb+Little+Man+-+tips+for+life%29">Save Money and Stop Living Paycheck to Paycheck</a> &mdash; Avoid buying things you can't afford that you don't actually need by listing the advantages and disadvantages of buying it. [Dumb Little Man]</p> <p><a href="http://steadfastfinances.com/blog/2012/05/31/5-tips-to-help-you-land-a-job-out-of-college/?utm_source=feedburner&amp;utm_medium=feed&amp;utm_campaign=Feed%3A+SteadfastFinances+%28Steadfast+Finances%29">5 Tips to Help You Land a Job Out of College</a> &mdash; Want to land a job right out of college? Be willing to go anywhere and get the right degree. [Steadfast Finances]</p> <p><a href="http://www.fivecentnickel.com/2012/05/31/when-to-invest-in-individual-stocks/">When to Invest in Individual Stocks</a> &mdash; Before investing in individual stocks, consider your ability to understand company valuation. [Five Cent Nickel]</p> <p><a href="http://personaldividends.com/tips-for-holding-a-great-barbecue/">5 Tips for Holding a Great Barbecue</a> &mdash; Hold a great barbecue by being a smart griller and providing entertainment. [Personal Dividends]</p> <p><a href="http://parentingsquad.com/top-10-childbirth-interventions-that-you-dont-need">Top 10 Birth Inventions You Don't Need</a> &mdash; You don't really need electronic fetal monitoring or early epidurals. [Parenting Squad]</p> <h2>News &amp; Events</h2> <p><a href="http://www.wisebread.com/top-100-most-popular-personal-finance-blogs/news/2012/04/money-crashers-tweetchat-mcchat-4">Money Crashers Tweetchat (#MCchat)</a> &mdash; Don't miss Money Crashers weekly tweetchat at 1pm PST! They will be giving away prizes!</p> <p>Be sure to check out our <a href="http://www.wisebread.com/top-100-most-popular-personal-finance-blogs/news">News &amp; Events Calendar</a> to see all the awesome upcoming events in the personal finance world!</p> <a href="http://www.wisebread.com/best-money-tips-pay-off-student-loans-now" class="sharethis-link" title="Best Money Tips: Pay Off Student Loans Now" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/ashley-jacobs">Ashley Jacobs</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Education & Training best money tips college loans student student loans Fri, 01 Jun 2012 10:00:20 +0000 Ashley Jacobs 932735 at http://www.wisebread.com Should You Lend to Friends and Family? http://www.wisebread.com/should-you-lend-to-friends-and-family <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/should-you-lend-to-friends-and-family" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/friends_with_money.jpg" alt="Friends with money" title="Friends with money" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>It's happened to all of us at one point or another. Something has happened to someone we love, and money is needed. Our money. If perfect strangers asked us for money, we'd more than likely not give it, end of story. But when a friend or family member asks to borrow, we don't usually say &quot;no&quot; right away. We think about it first. Some of us are more apt to help out friends than family or family than friends. (See also: <a href="http://www.wisebread.com/the-different-types-of-loans-a-primer">The Different Types of Loans: A Primer</a>)</p> <p>I've been thinking about this a lot lately, as a good friend of mine just inherited money from the sale of her grandfather's house. We've watched as all sorts of friends and family of hers have come out of the woodwork to ask her for loans. To be fair, she was often insolvent in her youth, and most people feel justified, I suppose, in asking her for money. It has, however, reconfirmed my beliefs and suspicions about lending to and borrowing from those you know.</p> <h3>The Complicated Route: Agreeing to Loan Money</h3> <p>Lend it. Go ahead. Don't expect to see it again, though. Or do what some people I spoke to about this do, and treat it like a bank loan &mdash; sign a contract, charge interest, and set up a timeline for repayment that both parties can be comfortable with. This is crucial to getting the money back. If you don't set guidelines for repayment in writing, you have no one to fault but yourself if it doesn't come back to you in that timely manner you expected when you said yes over beers. Don't expect the party to pay up faster than you set up a plan for.</p> <h3>Your Expectations and Values</h3> <p>Is your potential borrower a good bet? Do they have the capability to pay you back? You don't have to do a credit check on the person, but what do you know about them? Do they have marketable skills? Are they willing to do trades? Do they continually have trouble? Do your homework with other friends and relatives, and find out.</p> <p>If someone asks you for money, do you get to judge where the money is going? Can you lend it, no questions asked? This is where resentment comes to fester. If you can't give it or lend it freely without the judgment, it's probably best not to lend it at all. None of us spend money the same, and we don't value the same things. For example, I spend $400 a month on tuition so that my kids can attend a great school. I gladly remain in a single-car family so I can do this. Someone else might find that idiotic.</p> <p>I lend money for groceries, school related expenses, and women's reproductive health concerns. I usually won't lend or give for anything else. The key in all this is communication. As long as both parties are clear about their values and expectations, things can go smoothly.</p> <h3>From the Borrower's Perspective</h3> <p>Hopefully no one out there <em>wants</em> to borrow money from friends or family, but it can happen. Unexpected car repairs, house repairs, or trips to the emergency room with the kids can strain and break the pocket book. Sudden, unplanned unemployment can take an almost permanent toll on individuals as well. There was a month back in 2008 when my husband was laid off, and I had a bare minimum of work the same week that our car needed repairs and tuition was due.</p> <p>Three times in my life I've <a href="http://www.wisebread.com/borrowing-from-friends-the-friendship-killer">borrowed from friends</a> and paid back. They are all three people whom I would lend to in a heartbeat. One of the prime reasons I borrowed from them is that they knew my situation and offered (I hadn't asked). I don't see anything wrong with things going back and forth between friends as long as it is a true back and forth and doesn't become lopsided in favor of one person.</p> <p>My mother is one of the most generous people I know. She has given both to my brother and I when we've asked for it and many times when we haven't. She says that basically, she expects both of us to keep up the family bargain of helping her out with whatever she needs whenever she needs it &mdash; and she instructs us to help people in our community when we can. We are fine with this arrangement. The other night she made too much meatloaf and brought some over for us. Last month I made an extra tray of enchiladas for her. We treat our money between the three of us the same way we treat our food.</p> <p>But if any of the above makes you uncomfortable, take...</p> <h3>The Easy Route: Saying No</h3> <p>Just don't do it. <a href="http://www.wisebread.com/when-should-you-say-no-to-those-who-want-to-borrow-money-from-you">Loaning money</a> affects your relationship with the other person and creates inequality between you. You go from being friends or family members with a shared past to a serf and a lord. You'll find that you can't help yourself eyeing the borrower's purchases without suspicion. If you establish early on in your relationship with other people that you don't lend money to family and friends, people will quit asking you pretty darn quickly (and move on to those who say yes). It's when you've said yes that the asking really starts.</p> <p><em>How about you? What are your rules and expectations of lending money to friends or family?</em></p> <a href="http://www.wisebread.com/should-you-lend-to-friends-and-family" class="sharethis-link" title="Should You Lend to Friends and Family?" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/maggie-wells">Maggie Wells</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Debt Management Family borrowing from friends loans relationships Thu, 13 Oct 2011 10:36:30 +0000 Maggie Wells 729890 at http://www.wisebread.com Co-Signing for a Loan: 4 Things to Consider First http://www.wisebread.com/co-signing-for-a-loan-4-things-to-consider-first <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/co-signing-for-a-loan-4-things-to-consider-first" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/1574578786_c996b1e3f9.jpg" alt="pen in hand" title="pen in hand" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>There are many situations where you might be tempted to co-sign for a credit card or loan. Here are a few examples:</p> <ul> <li>An 18-year-old college student can't get a credit card on his own because he only did odd jobs over the summer and recent law changes require that a student be 21 or have sufficient income from a job to pay for a card. Because the child's low income doesn&rsquo;t make the cut, his parents agree to co-sign for the card, hoping it will teach him how to develop good spending habits and start building a good credit profile.<br /> &nbsp;</li> <li>A young woman is in a difficult financial situation: Her car broke down, and she needs to get a new or slightly used car to get to her job. She has to finance part of it and needs a co-signer because her credit isn't good enough. Her grandmother agrees to co-sign for the car loan.<br /> &nbsp;</li> <li>A man wants to put an addition on his house, but he's self-employed and doesn't have a great credit score, so he asks his fiancé to co-sign for the loan since she has a steady job and a good credit score.&nbsp;</li> </ul> <p>Co-signing for a loan to help your child, relative, or friend sounds like a noble act, right? You&rsquo;re just being the credit booster. However, everyone should be aware of the ramifications of co-signing a loan for anyone, including your child or best friend.</p> <h3>You Are the Borrower</h3> <p>Being a loan co-signer means you are the borrower in the eyes of the credit bureaus, so this loan will appear on the main borrower&rsquo;s credit report as well as on yours.&nbsp;The timeliness of the borrower&rsquo;s monthly payments could also impact your credit score if they aren&lsquo;t made each month.</p> <h3>Your Future Loans Can Be Affected</h3> <p>If you are planning to get a new loan in the near future, the co-signed loan may negatively affect your chances of getting a new loan or may increase the interest rate you would have to pay because of your higher debt-to-income ratio.&nbsp;</p> <h3>Co-Signers Pay Back</h3> <p>According to the Federal Trade Commission (FTC), studies have shown that of all loans that have had co-signers and gone into default, 75% end up being paid by the co-signer. In some states, if the debt holder misses a payment, the creditor could come after you (the co-signer) for the money. Creditors and banks ask for a co-signer because the potential borrower &mdash; your child, relative, or friend &mdash; doesn&rsquo;t have the credit rating and/or income to support the loan. So yes, you would be helping them with your fall-back guarantee, but you would also be responsible for the debt if anything goes wrong.</p> <h3>You Are Fully Responsible</h3> <p>If your child, relative, or friend defaults on the loan payments, not only would you be responsible for paying back the loan, you would also have to pay any late fees and accrued, unpaid interest. The worst case scenario would be that the unpaid debt goes into collections, the creditor sues you, and the court gives the creditor the ability to put a lien on your house or garnish your wages. Of course, your credit score would take a beating in the process.</p> <h3>Consider Carefully</h3> <p>Co-signing for a loan to help your child establish credit may be a good idea if you make the amount small enough that you can pay it if your child defaults, and if you set the monthly payments low enough that your child can afford them. The purpose of your co-signing in this case is to help your son or daughter establish a good credit history, so take the time to explain the consequences of good and bad borrowing behavior. Building a good report will be very important for your child when he or she is looking for a full-time job or wants to move into an apartment.</p> <p>According to the FTC, a co-signer may be able to limit the potential liability in advance by having a clause in the loan agreement stating you are only responsible for the principal of the loan and that you must be notified if there is a missed loan payment. State laws vary regarding a co-signer&rsquo;s legal obligation, so make sure you understand your rights and responsibilities in your state before you sign.</p> <a href="http://www.wisebread.com/co-signing-for-a-loan-4-things-to-consider-first" class="sharethis-link" title="Co-Signing for a Loan: 4 Things to Consider First" rel="nofollow">ShareThis</a><div class="field field-type-text field-field-guestpost-blurb"> <div class="field-label">Guest Post Blurb:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <p>This is a guest post by Hollis Colquhoun. Hollis has over 20 years of experience in the financial industry, is an Accredited Financial Counselor and co-author of <strong>Women Empowering Themselves: A Financial Survival Guide</strong>. Contact her at <a href="http://www.womenempoweringthemselves.com/">Women Empowering Themselves</a>. More articles by Hollis:</p> <ul> <li><a href="http://technorati.com/blogging/article/avoid-expensive-credit-report-services-when1/">Avoid Expensive Credit Report Services When You DIY For Free</a></li> <li><a href="http://technorati.com/business/article/the-college-challenge-which-way-to/">The College Challenge: Which Way To Pay</a></li> </ul> </div> </div> </div> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/hollis-colquhoun">Hollis Colquhoun</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/topic/personal-finance/banking">Banking articles from Wise Bread</a>.</div></div> Banking Debt Management building credit co-signing loans loans Fri, 29 Oct 2010 12:00:10 +0000 Hollis Colquhoun 272324 at http://www.wisebread.com 5 Things You Need to Know About Credit Scores http://www.wisebread.com/5-things-you-need-to-know-about-credit-scores <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-things-you-need-to-know-about-credit-scores" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/3815533391_9d6f42c1eb_b.jpg" alt="man using laptop" title="man using laptop" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>Over the past few years, consumers have been increasingly aware of the importance of a credit score. If you plan to borrow money (i.e., car loan or mortgage), your credit score is a major factor that determines your ability to get the loan and the interest rate you are eligible for. With a better credit score, you will be able to enjoy the best rates available. Your credit score could even impact your insurance rates and your ability to get certain jobs. As such, it is a good idea to learn as much as you can about this important number. (See also: <a href="http://www.wisebread.com/how-to-improve-your-credit-score" title="How to Improve Your Credit Score">How to Improve Your Credit Score</a>)</p> <h3>1. Your credit score is a number</h3> <p>Your credit score is a number reported by various credit bureaus. There are three major bureaus that you should be know: Experian, TransUnion, and Equifax. These credit reporting agencies use different algorithm to determine your score, and they also have slightly different credit score ranges. In general, your score ranges from 300 to 850, and anything above 700 is considered good.</p> <h3>2. You can get your credit score for free</h3> <p>There are many websites that can provide you with <a href="http://www.wisebread.com/redir/creditkarma">free credit scores and reports</a>. But some are better than others, and if you are not careful, you could end up paying a lot more than you bargained for. To be on the safe side, here are two sites that provide you with absolutely free information. These sites are:</p> <ul> <li><a href="http://www.quizzle.com/">Quizzle.com</a> gives you free access to your Experian credit score and report.<br /> &nbsp;</li> <li><a href="http://www.wisebread.com/redir/creditkarma">CreditKarma.com</a> gives you free access to your TransUnion credit score and provide a proprietary credit report.</li> </ul> <p>As an aside, if you want to see your credit reports from the three agencies for free, you can check out <a href="http://www.annualcreditreport.com/">AnnualCreditReport.com</a>. It is the only government-recommended website for obtaining your credit reports. Through this website, you can get one free credit report from each bureau per year. And here's a tip: You can stagger your reports four months apart and have up-to-date access to your credit reports year-round.</p> <h3>3. Good number, bad loan?</h3> <p>Occasionally, you will be surprised by a bad loan offer despite your good credit score. This is not that uncommon, especially with the recent credit crisis. If this happens to you, ask your lender to explain why your interest rate is unexpectedly high and ask to see your credit information. There may be a mistake on the report, your lender may be looking at a different score, or your lender may not have your best interest in mind. You can ask your lender to check with other bureaus and negotiate, or you can go to a different lender.</p> <h3>4. Your credit score can be improved</h3> <p>If your credit score is below where you want it to be, there are many things you can do to improve your credit score. Some of these methods include:</p> <ul> <li>Do not borrow what you cannot afford to pay back. Borrowing more than you can afford puts you in bad financial strain, and one misstep could cause you to miss your payment, resulting in a lower credit score.<br /> &nbsp;</li> <li>Pay all your bills on time. A good payment history shows that you are responsible with your finances, and will help improve your credit score.<br /> &nbsp;</li> <li>Do not close your old credit card accounts as long as you are not paying any fees. A longer credit history is good for your credit score.</li> </ul> <h3>5. Your credit score can be lowered</h3> <p>On the other hand, there are things that will hurt your credit score. There are many little things that can ding your credit score, but the major ones are declaring <a href="http://www.wisebread.com/debt/bankruptcy" title="How to File For Bankruptcy">bankruptcy</a>, letting your debt go into collection, and having a tax lien against you. Whatever you do, avoid these three like the plague.</p> <p>Obviously, there are a lot more to know about managing your credit, which goes hand in hand with managing your finances. However, this article should serve as a good starting point. If you have any questions, or simply want to add your own thoughts, please leave your comment below.</p> <p>For more information about good credit scores, please see <a href="http://www.moolanomy.com/1805/what-is-a-good-credit-score/">What is a good credit score?</a> to get your score and see how you stack up.</p> <a href="http://www.wisebread.com/5-things-you-need-to-know-about-credit-scores" class="sharethis-link" title="5 Things You Need to Know About Credit Scores" rel="nofollow">ShareThis</a><div class="field field-type-text field-field-guestpost-blurb"> <div class="field-label">Guest Post Blurb:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <p>This is a guest post by Pinyo Bhulipongsanon. Pinyo is the owner of <a href="http://www.moolanomy.com/">Moolanomy Personal Finance Blog</a>, a website dedicated to help you improve your finances and money management skills. Moolanomy also features <a href="http://reviews.moolanomy.com/">reviews of popular financial products</a> and a <a href="http://answers.moolanomy.com/">community-based questions and answers section</a>.</p> </div> </div> </div> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/pinyo-bhulipongsanon">Pinyo Bhulipongsanon</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/topic/personal-finance">Personal Finance articles from Wise Bread</a>.</div></div> Personal Finance credit credit scores interest rates loans mortgages Mon, 18 Oct 2010 14:00:07 +0000 Pinyo Bhulipongsanon 262649 at http://www.wisebread.com 5 Loan Options for Those With Good Credit http://www.wisebread.com/5-loan-options-for-those-with-good-credit <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-loan-options-for-those-with-good-credit" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/iStock_000010100401XSmall.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>One of the nice things about having good credit is the ability to secure funds for a variety of reasons and through a variety of channels. The hard part is figuring out the best types of loans that will help you maintain your good credit rating while still getting you the money you need to accomplish your goals. Having excellent credit will allow you to have your pick of cheaper loans with potentially higher limits. If you're in any need of financing, here are a few suggestions where you can seek out credit lines:</p> <h2>Credit Cards</h2> <p>So you've worked hard to make sure your credit remains clean. Even in this difficult credit climate, it should still be relatively easy for you to use credit cards. However, credit cards may not be the best option for financing because revolving credit is costly and is easily abused. When utilizing a credit card to make purchases or to cover an emergency, it is always best to plan to pay your bills in full by the end of the month to avoid having to pay expensive interest charges. Refrain from making any unnecessary purchases on credit cards even if you're faced with <a href="http://www.wisebread.com/the-best-low-interest-rate-credit-cards">cards that sport 0% intro APR rates</a>. The temptation to only pay the minimum payments on the debt is high, and there's that possibility to pile on the debt over time. Use your plastic wisely. If you want to place a limit on your spending or want to avoid taking out debt but want to enjoy the convenience of using plastic, then why not turn to prepaid debit cards instead?</p> <h2>Peer to Peer Loans</h2> <p>A relatively new way to borrow is by taking out a peer to peer loan. It's a form of personal loan that you can apply for through a peer to peer lending network like <a href="http://www.wisebread.com/redir/lendingclub">Lending Club</a> or <a href="http://www.wisebread.com/redir/prosper">Prosper</a>. You can simply sign up to become a member of the network and find out if you'll be accepted as a borrower. The service requires that you have a fairly strong credit history and a credit score of at least 680. Lenders who are also members of the network will have the chance to review your loan specifics to determine if they are willing to fund your loan. Here's more on <a href="http://www.wisebread.com/lower-interest-rates-with-credit-sesame-and-lending-club">how to apply for such a loan</a>.</p> <h2>Cash Out Refinancing</h2> <p>If you have existing debt, then here's an option to consider. If you have equity in your home, one of the best ways to get yourself out of debt is to refinance your home and take cash out. The interest rates on a <a href="http://www.wisebread.com/speeding-through-your-mortgage-0">primary mortgage</a> are far lower than on any other type of loan product available on the market today. Plus, there are no restrictions on how you use the money. You can pay off other debt, remodel your home or whatever else tickles your fancy, but since you're taking equity out of your home, make sure that the debt you're taking is worth the loss in equity and the additional interest you'll be paying.</p> <h2>Personal Loans</h2> <p>Borrowers with good credit can secure a personal loan or a signature loan from their banking institution. This is an installment loan, just like a car loan, except that the funds are dispersed to you instead of the car lot. If you meet the credit thresholds for your lender, your loan will be secured by only your signature and your vow to pay them back, which is nice if unforeseen circumstances make paying back the loan difficult.</p> <h2>Home Equity Line of Credit (HELOC)</h2> <p>If refinancing is out of the question for you, or just the mere thought of starting over on a 30-year mortgage turns your stomach, then you may want to consider taking out a home equity line of credit, or HELOC. This loan product is commonly known as a second mortgage because it uses the value of your home to determine what your credit line will be and places a lien against your home, just like your primary mortgage, to protect the lender against default. As with a refinance, a HELOC offers the homeowner a pool of funds at a great interest rate and does not require the money to be used for a specific purpose.</p> <p>However, you should be very careful about taking out this type of loan. Having a HELOC adds another payment to your budget every month and may put your home at risk if you have trouble keeping up with payments. Remember that your house is used as collateral, so be careful when going down this route. Also, the funds are only available for a specified amount of time, known as the draw period. After that, you'll have to start paying back the loan and may no longer have access to your pool of funds.</p> <p>These are just a sampling of loans you can obtain when you have good credit. The bottom line here is that if your credit record is in great shape, then you have a lot of options for financing. Whichever method you choose, make sure that you approach the process with care. Don't bite off more than you can chew: Only borrow what you can comfortably pay down over time.</p> <a href="http://www.wisebread.com/5-loan-options-for-those-with-good-credit" class="sharethis-link" title="5 Loan Options for Those With Good Credit" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/silicon-valley-blogger">Silicon Valley Blogger</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/topic/personal-finance/debt-management">Debt Management articles from Wise Bread</a>.</div></div> Debt Management borrowing credit debt lending loans Fri, 20 Aug 2010 21:22:36 +0000 Silicon Valley Blogger 211843 at http://www.wisebread.com The Credit Crunch Myth: You Can't Fix What Ain't Broke http://www.wisebread.com/small-business/the-credit-crunch-myth-you-cant-fix-what-aint-broke <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/idea-hub/topics/money/article/the-credit-crunch-myth-you-cant-fix-what-aint-broke-kate-lister" target="_blank">http://www.openforum.com/idea-hub/topics/money/article/the-credit-crunch-myth-yo...</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/the-credit-crunch-myth-you-cant-fix-what-aint-broke" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/iStock_000009212038XSmall.jpg" alt="Hammer" title="Hammer" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <a href="http://www.wisebread.com/small-business/the-credit-crunch-myth-you-cant-fix-what-aint-broke" class="sharethis-link" title="The Credit Crunch Myth: You Can&#039;t Fix What Ain&#039;t Broke" rel="nofollow">ShareThis</a><p>Have you heard about the credit crunch? Of course you have. Everyone has. As far as small businesses are concerned, the story goes that the recovery is stalled because the nation's lenders are being stingy with credit.</p> <p>So, in an effort to fix the <em>problem</em>, the American Recovery Reinvestment Act (ARRA) authorized $730 million in funding for the SBA to:</p> <ul> <li>increase the level of SBA loan guarantees to (up to 90%),</li> <li>allow borrowers to use SBA funds to replace existing debt,</li> <li>expand the SBA microloan program,</li> <li>reduce loan fees, and</li> <li>create a new $255 million emergency loan pool (American Recovery Act Loans).</li> </ul> <p>Only one problem: There may not be a small business credit crunch at all.</p> <p>Since 1973, the National Federation of Independent Business (NFIB), a 400,000-strong small business membership organization has asked its members &mdash; a statistically valid sample of U.S. small businesses &mdash; about their borrowing needs and experiences.</p> <p>Their late-2009 poll showed only 8% of small employers consider access to credit an immediate concern. The real problem, cited by more than half of the respondents, was slow or declining sales (51%) and economic uncertainty (22%).</p> <p>Of the 55% of the NFIB business owners surveyed who said they had applied for credit, 40 percent received some (13%), most (12%) or all (22%) of what they required.</p> <p>Less than 20% of those surveyed didn't get a loan because they were turned down, didn't like the <a href="http://ad.doubleclick.net/clk;218395199;41474888;e?http://www.plumcard.com/?eep=17460">terms</a> offered, or simply didn't apply for fear of rejection. Among those declined for credit, twice as many cited poor sales as the reason, not credit rationing.</p> <p>So, what's the real problem? According to NFIB Economist Dr. William Dunkelberg, &quot;There seems to be general agreement that uncertainty keeps business owners from expanding their business and hiring, keeps consumers from spending more, and keeps investors from investing in the stock market.</p> <p>Dunkelberg gets more specific about the problems in the NFIB Small Business Economic Trends report (January 2010):</p> <blockquote> <p>Twenty-four months of recession have sapped the financial strength of many small firms that are too numerous now in the new spending/credit environment. Many that "need" credit are likely 'marginal' and don't have the record to support a loan. Too many houses were built, too many strip malls opened, too many restaurants started, too many new retail outlets were launched in the 2003-2007 period and all of them cannot be supported by a consumer that now chooses to save.</p> <p>Washington still doesn't get it. It pays lip service to the fact that small business generates half of private sector GDP and employs 60 percent or more of private sector workers, but when it comes time to provide help, two failing car companies with union employees get $80 billion and small business gets $30 billion IF banks decide to accept the funds to support loans and IF the owners can subsequently get a loan from a bank. ..."Stimulus" for this administration has not focused on supporting consumer spending nor been designed with a sense of urgency as central to policy formulation.</p> <p>And Washington clings to the false notion that it is a lack of loans that is keeping small firms from hiring. We are building less than half of the number of housing units normally constructed, putting a huge dent in mortgage and construction loan demand. We are buying two-thirds the number of cars normally purchased, so auto credit demand is way off. Plans for capital expenditures and inventory investment among small firms are at 35 year lows. Even large bank CEOs now admit loan demand is weak! So loans are not in short supply, but reasons to get loans certainly are.</p> <p>Lenders and investors live by the mantra: "Never throw good money after bad." What that means is, if you haven't addressed the fundamental problem, in this case lack of sales, throwing money at it is only going to delay the agony. Sales have declined for most U.S. companies over the past two years. Those that haven't cut costs enough to maintain profitability are going deeper in the hole every month. Without a plan to increase sales or decrease costs, new money will offer only a temporary fix.</p></blockquote> <p>The problem is, by trying to increase small business credit availability, we're not only throwing money at a problem that doesn't exist; we're creating a new one.</p> <p>SBA loan defaults doubled last year. Last year, banks failed (140 of them) at the highest annual rate since the 1992 Savings and Loan Crisis. The &quot;troubled bank&quot; list now includes more than 700 financial institutions.</p> <p>Don't forget, it's you and me, American taxpayers, who are ultimately on the hook for the SBA loans that go bad. Essentially, we're the unwitting (and speaking for myself, unwilling) co-signers on loans the nation's surviving lenders wouldn't touch without a guarantee.</p> <p>Does it really make sense for the government to encourage banks to make bad loans? Isn't that what got us into this mess to begin with?</p> <script type="text/javascript"> federated_media_section = "gold"; </script><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/kate-lister">Kate Lister</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/small-business">Small Business Resource Center articles from Wise Bread</a>.</div></div> Entrepreneurship Financial News Small Business Resource Center Economy loans recession small business Sat, 03 Apr 2010 02:54:50 +0000 Kate Lister 6067 at http://www.wisebread.com This May Be the Best Time to Negotiate Loan Terms http://www.wisebread.com/small-business/this-may-be-the-best-time-to-negotiate-loan-terms <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/idea-hub/topics/money/article/this-may-be-the-best-time-to-negotiate-loan-terms-kate-lister" target="_blank">http://www.openforum.com/idea-hub/topics/money/article/this-may-be-the-best-time...</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/this-may-be-the-best-time-to-negotiate-loan-terms" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/this_may_be_the_best_time_to_negotiate_loan_terms_photo.jpg" alt="Loan terms" title="Loan terms" class="imagecache imagecache-250w" width="250" height="183" /></a> </div> </div> </div> <a href="http://www.wisebread.com/small-business/this-may-be-the-best-time-to-negotiate-loan-terms" class="sharethis-link" title="This May Be the Best Time to Negotiate Loan Terms" rel="nofollow">ShareThis</a><p>It may be counterintuitive, but the dark clouds that loom over the commercial lending industry these days may have a silver lining for borrowers. Banks need to lend money to make money. With credit at its tightest in over ten years, banks are hurting. For successful borrowers, that means loan <a href="http://ad.doubleclick.net/clk;218395199;41474888;e?http://www.plumcard.com/?eep=17460">terms</a> and conditions may be more negotiable then ever.</p> <p>The companies that are borrowing these days are, by definition, good customers, and good customers deserve the best deals. You can consider yourself among the most attractive if:</p> <ul> <li>Other banks are competing for your business;<br /> &nbsp;</li> <li>You're a good credit risk: high credit scores, strong collateral, consistent profitability, and low leverage;<br /> &nbsp;</li> <li>You're a continuing borrower and your performance has recently improved: higher profitability, better collections, improved inventory management, lower leverage, etc.;<br /> &nbsp;</li> <li>You're a relationship customer: you use the same bank for a variety of credit and non-credit services (i.e. loans, business accounts, personal accounts, lock box services, letters of credit, etc.);<br /> &nbsp;</li> <li>You bring, or could bring, significant other business (i.e. trust services, cash management services, credit card merchant services);<br /> &nbsp;</li> <li>You're in a position to refer other business (such as that condo association account you happen to manage);<br /> &nbsp;</li> <li>You maintain significant &quot;free balances&quot; in non-interest bearing accounts &mdash; the money that sits idle in your account, not the money that flows through it;<br /> &nbsp;</li> <li>You were referred by someone who refers them other business (i.e. your lawyer, accountant);<br /> &nbsp;</li> <li>You're personal friends with one of the bank's honchos.</li> </ul> <p>Deciding what to negotiate, or whether to negotiate at all, warrants some strategic thinking. For example, let's say you're negotiating a $100,000 line of credit, but only anticipate using the full amount during your peak season. You'll probably want to negotiate harder on the fee &mdash; which will be based on the full $100,000 whether you use it or not &mdash; than on the rate, which will only apply to the amount you use. Conversely, if you expect to use all of the line, focus on the rate rather than the fee.</p> <p>Here are some of the more negotiable loan terms and conditions:</p> <p><strong>1. Loan rate</strong></p> <p>Try countering with pricing that's fifty to a hundred basis points (.5% to 1%) lower than their original offer. Compromise on a rate that's twenty-five to seventy-five basis points lower than what's offered. Don't be afraid to split hairs. If they won't go for a quarter of a percent, try an eighth. After all, they should admire your frugality.</p> <p><strong>2. Loan points</strong></p> <p>Your total loan cost includes both fees and interest. In consumer lending, this cost is disclosed as annual percentage rate or APR, but no such disclosures are required in commercial lending. Take the time to calculate the full cost of the loan before you start negotiating.</p> <p><strong>3. Loan term</strong></p> <p>If they offer a 10-year term loan with a 5 year balloon, counter with:</p> <ul> <li>No balloon<br /> &nbsp;</li> <li>A 15-year term with a 5-year balloon (be prepared to show them that the useful life of whatever you're financing warrants a 15 year term)<br /> &nbsp;</li> <li>A 7-year balloon<br /> &nbsp;</li> <li>An interest-only period (this is particularly arguable if the loan is for something that isn't going to immediately improve performance)</li> </ul> <p><strong>4. Other loan fees</strong></p> <p>This includes prepayment penalties, cleanup fees, over the limit fees, compensating balance fees, non-use fees, missed covenant fees, etc.</p> <p><strong>5. Personal guarantees</strong></p> <p>Though in this market, if they already have them, it's not likely they'll let them go.</p> <p><strong>6. Collateral requirements</strong></p> <p>If your assets have appreciated or your borrowing needs are lower, it's reasonable to request the release of collateral. If you've been on a strict asset-based lending formula and your performance has been good, see if they'll loosen the formula or do away with it altogether.</p> <p><strong>7. Financial covenants and conditions</strong></p> <p>Such as liquidity, leverage, and profitability ratios.</p> <p><strong>8. Financial statements requirements</strong></p> <p>If the new loan requires quarterly review-basis statements, argue for compilation statements. If it requires annual audited statements for the first time, argue for review-basis statements; perhaps even offer to switch to an accountant they know and trust &mdash; and, by the way, receive referrals from.</p> <p><strong>9. Other bank fees</strong></p> <p>These are fees for checking account, merchant services, lock box, etc.</p> <p>And now for the 180-degree view. At the end of the day, pricing shouldn't be the deciding factor in your choice of banks. In the long term, developing a relationship with a banker you can trust, grow with, and even like is far more important than paying the lowest possible rate. A strong relationship with a lender can make or break you if you run into financial trouble down the line. A quarter point on a $100,000 loan costs $250 but a good relationship with your banker is priceless.</p> <script type="text/javascript"> federated_media_section = "gold"; </script><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/kate-lister">Kate Lister</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/small-business">Small Business Resource Center articles from Wise Bread</a>.</div></div> Banking Entrepreneurship Small Business Resource Center loans small business Fri, 26 Mar 2010 23:51:07 +0000 Kate Lister 5896 at http://www.wisebread.com What Every Business Owner Should Know About Collateral http://www.wisebread.com/small-business/the-truth-about-collateral <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/idea-hub/topics/money/article/what-every-business-owner-should-know-about-collateral-tom-harnish" target="_blank">http://www.openforum.com/idea-hub/topics/money/article/what-every-business-owner...</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/the-truth-about-collateral" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/what_every_business_owner_should_know_about_collateral_photo.jpg" alt="Home collateral" title="Home collateral" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <a href="http://www.wisebread.com/small-business/the-truth-about-collateral" class="sharethis-link" title="What Every Business Owner Should Know About Collateral" rel="nofollow">ShareThis</a><p>Given the way banks are getting the hairy eyeball from the Feds these days, if you want a loan you can be sure you'll have to pledge something as collateral &mdash; your signature won't be good enough. The bank will require something of value they can sell &mdash; if worse comes to worst &mdash; to recoup the money they gave (rented) to you. Sounds straightforward, but establishing the collateral value of an asset is often a point of contention in loan negotiations.</p> <p>Let's say you bought a truck just last week with $75,000 of your hard earned cash. (Bad move using your cash, by the way, but that's a different issue.) Still spanking new, and paid for, you offer your truck as collateral on an equipment loan for your start-up business. But the bank says it's only going to assign a collateral value of $45,000 to your vehicle. What gives?</p> <p>The difference in value is due to the reality that, if the bank has to sell your truck because you can't make your loan payments, there's no way they'll get 100 cents on a dollar.</p> <p>Anyone who's tried to sell a relatively new car understands the problem. The same principle applies in spades if, say, you're in the ditch digging business and want to use that custom built backhoe as collateral. If the bank thinks they'll have a hard time selling it, even if it's dirt cheap, they'll assign a low collateral value.</p> <p>Consider this extraordinary example: Lehman Brothers offered JPMorgan over $8 billion in cash and securities as collateral on a guaranty. Not long after the transaction Lehman declared bankruptcy. JPMorgan figured they were in good shape because they had all that collateral until they discovered the securities couldn't easily be converted to cash and their value was hard to determine. So, as part of a bankruptcy settlement reached a couple weeks ago, JPMorgan is transferring the securities back to Lehman and accepting a cash payment of about $560 million &mdash; less than 10 cents on a dollar.</p> <p>Even when you're talking thousands &mdash; never mind billions &mdash; of dollars, valuing collateral is always a source of contention between you and your lender. They want as much as they can get, and you want as high a value as possible for what you're offering. Part of the problem is that details about the value of your collateral may be common knowledge to you, but your lender may not understand the basis for your understanding. The best thing you can do is educate them on what your collateral is really worth, and you need to know where they're coming from.</p> <p>Here are some rules-of-thumb to help you understand how a lender's likely to value your collateral:</p> <p>1. <strong>Accounts receivables</strong> (A/R) less than 60-90 days old are generally valued at 50-85%.</p> <p>The collateral value of your A/R will be valued on the high end of the range if you sell to:</p> <ul> <li>Businesses vs. consumers;</li> <li>Large businesses vs. businesses;</li> <li>Many businesses vs. just a few.</li> </ul> <p>Your A/R will be valued lower if you sell to:</p> <ul> <li>High risk businesses (say, restaurants);</li> <li>Foreign customers;</li> <li>Slow paying customers;</li> <li>Customers with past due balances.</li> </ul> <p>2. <strong>Inventory</strong> will be valued, as collateral, at anywhere from 10-60% of the Balance Sheet value. It will be valued on the low end of the range if:</p> <ul> <li>Inventory turnover is slow;</li> <li>You sell many locations especially out of state;</li> <li>It's in a leased facility (unless your lender has a landlord's waiver);</li> <li>Most of it's work-in-progress (unfinished stuff that the lender would have a hard time selling);</li> <li>It's perishable, fashionable, or requires special storage.</li> </ul> <p>3.<strong> Furniture and equipment</strong> will be valued from 10-80%. Lower values will be assigned if it's specialized equipment that will difficult to sell or if it has little value in the secondary market.</p> <p>Here's a good example of why it's important to educate your lender: A transportation company owned hundreds trailers that rode piggyback on freight trains. Fully depreciated their Balance Sheet value was zip so the bank wanted to give them zero collateral value. But these trailers spent most of their life on a train and had very little wear. With a fresh coat of paint they could actually sell at greater than their purchase price, given favorable market demand. An appraisal proved the point and a 30% collateral value was established. If the trailers weren't located all over the country, and difficult to find, the assigned value would have been a lot higher.</p> <p>4. <strong>Real estate</strong> generally is given a collateral value of 50-90% of the appraised value (less any liens or mortgages). Real estate will be valued lower if it's investment real estate, special-use property, located in a distressed area, or if the real estate market is experiencing a &quot;trough of demand,&quot; such as, say, 2010.</p> <p>5. <strong>Cash</strong>, believe it or not, can be used as collateral. You can pledge money to borrow money? Don't laugh! Lenders will accept cash in the form of a certificate of deposit (CD) from their bank as collateral. But, because of liquidating it, even a CD from their bank won't be given 100% collateralization value, and one from another bank will be valued even lower. Some lenders will accept stock, bonds, or other people's assets (like real estate or certificates of deposit) as collateral, too.</p> <p>6. <strong>Contracts or purchase orders</strong> might be accepted by some government lending programs, and occasionally by conventional <a href="http://ad.doubleclick.net/clk;218396076;41475586;v?http://www201.americanexpress.com/sbsapp/FMACServlet?request_type=alternateChannels&lpid=298&openeep=17460&ccsgeep=17460">lenders</a>. In either case, their worry will be how they'll be paid if you don't perform &mdash; in most cases it won't be easy for them to find someone else to fulfill the order so they can collect the proceeds.</p> <p>These may not be the best economic times, but if you're refinancing or trying to negotiate a loan, keep the guidelines we've listed above in mind. More importantly, make sure your lender understands the realities about what you're offering as collateral so you get the best possible valuation.</p> <p><em>This is a guest post by Tom Harnish. Tom is a serial entrepreneur. He learned what works (and what doesn't) when raising money by spending countless (and often fruitless) hours in front of lenders and investors.</em></p> <script type="text/javascript"> federated_media_section = "gold"; </script><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/tom-harnish">Tom Harnish</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/small-business">Small Business Resource Center articles from Wise Bread</a>.</div></div> Banking Entrepreneurship Small Business Resource Center collateral loans small business Fri, 26 Mar 2010 23:45:53 +0000 Tom Harnish 5867 at http://www.wisebread.com FINANCIAL IQ TEST: How Healthy is your Debt Management? http://www.wisebread.com/financial-iq-test-how-healthy-is-your-debt-management <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/financial-iq-test-how-healthy-is-your-debt-management" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/IMG_0632_1.JPG" alt="debt" title="debt" class="imagecache imagecache-250w" width="250" height="333" /></a> </div> </div> </div> <p>How well do you understand your debt and how to manage it? Do you know the different types of credit available to you, and how to manage your credit rating? Do you live within your means, or are you up to your eyeballs and sinking?</p> <p>Following is a Financial IQ Test to help you determine how healthy your debt management techniques are. Even if you aren&rsquo;t in debt, this quiz may be illuminating for you. <strong>Simply look at each statement, and answer it with a YES, NO, or NOT SURE.</strong> Keep track of your answers, and we'll see how you score at the end. Then, check out the resource articles below to increase your knowledge base. It&rsquo;s a big bad world of debt out there!</p> <p>&nbsp;</p> <h2>FINANCIAL IQ TEST: How Healthy is your Debt Management?</h2> <h3>Knowledge / Awareness</h3> <p>I know how much I owe and to whom, and what each interest rate is.</p> <p>I understand the difference between secured and unsecured debt.</p> <p>I understand the difference between good debt and bad debt.</p> <p>If my mortgage interest rate increased, I could easily handle the increase in payments.</p> <p>I never get payday loans.</p> <p>I know the difference between a line of credit, credit card, and fixed loan.</p> <p>&nbsp;</p> <h3>Credit Cards</h3> <p>I don&rsquo;t charge anything new to my <a href="http://www.wisebread.com/credit-card-guide" title="Ultimate Credit Card Guide">credit card</a> if there is a balance outstanding.</p> <p>I never use my credit card for cash advances.</p> <p>I understand the consequences of making only minimum payments on credit card debt.</p> <p>I will use one credit card to pay off another <em>only</em> if it is a 0% interest balance transfer deal and I can pay it off in full before the rates increase.</p> <p>I never carry a balance on department store credit cards if there are interest charges or fees.</p> <p>&nbsp;</p> <h3>Transactions</h3> <p>I negotiate interest rates and/or annual fees with credit card companies, mortgage issuers, and other lenders.</p> <p>I pay the entire balance on my credit card each month, before interest is charged.</p> <p>If for some reason I miss a debt payment, I immediately call the lender to advise them of what happened to reduce or eliminate fees and penalties.</p> <p>&nbsp;</p> <h3>Security</h3> <p>I check my credit card statement every month for suspicious activity or incorrect charges.</p> <p>I have a list of all my credit card numbers, and phone numbers to call if they are lost or stolen.</p> <p>&nbsp;</p> <h3>Credit Rating</h3> <p>I have a good credit rating.</p> <p>I check my credit score regularly.</p> <p>If I stop using a credit card, I cut up the card as well as call the credit company to have it officially cancelled.</p> <p>&nbsp;</p> <h2>Scoring</h2> <p>Did you keep track of how many times you answered YES, NO, and NOT&nbsp;SURE?&nbsp;Great! Give yourself the following points for each answer:</p> <p>YES = 4 points</p> <p>NO = 0 points</p> <p>NOT SURE = 2 points</p> <p>&nbsp;</p> <h2>Analysis</h2> <h3>Score 0-25</h3> <p>Whoops. If you have debt right now, you&rsquo;re probably feeling a bit out of your league. Read some of the articles below to educate yourself on the areas you answered &ldquo;no&rdquo; the most to. Next: it&rsquo;s a soul-sucking job, but make some time to read the fine print and get to know the debt vehicles you are working with. And if you feel like things are getting out of control, see what a <a href="http://www.wisebread.com/credit-counseling-when-you-need-it-and-when-you-dont">credit counselor</a> can do for you.</p> <h3>Score 26-50</h3> <p>You&rsquo;re probably doing okay, but you don&rsquo;t know what you don&rsquo;t know, and there could be a better way to manage your debt. Make sure you&rsquo;re minimizing interest charges, using the correct debt vehicles, and taking measures to keep your information and credit rating solid and secure. If any of the questions above left you scratching your head, check out the related articles below for more information.</p> <h3>Score 51-76</h3> <p>Congratulations: you have a healthy debt management plan. Although there is always room for improvement, you&rsquo;re on the right track. Stay on top of your debt &ndash; and knowledge of it &ndash; and you&rsquo;ll be on your way to a debt-free life sooner than later (if you&rsquo;re not already there).</p> <p>&nbsp;</p> <h2>Resource Articles</h2> <h3>Credit Cards</h3> <p><a href="http://www.wisebread.com/credit-card-guide">Wise Bread&rsquo;s Ultimate Credit Card Guide</a></p> <p><a href="http://www.wisebread.com/top-seven-reasons-why-i-use-my-credit-card-for-everything">Top Seven Reasons why I use my Credit Card for Everything</a></p> <p><a href="http://www.wisebread.com/the-dirty-secrets-of-credit-cards">The Dirty Secrets of Credit Cards</a></p> <h3>Managing Debt</h3> <p><a href="http://www.wisebread.com/six-steps-to-eliminating-your-debt-painlessly">Six Steps to Eliminating Your Debt Painlessly</a></p> <p><a href="http://www.wisebread.com/diy-mortgage-acceleration">DIY Mortgage Acceleration</a></p> <p><a href="http://www.wisebread.com/why-would-anyone-pay-mortgages-with-credit-cards">Why Would Anyone Pay Mortgages with Credit Cards?</a></p> <p><a href="http://www.wisebread.com/worried-about-debt-tips-on-managing-your-loans">Worried About Debt? Tips on Managing Your Loans</a></p> <p><a href="http://www.wisebread.com/when-to-use-savings-to-pay-off-debt">When to use Savings to Pay Off Debt</a></p> <p><a href="http://www.wisebread.com/funding-your-401k-when-youre-in-debt">Funding your 401k When You&rsquo;re in Debt</a></p> <p><a href="http://www.wisebread.com/dont-rely-on-credit-for-your-emergency-fund">Don&rsquo;t Rely on Credit for your Emergency Fund</a></p> <p><a href="http://www.wisebread.com/debt-repayment-is-not-an-expense">Debt Repayment is Not an Expense</a></p> <p><a href="http://www.wisebread.com/get-out-of-debt-first-then-focus-on-saving">Get out of Debt First, Then Focus on Saving</a></p> <p><a href="http://www.wisebread.com/6-powerful-debt-paydown-strategies">6 Powerful Debt Paydown Strategies</a></p> <h3>Credit Rating</h3> <p><a href="http://www.wisebread.com/debt/credit-scores">Credit Scores</a></p> <p><a href="http://www.wisebread.com/the-four-cs-of-applying-for-and-managing-your-credit">The Four C&rsquo;s of Applying for and Managing Your Credit</a></p> <p><a href="http://www.wisebread.com/get-free-credit-score-monitoring-with-credit-karma">Get Free Credit Score Monitoring with Credit Karma</a></p> <h3>Credit Counseling</h3> <p><a href="http://www.wisebread.com/credit-counseling-when-you-need-it-and-when-you-dont">Credit Counseling: When you Need it and When you Don&rsquo;t</a></p> <p><a href="http://www.wisebread.com/dealing-with-nasty-debt-collectors">Dealing with Nasty Debt Collectors</a></p> <p><a href="http://www.wisebread.com/confessions-of-a-former-payday-loan-junkie">Confessions of a Former Payday Loan Junkie</a></p> <h3>General Knowledge</h3> <p><a href="http://www.wisebread.com/the-different-types-of-loans-a-primer">The Different Types of Loans: A Primer</a></p> <p><a href="http://www.wisebread.com/tallying-the-true-cost-of-debt">Tallying the True Cost of Debt</a></p> <p><a href="http://www.wisebread.com/acknowledge-you-have-a-problem-with-debt">Acknowledge You Have a Problem With Debt</a></p> <p><a href="http://www.wisebread.com/stopping-the-student-loan-debt-stress">Stopping the Student Loan Debt Stress</a></p> <a href="http://www.wisebread.com/financial-iq-test-how-healthy-is-your-debt-management" class="sharethis-link" title="FINANCIAL IQ TEST: How Healthy is your Debt Management?" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/nora-dunn">Nora Dunn</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Credit Cards Debt Management loans Sat, 23 Jan 2010 19:00:04 +0000 Nora Dunn 4811 at http://www.wisebread.com How to Prepare for a Home Purchase in 2010 http://www.wisebread.com/how-to-prepare-for-a-home-purchase-in-2010 <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-prepare-for-a-home-purchase-in-2010" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/stockxpertcom_id22164291_jpg_7ef51b18081bb31d587372195b7e71ef.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="177" /></a> </div> </div> </div> <p>With all the talk and controversy in the last year about the housing market and mortgage industry, it&rsquo;s a wonder people are not petrified of buying a home in the new year. While things seem to be leveling off a bit, there have been some major changes made and getting low-interest financing is going to be tougher than ever before. Anyone looking to buy a home this year needs to do their homework and be really prepared before even considering a home-buying venture. Here are a few tips to make your home purchase a success from start to finish.</p> <h3>Be clear on your credit</h3> <p>Mortgage requirements are much stricter and lenders want to see proof of your credit worthiness. A credit score of 720 used to be the magic number to enable low-interest loans, but most lenders expect 740 or higher now in order to offer the best rates and fees to borrowers. Request a copy of your report and score as soon as possible. If your score doesn&rsquo;t live up to those standards, get to work immediately at <a href="http://www.wisebread.com/debt/credit-scores">improving your credit score</a> before approaching any mortgage lender.</p> <h3>Understand the numbers</h3> <p>Many people do not consider how much house they can afford. Instead, they base everything on loan interest rate and amenities. Savvy consumers will focus on the true amount owning a home will cost them. Experts recommend following the guidelines of the Federal Housing Association, who suggest that house payments (including taxes, principal, interest, insurance, and any homeowner dues) should not exceed 31% of gross monthly income. They also recommend that a consumer&rsquo;s total debt payment should not exceed 43% of gross monthly income. Do the math. Be sure you will not go drowning in debt with a home purchase.</p> <h3>Save for a down payment</h3> <p>If you are ready to buy, you should have enough cash to cover at least 10% of the down payment as per most lenders requirements. If you haven&rsquo;t saved enough, look into a FHA-insured mortgage where you need 3.5% of the down payment amount. If you have no down payment money, you can investigate VA loans from the Department of Veteran Affairs.</p> <h3>Grab a loan early</h3> <p>There are plans for the Federal Reserve to quit buying mortgage-backed securities by the end of March so experts believe rates will go up when the support is gone.</p> <h3>Inquire about loan options</h3> <p>While fixed-rate mortgages are typically the safest way to get a loan, ask about the other options. For instance, an adjustable-rate loan may be ideal if you only plan to stay in the home for 5 years. Check out not only the interest rates but also the available discount points and other loan scenarios.</p> <p>Again, know that the housing and mortgage industries have changed a lot in a short period of time and what used to be &lsquo;good enough&rsquo; is what started this fiasco in the first place. If you are serious about home ownership, get started on the research, the math, and the savings, and the credit improvement as soon as you have an inkling you are ready to buy. The more prepared you are, the better deal you will get, and the lesser the financial burden in the long run.</p> <p><em>Are you in the market? What problems have you encountered?</em></p> <a href="http://www.wisebread.com/how-to-prepare-for-a-home-purchase-in-2010" class="sharethis-link" title="How to Prepare for a Home Purchase in 2010" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/tisha-tolar">Tisha Tolar</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Real Estate and Housing credit score financing home buying loans mortgages real estate Sat, 16 Jan 2010 16:00:09 +0000 Tisha Tolar 4567 at http://www.wisebread.com Worried About Debt? Tips On Managing Your Loans http://www.wisebread.com/worried-about-debt-tips-on-managing-your-loans <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/worried-about-debt-tips-on-managing-your-loans" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/pay-bills.jpg" alt="debt management" title="debt management" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>I am extremely debt averse. In fact, the only debt I have is my mortgage. However, I do have family members who have been struggling with debt for a long time, whom I try to help out with some friendly advice. Someone in my family, for example, is a head of household who's had a hard time holding on to a job in recent years, especially in the state where he lives, where unemployment has been sky high. So he's taken on personal loans, credit card debt, auto loans and even student loans galore! With so many loans to manage, he's often asked me and other people for tips and advice.</p> <p>Here's what I tell him: If you've got a lot of loans under your belt, you'll want to make sure to manage them well, or risk wrecking your credit by making a late payment somewhere. Dealing with debt involves both defense and offense: when your goal is to cut down on the debt you carry, the key is to stop borrowing any more money, to make sure you can afford paying down your loans (spend less and earn more to pay off debt!), and to try to lower your interest rates as much as you can.</p> <p>Here are a few tip to keep your debt under control and ways to speed up the process of reducing your debt load.</p> <h3>1. Keep tabs on your credit.</h3> <p>Anyone who borrows money should keep an eye on their credit. But interestingly, there are quite a good number of people who aren't even aware of their credit score. Do you know what your credit report says about your debt habits? If you've got loans and many accounts you're dealing with, you'll need to know how your debt load affects your credit rating. The way you manage your debt influences your credit rating: this is important because by taking care of your credit, you can be eligible for cheaper loans or have the leeway to reduce your loan interest rates. If you want to retire your loans as quickly as possible, having a healthy credit history may help you negotiate your way to lower rates.</p> <h3>2. Consolidate your loans.</h3> <p>You may want to consider consolidating your loans on your own as a way of reducing your debt. For example, I like the idea of using balance transfer credit cards if you can commit to paying down your debt before the teaser rates bump up. Despite the credit crunch, there are still 0% APR credit card offers that abound, to which you may think about transferring your debt balances over if you can be aggressive about paying off your debt at the 0% rate within a short period of time.</p> <h3>3. Do your own debt management.</h3> <p>Before you seek credit counseling or turn to debt settlement companies, do all that you can to handle your debt issues on your own. Handling things on your own is cheaper. A lot of it is simply applying fiscal discipline: <strong>start off by avoiding new debt.</strong> Don't take on additional debt unless you are comfortable with what you're already dealing with. Cut back on spending or try to earn more in order to cover your bills. There's really no magic bullet here: there's nothing that others can help you with that you can't already do on your own. If you really are experiencing hardship, turn to local and government financial programs that are geared to assist low income families or those having a hard time paying their bills.</p> <h3>4. Lower your interest rates.</h3> <p>Find out if you can somehow reduce your loan rates. Can you qualify for low interest credit cards? Or you may think about taking out a cheaper personal loan to pay off a more expensive loan. Also, you may be surprised to know that financial institutions may have hardship programs available and that bankers may be willing to negotiate with borrowers who approach them for guidance. It never hurts to try!</p> <h3>5. Pay on time!</h3> <p>You know you're in trouble if you're unable to make your loan payments on time: this indicates that you've taken too heavy a load and that you should make it a priority to address this debt. Do your best to cut down on expenses, while paying on time. Pay your bills late and you'll see your rates go up. Whatever happens, do your best to make those payments because late or missing payments can do a number on your credit.</p> <h3>6. Pay more than what's required each month.</h3> <p>If you ever get a hold of a windfall or find yourself with extra income, you should think about applying it towards your debt. Some people suggest keeping debt around while banking the extra money in an <a href="http://www.wisebread.com/figuring-the-size-of-your-emergency-fund">emergency fund</a>, but I think it would depend on just how big a debt obligation you actually face. If debt is a thorn on your side, get rid of it asap. In my case, I've added extra payments to my mortgage whenever I could afford it!</p> <h3>7. Be picky about the help you choose to get.</h3> <p>Turning to <a href="http://www.wisebread.com/credit-counseling-when-you-need-it-and-when-you-dont">credit counseling</a>, debt settlement and loan modification outfits should be the last thing you try to do. You can actually do your own debt negotiations yourself by approaching your lenders directly for assistance. Some people decide they need the extra help by reaching out to debt management companies when they feel there's nowhere else to turn. These companies can help alleviate the pressure but you'll be paying for offloading the work onto someone else. The good news is that there are other free and non-profit programs that may be able to assist you &mdash; so go to these first: visit <a href="http://www.debtorsanonymous.org/">Debtor's Anonymous</a> or the <a href="http://www.nfcc.org/">National Foundation for Credit Counseling</a> for support and information on how to live with and manage your debt and credit.</p> <p>&nbsp;</p> <p>&nbsp;</p> <a href="http://www.wisebread.com/worried-about-debt-tips-on-managing-your-loans" class="sharethis-link" title="Worried About Debt? Tips On Managing Your Loans" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/silicon-valley-blogger">Silicon Valley Blogger</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Credit Cards Debt Management credit debt loans Wed, 14 Oct 2009 13:00:03 +0000 Silicon Valley Blogger 3710 at http://www.wisebread.com New Income Based Federal Student Loans Repayment Plan - Can You Benefit? http://www.wisebread.com/new-income-based-federal-student-loans-repayment-plan-can-you-benefit <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/new-income-based-federal-student-loans-repayment-plan-can-you-benefit" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/graduatesavings.jpg" alt="Graduate Savings" title="Graduate Savings" class="imagecache imagecache-250w" width="250" height="375" /></a> </div> </div> </div> <p>This month a <a href="http://www.latimes.com/business/la-fi-perfin5-2009jul05,0,4774835.column">new repayment plan for federal student loans</a> is going into effect that allows borrowers to base their monthly payments on their income after graduation.&nbsp; Here are some details on how the new <a href="http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp">Income Based Repayment Plan (IBR)</a> affects loan payments for borrowers, and some pros and cons of participating in the plan.</p> <p>First of all, this plan only applies to borrowers with federal student loans including Stafford, Grad PLUS or Consolidation loan made under the Direct Loan or FFEL programs.&nbsp; The loan also cannot be in default and can apply to any type of education.</p> <p>The monthly amount required is based on income, family size, and state of residence and the Federal Student Aid websites provides an <a href="http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRCalc.jsp">IBR calculator</a> here for you to figure out what monthly amount you would owe.&nbsp; Borrowers who earn less than the poverty level have a minimum payment of zero, and others do not have to pay more than 15% of their discretionary income. It is possible that your current repayment plan is less than the amount required under the IBR plan.&nbsp; For example, if you are a single borrower who currently owes $5000 at 6.8% and earns $25,000 a year, the new plan would peg your payments at $109 a month, but the amortized 10 year repayment plan would only require a $57 monthly payment.&nbsp; In this case it is probably easier to just stick with the original10 year repayment plan.</p> <p>If a borrower chooses to enroll in the IBR plan because the monthly repayment amount is lower, then the loan may be stretched out due to interest.&nbsp; Basically, any interest payment not covered by the monthly payment will be rolled into the principal.&nbsp; So it is possible that the loan will get bigger.&nbsp; If the borrower has a Subsidized Stafford Loan, the government will pay the unpaid interest for three years. But after that all unpaid interest will be capitalized.</p> <p>There are a couple ways the <a href="http://www.wisebread.com/7-great-jobs-that-offer-college-loan-forgiveness">loans can be forgiven</a>. One method is for the borrower to make repayment under the plan for 25 years, and the other is to work in public service for 10 years and make all 120 loan payments through the IBR.</p> <p>The main purpose of the new repayment program is to help many recent graduates who are having trouble finding a job that pays well. It could also help families who have suffered a <a href="http://www.wisebread.com/lost-my-job-tips-for-the-recently-laid-off">job loss</a> and have high student loan obligations.&nbsp; Borrowers will have to record their income and family size every year to redetermine the payment amount. When you get a higher income job, the loan will adjust accordingly.&nbsp; However, since the loan will be stretched out and interest added, it is not recommended to join the plan if you currently have no trouble paying your current loan amount. </p> <p>If you could benefit under this program you should contact your student loan lender directly to apply.<br /> &nbsp;</p> <p><hints id="hah_hints"></hints></p> <a href="http://www.wisebread.com/new-income-based-federal-student-loans-repayment-plan-can-you-benefit" class="sharethis-link" title="New Income Based Federal Student Loans Repayment Plan - Can You Benefit?" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/xin-lu">Xin Lu</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Career and Income Consumer Affairs federal student loans loans repayment student loans Mon, 06 Jul 2009 22:01:36 +0000 Xin Lu 3357 at http://www.wisebread.com 5 Strategies To Wipe Out Your Credit Card Balance http://www.wisebread.com/5-strategies-to-wipe-out-your-credit-card-balance <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-strategies-to-wipe-out-your-credit-card-balance" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/paying-bills-492024755-small.jpg" alt="paying bills" title="paying bills" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>I have a couple of friends who live by their credit cards.&nbsp; Unfortunately, they both have lower income jobs and live in survival mode, while continuing to participate in one financially detrimental pastime -- which is to shop without remorse.&nbsp; They've been enjoying the good life on a very modest income and consequently, are now swimming in <a href="http://www.wisebread.com/credit-card-guide" title="Guide to Using Credit Cards Wisely">credit card debt</a> with balances in the 5 figures.</p> <p>I've gently reminded them over the years that they need to clamp down on their shopping activities and instead focus on more affordable ways to spend their time. But they complain about how tough it is to drop a &quot;bad&quot; habit.&nbsp; I personally feel that it's harder to drop pounds than it is to drop a spending habit and to cut costs, but in both situations -- whether you aim to lose weight or to reduce your debt -- you'd want an action plan to succeed.</p> <p>So how about we go through some suggestions on how to escape the clutches of credit card debt?</p> <h2>1. Get a lower interest rate.</h2> <p>If you've got a sky-high interest rate on your credit cards, think of ways to <a href="http://www.wisebread.com/the-best-low-interest-rate-credit-cards">work out a lower rate</a>.&nbsp; Perhaps you're a loyal credit cardholder: is there some room to negotiate with your credit card company?&nbsp; It doesn't hurt to ask if they can work out a better rate for you.&nbsp; I'd try this first before looking into a few more schemes, such as considering <a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards">balance transfer credit cards</a>, or moving your balance to a card with a lower rate. If you don't have the money to pay down your loan aggressively, you may want to consider borrowing it elsewhere at lower rates and using that money to apply to your card balance.</p> <p><em><strong>Tip:</strong> Have you considered turning to friends, family or even a peer to peer lending network for liquidity?&nbsp; You can check out our <a href="http://www.wisebread.com/lower-interest-rates-with-credit-sesame-and-lending-club">Lending Club review</a> for a discussion on peer to peer lending.&nbsp; Becoming a member of a social lending network may give you access to loans with better terms, provided that you have good credit.</em></p> <h2>2. Track your expenses.</h2> <p>My friends in debt had one common problem -- they had no knowledge about how much they were spending and had no idea how deep in the hole they really were. So it's imperative for anyone who has a debt load to <a href="http://www.wisebread.com/looking-at-your-expenses-with-new-eyes">be aware of their expenses</a>. The basic advice works:&nbsp;it will serve us well to make a budget, to use a budgeting program&nbsp;or to try out free expense tracking tools like Mint.&nbsp; Finding out exactly what your outgo is vs your income will give you a snapshot of your situation and will allow you to map out a debt reduction plan.</p> <p><em> <strong>Tip:</strong> You can carry around a notebook where you write down all your expenses during the day. This way, nothing slips through the cracks!&nbsp; It may take discipline to start doing this, but hopefully, it becomes a habit over time.</em></p> <h2>3. Spend less.</h2> <p>So how do you control your spending? You might say it's easier said than done. I agree that it involves some will power, but I personally base my strategies for spending less on 5 principles:&nbsp;</p> <ul> <li><strong>Prioritize</strong>&nbsp;where your money goes.</li> <li><strong>Defer</strong> unnecessary expenses to a later time.</li> <li><strong>Abstain</strong> from spending by just saying &quot;NO&quot; to my shopping impulses.&nbsp; I actually use what is called my &quot;3 day rule&quot; to wait before I decide to buy something.</li> <li><strong>Substitute.</strong>&nbsp;That is, purchase and use more affordable items instead of the more expensive alternatives. Make sure you use coupons and that you comparison shop as much as you can!</li> <li><strong>Delegate.</strong>&nbsp;Which means that whenever you get a chance, find out ways to share the expenses. One example is car pooling: why not share commute costs with someone else to trim your gas budget?</li> </ul> <p><em><strong>Tip:</strong> Another great way to force yourself to save and spend less? <strong>Automate your savings</strong>, for the easiest way to save.</em></p> <h2>4. Prioritize your payments.</h2> <p>If you've got a lot of bills piling up and find yourself with a limited budget to pay off credit card debt, then <a href="http://www.wisebread.com/six-steps-to-eliminating-your-debt-painlessly">prioritize your payments</a>.&nbsp; This will help you make the biggest dent on your debt right off the bat. In our case, we focus on taking care of our necessities first, after which we put as much as we can afford towards our most expensive loans. Our strategy has always been to be as aggressive as possible towards paying down debt. If this is something you find difficult to manage, then try to focus on applying more than the minimum towards your credit card balance anytime you get the chance. Any windfall you receive (tax refund, inheritance, unexpected savings, cash gift, lottery win) should go towards debt repayment in most cases.</p> <p><em> <strong>Tip:</strong> One caveat: <a href="http://www.wisebread.com/suze-orman-tells-us-to-pay-only-the-minimum-on-credit-cards-wait-what">Suze Orman suggests that you pay the minimum</a> on your cards while you focus on building an emergency fund if you haven't built enough of a cushion yet. According to Suze, our new financial environment dictates that greater financial risks spell the need for us to prioritize on short term savings first.</em></p> <h2>5. Earn more money.</h2> <p>Spending less is just half of the equation in order to pare down debt.&nbsp; The other half is to earn more. &nbsp;There's no secret here: you can <a href="http://www.wisebread.com/getting-by-without-a-job-part-2-boost-income">increase your income</a> through entrepreneurial endeavors or by getting a second job somewhere.&nbsp; Another idea would be to increase your hours of work at your place of employment if you are paid hourly.&nbsp; Maybe it's time to talk to your employer?&nbsp; In our household, we've been able to bump up our income using this tactic:&nbsp;while my spouse and I run a business, we also try to ramp up our consulting gigs and external projects when we encounter slower months in our business cycle.&nbsp; These days, you'll find that freelancing and job hunting are made easier with job sites like eLance, Guru.com, Craigslist and other online job boards. We also use LinkedIn to stay connected with colleagues on a professional level, and through networking, we're able to secure job leads.</p> <p><em><strong>Tip: </strong>Create a professional online profile for yourself via a web site, Facebook or LinkedIn to raise your visibility to potential employers or clients.</em></p> <a href="http://www.wisebread.com/5-strategies-to-wipe-out-your-credit-card-balance" class="sharethis-link" title="5 Strategies To Wipe Out Your Credit Card Balance" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/silicon-valley-blogger">Silicon Valley Blogger</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Credit Cards Debt Management credit debt loans Thu, 11 Jun 2009 00:03:12 +0000 Silicon Valley Blogger 3224 at http://www.wisebread.com