Banks

Many homeowners think about refinancing at one time or another. They want to pay off loans or they need money to make home improvements. Whatever your reason for considering refinancing, there are some things you need to know before you sign on the dotted line. 

1. Why are you refinancing? This is an important question you need to have an answer to. If it’s to pay off high-interest loans, that’s a valid concern, but if it’s simply to take an expensive vacation or buy a luxury item that’s not a necessity, you may be putting yourself further into debt with nothing to show for it. There are good reasons to refi and frivolous ones and you should only refinance when the pros outweigh the cons.

2. Are there penalties? There can be a lot of rules and information tied into your current mortgage that seems translatable only to someone versed in real estate law, but it’s in your best interest to know exactly what the fine print on those documents mean. You may have to pay stiff penalties for paying off your current loan early, penalties that are so high that refinancing isn’t cost-effective.  

3. Is your interest rate fixed or variable? This is one of the more important points and is tied into how long you plan to live in your home. Many homeowners who end up in mortgage crises signed on with adjustable rate mortgages whose introductory rates were attractively low; they may or may not have had the intention of selling within a few years. Before they’re able to make any moves, the interest rate goes up, they have trouble making payments and the home goes into foreclosure. Fixed rates are generally more favorable, depending on the next point…      

4. How long you’re going to stay in your home – If you’re in the home of your dreams and don’t plan to move anytime soon or ever, a fixed rate mortgage is your best bet. Adjustable rates only really benefit the homeowner when they plan to be out of that home before the rates have a chance to rise significantly.

5. How many points will you pay? This is an area you need to really research to see if refinancing is worth it. Points are percentage points of the value of your loan. You may think you’re getting a great deal with a zero points mortgage, but is the interest rate higher to make up for no up-front cost?   

6. Who will do your refinancing – You may have received one of those tempting offers in the mail and are thinking of trying out Bank B instead of your current mortgage lender. Don’t be so hasty because the grass isn’t always greener outside of your bank. Because you’re already familiar with your financial institution, you have a reputation with them and they know you as well. It may be simpler to stick with the business who already has all of your documentation on hand. 

7. Will you come out ahead? – The only way you’ll know this is to sit down and fiddle with the numbers. There’s a minimum amount of time you’ll need to stay in your home to break even. Use a refinancing calculator to help you calculate how much you’ll save by refinancing and how long it’ll take you to recoup your costs.     

8. Is the interest rate percentage difference worth it? If you can get a minimum two percentage points difference in your rate, refinancing may be worth it. Again, you won’t know by how much until you do those calculations.   

9. What will you do with the additional savings? If you’ve already done the calculations to figure out exactly how much you’ll save, good for you. But where are these savings going to go? If you plan to pay off loans, good. If you plan to buy that backyard pool that will add value to your home, good. If you don’t know what you’ll do with the additional savings, it’s time to sit down and evaluate…

10. Are you willing to do the homework? No one said refinancing was going to be easy. Clearly, there are quite a few informed steps you need to take before you even get to refi. Instead of taking the first offer that comes your way from a bank that’s unfamiliar to you, research them as well as your current bank and several others before making a decision. Before you sign anything, read the fine print; if there’s anything you don’t understand, don’t be afraid to ask questions! That’s what the professionals are there for – to answer them. If someone isn’t willing to explain things to you or want you to make a decision right now, run, don’t walk, out the door.     

With the Recent failure of IndyMac, many consumers are getting skittish. I’m seeing many people ask in the FatWallet Finance Forum - How do I know if my bank or credit union is insured?

The FDIC Has a guide called “Are My Investments Insured?” The Basic Gist of it is that the insurance covers up to $100,000 per depositor, per bank. It’s not per each account you may have at your bank, but all the money under your name at that bank.

Credit Unions are covered under the NCUA, which has an excellent guide on Share Insurance, which the Credit Union version of deposit insurance.

Online education is the big thing right now. But is it really worth the cost? Are the degrees worth as much as a traditional, bricks and mortar 4 year education? Honestly I don’t know. I do know that if you’re looking for a specific online degree program
then you should probably make sure that it’s accredited, and that your employer or future employer views degrees from places like the University of Phoenix in a good light.

If you’re looking for a specific degree, college rankings like the Best Psychology Colleges and Top Engineering Schools will also be helpful.

As the Internet becomes a more and more central part of our life, there are a number of ways you can lower your bill and retain the same great service. Here are three quick and easy options:

1. Get a bundle - companies like Comcast, AT&T and others offer significantly discounted rates for buying multiple services from them.
2. Call and ask for a discount - you’d be surprised what companies will offer - see if you can get transferred to a retention specialist who can give you the best deals.
3. Try alternate services - check out alternate methods of broadband, like Satellite Internet, Wireless Internet and even cellular broadband.

To really experience fiscal liberty, you have to know how to play the credit score game. Here, I’ll talk a little about how credit scores came to be, how to get your score, and how to improve it so you save as much money as possible in the future.

A super-quick history of credit scoring

A long time ago—before online banking, ATM machines, and even widespread credit card use—banks made lending decisions the old-fashioned way. A person wanting a loan would gather necessary paperwork, put on their most professional-looking suit, and walk into the neighborhood bank for an in-person interview to plead their case. The banker would make a lending decision based on the applicant’s income, assets, and character.

Then, around 1960, a company called Fair Isaac came up with a math formula. This formula generates a three-digit number that rates our creditworthiness. These FICO credit scores are calculated based on the information contained in our credit reports. A high score means you make regular, timely payments on your past bills, and a low score means you borrow money but don’t pay it back.

FICO scores have largely replaced the subjective and time-consuming loan process of yesteryear. Many lenders now make instant, automated lending decisions—including the interest rate they offer—based on an applicant’s credit score.

Different credit scores

Today, FICO is not the only credit score available. Many different scoring models have been developed by Fair Isaac, as well as by the major credit bureaus and even individual lenders. This is why you don’t just have a single, authoritative credit score, but rather multiple scores. These scores can also change from month to month based on your most recent credit history. So a credit score is just an estimate of your creditworthiness at any given point in time.

Finding out your credit score

Again, there is no universal credit score that all lenders use to evaluate you. But that doesn’t mean you can’t get a good idea of where you stand. AnnualCreditReport.com, the government-sponsored website that furnishes free credit reports, will offer you a credit score (though you’ll have to pay for it). Or, you can visit the websites of the three major credit bureaus—TransUnion, Equifax, and Experian—to purchase scores. Services like FreeCreditReport.com do offer free credit reports and scores, but typically only for a trial period, after which time you will be charged.

Improving your credit score

Most credit scores fall on a scale of 300-850. In today’s economic climate, the definition of a “great” credit score has shifted steadily up the scale. These days, you’ll need at least a 720 or higher to qualify for the best loans with the lowest interest rates.

So how do you improve your score? Paying at least the minimums on all of your debts every month is the first step. Timely payments count for around 35% of your credit score, so do everything you can to meet those monthly obligations.

Paying down your existing debt is the second most important thing you can do to improve your score. Are your credit cards almost maxed out? Your card balances shouldn’t be anywhere near your card limits. In fact, some say your balances should be less than 10% of your card limits. This means if your Visa has a limit of $10,000, you shouldn’t have more than a $1,000 balance on it.

The third way to improve your credit is to simply be patient. Time plays an important role in boosting your score: Long and strong credit histories merit better scores than short or weak credit histories. The phrase “time heals all wounds” is true when it comes to your credit. For instance, past delinquencies have less and less of an impact on your score as time goes on.

If you pay your monthly bills on time and lower your existing debt, your credit score will improve over time. With a great credit score, you’ll qualify for new loans and lines of credit at the best interest rate a bank can offer. This means serious savings for you each month.

You may have seen ads on TV featuring companies that claim they can “repair” your credit. They tell you that you won’t even have to pay all that you owe to creditors because they’ll negotiate your debt down to a smaller percentage.

First of all, only you can “fix” your credit. If you have a poor rating, it won’t be easy to get it back up to a decent rating and it will take time. There’s no quick fixes when it comes to credit repair. If you’ve been thinking of taking advantage of one of these offers of debt settlement, here’s 3 reasons to run from debt settlement companies and rethink your options:

1. Your credit rating will plummet. Many of these debt negotiators will advise you to no longer take creditors’ phone calls. They’ll tell you not to make any payments. Meanwhile, your phone is probably ringing off the hook with creditors on the other end of the line, some of whom will undoubtedly threaten legal action. While the debt settlement company is waiting for you to get so behind in your bills before they make a move, your credit rating is dropping like a lead weight. And who wants to deal with all those harassing phone calls?

2. Many of them are scams. This isn’t to say all of the debt settlement industry is a scam, but it’s sure full of scam artists. From personal experience, I can tell you that one such company offered to sign me up without asking how I was going to make monthly payments. They simply said, this is what you’ll pay per month, but they didn’t know if I was employed, unemployed, what I made, etc. And they didn’t care. All they wanted was their exorbitant fee upfront before they’d lift a single finger to do anything about helping me with my debt. Besides, although a lot of consumers aren’t aware of this, they can negotiate with credit card companies themselves, without having to pay a middleman. But you can’t go into the negotiation pool with no life jacket; this requires a lot of research (because credit card companies often don’t want to cooperate with you on this) and sometimes an attorney.   

3. It doesn’t allow YOU to take full responsibility. I know this may be an unpopular view, but if you only have to pay back 50% of what you “owe,” how do you claim responsibility for all of your debt? I know that interest fees are a huge part of credit card balances and only having to pay back some of your enormous debt certainly looks attractive, so much of this will depend on how much you actually have to pay back. Someone who’s $25,000 in debt may have a different view that someone who’s $100,000 in the hole. But in the end, it’s all debt that you wracked up and part of being financially mature and responsible is being able to say “Hey, this is my debt, this is money I spent and now I’m going to be in charge of it and pay it back.”

If you still decide to go the debt settlement route, I can’t stress enough how important it is to do your homework and thoroughly check the company out. Or, you can go down a path that I know works and that’s dealing with a debt management company. No, your debt won’t get slashed by 50%, but your interest rates will be lowered by a significant margin, you’ll receive financial education and counseling as part of the program and you won’t have to avoid your creditors. Again though, check out a debt management company’s reputation before you sign up and then get on the way to being debt-free.   

I know that sometimes, just getting your goods together once you’ve checked out can seem like enough to do, but I want to give everyone out there one quick tip you can do to make sure you’re not losing money unnecessarily: check those receipts.

I’ve been overcharged by as much as $25.00 and if I wasn’t diligent about looking my receipts over before I left the store, I could be out quite a bit of money. And so could you. Computerized checkouts aren’t perfect. Humans make mistakes and so do machines. I’ve been charged twice for one item or not given the “buy one/get one free” offer. 

It only takes a few moments of your time. What time you take looking over your receipt can easily be money saved.

I know the price of gas has forced many of us to make changes and while there’s some grumbling involved at the inflated price of oil, I’m going to look at the bright side and show you 3 (beneficial) things high gas prices can do for you:

1. Make you take trips closer to home. For many families, summertime is the season to gas up the SUV or minivan and take it on the road. People will drive hundreds of miles to Disney World and try to pack a month-long of fun into a week. Sure, it’s fun, but it’s usually pretty exhausting, too. But what about all those attractions that are closer to you that you never checked out because the kids wanted to see Mickey Mouse? Every year, my family drove past several attractions because we were headed straight for Disney. Sure, there aren’t the same rides or characters and some of them are even more — gasp — educational than FUNFUNFUN, but I think a trip that involves some quiet time where the kids can fish, cook out in the open and actually talk to their parents can be just as memorable as one that involves thousands of flashing lights.

2. Make you healthy. I see a lot more people bicycling everywhere these days. It doesn’t matter if high gas costs are what motivated it, the fact is cycling is a great way to get where you’re going as well as get yourself into better shape. While everyone who cycles won’t change their entire lifestyle, many people who begin to take care of themselves with exercise also take this healthy approach to their eating habits. They lose weight, they feel better. If you walk to take public transportation, you’re putting one less car or truck out there on the road, which is a good thing for the environment and for you.      

3. Makes you money-aware. How many of us, back in the good ole days when gas was under $3/gallon, just filled up our tanks without much thought? Gas was necessary to get us where we needed to go and the price, though quite a bit higher than it was when I first started driving back in 1987, didn’t seem too outrageous. Fast-forward to an era when $5/gallon isn’t far-fetched anymore and many people have had to make changes. Change isn’t always bad in a situation like this. When people have to decide whether they’re going to get gas or get food, it forces you to sit back and look at the price of things. It makes you think. Many of us may not have given much thought to how we spent money on seemingly “necessary” items like gas, but today, we probably do. I’ve had to re-do my budget due to high gas prices; I’ve had to adjust my schedule to get my kids to their activities, but you know what? It’s made me more conscious of how I spend my time and money. And that’s a good thing.