ArchiveCategory Archives for "Debt"
Getting Out Of Debt
How can you retire early and achieve financial independence if you’re buried under tons of debt? You can’t! If you need to dig yourself out, this is the category built just for you.
How can you retire early and achieve financial independence if you’re buried under tons of debt? You can’t! If you need to dig yourself out, this is the category built just for you.
After you’ve found the right apartment or rental house, you may think you’re stuck living with the bland outdated style of the landlord. But that’s not the case. There are ways to make your new home your own without jeopardizing your deposit.
Let me show you 4 ways you can personalize your rental home without making any permanent alterations.
While there are some rentals where you aren’t allowed to paint the walls, there are more agreeable landlords and property managers that will let you. If the landlord allows you to paint the walls there are some things to keep in mind.
When your lease runs out you could find yourself having to spend potentially a lot of money and time repainting. Think about whether or not you’ll be able to prime and paint the walls when moving out.
A landlord may say that you can paint the walls, but will restrict which colors you can use. They may just have to verify the color to ensure it’s not hot pink or neon green for example. Get their approval before painting using a shade they don’t allow you to use.
The landlord might also restrict which rooms you can paint. They could say that you can paint your bedroom but not your kitchen. Make sure you can paint a room before splashing out the cash necessary to do so.
Finally you need to consider how long your lease will last. Will you be in the property long enough to make it worth painting now and having to paint it again in the future? If you just have a month to month lease and you just moved in, you might wait a while to see if you’re going to like the neighborhood.
If you can’t paint the walls, then hanging paintings and pictures are a great alternative to decorate the walls. Many rental agreements will allow you to do this but you should still check with the landlord. After all, the landlord might not want all the holes in the wall. There are several benefits to having just a few pictures up on your walls:
Only the small nail hole will be left behind by hanging a painting. But there might be lots of holes if you plan to cover your entire wall. You could instead hang the photo or artwork with adhesive and leave behind no traces behind at all.
Don’t forget that one provision to being able to hang up paintings is having to fill in any nail holes left behind when you leave the property. It’s less work than repainting a wall again at least.
Make a bold statement. The photos and art you choose allow you to express yourself.
One great thing about pictures is that they are super easy to change so you can replace and remove them on a whim.
There are certain fixtures in a rental property that are easy to update. Don’t forget to keep hold of the original items when replacing them though. That way it’s easy to put them back before moving out. The following are prime examples of permanent fixtures you should be able to change to personalize your rental property.
Always check with the landlord before changing fixtures as some of them could be permanent. But there shouldn’t be a problem with changing a bulb or shade though, and it can really change how a room feels.
Showerheads tend to be inexpensive to buy and super easy to change. The right showerhead can breathe new life into your shower.
Changing these is often easy and can add plenty of colors and pop to a room that would otherwise be bland.
There are some landlords who will give you the freedom to change light switches, indoor doorknobs, and cabinets. These small changes can add up to a massive overall change for the home.
An easy way to personalize the home is to use accent pieces. These can be installed and removed easily and will often not breach the rental agreement, keeping the return of your deposit safe.
Create diversity in your home by adding table and floor lamps.
Wall decals can be taken down easily and cause less hassle than painting a room.
An area rug can give some pep to any room in the house, giving a splash of color and softening up a hardwood or tile floor.
Buying the right end table and coffee table personalizes your home while also serving a useful function.
No matter how small or how big your new rental home is, there are plenty of ways you can make it feel as if it were your own. Check with your landlord before making any major changes to your house to ensure you’re not breaking your lease contract.
Have fun sprucing up your new house!
You’ve heard it before. Lending money to a relative is akin to giving it to them.
But I’m here to tell you that personal loans between friends/relatives can work – if you do it right.
In order to figure out how to make them work, we need to first realize why these types of loans typically go wrong.
Is it because your friend is forgetful? Is it because your cousin is too cheap? No. It’s because they convinced themselves it was actually a gift and not a loan.
So how can you make personal loans between friends work? Just follow the steps outlined in this post so that you can both help your friend out and get all of your money back.
The key to making personal loans work is to get your loan terms in writing. Verbal contracts mean absolutely nothing. By having your agreement on paper, your friend will feel an obligation to pay it back. There is no mistaking that this is a loan and not a gift. It’s right there in black and white. Your agreement doesn’t need to be written up by a lawyer. It doesn’t even need to be typed.
The purpose of this note is to make this financial transaction an official loan in their eyes. If you feel uncomfortable having your relative sign this agreement then don’t loan them money in the first place. If they don’t want to sign it, then apologize to them for offering them a loan.
If you offer your relative an interest-free loan, they will not feel obligated to pay it back. An interest-free loan is such a gift to them that it makes the loan appear like a gift. All loans charge interest. So if you want to get your money back, charge them interest too.
Give them an amazing deal though since they’re family. If a bank will loan them money at 15%, give them a 5% deal.
Make an agreement with your friend/relative to pay back the loan in payments every single month. Don’t just say “pay whatever you can, whenever you can”. If you do that, you might as well kiss your money (and your friendship) goodbye.
You need to make it clear (in writing) how much money they are paying you back, for how long they are paying you back for, the exact date of the payment due each month and late fees.
Speaking of late fees, if your loan doesn’t have a penalty for being late, expect your friend to pay you late every month. Each month they will get progressively more tardy until they eventually stop paying you back altogether. Make sure you specify their due date and what penalty will be incurred if they are late.
Personal loans carry a very large interest rate because there is typically no collateral. When you get a car loan or a home loan, interest rates are low because if you don’t pay the bank takes your car or house away.
So if you want to make your personal loan to a relative a success, get some collateral. A piece of jewelry usually works great. Once the loan has been paid in full, give the item back.
If the loan isn’t paid back in full, you can pawn their item and keep their past payments. They shouldn’t get mad at you either. After all, it was them who asked for money then didn’t pay you back.
Have you ever loaned money to friends or relatives? How did it work out?
When applying for a new mortgage, one of the things you need to decide is the term of the loan. The most common mortgages are 15 and 30 year terms. While a 30 year mortgage is considered the gold standard in this country, many homebuyers are finding that a 15 year mortgage is more advantageous for their needs.
Read on to learn the differences between a 15 year and 30 year mortgage to help you decide which one is right for you.
Obviously, the biggest advantage is that you’ll pay off the mortgage a lot quicker with a 15 year loan. If you plan on staying in your home and you don’t want to have to make mortgage payments for the rest of your life, the 15 year mortgage makes perfect sense.
With your mortgage paid off earlier, you’ll be able to plan for other things like retirement, college for your children or other expenses.
Another advantage of a 15 year loan is the interest. You’ll save significant money on interest with a shorter term. It’s not just that you’ll only be paying interest for a shorter amount of time, the rate itself is actually lower. Rates for a 15 year mortgage are typically 1 full percentage point less than its’ 30 year counterpart.
Most lenders offer lower rates on 15 year loans which helps create additional savings. You can expect to pay less than half as much in interest on a 15 year loan versus a 30 year loan.
Finally, you’ll build equity (the difference between the home’s value and what you owe) faster on a shorter mortgage. As the difference increases, so does your equity. With a traditional 30 year loan, equity grows slowly. With a 15 year loan it grows more rapidly, giving you more options should you need to borrow against the equity in the future.
The reason many lenders opt for a 30 year loan instead of a 15 year loan is that the payments are lower, significantly lower. Having a lower monthly mortgage payment can outweigh the many benefits of a shorter loan.
For many families, lower payments are a necessity to make homeownership a reality. In an uncertain economy, lower payments may also be preferred by those who aren’t 100 percent secure in their job.
With lower payments, you can increase your savings account or plan for retirement easier. It’s good for those that need to pay off credit card debt or who need to make improvements to their new home. Once your other debts are paid off or your savings is sufficient, you can always funnel the extra money towards paying down the principal on your mortgage instead, which will help pay off your mortgage in less than 30 years. Payment Difference
Many people ignore the 15 year option because they assume they either won’t qualify or can’t afford this type of loan. People oftentimes believe that the payments of 15 year loan costs twice as much as a 30 year loan. But that’s simply not true.
It turns out that the monthly payment increases only moderately, making a 15 year loan an option for many buyers. Let me present an example to prove this point:
As you can see, the payment did not double, but rather only went up a bit over $600. And over the course of the entire loan, the 15 year mortgage will accrue $99k in interest whereas you’ll pay $279k in interest on the 30 year mortgage.
Do the math and take into consideration the lower rates afforded to shorter loans to determine which one is the best option for you.
The average household in America carries at least $10,000 in credit card debt. Besides this, many people have upside down car loans, underwater mortgages and other debts that are difficult to pay off. While debt is an unfortunate part of modern life, racking up the bills can get you in serious financial trouble.
Here are 6 signs you’re carrying too much debt.
If all of your money goes towards paying your debt, you just might be carrying too much debt. Look at how much you spend on paying debt payments each month. Tally the minimum payments for your credit cards and compare it to your monthly income. If you exceed 50% on debt payments, you’re doing something seriously wrong.
While you can’t get rid of your debt overnight, you can work to eliminate unnecessary expenses like bloated cable packages, an expensive apartment or a car that’s too expensive. Sell off things you don’t need like a timeshare and put the proceeds towards your debt payments.
If you can’t afford much more than the minimum payments, or if those are even hard to come up with each month, you’re carrying too much debt.
Get on the phone and ask your credit card company to lower your interest rate. If you have a good history of paying on time and have a good credit score, you may get a positive reaction.
You can also transfer balances to a card with a lower rate or a zero percent introductory rate, but realize that balance transfers often come with fees.
If your cards are nearly maxed out and you’re getting collection calls, you may be under a lot of stress. Stress from debt can result in physical side effects, such as illness, headaches and even high blood pressure.
If you’re suffering from physical side effects, it’s a clear sign you’re carrying too much debt.
If you have been denied for new credit or another type of loan, you are carrying too much debt. When your debt load is too high, it’s hard to qualify for new credit. Creditors and lenders look at your overall ability to pay back debt when they decide whether to open a new line for you, so if the rejection letters are coming in, you need to look at your debt load.
If you are using too much of your available credit (i.e. you’re maxed out) your credit score will suffer and you won’t be able to get any more credit.
You need to have a nest egg in case something goes wrong like you lose your job or have a medical emergency. The savings account will provide money in the event of emergencies, but if you spend all of your money on debt payments you won’t have any left to save.
To put money away, you’ll need to get a side job or look for a better paying position to help increase cash flow, or you can put off a major purchase like buying a new home or car while you build your savings.
Having too much debt can make it hard to make all of your monthly payments on time. If you’re missing due dates and sending late payments, it’ll hurt your credit score. Add that to the hit it already took from your huge debt load and you’re looking at years of rebuilding once you get your finances under control.
If you have a debt problem, the next step is to create a plan to eliminate the debt. You’ll need disposable income to reduce your debts, which means you’ll need to either sell belongings or take on another job. You can also try to reach a debt settlement with your creditors, but only explore that option as a last resort.
Have you ever noticed that you can go a few days without spending a dime, then all of a sudden you go on a crazy spending spree? There are two main reasons why this happens. The first is practical – you probably overspent right after you got your paycheck. The second is psychological – you’re sad, tired or just plain bored.
But there are other occasions we spend too much. If you can spot the times you tend to overspend you can learn to avoid those situations altogether. Here are 4 situations where people tend to overspend.
Retailers also know that we are weaker at certain times. A prime spot for weakness is at 8 o’clock at night. By 8 PM people have come home from a long day at work and have eaten dinner. Around this time you check your email, your Facebook and yes you may do some online shopping.
If you have had a particularly bad day at work then you are in an emotional state that makes you vulnerable to overspending. Retailers know this and will schedule a sale to begin at this time. They’ll send you an email at this hour advertising a sale or showing you their new items.
If you have had a long day at work and feel the need to blow off some steam, do not go online shopping seeking to reward yourself. Instead, reward yourself in other ways. You can take a bath, play a video game, eat a tasty snack or just take a nap.
While online shopping may make you feel better temporarily, you won’t feel so good when you take a peek at credit card bill the next month.
When you receive some unexpected good fortune (such as a bonus or a tax refund) you feel as if it’s extra money. Extra things can be discarded, so you feel like that money can be wasted. But this couldn’t be any further from the truth.
If you get a bonus from work, that’s not extra. You really did deserve that money for all the hard work you’ve done. When you get a tax refund, that is your own money you overpaid to the government. If you find a $20 bill on the ground, consider it your lucky day. But there are better things to do with that money than to quickly go and spend it.
Instead of getting rid of this money by buying some new clothes you don’t need or going to an expensive restaurant, put the money to good use. Pay down an existing debt such as your credit card.
You shouldn’t be spending money foolishly when you still owe money. If you have no debt then ask yourself if you have enough in your emergency savings account. If you don’t, then you know where that money needs to go.
When you’re in the market for a new partner things can get pretty pricey. You tend to overspend to make yourself look better by getting your hair done professionally or buying more expensive clothing. Then you overspend on your dates by trying to impress your partner – restaurants, amusement park visits and pricey gifts.
There are low cost ways to have a good time with your date. For example, a picnic, a homemade dinner or you could play a game at the park. And as far as impressing your partner with lavish gifts, that’s only going to make you seem desperate and needy.
The weight loss industry is a multi billion dollar industry. There are countless ways you can spend hundreds of dollars while trying to lose weight. You could buy costly exercise equipment, workout clothes and a $500 yearly gym membership. Before you know it you’ve given your wallet quite the workout.
But you don’t need to spend a dime to lose weight. The bottom line is that if you want to lose weight, you need to eat healthy and exercise. You don’t need anything else. So eat your veggies, cut out the junk food and go out for a run or bike ride every day. That’s all there is to it.
Home buying is different for us than it was for our parents, and life for us is not how it was for our parents, either. For them, the American dream was having a big house with a white-picket fence and 2 kids playing in the front yard. For them, saving up huge sums of money for a down payment on home they would spend the rest of their lives in was the norm.
It’s not like that for us. Our career paths are different. Our finances are different, and our American dream is different. Gone are the days of 40-year careers with the same company and growing old in the first and only house you’ll ever buy.
We have a desire to be flexible, poised to follow opportunity and to minimize our impact on the Earth. We are not traditional home-buyers. We are redesigning the landscape of what homeownership looks like to fit our generation.
Our generation is accruing larger amounts of debt earlier than our parents ever did. Mostly we have the increased cost of living and higher education to thank for that. When you are already $100K in debt by your early 20s, saving money for a down payment on a home seems impossible. The good news for us is that large down payments and perfect credit scores are no longer a requirement.
Financial intuitions are starting to adjust to our needs and have begun to offer very low- to zero- down payment loan options. The USDA offers a $0 down payment loan program. If you are willing to pay for PMI, private mortgage insurance, you can purchase a home with only 3.5% down through an FHA loan.
Regardless of the loan type you get, always ask the sellers to help cover the closing costs as part of the sales agreement. This is less money out of your pocket. An FHA loan also allows sellers to cover up to 6% of the buyers’ closing costs, and the USDA does not set a limit at all.
If banks are not an option for you because of poor or non-existent credit, look for someone willing to do owner financing or a rent-to-own deal. With seller financing, you make payments to the seller like you would the bank, but you don’t have to jump through all the credit check hoops. With rent-to-own, some of your monthly payment goes toward the future purchase of the home. This allows you to invest in the home while you save for a down payment or repair your credit rating.
Now that you know it is possible to finance a home with little money down or poor credit, you need to decide what kind of home you want to buy. To be flexible, poised to follow opportunity and minimize your impact on the Earth, you have to think outside the traditional-home box. Stick-built houses are more permanent and more expensive than you necessarily need.
Tiny houses, mobile homes and houseboats are cost-effective and unique dwellings that allow you to take home with you wherever you go. Erase the thought of a trailer park from your mind. Think instead of a modern minimalistic lifestyle that grants you financial and physical freedom.
Tiny houses offer big benefits at a small cost. The cost of a tiny house can be as little as $20,000 for a new construction. There is a movement of people who currently own large homes with large mortgages that are downsizing to tiny homes to gain financial freedom. Tiny homes can be permanent or mobile, and they are designed to be highly efficient.
If reducing environmental impact is a concern for you, tiny homes can be designed to be completely off-grid with solar power, composting toilets and rain collection systems. Imagine no water bill, no electric bill and a minuscule mortgage. Makes downsizing appealing, doesn’t it?
Another way to go small is to go with a travel trailer. Before you turn your nose up, though, take a look at how chic this lifestyle can be. The benefits of living in a travel trailer are similar to a tiny house, but this home is even more mobile. If you have a career that requires you to travel, you will never have to be far from home because home can go with you.
There’s an old saying that says “If you’re lucky enough to live by the water, then you are lucky enough.” There is something about a body of water that is good for the human spirit, and people have forever flocked to the banks and shores to claim their stead. This high demand can cause real estate prices to skyrocket — but that’s only if you live on the land.
Living on a boat is not for everyone, but for those who can make the adjustment, it offers a unique lifestyle and cost savings similar to mobile or tiny homes. You won’t have to pay land taxes or electric bills, and you can live off-grid. There will be some logistical issues to work through, such as where you will dock your home, but it is almost guaranteed to be cheaper than renting an apartment.
If mobile doesn’t mollify you, and the idea of tiny terrifies you, prefabricated homes are your next most cost-effective option. Often called prefab or modular homes, the cost of building these homes is kept low because they are built in a factory. Things like weather delays and sub-contractors, which drive construction costs up, don’t come into play.
Once delivered to the construction site, there is virtually no difference between a prefab home and a stick-built construction. They don’t depreciate in value like mobile homes do — think trailer park — and they can be any size and configuration that you would have in a regular house. You’re basically getting a traditional home at a much better price.
If your heart longs for a stick-built home, though, there are ways to purchase those for less as well.
If you’re willing to take a gamble on the chance to save big, auctions are a great way to purchase a home for less. Houses end up on the auction block because the previous owner was unable to pay the mortgage or the taxes. The price of auction houses are often set for the amount still owed to the bank, not necessarily what the house is worth. That is where the risk comes in.
Buying a house with cash at an auction doesn’t afford you the opportunity for the home inspections and appraisals that traditional home-buying does. You may be getting a gem or a dud, and you probably won’t know until after you’ve bought it.
If you’re ready to grab your slice of the American dream and become a homeowner, do it your own way. There’s no need to get bogged down in the way things were. Do things how they work for you, and live the life of comfort and freedom you want to live.
On the surface, this question may seem like a no brainer. Why wouldn’t you pay off your debt first before you begin investing?
If you are drowning in debt, especially high interest debt, that may be the better decision. However, if you have some debt at a low interest rate and are making all of your payments and still have money left over, the answer to the question of whether or not you should invest if you still have debt is not as clear cut.
Using the extra in your budget to pay down debt will obviously save you in interest payments on that debt, but you also lose out on any money that could have been made from wisely investing that extra money instead. Here are some things to consider about paying off debt vs. investing.
First of all, take a look at just how much debt you actually have. Are the interest rates on what you owe higher than what you could gain if you invested the money instead? If the answer is yes, you should start paying on that debt right away. But if your debt carries a low interest rate, it may be ok to instead invest that money for a potentially greater return.
Another factor to consider before making a final decision is your age. When you are young, any possible losses you might sustain from investing can still be made up. Sometimes investments can lose money one month and then turn around and more than make up for the losses in the next month. If you are older or averse to placing your money in a higher risk investment, paying debt might be the correct choice for you.
What about income? Do you have a steady, dependable income? Does your salary fluctuate throughout the year? If so, you might want to keep some money in reserve to help you cover your bills during lean months instead of either paying down debt or investing it. On the flip side, if you are making a good, steady income with the expectation of continuing to do so, investing for your future can be a financially sound decision.
When someone offers you free money, you should take it. That is exactly what most company-sponsored 401K plans do. When your employer offers this plan, you must match their investment up to a certain point to be able to claim their investment. This investment is pre-tax, and you get to decide whether to invest in higher risk, higher return investments or lower risk investments with a lower return. 401K’s are a great way to get your feet wet with investing if you have never done any investing before.
What if you get sick and have to take a leave of absence from your job? Do you have a cash reserve set aside for this? This is something to consider when you are deciding whether to pay debt or invest the money instead.
The answer to the question of whether you should invest if you still have debt or not is clearly not going to be the same for everyone. But, taking some of these factors into consideration should help you to make the best decision possible for your personal financial situation.
Can you think of other things to consider when deciding if you should invest if you still have debt or not?
If you’re ready to settle down and buy a home, you may be so excited by house-hunting to think clearly about the entire process. Instead of being overwhelmed and confused, use this guide to walk through the 6 steps of buying a home.
Your pre-approval for a mortgage as well as your interest rate are tied to your credit score. Before you buy your home, you’ll want to obtain copies of the three credit reports and go through them to look for any wrong information.
Correct any mistakes you find and then apply for a loan for the best odds of getting the loan and a rate you can afford. It can take time to dispute erroneous items on your report so start this process early.
When buying a home, it’s important to get a buyers agent to represent you. This realtor will have your best interests at heart and can not only show you houses, but present offers and give advice on what’s a good deal.
You’ll want to work with someone that pays attention to your needs, has time to work with you and knows the area you’re looking in. If you’re not comfortable with your agent, keep shopping around until you find someone you can work with.
Shop for a mortgage lender and get pre-approved for a mortgage. This way you’ll know how much of a house you can afford and about how much your monthly payment will be.
Going into the buying process with a pre-approval makes you a more attractive buyer to home sellers. If you’re getting offers from multiple lenders, you’ll want to make all of your applications at once.
Every time a lender checks your score it’s a hard inquiry and causes a dip in your score. Fortunately, all inquiries for mortgages made within 45 days are treated as just 1 inquiry which minimizes the impact to your score.
You’ll probably get a pre-qualification within minutes. When you go to make an offer, the buyer will know you’re serious and that you have a good chance of getting the necessary financing to complete the purchase.
Finally you’re ready for the fun part of house hunting – looking at homes. Get your realtor ready and take a look at all of the listings that meet your criteria. During your first few outings you may just get familiar with different neighborhoods and figure out what you don’t want in a home, but eventually you’ll find the perfect place to settle down and call your own.
If you have a deadline in mind, make sure you give yourself plenty of time to not only find a house, but to also close on it. In competitive markets, it can often take much longer to find a home you love and that you can secure before other buyers.
Once you’ve found a house you love, it’s time to make an offer. Your agent will help you make an appropriate offer with the right contingencies to protect yourself. In competitive markets, it’s not unusual for sellers to reject contingencies, so be prepared to compete with other buyers and to make changes to your original offer.
Once the offer is accepted, you’ll be closing on your new home in a bit over a month. During this time you’ll have a home inspection, an appraisal, a title search and your loan will be prepared. You’ll put a down payment down and provide money for any closing costs you’re responsible for. Finally, you’ll review and sign many documents and you’ll be handed the keys to your brand new home.
Paying off a home mortgage is a wonderful milestone of adulthood. It allows homeowners to rid themselves of one of life’s biggest debts. It’s natural to think about doing this ahead of schedule to save on interest payments and reduce debt. Why wait 10, 20 or 30 years for the financial and emotional freedom that mortgage-free living could bring?
Paying off mortgages early is absolutely the right decision for some homeowners, but not for everyone. Before taking the plunge, examine existing debt, savings and future life expenses. Living debt-free is not the most important factor in a well-lived life. Step back to look at the big picture before deciding to prepay a mortgage.
No matter a person’s age or station in life, a nest egg is a valuable asset. It can cushion a job layoff or pay for a wedding, health care costs or a long-awaited trip. It’s there for emergencies or luxuries. Savings provides both financial and emotional security.
Anyone considering paying off a mortgage should look at his or her savings first. Is there enough in the bank to get through a lean time or a family crisis? That nest egg is a necessity, while living mortgage-free is a luxury. If paying off the mortgage eliminates savings, don’t bother.
Rather than putting money toward a house, think about increasing retirement savings. Many employers match a percentage of 401K contributions which can yield high returns. Conversely, pulling money out of a 401K to pay off a mortgage can bring stiff penalties that probably aren’t worth it.
In addition to financial factors, homeowners should examine their own emotions and priorities. Living without a mortgage can be liberating. Eliminating debt reduces concerns about money or might motivate a career change.
By evaluating emotions, homeowners may realize they’re using the mortgage to put off pleasures they could enjoy today. They might be able to take that desired trip or buy new furniture without being completely debt free. Homeowners should picture themselves in 10 years. Maybe their current homes aren’t even the best houses for long-term living, and therefore not worth prepaying.
Sometimes homeowners need to spend money to improve quality of life. Before scrounging up funds and committing them to paying off a mortgage early, consider alternative expenses. Professional training could boost a person’s career and earning power. Money spent on yoga classes, fitness memberships or gardening tools may provide life-enhancing pleasure, more valuable than a prepaid mortgage.
While the cost of everything from food and cable service to travel and entertainment seems to rise, a fixed mortgage payment is fortunately stable. So, it might make sense to spend money enjoying other things today and paying only the required amount on the predictable mortgage.
Homeowners thinking about paying off their mortgages should consider their other debts. Paying off credit card debt is much more urgent than clearing a mortgage because of interest rates. While a mortgage rate today might hover around 5 percent, credit cards often carry interest rates of 18 percent, which adds up fast. Likewise, homeowners should pay off car and college loans before looking at advanced mortgage payments.
Another reason to focus on other debt first is mortgage interest payments provide tax savings while other types of loans and credit card debt do not. The cost of a monthly mortgage payment might be fixed, but the amount of money paid toward principal versus interest varies throughout the life of the loan.
Mortgage amortization schedules are typically structured for homeowners’ mortgage payments to first apply to the interest due, then to the principal due and lastly to any escrows that may be included in the payment (for taxes and insurance).
Therefore, if homeowners plan to partially prepay their mortgages, it’s more beneficial to pay additional funds toward their principals only; if not specifically designated as such, the payments may be applied as a future payment or possibly even applied to the escrow account – which will not reduce the amount of interest paid throughout the loan term.
The earlier in their loan terms they make principal reductions, the more savings they get on interest costs. Homeowners can also check out mortgage rates and consider refinancing to lower mortgage payments while preserving savings.
Paying off a mortgage can be liberating, but it’s not always the right choice. It’s important for homeowners to examine their own lifestyles, priorities, savings and spending to make the right decision for their own circumstances.
Whether you’ve had a stressful day at work or a fight with your significant other, stress can trigger spending that you wouldn’t otherwise do. Emotional spending – sometimes known as retail therapy – is a dangerous habit that can land you in debt without delivering the good feelings you were counting on.
Here are 6 warning signs to look for so you can prevent an emotional spending spree.
Telling yourself that you deserve the shoes that are way out of your budget is a sign that you’re shopping to boost your own self-esteem. Spending money on items you feel will make you more attractive is a habit that is rooted in your emotions. Address your own self-esteem issues to prevent buying things to fulfill something you feel is lacking.
If you’ve recently been on the receiving end of bad news regarding your finances, you may be tempted to go make a purchase. However, if budgeting is hard for you, spending more than you planned can easily happen which will make your financial situation even worse. Avoid using credit cards in a fit of emotional spending as this will certainly make your situation that much worse.
When you’re stressed out, you may feel anxious, restless and even irritable. To combat these negative feelings, many people seek the immediate gratification that shopping can provide. However, the relief is only temporary and many people experience buyers remorse and a resulting low once the shopping spree is over.
Instead of making an emotional decision for instant gratification, think about the purchase and review your budget for a healthy dose of reality.
Some people shop to relieve stress. Immersing yourself in the world of new clothes, kitchen gadgets and mall sales is a good way to blow off steam and forget about life. But if that type of self-help involves buying everything you see, you may need to steer clear of the mall when you’re stressed out.
Instead of shopping, try talking to a friend, hitting the gym or relaxing in a hot bath.
Let’s face it, there will always be times when friends, family members or co-workers have something better than you. When buying or collecting things becomes a competition, it gets harder to keep a clear head when making purchases. While it’s fine to want the best for your family, don’t fund that desire with credit card debt and emotional spending.
Most casual shoppers return an item once in a while when it’s the wrong color, wrong size or just didn’t suit the need you bought it for. However, an emotional shopper may find themselves returning lots of items all the time in an effort to minimize financial damage. While you may save some of the financial ramifications of your shopping spree by returning things, you’ve still invested a lot of time and energy into the exercise that could have been spent doing something more worthwhile.
The thought of living without having to pay rent or a mortgage payment every month is an alluring one. Without this mandatory monthly payment you can live a comfortable life in retirement.
At best, you’ll be able to travel the world and really live in style. At worst, you will always have a roof over your head and enough money to put food on the table.
There are a few different ways in which you can retire without a mortgage, here are four of these methods:
Let’s say you finally got a fixed rate 30-year mortgage at the age of 50. Better late than never, right? But have you set yourself up for having a mortgage payment until you’re 80 years old? Well yes, unless you refinance. Usually people refinance and take a new 30-year mortgage in order to lower their monthly payment. But you can also refinance your 30-year mortgage into a shorter 15-year mortgage.
Let’s say you got a 30-year mortgage at the age of 50 at a 6% rate. Seven years down the line you get a promotion at work and your kids have all moved out. Now you’ve got extra income and decreased expenses.
Then you look at the current interest rates for a 15-year mortgage and they’re at 4.5%. You would be the perfect candidate to refinance. If you do so, you’ll pay your mortgage off in a total of 7+15=22 years, meaning it will be gone when you’re 72 instead of 80. Not only that but you’ll save tens of thousands of dollars in the process.
Sure, rent is almost the same as a mortgage. It still is a monthly payment you need to make in order to stay in your home. But if you don’t want a mortgage, you can rent your entire life instead. While I still recommend having and paying off a mortgage, renting is actually not as bad as it sounds.
When you rent, you don’t have to pay property taxes or insurance. You also won’t have to deal with costly home maintenance costs. All of this extra money can be saved and placed into your 401k account to be used later.
When you own your own home outright, you have a lot of equity built up in it. It’s worth $250,000 and you owe $0 on it. That’s money sitting right there that you’re not spending. You don’t have that issue when you rent.
Renting also gives you the flexibility to move. You won’t have to go through the work of selling your home and then buying another one.
If you’re “stuck” with a 30-year mortgage and realize that you’ll need to continue to work well into your 60’s and even 70’s, you are not as stuck as you think you are. Rather than living in a $500k home with a 30-year mortgage, consider relocating to a $250k home with a 15-year mortgage.
If you can sell your current home for a profit then you’ll be able to knock down the amount you owe on your new home even more. Even if you can’t, interest rates on 15-year mortgages are always lower than on 30-year mortgages. If you got a bad rate before you can pounce on more favorable interest rates available now.
By far the most common way of living in retirement without a mortgage is by making extra payments. By making an extra payment to your mortgage you can substantially cut the length of your mortgage.
Let me give you an example. You get a $200k mortgage at 5% for 30 years. Your monthly payment is $1,073.64. You decide to pay $1,200 every month instead (an extra $126.36). By doing that you will have reduced the length of your mortgage by over 6 years. Not only that but you’ll also save $44,341.62.
Even if you’re not disciplined enough to make extra monthly payments to the principal, making an extra payment once a year or even making large one-time payments works too. While you won’t get an immediate benefit from making extra payments to your mortgage right now, you will reap the rewards when you don’t have a mortgage payment to make anymore.
Do you ever wish you had someone that would just follow you around and slap your credit card out of your hand whenever you were about to make a bad financial decision?
The “good angel, bad angel” on the shoulder portrayed in movies would sure come in handy when you’re about to make potentially life-ruining purchases or decisions. And believe me, if I could send you a pair of budget-conscious fairies to help you change your habits, I would.
But let me fill you in on a little secret: you don’t need them.
With a little bit of research and a lot of self-discipline, you will begin to see what seemingly harmless or inconsequential decisions can do to your bank account and credit score.
For starters, here are five common characteristics of people who find themselves in a perpetual cycle of debt.
When unexpected events occur, such as speeding tickets, car accidents, broken bones or illnesses, job layoffs, home repairs, unexpected travel for a family emergency, etc, do you have a plan in place to cover the financial burden?
Having an emergency fund set aside just to guard against these unexpected circumstances from destroying you financially is absolutely crucial to avoid debt or even bankruptcy. Because when, not if, something happens, borrowing funds from your regular budget means less money for bills, food, gas etc. Which usually means you start throwing your purchases on the credit card. This leads to a downward spiral of playing catch-up that is hard to break.
All of this can be prevented by starting a simple savings account that goes untouched unless absolutely necessary. If you don’t have much to start with, that’s okay! Set a goal to add $5, $10, $20 per week or month to it, and over time it will become a substantial amount that will give you peace of mind.
People in debt tend to live paycheck-to-paycheck, and with a heavy reliance on their credit cards and lines of credit. Spending more than you make is a nasty habit with lasting consequences, usually in the form of hefty interest payments, late payments, and dings to your credit score.
Those who are in the habit of reaching for the plastic should consider carrying an allotted amount of cash with them that they can use in place of their credit card, and should also consider getting rid of their overdraft protection. Those cards don’t seem like money to us because we don’t see the amount leave our possession, so using cash and keeping a running or mental balance of our funds can help you live within your means and be mindful of your spending habits.
The old adage, “if you fail to plan, you plan to fail” rings true for your finances. If you don’t have an idea of what you spend each month in relation to what you make, you’re setting yourself up for disaster. It won’t take you long to sit down and list out all of your bills, their amounts and their due dates. A simple search through your online bank account can give you an idea of how much you spend on shopping, eating out, gas, etc.
Once you have an idea of how much you’re used to spending, set some goals to ensure that it is well within your income and to save the rest for your emergency fund or large purchases.
You are entitled to a free copy of your credit report from each of the three credit reporting agencies once per year. Look it up, and learn the lingo. There may be some terms you don’t quite understand, like “utilization ratio” and “revolving account.” You can find many helpful resources online to help you quickly figure out what it all means. Look for your overall score, and also any negative items. It’s also important to learn how to identify any potentially incorrect information that you could dispute to improve your score.
Last but certainly not least, a very common habit among those in perpetual debt is retail therapy. Shopping as a distraction from your problems, shopping to relieve boredom, shopping for exercise – these are all red flags that your spending may be out of control. When you go shopping without a plan or purpose, you are destined to spend impulsively, wreaking havoc on your budget and, over time, your credit score.
Instead of defaulting to shopping, focus on ways to deal with your problems directly so that they are managed appropriately. Have a plan of action so that the next time you feel that stress or boredom coming on, you can go directly into an activity that won’t drain your bank account or rack up debt on your credit cards.
Like all good things in life, financial management skills take time and practice to perfect, and with some trial-and-error and a lot of self-discipline, you will soon see how living debt-free really is a new kind of freedom you never experienced before.
In this article I’ll go through a list of 4 must-haves that everybody needs to have if they want to buy a house.
Buying a house isn’t as easy as it used to be. The days of no-documentation or low documentation loans are all but gone.
And with good reason, as they are partly the reason why we got into this mess in the first place. There was a bunch of people who were allowed to buy homes they could not afford. The banks knew it but they couldn’t care less because they were selling their loans and pocketing all the profit with no risk.
Then the collapse came as people’s adjustable interest rates started adjusting and their payments skyrockets. With that, foreclosures skyrocketed as well.
But now it’s a bit different. Things are slowly beginning to change. Now is a good time to invest in real estate (or buy your first home) if you have all of the right pieces to this real estate puzzle.
Before you even begin to consider buying a house there are some reality checks one must face. Here are 3 things you need to buy a house.
If you want to make your dreams of owning your own house come true this year the first thing you want to make sure of is that your credit score is in order. Let me be more blunt: you need a good credit score to buy a house in 2018. The better your score, the better the rate, after all.
What’s considered a good credit score?
The absolute bare minimum credit score to qualify for a mortgage is 620. However, to secure the best rates, you need a score of 740 or higher.
If your credit score is below this number, you have several options:
If you have bad credit, don’t despair, there other factors that can help you qualify for a mortgage. These are:
When you’re applying for a mortgage the one thing you’ll need is a lot of proof. The lender will ask you for… just about everything.
Be ready to provide bank statements of every bank account you have, to show you have steady income. You’ll also be asked to provide recent pay stubs along with the last 2 years of tax returns.
You need proof for everything. So if you have side gigs which pay you cash, that income is not going to count.
This information you provide must back up the total income you claimed to earn. You will not qualify for a house if your income isn’t up to par.
To help you better qualify for a mortgage, you can combine your income with your spouse. But if you do, keep in mind that now both credit scores will be taken into account.
While income can be combined, credit scores are not combined or averaged. The lender will use the lower credit score of the two of you to calculate your interest rate.
The days of buying a house without putting a down payment are long gone. Lenders want you to be committed to your home purchase. After all, if they’re letting you borrow a few hundred grand, they want to make sure you’re invested into the house too.
To buy a house, you need to make a sizable down payment to secure a mortgage.
It is advisable to put down 20% of the homes sale price toward the down payment. By doing so, you avoid paying the dreaded private mortgage insurance (PMI).
You pay PMI every month until you owe 20% of what your property is worth. Typically, PMI is 1% of the loan amount per year. So on a $300,000 loan, you owe $3,000 per year (or $250 per month). This money doesn’t benefit you and goes straight down the toilet.
If you don’t have 20% down payment, you have several options:
Other lending programs don’t require too much of a down payment:
And lastly, banks will want to see that you have enough money in your reserves just in case you happen to fall into a financial setback.
It used to be a good rule of thumb to have at least up to 3 months of money reserves, but now just to be on the safe banks want to see that you have at least 3-6 months of reserves.
Here’s how you calculate how much is necessary to have in reserves.
You need to take your total proposed monthly mortgage payment and multiply by 6 for 6 months reserves.
Your mortgage payment may consist of the following: principal, interest, private mortgage insurance, homeowners insurance, real estate taxes and homeowners association dues. It really adds up!
For Fannie Mae and Freddie Mac loans, the amount needed in reserves vary depending on your credit score and the loan to value ratio. As a rule of thumb though, the riskier the loan, the more you need to have in reserves.
Other loan types, like FHA, VA and USDA don’t require reserves.
If you find yourself fulfilling all of the requirements to buy a house then you’ll be well on your way to owning your first home.
Do you know anyone who is constantly broke? It’s not that they don’t have a job or make money. It’s that they don’t know how to manage their money properly. They overspend on things, they don’t save and they end up in credit card debt.
For them, being broke is a way of life. They don’t know why they’re broke, but they always seem to be short on cash. This has little to do with how much they make. Rather, it’s their lifestyle that’s the problem.
Here are 7 things that all broke people have in common.
While you are able to find good deals, they don’t even bother. Their impulsive personality means that when they see something they like, they buy it. They don’t go research prices or even use coupons. The concept of comparison shopping is foreign to them. Look at their smartphones and you’ll find Facebook and SnapChat rather than RetailMeNot and ShopShavvy.
People who are always broke seem to live in the moment. They do not plan for the future. It’s all about instant satisfaction and not sacrificing anything today for tomorrow. They may seem happy today, but tomorrow they’ll be dealing with the consequences.
Those who are consistently broke always go for the bailout when things get tough. For example, they hit up their parents for money. They ask their friends for a loan. They “borrow” things and “forget” to return them. Then when all else fails, they just file for bankruptcy, clean the slate, wipe out their debts and then do it all over again.
For broke people, a credit card is their best friend. They live on plastic. They don’t use cash, they use their credit to buy things. When debts need to be paid, they’ll get a loan to pay off another loan.
People who are continuously broke all need to have the best car, the best clothes and the nicest house. It doesn’t matter if they can afford it or not. That’s irrelevant. They need to maintain a lifestyle they cannot afford.
Those who are always broke surely have never created a budget before. They are baffled as to where their money goes. They earn a good income but never seem to have enough money. They don’t know why. The reality is that if they create a budget they would be able to clearly tell where every penny is going. Then they could take action and fix the money leaks.
Everything is always someone else’s fault. It’s either their cheap boss, their greedy landlord or the IRS. They always complain about their financial situation but never point the finger at the person who is truly responsible, themselves.
What it’s a car repair, an illness or a sudden and unexpected bout of unemployment, sometimes life can catch you off guard and leave you in dire financial straits.
When the unexpected happens, it’s time to dip into your emergency fund to cover life’s ups and downs.
While it would be nice for an emergency fund to have at least 3 months of your living expenses, the reality is that most of us can’t save that much.
Whatever you can save is better than nothing, so even if you can’t sock away a lot of cash, every little bit helps.
Read on for some surprises that may inspire you to finally start the emergency fund you’ve been thinking about.
Whether it’s caused by a lay off or a sudden desire to quit, having an emergency fund can make a job loss less scary. The temporary income replacement will help cover basics while you hunt for a new job.
Health insurance is covering less and less of medical expenses and an unexpected illness or emergency can still put you into financial ruin. Having an emergency fund can make planning for the unexpected easier, relieving stress that many families feel whenever someone falls down or starts getting sick.
With the fluctuating economy, bills and housing costs are skyrocketing. If you have an emergency fund to cover the cost of living increases that rise faster than your paycheck, you’ll have plenty of money set aside to cover bills when the price of oil starts to rise or when you’re suddenly spending more on electricity.
To cover the cost of living increases, you’ll need enough money in your bank account so you can write the checks to cover these added expenses.
If you work for a company with more than one location, there’s always a chance you can be asked to relocate at the last minute. Not all companies offer moving reimbursement, so having a savings account that you can dip into to cover the cost of sudden moves is a must.
You probably need to drive to get to work and if it hat’s the case, having a fund to cover car repairs can be invaluable. Car repair funds will allow you to fix whatever is wrong with your vehicle so you can get back on the road quickly. That means you’ll be back to getting groceries, driving to work and taking care of business in no time.
It seems like when it rains it pours, so it’s not uncommon to have to battle several household repairs at once. When things start going wrong at home you can either turn to your insurance or you can dip into your emergency fund. Turning to insurance may include paying a deductible, which could require your emergency fund as well.
Even though you’re not planning on visiting your grandmother on the other side of the country, a death can mean a necessary ride in an airplane or an extended drive. Instead of worrying about travel costs, dip into your emergency fund and focus on what really matters.
Being late on a credit card payment may inevitably happen to all of us. There are many circumstances which can cause us to miss a payment. Maybe your bill or your payment was lost in the mail. Maybe you didn’t have enough to pay the bill. Or maybe you just forgot.
If this happens to you, don’t despair, there are 6 things you need to do if you miss a credit card payment.
Missing a credit card payment isn’t the end of the world. So the first thing to do is to relax and don’t panic. While there are several consequences to a missed or late payment, you can and will overcome their impact.
If you always make your payments on time and this missed payment is a very rare event, you may be able to avoid paying a late fee. Typically, when you are late, you are charged a fee of $15 (or even $35). But if you are a good customer, one phone call to customer service could get that late fee wiped out. Remember, it doesn’t hurt to ask.
If you’re late on a payment, you will be hit with a late fee. But if you’re past due more than a month, you’ll be hit with an additional fee. Not only that, but when you are late for more than 30 days you will be reported to the credit bureaus. This late payment will stay on your credit report for the next seven years. If you’re late for 60 days then your interest rate will go up too.
Some people see a problem, and rather than dealing with it, choose to ignore it. Well folks, that missed payment isn’t going away. Do not compound your error by just forgetting about it – because the credit card company surely won’t forget. Be sure to make the payment as soon as you can – the earlier the better.
The impact of a late credit card payment is rather minimal. First of all, if you pay within 30 days it won’t be reported to the credit bureaus at all. But if you are more than 1-2 months late, do not despair because you can overcome this. While your score will take an immediate hit, within a few months the impact will lessen, assuming you make your future payments in a timely manner.
Missing a payment can happen to the best of us. But when you make a mistake, you need to figure out why it happened and make sure it doesn’t happen again. If you forgot to pay or your payment was lost in the mail, set up automatic payments so they’ll be debited from your bank account on time every time.
What once was a privilege that had to be paid for, many credit card companies are now issuing rewards cards with no annual fees. However, points are becoming harder to use and the rewards are getting smaller.
Here are 5 tips for maximizing your rewards points.
I know, I know, using your credit card for everyday expenses is a risky proposition. But if you only buy what you truly need (and is within your budget) and you pay the entire balance off each month, then you can really rack up the points.
While you can’t pay your mortgage on your credit card, cable companies, utility companies and even cell phone providers all allow customers to use credit cards to pay their bills. Using your card to pay a bill that you’d otherwise pay from your bank account is a great way to earn points on a regular purchase.
Periodically credit card companies will offer bonus points from select stores or on specific types of purchases such as gas or groceries. Taking advantage of these double or even triple point offers will help you rack up points much faster.
The Chase Freedom card, for example, offers 5 points per dollar on different categories every summer. Some months it’s Starbucks and gas, others it’s restaurants and Amazon.com.
Note that some companies require you to opt-in for these double or triple point offers, so check your email for these alerts.
Some credit card companies are now voiding points for late payments. In order to keep your points and your credit score in the green, you need to make sure you pay your bill on time – every time.
Set up automatic billing so your balance is paid off each month from your bank account. If you can’t afford to pay off the balance each month, set up a recurring payment each month so you will never have a late or missed payment.
Whether you are booking your hotel or getting your airline tickets with your points or with a credit card, it’s important to get a good deal.
If you plan to travel during the summer or the holidays, it’s going to cost you. This translates into a greater number of points required to redeem the reward. To get the most miles from your points, plan to travel during the least popular times.
Many credit card companies offer customers the opportunity to trade their points for tablets, video game consoles, digital cameras and other products. You can also cash in those points for a check in the mail or a PayPal payment.
In nearly every instance, it’s a better deal to swap points for gift cards instead. You can then use an Amazon gift card, for example, to buy these products yourself.
Many people use credit card rewards each year to get gift cards for the holidays to either help stretch their budget or to give as gifts.
But not all gift cards cost the same. You might get a $50 gift card from one store for less points than another, so browse through the different cards to find the best offer.
You can use your credit card to buy just about anything. You can pay your bills with it, buy food and clothing with it. Almost everything. Almost.
Here are 5 things you can’t pay for with your credit card.
Every time you use your credit card, the business you’re paying doesn’t get the full amount. The credit card companies charge about 2% to process the transaction. So you could see why the banks don’t want you using your credit card. On a $2,000 mortgage payment that’s $40 they’re missing out on – every month.
It would be great to be able to pay your mortgage with a credit card though. Just imagine all reward points you can rack up.
While pot may be legal in some US states, you can’t pay for it with a credit card. Under federal law, marijuana use is illegal and credit card companies do not want to violate the law. Since credit card companies operate nationwide, they surely do not want to incur the wrath of the federal government.
Update: Recently, however, Visa and Mastercard have taken the bold step to allow marijuana transactions only in states where it is legal. They made this change after the federal government announced it will not challenge the states who’ve made it legal.
Visa has stated they will allow the banks to decide on their own whether they will allow this type of transaction to take place. If you use Discover or AMEX, at the moment you’re out of luck.
You’re going to have a hard time putting porn on your plastic.
Stolen credit cards are often used to purchase adult memberships. The odds of tracing a purchase where no physical goods are shipped aren’t that high, especially if the thief hides their IP address.
Adult transactions also result in higher chargeback ratios than other industries.
Then there’s the risk that some content borders on being illegal, such as those “barely legal” sites.
For these reasons you may have a difficult time charging adult material on your credit card. It’s hit or miss. One card may be denied while another one won’t. One card may be denied one day and not the next.
Visa, MasterCard and Discover allow it, but American Express wants nothing to do with it as they ban it altogether.
Ever wonder why you may have trouble buying lottery tickets with your credit card? The reason is because the lottery is considered a form of gambling, which is against the law.
There’s a thin line between what is and isn’t gambling, so credit card companies want to be extra careful. American Express and Discover stay away from allowing their cards to be used to purchase lottery tickets.
You’ll have better luck with Visa and Mastercard, but it varies by state. Some states don’t want a credit card company eating up 2% of every transaction, while other states welcome the added revenue. Your best bet is to use a Visa or Mastercard debit card, rather than a credit card.
Gambling is a legal gray area. Some forms of gambling are legal while others are not. The policies of each credit card (and bank who issues the card) vary. Some will allow you to gamble at brick and mortar casinos, but not online. Others ban all gaming outright.