Browsing Category: "Debt Management"
Budgets take time to come up with and finally sit down and work on it and figure everything out. Here are some quick ideas on how to stick with your budget:
1) Always, and I mean ALWAYS have a “Fun” budget. This can be anywhere from $10 / month, but have a small budget left over to go out and go to a movie or rent a movie (even better!) This should be the LAST category to budget for, but if you do not have money to have fun with to stick to then you will just use money from other categories to go have fun with. BUDGET FOR FUN!
2) Always UPDATE YOUR BUDGET! Budgets take time and they will never be perfect. Relook at your budget on the very last day of every month and see how you did. Change the categories you fell short in and also the categories you have money left over in.
3) Create a goal! If you stick to your budget, what makes you feel good? It could be the idea that if you stick to it, you will be less stressful, you might be out of debt, or because you stuck to your budget you have money left over and want to go out and celebrate. Whatever it takes to stay on track!
4) When thrown off the horse, get back on! It will happen that sometimes you will get off budget, no problem, just get back on it and re-look at what you can do to make things up!
5) Get support from your household. Hold a meeting and discuss about the budget and have everyone help out. When everyone understands and is on board then it makes it a lot easier.
Just remember that not only people that are on a tight budget or need to get out of debt sit down and fill out a budget. Business and companies do it all the time. It is a must to succeed in life. A company has to have one to know where expenses are going, so do the same. Happy Budgeting!
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I worked for a mortgage for a little while and with all the foreclosures increasing around the country I feel some people might need some help. There is a great web site called creditloan.com that has a lot of information on it. Use their learning center to find great articles. Anything from Auto Loans to Tax loans.
California, Ohio, Florida and Michigan ended up having the most cities with the highest foreclosure rate in 2007. Many people 1 to 2 years ago were sold by their mortgage broker or loan officer a fixed adjustable mortgage. A lot of people liked the loan because they “qualified” for a “loan rate fixed mortgage.” Many of them did not really know that the fixed rate was only good for 2 years, then jumps up to a higher adjustable rate sometimes as high as 17%! This could almost double your monthly mortgage payments and the rate could change monthly. What makes it worse is that the economy is not in a good condition, so refiancing for many people into a true fixed rate is too late because of low credit scores.
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There are three items that determine what rates for a mortgage or loan you qualify for. Together is the formula that determines that amount of risk the lender takes when lending money. The lower risk you are the lower your rate will be, and the higher risk you are the higher your rate and payments will be.
#1 Credit Score - I think everyone knows that your credit score is the big part of what kind of loan you will qualify for. Here is how the credit bureaus come up with that score:
The Secret Formula for Your Credit Score, Your score range is from 350 - 850 and is not the same for all three credit bureaus.
- Past delinquency: People who have failed to make payments in the past tend to do the same in the future.
- The way credit has been used: Someone who is maxed out or close to the limit on a credit card is considered a greater risk than someone who doesn’t look at the high credit line as a license to print money.
- The age of the credit file: Fair, Isaac’s model assumes people who have had credit for a long time are less risky.
QUICK TIP: If you are closing credit cards after paying them off, make sure to keep the oldest credit cards open, this will HELP your credit score! Close the newer ones and leave open the older ones!
- The number of times a person asks for credit: The system frowns upon those who have initiated several requests for credit cards, loans or other debt instruments over a short period.
- A customer’s mix of credit: Someone with only a secured credit card is generally riskier than someone who has a combination of installment and revolving loans. (On installment loans, a person borrows money once and makes fixed payments until the balance is gone, while revolving borrowers make regular payments, each of which frees up more money to access.)
#2 - LTV - Loan To Value Ratio less than 80% up to 100% - Loan to Value ratio is the 2nd part mortgage companies and lenders look at. You take the amount of the loan you are applying for and divide it by how much the house is worth (the appraisal) to get your Loan to Value. Example: Your house is valued at $200,000, you can get a loan up to $160,000 to stay at 80%. If you can do this, it will save you a lot of money in the long run, it will also give you a better chance at getting a good rate, plus not PMI. PMI is a mortgage insurance that if your Loan to Value is greater than 80%, you HAVE to pay PMI, there is no way of getting out of it, unless you go below 80%. You can figure out your estimated PMI payments through this web site.
#3 - DTE - Debt to Equity Ratio - 55% or less. The third part of the tri-angle is your Debt to Equity ratio. You take how much montly payments you have (new mortgage, 2nd mortgage, credit cards, car payments, ect) and divide by how much total income you have, investments, social security, ect. You want to be below 50%, but some mortgage companies will allow 55% as a max. Anything above this you might be placed in a high interest rate subprime loan.
If you meet all 3 guidelines above then you can get a great loan at a great interest rate. But what type of a loan should you choose? There are 1,000’s of different loans out there. Fixed rate loans, balloon loans, Adjustable, Fixed for 2 years and adjustable after that.
ALWAYS A FULL FIXED RATE! No Balloons, No Interest Only, No Select a Payment, To Fixed - Adjustables, No Adjustables. Why?
Quick examples of a few loans:
Fixed Rate - This is what you want to take, either a 15, 20, or 30 year loan. Your payments will be the same with the same interest rate, no suprises here.
Balloon Loan - You have a fixed rate for 5 years, when 5 years is up you have one more payment left the full amount of the loan! Be careful here, they will sell a low interest rate, but unless you hit the lottery, you have to refinance within 5 years (which can cost $5,000 - $20,000 in fees to do).
Interest Only - Yes, A loan with very low monthly payments. You can pay a low montly payment every month with interest only, but after paying for 30 years (which on average would pay off your loan with a fixed rate), you still owe the same amount of money you did 30 years ago. you take out a $150,000 loan, make monthly on time payments for 30 years, you still owe $150,000. You are only paying the interest.
Select a Payment - They sell this by letting you know that you can select your own payment. There is usually an option for an interest rate of something like 1.9%, if you do not know how this works, you will usually always select this option and take a very low payment. The amount that you do not pay that is actually do gets added to the loan. Lets say the montly regular payment is $400.00, the interest only payment option is $350.00 and the 1.9% payment is $100.00. You select the 1.9% option, $250.00 gets added to your loan, and before you know if you keep at this, you will be foreclosed on. These are the types of loans to stay away from and got thousands of americans in trouble and foreclosed on, because they did not understand the loan.
Think your in a fixed rate? Go back and double check your paperwork, make sure it is not a fixed-adjustable. If it is be prepared for a huge jump in monthly payments that will constantly change every month, every 6 months, or every year depending on what you signed. One lady I helped refinance into a fixed loan ( I only gave out fixed loans. ) she was in a fixed-adjustable. Her monthly payments she could get by just fine on, then all of the sudden she was in an adjustable mortgage and the payments almost doubled, because her adjustable rate almost doubled. She was on of the bad loans that it changes every month, so she had no idea how much money for food she was going to have. We figured that she was about 4 months away from foreclosure because of the way her bills and monthly payments were going. She stopped paying credit cards to help pay for her mortgage. If she would have waited one more month, she would not have qualified for her loan because of her late credit card payments.
Always remember: Read and understand, research if you do not know, before you sign. Do not always take their word for it. Mortgage companies and the sales staff get paid for every loan closed and they will tell you anything to get you to sign the paper and collect their paycheck.
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How many people pull their credit report every year? 80%? 60%? 40%? I have no idea, but I know not everyone does. Now a days with everything from identity theft to wrongful reporting to the credit agencies, you should check your credit report EVERY YEAR!
There are three credit bureaus: Equifax, Experian, and TransUnion. You might have seen a commericial on TV in your area for Freecreditreport.com, DO NOT USE THEM! This is NOT a free report, you get enrolled into a credit watch program that costs money. I used to work for a mortgage company and if you want a REAL FREE credit report, you can visit http://www.annualcreditreport.com , this is from the US government and it is the free reports.
Quick Tip: Since you can only pull your credit report for free once a year, you can watch your credit throughout the year by pulling one report every 3-4 months, instead of all 3 of them at the same time.
On your credit report you will see your current and previous addresses, make sure those are correct. Make sure your name and SSN are correct. You might not have any employer information under employment history, unless someone from your company ran a pre-employment credit check, or if you applied for credit and in the software program they input your current employment. Go through the credit report and look it over, you will see all of your accounts that you have open and closed.
You will also see these little * (stars) in monthly boxes. If there is a star that means payment was made on time that month. If you see numbers, that means how many months you are behind during that period. The print out version is much easier to understand than the ones the mortgage companies get when I used to run credit reports for my customers.
If you think you might be a victim of identity theft, you can look on the back few pages of your report for information on how to protect yourself and what to do. To place a fraud alert on your file you may call one of the following, if you call one, all three will be notified:
- Equifax: 1-800-525-6285
- Experian: 1-888-397-3742
- TransUnion: 1-800-680-7289
Random Thought: Do you have a mortgage? Ever wonder why hundreds of people call you about refiancing especially after a large purchase that you had to take a loan out (like a car)? When your credit gets checked (besides you pulling it yourself), for a car loan, mortgage, ect. Mortgage companies buy leads from the credit bureaus thinking that you might be shopping around for a mortgage, and many mortgage companies think these are “HOT LEADS” so you might be called by hundreds of people a day. So if you have a mortgage and have your credit ran for a large purchase, be prepared. Also remember the more your credit report is ran, the lower your score will be.
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I know, the word budget just makes you want to get up and scream. But, it is a must for people that want to get out of debt or want to save money. Here are a few quick tips on how to start your budget:
1) Figure out your monthly spending. Take a notebook ( I used a small pocket notebook so I could take it with me and not miss anything) for an entire month and write down EVERYTHING you buy or spend money on. This includes your monthly bills. Make sure to only use minimum payments for anything that has monthly payments (get to this later on paying off the debt).
2) Calculate your total monthly earnings and taking home pay. Everything from work to investments that you get paid from monthly.
3) Subtract Step 1 from Step 2. If it is a negative number, then you are spending more money then you make every month and going further into the hole. If it is positive this is a great thing, you will not have to tweak your spending as much.
4) Go down your list and look at the items you spent money on. Find things that are not really a must to live in your every day life. Write beside those items how much you are willing to reduce spending on it every month. If your number in step 3 was negative, keep working your list until you have a positive number.
5) Create your categories of spending. For example: Food $200.00, Gas $200.00, Clothes $50.00, Electric $100.00, ect. What I also like to do for items like food and clothes is put the money in an envelope so I do not over spend. Any money left over in the envelopes I put towards either savings or you can put towards your debt.
6) Make sure to include money for fun activities, living on a budget does not mean you have to cut out all your fun activities, just plan them smarter. You might want to check out our article on 5 cheap and fun date ideas.
7) Budget for debt reduction, put as much money as you can afford into this category, because the more you pay down your debt the lower the monthly payments get and the more you can save for the future. Pick 1 credit card to pay more than the minimum balance every month until it is paid off. See our article on how to pay off your credit cards.
8 ) The goal of a budget is to get out of debt and to save money. Make sure you put in your budget every month an amount that you want to save and put into a savings or ING account. If you have to rework your budget to get at least $50 in savings every month, do so.
9) Put your budget to work for you. Stay within your means that you set for your budget. It is hard to live on a budget for the first few months, but it feels good at the end of every month if you were able to accomplish that task and see money in the debt column go down and money in the savings column go up.
10) At the end of each month you need to make some tweaks to your budget plan. Maybe you over budgeted in some categories and have a lot of money left over or you under budgeted for your utilities and were short money and have to take it from another category in your budget.
11) Continue to do step 10. Your budget will change all the time due to different circumstances, but it will not change too dramatically, unless you hit the lottery or something, in that case, I will take a cut, 
How do you budget?
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Over 75% of the United States population has credit cards or credit card debt, I am going to show you a few different techniques to paying off those credit card bills correctly.
The first thing you want to do is sit down and look at your budget (if you don’t have a budget yet, I highly suggest one or how much you can pay towards your credit cards every month). On a piece of paper write down every credit card you have with a balance on it, how much is the total balance and the interest rate for that credit card, and the mininum balance due on each card. Now we will use this information to pay off those credit cards as quickly as possible.
There are two methods that most people use and no its not just pay the mininums until they are done, they are methods that you pay the same amount to the credit cards every month until you are free of them.
Tip: Do not close every credit card you have when you pay them off! This can ruin your credit score. Keep open your oldest credit cards with the largest open credit available, do not use the card, but keep it open, you can use it once a year and pay it off the same month, so it shows a transaction, by doing this, it will raise your credit score and get you better deals in the future (such has low interest rate mortgage, ect).
Method #1 The debt snowball effect.
Put your debts in order of how much you owe to each one from lowest to highest, lets say you have 3 credit cards, one is $1200 min payments of $80, the second is $3400 min payments of $200, and the third is $2000 min payments of $160. Put them in order of $1200, $2000, and $3400. You have to pay $440 every month to these credit cards for the mininum payments, you budget $500 a month to pay to the credit cards. What you do it pay $140 to the first, and pay mininums to all the other credit cards. Anything over the mininum to your credit cards you pay to your lowest balance credit card, you keep doing this because it all goes towards the principal balance and lowers your credit card balance quickly. Once you pay off that credit card, you mark it off, BUT you still pay $500 towards your credit cards, you pay the monthly mininum to the highest cards, but the new lowest card amount you pay anything left over putting a bigger chunk towards your lower card and quickly paying it off, and once that is paid off, you keep going like this until your last card and you consistantly pay $500 a month until it is paid off. Now this is just and example, maybe you can pay more or less than this towards your credit cards, but you have to pay more than the mininum and be consistant every month.
Method #2 APR Snowball Effect
Using the same methods in Method #1, but instead of the lowest balance first, you put the highest interest rate credit card first and go in that order. Many people rather due this, because you are paying the most interest on these cards and will save more money in the long run going this way, but if you are a person that needs to see results to keep going and motivating you, you might want to do method one as you will be more inclined to keep going once you mark the cards off faster.
It is up to you, which method you choose, make sure you always pay atleast the mininum on every card you have.
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