Debt Consolidation Blog

Archive for April, 2011

What are your financial priorities? What is your most urgent financial need? What are your long-term goals? The answers to these questions are crucial to your financial planning. Here are some tips about setting your financial goals and priorities.

Less is more

When it comes to your long-term financial goals, less is more. Try not to think of every single thing you need or want. Focus on your top three because this will make it easier to achieve your goals. When you have finished one thing, like buying a house, then you can add another goal.

Financial emergencies fund

If you have something that needs to be dealt with right away then you will have to focus your attention on it first. These are urgent things like dealing with illness in the family, essential home repair, job loss, etc.

That’s why one of your goals should be to build up an emergency savings fund just for these occasions. You don’t want to be caught flat-footed whenever something unanticipated happens.

Financial priorities

Some common goals are saving money for:

an emergency fund

retirement

children’s college plan

buying a house

getting out of debt

Be specific about your goals

Be as specific as possible about your goals. “Financial stability” sounds good but what does it actually mean? It’s too vague and abstract to enable you to plan for your future properly.

A solid, specific goal is more like “build an emergency fund my family can live on for three months if I lose my job” or “reduce credit card debt to 20% of my credit limit.” These are the type of actionable goals you need to prioritize.

Think about what you enjoy most

Don’t just prioritize the important financial decisions. You should also prioritize spending your surplus money so that you get the most bang for your buck. Once you have few extra dollars to spend on more frivolous things, think about what gives you and your family the most pleasure and prioritize accordingly.

For example, which would you want to do more: buy a fancy new home theater system or go to Disneyland with your family? Spend more money on what you enjoy the most.

Making plans

After setting your financial priorities, your next step is to figure out what you need to do to make things work. Look over your options and then start working on your top priority right away. Remember, when it comes to savings, time really is money.

If you save a dollar a day, in twenty years that amount will balloon to $12,672.53 in savings. However, if you had started saving a dollar a day ten years ago, twenty years from now that would be $25,462.69 in savings.

The lesson to be learned here is that you need to decide right away what financial goals you want to pursue – and then start working toward them as soon as possible.

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The foundation of a healthy financial profile is the practice of sound money management skills. Not everyone is taught how to manage their finances and education can make the difference between a positive financial future and one that is riddled with debt and bankruptcy. Establishing healthy money management practices is not a difficult process.

To begin establishing positive financial practices, it is important to get an overview of your current situation. You will want to establish what is called your net worth. This number is not fixed and can change over time. If your current net worth is not in your ideal range, rest assured that there are definite steps you can take to alter this. When assessing your net worth, take a tally of all of your assets. These include physical possessions such as boats, cars, homes, motor bikes and other similar items. Then you will want to tally your non-physical assets such as investment options, stocks and bonds. If you want to tally up your complete assets, you can also include antiques that you own that have a high value as well as coin collections, pieces of art, and other items that you have received a high appraisal on.

After you have tallied your assets, you can add in any income that you have from your job or self employment. Your income added to your personal assets will be your positive net worth. However, secondly you will have to also tally your debts. Notate the quantity of your debts which include credit cards, furniture, and student loan balances and other such debts. This will give you a total which you should subtract from your first total. The final number you get will give you an idea of your total net worth.

Once you have a complete financial picture, you can begin to set goals for your financial future. Determine the amount you would like to save for retirement and find out whether you are on track to meet those goals. Take the time to track your spending and see where the majority of your money goes on a monthly basis. Take an inventory and see if there are miscellaneous expenditures that you can redirect towards a money marketing account or another high yield savings account. In addition to redirecting your spending, you will want to see if you can lower the interest rate on any of your outstanding debts. A lower interest rate will result in more cash on hand to direct towards your savings.

Start making a plan about your financial future by deciding to create a financial portfolio that is well rounded. Meet with a financial advisor to establish a sound plan for your future goals. A healthy financial portfolio will contain mutual funds, stocks, bonds and can even contain investment property. In addition, if your employer offers a 401K, you will benefit greatly by taking full advantage of it. Most 401K plans will match your investment dollar for dollar. In addition to your company’s 401K plan, see if you qualify for a Roth IRA account. A Roth IRA is the greatest financial account available in the United States.  With it you can make deposits that you can withdraw at any time with no additional penalties.  Your Roth IRA account can be used to purchase a variety of bonds, stocks and investments. Speak to your trusted financial advisor to create the portfolio that is best for you.

Following these steps will lead to a more prosperous financial profile and an increase in your long term net worth. Setting practical financial goals and working steadily towards them by managing saving and spending will result in positive changes in your overall finances.

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Investing one’s income is the primary way to build financial stability and move towards economic freedom. Navigating the proliferation of stock options, bonds and mutual funds can be confusing for the individual starting out. Before making any investment decisions, it is important to do as much research as possible. Although you should be working with a professional when making investment decisions, it is never a bad idea to become educated about your choices beforehand. There are a few simple guidelines beginners can follow to start the profitable journey towards investing.

When starting out, a beginner may hear conflicting advice about how to invest. They may be instructed to invest heavily in the stock market and take advantage of their ability to absorb risk. However this advice is misleading and can be harmful to one’s financial portfolio. When calculating risk, it is important to note that there are two different types of risk and these include industry risk and personal stock risk. Industry risk represents the market risk and affects everyone equally when the market moves up and down.  An investor can control their exposure to industry risk by choosing safer stocks to invest in. Individual stock risk refers to the performance of any one company in the portfolio. This risk can be diversified by investing in ten or more companies to mitigate the impact of one underperforming stock.

Instead of throwing all of their funds into the stock market with no clear cut plan, a better approach would be to buy shares in a mutual fund. Purchasing shares in a pre-established mutual fund has many advantages to the beginning investor. One of those benefits is diversification. A mutual fund is a compilation of stocks, bonds and other securities that can be sold in small quantities. An investment of as little as $1000 can be placed into a mutual fund for positive return. Another advantage to mutual funds is their inherent flexibility. Mutual funds allow the investor to sell shares remotely online, over the telephone and even using regular postal mail. A mutual fund provides the convenience of expert management of the investor’s assets. Beginners simple lack the know how to be able to calculate which stocks are underperforming and need to be sold. A mutual fund pays the financial manager directly to handle the details of the account.

Overall it is best to take a conservative approach when beginning the road to investing. Mutual funds offer the safest and most flexible funds for beginning investors who are ready to create a financial portfolio. As time progresses, it makes sense to look into buying shares directly from the stock market and an experienced financial planner can help the investor to make this  transition smoothly and efficiently. The decision to begin investing is a wise one and with all things, there should be some basic research before any significant undertaking. Take your time to read as many articles and finance management books as possible. Although it is a good idea to entrust the specifics of your portfolio to a professional, you will want to maintain a clear picture of where you want your financial portfolio to be headed over the course of time.

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In light of the recent plummet in the stock market, it is more important than ever to reassess your finances and begin saving for retirement. The low cost of stocks currently makes it optimal for young savers just beginning to plan ahead for the future. If you are older and saw a recent plummet in your 401K holdings, it may be necessary to employ a more short term strategy for actualizing your retirement goals.

If you are starting out in your twenties and thirties, now is an optimal time to enroll in your company’s 401K plan. Make sure that you are contributing the minimum amount needed for your company to match your deposits. Your ultimate goal is to deposit 15% of your income into your 401K. This is also an excellent time to pile up on stocks that are at a low cost. If you are single and earning less than $27,500 you may be eligible for the retirement’s savings tax credit which has a value up to one thousand dollars. If you are married and with a combined income of $55,500 or less, both you and your spouse can claim the credit. With so much time ahead, you can also add certain risky stocks to your portfolio with your financial advisor’s guidance. Your twenties and thirties are the best time to plan ahead for your retirement.

Once you reach your forties, you will want to max out on your employee contribution to your company’s 401K or any similar compensation plan. Now is also the time to cap off any deposits into your Roth IRA plan. If you have a stay at home spouse, you can contribute to a joint IRA account. Consult with your financial advisor to make sure you are on the right track towards meeting your retirement goals. According to your financial profile, your advisor may make specific recommendations that can help you reach your retirement goals on time. You can also utilize online financial planning tools such as Fidelity’s My Plan or TD’s Ameritrade online tool.

In your fifties and sixties, try to pay off your mortgage loan. Eliminating this large payment will make retirement easier and much more of a realistic undertaking. If possible, borrow money from a life insurance policy to pay off the balance on your mortgage. If you are still working, you will want to make the maximum contributions possible to your company’s 401K plan. There are catch up contribution options which will allow workers age fifty and older to contribute up to $22,000 to their 401K plans and up to $6,000 into their Roth IRA plan, as of 2009. During your last year working, front load your 401K plan and contribute as much as possible. Towards the end ask about transferring the balance of your 401K to your Roth IRA account which allows for greater control over your finances.

The earlier you start planning for retirement the better. Beginning in your youth gives you time to establish a sound financial plan for your future. It is easier to diversify your accounts and take greater risks with your investments which may offer a higher yield. If you have begun planning your retirement later in life, consult with your financial advisor for the best strategy possible to assist you in your retirement goals.

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The stigma of a ruined credit score prevents most people from filing for bankruptcy when they need to. Overwhelming debt and seemingly insurmountable monthly payments can make filing for bankruptcy a necessity.  Although the debts cleared in a bankruptcy remain reflected on your credit score, it is possible to improve your credit rating after a bankruptcy filing and it may even be possible to achieve a core in the 700’s as soon as two to three years after filing.

After filing for bankruptcy your score is not likely to change significantly. This is because most people filing have had prolonged negative records on their report for quite some time. Their reports typically contain charge offs, and collections as well as negative payment histories. The combination of these usually equate to a score in the low 500 to 600 point range. Subsequent to a bankruptcy filing your entire debt is wiped clean. This can in fact raise your credit score as potentially negative items are erased or reflect a zero balance. The accounts that have been included in the filing will reflect on your score as “Included in Chapter 13 wage earner plan,” or “Included in Chapter 7 Bankruptcy.”

Another reason your credit score may remain in good shape after filing is because of the way the Fair Isaacs Scoring Company reports your score. In addition to the information included in your credit file, your score is also computed by comparing you to consumers in a similar position as you. What this means is that instead of computing your score by comparing you to an individual with perfect credit, you will instead be ranked along other consumers who have also filed for bankruptcy. This results in a much fairer computing standard and a much better credit score for those who have found it necessary to file for bankruptcy.

After declaring bankruptcy, it is in your best interest to raise your score as quickly as possible and there are a few different ways to do so. Find a friend or relative with a high credit score and ask them to include you as a co-borrower on one of their lines of credit. Although you won’t have access to the funds, their timely monthly payments will boost your overall credit score. Another method for improving your credit is to take out a secured credit card for yourself. These credit cards allow you to put a deposit down and are used similarly to a debit card. However they report to the credit reposting bureaus and on time monthly payments will help in raising your score. You can switch to an unsecured card after making on time monthly payments for at least a year. Lastly, check your credit to make sure that all items that have been cleared during bankruptcy are reported as such. A creditor should not be reporting any cleared accounts as having an outstanding balance.

The road to re-established credit does not have to be a long and arduous one after a bankruptcy filing. In most cases, your overall credit score will not suffer a significant drop. Taking the steps outlined to re-build your credit can easily have your score in the upper 600 to 700 range giving you access to lower interest rates and better loan terms for the future.

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Buying a new car is a very exciting undertaking. However it is easy to become trapped by large car payments that you may not be able to afford. There are a few ways to save money on your auto loan before purchasing that can result in lower payments in the long run.

By far the best way to save money on your auto loan is by having a high credit score. A score of 700 and hope is likely to garner you favorable interest rate terms. Plan ahead before shopping for your car. Request a free copy of your credit report and look over it carefully to make sure all the items listed are accurate. There may be minor accounts that you can pay off easily which will boost your score. If you see any erroneous items, don’t be afraid to dispute them. Disputing items on your credit report is often a fairly hassle free process. Equifax offers a simple dispute button on their website with a section to list your reason for disputing the item. You can receive the results of the dispute in a short amount of time, usually between three to four days. Begin cleaning up your credit report a few months before you will be buying your car. This will ensure that you receive optimal interest rates at the time of purchase.

Another way to save money on your auto loan is to consider taking out a home equity loan to finance your purchase. In many instances, you can receive a much more favorable interest rate on a home equity loan than you can from a car dealership. There are usually two ways to do this. You can use a home equity loan or what is called an HELOC or home equity line of credit. The HELOC offers an initial low interest rate for the first 36months and then after that time the rate becomes variable and can go up. This is a good option to use if you will be paying off your car in three years or less. A home equity loan offers a more stable fixed rate that won’t fluctuate over time. Before making the decision to take out a home equity loan or line of credit, be aware that you are essentially using your home as collateral, For this reason it is imperative that you make all your monthly payments on time.

Another option for saving money on your car loan involves securing independent financing before visiting your dealership. Oftentimes dealers can make more money from the interest on your loan that from the sale of the car itself. The dealer may ask you how much you can afford to pay each month. They will then take this figure and scale the interest up to match this payment. If you qualified for a 6% interest rate, you may end up paying up to 9% and more from this tactic. The dealer then receives a commission from the difference of what you are paying and what quote they received from their lender. Check with your bank or another financial institution to obtain an offer of financing before visiting your dealership.

Securing a low rate on your auto loan can put more funds in your pocket at the end of each month as well as save you money throughout the life of your loan. Shop around before agreeing to any finance terms and use the tips outlined above to save money on your auto loan purchase.

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Refinancing your home can help lower your interest rate and subsequently the monthly payments you make on your home. However it is important to compare lenders and to take a close look at your total costs before deciding to refinance. People refinance for a variety of reasons, the primary ones being to save on their monthly payments and to get cash back from their loan. Reviewing the basics of refinancing can help you decide if this option is right for you.

Refinancing the home has several distinct advantages. With a refinance, it is possible to receive money back at closing which can be used to pay off credit card debt, purchase a new automobile or simply make some much needed repairs on the home. With a refinance, you can also change the terms of your new loan by shortening the time needed to pay off the debt thus building equity in the home at a faster rate. If you bought your home with an adjustable rate mortgage, refinancing is an excellent way of switching to a more stable fixed rate with predictable monthly payments. The primary benefit of refinancing is of course lower monthly payments.

Before refinancing it is important to shop around and ensure that you are getting the best deal. With the proliferation of online refinance companies, it may be overwhelming to receive a variety of competing offers all containing different terms. First, be aware that there are fraudulent companies online. These companies will attempt to charge a fee for an application, add in extensive loan fees and large closing costs. Once you realize you have a bad deal with one of these companies there is virtually no customer support on their end as you are left with a bad loan arrangement. It is vital to do your research on any online company you are considering. Make sure at the very least, they do not have a higher than normal complaint volume with the Better Business Bureau. You can do this by performing a quick online check at bbb.com. Also be sure there are no application fees to apply and no hidden charges and obligations. Their website should be clearly laid out with helpful resources and a short simple online application form should be present.

Once you have identified a few companies you may wish to work with, be aware that they are submitting your application to several of their lenders and will come back to you with several different offers. Clearly the lowest interest rate will seem like the best offer but there are other considerations to take note of. Be aware of the terms of your loan, if the life of the loan has been extended, you may end up paying more for your home in the long run. Look into the total payments you will have made once the loan is paid off,  this will help you to understand whether you are saving more money in the long run. Finally, compare closing costs and fees. Refinancing can sometimes be pricey and you will want to save all around not just on your monthly interest rate.

 Refinancing is often a great way to negotiate more pleasing terms on your loan, put immediate cash into your hands and lower your overall monthly payments. Make sure to choose a reputable company to work with and to closely review the terms of your new loan for optimal results.

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Many people know about refinancing their homes, but not as widely known is the option to refinance the loan terms on an automobile. The process is similar to what is encountered when first purchasing the car, however the end result is a lower interest rate and subsequently lower monthly payments on the vehicle. Refinancing can result in significant savings over the term period of the loan.

Before refinancing your car, there are a few things to take into consideration.  The first thing to note is the amount you will be refinancing on your car. If the value of your car is under $7500, it will not be worth it to most lenders to refinance. Next you will want to look at the age of your car. Make sure that your car is under at least seven years old before attempting to get a new loan on it. You can find out what your car is worth by checking the Kelly Blue book value of your car based on the current mileage and the age of your car. Your auto financed loan should not exceed the value of your car. Lastly, you will want to make sure that you are refinancing your loan within the first three to six months. This is because the majority of the interest paid on your car loan is paid up front. Waiting until you are three years into your loan will not result in a significant amount of savings for you.

Once you have verified that you are a good candidate for auto loan refinancing, you can then begin to shop around for lenders. Even if you feel that you may have an extremely good interest rate, even one point of difference can end up saving you hundreds of dollars. Compare the offers you receive from various lenders and decide on the one with the lowest interest rate and the best terms. It is relatively simple to find a lender to refinance as there are many online companies who provide this service. The process can take a few minutes to complete by filling out a simple application form online. In order to ensure a smooth application process, make sure to have all the information on your vehicle handy. You will want to have the correct 17 digit vehicle identification number (VIN.) You will also need to know the make and model of your car. Also make sure that you have the exact same spelling for the current loan holder when submitting your refinance application. An incorrect spelling may cause your loan to be rejected as the lender will not be able to find your original loan on file.  After the application has been submitted, your loan can be approved in as little as one to two days.

In addition to lowering your car payment, another hidden benefit to refinancing is that you may be able to get cash back from your new loan. If you owe 7,000 on your car and you are refinancing for $10,000 you will be left with $3000 in your pocket. You can use these funds to pay down on other debts such as credit cards with higher interest rates than that of your new car loan.

Before attempting to refinance your car loan, make sure that you are a good candidate. Check to see what the loan to value ratio of your car is and also what balance remains on your car. If your car is almost paid off, it may not be in your best interest to refinance your loan.  However if refinancing is right for you, it can result in significant savings and lower monthly payments.

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If you have been thinking of doing a balance transfer or cancelling your account due to high credit card rates, you may be able to negotiate with your lender for better credit card terms. Oftentimes a simple phone call is enough to get your interest rate lowered even a few points resulting in significant monthly savings for you.

If you have been receiving offers in the mail from competing credit card companies, the chances are high that your credit is in very good standing. This is an excellent indication that you are in a prime position to lower your interest rate on your credit cards. Gather your credit card offers together and review them taking note of the best terms they are offering. This will give you an idea of how low you may be able to negotiate your rate down. One you have the offer letters in hand, call your current credit card company and let them know the types of offers you have been receiving. Ask if they can match the offers in any way and you can even let them know you are considering closing your account or making a balance transfer to one of the better offers. If you are not making any headway, ask to speak with the supervisor who may have more of an ability to help you than the customer sales representative.

If you don’t normally carry a large balance on your credit cards, having a lower interest rate may not be of significant importance to you. If this is the case, ask about lowering your annual fees instead. Many card companies have increased their fees over the past few years and lowering yours could put money back into your pocket. If the card in question is partnered with an airline or hotel to offer bonus rewards, they are not likely to waive their fees and so attempted negotiations may be futile. In the long run, if you take advantage of these benefits such as frequent flier miles, you may find that the money saved in those areas are worth the annual fee that you are paying. Calculate the amounts before calling to find out what your best options are.

Another option is to remind the company of your loyalty. If you have been with them for a period of time and consistently make regular payments, they may not wish to lose you as a customer. If all else fails and you don’t make any headway with your credit card company, you may want to consider simply transferring the balance to a card with a lower interest rate.  However it is important to keep in mind that transferring a balance comes with its own fees and after calculations, you may not come out ahead. 

Keeping these pointers in mind will assist you in your negotiations with your credit card company. If you need to transfer the balance on your card remember to do the math before calling to find out if you are saving enough money in the long run. In the end, a lower interest rate will put more money into your pocket instead of the credit card companies and that is always a good thing.  

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Buying a home can be one of the most rewarding events of one’s life. It is a moment to take pride in a major accomplishment and an opportunity to purchase an investment that can be passed down to future generations. Before the buying process can start, there is some basic preparation that can assist you in making sure that you are financially ready to make this major purchase and can ensure that you remain in your home for years to come.

Before buying a home, take an objective view of your budget. There are many home counseling programs available which offer budget worksheets for first time homebuyers. Take a detailed inventory of all the items on which you spend money on a weekly, monthly and yearly basis. You will want to get a snapshot of any potential money leaks that you are unaware of. Once you have identified areas where you can redirect your spending, you can apply those extra funds towards the purchase of your new home.

After completing a financial budget worksheet, you will want to look at your income to debt ratio. Be aware that even though your credit and income may be in a stable range for your new home purchase, financial obligations such as large car notes and extensive credit card payments may leave you with an insufficient amount of money to fund your mortgage payments comfortably. Before attempting to purchase your new home, make sure that your debt payments are at a manageable level. Seek help from a federal credit union or a similar financial institution for free and confidential counseling on managing and possibly consolidating your debt.

Another factor to consider before making the move to buying is the amount of money you have in savings. A home purchase can make for costly out of pocket expenses. There are several fees included in the home buying process. These can include a home inspection, appraisal, closing costs, title search, real estate legal fees and many others. In addition to these basic fees, you may be required to pay out of pocket closing costs.  The most significant amount of your savings will of course be directed to your down payment. This is the largest expenditure when purchasing your new home and depending on the amount of the home you purchase can be thousands of dollars. Work to create a savings plan that will allow you to put money away for your down payment. There are many first time home buyer programs which offer down payment assistance and will sometimes match your savings to the dollar amount.

Taking a sound and practical view of your financial situation can help you in assessing your readiness for the home buying process. Review your budget and make practical goals for saving towards your new home. Being aware of how much you would like to spend on your home is a fundamental guide to the quantity of savings you will be required to have on hand. Taking these steps will have you on the way to becoming a proud homeowner.

Articles on this site have been acquired from a variety of sources.  No content on this site should be considered financial or legal advice