The Bead

New Relief For Struggling Homeowners

2012-02-01T06:22:00.000-08:00

SmartMoney.com posted this article highlighting a revamped government sponsored program that will allow some unemployed homeowners to stave off foreclosure for up to one year. The article discusses the benefits and the possible drawbacks for the out of work homeowners who choose to apply for this program. The article is excerpted below:

"A revamped program launched on Wednesday aims to help homeowners who’ve lost their jobs from going into foreclosure. But experts warn there are drawbacks that could saddle some borrowers with even more debt.

Beginning on Feb. 1, cash-strapped homeowners with a Freddie Mac-backed mortgage who are unemployed could be absolved from paying their mortgage for up to one year while they try to find work. Previously, the company allowed a six-month break for such homeowners, and extended that period on a case-by-case basis. Roughly 18% of outstanding mortgages – or about 10.5 million mortgages – are owned or serviced by the quasi-government agency, according to Inside Mortgage Finance.

The extension comes as the government is trying to limit the number of homes going into foreclosure. Last week, the Obama administration said it was extending the government’s mortgage modification program by an additional year to run through the end of 2013. Separately, the government is working out a settlement with big banks and states’ Attorneys General that experts say might be announced soon and could do more to reduce principal balances on mortgages of struggling homeowners. Roughly 4.8 million homes received a foreclosure notice during the past two years, according to RealtyTrac.com.

Freddie Mac says the extended relief program can help stave off foreclosure for homeowners grappling with the consequences of joblessness. “We believe this will put more families back on track to successful long-term homeownership,” says Tracy Mooney, senior vice president of single-family servicing at Freddie Mac. There’s also a larger benefit, say housing experts: Preventing foreclosures could stabilize home values and help homes that have been lingering on the market to sell faster, since there’ll be fewer foreclosed homes to buy on the cheap.

Experts agree that the extension could help many borrowers. On average, unemployed people have been without work for 41 weeks, according to December data from the Bureau of Labor Statistics. A year of suspended mortgage payments can buy the borrower time to find work before they have to resume paying the mortgage. “Forbearance for unemployed homeowners is a win-win – these people are in need of immediate assistance,” says Susan Wachter, professor of real estate and finance at the University of Pennsylvania’s Wharton School.

But these same experts warn that the program has potential pitfalls. When the temporary relief ends, the borrower will have a hefty bill to pay. And they could find themselves in a deeper hole than they were before. Late fees aren’t added to the mortgage while it’s in forbearance, but interest is accruing and the unpaid principal that would have been paid during the relief period will be due when it ends. Freddie Mac says the borrowers who aren’t able to pay that amount in one lump sum could be offered alternative payment options, like paying that amount over time while simultaneously making their regular monthly payments.

If forbearance doesn’t work, a loan modification could be an option. Homeowners who were struggling with their payments while they were employed should consider a loan modification, which results in smaller monthly payments and would also last for a longer period of time than forbearance relief, says Keith Gumbinger, vice president at HSH Associates, a mortgage-data firm.

Borrowers who decide to proceed with forbearance will need to meet several qualifications. They’ll have to notify the servicer (that’s who they send their monthly payments to) of their job loss and provide income proof like a pay stub or tax form showing they are or will soon be unable to pay the mortgage. If the unemployed borrower’s spouse is working or if the household receives income from other sources that’s enough to pay for the home loan, they might not get approved for forbearance. And borrowers who are approved should expect ongoing calls from the mortgage servicer inquiring about their job search; if the company determines the borrower has stopped job hunting they could end the forbearance program."

Source: SmartMoney.com, "New Relief For Struggling Homeowners," AnnaMaria Andriotis, January 31, 2012, available at: http://blogs.smartmoney.com/advice/2012/01/31/new-relief-for-struggling-homeowners/?link=SM_hp_ls4e

Credit card debt drops 11%

2012-01-18T05:09:00.000-08:00

CNNMoney.com published this article detailing some good financial news for many consumers. Americans were able to decrease the amount owed to credit card companies last year by 11%. Every state saw a decrease in the overall debt load. This study demonstrates that some consumers are charging less on their credit cards or not using credit cards at all. The article is excerpted below:

"Consumers whacked down credit card debt by 11% last year, and average debt loads dropped in every state.

The average credit card balance for 2011 was $6,576, down from $7,404 the previous year, according to a report from credit tracking and financial education website CreditKarma.com, based on data from more than 300,000 of its users.

The decline came as weak consumer confidence kept spending in check and banks continued to tighten their lending and slash credit limits for many existing customers, said Ken Lin, CEO of Credit Karma.

Credit card debt had eased in 2010 as well, slipping 7% during the year.

The positive trend may not last for long, however. As the economy continues to rebound, Lin said debt is likely to rebound with it, adding that banks have recently started loosening credit requirements again.

"I believe we are just about at the bottom of the debt trend," said Lin.

Credit card debt by state: Consumers in Wisconsin had the lowest average credit card debt last year: $5,062.

Mississippi and Alabama were close behind and also posted the biggest declines, with residents reducing their balances by 23% and 16%, respectively.

The state that racked up the most credit card debt was Alaska, where consumers had an average debt load of $7,937. Alaska was followed by New Hampshire and Connecticut.

Other debt: Consumers weren't as successful at paying off other kinds of debt last year.

Mortgage debt remained steady at a national average of $173,876, though levels varied greatly among states.

Californians had the most mortgage debt: an average of $313,749 per person. West Virginia residents had the lowest level: $104,279. Mortgage debt rose the most in South Dakota, jumping about 12%, and dropped the most in Nevada, by 6%.

Auto loan debt was the only kind of debt to actually increase -- rising 2% to an average of $15,504. It rose the most in Alabama -- by a whopping 30% -- to an average of $20,996.

When all of the different kinds of debts were added up, the average consumer held a total debt load of $210,236 at the end of 2011, down only about 1% from 2010."

Source: CNNMoney.com, "Credit card debt drops 11%," Blake Ellis, January 17, 2012, available at: http://money.cnn.com/2012/01/17/pf/credit_card_debt/index.htm?iid=Lead

5 businesses that rip off the poor

2012-01-12T05:14:00.000-08:00

MSNMoney.com posted this article naming several industries that often exploit people who are struggling financially. Fortunately, there may be some alternatives to consider. The article is excerpted below:

"As Americans' incomes shrink and credit gets harder to come by, several industries have stepped in to make it harder for people to get from paycheck to paycheck.

These businesses claim they're filling a void left by mainstream lenders. But if you fall into the clutches of any of these outfits, you can find yourself in a far deeper hole than you're in now, with much less money available to help you climb out.

Here are five businesses that you should be wary of and some alternatives that make more sense when money is tight.

1. Payday lenders
Only a handful of companies provided these high-cost loans in the early 1990s. Today, there are more than 19,000 payday loan outlets across the United States. (To give you a point of comparison, McDonald's, the largest fast-food chain, has about 14,000 restaurants in the U.S.)

To get a payday loan, you write a postdated check (with the date usually coinciding with your next paycheck) and accept a smaller amount as your loan. For each $100 you borrow, the fee is typically $10 to $15 for a 10-day loan, although it can be higher. That fee would translate into an annual interest rate of nearly 400%.

Your effective interest rate will skyrocket if you can't cover the check when payday rolls around and you opt to renew the loan.

Payday loans were taking such a toll on our military men and women that a 2007 federal law limited the interest rate that service people could be charged on these loans (as well as vehicle title loans and tax refund anticipation loans) to 36%. Payday outlets that had infested areas near military bases cleared out virtually overnight.

Such protections don't apply to most civilians, however. Although payday loans are banned in 17 states -- Arkansas, Arizona, Connecticut, Georgia, Maine, Maryland, Massachusetts, Montana, New Jersey, New Hampshire, New York, North Carolina, Ohio, Oregon, Pennsylvania, Vermont and West Virginia -- and the District of Columbia, they're allowed in others and available online, so you'll need to protect yourself by steering clear.

Your best bet is to scrape up a few hundred bucks that you can keep in reserve so you won't need a payday loan. Read "Why you need $500 in the bank" for more about how to do that.

If a crisis hits before you have the cash, consider these alternatives:

Ask your employer for a real payday advance. If you need money from your paycheck early, some companies will advance it to you without charging fees or interest.

Get help paying your bills. Churches and other faith-based organizations may offer members emergency assistance. Low-income folks may be able to get help with utility bills, living expenses, child care costs, housing and a variety of other expenses. Start your search at Benefits.gov.

Get a loan from a credit union. These member-owned organizations often have better interest rates and more flexible lending standards than mainstream banks do. You can use Find a Credit Union if you're not already a member.

Take a cash advance from a credit card. Normally cash advances are a bad idea, since you usually pay an interest rate of 21% or more and there's no interest-free grace period. But if you have a credit card and your only alternative is a payday loan, the cash advance is clearly the better of bad options.

2. 'Buy here, pay here' car lots
Before the financial crisis, people with troubled credit often could get conventional, if high-interest, loans to buy cars.

These days, such subprime loans are harder to find, and millions have turned to "buy here, pay here" car lots -- so called because the dealers offer financing themselves, rather than through third parties, and borrowers typically have to show up at the lots to make their monthly or biweekly payments.

These dealers offer older, high-mileage cars, often with steep markups and loans that carry interest rates that can exceed 20%. The costs are so high that many borrowers fall behind on the loans, allowing the dealerships to repossess the cars and sell them again. Repossession rates are around 30%, according to the nonprofit Center for Responsible Lending, which says "collections and repossessions (are) a critical part of their business model."

Buy here, pay here lots now far outnumber conventional new-car dealerships, with 33,000 lots, compared with the new-car dealers' 20,000, according to CNW Marketing Research. Buy here, pay here dealers sold nearly 2.4 million cars nationwide last year, up from 1.3 million in 2000, CNW estimated.

Obviously, people would be far better off saving up cash to buy used vehicles from private parties or reputable dealerships. But your current car may give out before you have enough saved. If you don't live in an area with good public transportation, your alternatives may be few.

A credit union is certainly one place to turn for lower-cost loans, although not all potential borrowers will qualify. The Los Angeles Times, in investigating buy here, pay here dealerships, found about 160 charitable groups that help connect low-income people to affordable cars. But many areas have no such programs.

3. Used-car leasing
Here's an even more lucrative (for dealers) twist on the buy here, pay here model: lease here, pay here.

Instead of selling clunkers, lots lease them to drivers with poor credit who desperately need cars to get to work. The drivers often pay $1,500 to $2,000 upfront and then hundreds of dollars a month for a high-mileage car.

Dealers retain the cars' titles, so they don't have to go through formal repossession procedures. If you stop paying, they simply come take the car or disable it with a remote ignition lock. The terms of the lease can't be altered if the driver files for bankruptcy -- unlike auto loans, which a judge can restructure. And the deals typically aren't subject to state usury laws that limit interest rates.

The Los Angeles Times highlighted a lawsuit by Kai Harris of Clarkston, Mich., who is suing a dealership in federal court, saying her lease of a 2008 Jeep Patriot amounted to an interest rate of 38.5%, far above the state's auto loan limit of 25%. Harris paid $2,000 upfront and agreed to pay $124 a week for three years for the car, a total of $21,344 for a car with an initial value of less than $12,000. The lawsuit calls it "a usurious credit sale disguised as a lease."

As bad a deal as buy here, pay here can be, you would have more consumer protections financing a vehicle that way than leasing it.

4. Rent to own
About 6 million Americans pay dearly for their impatience. These people are customers of the $7 billion rent-to-own industry, which specializes in getting people to pay two to four times the retail cost for furniture, computers, appliances, electronics and even tire rims.

Many people never finish paying these inflated prices, which means they get a visit from the repo men taking the stuff back. And the truly horrible thing about rent to own is that people have plenty of alternatives to participating in this racket.

When I wrote about rent-to-own stores a few years ago, I found a Rent-a-Center in North Hollywood, Calif., offering a Klaussner couch, love seat and coffee table for $44.99 a week for 83 weeks, which worked out to about $2,000 more than the $1,657 the set would cost if you paid cash.

On Craigslist, I found a Klaussner couch selling for $200. If you put aside the $45 a week, you would have enough to buy it in less than five weeks. In all, there were 1,453 listings selling couches, 2,269 listings for sofas and 542 listings for love seats. Plenty were gently used and selling for $100 or less, sometimes a lot less.

At another Rent-a-Center, in Van Nuys, Calif., a used bunk-bed set was on offer for $22.96 a week for 65 weeks, or nearly $1,500, compared with a cash price of $663. Of course, Craigslist was littered with ads for used bunk beds for a fraction of that, and Ikea had a brand-new bunk bed set for just $149, with mattresses starting at $69. Anyone who needed bunk beds could save up by putting aside the same $23 a week the Rent-a-Center wanted and buying a set outright in about three months.

You don't have to be that savvy or thrifty a shopper to get a better deal than rent to own.

5. Banks
A 2008 Federal Deposit Insurance Corp. study found that people earning less than $30,000 were far more likely to incur overdraft fees than those with higher incomes. More than 38% of low-income accounts had at least one insufficient-funds transaction, compared with 22% of upper-income accounts. Among the low-income customers, 16.7% of accounts had one to four overdraft transactions, and 7.5% had 20 or more NSF transactions. That compared with 10.5% of upper-income accounts with one to four overdraft transactions accounts and 3.8% with 20 or more.

At the time, most banks were automatically enrolling customers in so-called bounce-protection plans that allowed overdrafts and then levied a $30 to $35 fee for each over-limit transaction. Concern about the programs' effect on low-income people and seniors on fixed incomes helped lead Congress to abolish the programs and require banks to get consumers' consent. Most people have opted out.

Now banks are finding other ways to ding those who have trouble maintaining big balances in their accounts. The primary method: monthly "maintenance" or account fees. Bankrate.com's 2011 Checking Survey found only 45% of noninterest accounts are free, compared with 65% in 2010 and 76% in 2009. The monthly fees often range from $8 to $15.

Burned by fees, many lower-income families have given up on banks. Nearly 20% of households with incomes under $30,000 don't maintain bank accounts, according to the FDIC.

You may be able to avoid the fees by setting up direct deposit of your paycheck. Or you may need to look for a new financial institution. Credit unions, community banks and online banks may offer no-minimum accounts or lower fees."

Source: MSNMoney.com, "5 businesses that rip off the poor," Liz Weston, January 6, 2012, available at: http://money.msn.com/shopping-deals/5-businesses-that-rip-off-the-poor-weston.aspx?page=0

IRS extends tax filing deadline to April 17

2012-01-06T05:28:00.000-08:00

CNNMoney.com posted this article announcing that the IRS has extended the tax deadline to Tuesday, April 17, 2012. The IRS will begin accepting online submissions of tax filings on January 17 through their e-filing system. The article is excerpted below:

"The IRS is giving taxpayers two extra days to get their taxes turned in this year.

While Tax Day typically falls on April 15, the IRS announced Wednesday that it is pushing back this year's filing deadline to Tuesday, April 17.

The extension was granted because April 15 falls on a Sunday this year, and Monday is Emancipation Day, a holiday in Washington D.C. that celebrates the freeing of slaves in the district. Last year, Tax Day was extended until April 18, also thanks to Emancipation Day.

The IRS will also begin accepting returns submitted online through the agency's e-filing system -- which the IRS says is the fastest, most accurate filing option for taxpayers -- on January 17.

If you are requesting an extension, you have until Oct. 15 to file your 2011 tax return, the agency said.

The IRS said it expects to receive more than 144 million individual tax returns this year, with the majority projected to be submitted by the new April 17 deadline."

Source: CNNMoney.com, "IRS extends tax filing deadline to April 17," Blake Ellis, January 4, 2012, available at: http://money.cnn.com/2012/01/04/pf/taxes/filing_deadline_extended/index.htm?iid=SF_PF_River

7 habits that keep you in debt

2012-01-04T07:50:00.001-08:00

MSNMoney.com posted this article detailing seven habits that may be contributing to the overall debt Americans carry. The author states that Americans need to start living within their means. Also suggested is to stop using credit cards for shopping indulgences (using cash only) and avoid shopping when stressed or emotions are running high. The article is excerpted below:

"If mood-boosting shopping sprees and racking up credit card rewards are a part of your lifestyle, you could be fueling a dangerous debt addiction. Results of Card Hub's latest credit card debt study show that Americans accumulated $18.4 billion in credit card debt in the second quarter of 2011 alone. Credit card debt continues to be a major problem for the average American consumer, yet many are still living a lifestyle that supports a costly debt habit.

Here are seven bad habits that could be fueling your debt addiction:

1. Borrowing

Do you frequently borrow clothes, household items and even money from friends and family? If you always seem to be indebted to others in some way -- and fail to repay your debts regularly -- you could be addicted to debt. Find ways to make ends meet and stop relying on others to get by. The borrower mentality can leave you in a perpetual debt cycle.

2. Making impulsive purchases

Whether you're a Groupon junkie or just can't resist a sale, impulsive shopping habits could be fueling a debt addiction. Few people work with a budget for last-minute purchases, and if you don't have funds available, you're likely to use a credit card to get what you want. Curb those urges to shop deal sites and other last-minute offers.

3. Spending to boost your mood

If you indulge in retail therapy regularly, make sure you support the effort on a cash-only basis. If you rely on credit cards to get your shopping fix, it can be difficult to cover the costs of an emotional shopping spree without going into debt. Climbing out of debt will be that much more difficult if you've racked up huge balances to get your fix. Avoid shopping when emotions are running high.

4. Depending on cash-back credit cards

The concept of earning money for spending can be very seductive. If you tend to pay with credit just because you know you are "earning" a portion of it back in the form of cash or rewards points, you could be fueling a dangerous addiction to credit card spending. Cash-back credit cards typically pay you back a very small percentage of your charges -- think $1 for every $100 you charge. Unless you're very disciplined about paying off your entire balance by month's end, the money you earn back will barely cover the interest charges you acquired on that spending spree.

5. Routinely transferring balances

While it's smart to transfer high-interest balances to a low-interest credit card when you can, it's also easy to get caught in a game of "round robin" with your credit cards. When you find yourself paying off one credit card with another card, you could be setting yourself up for an endless debt loop. Pay off your balances, and stop using the cards to get off this dangerous cycle.

6. Living on interest-free financing plans

Zero-percent interest for the next 18 months and interest-free financing plans are great marketing strategies. Big-ticket items that can be financed with a no-interest offer seem like a great deal on the day of the purchase, but you could end up spending much more than you would have if you had paid with cash. The lure of "have it now, pay for it later" can be hard to resist -- and it will more than likely leave you with a pile of debt. Save your money for larger purchases so you don't end up carrying extra debt -- interest-free or not -- over the next couple of years.

7. Keeping up with the Joneses

If you're constantly comparing yourself with others and trying to outdo the neighbors with material goods, you could be fueling a debt addiction. One-upping friends and family by purchasing luxuries on credit can turn into a competitive sport -- a costly one. Avoid serious financial problems by living within your means and buying only things you can honestly afford. Trying to keep up with the Joneses can be the fast track to debt problems or even bankruptcy."

Source: MSNMoney.com, "7 habits that keep you in debt," Sabah Karimi (U.S. News & World Report on MSN Money), December 21, 2011, available at: http://money.msn.com/debt-management/7-habits-that-keep-you-in-debt-usnews.aspx

7 secrets of credit card companies

2011-12-09T05:58:00.000-08:00

MSNMoney.com posted this article discussing how people may be able to significantly improve their credit card situations if they ask the right questions of the credit card companies. According to the author, if a person has a fairly decent credit score (above 700 or higher), he/she may be able to ask for a lower interest rate, lower or no annual fees or get a late fee removed. The article is excerpted below:

"It's not that your credit card company deliberately wants to keep you in the dark. OK, maybe some do. But most major banks are pretty good about disclosing their terms and conditions on credit cards. The tips I'm talking about here fall into the "I didn't know that!" category -- things you can, indeed, negotiate with your credit card company.

If you've had problems making payments on time or have had other difficulties being a responsible cardholder, though, you might not want to initiate contact with your card issuer. It can backfire (see No. 7). That's my "don't try this at home" warning to anyone whose records can't pass scrutiny.

Here are seven secrets for turning your relationship with a card issuer more in your favor:

No. 1: You're the boss
Card issuers work for you, not the other way around. You have more power than you know. Really, you do. And the higher your credit score, the more power you have.

How high does it have to be? At least 700 to wield a moderate amount of power. Over 750, and you're in a sweet bargaining position. It's easy to fall into a trap of complaining about how you're being treated. But if you don't like something, take action. That could mean "firing" your credit card issuer or just having a serious talk with someone at the bank about your concerns.

But even if your credit score suffered in the wake of the Great Recession, you're still in command. You don't have as much negotiating power as those with excellent credit do, for sure. But you're still in charge of your credit life, and you're the one who will choose how to get your credit back on track.

No. 2: You can lower your current interest rate
The best tactic here is flirting with the competition. Let's say you get an offer in the mail for a good-looking credit card that has a lower interest rate than your current card. Call your issuer and be your nicest, most cordial self. Tell the customer service rep that you're considering getting this new credit card so you can have a lower interest rate.

If there are any other features the new card offers, such as waived baggage fees, then mention those, too. Say that you'd really prefer to stay put, emphasizing that you've been such a loyal customer for so long. If you've indeed been a stand-up customer, you have a chance of making this work.

If you don't get anywhere with the service rep, ask to speak with a supervisor. And through all of it, be polite and don't get frustrated. Even if you don't succeed on the first try, make a note of the supervisor's name. Be the best-ever cardholder for six months, then try again.

No. 3: You can play hard to get before you apply for a new card
You'll need a little bit of confidence to pull this off. It also helps if you've had acting lessons, because no matter how much you want the card, you must act indifferent. Your attitude is: What will you offer me to get my business?

The card issuer needs you more than you need it, and that's why this tactic can work. Again, having competitive offers in hand helps give you the necessary clout. Explain that you'd like to become a cardholder, but that you're looking at an offer from a competitor and the other card doesn't have an annual fee. Or the other card has a lower interest rate. Ask your would-be issuer to waive the annual fee or beat the competitor's interest rate.

No. 4: You don't actually get 45 days' notice when your bank decides to raise your interest rate

According to the Credit CARD Act, the issuer does have to give you 45 days' notice when your interest rate is being increased. That just means that you have 45 days before you have to pay the higher rate. You actually start accruing interest at the higher rate on any purchases you make 14 days after the notice was mailed. So on the 15th day after the notice is mailed, you start paying a higher interest rate on new purchases.

Legally, credit card issuers aren't doing anything wrong. But don't you suspect a few of them are counting on consumers to be unaware of this loophole in the law? As soon as you get the notice in the mail, look at the postmark date so you know when the new rate takes effect.

No. 5: You can get a late fee removed
Many issuers say they don't report a good customer if they're slightly late just one time, but don't take any chances. As mentioned in No. 2, call the issuer and be really polite while you tell the story of why you're late this one time.

In the South, we say that you can catch more flies with honey than with vinegar. I've never understood why you'd ever want to catch more flies (the imagery alone is kind of disgusting), but the basic principle is valid. If you don't have a history of tardiness, you have a good chance of pulling off this one.

No. 6: You can eliminate -- or at least reduce -- an annual fee
This is usually presented as an all-or-nothing tactic. By all means, do try to get the whole fee waived, but if it looks as if you can't make it happen, ask to have half the fee waived. I know a few people who have succeeded at getting a 50% fee cut. You can also plan ahead and say something like "How about a 50% cut for the next two years?"

See? You're in charge. You don't always get what you want, but if you aim high enough, you can end up in a better place than the one you were in when you started.

No. 7: You can ask to have your credit limit raised

I know an attorney who called a major issuer and asked to get his credit limit raised. The customer service rep took a look at his payment history and balance.

The rep said, "Sorry, sir, but given your high balance and payment history, we need to reduce your credit limit." This not only infuriated him, but it also lowered his credit score when his utilization ratio went up.

When you contact the issuer, give a few reasons why you're worthy of an increase (you have stable employment and just got a raise, have never made a late payment, etc.). Whatever you do, don't sound needy. This is another situation when acting lessons might pay off."

Source: MSNMoney.com, "7 secrets of credit card companies," Beverly Blair Harzog, Credit.com, December 5, 2011, available at: http://money.msn.com/credit-cards/7-secrets-of-credit-card-companies-credit.aspx

Fannie Mae, banks halt foreclosures for the holidays

2011-12-09T05:44:00.001-08:00

CNNMoney.com published this article about how Fannie Mae, Freddie Mac and several large mortgage lenders will suspend foreclosing on homes over the holiday season. In a statement Fannie Mae stated that during the holiday season, legal and administrative proceedings for evictions may continue, but families will be allowed to stay in their homes. The article is excerpted below:

"Happy holidays struggling homeowners! Fannie Mae, Freddie Mac and several large mortgage lenders have pledged not to foreclose on delinquent borrowers during the Christmas season.

For homeowners with loans through Fannie Mae (FNMA, Fortune 500) and Freddie Mac (FMCC, Fortune 500), the moratorium will run from Dec. 19 to Jan. 2. During this time, legal and administrative proceedings for evictions may continue, but families will be allowed to stay in their homes, Fannie said in a statement.

"No family should have to give up their home during this holiday season," said Terry Edwards, an executive vice president for Fannie Mae.

Among some of the major banks that offer mortgage loans, Chase (JPM, Fortune 500) Mortgage said it will not evict anyone between Dec. 22 and Jan. 2. Wells Fargo (WFC, Fortune 500) will also suspend evictions during that period, but will not shut down its eviction machinery entirely.

The bank said it will observe the moratorium on foreclosed properties in its own portfolio but for loans it services for other lenders "foreclosure-related actions may still occur."

Bank of America (BAC, Fortune 500) said that it would "avoid foreclosure sales or displacement of homeowners or tenants around the Thanksgiving and Christmas holidays."

However, that policy only applies to loans the bank itself owns. Like Wells Fargo, it will also honor the wishes of the owners of the loans it services, which could mean moving forward with certain foreclosures.

A holiday halt on foreclosures by the major mortgage lenders could affect tens of thousands of homeowners. An average of 89,000 foreclosure auctions a month have been scheduled this year, according to RealtyTrac. Once a home has gone through that process, eviction is the next step.

There could be a small handful of borrowers who might benefit permanently from the suspension, according to Daren Blomquist, a spokesman for RealtyTrac.

Sometimes, albeit very rarely, a Christmas miracle will occur where a borrower finds the cash to get current on their mortgage again and keep their home.

For the overwhelming majority of borrowers in default, however, "[i]t's a temporary reprieve, a symbolic gesture to help people out during the holidays," said Blomquist.

Then, come the New Year, everyone gets back to business, including mortgage lenders."

Source: CNNMoney.com, "Fannie Mae, banks halt foreclosures for the holidays," Les Christie, December 1, 2011, available at: http://money.cnn.com/2011/12/01/real_estate/fannie_mae_foreclosure/index.htm

A costly winter ahead for home heating oil users

2011-12-09T05:12:00.000-08:00

CNNMoney.com recently posted this article discussing how the price of heating the average home with oil is going to jump 10% this winter season to an average of $2,535. The increase in the price of oil comes at a time when funding for the government's Low Income Home Energy Assistance Program, or LIHEAP, which subsidized energy bills, may get cut almost in half. The article is excerpted below:

"Bill McLaughlin is bracing himself for a tough winter.

He and his wife, Cindy, live in Brewer, Maine and neither of them are working. Bill, who's 59, is disabled, and Cindy lost her job more than a year ago. And now the cold is setting in.

During any winter in Maine, paying for the oil that heats their home is a big expense. But this winter, it will be especially taxing.

The price of heating the average home with oil is expected to jump 10% this year to an average of $2,535 over the winter heating season (October 1 through March 31), according to the U.S. Energy Information Administration (EIA). That's 45% higher than just two years ago, when the average bill was just $1,752.

Even while keeping the thermostat in the low 60s, the McLaughlins burn about 750 gallons of oil a year. At about $3.50 a gallon, that's more than $2,600.

"We're in a real bind; There's no safety net," said Bill. "We've run through all our savings and if we pay for heat, we have less money for food and medicine. We don't even have our car out on the road. My wife depends on friends when she has to go someplace."

The McLaughlins can partly blame their soaring heating bills on political unrest in Libya, which has caused oil prices across the globe to soar, explained Neil Gamson, an economist and forecaster for the EIA.

The couple also lives in one of the few regions in the country that is still highly dependent on oil as a home heating fuel. While only about 8.2 million homes still use heating oil, according to Census Bureau data, a vast majority of those homes are in the Northeast, where long, cold winters require greater fuel consumption.

In this region, more than one in every four homes relies on heating oil, the EIA reports, and many don't have the option to switch to cheaper fuels, such as natural gas.

"In some places, the natural gas infrastructure is just not there," said Gamson. "There are no gas lines in some older Northeastern cities."

Subsidy cuts: For many cash-strapped Americans, the increase in fuel costs is coming at the same time when funding for the government's Low Income Home Energy Assistance Program, or LIHEAP, which subsidized energy bills for 9 million households last year, may get slashed almost in half.

In mid-November, President Obama signed a budget bill authorizing a 47% cut in LIHEAP's funding to $2.5 billion, according to a spokeswoman for the Department of Health and Human Services (HHS), which administers the program.

The final funding levels for LIHEAP will likely be taken up later this year or in early 2012, said Ed Gilman, a spokesman for Maine Congressman, Mike Michaud. But the cuts have already begun.

The McLaughlins have lost their LIHEAP funding. "We were told that we were 'over income'" said Cindy. "Our income did not change from last year and last year we qualified. We were informed that they lowered the guidelines."

That's despite the fact that Bill hasn't worked in six years, since a series of ailments forced him to stop working at his job in concert lighting and sound. A year ago, he was diagnosed with small cell cancer. Chemotherapy has weakened his immune system and his wife is afraid he could catch pneumonia in the cold house this winter.

Congressman Michaud, has posted many other stories of the hardships faced by Maine residents who have lost LIHEAP funding on his Facebook page.

One woman wrote that her 85-year-old mom and 86-year-old dad, a World War II Marine veteran, were told they would not be getting any assistance this year even though they desperately need it.

Another, a hospice social worker, said she was appalled as a patient shivered through the last few days of her life because LIHEAP could only cover a small portion of her heating expenses.

Less reliance on oil: One bright spot is that the rising price of oil affects far fewer households than it did in the past.

Most homeowners have already transitioned to natural gas, with less than 10% of all households still burning oil. That percentage is expected to drop even further as the cheaper fuel option becomes available in more towns, said Gamson.

For those who heat their homes with gas, prices are projected to be stable over the next few years. There's a glut of natural gas available and more is coming on line as new sources, like the Marcellus Shale in Pennsylvania and New York, open up for development.

The EIA projected gas prices will be just 2.2% higher during this winter season and nearly 18% lower than two years ago. The average homeowner will pay only about $732 to heat their home with gas this season.

But those kinds of energy bills are a pipedream for people like the Bill McLaughlin. "I don't want anything extra," he said. "I just want to be able to go to bed at night with the temperature set at 60 degrees."

For information on how to apply for LIHEAP, go to the HHS pages at http://www.acf.hhs.gov/programs/ocs/liheap/brochure/brochure.html."

Source: CNNMoney.com, "A costly winter ahead for home heating oil users," Les Christie, December 4, 2011, available at: http://money.cnn.com/2011/12/01/real_estate/heating_costs/index.htm

Consumers continue to unload debt

2011-12-01T05:08:00.000-08:00

CNNMoney.com posted this article detailing why consumer debt fell in the third quarter this year. However, even though overall debt declined, the number of people who are failing to keep up with their payments increased. The article is excerpted below:

"Consumer borrowing fell slightly in the third quarter as Americans continued to shed their debt burdens in the face of a struggling economy.

Household debt totaled $11.66 trillion in the three months ending in September, down $60 billion from the previous quarter, according to a report released Monday by the Federal Reserve Bank of New York.

"The decline in outstanding consumer debt reveals that households continue to try and deleverage in the wake of a challenging economic environment and large declines in home values," said Andrew Haughwout, vice president in the Research and Statistics Group at the New York Fed, in a statement.

But while overall debt is declining, the number of people who are failing to keep up with their payments rose in the third quarter. The delinquency rate stood at 10% in the end of September, up from 9.8% in June. About $1.2 trillion of consumer debt is currently delinquent, according to the report.

Credit cards: Credit card debt fell slightly to $693 billion, a marginal change from last quarter. And the number of open credit accounts fell by 6 million, 23% down from its peak in 2008.

That could mean banks are closing down delinquent accounts, according to Bill Hampel, chief economist at Credit Union National Association.

"I suspect that accounts closed are mostly the behavior of lenders as opposed to the borrowers, because they could not collect anymore," said Hampel.

At the same time, the number of credit inquiries increased, reflecting a strong demand for credit.

Real estate: Mortgage borrowing fell by $114 billion, 9.6 % below its peak, as people continued to shun home buying in favor of renting.

The number of people signing up for new mortgages fell 17%, the lowest level since mid-2000.

Meanwhile, existing homeowners are borrowing more. Home equity lines of credit increased by $14 billion during the quarter.

Student loans: Student debt rose to $865 billion, up from $845 billion from the previous quarter.

Between 2010 and 2011, undergraduate students, received an average of $4,907 in federal loans according to a College Board survey. Graduate students, the Board said, received $16,423 on average.

"About a third of students graduating this year have so much debt that they still could be repaying it when their children enter college," said Mark Kantrowitz, publisher of FinAid.org.

The uptick in college borrowing is typical in a down economy, said Lauren Asher president of the Institute for College Access and Success. People tend to seek more education and training in hopes of landing a better paying job.

But the additional education is no guarantee to higher paying employment, Asher said.

"A college degree is still is very good investment, but like any investment, you are not sure of your returns," she said."

Source: CNNMoney.com, "Consumers continue to unload debt," Julia Talanova, November 29, 2011, available at http://money.cnn.com/2011/11/28/news/economy/Fed_credit/index.htm?iid=SF_PF_River

12 myths about bankruptcy

2011-11-24T16:07:00.000-08:00

MSNMoney.com recently posted this article discussing common misconceptions surrounding bankruptcy. Many people are afraid they will lose every possession they own if they file for bankruptcy. Bankruptcy laws vary from state to state, but every state has exemptions that protect certain kinds of assets like houses, cars and household goods. The article is excerpted below:

"Like most big, bad scary things, bankruptcy has a reputation based on a few tidbits of truth and a lot of embellishment. And like most creepy crawlies, it's not nearly as frightening once you know the truth.

With a mind toward declawing the monster, here are a dozen misconceptions about bankruptcy:

1. Everyone will know I've filed for bankruptcy. Unless you're a prominent person or a major corporation and the filing is picked up by the media, the chances are very good that the only people who will know about a filing are your creditors. While it's true that bankruptcy is a public legal proceeding, the number of people filing is so massive that very few publications have the space, manpower or inclination to run all of them, although some local newspapers do print the names of those who have filed in that community.

2. All debts are wiped out in Chapter 7 bankruptcy. You wish. Certain types of debts cannot be discharged, or erased. They include child support and alimony, student loans, restitution for a criminal act and debts incurred as the result of fraud.

3. I'll lose everything I have. This is the misconception that keeps people who really should file for bankruptcy from doing it, says Chris Viale, the chief operating officer of Cambridge Credit Counseling in Massachusetts.

"They think the government will sell everything they have and they'll have to start over in a cardboard box," Viale says.

While bankruptcy laws vary from state to state, every state has exemptions that protect certain kinds of assets, such as your house, your car (up to a certain value), money in qualified retirement plans, household goods and clothing.

"For most people, they'll pass through a bankruptcy case and keep everything they have," says John Hargrave, a bankruptcy trustee in New Jersey. If you have a mortgage or a car loan, you can keep the property as long as you keep making payments (like the rest of us).

4. I'll never get credit again. Quite the contrary. It won't be long before you're getting credit card offers again. They'll just be from subprime lenders that will charge very high interest rates. "There are innumerable companies that will provide credit to you," says California bankruptcy attorney and trustee Howard Ehrenberg.

"I don't advise any of my clients to run out and run up the bills again, but if someone does need an automobile, they can go and will be able to get credit," he says. "You don't have to go underground or something to get money."

5. If you're married, both spouses have to file for bankruptcy. Not necessarily. "It's not uncommon for one spouse to have a significant amount of debt in their name only," Hargrave says. However, if spouses have debts they want to discharge that they're both liable for, they should file together. Otherwise, the creditor will simply demand payment for the entire amount from the spouse who didn't file.

6. It's really hard to file for bankruptcy. It's really not. Technically, you don't even need an attorney -- you can do the paperwork without one. However, going through the procedure alone is not recommended.

7. Only deadbeats file for bankruptcy. Most people file for bankruptcy after a life-changing experience, such as a divorce, the loss of a job or a serious illness. They've struggled to pay their bills for months and just keep falling further behind.

8. I don't want to include certain creditors in my filing because it's important to me to pay them back someday, and if the debt is discharged, I can't ever repay them. Bless you for even thinking about such a thing. You're no longer obligated to repay them, but you always have the opportunity. If your conscience won't let you sleep because you didn't pay your debts, there's nothing in the bankruptcy code that prevents you from doing that once you're back on your feet. But it is nearly impossible to leave any account with a balance out of your list of creditors. In general, all creditors receive notification of your bankruptcy filing, whether they are listed in the petition or not.

9. Filing for bankruptcy will improve my credit rating because all those debts will be gone. Filing for bankruptcy is the worst "negative" you can have on your credit report. Unlike other negatives, which stay on your report for seven years, bankruptcy can be there for 10 years, but you do get to rebuild your credit eventually.

10. You can't get rid of back taxes through bankruptcy. Generally speaking, this is true. However, there is such a thing as tax bankruptcy, says tax educator Eva Rosenberg, known on the Web as TaxMama.

11. You can only file for bankruptcy once. The truth is, you can file for Chapter 7 bankruptcy only once every eight years, says Justin Harelik, Bankrate's bankruptcy adviser. For Chapter 13 reorganization, you can file more often than that.

Of course, that doesn't make it a good idea.

"Multiple bankruptcies are really bad," Rosenberg says. "Many people get into the habit of once they've done it, it becomes a way of life. This is not good for your karma." Or your credit rating.

12. I can max out all my credit cards, file for bankruptcy and never pay for the things I bought. That's called fraud, and bankruptcy judges can get really cranky about it."

Source: MSNMoney, "12 myths about bankruptcy," Bankrate.com, November 17, 2011, available at: http://money.msn.com/credit-rating/12-myths-about-bankruptcy-bankrate.aspx

Is credit monitoring a waste?

2011-11-11T06:19:00.000-08:00

MSNMoney.com posted this article recently analyzing whether or not credit monitoring services are useful. The author concluded that this type of service has significant drawbacks and is not worth the money for most people. She also explains some better and cheaper options available for those who need protection and want to reduce risk. The article is excerpted below:

"For years, I've been telling you that credit monitoring is a waste of money for a lot of people.

Then I signed up for a credit-monitoring service.

For several months, I've watched my credit scores bounce around and fielded alerts about changes to my credit reports. I've learned a few things. And I've come to a new conclusion: Credit monitoring is a waste of money for the vast majority of people.

Here are my biggest beefs about credit-monitoring companies:

1. They lie
Many of these companies tout "free" credit scores, and some even try to pretend they're the official, federally mandated site that offers free credit reports. (The real site is AnnualCreditReport.com, by the way. The one and only.)

Way too many readers tell me they had no idea they were signing up for credit monitoring until the charges started appearing on their bills. If a credit-monitoring company gives you free scores, here's the scoop:

They're probably not the FICO scores that most lenders use.
Or you're signing up for credit monitoring that isn't free.
Or both.

If the scores you're getting don't say they're FICOs, they aren't FICOs -- they're something else, and they may not be scores that any lender uses.

2. They lie, part 2
When companies actually are upfront about what they're selling, they often advertise credit monitoring as identity-theft "protection." Credit monitoring doesn't protect you from identity theft any more than an ice pack protects you from getting been punched. It may help a bit afterward, but it doesn't prevent the blow.

Credit monitoring won't stop bad guys from taking over your credit cards or establishing new accounts in your name. At best, it will give you an early warning that the damage has been done. The "insurance" policies many monitoring companies offer are essentially worthless, since most people who are victimized face few, if any, out-of-pocket expenses.

3. They're expensive for what you get
You typically pay $15 to $20 a month, or up to $240 a year, for credit monitoring. That's a sizable chunk of change for many households. For that kind of money, you should get something significantly better than what you can get on your own for free. Most of the time, you don't. Many companies don't watch your reports at all three credit bureaus, and not all creditors report to all three bureaus. That leads to gaps in what's being monitored.

Also, creditors can be pokey in reporting changes, especially new accounts, to the bureaus, so you might not be getting as much of a head start on cleaning up any problems as you think.

4. They're confusing
The one rationale I thought might hold up was the idea that following the gyrations of your credit scores could help you better understand how credit scoring works. In reality, not so much.

For one thing, you're probably not seeing the FICO scores lenders use. Most credit-monitoring companies offer "consumer education scores" or VantageScores that are created from different formulas and that react differently than your FICOs do.

Even if you're using the myFICO.com service that offers actual FICOs, you may not glean much from short-term movements of your scores. Here's just one example: The FICO formula is set up so you can improve your scores over time by paying down your credit card balances. Higher balances can hurt your scores. But in watching my FICOs, I noticed sometimes they went down when my balances rose, and sometimes they didn't.

In actuality, what's happening with your scores depends on a lot of different factors, and FICO keeps the exact details of its formulas a secret. So you can't predict precisely how any given action will affect your scores, or by how much. Trying to reverse-engineer it from the back end, just by watching your scores bounce around, is unlikely to increase your understanding. If your primary concern is improving bad or mediocre credit, you may be better off buying your scores from myFICO.com for $20 each once every few months and following the detailed advice the site gives on how to improve your numbers.

5. Making a profit on your paranoia is obnoxious
What you're getting access to is, after all, data about yourself as reported by your creditors. I'd argue that you should be able to access that data for free at least once a month, rather than just once a year. I also think we should have free access to our FICO scores. The idea that these services would lure you into paying hundreds of dollars for those numbers, particularly by fanning your fears of identity theft, really reeks.

Here are the latest facts about identity theft, according to Javelin Research, which conducts an annual survey on this problem:

3.6% of Americans were victims of identity theft last year.
1.1% were victims of new-account fraud, the most expensive kind in terms of the total amount stolen. (The rest were typically victims of existing-account fraud, including credit card fraud and other takeovers of existing accounts.)
The typical amount paid out of pocket by victims: $0.
For most people, dealing with credit card fraud or an account takeover is as simple as reporting it to the creditor. The bogus charges are erased, a new account number is issued, and life goes on.

New-account fraud is a much bigger pain in the behind. Even though the typical victim doesn't pay out of pocket, he or she spends a median 25 hours resolving the fraud.

That's no small thing. But if you're really concerned about reducing your risk, you should consider some other, typically lower-cost and often more effective options before you opt for credit monitoring. Among them:

Lock down your data. You know the drill: Don't carry your Social Security card, and be wary about giving out the number. Keep your financial information and tax files in a secured, locked location. Shred sensitive documents. Raise your privacy settings, and limit what you post on social-networking sites. Posting information such as your date of birth, a pet's name and your mother's maiden name are particularly stupid, since those are often used in the challenge questions banks employ to confirm your identity.

Monitor your accounts. Review every single transaction of every single bank and credit card account. Log on to dormant accounts occasionally to make sure they haven't been activated by a bad guy. Use your free access to your credit reports at AnnualCreditReport.com, perhaps on a rotating system so you're looking at a different report every four months. And for heaven's sake, pay attention if you get a notice that your personal or financial information has been compromised. If the stolen data included your Social Security number, you need to go on high alert.

Consider security freezes. Also known as credit report freezes, these locks allow you to essentially shut off access to your credit reports. If someone applies for credit in your name and the lender checks your credit reports, it won't be able to see your data -- and likely won't approve the application. Security freezes are the best defense individuals have against new-account fraud, but they aren't necessarily cheap or hassle-free. If you're already a victim of identity theft, with a police report to prove it, you may be able to get freezes for free in your state. Otherwise, you typically have to pay fees of $10 to $15 to each credit bureau to freeze your reports, as well as fees to temporarily thaw them when you want to apply for credit.

Because of the fees involved, some experts have recommended putting free "fraud alerts" on your credit reports instead. That signals to lenders that you may have been the victim of an identity theft attempt, and that the lenders should take extra steps to make sure whoever is applying for credit is really you. But alerts typically last only 90 days and can be extended only if you have a police report or an affidavit showing you've been a victim.

If you are at high risk of new-account identity theft -- you've already been a victim or you've been informed that your Social Security number has been compromised -- you might sleep better at night with a credit-monitoring service. But in my view, that money would be better spent on security freezes. Better to lock the barn door than just set an alarm."

Source: MSNMoney.com, "Is credit monitoring a waste?" Liz Weston, October 28, 2011, available at: http://money.msn.com/credit-rating/is-credit-monitoring-a-waste-weston.aspx?page=0

Millions of homeowners eligible for foreclosure review

2011-11-02T05:47:00.001-07:00

CNNMoney.com posted this informative article regarding home foreclosures. Homeowners who were foreclosed on between 2009 and 2010 will be able to request an independent review of how their process was conducted. As a result of the reviews, some homeowners may be entitled to monetary compensation made by the lender. Letters to eligible homeowners will be sent out this week. The article is excerpted below:

"Homeowners whose lenders played fast and loose with their foreclosures may be in for a payday.

More than 4 million mortgage borrowers who were foreclosed on between 2009 and 2010 will have a chance to request an independent review of how their foreclosure process was handled, according to Joe Evers, the deputy comptroller for large banks at the Office of the Comptroller of the Currency (OCC).

Should the review find that "financial injury" occurred as a result of an error or other deficiencies in the way the foreclosure process was handled, the homeowner may receive compensation for their losses. However, just how much money the borrower will receive has yet to be determined, said Evers.

The reviews are part of a larger enforcement action taken against 14 large mortgage servicers last April by the OCC, the Federal Reserve and Office of Thrift Supervision in the wake of the "robo-signing" scandal.

As part of that action, the lenders, which include Bank of America (BAC, Fortune 500), Chase (JPM, Fortune 500), Citibank (C, Fortune 500), GMAC Mortgage, HSBC (HBC) Finance, Wachovia, Washington Mutual and Wells Fargo (WFC, Fortune 500), agreed to clean up their foreclosure practices and repay victims.

"The independent foreclosure review is a significant component of the mortgage servicers' compliance with our enforcement actions," said acting Comptroller of the Currency John Walsh.

When foreclosures flooded the system after the housing bust, many mortgage servicers became more cavalier in the way they handled foreclosures. Affidavits and other documents were signed by low-level employees who had little or no knowledge of what they were attesting to, attorneys hired to manage the foreclosure process were providing inadequate oversight and many bank employees were ignoring requirements to halt foreclosure procedures if loans were in the modification process.

The mortgage servicers agreed to review foreclosure cases that occurred between January 1, 2009 and December 31, 2010 and determine if borrowers suffered financial losses as a result of any of these practices.

Letters will be sent to borrowers starting Tuesday that will explain how to request case reviews. Foreclosures must have been on primary residences. Borrowers have until April 30, 2012 to request reviews.

Evers said that the consultants will examine each foreclosure on a case-by-case basis and could spend months coming to their conclusions.

He said there was no firm estimate of how much the claims could wind up costing the banks but it could certainly run into the "hundreds of millions of dollars."

If you believe you may be eligible but do not receive a letter, you may visit http://independentforeclosurereview.com/ for more information about the review process. Assistance is also available at 1-888-952-9105.

The reviews are completely free for all eligible borrowers. Consumers should beware of anyone requesting to be paid for this service or who claims they can influence the outcome of the review."

Source: CNNMoney.com, "Millions of homeowners eligible for foreclosure review," Les Christie, November 1, 2011, available at: http://money.cnn.com/2011/11/01/real_estate/foreclosure_abuse/index.htm?iid=SF_PF_LN

How to Beat Winter Heating Bills

2011-11-02T05:09:00.000-07:00

SmartMoney.com posted this article with tips to save money this winter even though consumers may face higher energy costs this year. Experts advise consumers to look into Federal tax credits worth up to $500 if qualifying home improvements are made. Also, some states offer money for turning in older appliances like gas, oil or propane furnaces. The article is excerpted below:

"If the storm that dropped up to 30 inches of snow from Maryland to Maine over the weekend is any guide, this winter could mean lots of snow -- and with it, higher heating bills. But experts say there are still ways to keep energy costs down.

Many Americans were socked with higher-than-usual energy bills this past summer. Unfortunately, winter won't provide much of a break. The Energy Information Administration expects the average household with heating oil will spend a record $2,493 from October through March, up 8% from last year. Those heating with propane will spend as much as $2,979 (up 9%); natural gas $744 (up 3%); and electricity, $956(down 1%).

Higher fuel prices account for the bulk of the jump, says EIA economist Neil Gamson. Although the forecast figures for a milder winter than last year, the National Oceanic and Atmospheric Administration has said consumers -- particularly those on the West Coast -- could see another La Nina year with plenty of snowfall. "Until [Oct. 28], we had a very warm October, so that will help a little bit," Gamson says.

For consumers looking to cut costs this winter and beyond, experts recommend looking into financial assistance from the government while it lasts. Federal tax credits worth up to $500 for energy efficiency home improvements, in place most years since '05, may expire at the end of the year, says Ronnie Kweller, a spokeswoman for the Alliance to Save Energy. Eligible projects include new insulation (10% of the cost, up to $500), biomass stoves ($300) and energy-efficient windows (10% of the cost, up to $200) -- so long as the items meet federal guidelines.

A handful of states also have rebate cash lingering from the "cash for clunker" appliance program of 2010 and more recent initiatives, according to the Department of Energy. Oregon, for example, still offers 70% of the cost for a qualifying gas furnace, up to $2,000. Ohio reimburses 100% of the price for an Energy-Star-qualified gas, oil or propane furnace. The government estimates the more efficient products could cut your energy bill by as much as 15%, to boot.

It's not too late to shop around for deals on fuel, either, says Gamson. Providers' rates largely depend on when they purchase their fuel supply, so calling around or joining cooperative buying groups that locked in prices months ago could yield a better price.

Consumers can also cut their energy costs by making smaller home improvements , says Dayle Zatlin, a spokeswoman for the New York State Energy Research and Development Authority. A home energy audit, available for free in many states, can help pinpoint problems -- including too-thin insulation and drafty areas. Spending as little as $30 for some caulk and sealing kits can cut your energy bill by up to 20%, a savings of as much as $1,000 a year. Actually programming your programmable thermostat so that the house is 10- to 15-degree cooler while you're out at work and asleep can save you up to another 15%, Zatlin says."

Source: SmartMoney.com, "How to Beat Winter Heating Bills," Kelli B. Grant, November 1, 2011, available at: http://www.smartmoney.com/spend/family-money/how-to-beat-winter-heating-bills-1320090426399/?link=SM_mustread

Could an ex-spouse ruin your credit?

2011-10-19T05:22:00.001-07:00

According to this article recently posted on MSNMoney.com, divorce is the one of the leading causes of bankruptcy filings. Divorce can often lead to money troubles, but the following strategies can help reduce the negative impact. The article is excerpted below:

"Divorce can wreak havoc on a person's finances, especially if it involves dealing with formerly shared assets, debts and credit cards.

As Candace Bahr, co-founder of the nonprofit Women's Institute for Financial Education, puts it, "No matter how much money you get, you have half the income and half the assets you had previously," because the income is now spread over two households instead of one.

Not surprisingly, divorce is one of the most common causes of bankruptcy. Here are strategies for keeping your finances solvent long after your marriage isn't.

* Get your credit report. Examining your credit report for inaccuracies is especially important after a major life event, such as divorce, particularly if you will soon be taking out a new home or car loan. Errors on the report can lower your credit score and keep you from getting prime interest rates.

* Separate your credit from that of your former spouse. If you are still registered as a co-owner of the credit card your ex-spouse uses, you will continue to be liable for any charges on it. Post-divorce credit problems, which are common, can usually be avoided by closing joint accounts. "The safe thing to do is to cancel all the cards and make both spouses get cards in their own names," says Evan Hendricks, the author of "Credit Scores & Credit Reports."

* Examine your debt. Debt -- especially debt from multiple sources -- can quickly become overwhelming after divorce lowers monthly income. Estimate your post-divorce income and calculate what you can afford to pay. If current obligations exceed that amount, cut back on spending. If it's too late and you find yourself in a deep credit hole, options include debt settlement and filing for bankruptcy, both of which will stay on your credit report for seven to 10 years and temporarily lower your score.

* If you must file for bankruptcy, start rebuilding your credit soon. Neil Colmenares, a New York bankruptcy attorney, recommends taking out two credit cards and paying them off in full each month. Barring any other debts, after one year your credit score "should be pretty good," he says. One banking industry secret, he adds, is that some creditors prefer to lend to recent bankruptcy filers, because they are barred from filing again for eight years and are liable for new debts.

* Think positively. Most people's credit eventually improves after filing for bankruptcy, because debts are cleared to give them a clean slate. Says Mark Scarberry, a Pepperdine University law professor and scholar-in-residence at the American Bankruptcy Institute, "Recognize that the fresh start is a gift. Take advantage of it." Some might say the same about their divorce.

Then, if the divorced spouse decides to walk down the aisle again, he or she can take some steps to prevent another financial disaster in case the relationship goes south. Kathleen Miller, the author of "Fair Share Divorce for Women" and president of Miller Advisors, an investment firm in Kirkland, Wash., suggests keeping separate accounts, especially for couples with children from previous marriages.

Many second marriages fail because of money matters, Miller says. That's why she recommends that remarrying clients have an open discussion about finances and enter into a prenuptial agreement. Those with children to protect will probably want to draw up wills specifying where their assets will go when they die.

Separate accounts also protect women who earn less money than their husbands in case of divorce, Miller adds. She recommends that a wife without an income, for example, establish her own retirement account using a spousal IRA, which allows a nonearning partner to save money in his or her own name, using the spouse's income. While retirement savings would probably be considered jointly owned in the case of divorce, Miller says it's still important for both partners to have some savings in their own names.

Bahr points out that marriages don't last forever. "Even in the best marriages, one spouse is going to die. So it's still important to maintain your own identity," she says. She recommends keeping assets, retirement accounts and credit in one's own name. If one spouse is completely responsible for the finances, that leaves the other vulnerable in the case of death or divorce, she says.

That's an easy point for anyone who's already experienced one divorce to understand."

Source: MSNMoney.com, "Could an ex-spouse ruin your credit?" Kimberly Palmer, U.S. News & World Report, October 5, 2011, available at: http://money.msn.com/credit-rating/could-an-ex-spouse-ruin-your-credit-usnews.aspx

Credit report errors? 6 easy fixes

2011-10-13T15:53:00.000-07:00

MSNMoney.com recently posted this article from CardRatings.com detailing how to report an error if you see one on your credit report. The article is excepted below:

"CardRatings.com recently conducted a poll asking readers whether they had ever found errors on their credit reports. Of 2,142 respondents, 1,568, or approximately three out of four, reported that yes, they have at one time or another found such an error, according to Amber Stubbs, the managing editor of CardRatings.com in Foster City, Calif.

With these findings, and the increasingly clever schemes of identity thieves, it shouldn't take much more to convince you to review your credit report regularly and act promptly if you find errors in the report.

Here are the steps you should take to dispute inaccuracies on your credit report, which you are entitled to do under the Fair Credit Reporting Act.

1. Get your free credit report.

All consumers are allowed one free credit report every year from each of the three credit-reporting bureaus, Equifax, Experian and TransUnion, says Gail Cunningham, the vice president of public relations for the National Foundation for Credit Counseling in Washington, D.C. Go to AnnualCreditReport.com to request the free annual reports from each bureau. You can either request all three reports at once or spread them out over different times of the year.

2. Check for errors and omissions.

Review your credit report for errors, Cunningham says. "A poor credit report impacts your ability to obtain credit, obtain insurance, rent an apartment or get a job. So it's very important to make sure the information is corrected if it's not."

It's also important that your credit report doesn't shortchange your history.
Don't see that gas credit card you paid off last year? Make a note to get it
added. According to Rod Griffin, the director of public education for Experian,"An accurate and complete credit report is an important financial tool, and it can be treated just like a bank statement."

3. If there's an error, gather documentation.

This step is critical. Take the time to assemble all the information you'll need to prove your case, such as copies of canceled checks and creditor statements. If, for instance, the credit report shows that you still owe money on a bill
that has been paid in full, include the statement that documents the zero
balance, Cunningham says. "You're just stating the facts and making sure they
understand your arguments," she adds.

4. Put it in writing.

Contact the bureau whose report you
believe to be inaccurate, giving your name, Social Security number and date of
birth, Cunningham says. If you've moved recently, verify your previous
address. Write as if you were writing to a potential employer. Explain that you are disputing certain items, and give clear, factual reasons why. Include all the details of your case, such as account numbers, invoice numbers, check numbers and payment dates. Number your attachments to make it easy for the reader to find them. Make it clear what you want changed. Don't forget to sign your letter.

You can send your dispute to the credit-reporting bureau by snail mail or
online. If you use mail, Cunningham advises sending your letter by certified
mail, with the return receipt add-on requested, so you can document that the
bureau received the letter. As well, keep a copy of the confirmation of
receipt.

However, it may be faster to send the dispute via the Internet. "You can
dispute online. It's quick, it's secure, and it's the same process," Griffin
says. "And you will receive confirmation the dispute was received."

At the same time, let the creditor know you're disputing the report, "so
you're coming at this from both sides," Cunningham says. Include copies of the
disputed charges and proof you've paid them, just as you did for the bureau.

5. Wait.

Once the credit-reporting bureau receives your dispute, its team must begin to investigate it immediately and must finish the investigation within 30 days. The bureau will notify the creditor initiating the report that it is investigating your dispute.

"That triggers another investigation on the part of the creditor reporting,"
Cunningham says. "The creditor has to investigate and confirm the accuracy."
If the creditor finds the information is inaccurate, it must notify all three
credit-reporting bureaus so they can correct information in your file, she
says.

When Experian receives a dispute, Griffin says, "we go back to the source of
that information, typically a lender, and have them review records and either
verify to us the information is reported correctly and should remain the same,
or that they agree with the dispute and the information should be updated."
What if the lender doesn't respond? Griffin says, "If they don't respond in
the mandated 30 days, the information will be deleted."

6. Get your results.

In all likelihood, the dispute will be settled in much less time than 30 days. In most instances, just seven to 10 days are required, Griffin says. "The 30 days go back to the era when everything had to be mailed," he adds.

If you've built a good case in your dispute and you prevail, the credit-reporting bureau must remove the inaccurate information from your report, Cunningham says. But if the decision doesn't go your way and the investigation does not confirm your side of the dispute, you have another option. "You can ask the credit-reporting agency to include a copy of the statement of dispute in your file, and that will go out with future credit reports," she says.

This action may or may not make a difference to a future lender, Cunningham
adds. But at least it shows you've done all you can to state your case.

Where to start
The best place to start the dispute process is on the credit-reporting
bureau's website.

Here is the current contact information for each of the three major credit-reporting bureaus:

Equifax: Dispute online with Equifax
Experian: Dispute online with Experian
TransUnion: Dispute online with TransUnion"

Source: MSNMoney.com, "Credit report errors? 6 easy fixes," Jeffrey Steele (CardRatings.com), October 4, 2011, available at: http://money.msn.com/credit-rating/credit-report-errors-6-easy-fixes-cardratings.aspx

9 myths about fixing your credit

2011-10-12T05:25:00.001-07:00

MSNMoney.com posted this article about strategies that most people think will help boost their credit scores, but may not after all. For example, some consumers with credit problems believe opening many accounts will be proof that they can handle credit. Actually, it is a sign of risk to creditors and their credit score may suffer, as well. The article is excerpted below:

"Building better credit takes patience, discipline and a clear understanding of the strategies that really make a difference. Start by knowing the financial moves that don't work.

Like child rearing and curing ailments, credit building is chock-full of old wives' tales. Smart financial moves such as closing accounts or paying off loans early may not be the credit boosters you think they are.

Sadly, there are no real quick fixes despite what some commercials or online credit-repair ads might proclaim. The key to increasing your credit score is good payment behavior along with time and a healthy mix of credit types.

To help you sort the facts from the fiction, Bankrate tackles some long-held but bogus beliefs that won't help you build better credit.

1. Opting out of credit card offers will help
Many consumers assume if they opt out of credit card offers, there will be fewer credit inquiries on their credit reports, says John Ulzheimer, the president of consumer education at Smart Credit. However, those inquiries are considered "soft" inquiries and don't affect your credit score, Ulzheimer says. You can keep the offers coming if you'd like, but doing so won't help you build better credit.

If you want to opt out of offers to reduce your junk mail, call toll-free (888) 5-OPT-OUT/(888) 567-8688, or visit OptOutPrescreen.com to remove your name from the credit-reporting agency lists for unsolicited credit and insurance offers. That will remove your name for five years.

To keep your name off the list, mail in the permanent opt-out election form available on the website. Consumers can also opt in on the website if they've already opted out.

2. You can bump hard inquiries off your credit report
A "hard" inquiry is generated when creditors pull your report or score after you apply for a loan or line of credit. Your score falls because it shows you're interested in taking on more credit and, therefore, more risk. Other inquiries are considered "soft," such as those triggered by you, your employer or companies sending credit card offers in the mail.

Some consumers believe if they pull their credit report every day to load up on "soft" inquiries, they will bump off the hard ones that weigh on their credit score.

"It's speculative. There's no indication there's a finite amount of space for inquiries," says Ulzheimer. And it's only a small part of the score. "There's better bang for your buck if you do more legitimate things."

3. Closing old accounts will boost your score
This is a hard-to-kill-off myth. Closing accounts typically won't help your score and could possibly dent it, says Trey Loughran, the president of personal information solutions at Equifax. The results can shorten your credit history eventually and leave you with a smaller amount of available credit, both of which can harm your efforts to build better credit.

The length of credit history shows how seasoned a borrower you are, so the more positive experience you have, the better. Having more available credit helps to keep your utilization rate low. The utilization rate is how much available credit a borrower uses; the lower the percentage, the better.

"Say you have $100 in debt with $1,000 in allowable credit across multiple accounts and you close a credit card with a limit of $500. Then you doubled your utilization rate from 10% to 20%," Loughran says.

4. Opening many accounts will improve my credit score
Some consumers with credit problems believe opening many accounts will be proof that they can handle credit. Actually, it has the opposite effect.

"That makes lenders scratch their heads and wonder why you need all that credit," says Rod Griffin, director of public education at Experian. "It's a sign of risk." Your credit score can suffer as a result.

What lenders will see is a boatload of new, hard inquiries on your credit report. Those inquiries will deduct from your credit score, while lenders will worry that you're in dire financial straits and desperately need access to credit to make ends meet.

5. Paying off delinquencies will restore your credit score
Nope. It will help, but don't expect a supersized boost, says Ulzheimer. That's because the delinquency will stay on your report, even if it has a zero balance.

Most derogatory information such as late payments, collection accounts, charged-off accounts, tax liens and judgments live on your credit report for seven years before dropping off. A Chapter 13 bankruptcy can linger on your report from seven to 10 years, while Chapter 7 bankruptcies remain on your credit report for 10 years.

"Don't expect your score to recover to what it was before the incident, because it ain't going to happen," Ulzheimer says. "The more important part is the incident."

6. Paying off loans early is better than making payments
"It's a Catch-22," says Sarah Davies, the senior vice president of analytics, product management and research for VantageScore Solutions, because while it may be good for your personal finances to pay off a loan, it doesn't do much for your credit score.

Indeed, a closed, paid-off account adds to your score, but an open credit account in good standing boosts it more.

That's because an open account shows you're consistently handling credit wisely. A closed account only shows good payment behavior in the past and becomes less and less predictive of future habits.

7. Paying before the due date helps your credit score
Your credit score takes into account how much available credit you're using. Paying a credit card balance in full 10 days or one day ahead of the due date won't help your utilization ratio and thereby improve your score. That strategy doesn't work because the balance of the account has already been reported to the credit agency, says Ulzheimer.

However, if you pay the balance in full before the statement closing date, which appears on your statement, your report will post a zero balance for that account. That will help your utilization rate, or how much credit you are using, along with your credit score, says Ulzheimer.

To get started, you will have to pay one credit card bill earlier than usual and then consider your statement date as your due date, says Ulzheimer. Also, you will need to check your balance online or over the phone to make sure you pay the correct amount.

8. All delinquencies are created equal
If you're in the unenviable position of having to miss a payment, choose carefully. Missing a mortgage or auto loan payment will ding your credit more than skipping a credit card payment will. "Those are more substantive debts, so they carry more weight in the credit score," Davies says.

Of course, missing a payment is a last resort. Pay the minimum payment to keep accounts current. To head off a catastrophe, contact a nonprofit credit-counseling service that can help you work with your lenders to come up with a more affordable, temporary payment plan or another solution.

9. I can't have any negatives on my report

"I'm here to tell you that you can have anything from a 30-day missed payment to a bankruptcy on your report and still have a really good score," says Barry Paperno, the consumer operations manager at MyFICO.com.

The most recent information on credit reports is weighted more heavily than older data, Paperno says. So if you have a bankruptcy from five years ago but have had good credit performance since, it's possible to have a 700 FICO score.

To build better credit, Paperno preaches consistent good payment behavior instead of a quick fix. The advice is simple: Pay the minimum payment every month at least, if not the full balance. Diversify your account types, and keep balances low. The result will be a higher credit score."

Source: MSNMoney.com, "9 myths about fixing your credit," Janna Herron (Bankrate.com), October 10, 2011, available at: http://money.msn.com/credit-rating/9-myths-about-fixing-your-credit-bankrate.aspx

10 first-time homebuyer mistakes

2011-09-05T06:12:00.001-07:00

MSNMoney.com published this article to warn first-time home buyers about common mistakes made during the home buying process. One issue first-time home buyers often forget to consider is that as a home owner there are additional expenses to consider like property taxes, insuring your home against disasters and making any repairs the house needs. The article is excerpted below:

"A house is probably the biggest purchase you'll ever make. And, if you can avoid these missteps, chances are you'll be happy with the home you choose.

Are you gearing up to buy your first place? Shopping for a home is exciting, exhausting and a little scary, especially in this market. In the end, your aim is to end up with a home you love at a price you can afford. Sounds simple enough, right? Unfortunately, many people make mistakes that prevent them from achieving that simple dream. Arm yourself with these tips to get the most out of your purchase and avoid making 10 of the most costly mistakes that could put a hold on that sold sign.

1. Not knowing what you can afford
As we learned from the subprime mortgage mess, what the bank says you can afford and what you know you can afford or are comfortable with paying are not necessarily the same. If you don't already have a budget, make a list of all your monthly expenses (excluding rent), including vehicle costs, student loan payments, credit card payments, groceries, health insurance, retirement savings and so on. Don't forget major expenses that occur only once a year, like any insurance premiums you pay annually or annual vacations. Subtract this total from your take-home pay and you'll know how much you can spend on your new home each month.

If you end up looking at homes that are outside your price range, you'll end up lusting after something you can't afford, which can put you in the dangerous position of trying to stretch beyond your means financially or cause you to feel unsatisfied with what you actually can afford. You may even learn that you can't afford the type or size of home that you desire and that you need to work on reducing your monthly expenses and/or increasing your income before you even start looking.

2. Skipping mortgage qualification
What you think you can afford and what the bank is willing to lend you may not match up, especially if you have poor credit or unstable income, so make sure to get preapproved for a loan before placing an offer on a home. You'll be wasting the seller's time, the seller's agent's time and your agent's time if you sign a contract and discover later that the bank won't lend you what you need or that it won't give you a mortgage you find acceptable.

Be aware that even if you have been preapproved for a mortgage, your loan can fall through if you do something to alter your credit score, like finance a car purchase. If you cause the deal to fall through, you may have to forfeit the money that you put up when you went under contract.

3. Failing to consider additional expenses
Once you're a homeowner, you'll have additional expenses on top of your monthly payment. Unlike when you were a renter, you'll be responsible for paying property taxes, insuring your home against disasters and making any repairs the house needs (which will occasionally include expensive items like replacing the roof or furnace).

If you purchase a condo, you'll have to pay monthly maintenance costs regardless of whether anything needs fixing because you'll be part of a homeowners association, which collects monthly fees from the owners of each unit in the form of condominium fees.

4. Being too picky
Go ahead and put everything you can think of on your wish list, but don't be so inflexible that you end up continuing to rent for significantly longer than you really want to. First-time homebuyers often have to compromise on something because their funds are limited. You may have to live on a busy street, accept outdated decor, make some repairs to the home or forgo that extra bedroom. Of course, you can always choose to continue renting until you can afford everything on your list -- you'll just have to decide how important it is for you to become a homeowner now rather than in a couple of years.

5. Lacking vision
Even if you can't afford to replace the hideous wallpaper in the bathroom now, it might be worth it to live with the ugliness for a while in exchange for getting into a house you can afford. If the home meets your needs in terms of the big things that are difficult to change, such as location and size, don't let physical imperfections turn you away. Besides, doing home upgrades yourself, even if you have to hire a contractor, is often cheaper than paying the increased home value to a seller who has already done the work for you.

6. Being swept away
Minor upgrades and cosmetic fixes are inexpensive tricks that play on your emotions and elicit a much higher price. Sellers may pay $2,000 for minimal upgrades or staging that you'll end up paying $40,000 for. If you're on a budget, look for homes whose full potential has yet to be realized. Also, first-time homebuyers should always look for a house they can add value to; this ensures a bump in equity to help you up the property ladder.

7. Compromising on the important things
Don't get a two-bedroom home when you know you're planning to have kids and will want at least three bedrooms. By the same token, don't buy a condo just because it's cheaper when one of the main reasons you're over apartment life is because you hate sharing walls with neighbors. It's true that you'll probably have to make some compromises to be able to afford your first home, but don't make a compromise that will be a major strain.

8. Neglecting to inspect
It's tempting to think that you're a homeowner the moment you go into escrow, but before you close on the sale, you need to know what kind of shape the house is in. You don't want to get stuck with a money pit or with the headache of performing a lot of unexpected repairs. Keeping your feelings in check until you have a full picture of the house's physical condition and the soundness of your potential investment will help you avoid making a serious financial mistake.

9. Not hiring your own agent or using the seller's agent
Once you're seriously shopping for a home, don't walk into an open house without having an agent (or at least being prepared to throw out a name of someone you're supposedly working with). Agents are held to the ethical rule that they must act in the best interest of their clients, but if you're a buyer, you'll probably have a stronger advocate for your interests if you use your own agent and not the seller's.

10. Not thinking about the future
It's impossible to perfectly predict the future of your chosen neighborhood, but paying attention to the information that is available to you now can help you avoid unpleasant surprises down the road.

Some questions you should ask about your prospective property include:

What kind of development plans are in the works for your neighborhood?
Is your street likely to become a major street or a popular rush-hour shortcut?
Will a highway be built in your backyard in five years?
What are the zoning laws in your area?
If there is a lot of undeveloped land? What is likely to get built there?
Have home values in the neighborhood been declining?
If you're happy with the answers to these questions, your house's location can keep its luster.

Buying a first home can seem stressful and overwhelming, and it isn't without its share of potential pitfalls. If you're aware of those issues ahead of time, though, you can protect yourself from costly mistakes and shop with confidence.

For many people, a home is the largest purchase they will ever make, but that doesn't mean it has to be the most difficult."

Source: MSNMoney.com, "10 first-time homebuyer mistakes," Amy Fontinelle (Investopedia), August 26, 2011, available at: http://money.msn.com/home-loans/10-first-time-homebuyer-mistakes-investopedia.aspx

4 things to know about credit scores

2011-09-05T06:11:00.001-07:00

MSNMoney.com posted this article describing important facts about credit scores today and some recent federal regulations that may help consumers in the future. One of those recent changes is that consumers who are denied on a credit application or receive higher interests rates due to their credit profile are entitled to see their credit score for free. The article is excerpted below:

"Regulations are changing, but there's still reason to keep pressing for more openness about the 3-digit number that controls whether you can get a loan and how much it will cost.

If you read only one article about credit scores this year, read this one.

The average credit score nationwide is 666, according to Credit Karma. That's not only an ominous number but a potentially costly one.

Based on Credit Karma's data, the trend among lenders shows that a 660 credit score is the threshold to be approved for a mortgage, auto loan and unsecured credit card. Digging deeper into consumers' credit health, nearly 40% of consumers have a credit score below 660. That means four out of 10 Americans would likely be denied a mortgage or auto loan, pay sky-high interest rates and qualify for only a secured credit card.

With credit scores controlling consumers' access to credit and the prices they pay for lending products, Americans must take control of their credit health.

In the fine line between approval and denial in lending, consumers deserve to know more so they can do more about their credit health. While recent federal regulations have nudged open the door on consumers' access to credit scores, it's not enough. Consumers must be empowered to actively manage their credit -- not just when they are transacting but also in their daily financial life.

As legislation and economic changes evolve the credit industry, consumers' access to credit scores must be broadened. Here's what you need to know about credit now.

1. It may be your consumer right to get a free credit score. Thanks to a recent federal regulation, consumers who are denied on a credit application or receive higher interests rates due to their credit profile are entitled to see their credit score for free. This applies only to declined consumers, so it begs the question: Why aren't all consumers getting their credit score for free? With credit scores having such significant impact on accessing and pricing of financial products, free access to them should be a right for all consumers. We may see government efforts to provide free credit score access on the horizon. Once a mysterious and proprietary secret of the credit industry, credit scores are becoming a powerful tool in the hands of consumers.

2. Standards for accessing credit are always in motion. Once upon a time, the general "good" credit score standard was 660. During the recession's credit crunch, the standard jumped to 720. It appears some credit card issuers are again expanding their credit standards and approving lower credit tiers. Some mortgage lenders say a 720 credit score is needed to get the best mortgage rate, while others say 750 is the new standard. Additionally, lenders are increasingly focusing on other credit details aside from your three-digit score. For example, a consumer can have a 780 credit score, considered in the excellent range, and be denied on a credit card application because his or her credit history is simply not long enough. It'll take time and economic stability for lenders to comfortably agree on credit score standards; let's hope that will keep you on your toes and improving your credit health.

3. It's not enough to check your credit score. One drawback of the federal regulation is its limitations. Giving consumers access to their credit scores after being denied is too little, too late. Credit scores can fluctuate, so a single snapshot isn't enough. What's necessary is for consumers to monitor their credit. Whether you have a 550 or an 800, tracking trends in your credit use and credit score helps identify areas to improve and habits to avoid. Most important, it makes you conscious of how day-to-day financial decisions affect your credit health. You might need several months to polish up your score, so begin monitoring your credit as soon as you plan to buy a home or car, or apply for a loan or credit card. If you aren't applying for credit but currently have a credit card, it's still imperative to stay on top of your credit health. Issuers periodically do account reviews, and if any new credit blemishes appear, it could affect your card terms. Proactively use free tools so you, and not lenders, are the first to know about recent changes on your credit.

4. Expect credit score differences. The federal regulation also shined light on the fact that there are dozens of credit score models in use. While many consumers consider FICO to be the "real" score and everything else to be a "FAKO," the truth is that every lender chooses differently. There are the credit-bureau-specific models; the VantageScore; the FICO score; scores specific to lender type, like mortgage, auto and credit card issuers; and even models particular to certain banks. If your TransUnion score and VantageScore have a 40-point difference, there isn't a "more accurate" score. It's similar to weighing yourself at home versus the gym or the doctor's office; the scales show different numbers because they're calibrated differently, but ultimately, they all measure your weight. Rather than obsessing over the three-digit score, focus on the risk factors involved, such as your debt, number of accounts and credit use. Just as diet and exercise will be reflected in your weight across all scales, taking action to holistically improve your credit health will be reflected across the broad spectrum of credit score models.

While the recent federal regulation is a positive move for consumers, lenders have already found loopholes, reports SmartMoney. For example, if the lender uses its own scoring model, it isn't required to disclose that credit score to consumers. Also, insurance companies, which also use a credit-score model to evaluate customers and price premiums, are excluded from this regulation and aren't required to disclose credit scores to consumers who are charged a higher premium.

As the Consumer Financial Protection Bureau stretches its reach and more financial reform finds its legs, consumers must keep challenging Uncle Sam to keep the heat on the financial industry when it comes to access to credit scores. Consumers must also keep putting in the legwork to build healthy credit and keep an eye on their credit scores.

We're headed in the right direction when it comes to consumers' access to their credit scores. But don't walk away from this topic just yet; we barely have our foot in the door."

Source: MSNMoney.com, "4 things to know about credit scores," Justine Rivero (Forbes.com), August 24, 2011, available at: http://money.msn.com/credit-rating/4-things-to-know-about-credit-scores-forbes.aspx

How to impress a mortgage lender

2011-09-05T06:10:00.001-07:00

MSNMoney.com published this article about ways to make your financial situation look more attractive to mortgage lenders. One interesting point the author makes is that if you have credit card debt at all, you may not be ready to become a homeowner. Credit card debt indicates that you have lived somewhat beyond your means, and buying a home is likely to make that worse. If you can develop the discipline to pay off your cards, you will be in a much better situation to buy a home. The article is excerpted below:

"With post-crisis credit still tight, you'll need to work harder to demonstrate you can handle a mortgage. Jump through these 5 hoops to prove you're worthy.

You might be tempted by low interest rates and a weakened housing market to buy your first home this year or to move up from your current house.

But getting a mortgage is tougher than it was just a few years ago. Lenders are pickier about all facets of the process, including:

Your credit scores.

The size of your down payment.

Your income and how steady it is.

Your other debts.

The value of the property versus how much you want to borrow.

Here's how to get into the best possible shape to land a mortgage today:

1. Burnish those credit scores
Mortgage lenders typically pull FICO credit scores from each of the three major credit bureaus (Equifax, Experian and TransUnion) and use the middle score to help determine your rate and terms. If you're a couple, a set of scores will be pulled for each of you, and the lower of the two middle scores is typically used.

These days, you need a 740 middle FICO score to get the best deals. If you fall much below that, you'll pay more.

Someone in the 700-720 range, for example, might get an interest rate that's a quarter-point to half a point higher than someone with better scores, says Cameron Findlay, the chief economist for mortgage quote site LendingTree.

The costs climb as your score sinks, and many lenders these days have a cutoff point around 600. Below that, they won't even consider you, so you might have to shop for a lender that will.

The Federal Housing Administration's minimum score is 580 if you want to put down the minimum 3.5% down payment. Below that, you'll need 10% down.

The fastest ways to boost your scores are to correct any serious errors in your credit reports (AnnualCreditReport.com is where you get your free look) and pay down your credit card debt. For more, read "Raise your credit score to 740."

2. Be a worker bee
The days of "liar's loans" are gone. Now lenders want proof of steady income. Ideally, you've been working at the same job for two years or more and have the W-2 forms to prove it. Lenders want to see two years' worth of tax forms, as well as your most recent pay stubs.

Any other income with a two-year history, such as investment income, alimony or disability payments, can be counted when lenders determine how big a mortgage you qualify for.

If you're self-employed, prepare to jump through more hoops. You're likely to be asked for more documentation of your income, including business tax returns, a profit-and-loss statement, copies of your business license and even a letter from your accountant.

What if your work history is spottier? Say you lost a job in the recession and had to take one at a lower salary. That doesn't knock you out of the running for a mortgage, but the amount you can borrow will be based on your new, lower pay.

3. Keep your debts low
Most lenders have moved back to old-school ratios, whereby your mortgage wasn't supposed to exceed 28% of your gross monthly income and your other debts no more than 8%, for a total debt-to-income ratio of 36%.

You can get a mortgage with higher debt loads, but you might pay a higher interest rate. If your debt-to-income ratio exceeds 45%, you'll typically need high credit scores and lots of cash in the bank to persuade a lender to go along. Above 50%, you might be out of luck.

When figuring your debt load, lenders typically factor in only the minimum payments on your credit cards and other loans.

If you have credit card debt at all, you're probably not ready to be a homeowner. Credit card debt indicates you're living beyond your means, and buying a home is likely to make that worse. Develop the discipline to pay off your cards, and you'll be in better shape to buy a home.

4. Bring some cash to the table
The 20% down payment is once again king. Put down less than that, and you'll have to buy private mortgage insurance, which will increase your monthly payments.

Many people with less than 20% are being funneled into FHA loans, which come with higher rates than conventional loans but offer you the option of putting as little as 3.5% and saving any extra accumulated cash.

Talk through the possibilities with your loan officer, as a smaller down payment could result in a higher rate but more overall financial flexibility, since you'd have more cash left over after closing to cover emergencies, maintenance and repairs.

I believe a 20% down payment is the smartest way to go, if you can swing it. But I also think it's wise to have a good pile of cash left over after you buy a home, because you're going to need it. For more on this, read "Your first home? Save for repairs"

5. Get real about the house's value
In Econ 101, you might have learned that fair market value is the price a willing and knowledgeable buyer would pay a willing and knowledgeable seller when neither is under compulsion to buy or sell.

In today's mortgage world, however, the value of a house is what the appraiser says it is, and I'm hearing a lot of complaining that appraisers have gotten pretty conservative.

Why does this matter? If the appraiser says a house is worth less than what you agreed to pay, you'll have to cough up more money for the down payment to make up the difference or go back to the negotiating table with the seller (as if it weren't torture enough the first time around).

Protect yourself as much as possible by thoroughly researching sales of comparable properties before you make your bid. Your real-estate agent should be able to help.

There are other ways your mortgage deal can go south, even if you try to get your financial and credit situations in the best possible shape."

Source: MSNMoney.com, "How to impress a mortgage lender," Liz Weston, August 24, 2011, available at: http://money.msn.com/home-loans/how-to-impress-a-mortgage-lender-weston.aspx

10 things to know about ID theft

2011-09-05T06:08:00.000-07:00

MSNMoney.com posted this article from CreditCards.com about how to protect yourself from identity theft. One important suggestion the author makes is to never provide your full date of birth on sites like Facebook or any other social-networking website. Identity thieves can use information from social networking sites or mail left in your mailbox to steal your identity. The article is excerpted below:

"You can protect yourself against identity thieves by understanding how they work, then taking the appropriate precautions with your credit card accounts.
Identity theft is often in the news, but there are a lot of misconceptions swirling around about how to best protect yourself.

While some identity thieves focus on getting your credit cards and maxing them out before you even realize they're missing, an increasing number are using one piece of information about you -- often a credit card number -- to steal your entire identity.

Though many folks worry about keeping their credit card information secure when shopping online, the top methods that identity thieves use to steal personal data are still low-tech, according to Justin Yurek, the president of ID Watchdog, an identity theft-monitoring firm. "Watch your personal documents, be careful to whom you give out your data over the phone, and be careful of mail theft," he says.

Indeed, a February 2009 study by Javelin Strategy & Research found that of the 9.9 million identity-theft cases reported in 2008 -- resulting in a loss of $48 billion -- online theft accounted for only 11% of incidents. Stolen wallets, checkbooks and credit and debit cards made up almost half.

No one is immune to identity theft, but armed with a little knowledge about how identity thieves operate -- and a little common sense -- you can stay one step ahead of them.

1. Thieves don't need your credit card number to steal it. Conversely, they don't need your credit card to steal your identity. Identity thieves are crafty; sometimes all they need is one piece of information about you, and they can easily gain access to the rest. As a result, says Heather Wells, a recovery manager at ID Experts, an identity-protection company, it's crucial to lock up important documents at home. "Secure birth certificates, Social Security cards, passports -- in a safe deposit box or in a safe hidden at home," she says. "And that includes credit cards when not in use."

2. The nonfinancial personal information you reveal online is often enough for a thief. Beware of seemingly innocent personal facts that a thief could use to steal your identity. For example, never list your full birthdate on Facebook or any other social-networking website. And don't list your home address or telephone number on any website you use for personal or business reasons, including job-search sites.

3. Be careful with your snail mail. "Follow your billing cycles closely," says Lucy Duni, a vice president of consumer education at TrueCredit. "If a credit card or other bill hasn't arrived, it may mean that an identity thief has gotten hold of your account and changed your billing address." Al Marcella, a professor at Webster University's School of Business and Technology in St. Louis and an expert on identity theft, suggests that when you order new checks, pick them up at the bank instead of shipping them to your home. "Stolen checks can be altered and cashed by fraudsters," says Duni. And never place outgoing mail in your mailbox or door slot for a carrier to pick up. Anyone can grab it and get your credit card numbers and other financial information. Bring it to the post office yourself.

4. Review bank and credit card statements monthly -- and preferably more often. Watch for charges for less than a dollar or two from unfamiliar companies or individuals. Thieves who are planning to purchase a block of stolen credit card numbers often first test to check that the accounts haven't been canceled by aware customers. They do so by sending a small charge through, sometimes for only a few pennies. If the first charge succeeds, they'll buy the stolen data and make a much larger charge or purchase. They're guessing -- often correctly -- that most cardholders won't notice such a tiny charge. In addition, many of the fraud alerts you can set on your accounts aren't triggered by small dollar amounts. Reviewing your credit report on a regular basis is also a good idea, but usually by the time a fraudulent transaction reaches your credit report, it's too late.

5. If an ATM or store terminal looks funny, don't use it. "Make sure there is no device attached to any ATM card slot you use," says Wells. "As a general rule, the mouth of a card receptacle on an ATM machine should be flush with the machine or have only a very slight lip." If it looks or feels different when you swipe your card, or has an extra piece of plastic sticking out from the card slot, it may be a skimmer, an electronic device placed there by thieves that captures your credit card information when you swipe it. If you notice it after you've already inserted your card, you should alert your bank so it can watch for any fraudulent charges to your account.

6. Identity thieves love travelers and tourists. Scott Stevenson, the founder and CEO of Eliminate ID Theft, an ID theft protection company, said that when traveling, you should be alert to strangers hovering when you use a credit card at an ATM or phone, and to avoid public wireless Internet connections unless you have beefed-up security protection.

7. Identity thieves are sneaky; you need to be sneaky, too. There are a few simple things you can do to protect your credit card in case it falls into the wrong hands. "Sign your credit card with a Sharpie so your signature can't be erased and written over," suggests Echo Montgomery Garrett, a writer in Marietta, Ga. Consultant Sarah Browne of Carmel, Calif., had all but one credit card stolen from a hotel room. The card that was spared still had the "please activate" sticker on it. Though Browne had activated the card, she forgot to remove the sticker. "The thieves must have known that you have to activate a new card from the phone number listed with the credit card company, so they didn't bother with it," she said. Since then, she leaves the activation stickers on all of her cards. Indeed, when a thief struck a second time at a public function, Browne's stickered cards were again left untouched.

8. Pay attention at the checkout line. If a cashier or salesperson takes your card and either turns away from you or takes too long to conduct what is usually a normal transaction, she may be scanning your card into a handheld skimming terminal to harvest the information. Thieves don't need a handheld scanner to capture your information. According to Mark Cravens, the "Anti-Scam Doctor" and author of "The Ten Commandments of Investing," they can take a picture of the front and back of your card with a cellphone or merely swap out cards. "Look at your card when they hand it back and make sure it's yours, and not another gold, silver, or blue card that looks like yours," he says. "You may not notice they swapped your card for days."

9. Go paperless in as many ways as possible. Sandy Shore, a training manager with Novadebt, a nonprofit, New Jersey-based credit-counseling agency, suggests clients cut back on the mail they receive from banks and financial institutions by discontinuing paper bills and statements. "Access your financial statements at the issuer's website instead," she says. This strategy has the added bonus of an environmental benefit. Similarly, Vaclav Vincalek, the president of Pacific Coast Information Systems, an IT security firm, recommends that whatever paper receipts and financial statements you do receive go through the shredder instead of into the wastebasket. "Never throw away a credit card slip," he says. "Instead, shred anything that has any number, name, address on it."

10. Identity theft insurance can pay off, but you need to read the fine print. Several companies offer identity theft insurance, which covers the money you shell out to repair your identity. This includes whatever you spend on phone calls, making copies of documents and mailing them, hiring an attorney and, in some cases, lost wages. However, the insurance -- which costs about $50 a year -- does not reimburse you for funds you lost. Your current homeowners policy may include identity theft insurance in your package, so check first before signing up with an outside company. Also, some companies are starting to offer identity theft insurance as an employee benefit."

Source: MSNMoney.com, "10 things to know about ID theft," Lisa Rogak for CreditCards.com, August 25, 2011,
available at: http://money.msn.com/identity-theft/10-things-to-know-about-id-theft-creditcards.aspx

Good credit in danger? 3 tips

2011-09-05T05:30:00.001-07:00

MSNMoney.com posted this article from CardRatings.com describing 3 ways to save your credit if it looks like your good credit is not looking quite so good anymore. One tip the article provides is to scale back your spending by taking a close look at where your money goes every month. The experts believe it is normally easier to cut back on nonessential purchases than to increase income. Also, limiting or stopping credit card use all-together can be extremely helpful. The article is excepted below:

"You've been good. Your credit cards are current. Up until now you've had stellar credit, and you've been able to charge purchases to your credit card without giving it a second thought.

Now, it's uh-oh time.

You didn't see your employer headed for financial trouble. You're hanging on, but you've taken a huge pay cut.

Or you weren't paying attention to your monthly statements and that zero-percent promotional rate on your balance-transfer credit card has run out. You still owe big time.

Or you were so busy racking up miles on your travel credit card that you weren't paying attention to how much you were charging, and now the balance is, well, approaching obscene.

So what do you do when you find that your good credit doesn't look so good anymore?

1. Stop using your credit cards

First, stop using plastic to pay. "When you see that your good credit has gone bad, you have to stop digging yourself a deeper financial hole," says Gail Cunningham, vice president of membership and public relations for the National Foundation for Credit Counseling.

You may think that it's safe to continue to charge purchases to your gas credit card and rely on your line of credit until you find another job. But in today's economy, Cunningham says, "the length of time it takes to get another job can be a lot longer than you ever dreamed."

2. Make a credit card game plan

Second, assess your situation, says Tanisha Warner, spokeswoman for Money Management International. Sit down and look at your credit card statements and see who you owe, how much you owe and what interest rate you're paying.

"You want to create what we call a 'damage sheet' and make at least the minimum payment on each account," Warner says. "If you should have any extra money, use it to pay the credit card with the highest balance or the one with the highest interest rate."

If, because of an emergency or a little unconscious overspending, you can't pay your credit card bills, call the company and try to sweet-talk it. "It's very important that you stay in contact with the people you owe, whether it's credit cards or your mortgage lender or the bank that has your car loan," Warner says. "Don't just not pay."

Keep the credit card company in the loop, Warner says, because it may give you a grace period of up to 60 days, or you may qualify for credit programs that help when it's time for some serious damage control.

3. Rethink your finances

Here's what else you can do to stop the bleeding when you're in over your head in credit card debt:

* Scale back spending. Re-examine where your money goes every month. Lots of things that you think are necessities may not be, Cunningham says. Do you really need to stop at Starbucks on your way to work? You could save by brewing coffee at home and bringing it to work in a travel mug. Think how much you'll save if you do your own laundry instead of taking it to the cleaners every Friday. Does your teen really need to be able to watch movies on his smartphone? "It's easier to scale back spending than it is to increase income," Warner notes.
* Sell things on eBay. You could raise some cash to pay off your rewards credit card by selling unwanted goods on eBay or by holding a garage sale. That flat-screen TV that you bought for the kitchen on a whim is just gathering dust anyway. "Garage sales are big moneymakers," Warner says. "You can make a few hundred bucks holding a garage sale once a month."
* Get a second or third job. In this economy, that's easier said than done, says David Jones, the president of the Association of Independent Consumer Credit Counseling Agencies. Need flexible hours? Look for ways to turn a hobby into an income source. If child care is a concern, look for something you can do from home that will bring in extra money -- every little bit can help you pay down your MasterCard and Visa bills faster.
* Borrow from friends and family. If you find you suddenly need $1,000 to pay your bills, see if you can borrow money from friends or family. If you go this route, be careful, Cunningham warns. "It could be awkward borrowing from family or friends and could ultimately damage your relationship," she says. Check with your church and charities if you have a real hardship. They, too, might be willing and able to help.
* See a consumer credit counselor. "They can help, absolutely," says Cunningham. Jones agrees: Having a frank discussion with a nonprofit consumer credit counselor can open your eyes and help you plan and make sound budget decisions. The sooner you seek help, the better, Cunningham adds.

If you're standing around the water cooler at work and hear layoffs might be in the works, be proactive, Cunningham says. "See what you can do for damage control. In a perfect world, you will be OK. But reality happens, and, if you wait until you've dug a deep financial hole, it can make it more difficult to get out."

Source: MSNMoney.com, "Good credit in danger? 3 tips," Beth Orenstein for CardRatings.com, August 29, 2011, available at: http://money.msn.com/credit-rating/good-credit-in-danger-3-tips-cardratings.aspx

4 Fast Ways to Save Money Now

2011-08-18T05:51:00.001-07:00

SmartMoney.com posted this article detailing several ways to save money quickly and easily. The author suggests you look at your cell phone bill, insurance policies, cable bill, and credit card rates. The post provides resources for researching the best rates, as well. The article is excerpted below:

"The falling market and the economic uncertainty that comes with it has even the most frugal looking for new ways to save. Many of the easiest ways to do so may not even require that much sacrifice.

Right now, there are plenty of reasons to build savings. For the intrepid, extra cash may mean the ability to snatch up stocks at bargain prices. Far more people are still shoring up their personal balance sheets from the last downturn, and another market tumble reinforces the need for an emergency fund, or to pay down debt. Even for spenders, there's an incentive to sock away a little more: The down market is expected lead to sales on many big-ticket items like cars, airfare and electronics. "It's smart to save wherever you can," says certified financial planner Sheryl Garrett, founder of the Garrett Planning Network, a national group of fee-only advisors.

In general, Americans are already better savers than they used to be. In June 2011, Americans saved 5.4% of their disposable income, up slightly from 2010 but more than double the 2.4% savings rate circa 2007. Still, most financial planners recommend aiming higher, to 10% or so. And while cutting out morning lattes and MP3 purchases can add up, keeping on track requires serious discipline. Better to aim for the bigger expenses by reviewing regular monthly bills. A little research and a phone call or two to can save hundreds of dollars on cellphone and cable service, insurance payments and credit card bills, says Schwark Satyavolu, co-founder of BillShrink.com.

Of course, financial experts rarely advocate against saving. But market swoons to tend to bring out consumers' thrifty sides. For some help with boosting your monthly savings, here are four options that won't take more than an hour or two:

Switch cellphone plans
Save: $400 a year

Cellphone users are paying more -- $92 per month on average for a two-year contract, up from $78 last year, according to J.D. Power & Associates. And picking the right plan has also become more complex as carriers add new data plans and require different packages for different phones. In early July, Verizon (VZ: 34.82, 0.11, 0.32%) joined AT&T (T: 28.45, 0.46, 1.64%) in eliminating unlimited data plans for new subscribers. Moving into a plan that better fits your calling texting and data patterns could save up to $400, Satyavolu says. Sites like BillShrink and Validas will analyze your current bill and make savings suggestions, or you can call your provider and competing services. (Some apps can also help you save on texting or talk time.) But if the best bet seems to be switching carriers, be warned: early termination fees can go as high as $350, which could eat up any savings in a hurry. Switching can also change call quality, so ask friends who use that carrier if they've had problems -- or better yet, borrow their phone and test for yourself.

Shop insurance policies
Save: $200 a year

More severe natural disasters and higher rebuilding costs have led insurers to raise homeowners insurance premiums by more than 7% in many areas over the past year. (Some are hurricane-prone areas, but not all. Some Pennsylvania homeowners saw premiums jump 33% last year.) That's reason enough to shop around on sites like Netquote.com and Insurance.com, checking rates and available discounts. Be sure to call your current insurer, too, and see if they have any new programs you might be eligible for, Garrett says. It wouldn't be hard to save at least $200 per year or more. Last month, Garrett bought new homeowners and auto insurance policies, cutting her yearly bill by $800.

Change (or ditch) cable
Save: $800 a year

Consumers can save substantially by finding a new cable provider, or depending on their viewing habits, cutting the cord altogether. Switching is easier to compare with sites like BillShrink or WhiteFence.com. And most viewers have more options than they think, especially for those who are interested in satellite -- and the annual savings for switching averages $800 a year, Satyavolu says. Providers often make their best deals available via cable-phone-Internet bundles, though, and switching to a lower price can entail an unbearably slow Internet or a crackly phone connection, says Dan Rayburn, an analyst for investment bank Frost & Sullivan who covers digital media companies. Also, the growing options for free or cheap TV online mean some people may be able to get by with fewer channels, says Rayburn. A viewer might, for example, switch to a basic cable package with 13 or so channels and use an $8 monthly streaming subscription from Netflix (NFLX: 205.21, -0.22, -0.11%) or Hulu to catch more missed movies and TV shows.

Get a better credit card
Save: $600 a year

Thanks to Standard & Poor's downgrade of U.S. debt, many experts expect credit card rates will rise soon. But right now, offers are better than they have been in years, says Curtis Arnold, founder of card comparison site CardRatings.com. Consumers who haven't re-assessed in the past year can compare on sites like CardRatings or CardHub.com to get a better ongoing rate, 0% balance transfers of up to 24 months, or generous reward bonuses. Delta and Continental, for example, have offered some customers sign-up bonuses worth two free round-trip domestic tickets, while an 18-month balance transfer offer would save someone paying off a $5,000 debt in $300 increments more than $650 in interest. BillShrink.com estimates average savings of $600, from lower interest rates and more lucrative rewards. But if you're transferring a balance, be sure to compare fees, Arnold warns. Most cards charge 3% of the balance, but a few are starting to charge as much as 5%, which eats into savings."

Source: SmartMoney.com, "4 Fast Ways to Save Money Now," Kelli B. Grant, August 11, 2011,

available at: http://www.smartmoney.com/spend/family-money/how-to-save-2000-on-monthly-bills-1313066635963/?link=SM_hp_spend

Escape from the great debt trap

2011-08-16T05:58:00.000-07:00

MSNMoney.com posted this article with some positive news about consumer debt in the United States. Households spent 16.4% of their earnings on debt payments in the first quarter, including lease and rental payments, homeowners insurance and property taxes. That is down from 18.9% in the third quarter of 2007. According to credit-reporting bureau Equifax, the average U.S. credit score rose to 696 in May, the highest in at least four years. Also, delinquencies on consumer loans have dropped 30% in two years, according to Federal Reserve data. The article is excerpted below:

"Michael Busick, a Charlotte, N.C., math teacher, says his credit union "was shocked" to discover his credit score was 812 out of a possible 850 when he applied for a $19,500 new-car loan. The loan officer told him he rarely saw scores so close to perfect, says Busick, 33, who added he pays bills on time and doesn't overextend. He got the loan.

The average U.S. credit score -- a predictor of the likelihood that lenders will be paid back -- rose to 696 in May, the highest in at least four years, according to credit-reporting bureau Equifax. Delinquencies on consumer loans have dropped 30% in two years, according to Federal Reserve data.

Improving credit quality gives households the ability to spend more. A rebound in spending would belie Morgan Stanley economist Stephen Roach's claim that consumers will be "zombies" for years because they are saddled with too much debt.

"The financial situation of the household sector has improved far faster than everyone thought it would two years ago," says James W. Paulsen, the chief investment strategist for Wells Capital Management in Minneapolis. "People are still locked into the view that consumers are facing record burdens, and they are not."

U.S. consumers have reduced debt by more than $1 trillion in the 10 quarters ended in March, according to the Federal Reserve Bank of New York. Households spent 16.4% of their earnings on debt payments in the first quarter, including lease and rental payments, homeowners insurance and property taxes. That's down from 18.9% in the third quarter of 2007, before the recession started.

Even consumers in trouble are in better shape, says Mark Cole, the chief operating officer for Atlanta's CredAbility, a nonprofit provider of credit counseling. Clients have an average of $19,500 in unsecured debt this year, down 30% from 2009 and the lowest in at least six years, he says. "We really see credit quality increasing."

Credit card companies notice the rebound, too. Discover's rate of 30-day delinquencies was 2.79% in the second quarter, the lowest in its 25-year history, company officials said in June.

Jennifer Lahotski, 28, who has a marketing job in Los Angeles, says she's been improving her credit since 2007, when her score was "absolutely below 660," the number Equifax says is the minimum needed to qualify for prime consumer loans. The Penn State graduate had been late on some bills and even had an old charge of $5 from a gym.

"I went through each expense, each delinquency, and sent them a check," she says. "I turned myself into a hermit for six months, but I did it," eliminating most restaurant meals and "random Target runs where you come out with $50" of merchandise. Lahotski, who has a Visa and an American Express card and $15,000 in student loans, says she is now saving "a few hundred a month," with plans to buy a house when she can afford a down payment.

While household obligations are at a 17-year low because of increased savings and lower interest rates, Roach, the nonexecutive chairman of Morgan Stanley Asia, calculates that household debt still comes to 115% of income, compared with a 75% average from 1970 to 2000. "We need to encourage balance-sheet repair and adjustment by overly indebted, savings-short consumers," he says.

Roach's view is supported by some economists, who say the debt that fueled the housing boom from 2002 to 2006 will take years to unwind. This deleveraging "is pernicious, it's ongoing and it's holding back growth because people are going to save more and spend less," says Kevin Logan, the chief U.S. economist at HSBC Securities in New York.

Yet other economists see something more nuanced happening: Some consumers are still paying down debt, while others feel financially healthy enough to borrow. A small percentage of senior loan officers reported growth for all consumer lending in the first quarter. That was the first increase since 2005, according to a quarterly Fed survey released in May. About 29% of the loan officers interviewed were more willing to make consumer-installment loans. In the second quarter, loan officers reported a pickup in demand for auto loans.

Dean Maki, the chief U.S. economist at Barclays Capital, says the growth in credit reflects an underlying optimism. As a Fed economist in 2000, he published research that concluded "high debt burdens are not a negative force." He adds, "When consumer credit is growing, it is a sign that households have become more confident about income prospects."

Sometimes that confidence is horribly misplaced, as in the years leading up to the crash. Fortunately, the actual increases in consumer credit today are very modest.

The return to borrowing by some consumers is already benefiting companies. Craig Kennison, an analyst at Robert W. Baird & Co. in Milwaukee, predicts lending profits will rise at CarMax, the largest U.S. seller of used cars, and Harley-Davidson. Their finance arms "have fully recovered," says Kennison.

The shares of credit card and banking companies will benefit, too, says analyst Brian Foran of Nomura Securities International. "Consumers spend money based on their cash flows," he says. "And their cash flows are fine."

Math teacher Busick, who has a home loan and four credit cards, estimates his near-perfect credit score has risen from the upper 700s in the past few years. While he uses an American Express card to accumulate frequent flier miles on Delta Air Lines, he pays it off in full most months. "I don't have late payments," he says. "I pay all my bills on time." Virtue has its rewards.

Now Busick is thinking of buying a Sony television or a Dell or Hewlett-Packard computer that could cost $2,000. "If I want something, I will get it," he says."

Source: MSNMoney.com, "Escape from the great debt trap," Bloomberg Businessweek, August 3, 2011, available at: http://money.msn.com/credit-rating/escape-from-the-great-debt-trap-bloomberg.aspx

How to beat annoying bank fees

2011-08-16T05:25:00.001-07:00

MSNMoney.com posted this article about unwanted banking charges and how to avoid them. The fees can show up on your banking statement when you do not expect them. Fees such as ATM balance-inquiry fees or fees for talking to a human at the bank can take you by surprise. The article is excerpted below:

"Two bank fees get a lot of attention: monthly maintenance charges and ATM fees.

Those charges are pretty easy to avoid, however, by changing your behavior or changing banks. The fees that are really pesky are the ones you don't think to ask about. They often show up unexpectedly and may be tough to shake.

Here are a few to watch out for:

Returned-deposit fees
Checks you deposit in your account can bounce, and if they do, all you-know-what can break loose. You may face overdraft charges or rejected transactions because you don't have enough money in your account. In addition, your bank may clip you with a $10 to $20 fee for depositing the bad check.

How to cope: There's typically no way for you to know if a check is good before you deposit it, so this is a "gotcha" that can be avoided only in advance -- by banking with an institution that doesn't charge the fee. Most big banks levy returned-deposit charges, but some smaller banks and many credit unions don't. Switching to one that doesn't charge may make sense if you deposit a lot of checks. If you're charged a returned-deposit fee, ask your bank to waive the fee as a one-time courtesy. Your bank may not budge, but it doesn't hurt to ask. Another option: Cash a check at the issuing bank. But this could trigger a fee, since you're not a customer, and might be inconvenient.

Fees for 'early' account closures
Want to close your account because of excessive fees? Not so fast. Shut a bank account within a few months of opening it and your bank might withhold $10 to $50 from your balance as a so-called early-closure fee. Citibank, Chase, PNC and Wachovia each charge $25. If you were given a bonus or other rewards for opening the account, the bank may try to "claw back" those benefits by charging even more, warns U.S. PIRG, a consumer advocacy group that issued a report last year on bank fees.

How to cope: Before you open an account, ask if there's an early-closure fee and, if so, how many months the account must be active before the fee is waived. Balance the fees you'll pay by sticking with the account against what you'd pay to leave early.

Fees for returned mail
Say you move but forget to update your mailing address with your financial institutions. Banks and creditors typically have "return service requested" printed on their envelopes, which means your statements and other information are returned to them rather than forwarded to your new address. Your bank may ding you $5 each time this happens.

How to cope: "Put your financial institutions at the top of the list of those you notify when moving," said Greg McBride, a senior financial analyst for Bankrate.com.

ATM balance-inquiry fees
Prepaid cards come loaded with so many egregious fees that it's hard to pick just one. You get dinged for "activating" your card ($3 to $9.95), having the card (monthly charges of $2.95 to $9.95), using the card (per-transaction fees of $1 to $2) and reloading the card ($3 to $10).

Still, NerdWallet CEO Tim Chen nominates the ATM balance-inquiry charge as particularly pesky, since checking a bank or gift card balance typically doesn't cost the user money.

"Nearly all reloadable prepaid debit cards have this fee, which typically ranges from 50 cents to $2 per incident," Chen said. "Note that you are charged for inquiring about your balance, even if you don't make a withdrawal."

How to cope: You typically can check your balance for free online. Using the toll-free number to inquire may or may not trigger another fee. Better yet, consider opening a free checking account at a local bank or credit union. Over time, a low-cost checking account will be cheaper than using prepaid cards to manage your spending.

Fees for talking to a human
If you run into a problem that can't be handled by an automated system, you may get dinged for requesting help. Prepaid cards, including NetSpend and Ace Cash Express, charge 50 cents to $1 for live help.

"It's ridiculous that NetSpend and Account Now charge you for a customer-service call, even if you are calling because they messed up your statement," Chen said.

Ask for help from a Bank of America teller and you could pay $8.95 -- that is, if you have one of the bank's electronic checking accounts where you're not supposed to need human help.

How to cope: If you must use a prepaid card, look for reviews online so you can see where the complaints are -- and which cards have lousy or costly customer service. With bank accounts, consider looking for a free account that allows you to talk to a teller now and then if necessary. Such accounts are available, although you may have to expand your search from the megabanks to community banks and credit unions to find them.

Currency conversion charges
Credit card companies like their foreign-transaction fees so much that they're expanding their definition of what triggers the extra charge of up to 3%.

"Increasingly, this is being applied to transactions made outside the U.S., even if it's in dollars and no currency conversion takes place," Bankrate's McBride said. "Also, transactions with foreign entities may incur the charge, even if you're sitting at home when the purchase is made."

How to cope: If you travel abroad or make purchases from foreign retailers (such as online), use a card that doesn't charge the fees.

Capital One has several cards that don't charge the fees, including its Venture, No Hassle and Platinum Prestige cards. Chase's Sapphire Preferred, British Airways, Hyatt and Priority Club Select cards don't impose currency conversion charges, nor does Citi on ThankYou Premier and ThankYou Prestige cards. American Express' Platinum and Centurion cards don't charge the fees either.

Reward redemption fees
As you learned in my recent column "How to beat pesky airline fees," free travel isn't free anymore, particularly when you're redeeming credit card rewards for airline travel. Most issuers charge a fee, ranging from $20 to $50, for these transactions.

How to cope: You may be able to avoid or reduce the charge by booking online rather than on the phone. Elite frequent fliers may also be able to get the charge waived, depending on the program. Otherwise, you might want to look into hotel rewards programs, which are typically far easier to use than the airline version, with no blackout dates or redemption charges."

Source: MSNMoney.com, "How to beat annoying bank fees," Liz Weston, July 15, 2011, available at: http://money.msn.com/shopping-deals/how-to-beat-annoying-bank-fees-weston.aspx

Why You Should Ignore Your Instincts When Paying Your Bills

2011-08-04T05:52:00.000-07:00

DailyFinance.com posted this article about how to decide which debts to pay off first. The article advises to always focus on your debts with the highest interest rates first before ones with possibly lower balances. The reason for this is that the higher the interest rate, the more it costs you to carry that debt. The article is excerpted below:

"Image you're sitting on a park bench one breezy afternoon, minding your own business, when out of nowhere a $100 bill lands in your lap, like a leaf falling off a tree. There's no way to find out who lost the money, so this little treasure is now yours. The only caveat is that you have to use all $100 to pay down some of your debt.

Now imagine you have two credit-card accounts. One has a $100 outstanding balance and a 10% interest rate. The other charges a 15% interest rate on your $1,000 balance. How much do you repay on each account?

This isn't a trick question. If your goal is to get the most bang for your buck, there is a right answer: pay $100 off of the $1,000 balance, as opposed to paying off the smaller, $100 account. Why? Because the higher the interest rate, the more it costs you to carry that debt. This is why financial advisers always suggest paying off our more expensive debt first. Over time, this practice saves us more money.

Why Many Get It Wrong

And yet people often get it wrong, even people who consider themselves financially savvy. At least, that's the conclusion from a recent study in which 171 viewers of "Squawk on the Street," a business news program on CNBC, logged onto the channel's website to answer financial questions like the one above. Roughly one-third of the participants missed the mark, opting to pay off the smaller account, despite its lower interest rate.

"Likely, people feel better [when they close an account]," explains Cynthia Cryder, an assistant professor of marketing at Washington University in St. Louis and one of the study's authors. In other words, watching a $1,000 balance drop to $900 isn't nearly as satisfying as closing a $100 account.

"People like to go for the low-hanging fruit," Cryder says. She's right. When I look at my to-do list, I'm always willing to take out the trash before filing my taxes because running my garbage to the curb gives me a quick and delightful sense of accomplishment, while sorting out my income is a huge hassle.

Turning into the Skid

Choosing to leave open a lower-cost account in order to merely make a dent in the higher-cost one may feel counterintuitive, like turning into the skid when you hit a patch of ice in your car. But it's still the correct way to proceed, and the proof is in the numbers. If you're charged 15% compounding interest per year on $1,000, your balance will be $1,749 after four years. Running those same numbers but with a 10% compounding rate, the balance will be $1,464, saving you almost $300 over the four years.

According to the U.S. Federal Reserve, the country's total outstanding credit card debt is $2.41 trillion and rising. And because consumers who use credit hold an average of four cards, the way we manage our debt payments matters.

However, it can be hard to act against your instincts, which is why Cryder is quick to emphasize the fundamental point that paying off debt is a good thing. "You always want to focus on your debts with the highest interest rates. However, if you're having trouble motivating yourself, it's better to pay down some debt than none. So if you really need to feel great about paying down some debt, go for that small account rather than not paying down any debt at all."

Source: DailyFinance.com,"Why You Should Ignore Your Instincts When Paying Your Bills," Loren Berlin, August 3, 2011, available at: http://www.dailyfinance.com/2011/08/03/why-you-should-ignore-your-instincts-when-paying-your-bills/

5 ways to fight rising college costs

2011-07-13T06:48:00.002-07:00

The following article from Investopedia.com describes several ways to save on a college education. The author suggests studying at in-state, public schools to reduce costs because tuition is usually lower for in-state residents. Also, starting out at a local community college for prerequisite courses and then moving onto a university can minimize college costs tremendously. The article is excerpted below:

"With annual expenses topping $20,000 on average, many parents and students need to control the escalating price of higher education. Using these strategies can help.

A 2009 report by the Atlantic Monthly Group detailed that education costs increased at a faster rate than health care in 27 of the 30 years it studied. A more recent study by the National Inflation Association estimated that the inflation rate has increased just over 107% since 1986 while college tuition increased nearly 467% over the same period.

Today, the average annual cost of an undergraduate program exceeds $20,000. Students who attend public institutions pay around $15,000 for a year of school, while private-school students pay closer to $30,000 annually.

The NIA went so far as to release a documentary titled "College Conspiracy," which "exposes the facts and truth about America's college education system," including a view that college consists of "studying useless information" that can leave students in certain degrees ill-prepared and too indebted when entering the working world.

The NIA, which argues that "colleges are deceiving prospective students," highlights in its study that education costs have increased significantly and that if those costs continue to grow at the current pace, higher education will soon be out of reach for many aspiring students.

Despite the rampant tuition inflation of recent decades, there are strategies parents and students can use to control costs. Here are five ways to combat rising college costs:

1. Advanced placement exams
The College Board is probably best known for offering SAT tests, which high school students take as part of the process of enrolling in an undergraduate program, but it also offers high schoolers Advanced Placement tests, which can be taken to earn college credits. AP classes are billed as college-level courses and an exam that 90% of four-year colleges in the U.S. allow to count for college credit.

The AP website says this allows students to "have the time to move into upper-level courses, pursue a double-major or study abroad," but AP can also be used to graduate early and save a semester or more of classes. And fewer classes means less money paid in tuition, room and board while in college.

2. Go international
Studying abroad is an educational option that many U.S. students take advantage of, but it is usually meant as a semester away to experience a different culture and return home to finish out one's education at the original undergraduate institution. Yet going abroad can net students a quality education at a much lower cost.

It estimated that the average annual cost of a university in England is between $13,000 and $20,000 for international students, or well below the average $22,200 for attending a university in the United States. Be aware, though. that fluctuations in currency exchange rates can have a big impact on education costs if you choose to study abroad.

3. Stay close to home
While heading overseas can lower college costs, so can staying close to home. Studying at an in-state public college can keep costs lower than at a private or out-of-state college. Tuition is usually lower for in-state residents; states, which fund public universities, want to encourage students to stay in state to find jobs after they graduate. Grants and scholarships are also more likely to be awarded to in-state residents.

4. Stay even closer to home
Attending a nearby community college is another great way to minimize education costs; a community college education can be had for a fraction of the cost of attending a university. Most undergraduate degrees require prerequisite classes before a student can enter a major program, and community college students can get such classes out of the way at the lowest possible cost. This option also makes sense for students who have yet to decide on a major, allowing them more time to choose a four-year university that ranks high in their field once they settle on a field of study. Further, community college students frequently live at home, so they also save on room and board.

5. Invest wisely
Saving for college via tax-advantaged 529 college saving plans can further stretch education dollars. The Securities and Exchange Commission defines 529 plans as "qualified tuition plans" that work much like qualified retirement accounts that are not subject to federal or state income taxes. The rules for ensuring tax-advantaged status are rigorous, but generally covered are the costs of tuition, room and board, textbooks and computers, as well as related higher education fees.

The bottom line
There isn't much parents or students can do to fight tuition inflation, but there are individual strategies they can use to their advantage to keep education costs as reasonable as possible."

Source: MSNMoney.com--Investopedia.com,"5 ways to fight rising college costs," Ryan C. Fuhrmann, July 12, 2011, available at: http://money.msn.com/saving-money/5-ways-to-fight-rising-college-costs-investopedia.aspx

Want a free credit score? Get rejected

2011-07-13T06:48:00.001-07:00

CNNMoney.com posted this article about some upcoming changes for consumers who apply for loans or credit cards. Beginning in late July 2011, lenders and creditors who either deny or give unfavorable terms to a consumer for a loan or credit card application will be required to disclose the credit score and other factors that they used to make their decision. The article is excerpted below:

"As part of an effort to pull back the curtain on how creditors go about making their lending decisions, consumers are soon going to find out exactly why they got rejected for a credit card or loan.

Beginning later this month, lenders and creditors who deny a consumer's application for a loan or credit card -- or who give less favorable terms for one of these products -- will be required to disclose the credit score and other factors that they used to make their decision.

"[These requirements are] a move toward letting consumers have more access to the process and know what it is about their credit profiles that affects them, so they can take steps to improve it," said Becky Kuehn, an assistant director in the Federal Trade Commission's Bureau of Consumer Protection, the agency which helped to create the rules.

Part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the new rules will go into effect July 21 -- when the Consumer Financial Protection Bureau officially takes over the reins on enforcing new regulation.

Your bank is profiling you!

In addition to the credit score and several other factors on their credit report that the lender used to make their decision, the consumer will also be notified about the date of the inquiry and the name of the consumer reporting agency the lender used. If a lender uses its own credit-scoring model instead of FICO, the consumer will be told that the score doesn't come from a reporting agency and will be given the range of the scoring model the lender used.

The new disclosures amend rules that were put in place earlier this year that required lenders to notify consumers when they weren't given the best terms on a loan or credit card. The notices didn't include credit scores unless the lender chose to include them.

Consumers will typically receive the disclosures in the mail. Only those who are rejected or given unfavorable terms are entitled to a score. If a person is approved at the best terms, they will not receive anything -- unless the lender chooses to give every applicant a score.

Lenders who don't use credit scores to make decisions, won't be required to disclose a score to consumers.

Open doors with your FICO credit score

While it's helpful to know your credit score, Kuehn emphasized that it is just the first step toward becoming more aware of your entire credit situation.

"My hope is that when people get this information they're prompted to get consumer [credit] reports," she said. "Credit scores are interesting, but they're a snapshot in time -- when you get your report you can see if there are errors or past credit issues affecting your score and begin improving your credit picture."

Source: CNNMoney.com, "Want a free credit score? Get rejected," Blake Ellis, July 11, 2011, available at: http://money.cnn.com/2011/07/11/pf/free_credit_score/index.htm

Consumer bankruptcies down but debt load is still scary

2011-07-13T06:47:00.000-07:00

In this article by CNNMoney.com's Fortune, the author states that the American Bankruptcy Institute reports that consumer bankruptcies fell 8% in the first half of this year compared to 2010. To most, this would suggest that consumer finances are improving, but many experts believe that far too many Americans are still unable to pay their debts. The article is excerpted below:

"Individual bankruptcies are falling. But that doesn't say much for the U.S. consumer, who's still supported by record government stimulus.

Before last week's dismal unemployment report, there was some seemingly bright news for U.S. households. Consumer bankruptcies plummeted 8% in the first half of this year compared to 2010, said the American Bankruptcy Institute. Roughly 709,000 Americans declared insolvency.On the surface this augurs well for households -- and for the U.S. economy dependent on their spending. Along with declining credit card delinquencies and falling bank loan missed payments, it suggests consumer finances are improving. But the headline hides a scary truth: U.S. households are still precariously indebted. The government is propping up their balance sheets at record levels. And a number of Americans are avoiding bankruptcy by skipping their mortgage payments.

"The number of bankruptcies is still unacceptably high," says David Rosenberg, chief economist at Gluskin Sheff & Associates in Toronto, who thinks there's a 99% chance the U.S. is headed for another recession in 2012. "It is not a good number even if it's fallen from its peak."

The problem as Rosenberg sees it is that bankruptcies are so high even after the government has undertaken record fixes. The Fed has kept interest rates near zero, allowing at-risk consumers to refinance at favorable rates. The Obama administration's payroll tax cut boosted paychecks. The Fed's QE2 bond buying program sent stocks rising. The government's $800-billion stimulus created jobs. And extended unemployment benefits supported some individuals for up to 99-weeks.

"Maybe the high rollers out there don't need it," says Rosenberg of the extended benefits, "but there are a lot of people out there who were relying exclusively on [those]. They can kiss that goodbye.'"

Together, the government's fiscal support probably added a full percentage point to personal income growth last year. Yet bankruptcies still hover above the levels of 2009 and anytime in recent history.

On top of that, America is going through a new era of strategic default. MF Global economist Jim O'Sullivan says much of the recent drop in household debt— the Fed announced household debt fell at a 2% annual rate in the first quarter —may be the result of people avoiding payments by walking away.

About 15 million households owe more than their house is worth, and many more face that prospect should home prices fall an additional 5% to 10%. Credit agency Experian estimated that 17% of all mortgage defaults in the first half of 2010 were the result of people walking away from their homes. When economists talk about Americans' improving balance sheets, you rarely hear it's because people are stiffing their lender.

One positive note is the so-called debt-service ratio— the cost of paying debts. O'Sullivan says it's at its lowest level since at least 1997. "That's much lower relative to history than the debt burden is," he says.

Still, there are reasons to think Americans bankruptcy parade won't be over anytime soon. In the first quarter, the Fed reported that household debt as a percentage of disposable income declined to 119%, below 2007's 133% figure but seemingly above healthier levels. Meanwhile, declining home prices may continue to pressure balance sheets and other supports for American households are eroding. Obama is fighting Congress to keep the payroll tax deduction but federal debt protests have made more government fiscal stimulus unlikely.

It's dangerous to take declining bankruptcies as a sign economy is one the mend. Instead, it may be facing another test. And if it does head down, consumers aren't in a much better position this time."

Source: CNNMoney.com's Fortune, "Consumer bankruptcies down but debt load is still scary," Scott Cendrowski, July 11, 2011, available at: http://finance.fortune.cnn.com/2011/07/11/consumer-bankruptcies-down-but-debt-load-is-still-scary/

6 steps to your own Independence Day

2011-07-04T05:29:00.000-07:00

The author of the following article, posted by MSNMoney.com, wants everyone to think about how carrying a large amount of debt keeps people from experiencing a real sense of freedom. The author states that the more debt you have, the less freedom you have. The money you pay credit cards each month could go to making you financially free later in life, if you were able to save some of it. The article is excerpted below:

"Independent: (adjective /ˌindəˈpendənt/) Free from outside control; not depending on another for livelihood or subsistence.

Our nation's independence is a source of pride for every American because it marks the day when our nation became the master of its own destiny -- free from outside control.

Imagine the day when the definition of "independent" will apply to you -- the day you'll stop "depending on another for livelihood or subsistence." When it arrives, fireworks won't come close to expressing the satisfaction you'll feel. Can't see it happening? I have some advice that might help.

Finding your own version
I'm financially free -- able to work because I want to, not because I have to. It's been a long road, but I've learned some lessons along the way that might help you do it faster:

Freedom is inversely proportional to debt. It's fundamental: The more debt you have, the less freedom you have. In fact, while it may sound extreme to compare debt to slavery, in a sense that's exactly what it is. Every debt you have is an invisible ball and chain. (Do you have too much debt? Find out with MSN Money's calculator.)

If you owe MasterCard 10 grand, until you pay it off, MasterCard has the ability to influence what you do with your money, which means they also have a say in what you do with your life. (Is that why they call it MasterCard?)

Freedom means being rich, not looking rich. See that guy in the Porsche next to you at the red light? He's not rich. He's a salesman on his way to the home of someone who is. When he gets there, the house will probably be average but paid for. The cars in the driveway were probably bought used, and the prospect's entire wardrobe will be worth less than one of the salesman's suits. If you have time, read "The Millionaire Next Door." If you don't, read "19 things your millionaire neighbor won't tell you."

Virtually everyone with a job will make a lot more than a million dollars during their lifetime. It's not what you make that matters, it's what you keep.

You can either look independent, or you can be independent, but you probably won't live long enough to accomplish both.

If you want to work less, make your money work more. Say you set aside $1,000 a month. If you earn 1% on it for 30 years, you'll end up with $419,628. Earn 10% on it and you'll end up with $2,260,487. The 1-percenter has a nice nest egg; the 10-percenter is not only financially free, his kids might be as well.

"But wait!" you say. "There's no way to safely earn 10%. And if I lose my money, I'll be worse off than I was before because I've also lost all the time it took to earn it!"

True. And the same logic applies to love. If you're going to find the love of your life, you're going to have to risk major pain if it doesn't work out. The solution? Be wise with both your money and your heart: Think it through before you make a move. In short, act cautiously but don't miss an opportunity by standing there like a deer in the headlights.

The more you earn on the money you set aside, the sooner you'll achieve financial independence.

Think like a hamster, live like a hamster. People who go through life doing what commercials tell them to do live in a world of instant gratification. They see, they want, they buy. Result? They run like hamsters on a wheel, filling their closet, refrigerator and garage with impulse buys and struggling to stay ahead of their Visa bill.

A hamster can only think in the present. You have the ability to visualize the future and sacrifice today for a reward tomorrow. When you watch an ad on TV, you might see a funny skit or a cool new product. What I see is an attempt by some company to convert your future financial freedom into their next quarterly earnings statement.

Financial freedom is the result of focusing on the future.

Think less about money, more about time. Stop thinking of physical possessions in terms of money and start thinking of them in terms of time.

If you can live on $100 a day, every $100 you can save is worth a week of free time 20 years from now. Here's the math: Save $100, earn 10% on it for 20 years, and you'll end up with $732. This "rule of 7" will work with any amount. If you don't spend $10, you'll have an extra $70. If you don't spend $1,000, you'll have an extra $7,000.

I realize that it's not easy to earn 10%, especially consistently for 20 years, and I'll also concede that $100 20 years from now won't buy what it will today. That's not the point. Here's what is: The only thing you have that can't be replaced is your time on the planet. For every $100 you don't spend now, you could be spending a week down the road doing what you want to do instead of what you have to do.

Mentally convert money into minutes and you'll achieve financial freedom faster.

Where you see yourself is where you'll be. There are dozens of examples of lottery winners ending up as broke as they started, and dozens more of people who lost everything in one field only to regain it another. This suggests that the way we visualize our future over time helps shape it.

There's an expression that goes, "If other people thought of me the way I think of myself, I wouldn't have any friends at all." Stop beating yourself up and start visualizing a new, financially free you. No matter where you're starting from, or how bad you've screwed up in the past, financial independence is achievable. Picture it, believe it, and you'll achieve it.

After all, your odds are certainly no worse than those faced by a ragtag group of freedom-seekers who threw in together about 235 years ago."

Source: MSNMoney.com's partner MoneyTalksNews, "6 steps to your own Independence Day," Stacy Johnson, July 1, 2011, available at: http://money.msn.com/how-to-budget/article.aspx?post=6aab1ca5-a444-4e04-8d6e-a3a3ea274fcb

8 creative ways to stay debt-free

2011-06-30T05:24:00.000-07:00

CreditCards.com posted this article about ways to stay debt-free especially if you have pulled yourself out of debt recently. The author suggests that you make a list of how it felt to be in debt on the outside of an envelope and place your credit cards inside. Another suggestion is to call a friend prior to any charge or temptation to charge and they can help you decide whether the purchase is actually necessary. The article is excerpted below:

"You've deleted thousands in credit card and loan balances. It took years of effort, sacrifice and hard work. Now that your statements finally read zero, your cards are open and the spending limits are high. A delicious sense of freedom is calling. Just a charge here and there won't hurt, right? The author also says to incolve your supportive friends.

Careful, though. It's easy to get caught up in the debt cycle again, especially if you're itching to break free of that old restrictive budget. Here are tips from the experts to help you stay the course.

1. Remember the agony. Living in debt was dreadful, wasn't it? All that pressure and anxiety; maybe even physical ailments. Keep those painful memories alive, says Denise Winston, founder of Money Start Here, a financial education company in Bakersfield, Calif.

"Make a list of how awful you felt about being in debt on the outside of an envelope," says Winston. For example, you might have had low self-esteem, stress, insomnia, high blood pressure, relationship problems or lost productivity at work. Then place your credit cards inside and seal. When you're tempted to charge something you can't afford, you'll read your own words about how debt affected you -- and decide to stick to your spending limit.

2. Involve your friends. Sometimes you need the support of loved ones who know what you're trying to achieve. Therefore, says Winston, lean on them to keep you on the straight and narrow. "Make a pact with a friend and vow to call each other prior to any charge or temptation to charge." You can further the challenge by promising to share your credit reports with each other every six months or so.

Mind that you'll want friends who inspire, not depress you. Make sure they are those with positive attitudes.

3. Employ social networking. Shelagh Braley, CEO of My Life List, a social network for goal achievers, believes that making a public, online announcement can make all the difference in maintaining a financially healthy life.

"Use your social networks to declare your goal, ask for accountability and gather support and knowledge you need to get there!" says Braley. "Guaranteed, there are other people in your circle who share your desire to stay debt-free and are just waiting for a reason to commit. Then you can all do it together."

4. Broaden your budget. A perpetually tight financial belt is a problem, so loosen it up a notch before you rip it off. Mymoneymess.com personal finance blogger Chris Scully stresses the importance of constantly refining and revising a cash flow plan. If a budget isn't elastic, you'll eventually stray.

"Build in achievable goals, then rework your budget to include saving for it," says Scully. "Allot some sort of reward money for hitting monthly milestones on the way." By doing so, you'll prepare for long-term objectives while having enough funds to satisfy your desire for spending liberty.

5. Reduce temptation. If access to an abundance of credit is overly seductive, cut it down. Ronit Rogoszinski, a wealth adviser from Arch Financial Group, suggests abandoning excess credit accounts, leaving only two major cards.

"All the store cards that you opened to get the 10 percent discount for opening one up, close them," says Rogoszinski. "Some will say that this will hurt your credit score; personally and professionally, I don't care." Why? Remaining debt-free is not only vital to your net worth, it will actually benefit your credit rating. Thirty percent of a FICO score is based on how much debt you're carrying in relation to your credit limit, as opposed to length of credit history at 15 percent of the score.

6. Frame the ugliest bill you have. Keep a copy of the statement with the highest balance and display it. Kristen Hagopian, a motivational speaker and author of Brilliant Frugal Living, says this tip came from one of her students, who repaid $82,000 in five years.

"After putting herself into massive debt, she had a turnaround moment where she realized she was out of control, buckled down and never looked back," says Hagopian. To remain motivated, she keeps the five-year-old credit card bill (complete with "Balance Due: $82,000") on her refrigerator. "She told me that having that credit card bill on her refrigerator reminds her daily that she never again wants to feel that out of control of her finances or her life."

7. Refine your value system. If you really want to stay on budget, says Sally Palaian, a Bingham Farms, Mich.-based psychologist and author of "Spent: Break the Buying Obsession and Discover Your True Worth," you better first identify what makes you happy.

"Take the time to really think about what you want and why," says Palaian. Then add those things into your budget. "You'll get more pleasure out of spending money and be less likely to blow it on impulsive purchases or trying to keep up with the Joneses."

8. Save your old debt payments. HelloWallet.com founder Matt Fellowes says you can offset the budget blues by doing something super smart with the cash you had been sending your creditors.

"Once you get rid of revolving credit card debt, take the money you were previously using to pay off debt each month and put it toward building up emergency savings," says Fellowes. "Having extra money socked away for unexpected expenses is one of the most effective ways to stay out of debt."

As with dieting, once you've achieved your desired goal, you've got to keep the momentum going or you'll undo all that hard work. So the final tip: Enjoy your success so much that you refuse to let those balances edge up again."

Source: CreditCards.com, "8 creative ways to stay debt-free," Erica Sandberg, February 10, 2011, available at: http://www.creditcards.com/credit-card-news/eight-creative-ways-to-stay-out-of-debt-1267.php

13 Things You Pay For That Your Library Has For Free

2011-06-24T05:24:00.001-07:00

Investopedia.com posted this article about how many free or very low cost services you can access at many local libraries. Many libraries offer free internet and Wi-Fi services, which could cost at least $22 a month. Libraries are also offering free downloads for MP3 players and ebooks for a limited loan period. Also, a lot of local libraries offer you the ability to study for hundreds of tests including civil service, military entrance exams and preparation tests for SAT/ACT, MSAT, LSAT and dozens of others. Check with your local library to see what services they offer. The article is excerpted below:

"If it has been a few years or a few decades since you've ventured into your local library, you're going to be very surprised by what you find. No longer are these dusty institutions of quiet corners, musty books and stern librarians, they are home to bestsellers, coffee carts, teen rooms, community, and civic gatherings. Libraries offer computer classes, babysitting workshops, tutoring programs and literacy programs, most of which are free, or are offered at a nominal fee. Not all services mentioned in this article are available at every library, but it's worth finding out if your local library offers a similar option.

1. Read for Free
Libraries are known for books, offering fiction and non-fiction hardbacks, paperbacks, and eBooks. The eBooks can be downloaded into nearly any format to fit your computer, eReader or other device. The downloaded books will expire at the end of their loan period so no returns necessary. Overdrive is one provider of download services to libraries.
The cost of an average hardcover book is $18.99, an average children's picture book is $12.99, an average paperback book is $6.99 and an eBook download is between 99 cents and $9.99.

2. Magazines and Newspapers for Free
Magazine titles from Reader's Digest to Vogue to Hot Rod, including back issues are available for loan. Local newspapers and the Wall Street Journal, USA Today, New York Times and others are available for reading in the library.
The average cost of a magazine (monthly) is $5.99 and the cost of an average newspaper subscription is $60 per year.

3. Listen for Free
Music CDs from classical to rock and roll are waiting. If you need music for a children's party, wedding, anniversary or just listening while relaxing you can find it here. If you prefer your music downloadable, libraries offer MP3 downloads with a limited loan period.
The average cost of a music CD is $10.99

You can also check out audio books on every subject for your commute to work, for waiting on your kids at various sports practices or to listen to while you walk.
The average cost of an audio book is $21.99

4. Free Periodical Searches
If you are a high school or college student, you will be required to cite sources, footnote your thesis, or find some obscure fact for a class. If you find you need an article that appeared in Time Magazine on global warming from 2004, the library will have it on a database. The only cost would be for print/copies.

5. Librarian Access 24/7
If you can't find the answers you need, libraries await your question. In Ohio, they have Know it Now, (your local libraries will have different names for this feature) which gives 24/7 access to an online research librarian.

6. Internet and Wi-Fi
You can have free internet access and Wi-Fi, all you need is a library card. Be aware that most libraries utilize "censoring" programs for juvenile users, and parental consent may be required to use the Internet.
The average cost of internet service is $22.00 monthly.

7. Watch Movies for Free
Libraries offer children's movies like "Sponge Bob," "The Magic School Bus" and Disney movies to informational DVDs from National Geographic and the Travel Channel, to How-To instructional videos as well as major motion pictures.
The cost of an average movie DVD is $12.99, and $3.99 for a DVD rental.

8. Learn a Foreign Language - Free
Traveling abroad on business or vacation than check out the free foreign language learning databases. Using a service from BYKI, patrons can choose to learn over 70 languages. Their interactive learning site offers individual learning, flash cards, and words of the day.

9. Job Preparation for Free
Learning Express enables you to study for hundreds of tests including civil service, military entrance exams and preparation tests for SAT/ACT, MSAT, LSAT and dozens of others. You will find practice tests at all levels. You can practice, save your test, see your results and try again all for free.

10. Find Your Family History for Free
For family genealogists, libraries offer free access to search programs such as Ancestry.com, and HeritageQuest.com. These databases usually require you to search in the library, but occasionally some libraries will allow you to search from home after logging in with your library card number. Some libraries also have research librarians and genealogists on staff to assist with your search.
The cost of an online genealogy membership is $25.00 (monthly).

11. Free Books for Parents
The library is a significant resource to parents. Where else could your children find a free summer program that encourages reading, allows them to take home armloads of books free and usually gives them prizes for encouragement? Throughout many summer programs, authors, wildlife experts and a myriad of others drop by bringing their special knowledge to share.

12. Free Auto Repair and other Databases
For those who don't like to read for recreation, there are practical free databases in auto and truck repair provided by ARRC, reference databases such a Kelly Blue Book, Antiques Weekly and Standard & Poor.

13. Other Free Services
Many libraries have a notary on staff (there may be a fee for notary services), offer tax forms, have dedicated internet computers to the IRS and Social Security sites, voter registration forms, test proctoring and fax services, and larger metropolitan libraries offer passport processing.

The Bottom Line
Obtaining a library card is simple. Visit the library, fill out a card application, present identification and you have instant, free access to a world of information. Check out your local library for some amazing programs and unbeatable bargains this summer."

Source: Investopedia.com, "13 Things You Pay For That Your Library Has For Free," Linda McMaken, June 22, 2011, available at: http://financialedge.investopedia.com/financial-edge/0611/13-Things-You-Pay-For-That-Your-Library-Has-For-Free.aspx#axzz1QCBmHocg

7 steps to clean up your credit report

2011-06-23T05:20:00.000-07:00

MSNMoney.com recently posted this article from Bankrate.com about ways to clean up your credit report. If you have not looked at your credit report in a while, you should. This article explains that errors are common and tells you how to find and fix them. The article is excerpted below:

"When you set about tidying and reorganizing your linen closet or garage, don't forget about your credit report. Your credit history is the foundation of your financial stability. The information in your credit report is what scoring companies such as FICO use to generate your credit scores, which govern everything from how much you pay for a loan -- or if you can get one -- to your insurance rates.

Paying attention to your credit report only when you're about to make a big purchase, such as a house or car, can backfire. According to a 2004 U.S. Public Interest Research Group study, nearly 80% of surveyed reports had inaccuracies. (And 25% had "serious errors.") If any inaccuracy takes some time to sort out, that can be a problem if you're racing the clock to secure a loan. Get a head start by going over your credit report now, and check up on it periodically so you can catch and fix any problems right away.

1. Order a copy of your credit report
If it's been years since you've given your credit report a good once-over, or if you never have, just figuring out where to start can be daunting. Luckily, federal law entitles you to a free copy of your credit report once every 12 months from each of the three major credit-reporting agencies: Equifax, Experian and TransUnion. You can get a free copy of all three bureaus' versions of your credit report at AnnualCreditReport.com.

To check your credit report every few months, order one at a time and space them out over the year. Or, if you're getting acquainted with your credit history for the first time, order all three at once. If you live in Colorado, Maine, Maryland, Massachusetts, New Jersey or Vermont, you're entitled to a second copy of each report annually, says Steve Bucci, Bankrate's debt adviser and the author of "Credit Repair Kit for Dummies." Georgia residents can get three a year from each bureau.

If you're turned down for a job or credit, or if you don't get the best interest rate available, you also have a legal right to see your credit reports at no charge. The paperwork you get notifying you of the decision will include a number for you to call.

2. Start with your identification basics
It's easy for people to forget the most important part of their credit report: checking their identifying information, including name, address and Social Security number, says Natalie Lohrenz, the director of counseling at the Consumer Credit Counseling Service of Orange County, in California.

"People obsess over tiny fluctuations in their credit score, but what they should focus on is the question, 'Is it accurate?'" she says.

Small discrepancies, such as an account that lists you by your nickname instead of your given name, don't affect your score, but if there's a more serious discrepancy such as an incorrect Social Security number, you'll want to straighten it out, says Maxine Sweet, vice president of public education at Experian.

After checking all of the identifying information, look at the accounts and make sure they're all yours. Keep in mind that some lenders, such as the financing companies that issue store-brand credit cards and companies that handle medical billing, might have different names from those on storefronts or hospitals.

3. Scan your report for discrepancies
"If you see an account you don't recognize, you definitely want to call that to a credit bureau's attention," says Craig Watts, the public affairs manager for FICO. "Definitely find out what's going on. If you see any negative information like a collection account that you don't think belongs there, it could be somebody else's account that got into your report by mistake, or something you forgot about," he says.

Watts says another red flag can be an account with a much higher balance than you carry. Because any of these items could indicate a case of mistaken identity or identity theft, these are problems to address right away.

Jessica Cecere, a regional president at credit counseling organization CredAbility, says one common error she encounters is the inclusion of old negative information that should have come off the person's record. Most negative information stays on for seven years, and Chapter 7 bankruptcies remain for 10. "A lot of times the information on your report doesn't automatically fall off at that seven-year mark," she says.

4. Watch out for phantom money
Lohrenz says consumers with a history of collections can have their outstanding balances appear larger than they actually are because of the booming secondary market for collections. Here's how it happens: If a consumer has a credit card balance that becomes delinquent, the issuer will attempt to collect for a while, then give up and sell the account to a collection agency.

The card balance should then drop to zero, and a new account, this time with the collection agency, should appear on the report. Sometimes, though, the issuer won't strike that balance from its records, and it will appear as if the consumer has two outstanding debts. If the debt is bought and sold numerous times, which is common, the problem can multiply.

Another instance of "phantom money" can occur when a consumer has a closed bank account that had an overdraft protection line of credit. In some instances, that line of credit will remain on a person's report even after the account is closed, says Bucci.

5. Dispute any mistakes
If you find a major mistake, order your credit report from all three bureaus. Doing so can help you figure out if the problem is limited to just one report. The next thing to determine is if you need to take your dispute up with the credit-reporting bureau or the lender.

If there's a case of mistaken identity, such as someone else's information on your report, or accounts listed that aren't familiar to you, contact the bureau. All three bureaus have online dispute forms, which Sweet says are faster than snail mail for resolving problems.

"Taking things up with the bureau is easier because they have one set process," says Bucci. "There's a dispute process in place, so you can dispute any account with the same process, whereas when you contact the creditor, every one's a little different. It's not as neat and simple."

In the case of negative information more than seven years old or a report of an outstanding balance that has actually been paid off, try contacting the lender directly.

6. Follow up
It would be great if you could just file a dispute and forget about it, but you may have to follow up. Especially if an item is very old, the creditor in question may have been bought, merged or gone out of business entirely, which makes documenting everything important.

Keep notes of the people you speak with at the bureau or lender, when you contacted them and the date by which any corrective action is to be taken. Check your credit report again after that date to make sure they followed through. The three credit bureaus communicate with each other electronically, so a correction made on one report should be reflected on the other versions, too.

7. What not to sweat
There are a couple of items pertaining to your credit report that might seem alarming but really aren't a big deal. Closed accounts in good standing don't need to be taken off your report. In fact, leaving them on your report can help.

Credit inquiries also aren't as damaging as many people believe, says Sweet. "Honestly, a hard inquiry is very small impact on your credit score, and it's short term. It stays on for two years, but it has the most impact only within six months." A "hard" inquiry will appear if you applied for a loan or credit card. It can also crop up if you enter into a service contract such as a cellphone or cable-TV plan.

Lohrenz says not to worry about the actual credit scores, the three-digit numbers lenders use to gauge your level of risk. It's what the report contains that dictates your score, so concentrate on making sure it's accurate and up to date."

Source: MSNMoney.com,"7 steps to clean up your credit report," Martha White, Bankrate.com, June 17, 2011, available at: http://money.msn.com/credit-rating/7-steps-to-clean-up-your-credit-report-bankrate.aspx

How to avoid debt problems before they start

2011-06-07T05:58:00.000-07:00

Today.com posted this article describing ways to avoid going into debt. The author explains that both good and bad debt exist. Good debt can help you progress in life, as long as you can actually afford it. Debts like a mortgage or a car loan that allows you to commute to and from work are considered good debts. The bad debt is the debt you create when you buy things you do not actually need. The article is excerpted below:

"Recent headlines notwithstanding, debt in and of itself is not all bad. There are things most Americans wouldn’t be able to do without borrowing: Buy a house, a car, get a college education. That’s how you can tell the difference between good debt and bad debt. Good debt is debt that actually gets you somewhere. It’s the mortgage that puts a roof (one you can actually afford, mind you) over your head, the car loan that gets you back and forth to work, the student loan that helps fund the college education that increases your lifetime earning potential by $1 million.

Bad debt is debt that you take on to buy things that you don’t necessarily need, but rather that you want — and can’t really afford. There’s a difference between replacing your refrigerator because you need a new one and replacing the refrigerator because you prefer the look of stainless-steel appliances. If the former takes you a few months to pay off on a credit card, that’s OK in my book; the latter, not so much. You can usually tell good debt from bad debt by the interest rate. Good debt is cheaper — and sometimes even tax deductible. Bad debt tends to run in the double digits.

There’s an in-between type of debt also, that I call convenience debt. This is the monthly credit card bill you accrue — and preferably pay off — because it’s easier to swipe a piece of plastic to pay for things than it is to pay cash. As long as you don’t incur interest on those charges on a regular basis, it’s OK to use your credit cards as a convenience tool. You can often earn cash back or frequent-flier miles while you’re at it. (No, they’re not worth what they once were, but they’re worth something.) If you find yourself racking up balances you can’t pay off each month, credit is not a good vehicle for you. Use a debit card instead.

To avoid debt, understand it
Understanding two basic debt concepts can prevent you from drowning in it over your lifetime. The first is that you will get yourself out of debt the fastest by focusing on the most expensive — i.e., highest interest rate — debts in your portfolio first. That means putting all your extra money toward that most expensive card and paying the minimum on the rest; when it’s paid off you move to the next expensive card on your list. Let’s say you have three credit cards:
•A has a 12 percent interest rate and $5,000 balance;
•B has a 16 percent interest rate and a $1,500 balance;
•C has a 24 percent interest rate and a $3,000 balance.

There’s a 2 percent minimum payment requirement on all the cards. And you can come up with an extra $200 above and beyond your minimums to throw at your credit cards.

If you pay off the card with highest balance first, it will cost you $2,517 in total interest.

If you pay off the lowest balance first, it will cost you $1,969 in total interest.

But if you pay them off highest interest rate first, it will cost you $1,818 in interest to pay off all the cards. In other words, you can save yourself $700 by doing this the right way.

Keep your credit score high
Secondly, the way to keep your debt costs manageable now and in the future is to protect your credit score and your credit report. If you haven’t seen a copy of your credit report recently, visit www.annualcreditreport.com and pull one from each of the three major credit bureaus for free. Your credit score is a numerical translation of the information in your credit reports. The one most lenders use is called your FICO score (FICO stands for Fair Isaac and Company, the developer of those scores). You have one FICO score that corresponds to each credit bureau report. Unfortunately, scores aren’t free. But I’d suggest that six months to a year before you apply for a big loan — like a mortgage or a car loan — you spend $15 to find out what yours is. Meanwhile, doing the following five things will help keep your score as high as possible:

1. Pay your bills on time.

2. Pay down the debt you’re carrying on credit cards until it is at or below 10 percent of your credit limits overall and on each particular card.

3. Don’t apply for more credit cards. (The exception to this rule is if you don’t have a credit card at all or if you have only one. In this case, adding another card will help your score.)

4. Don’t close credit card accounts — even if you’re not using them. Closing them reduces the amount of credit you have available to you and hurts your score.

5. Make sure you have a history of being responsible repaying a variety of creditors — not just credit card companies, but phone companies, utility companies, etc.

And that’s it. Using this system along with that advice should be enough to help you get your debt under control.

What if that doesn’t work?
What if you feel so overloaded that you’re unable to pay the debts you’ve taken on? What if you know you’ve overdone it?

Call your creditors and let them know what’s happening. If you’ve lost a job or suffered an illness or had some other event in your life that is preventing you from paying your bills, call your creditors and fill them in, preferably before you go delinquent and start paying late. If you’re already paying late, call them anyway. They may be willing to help you by lowering your interest rate, waiving late fees, extending the term of your loan, even reducing the amount you owe them. But they can’t do that if you don’t let them into the conversation.

And if you can’t — or don’t want to — go it alone, know that a not-for-profit credit counseling agency might be able to help. You’ll want one that is a member of the National Foundation of Credit Counselors (NFCC.org) or The Association of Independent Consumer Credit Counseling Agencies (AICCCA.org). Both use only certified credit counselors. Be sure the organization is also recognized by the Better Business Bureau and that there is no history of complaints."

Source: TODAY.com, "How to avoid debt problems before they start," Jean Chatzky, June 23, 2009, available at: http://today.msnbc.msn.com/id/31507914/ns/today-money/

3 ways to cut your costs this summer

2011-05-27T03:18:00.000-07:00

CNNMoney.com's Money Magazine posted these tips for saving money during the summer.The author notes that gas is expected to peak at more than $4 a gallon this summer. You can save a little money on gas by adhering to the speed limit and not stopping or accelerating suddenly. Also, to save on summer camps, the writer suggests sending kids in August when the fees commonly come down a bit. The article is excerpted below:

"1. Lower your travel bills

The problem: This summer, gas is expected to peak at more than $4 a gallon, and domestic airfares will be up 13% from a year ago.

Blame soaring oil prices and increased demand, says Rick Seaney, CEO of FareCompare.com.

What to do: Boost your gas mileage by as much as 33% on the highway (about 5% around town) by sticking to the speed limit and not accelerating or braking suddenly.

Download the free app from aaa.com/mobile to find the lowest pump prices in your area.

2. Eat out on the cheap

The problem: Food prices rose more than double the rate of inflation in the last year, and restaurants are passing the expense on to diners.

What to do: Use coupons. To lure customers, eateries -- even high-end ones -- are stepping up promotions, says Jeanette Pavini of Coupons.com.
'My biggest money mistake'

For example, Café La Ruche, a French bistro in Washington, D.C., recently offered $100 worth of food for $45 on Restaurant.com.

Also sign up for daily deals at Groupon.com; in April you could have gotten $35 off a $75 bill at Spring, an award-winning Chicago restaurant.

3. Save on camp fees

The problem: You want your kids to have fun (and not wreck the house) this summer, but day camps can run up to $650 a week.

What to do: Send them in August; many camps lower fees for that less popular month.

You can also claim a tax credit of up to $1,200 for the cost of day camps and summer programs like a tennis clinic for two or more kids under 13.

Come fall, sign up for your flexible spending account at work, which will let you pay up to $5,000 of next year's camp bill with pretax bucks."

Source: CNNMoney.com, Money Magazine,"3 ways to cut your costs this summer," Donna Rosato, May 26, 2011, available at: http://money.cnn.com/2011/05/23/magazines/moneymag/cheap_summer_travel.moneymag/index.htm

Lucky 13 emergency savings strategies

2011-05-17T05:34:00.001-07:00

Bankrate.com published these simple strategies to help people save money and set up an emergency fund. One of the most important suggestions is to set up your savings to automatically be deducted from your paycheck before you have access to it in your checking account. Also, if your bank offers the option, set up automatic bill payment, so you will never incur late fees. In addition, the author says to leave your credit cards at home. Studies have shown that people will spend more money when using a credit card versus cash. The article is excerpted below:

"Saving for emergencies doesn't have to be about painful cutbacks or Draconian spending measures. Sometimes we get so focused on where we're going to find extra money that we forget the easy pickings are in setting up good savings strategies.

Follow these 13 tips to save money without even trying.

Implement these 13 tactics for a reversal of fortune.

1. Autopilot saving and bill pay
2. After paying off debt, keep paying yourself
3. Enforce 24-hour rule on impulse buys
4. Leave the credit cards at home
5. Plan ahead, budget for fun
6. Make things 'interest'-ing
7. Learn to save short-term splurges
8. Reward yourself
9. Remove the temptation
10. Treat it like a friend
11. Keep them separated
12. Enjoy compounding for a change
13. Treat it like taxes

1. Autopilot saving and bill pay. Have your savings automatically deducted from your paycheck before it even hits your checking account. It's easy -- most banks will let you set it up online in a matter of minutes.

Set your fixed bills to be deducted as well, either through automated debit or online bill pay, so you're not tempted to touch the money. The added bonus is you'll never get hit with late or missed payment penalties.

2. After paying off debt, keep paying yourself. Maybe your finances are tight due to a big car loan or credit card payments. Once you've paid off these debts, shift those payments to your emergency fund "bill," says Sharon Epperson, author of "The Big Payoff: 8 Steps Couples Can Take to Make the Most of their Money -- and Live Richly Ever After." Otherwise, she says, "You know you'll probably just spend it."

Because you're already used to living without the money, you can use the "extra" funds to build up an emergency buffer to keep yourself from getting into debt again.

3. Enforce 24-hour rule on impulse buys. Maybe splurging sounds like a good idea in the moment, but will you feel the same way the next morning? There aren't many things we truly can't live without and waiting 24 hours before making a purchase will help you avoid shopping hangover. Remember, getting slapped with the bill later is a real buzz kill.

4. Leave the credit cards at home. Spending surveys have found that people spend between 12 percent and 50 percent more when using a credit card versus cash. To see how much money you'll save by ditching the cards, Ruby Payne, an educator, researcher and author of "A Framework for Understanding Poverty," among other titles, recommends leaving your credit card at home. Then every time you don't make a purchase that you normally would have used a credit card for, note the amount. At the end of the month, tally your "potential" purchases to see how much you've saved; then pat yourself on the back for your virtuousness and shift that money to emergency savings.

5. Plan ahead, budget for fun. All work and no play is no way for anyone to live, so be realistic when planning your spending. To make your savings strategy work, you'll need to budget for fun. This will help keep you from going overboard when the fun-itch strikes.

Setting aside 10 percent of your discretionary income for fun is Epperson's rule. That way you know how much money you have to play with. Plan ahead to stretch your dollars because, she warns, "When the money's not there, you don't have the fun."

6. Make things interest-ing. Draw down no-interest checking accounts and move the money into high-interest savings. If you can't figure out where to cut back your expenses, this is a good place to look for extra money, says Epperson. "Most Americans keep too much money in checking accounts that earn zero percent interest. That money's just wasting time."

7. Learn to save short-term splurges. One trick that Bedda D'Angelo, a Certified Financial Planner out of Raleigh, N.C., recommends, is deferring the latte splurge until you've saved up enough for a massage. This way you're retraining yourself away from giving into immediate gratification and into saving for your real desires. "It's still pleasure," she says, "but now you're saving for larger things."

8. Reward yourself. Allow yourself little extra perks for reaching savings goals. Taking a vacation without plastic is one reward-worthy goal, D'Angelo suggests. "Pretty soon you're going to say 'I really like it. I feel so secure with this buffer. I really like having money in the bank,'" she says.

Rewards sweeten the medicine, retraining you to take the smart but tough steps that will ensure your financial future. And the cost of the perks is outweighed by new money-saving habits.

9. Remove the temptation. Maybe skip a trip to the mall and go to a specialty store to pick up the item that's actually on your shopping list. Or go to the park for diversion instead of window shopping. It's not fun finding yourself on the wrong side of the window shopping experience, and in most cases the old adage "out of sight, out of mind" rings true for impulse buys.

Dieters don't do well sitting in a bakery sniffing mouthwatering treats all day. Why put yourself in the same position to fail financially?

10. Treat it like a friend. Treat your emergency fund the way you treat your friends: Don't abuse it and don't use it except when needed. Payne suggests this trick when weighing spending decisions. No one likes a user. If you expect your emergency fund to have your back when trouble strikes, maintain a healthy relationship with your money.

11. Keep them separated. It's important to keep your savings in a different account than the one from which you pay your bills, but maybe a little extra space can be helpful. Epperson suggests keeping checking and savings accounts at different institutions. This strategy makes your savings just slightly less accessible because of the waiting time on fund transfers, and maybe that lag is just long enough to help you cool off your spending impulse.

She points out that unbundling your products gives you the opportunity to take advantage of high-yield accounts offered at online institutions, rather than the low-interest-paying brick-and-mortar bank where you keep your checking account.

12. Enjoy compounding for a change. Being on the right side of compound interest is a rewarding experience. Instead of the negative compounding (paying interest on interest) that often occurs with credit cards, you can watch your money grow effortlessly.

Earning interest on interest is a powerful tool that most people don't really understand, says Gail MarksJarvis, money columnist and author of "Saving for Retirement (Without Living like a Pauper or Winning the Lottery)."

"Here's how it works," she says. "Let's say you simply invest $200 this year, and nothing after that and you earn 10 percent on the money each year. At the end of the year you will have $220. That's $200, plus the $20 you earned." But here's the powerful part: After five years, the original $200 grows to $322. After 15 years, it mushrooms to $835.

Start saving now -- no excuses. Then when you're not able to save or not able to save much, your money will still be doing the work for you. The key is to start early for maximum gains.

13. Treat it like taxes. Most people are used to having taxes deducted from their paychecks, Payne points out. They accept both the mandatory nature and regularity of the contributions. So it might be helpful to think of saving to your emergency fund as a taxation that benefits you.

If you really hate taxes, it may be more helpful to think of your savings as a hassle-free insurance policy. The insurance pays out when you need it most."

Source: Bankrate.com, "Lucky 13 emergency savings strategies," Cheryl Allebrand, October 19, 2008,
available at: http://www.bankrate.com/finance/financial-literacy/lucky-13-emergency-savings-strategies-1.aspx

Free credit scores for all? Not so fast

2011-05-12T05:12:00.000-07:00

MSNMoney.com posted this article about new laws that will help more people have access to their actual credit scores free of charge. The credit score is the three-digit number lenders use to help gauge a person's creditworthiness. Beginning this year, lenders will have to disclose scores, but only after they have passed judgment, and only if they do not make the best rates and terms available to you. The article is excerpted below:

"More people than ever before will get free access to their credit scores thanks to two laws that will kick in this year.

That's good, but it's not enough. Everyone should have access to the scores being used to judge them, and that's not on the horizon. In fact, one of the most widely used scores is off-limits to you as a consumer -- although it's still available to lenders. That should make you mad.

Here's a little background:

* Since 2004, you've had the right to free annual looks at your credit reports compiled by the three major credit bureaus; the site to use is AnnualCreditReport.com.
* But you don't have a similar right to a free peek at your credit scores, the three-digit numbers lenders use to help gauge your creditworthiness.
* Typically, offers of free scores require you to sign up for expensive credit-monitoring services. Either that, or the scores you get for free aren't the FICO scores most lenders use.
* You can buy two of your three FICO scores at myFICO.com for $19.95 each. But your third FICO is off-limits. Credit bureau Experian decided to stop selling FICO scores to consumers, although it continues to market them to lenders.

If credit scores weren't so important, your access to them wouldn't be a big deal. But credit scores are hugely influential in determining the rate and terms you get for loans and credit cards. They're widely used by insurers and landlords as well.

Having to pay to see your scores is annoying. But not being able to see one of your FICOs at all can really put you at a disadvantage, especially when you're shopping for a major loan such as a mortgage where all three scores will be checked.

As a matter of fact, it's thanks to mortgages that many people learn about their credit scores. Lenders have been required since 2003 to disclose to applicants the scores used to judge them, said John Ulzheimer, the president of consumer education for SmartCredit.com.

More lenders must disclose scores

Other lenders didn't face the same disclosure requirements -- until this year. You still won't be able to see your scores on demand, however. Scores will be revealed only be after lenders and others have passed judgment, and only if you don't get the best rates and terms available.

Such a situation is called adverse approval, and it's one of those delightfully oxymoronic terms that litter the financial-services industry. What it means is that you got the loan or credit card, but others got better rates, more favorable terms or both.

In the past, you might never have known you got less than the ideal deal, but as of Jan. 1, lenders are supposed to do one of two things to notify you. They can either:

* Send you a "risk-based pricing notice," which informs you that your credit history was used to determine your less-than-favorable rate and terms. You'll be told where you can get a free copy of your credit report -- a copy that doesn't count against your once-a-year freebies from AnnualCreditReport.com, Ulzheimer said.
* Send you a "credit-score disclosure notice" that includes the actual score used to make the lending decision, the date the score was created and which credit bureau's report was used. You'll also be told how you compare with others on the credit-score scale.

This new requirement was added to the Fair and Accurate Credit Transactions Act, a fair-credit-reporting law first passed in 2003.

Nobody has done a comprehensive survey, but many lenders seem to be opting for the more general "risk-based" notice, rather than coughing up the scores. Herb Weisbaum, an MSNBC columnist and Seattle consumer reporter, said only two of the six big credit-card companies he surveyed were sending out scores.

A decidedly unscientific survey of my Facebook fans showed that some who applied for loans and cards recently received scores, while others received the notice.

Ulzheimer says he thinks lenders are "trying to avoid some awkward phone calls," noting that a general letter directing you to your credit report is far less likely to trigger a reaction than a letter disclosing your actual score and telling you that you didn't quite measure up to others.

People who get their scores "are going to pick up the phone and call the bank," Ulzheimer said. "They're not going to pick up the phone and call FICO ... and banks want to avoid that conversation as long as possible."

Broader disclosure on the way

Lenders' ability to dodge those calls will end July 21, when a second law, called the Fair Access to Credit Scores Act, passed last year, kicks in and supersedes the current law's notices.

This law is much broader, and requires that lenders, insurers and others that use scores to evaluate you must disclose those scores to you if you're denied or given less than the best available deal. You'll get the scores if you:

* Are turned down for credit, insurance or a rental property.
* Have to pay more for credit or insurance than others.
* Have to put down a bigger deposit for utilities, cell phone service or a rental property than others.
* Are required to get a co-signer to qualify.

This is really going to crack open the vault. In addition to seeing the classic FICO scores that mortgage lenders traditionally use, Ulzheimer predicts people are going to start seeing "flavors of FICO we haven't seen anywhere before," such as those tweaked for auto or credit-card lenders. We'll also start seeing the different scores used by insurers, such as LexisNexis' Attract score.

The disclosure should lay waste to the credit bureaus' claims that "a score is a score" and that it doesn't really matter which one you see, when the vast majority of scores that loan applicants see will be FICO scores. And it should raise more awareness, and discussion, of how credit is used in insurance decisions.

Ulzheimer predicts "welcome confusion" as people start seeing all these different scores. He says he thinks, as I do, that this will provoke some much-needed discussion -- among individuals, lawmakers and regulators -- about what goes into these scores and how important they are. I'm hoping it will also spur some action so that the rest of us get equal access to these scores."

Source: MSNMoney.com, "Free credit scores for all? Not so fast," Liz Weston, February 9, 2011, available at: http://money.msn.com/credit-cards/free-credit-scores-for-all-not-so-fast-weston.aspx

Stay Cool for Less

2011-05-11T05:14:00.000-07:00

CNNMoney.com's MONEY magazine published these tips for saving money during the warmer months when cooling your home can put quite a strain on your finances. The author states that according to the Environmental Protection Agency, every degree you turn up your AC's temperature knocks 7% off your electric bill. Also, simple tasks like changing your AC filter regularly can make a huge difference. The article is excerpted below:

"Warmer weather means relief from the high cost of heating your home. Enjoy it while you can.

Your cooling tab could soon have you breaking a sweat. Air conditioning accounts for nearly 60% of Americans' summer electric bills.

"Nothing puts greater stress on the energy grid than cooling," says Ronnie Kweller of the Alliance to Save Energy. These simple tune-ups and smart upgrades can help you ease the stress on your home energy budget.

Lighten your AC's load

Act cooler
Close the blinds on sunny days, run hot appliances as sparingly as you can, and swap heat-generating incandescent bulbs for chlorofluorocarbons.

Every degree you turn up your AC's temperature knocks 7% off your electric bill, according to the Environmental Protection Agency.

Add padding on top
One of the best ways to keep hot air from seeping into your home is to insulate your attic well, says Danny Lipford, host of the TV show "Today's Homeowner With Danny Lipford."

Putting in new energy-efficient fiberglass or cellulose insulation will cost $600 to $1,500, he says, but reduce your energy bills by as much as 20% a year.

Put your AC to sleep
If you live in an area where temperatures drop at night, switch to a whole-house fan when you go to bed. These industrial-strength, built-in ceiling fans, which cost $600 to $1,500 (including installation), use roughly 10% of the power of central air.

Block the sun
In super-sunny states like Texas and Colorado, installing heavy mesh solar screens on the outside of your windows can block 40% to 80% of heat gain from the sun, cutting your cooling bill by 5% to 20%, says Bruce Harley, technical director of Conservation Services Group in Westborough, Mass.

Cost: $60 to $90 per screen.

Don't ignore the maintenance

Prevent leaks "People think of windows and doors as being the leaky part of the house, but you could be losing far more -- from 10% to 40% -- of your energy costs through leaky ducts," says Harley.

Apply mastic tape to every seam you can reach. "Regular duct tape will dry out and fail," says Lipford, but mastic tape stays gooey.

Keep the air flowing
Even a small amount of dust on your filter will force the fan to work overtime, so change it every month or two ($5 for disposable filters, $20 for a permanent one that you can wash with a garden hose). Clean window-unit filters every three months.

Get regular tune-ups
Once a year bring in an HVAC pro to inspect and clean the system.

Spring, however, is the peak time for servicing. If you can time your annual checkups for the fall, you should pay $100 to $150 for the visit, a 5% to 10% discount.

Trade in your old model
Central air-conditioning systems typically last 15 years, but heavy users may want to upgrade sooner.

Spring for new gear
Assuming you keep the same ductwork in place, you'll spend $2,500 to $4,000 to replace the condenser and compressor.

Even if your AC is only 10 years old, switching to more energy-efficient equipment will cut the cost of running it by 20% to 40%, says the Department of Energy.

In Phoenix you can recoup your investment in a little over three years; in Boston you'll need 10. Go to energystar.gov and search for "central air calculator" to find your break-even point.

While a window unit can last a decade, says Chris Rossi, manager at D.G. Meyer, an HVAC contractor in Daytona, Fla., you may want to swap it out every six to seven years if you run it frequently.

Be efficient
You want a seasonal energy-efficiency rating (SEER) of at least 13 for central air (for window units, look for an energy rating of 10).

Every step up in SEER improves efficiency by 5%. A 14.5-SEER system will also do a better job at keeping the temperature consistently comfortable, says Lipford. If you opt for a 14.5- or 16-SEER unit (depends on the type), you'll qualify for a $300 tax credit in 2011."

Source: CNNMoney.com, Karen Cheney, Money Magazine, "Stay Cool for Less," May 10, 2011, available at: http://www.blogger.com/post-create.g?blogID=7470376298128106910

Your Home: How to sell in tough times

2011-05-06T05:09:00.000-07:00

CNN.com's MONEY magazine recently published this informative article with great tips for getting a home sold in the current real estate slump. The authors believe that it is not enough to show buyers your house is a deal anymore. They say you have to convince them it is a total steal which means slashing your price, bringing in a stager, and advertising well online. The article is excerpted below:

"If you're in the market to sell your home, you probably feel you can't catch a break. Nearly five years into the housing bust, when many experts thought the real estate market would at least have stabilized, sales and prices are still dropping in most of the country.

In February existing-home sales tumbled 9.6% from the previous month, and the median price of a single-family home dropped to $157,000 from $163,900 the previous year, according to the National Association of Realtors.

You can't count on things turning around soon, either. At the current sales pace, it would take 8.6 months to clear out the 3.5 million existing homes listed today.

With the boost from the recent homebuyer tax credit gone, anyone who decides or is forced to put a house up for sale enters a market where houses often linger a full six months -- even a year -- without any bites.

Put part of the blame on stiff competition: Foreclosures and short sales, which accounted for 39% of sales in February, sell for about 15% less than conventional homes.

"It's dreadful out there for sellers," says Patrick Newport, a U.S. economist at forecasting firm IHS Global Insight.

Fortunately, there is one glimmer of good news. Bargain hunters, too, know that home prices are down some 32% from their peak. In a recent CNNMoney survey, three-quarters said that it was a good time to buy a home. But translating that interest into an actual sale can require some extreme measures.

It's not enough to show buyers your house is a deal: You have to convince them it's a total steal. That means slashing your price, bringing in a pro to pretty it up, and creating a killer website for your home. Here's how to do it right.

Slash Your Price, Bigtime
Sellers are still loath to accept the extent of the toll the bust took on their homes' value, says Tara-Nicholle Nelson, consumer educator for the housing website Trulia.com.

Many also give in to the temptation to list the property above fair market value to see what happens. Big mistake. About a quarter of sellers in the past year initially listed too high and were forced to knock the price lower, according to Trulia.com. Even in cities that have held up well, such as Charlotte, 25% of sellers resort to at least one price cut, and often two.

Think you can always drop the price if your home doesn't sell? Bigger mistake.

"The first 30 days on the market are the most important," says Norwalk, Conn., realtor Elizabeth Kamar. That's when your place attracts the most attention and gets the most showings. The result: You often end up with less than you would have if you priced it right to begin with, says Kamar. So get aggressive right out of the gate.

Undercut your competition. In normal times listings of similar properties in your area would give you a good sense of what your home might sell for. Today there's a big gap between what sellers want and what buyers are willing to pay.

Instead, figure out what you can realistically expect to get by asking your realtor to show you what houses similar to yours have sold for in the past three to six months. If more than a couple of the comparable properties were foreclosures or short sales, look closely at the photos and descriptions of those former listings. Distressed homes should be included in your comps if they are in move-in condition, says Las Vegas realtor Paul Bell.

Once you have a handle on your likely sale price, list your home a bit beneath that, says Rockaway, N.J., agent Ellen Klein. You don't have to undercut by much to attract attention, because that price will probably still be about 10% or 15% below what other homes are listed for. Even if you're competing with lots of foreclosures and short sales, your price should generate enough interest to attract more than one bidder, pushing up the final price to where it should be.

When Dorchester, Mass., realtor Julie Simmons wanted to sell her own home in January, she listed it at $460,000, about $5,000 to $10,000 below what she thought she'd sell for.

"I knew I had to attract attention," she says. Even in a harsh winter, she received four offers in less than two weeks -- and sold for $465,000.

Take out the ax. No bites within 30 days? Make a big move.

"When a property sits, people start thinking it must be listed too high," says Klein. To stimulate interest, make a giant cut -- as much as 10% of the asking price, and even more in an area where prices are still falling. That should be enough to warrant a second look from buyers who passed the first time, and to bring in a new pool of potentials who are hunting in the lower price range.

Last year Montclair, N.J., empty nesters Peter and Lauren Meyer decided to downsize from their seven-bedroom home to an apartment in the same town. They put their home on the market for $1.1 million, more than their realtor suggested. Six months and four price cuts later they pulled it off the market at $889,000.

"At that point we wrestled with lowering the price further, but we were ready to move on," says Peter. The couple relisted their home for $799,000 and it sold for $808,000.

Play hardball. It's okay to reject low-ball offers if a buyer won't budge. But if a buyer is willing to negotiate, push aside feelings of anger or insult and start counteroffering, says Mabel Guzman, president of the Chicago Association of Realtors.

Ideally you'll be able to negotiate within $10,000 to $20,000 of an acceptable offer. Then, "using incentives as carrots and sticks can make it easier to reach an agreement," says Guzman. For example, if your buyer refuses to dicker, you might offer to leave behind the appliances. Or maybe you'd rather take the reduced price but have the buyer agree that you take 60 days, not 30, to move out.

Hire a Stager
There are people who want to sell, and there are people who have to sell. Kathy and Rex Roberts are among the latter. Based in West Hartford, Conn., the couple, who have two children, have been living in different cities since early December, when Rex, an IT auditor, started a new job in Silver Spring, Md., after a layoff.

Listed that same month, their solidly built three-bedroom 1956 colonial has had no offers, despite two price cuts (it's currently at $389,500). Between rent on Rex's new place and their carrying costs on the house, they're paying a budget-straining $4,000 a month. "We need to sell," says Rex, "but we're not willing to drop the price again."

So in March they tried something new: professional home staging. Staging, increasingly popular with homeowners trying to sell mid-range houses, can extend from simply rearranging existing furniture to repainting, replacing fixtures, and bringing in new furnishings. The goal: to highlight the house's best features while making it as easy as possible for buyers to imagine themselves living there. Veteran real estate brokers interviewed by MONEY say that proper staging can speed the sale and often increase the price too. The key is to get it done right.

Start with an open mind. Staging demands a psychological shift that many homeowners find challenging: thinking of your house not as your home but as a set. That means scrubbing away evidence that you actually live there. Your goal: the homey yet impersonal look of a Pottery Barn catalogue.

Find the right stager. The ASP (accredited staging professional) designation is a plus -- it indicates the stager has gone through some basic training -- but it isn't essential. Get names from realtors or at realestatestagingassociation.com, then review the stager's online portfolio of before-and-after photos. Next, call homeowner references and ask how fast their homes sold after staging and whether they think the work helped.

Establish a budget and ask the stager to work within it. Stagers typically charge $150 to $400 to walk through your home and give recommendations for each room. You can then execute the plan yourself or hire the stager to do it for an hourly fee, usually $100 or so, plus the cost of any new paint or furnishings.

If you make big changes, costs can add up -- but "I can often make a huge difference using what homeowners already have," says Mary D. Brooks, a stager and realtor from Breckenridge, Colo.

See whether your realtor will pay. If you're on the hook for a full 6% commission, you have significant negotiating power. "I'm happy to pay for staging because I know it works," says realtor Paul Aspelin of Victoria, Minn.

As for the Robertses, after getting advice from stager Kara Woods, owner of Stage to Move in Danbury, Conn., they painted their lavender dining room a soft gray and removed excess furniture, among other things; a professional stylist redid the living room (see above). "It's incredible how much bigger and more modern it looks," says Kathy.

Find the Right Hook
These days it's going to take far more than a FOR SALE sign in the front yard and a spot on the multiple-listing service to get potential buyers in the door. That means getting the word out in a creative fashion -- and finding a realtor who is willing to do the same.

"The more eyeballs that get on the listing, the better," says Katie Curnutte of the real estate information website Zillow.com. To do that, you need a multipronged marketing plan of attack.

Create a great site. About 90% of buyers begin their search on the Internet, according to the National Association of Realtors. Make sure your home's online presence has a dozen or two photos: Having 20 instead of five photos will almost double the number of hits you'll get, according to Zillow.com. See the sidebar at right for more ways to keep potential buyers clicking on your site.

Throw money at them. Incentives can perk buyers' interest just as much as price cuts, says Matt Brown, director of business development at ForSaleByOwner.com. In fact, many buyers will agree to a higher price if their upfront costs are lowered, since they often run short on cash.

If you can afford it, offer to cover the buyer's closing costs or pay the first year's property taxes or condo or homeowner association dues. However, those freebies may be practically standard, particularly in areas rife with distressed properties.

In that case, says realtor Guzman, you might be able to bring buyers to the door by tossing in an unusual bonus, such as a $1,000 gift card (throw in one for the buyer's agent as well); a belonging they mentioned loving, such as the pool table or plasma TV; or a $5,000 credit to use in the home as they wish. (You can even pay upfront points so that they can get a lower mortgage rate, if you can swing it.)

Be aware, though, that you must disclose any such gifts or payments when the offer is agreed on, and some lenders will not approve them. If so, you might have to find another incentive that the bank doesn't object to.

Showcase super condition. Yes, some buyers are hunting for foreclosures in rough shape that they can nab for a song. Yet just as many shoppers don't want -- or don't know how -- to put in that sweat equity. So hire an inspector to identify every problem with the home, even seemingly minor issues such as dripping faucets, and fix them.

"If an outlet doesn't work, why get the buyer wondering what else is broken?" asks Beth Foley, an associate broker in Holland, Mich. Tell your realtor to give anyone who tours your home a copy of the inspection report and your list of fixes.

Spread the word online. Having your home listed on a major website like Realtor.com isn't enough. Ask your realtor if you'll get an "enhanced" listing on the site, where your home gets top promotional billing. Many realtors will create a website just for your home. You also want to get your listing on alternative sites like Craigslist or even Facebook.

In 2009, when Karen Mauro put her small, historic two-bedroom Orange County, Calif., home on the market she thought it would be a tough sale. Realtor Lisa Blanc listed the property at $467,500 and spread the word not only through the MLS listing but also with an update on her Facebook page. A Facebook friend of Blanc's passed the info to someone she knew was looking for that kind of house. Within a week, Mauro had an offer for $460,000.

Stay away -- far away. In better times you may not feel obliged to drop everything to accommodate prospective buyers' schedules. Today, if buyers can't get in on their time, they'll skip it, says Summer Greene, who manages realtors in the Fort Lauderdale area. So be prepared to show a perfectly clean home at a moment's notice. And disappear (along with your dog, if possible) for all showings and open houses so that prospects can imagine themselves in your house -- an impossible task when your family is vegging on the couch.

When Betty McCoy began showing her Prairie Village, Kans., three-bedroom Cape Cod - style house, for example, she kept a list of must-do chores -- including emptying wastebaskets, filling the dishwasher, and making the bed and walked out every morning with the place spotless. On the weekend she holed up at a local mall.

"Every time I thought I could go home, a new person wanted to see the house," recalls McCoy. But a few extra hours at the mall paid off in spades. In just a few days McCoy had an offer for her home -- for the full listing price."

Source: CNNMoney.com, MONEY Magazine, "Your Home: How to sell in tough times," Amanda Gengler and Elizabeth Fenner, May 2, 2011,
available at: http://money.cnn.com/2011/05/02/real_estate/home-sale-strategies.moneymag/index.htm

When prices rise, but income doesn't

2011-04-24T10:18:00.000-07:00

MSNMoney.com posted this article with tips on where to go if deep spending cuts are not enough and you need additional assistance. Benefits.gov is one place to begin. It is the federal government's central clearinghouse for aid as varied as career help, veterans benefits, nutrition assistance and tax advice. The article is excerpted below:

"Living on a "fixed income" traditionally meant you were retired or disabled and receiving Social Security benefits and perhaps a pension. You couldn't ask for overtime or a raise to compensate for higher expenses.

Thanks to layoffs, furloughs and a dismal job market, however, today millions of other people are learning what it's like to have incomes that don't increase even as their costs do.

Rising prices for gas, food and clothing are squeezing these vulnerable folks, often after they've already trimmed expenses to the bone.

Valarie Weinhaus, a disabled single mother of three young children, long ago disconnected the cable television and cut back to a cheaper Internet plan. She buys food in bulk at a store that caters to the local Amish population -- "you can get 100 pounds of beans for $15.99," said the Kirksville, Mo., resident -- and opts for the store or generic brands when she shops elsewhere.

Weinhaus, 39, buys clothes for herself and the children at thrift stores. The kids -- who are 5, 7 and 9 -- don't participate in extracurricular school activities, because those would mean extra costs Weinhaus can't afford on her $951-a-month disability check. Now that gas prices are soaring, Weinhaus' car remains parked most of the time, and she wonders where else she could cut costs.

"I have to have my cellphone for the schools to be able to reach me in case of emergency, but I might have to let it go for the summer and have AT&T put me on an inactive line," she mused.

A 5.6% jump in gas prices last month, combined with a 1.1% increase in food prices, pushed the Consumer Price Index up 2.7% from a year earlier, the Labor Department reported last week.

And thanks to a global shortage, prices on goods made with cotton -- everything from socks to sheets -- are expected to rise 10% to 15% this summer, according to a survey by Capital Business Credit, a finance company based in New York.

Still, economists aren't heralding the return of inflation. Energy and food prices move around so much that their costs aren't considered when economists look at "core" inflation, which in March was up just 1.2% from a year earlier.

The other measures economists consult -- Treasury bond prices and consumer expectations of future price increases -- also aren't signaling much inflation ahead.

But the idea that inflation isn't a problem is a hard sell to anyone who's filled up a gas tank lately or been to a grocery.

Faced with a shrinking budget and rising prices, people typically:

-Use less, for example by carpooling, walking or riding the bus when gas prices rise
-Trim other expenses, such as eating out or pay television
-Buy for less, using sales or coupons
-Substitute cheaper products for more-expensive ones -- hamburger on sale instead of higher-priced cuts of meat, or beans and rice instead of hamburger.

When you've cut as far as you can and prices keep going up, however, it may be time to ask for help.

One place to start: Benefits.gov, the federal government's central clearinghouse for aid as varied as career help, veterans benefits, nutrition assistance and tax advice.

If you're a senior or concerned about someone who is, you also should check out the Eldercare Locator, another government site that connects people to local services that offer free or discounted food, home repairs and transportation, among other help.

Here are other places to go to find help:

-Health care.Federally funded health centers offer treatment, checkups, children's immunizations, dental care and prescription drugs. You pay what you can afford, based on your income. If prescription drugs are pinching your budget, talk to your pharmacist about generics and other alternatives. (Doctors often don't know the retail prices of drugs, but pharmacists do and are aware of other options.

-Rental assistance. The U.S. Department of Housing and Urban Development offers subsidized housing, public housing and rental (Section 8) vouchers for low-income people, while the states provide additional resources. Start your search here. If you don't qualify for help, renting a room or sharing housing with another family could help lower your costs.

-Energy assistance. The Low-Income Home Energy Assistance Program (LIHEAP) is another federally funded program that helps people pay home heating and cooling costs. Every state and the District of Columbia has an energy-assistance program; you can find yours here. (Use the menu bar near the top of the page to find your state; only states with online applications are included in the links below.) If you earn too much to qualify, consider an energy audit to pinpoint ways to lower your bills. The U.S. Department of Energy has a do-it-yourself version here.

-Nutrition help. The federal government offers two programs, the Supplemental Nutritional Assistance Program (which used to be known as the Food Stamp Program) and WIC (Women, Infants and Children). If you don't meet the requirements for either, you can still visit local food banks, which typically don't require you to document the depth of your need. You can find your nearest one here."

Source: MSNMoney.com, "When prices rise, but income doesn't," Liz Weston, April 19, 2011, available at http://money.msn.com/retirement-plan/when-prices-go-up-but-your-income-does-not-weston.aspx

It's OK to file for an extension

2011-04-21T05:18:00.000-07:00

MSNMoney.com recently posted this article explaining the steps to file an extension on your 2010 taxes. If you fail to file an extension and are late filing your taxes, the IRS can hit you with a late-filing penalty of 5% of the tax not paid by the due date for each month or partial month that your return is late. The article is excerpted below:

"What happens now that it's Tax Day and you know you can't file your income tax return on time?

You could simply ignore the problem and hope the Internal Revenue Service doesn't notice. Not a good idea. If you have filed before, the IRS will notice, and you will probably pay penalties.

You could always panic.

Or you could use Schnepper's easy, short-term fix: File for an extension. It's a snap.

A 6-month reprieve with Form 4868
The IRS has a simple form that allows you an automatic six-month extension to file your taxes. It's Form 4868 (.pdf file), and it's easy to complete -- even without an accountant.

The form starts by asking for your name, address and Social Security number. It then asks you to estimate your tax liability and send any balance due. If you make this payment and cover at least 90% of your real liability, you win. You won't owe a late filing or late payment penalty.

You can use the IRS' Free File system online, pick up the form at any IRS office or order it toll-free at 800-TAX-FORM (800-829-3676). If you're using tax preparation software at home, you can file by computer and receive an acknowledgement by email.

You must file it by the regular due date of your return. It is an automatic extension. You don't have to give the IRS any reason. You can get it even if the only reason you haven't filed is that you were lazy or didn't want to think about it.

Form 4868 gives you until Oct. 15 to complete and send in your return. But, regardless of the form, if you think you owe money to the government, you must send it in by April 18.

You can ask for only one extension. So you really do have to file by Oct. 15.

The pain of penalties
It can hurt if you don't file for the extension. The IRS can hit you with a late-filing penalty of 5% of the tax not paid by the due date for each month -- or partial month -- your return is late. Generally, the maximum penalty is 25%. But if your return is more than 60 days late, the minimum penalty is $100 or the balance of the tax due on your return, whichever is smaller. On top of the penalty for filing late, there is a penalty for paying late. This is usually 0.5% of any tax not paid by the due date. It is charged for part of a month that the tax is unpaid. The maximum penalty is 25%.

The late-payment penalty can be excused if you can show "reasonable cause" for not paying on time. You are considered to have reasonable cause if at least 90% of your actual liability is paid before the regular due date of your return through withholding or estimated tax payments.

However, you'll owe interest on any tax not paid by the due date of your return. This interest runs until you pay the tax. Even if you have a good reason for not paying on time, you'll still owe the interest.

After 3 years, your tax return stands
You should also be aware that the statute of limitations runs from the date you actually file, not the original due date. The statute of limitations limits the amount of time the IRS has to audit your return.

Normally, that is three years from the due date of the return. So, your 2007 return, filed in 2008, is just about safe. (Likewise, your deadline for amending your 2007 return is April 15, 2011.)

If the IRS doesn't audit you within that three-year period, the government is legally prohibited from challenging your deductions. If the IRS can prove you committed fraud, all bets are off. Here, the burden of proof is on the IRS. It must prove that you intended to cheat, which is a difficult burden. If you file an extension, the statute of limitations doesn't begin until the return is actually filed.

If you're out of the country . . .
If you're a U.S. citizen or resident and were out of the country, you automatically get a two-month extension to file your return without filing Form 4868. But you still have to file by Oct. 15. "Out of the country" means either:

You live outside the United States and Puerto Rico and your main place of work is outside the U.S. and Puerto Rico.
You're serving in the military (including naval service) outside the U.S.
For more information, see Publication 54 (.pdf form). You may be able to get an extension beyond Oct. 15."

Source: MSNMoney.com, "It's OK to file for an extension," Jeff Schnepper, April 18, 2011, available at: http://money.msn.com/tax-preparation/tax-day-countdown-3-days-left-schnepper.aspx

Tax time: Saving money at home

2011-04-05T05:52:00.000-07:00

CNNMoney.com posted an article describing a few tax deductions tax payers should look into to see if they qualify. There is a tax deduction available for those who are part of what is called the sandwich generation, those caring for children and aging parents. If a tax payer is paying more than half of the support for aging parents or adult children and they do not make more than $3,650 a year (not counting Social Security), then they can be claimed under the qualifying relative exemption. If their income falls under that line, a portion of their support -- including food, lodging, and medical care -- can be deducted. The article is excerpted below:

"Anybody who has raised children, supported elderly parents, or even just owned a house knows how costly (albeit rewarding) they can be. But this year the home front is where easy-to-overlook tax breaks can be found.

Let's start with the grim side. In Greenwich, Conn., an 11,500-square-foot mansion recently sold in foreclosure for $4.6 million, $2.6 million below the asking price. It was a reminder of how hard even the affluent have been hit by tough times. In fact, houses worth more than $1 million had a higher rate of foreclosure in 2010 than those under, according to CoreLogic.

But that former owner faces a potential double whammy. Short sales and foreclosures both involve debt forgiveness. That vaporized debt -- the difference between what was owed on the mortgage and what the bank received in the sale -- can be viewed as income. It's not a problem for most people who sold their principal residence at a loss in 2010. They should qualify for up to $2 million in mortgage debt forgiveness with no tax, according to CCH, which creates tax software.

The trouble comes if you weren't living in the house or you rented it out. Then it might not be considered your personal residence. "If you mess that one up, it's real bad," says Bill Smith, managing director of the national tax office at CBIZ MHM. "You think, 'I lost my home, and it can't get worse,' and then you get a 1099 saying you owe another $15,000 for cancellation of debt income." While it could be too late if you lost your home last year, people who are considering short sales or strategic defaults this year should weigh the tax consequences if the home is not their main residence.

Another domestic deduction: a credit for 30% of the cost of newly installed energy-efficient heating systems, including labor and materials for solar panels, wind energy, geothermal heating systems, and the like, all of which are quite expensive.

Then there's a tax break for the so-called sandwich generation, those paying for children and parents. It's generous but hard to qualify for. "If you're paying more than half of the support for your parents or adult children and they don't make more than $3,650 a year [not counting Social Security]," says Kathy Pickering, executive director of the Tax Institute at H&R Block, "then they can be claimed under the qualifying relative exemption." If their income falls under that line, a portion of their support -- including food, lodging, and medical care -- can be deducted.

For those who turned 70½ in 2010, there's a reminder. After a one-year hiatus, the required minimum distribution for traditional retirement accounts has returned: Withdraw that amount before April 1 or face a penalty equal to 50% of the shortfall. Lyle Benson, president of L.K. Benson & Co., a CPA and financial-planning firm, notes that people who don't need that income but don't want to pay taxes on the distributions can donate $100,000 per person from their IRA to charity, which could satisfy their minimum distribution.

With a presidential election next year and tax policy ever more in play, the landscape will probably change again in two years. So take the breaks while you can because, as Smith says, "long-term planning is currently a thing of the past."

Source: CNNMoney.com, "Tax time: Saving money at home," Paul Sullivan, April 5, 2011, available at: http://money.cnn.com/2011/04/04/pf/taxes/best_tax_deductions.fortune/index.htm

8 tax mistakes that can cost you

2011-03-30T16:49:00.000-07:00

With April 18th approaching quickly, this article from MSNMoney.com could stop tax payers from making some common mistakes while filing their taxes. Some of these mistakes could actually end up costing the tax payer quite a bit. The article is excerpted below:

"With the new year in full swing, you've probably begun piecing together your tax return. Maybe you haven't filled out a tax form yet, but you should at least have begun considering your strategies. Before you leap at some new tax-saving tip or take a daring shortcut, though, consider these tales of IRS ire.

We recently asked our readers and Facebook fans to tell us their biggest tax blunders; their responses ranged from the comical to the cringe-inducing. One reader confessed that she once bounced her check to the IRS. Another reader paid $25,000 in fines for listening to the advice of a tax preparer.

Their pain can be your gain. Here are eight tax goofs your fellow readers have made, and tips for how you can avoid following in their missteps:

1. Was your debt forgiven? Report it as income.

In our sputtering economy, Americans are renegotiating credit card debt as never before. Yet many don't discover until later -- sometimes much later -- that in the view of the IRS, canceled debt from credit cards is income. "What we didn't know was that all the savings were considered income," one reader told us. "We were charged late charges and penalties."

Credit card companies report forgiven debt to the IRS on Form 1099-C (.pdf file). "You should receive a copy," says Tracy Coenen, a forensic accountant whose practice, Sequence, assists taxpayers with tax audits and tax fraud investigations.

Things get more complicated with mortgage debt, and you may want to talk with a tax expert if you have restructured your home loan. Coenen notes that canceled mortgage debt on your primary residence may be eligible for exclusion from income under the Mortgage Forgiveness Debt Relief Act, which applies to debt forgiven starting in 2007. The law remains in effect through 2012.

2. Report all your jobs.

Several readers admitted that they've forgotten to include some sources of income. One woman said she neglected to include her husband's $27,000-a-year job in 2008, and still owes a fine of $3,400. "I think this is just about as stupid as one can get!" she wrote. Another forgot about two weeks of work her husband put in for one company. Even though they filed for the correct amount once they got the W-2 Form, she wrote, "HUGE problem!"

3. A tax break for what? Don't get scammed.

If it sounds too good to be true, it probably is. One reader told of following up on a radio pitch that offered a tax credit for creating a website accessible to the blind. The company, also a tax preparer, set up a website for the reader -- for a fee. He said the cost of setting up the site was about equal to the tax break. Then three years later, he got a "fat envelope" from the IRS telling him he had to prove he had a legitimate website or pay the IRS $2,000. "I wrote them a check the next day."

4. Handle your Roth IRA with care.

Looking forward to tax-free income when you retire? That's the promise of a Roth IRA. Individuals who qualify can set aside after-tax income in the investment accounts, then withdraw the money (plus any investment gains) tax-free at retirement.

But such tax benefits don't come without restrictions -- including income limits on who can set up a Roth IRA. There are also complicated rules for how to convert a traditional IRA into a Roth IRA.

Such accounts have tripped up several of our readers. One said she improperly housed a Roth account inside an insurance vehicle. When she transferred the money out of the account, she had to pay a 10% penalty and count earnings as ordinary (taxable) income.

Another reader bemoans that he did not convert his traditional IRA into a Roth in a year when his income was particularly low.

5. Don't let 'I do' undo you.

One woman told us that in the first year she was married, both she and her husband sent in tax returns, and both checked the "married filing jointly" status. They realized their mistake when the IRS sent them two refund checks. "It took nine months of writing and calling the IRS" to straighten things out, she recalled. "I still chuckle."

Another reader wrote that his wife claimed her son as a dependent the year after he got married. The rules for when you can claim adult children as dependents are complex, but marriage typically rules out the dependent tax break. "We ended up repaying the refund we got, as well as penalties," the reader writes.

Coenen says that a married, adult child can sometimes be claimed as a dependent on a parent's tax return if certain provisions are met. But the child can't also file a joint tax return with his or her spouse. "It is likely that the son in this case filed a tax return with his spouse, so the dependent exemption his parents attempted to take was later denied," Coenen says. For deductions you more likely can take, read "10 big deductions too many of us miss."

6. Was your student loan debt paid by your employer? Make sure the IRS knows.

If you're lucky enough to have your employer cover some of your student loan debt, don't forget the tax man. In the eyes of the IRS, it is pay and must be reported as income on your W-2. One reader, who assumed her employer had taken care of the arrangements, wrote on our Facebook page, "The Army gave me money towards a student loan and didn't hold back any taxes, I assumed they had, so now I'm paying the IRS back! Oops."

7. Don't be afraid to second-guess your tax preparer.

If your tax preparer's advice contradicts your past experience, get a second opinion from another preparer -- or, better yet, from the IRS. One reader spared us the details, but summarized her biggest tax mistake: "I listened to my tax preparer." About $25,000 in fines later, the reader said, "I should have checked with the IRS."

Another reader, who owns rental properties, missed out on deducting mileage for visiting the properties, as well as the cost of tools he used for repairs. He said he had his doubts, but he was in a rush, so he stuck with the advice of his tax preparer. He later confirmed that the deductions likely would have been allowed by the IRS.

8. If your taxes get complicated, consult a tax preparer. This may sound like it contradicts tip No. 7. But many readers who told us about their dumb mistake said they regretted that they hadn't hired a tax professional. One reader messed up the paperwork for requesting a refund after moving to a new state. The mistake triggered an audit. (See "6 ways to avoid an audit" for more.)

Another reader wrote: "Tax laws are constantly changing and there are deductions out there that you have no way of knowing about."

Ultimately, you are the one responsible for the accuracy of your income tax return. But a good tax preparer can save you time, money and headaches by fixing often silly and sometimes costly mistakes. Read "Should you do your own taxes?" if you could use help deciding whether to hire a professional -- and "Do it right: Your 15-point tax checklist" if you plan to go it alone.

Correction: This article originally incorrectly referred to a change in laws surrounding IRA conversions. During 2010 only, any taxes due on a Roth IRA conversion could be spread over two years."

Source: MSNMoney.com, "8 tax mistakes that can cost you," MSN Money Staff, January 19, 2011, available at: http://money.msn.com/tax-planning/8-tax-mistakes-that-can-cost-you.aspx

The 5 worst pieces of financial advice

2011-03-22T08:04:00.000-07:00

MSNMoney.com posted this article to explain some of the "worst" financial advice people are given, according to the author, and provides a new way to look at the numbers. The author stresses the importance of saving for retirement especially in tax-advantaged retirement plans, like 401k's and 403b's. Also, the posting discusses student loans and limiting your borrowing. A general rule of thumb is to borrow no more than you expect to make during your first year out of school, and to steer clear of private student loans. The article is excerpted below:

"Americans are notoriously bad at math. When the Education Department assessed people's ability to grapple with real-world numbers, it found that one in five adults couldn't calculate a weekly salary when told an hourly pay rate and that only four out of 10 could pick out two items on a menu, add them and calculate a 10% tip.

That difficulty processing numbers poses real challenges when it comes to managing money, and I think it's why so many people fall for bad financial advice. They either can't do the math or they're doing the wrong math. That deficiency could leave them substantially poorer.

Here are five examples of bad financial advice -- and how you really should be looking at the numbers:

1. Pay off your debt before saving for retirement
It's not that people who stint their retirement accounts aren't doing the math. They're just looking at the wrong numbers. Here's a fairly typical e-mail:

"I know you say retirement should come first, but I'm paying about 18% on my credit cards versus maybe making 8% in the market, and that's not guaranteed. I'll stick with paying off my cards."

This guy has the 8% right, since the stock market has returned at least that much, on an average annual basis, over every 30-year period since 1928. It's not guaranteed, of course, but the returns have been pretty consistent.

That's not the only number to consider, however. People who contribute to 401k's, 403b's and other tax-advantaged retirement plans also get tax breaks. For most, the tax deduction is equal to their tax brackets; the federal brackets are 10%, 15%, 25%, 28%, 33% and 35%. In addition, many contributors can qualify for an additional tax break called the Savers Credit. Singles with adjusted gross incomes up to $27,750 or married people with adjusted gross incomes of up to $55,500 can get credits worth 10% to 50% of their contributions.

If your company offers a match, that's another instant return on your money. Think of a typical match -- 50% on the first 6% of your salary -- as an immediate 50% return on those funds.

Perhaps most importantly, money contributed to a retirement plan is money eligible for years of tax-deferred growth. You've heard of the miracle of compounded returns, right? That's where your returns earn returns, eventually leading to big leaps in your wealth. But your returns can't compound if your contributions aren't there in the first place. If you're in your 30s, every $100 you don't contribute to your retirement costs you at least $1,000 in lost future retirement income. In your 20s, the toll is twice as high -- every $100 you don't put in costs you $2,000 in the future.

You may think you can catch up on your retirement contributions once your debts are paid off, but that's not really true. Tax breaks and matches are use-it-or-lose-it. And the longer you put off saving for retirement, the more of your income you'll have contribute to make up for lost time. Wait until 35 or later to start, and you may have to devote 20% or more of your income to retirement just to have a hope of quitting work at 65.

So start saving for retirement, even if it means a slower pay-down of your debt. In the long run, you'll be richer for it.

2. Don't borrow for an education
I've chronicled some real horror stories about people who overdosed on student-loan debt, including one who racked up a quarter-million dollars in loans for a degree she didn't use and another who borrowed $40,000 for a two-year degree from a for-profit college. These people are really stuck, since this is debt that typically can't be discharged in bankruptcy.

Furthermore, default rates on federal student loans are distressingly high. One out of five federal student loans that entered repayment 1995 was in default 15 years later, according to an Education Department study, and default rates were 30% for community colleges and 40% for two-year, for-profit institutions.

That doesn't mean that federal student loans are intrinsically evil. Far from it. The interest rates are fixed and relatively low for unsecured loans -- currently 6.8%for unsubsidized loans and 4.5% for subsidized. Repayment plans are flexible and can be based on your income, and payments can be suspended for up to three years if you encounter economic hardship. There are also forgiveness options: Any remaining debt can be forgiven after 10 years of repayment if you work in public-service jobs or after 25 years otherwise.

And most people don't overdose on student-loan debt. The median cumulative debt among graduating bachelor's-degree recipients at four-year undergraduate schools was $19,999 in 2007-08, according to financial-aid expert Mark Kantrowitz, who combed the latest National Postsecondary Student Aid Study. Median means half had more debt, half had less. About 25% borrowed $30,526 or more, and 10% borrowed $44,668 or more.

Overdosing on student-loan debt is bad, but not getting a degree at all may be worse. People with only high-school diplomas have twice the unemployment rate and significantly lower lifetime incomes than college graduates.

The key to staying out of trouble with student loans is to limit your borrowing. A general rule of thumb is to borrow no more than you expect to make during your first year out of school, and to steer clear of private student loans. Since the maximum in federal student loans that most students can borrow for an undergraduate education is $31,000, you're unlikely to get in over your head for a four-year degree -- as long as you get that degree. Your earnings won't rise enough to justify the cost of borrowing if you drop out.

The federal borrowing limits are higher for graduate school, so tread cautiously there and consider whether the jobs for which you're preparing will pay enough to allow you to easily repay your debt.

3. Pay off your mortgage as fast as you can
The savings, on paper, look thrilling. Make one extra mortgage payment a year on a $200,000 loan and you can shave five years and nearly $33,000 in interest payments off your loan. Why shouldn't you take advantage of that?

Well, there are plenty of reasons. And it's not that you can get a better return on your money over time by investing it, though you probably can. It's simply that most people have more pressing financial priorities. In other words, you have better things to do with your money than pay off low-rate, tax-deductible debt.

You should start making extra payments on a mortgage only when you:

Are on track with your retirement savings (see above).
Have paid off all other debt, which typically carries higher interest rates and often isn't tax-deductible.
Have sufficient health, life and disability insurance coverage.
Have a fat emergency fund. The size depends on your circumstances, but figure at least three months' worth of essential expenses.
If you've covered all those bases and still want to prepay your mortgage, then have at it. Until then, though, cool your jets.

4. Buy a home as an investment
There are some good reasons for buying property; historically, this hasn't been one of them. In normal times, home-price appreciation barely outpaces inflation, as I explained in "Are you crazy to buy a home now?"

Most people who think their homes have appreciated considerably aren't adjusting for inflation or subtracting all the money they've spent on maintenance, insurance, taxes, repairs and remodeling.

There are exceptions, of course. In a few select markets, homes have appreciated in real terms, and people have gotten rich from their home equity. But there are also places where home prices have fallen after an economic shock and not recovered.

Paying down a mortgage over time should increase your wealth, but buying a home is definitely not a slam-dunk investment.

5. Make an emergency fund your financial priority
The financial crisis came upon us so suddenly, and the resulting recession was so deep, that some people decided that nothing was more important than saving up a huge emergency fund.

There's a problem with that thinking, though: Saving up even a small emergency fund takes a heck of a lot of time.

I use the following example in my new book, "The 10 Commandments of Money," to illustrate the problem. Say a family that spends $40,000 a year cuts back by 10%, or $4,000, and devotes every dime of that savings to building an emergency fund. It would take this family more than two years to save up a three-month stash ($3,000 of post-cuts spending a month, multiplied by three, is $9,000). And that's assuming that family members don't have any financial setbacks in the meantime, such as a job loss or a big bill that forces them to raid their fund.

Two years is a heck of a long time to put your other financial priorities, such as saving for retirement or paying down troublesome debt, on hold. It makes a lot more sense to downshift your emergency fund as a lesser priority and identify alternative sources of cash you can tap as you build your savings. These might be an unused line of credit, space on your credit cards, stuff you can sell, friends and family who can lend money or a family member who can go back to work.

It's true that a big cash cushion can help you sleep at night, but you shouldn't sacrifice other, more important financial goals to get one."

Source: MSNMoney.com, "The 5 worst pieces of financial advice," Liz Weston, March 16, 2011, available at: http://money.msn.com/saving-money/the-5-worst-pieces-of-financial-advice-weston.aspx

8 creative ways to stay debt-free

2011-03-10T05:13:00.000-08:00

MSNMoney.com recently posted this article offering techniques for staying in command of your money. One of the tips is to involve your friends and family if you are trying to stay on track with your finances. Tell a friend that if you are tempted to charge something on a credit card, you are going to call them first to discuss whether or not it is a necessity. Also, you can declare your goals of being or staying debt-free on whatever social networking sites you may use. Others may be in the same situation and offer valuable advice. The article is excerpted below:

"You've paid off thousands of dollars in credit card and loan balances. It took years of effort, sacrifice and hard work. Now that your statements finally read zero, your cards are open and the spending limits are high. A delicious sense of freedom is calling. Just a charge here and there won't hurt, right?

Careful, though. It's easy to get caught up in the debt cycle again, especially if you're itching to break free of that old restrictive budget. Here are tips from the experts to help you stay the course:

1. Remember the agony. Living in debt was dreadful, wasn't it? All that pressure and anxiety, maybe even physical ailments. Keep those painful memories alive, says Denise Winston, the founder of Money Start Here, a financial education company in Bakersfield, Calif.

"Make a list of how awful you felt about being in debt on the outside of an envelope," says Winston. For example, you might have had low self-esteem, stress, insomnia, high blood pressure, relationship problems or lost productivity at work. Then place your credit cards inside the envelope and seal it. When you're tempted to charge something you can't afford, you'll read your own words about how debt affected you -- and decide to stick to your spending limit.

2. Involve your friends. Sometimes you need the support of loved ones who know what you're trying to achieve. Therefore, says Winston, lean on them to keep you on the straight and narrow. "Make a pact with a friend and vow to call each other prior to any charge or temptation to charge." You and the friend can further the challenge by promising to share your credit reports with each other every six months or so.

Keep in mind that you'll want friends who inspire you, not depress you. Make sure you choose those with positive attitudes.

3. Employ social networking. Shelagh Braley, the CEO of My Life List, a social network for goal achievers, believes that making a public, online announcement can make all the difference in maintaining a financially healthy life.

"Use your social networks to declare your goal, ask for accountability and gather support and knowledge you need to get there!" says Braley. "Guaranteed, there are other people in your circle who share your desire to stay debt-free and are just waiting for a reason to commit. Then you can all do it together."

4. Broaden your budget. A perpetually tight financial belt is a problem, so loosen it up a notch before you rip it off. My Money Mess personal finance blogger Christopher Scully stresses the importance of constantly refining and revising a cash-flow plan. If a budget isn't elastic, you'll eventually stray.

"Build in achievable goals, then rework your budget to include saving for it," says Scully. "Allot some sort of reward money for hitting monthly milestones on the way." By doing so, you'll prepare for long-term objectives while having enough funds to satisfy your desire for spending liberty.

5. Reduce temptation. If access to an abundance of credit is overly seductive, cut it down. Ronit Rogoszinski, a wealth adviser from Arch Financial Group, suggests abandoning excess credit accounts, leaving only two major cards.

"All the store cards that you opened to get the 10% discount for opening one up, close them," says Rogoszinski. "Some will say that this will hurt your credit score; personally and professionally, I don't care." Why? Remaining debt-free is not only vital to your net worth, it will actually benefit your credit rating. A full 30% of a FICO score is based on how much debt you're carrying in relation to your credit limit, compared with the length of your credit history at 15% of the score.

6. Frame the ugliest bill you have. Keep a copy of the statement with the highest balance and display it. Kristen Hagopian, a motivational speaker and author of "Brilliant Frugal Living," says this tip came from one of her students, who repaid $82,000 in five years.

"After putting herself into massive debt, she had a turnaround moment where she realized she was out of control, buckled down and never looked back," says Hagopian. To remain motivated, she keeps the five-year-old credit card bill (complete with "Balance Due: $82,000") on her refrigerator. "She told me that having that credit card bill on her refrigerator reminds her daily that she never again wants to feel that out of control of her finances or her life."

7. Refine your value system. If you really want to stay on budget, says psychologist Sally Palaian of Bingham Farms, Mich., the author of "Spent: Break the Buying Obsession and Discover Your True Worth," you had better first identify what makes you happy.

"Take the time to really think about what you want and why," Palaian says. Then add those things into your budget. "You'll get more pleasure out of spending money and be less likely to blow it on impulsive purchases or trying to keep up with the Joneses."

8. Save your old debt payments. HelloWallet founder Matt Fellowes says you can offset the budget blues by doing something smart with the cash you had been sending your creditors.

"Once you get rid of revolving credit card debt, take the money you were previously using to pay off debt each month and put it toward building up emergency savings," says Fellowes. "Having extra money socked away for unexpected expenses is one of the most effective ways to stay out of debt."

As with dieting, once you've achieved your desired goal, you've got to keep the momentum going or you'll undo all that hard work. So the final tip: Enjoy your success so much that you refuse to let those balances edge up again."

Source: MSNMoney.com, "8 creative ways to stay debt-free," Erica Sandberg for CreditCards.com, March 7, 2011, available at: http://money.msn.com/debt-management/8-creative-ways-to-stay-debt-free-credit-cards.aspx

Filing for Bankruptcy: What Can You Protect?

2011-02-25T06:10:00.000-08:00

Smartmoney.com posted this article regarding certain possessions that someone filing bankruptcy may be able to hold onto depending on where they reside. For instance, Florida residents can keep up to 160 acres outside of city limits and the home that’s on it, or up to half an acre and a home in cities. The laws differ in every state, so please obtain the advice of a legal professional to determine what assets you can and cannot protect. The article is excerpted below:

"This year may go on record as the one during which the recession officially ended. But the effects are clearly still being felt: More personal bankruptcies are projected to be filed since 2006, a year after new laws went into effect. And responsible consumers – people who pay their mortgage on time and save for retirement – are losing the most in the process.

By the end of the year, more than 1.6 million people are expected to have filed for personal bankruptcy, according to the American Bankruptcy Institute. Almost 65% of filers chose “income reduction” as a reason for filing, while 42% listed “job loss” as a reason (debtors can choose more than one).

Filers who have been conscientious borrowers and consumers will often have equity in their homes, possess cars that are partly or fully paid for, and hold savings accounts designed to provide for them in the future. But there’s no credit for being responsible when it comes to bankruptcy court — and the more responsible a consumer has been, the more they have for a trustee to take and sell off to pay creditors. “Bankruptcy doesn’t care that they’ve been good Samaritans,” says Steve Elias, bankruptcy attorney in Lakeport, Calif., and co-author of “How to File for Chapter 7 Bankruptcy.”

What and how much someone in bankruptcy can keep depends mostly on where they live. Florida millionaire Burt Reynolds was able to keep his 160-acre ranch through his bankruptcy – a feat that would be impossible in, say, neighboring Georgia. And there are a number of exemptions and loopholes in each state that allow consumers to hold onto some assets. Among them is the federal “wild card,” a credit of up to about $12,000 per person, which in 16 states and Washington, D.C. can be used to help a consumer keep items like cars or jewelry. (Some states have their own wild card options, but they’re far less generous.) There are also assets that bankruptcy trustees aren’t interested in taking because they won’t yield profits to pay creditors — like a home or car, if the filer owes more it’s worth.

Here are the five assets that might be protected in bankruptcy.

A home
Holding on to your home depends on the state you live in and the equity in your house. Florida residents can keep up to 160 acres outside of city limits and the home that’s on it, or up to half an acre and a home in cities. Texans can protect up to 200 acres of rural property or up to 10 acres in the city. And in general, if a home is worth less than the mortgage balance – that is, the owner has no equity – the owner can keep it as long as the payments stay current.

For filers who do have equity, most states offer an exemption — money from the trustee’s sale of the home that stays with the homeowner. But over that amount, every penny of a sale is applied to outstanding debts and paying the trustee. In California, for example, the equity exemption is up to $175,000, but other states are far less generous: In Ohio, the state exemption for a home is up to around $45,600 if married or up to half that for singles. In Tennessee, the exemption is as much as $12,500 for singles and up to twice as much for couples.

Tax-exempt retirement funds
Most tax-exempt retirement funds, like 401(k)s and individual retirement accounts, are out of reach from creditors. IRAs are protected up to about $1.17 million per person.

But trustees view these accounts skeptically and will flag suspicious actions like dumping cash and investments – which are usually not protected in full in bankruptcy – into retirement plans, says Howard Ehrenberg, a bankruptcy attorney and member of the Chapter 7 Panel of Trustees for Central District of California. Filers who get caught trying to protect assets in that way risk losing some of that amount, says Richard Nemeth, a bankruptcy attorney in Cleveland and state chair of the National Association of Consumer Bankruptcy Attorneys.

Car
Holding on to a car depends on several factors, including what’s covered by state exemption. In general, as with a house, owners who owe more than the value of the car can generally keep it, as long as payments stay current. Free-and-clear car owners can keep a car if it’s worth less than the state exemption, but drivers who have a car loan and some equity in their car can see their vehicle seized and sold, and recoup only their equity up to the exemption. Delaware and Nevada grant the most generous exemptions for cars, each up to around $15,000. In the 16 states that follow the federal exemptions, including Connecticut, New Jersey and Pennsylvania, the federal car exemption is up to about $3,450, but bankruptcy filers can also to dip into the federal “wild card” of up to roughly $12,000 to keep the vehicle. Married couples who jointly own the car can claim a federal exemption of up to $30,900. One of the strictest states is Florida, where the exemption is capped at $1,000 and there’s a wild card option of up to $2,000 per person, assuming the couple hasn’t claimed a homestead exemption.

Life insurance policy
Term insurance policies are safe after bankruptcy, but whole-life insurance policy holders aren’t always so lucky: These policies are considered an investment vehicle.

Depending on the state, there could be exemptions – Florida protects the entire policy, other states only protect a fraction. And in Ohio, life insurance policies remain intact when the beneficiary is a dependent; otherwise, there’s no exemption, and the state's wild card is around $1,075 per person.

College savings
The fate of the balance of a 529 plan depends on several factors. If a 529 plan is less than two years old, protection is limited to $5,000; creditors can take what’s been saved beyond that. The same mostly holds true for a Coverdell account. But after that two-year period, the plan is safe, as long as the person filing for bankruptcy is not the beneficiary; the account is not safe if the beneficiary is not the child or grandchild. If the filer is the beneficiary — for example, a 30-something with leftover college savings earmarked for grad school — trustees could cash out the 529 plan to pay creditors."

Source: Smartmoney.com, "Filing for Bankruptcy: What Can You Protect?" AnnaMaria Andriotis, November 17, 2010, available at: http://www.smartmoney.com/personal-finance/debt/filing-for-bankruptcy-what-can-you-protect/

Top Five Credit Score Myths

2011-02-15T08:42:00.000-08:00

WalletPop.com recently posted this article explaining some of the common misconceptions regarding credit scores. The author emphasizes the need to monitor your own credit report regularly. It will decrease your risk of identity theft, and will also give you a better sense of how your financial activities are displayed to lenders. You can request a free copy every 12 months from each of the reporting agencies by going to annualcreditreport.com. The article is excerpted below:

"A good credit score is one of the basic building blocks to financial stability. However, even well-informed consumers may still believe in one or two of the commonly-believed myths about those crucial three digits.

"We're seeing a lot of myths out there and a lot of misperceptions consumers have about their credit scores," says Melinda Opperman, senior vice president of community outreach and industry relations at Springboard Nonprofit Consumer Credit Management.

WalletPop asked these financial educators and industry experts to share and dispel the most common fallacies surrounding credit scores. Here's the real truth about your credit score

Myth: Paying your bills on time and carrying a balance on your credit cards will give you a good credit score.

Yes, making payments on time is important, since late payments can drag down your score significantly, but it's not enough to ensure that your score will be high. That's because 30% of your credit score is based on what's called your utilization ratio - how much of your available credit has been tapped at any given point.

"Folks think they have to carry a balance on their cards in order to get a good credit score," says Opperman. "We let them know they just have to make a purchase and then make a timely payment." If you have cards with high balances, even if you make your minimum payments promptly every month, the large amount of debt you're carrying makes you look like a higher risk to the credit bureaus and will reflect poorly on your score.

Myth: You have to make a huge financial mistake for your credit score to be negatively affected.

Bankruptcy? Foreclosure? Sure, those kind of economic calamities will deliver a big hit to your score, but you don't have to be fielding collection calls at all hours for your score to suffer. In fact, just one late payment can be detrimental, and something as innocuous as opening a slew of store credit cards for the promotional discount can make you look like a credit risk, according to the credit scoring formula.

"One common myth is that credit scores are static, that they don't change that often or that you have to do something huge for them to change," says Natalie Lohrenz, director of counseling at the Consumer Credit Counseling Service of Orange County. But since a credit score is just a snapshot of your credit's health at any given time, it's going to vary at least a little bit from time to time. To put it in more concrete terms, you wouldn't expect your blood pressure to be exactly the same every time you go to the doctor, right? Your credit score goes up and down just a little bit the same way. Conversely, since your score is in constant fluctuation, you shouldn't stress over a point here or there, Lohrenz says.

Myth: The only part of your credit history that matters is your three-digit score.

Terry Clemans, executive director of the National Credit Reporting Association, says many Americans only focus on their score number, to the exclusion of their actual credit report, from which the score is derived. Lohrenz agrees and add, "People shouldn't really obsess so much about the score. Watch the report." In fact, the report is at least as important as the actual number, which is why experts recommend checking it regularly for outdated or erroneous information that can lower your score.

If you don't want to pay for a credit report, you can get one free once a year from each of the three bureaus at annualcreditreport.com, and if you live in certain states, you may be entitled to additional copies. Monitoring your report regularly not only cuts down on your risk of identity theft (since you'll be able to see if someone is trying to obtain credit in your name) but gives you a better sense of how your financial activities are displayed to lenders.

Myth: You can improve bad credit quickly.

You really can't blame ordinary Americans for falling prey to this myth, given that there's an entire industry that purports to boost your credit at warp speed. "One common myth is 'If I want to improve my credit, I have to go to a credit repair agency,' " says Barry Paperno, consumer operations manager for MyFICO.com. As we've discussed before, companies that promise to "clean up," fix or increase your credit score are bad news. At best, they'll blanket your creditors with frivolous requests to review your outstanding debts, which might raise your credit score for a few weeks at most. As far as correcting any erroneous information that might be dragging your score down, you can fix that yourself - for free - by following the instructions on each bureau's website.

While negative notations do stay on your credit report for seven years, Paperno says this doesn't mean your credit will be low for nearly that long. The scoring formula places more weight on recent transactions, so if you had a period of financial instability or irresponsibility in your past, the best way to see your score improve is just to keep paying everything on time now, and paying down big balances to improve your utilization ratio. "The best way to improve your credit score is work with your local bank or credit union and then make timely payments," says Opperman.

Myth: A divorce dissolves jointly-held credit accounts.

When in the midst of a divorce, too many Americans fail to ask how their creditworthiness could be harmed by their former spouse. This is unfortunate, because joint liabilities can come back to haunt you. "Divorce attorneys are not financial counselors," says John Ulzheimer, president of consumer education for SmartCredit.com. "That's not their job, but that's something you have to address."

"If you're a joint account holder, you're equally responsible for that balance," says Paperno. "You need to keep an eye on it, and you need to check your credit regularly to make sure that bill is getting paid." If your spouse promises to keep current on payments on a jointly-held account and fails to follow through, Paperno warns, "Be aware that will impact your score."

Source: WalletPop.com, "Top Five Credit Score Myths," Martha C. White, February 14, 2011, available at: http://www.walletpop.com/2011/02/14/top-five-credit-score-myths/

9 Smart Money Moves for 2011

2011-01-26T05:27:00.000-08:00

MSNMoney.com recently published this article from TheStreet.com. One of the experts emphasizes the importance of writing down your financial plan, so that you can stay focused on the goals you are trying to accomplish for the future. Another suggestion is to take the money you save by using a frequent shoppers or club card at places like grocery stores and put whatever amount the receipt says you saved directly into your savings account. The article is excerpted below.

"With the New Year came a host of resolutions. Many of us offered a pledge to be smarter and more dedicated to our finances in the unfolding year.

What moves will not only guarantee financial success in 2011, but set the stage for achieving longer-term objectives?

The starting point, according to Frank Braddock, a financial adviser with JHS Capital Advisors, is drafting a blueprint.

"We are telling folks to sit back and really do a good financial plan," he says. "I think that keeps people on track and helps them when things get weird. A written financial plan helps you focus on where you are trying to go and maybe not panic when things get as dicey as they have been. I think it forces you to take a step back from the day-to-day and look at what you are trying to accomplish."

A financial plan is about more than chasing gains. Braddock says people need to "have a real conversation about risk and managing risk."

"When you sit and look at where people were five to seven years ago, they thought they were much more risk tolerant than they actually proved to be," he says. "Risk comes in a lot of different guises I don't think folks really think about. When people think about risk, they think about losing money, which obviously is a big thing. But the risk of not getting where you want to go and running out of money, longevity risk, is the single biggest risk that clients face."

"You can't manage what you don't measure, so quantify goals," says Neal Ringquist, the president and chief operating officer of ASI Advisor Software, maker of goalgami, a free online, goal-based financial planning tool. "Control what you can control. You can't control the performance of the markets, but you can certainly control what your goals are and how much you can contribute and save towards them. Depending on what your goals are, there are lots of little things to do."

Here are some of those easy steps to take:

1. Ratchet up 401k contributions to, at the very least, take advantage of a company match. For all those who haven't already, Ringquist says, this should be the year.

2. Add the 2% reduction in FICA taxes directly into retirement savings. This Obama administration tax break adds to the incentive to lock in 401k deposits to the limit.

Other moves can blend frugality and creativity to achieve short- and long-term goals.

3. Credit card rewards programs connected to 529 savings plans (tax-advantaged, return-bearing college savings vehicles overseen by states), are underused by those saving for college expenses, he says. A variety of credit cards can be used. Fidelity, for example, offers an American Express card where every month the points accrued are rolled automatically into a 529 plan designated by the holder.

"Many set up a credit card tied to frequent-flier miles," Ringquist says. "The amount of miles it takes to redeem a domestic flight has gone up. With so many restrictions, sometimes you can't even get a flight. But here's a way you can earn a return on your points. You can't do that with miles. You could actually spend your way to savings."

4. Review your household budget this year and you can uncover additional money that might be better earmarked for savings, Ringquist says.

"With cable bills, a lot of people bought original packages, even a year or two ago, that had everything under the sun," he says. Cutting out premium channels you never watch can save hundreds of dollars a year.

5. Banking and credit card fees can often be waived by merely making a phone call, he adds. If not, you can shop around for a better deal.

6. Recurring credit card charges for movie and music services, wine clubs and storage facilities add up, but can become so routine they are forgotten. Get rid of them.

7. Reclaim grocery store savings from using a coupon or club card that gets tallied on a receipt. The amount saved should be put into a savings account or retirement plan, Ringquist suggests.

The most recent Principal Financial Well-Being Index, a quarterly survey by Principal Financial Group, found that workers' top two resolutions heading into the year were paying off credit card debt (35%) and putting a set amount of money into savings each month (30%).

Retirees' top resolutions were to reduce their spending by a specific amount each month (19%), pay off credit card debt (17%) and put a set amount of money into savings each month (15%). If that's so, says Catherine Golladay, the vice president of 401k Education and Advice for Schwab, there's a painless way to make those resolutions into realities.

8. Take advantage of free investment advice most likely offered with your plan, Golladay says. A recent Schwab study found that 401k investors who take plan-offered advice save more and panic less, with savings rates doubling among "advice takers" from 5% to 10% of pay.

Retirement strategist and financial coach Bill Losey has another suggestion that might seem tough.

9. Accumulate "up to three years' worth of income in savings, CDs, money markets or Treasury bills."

But all you have to do is start the process, he says.

"This is where you should start taking money from when you retire," he says. "Use this 'safe-money' benchmark strategy so the money you need is in the safest yet lowest-yielding investments where your principal is protected. It helps to weather the ups and downs of the stock/bond markets where the rest of your long-term money is allocated and diversified properly."

Source: MSNMoney.com (TheStreet), "9 Smart Money Moves for 2011," Joe Mont, January 20, 2011, available at http://money.msn.com/saving-money/9-smart-money-moves-for-2011-thestreet.aspx?page=0

8 quick ways to slash your bills

2011-01-14T05:06:00.001-08:00

MSNMoney.com posted this article with suggestions of easy and fast ways to cut some of your bills. The author suggests that you take about 20 minutes to shop around before making any purchases to make sure you are getting the best deal. Also, she states that you should strive to eat a home-cooked meal at home every night and take leftovers for lunch the next day. This could save hundreds of dollars a month that you may have spent on convenience foods or eating out. The article is excerpted below:

"Want to save hundreds or even thousands of dollars?

Twenty minutes here and there will do it.

This isn't a car insurance commercial. It's a way to rewrite your budget.

That one-third of an hour can save you big bucks if you use it to:

-Question statements and medical bills.
-Negotiate a better phone plan or a lower credit card interest rate.
-Plug money leaks.
-Spot problems while they're still cheap to fix.

Let your New Year's resolution be to keep more of your money in your pocket. One way to do that is invest 20 minutes a day, a week, a month or a year.

Where on earth will you find an extra 20 minutes in your day? Think of these as recurring appointments on your calendar, says productivity expert Laura Stack.

"I know people who can literally spend five hours a day on Facebook, in front of the TV, playing Xbox, whatever," she says.

You can still have those things, Stack says -- after you've done 20 minutes of cleaning your financial house.

1. Once a month: Pare it down, sell it off
The next time you're cleaning your actual house, consider: Do you really need all the stuff you're dusting? Too many of us are drowning in clutter. Set aside 20 minutes once a month to weed out clothes, toys, knickknacks, the wedding-gift wok you used exactly twice. Sell the surplus on eBay or donate it to a charity thrift shop.

"Americans are beginning to understand the power of purging," says interior design specialist Christopher Lowell. This results in a comfortable living space full of carefully chosen items.

Comfortable people are happy, which may mean fewer impulse buys and less spending to replace things lost in all the clutter (gloves, nail clippers, screwdrivers and the like).

Consider purging dry-clean-only items, or vow to stop buying them. Those you feel you must keep can be cleaned less often if you're not a messy eater who sweats profusely. Lowell suggests that you "freshen" clothing once a week with a spray product such as Febreze.

"There's no reason you can't rotate your clothes. That can save literally a thousand dollars a year," Lowell says.

2. Once a month: Do a walkaround
Take a fast walk around your car to look for fluids on the driveway or low/bulging tires. Check the oil and the lights. These simple chores could save you a world of hurt.

Do the same for your house: 20 minutes indoors and 20 minutes outdoors. Look for issues like mildew, slow-running rain gutters, foundation cracks, crumbling caulk, peeling paint, basement dampness, loose weatherstripping or missing shingles.

Put fixes on your to-do list: Change the filter on your furnace or air conditioner; check exterior air-conditioning units for leaves or other debris. Both are quick ways to lower utility costs.

Stuart Hickox, the founder and president of the nonprofit OneChange suggests several other fast ways to save on energy costs:

-Switch out incandescent bulbs for compact fluorescent bulbs certified by Energy Star.
-Use power strips for electronics and appliances, and turn them off when not in use; "vampire" energy use accounts for up to 15% of your electric bill.
-Get a programmable thermostat. It takes only a few minutes to program, and a one-degree change can save you 3% to 5% in energy costs.
-See if your region offers free refrigerator recycling and/or rebate programs, then invest in a new icebox; it will save you $120 or more per year on your electric bill.

3. Every time: Comparison shop
Before you buy that fridge -- or anything else -- take 20 minutes to shop around. Start with price comparison websites, which will find the best price for a "site to store" deal, i.e., bought online but picked up locally.

Once you've found the lowest prices, check whether those stores are represented on a cash-back shopping site such as Ebates, FatWallet or Mr. Rebates. These sites offer money back on your purchases as well as coupons for special discounts, free delivery or bonus items. (When I bought my first laptop last year, the retailer threw in a free printer/scanner/copier.)

Prefer to shop locally? Ask the clerk if there's a coupon. Professional organizer Leslie Jacobs asks for discounts, just to see if salesclerks will give them -- and sometimes they do.

"If you don't ask, they can't say 'yes.' I always ask," Jacobs says.

4. Every night: A home-cooked meal, with leftovers for lunch
Eating out a lot, or buying expensive convenience foods? Don't cop out with "I don't know how to cook." You can learn. A few basic techniques will save you hundreds of bucks each month.

Do an online search for "20-minute meals" -- you'll be amazed at what pops up, complete with adjectives like "quick" and "easy." I'd also suggest the Cheap Healthy Good blog, which brims with recipes for all skill levels.

Double or triple a recipe so you'll have leftovers to freeze for later or to put in tomorrow's lunches. Those who took my "brown bag challenge" were horrified when they realized what they'd been spending on lunches out. Plan on three to five minutes to pack a meal.

5. Every day: Exercise
Along with a decent diet, to stay healthy and keep medical bills low, you need exercise. But you don't necessarily need a gym.

"You just need your body," says Alex Fell of Warrior Fitness in Manhattan.

The former Marine says that exercises like push-ups, stretches, jumping jacks, dips and mountain-climbers will promote strength, flexibility and cardiovascular fitness. Twenty minutes at a time, three to five days a week, is a good start.

In an MSN Health article, a researcher from the University of Tennessee Obesity Research Center noted that "even modest amounts" of daily walking can offer health benefits. "Modest" meant 30 to 40 minutes a day -- daunting for some people. But what about taking 20 minutes at lunch to walk around the block, or up and down workplace stairs?

One extremely simple way to improve your health: conscientious dental hygiene. Brushing takes two minutes, three times a day, and flossing takes five: less than 20 minutes a day to prevent cavities, halitosis, eventual tooth loss and maybe heart disease or stroke.

6. Once a week: Clip coupons
Tiffany Ivanovsky, a working mother of seven kids, spends $475 a month on grocery-store purchases – including toiletries and diapers.

"Sometimes there's a stigma that if you use coupons you must be really poor," says Ivanovsky, who writes a savings-oriented blog called MyLitter. "But what it means is that you're really smart."

Too busy to clip? Use e-coupons. Ivanovsky's blog and sites like CouponMom.com and A Full Cup match coupons to weekly sales at drugstores and supermarkets, and provide links to downloads. Twenty minutes once or twice a week and you're set to save $100 a month or more.

Read "Free toothpaste for life" to find out how to get toiletries, over-the-counter medications, cleaning supplies and a surprising number of food items gratis. Bonus: All those freebies allow you to perform stealthy acts of kindness by donating to shelters and emergency pantries.

7. Once a week: Talk money
First, set yourself up on a fast and free budgeting site, like Bundle.com, to track your expenses.

Now, plan 20 minutes a week to talk money with your spouse or partner. Otherwise, you can each "be thinking different things about the finances" and wind up overspending, says Scott Crawford of DebtGoal, an online service designed to help people pay off their debt.

Weekly chats also let you set goals and celebrate progress.

Here's a reasonable goal: Check all bills and statements as they come in. What if someone has been using your credit card? Suppose you forgot to record an ATM withdrawal? And heaven forbid you should pay a medical bill without reading it. A simple coding error can result in a charge your insurance company won't cover.

Take a few minutes to read your statements, questioning anything you don't understand.

8. Once a year: Negotiate each bill
Jacobs decided her cable bill was too darn high and called to say so. Well, she actually said, "I've been a good customer for years -- what can you do for me?" In exchange for a two-year commitment, she now pays 50% less each month.

Similar calls got Jacobs discounts on TiVo and her phone plan. Try this strategy yourself, one utility at a time.

The biggest money-saver to negotiate, though, is your credit card interest rate. According to Curtis Arnold of CardRatings.com, companies are actively soliciting for new account holders. Lately he's seen zero-percent balance transfer offers for periods as long as 24 months.

Those deals are available only for people with FICO scores of 730 or higher, and there's a 3% fee with no cap. But someone paying 18% interest can still come out ahead.

Spend 20 minutes researching card deals (start with today's credit card rates on MSN Money or try Cardratings.com), then tell your current company you want a better rate. Be prepared to walk, but the fact is "you have a much better chance today than you did 18 months ago," Arnold says.

Definitely worth 20 minutes of your time -- and another 20 minutes, if need be, to apply for a new card. (Now start looking for ways to pay off that debt . . . .)

Vow to spend 20 minutes reviewing your insurance coverage. Did you get married (or divorced), have a baby or remodel your home? You'll need to increase or decrease coverage accordingly.

And, of course, don't forget about auto insurance. (Read "Dump the insurance on your clunker" to see if you need collision and comprehensive.) If you do, consider higher deductibles, which can save 15% to 30% on your premium. If you're in the market for a car, compare premiums on models before you decide.

Save money today
Tax tips: Time to pull the paperwork together. First, read "10 big deductions you may have missed" -- you could owe Uncle Sam a little less.

Who's you?: A single piece of info could let someone steal your entire identity. "10 ways to guard against ID theft" helps you save big bucks and untold aggravation.

Don't be misled: "Guaranteed" may not mean much. Arm yourself against fraud by reading "The 10 golden rules of scam prevention."

Source: MSNMoney.com, " 8 quick ways to slash your bills," Donna Freedman, January 4, 2011, available at: http://articles.moneycentral.msn.com/SavingandDebt/SaveMoney/freedman-8-quick-ways-to-slash-your-bills.aspx?page=1

Credit card rates may charge forward

2011-01-11T05:48:00.000-08:00

Bankrate.com recently published this post explaining that 2011 credit card interest rates will be affected by several factors. Competition, the issuer's cost of borrowing and the risk in the economy will influence what interest rate will be offered to a new borrower. The author does predict that people with blemishes on their credit, who were unable to get approved for credit cards during the recession, may find it easier to get approved for credit card offers this year. The article is excerpted below:

"In contrast to other consumer loans like mortgages, which sank to record-low rates in 2010, average interest rates on credit cards offered to new customers have slowly crept higher in recent years. According to Bankrate.com's weekly survey of interest rates, the average fixed rate for purchases was 11.57 percent and the mean variable rate was 12.59 percent on Dec. 14, 2005. Five years later, on Dec. 15, 2010, the average fixed rate was 13.04 percent, and the average variable APR, 14.44 percent.

Will credit card rates rise in 2011? The answer isn't a simple one. A combination of factors influence the interest rates offered to new borrowers, including competition, the issuer's cost of borrowing and the risk in the economy.

"To the extent that inflation increases and the cost of money goes up and the risk continues to remain in the economy, I think there is certainly some pressure for rates to go up," says Kenneth Clayton, senior vice president and general counsel for card policy at the American Bankers Association.

Folks with less than prime credit who were shunned by credit card issuers during the recession may find it easier to get approved for credit card offers, albeit at a higher cost. The October 2010 Federal Reserve survey of senior loan officers showed that 12.5 percent of banks reported easing their lending standards for credit card application approvals during the previous quarter, while just 2.5 percent tightened standards.

"Our sense is they're starting to move beyond just the safest places to be and are willing to take a little more risk on," says Clayton.

Once an issuer approves a consumer for a credit card, it's harder for the creditor to change the interest rate, thanks to recent legislation. The Credit Card Accountability, Responsibility and Disclosure Act of 2009, or Credit CARD Act, which was signed into law in May of that year, placed new restrictions on rate increases. Under the law, issuers can only hike the APR on an existing balance under four exceptions -- for instance, when a promotional rate has expired or the account has become 60 days delinquent. They also have to provide 45 days' notice for interest rate increases that will be applicable to new transactions.

Instead of higher rates, consumers may see account changes of a different sort -- particularly pricier fees. "Because of the restrictions on how easily, or how swiftly, or how much APRs can be changed due to this legislation, issuers' attention is naturally going to be on the other source of revenue they have, which is fee income," says Robert Hammer, chairman and CEO of R.K. Hammer, a bank card advisory firm based in Thousand Oaks, Calif.

Hammer contends that some fees have already surfaced or increased, such as cash advance fees rising from 2 percent with a $50 cap to 4 percent or 5 percent with no cap. And some issuers have charged fees for customer service calls.

Fees currently account for 48 percent of all revenue for credit card issuers, up from 31 percent 10 years ago, according to R.K. Hammer.

In 2011, more changes will take effect under the risk-based pricing rules and the Dodd-Frank Wall Street Reform and Consumer Protection Act, though none of the new requirements deal directly with credit card practices as the CARD Act did.

For individual credit card accounts, it's up to consumers to examine their statements and read correspondence from their issuers to learn of changes to their accounts. The CARD Act doesn't require issuers to announce certain changes, such as account closure and credit limit reductions, before they take effect.

Bankrate has a comprehensive analysis of where all sorts of interest rates are likely headed in 2011, and how these moves will affect you. Go to 2011 Interest Rate Forecast to view the full report."

Source: Bankrate.com, "Credit card rates may charge forward," Leslie McFadden, January 10, 2011, available at: http://www.bankrate.com/finance/rate-forecast/2011-credit-card-rates.aspx

Bankruptcies top 1.5 million in 2010

2011-01-04T06:38:00.000-08:00

CNNMoney.com posted this article stating that the number of bankruptcy filings were up 9% in 2010 from 2009. The requirements for filing bankruptcy changed in 2005 with the introduction of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Even with those new restrictions and requirements, the number of bankruptcy filings has steadily increased since 2005. The article is excerpted below:

"The number of Americans filing for bankruptcy in 2010 ticked up 9% over the previous year to more than 1.53 million, industry groups said Monday.

The number of consumers filing for bankruptcy has increased each year since 2005, when bankruptcy laws were revamped, according to the American Bankruptcy Institute and the National Bankruptcy Research Center.

The 2010 figure far outpaces the 1,407,788 total consumer filings that were recorded during 2009, a trend that the American Bankruptcy Institute attributes to high debt and a stagnant economy.

"The steady climb of consumer filings notwithstanding the 2005 bankruptcy law restrictions demonstrate that families continue to turn to bankruptcy as a result of high debt burdens and stagnant income growth," ABI Executive Director Samuel Gerdano said in a statement.

December was a particularly bad month for consumers, with 118,146 total filings, an increase of 3% over November's level. That increase may become typical.

"We expect that consumer filings will continue to rise in 2011," Gerdano said."

Source: CNNMoney.com, "Bankruptcies top 1.5 million in 2010," Charles Riley, January 3, 2011, available at: http://money.cnn.com/2011/01/03/news/economy/bankruptcy_increase/index.htm

10 moves to make in bankruptcy in 2011

2010-12-30T06:54:00.000-08:00

Bankrate.com posted this article giving readers 10 things to consider if they are thinking about filing bankruptcy. The author shares important tips like reviewing your credit report and making sure it accurately reflects your personal information on a regular basis. In addition, the author suggests applying for a secured credit card after filing bankruptcy to begin to rebuild your credit. The article is excerpted below:

"There has been a steady stream of bankruptcy filings during the economic downturn, and we can realistically expect 2011 to be no different. Look for another 1.5 million people to file for bankruptcy in 2011.

Since the mortgage crisis began in 2007, the number of people filing for bankruptcy protection has started to approach the total number before bankruptcy laws changed in 2005.

If you are contemplating bankruptcy, you can also plan for life after bankruptcy even before you even decide to file. That is not to say you ought to plan a bankruptcy filing, but you can plan to have good credit again in the event you do file.

Here are 10 things to think about when you're considering bankruptcy.

Create your story

Close to 90 percent of bankruptcies occur for one of three reasons: illness, divorce or loss of employment. When a bankruptcy does occur, future employers and lenders will want to know why you had to file. You want to have a clear and concise explanation of the reason you filed. Don't show shame or remorse. Just accept that this difficult event has occurred, take responsibility and take steps to recover.

Review your credit score after filing

As a client once said after filing, "my score can only go up." You once had a good credit score and you will have a good score again. Just take that current credit score number and put it somewhere as a reminder of where you once were -- and where you are not going to be again.

Review your credit report

You will want to clean up items on your credit report that legally can be removed or revised. Correcting personal information is the first way to show potential employers and future lenders that you are taking life after bankruptcy seriously. Information like previous addresses and employment information must be accurate and current.

Show creditors "discharged in bankruptcy"

This is the first and essential step toward recovery. You do not want any post-filing, negative history showing up on your credit report. For example, you might have voluntarily turned in a car as part of your bankruptcy. You must make sure that the creditor does not show continuous late payments after the vehicle has been surrendered.

Know when debts can be removed

Each debt is a negative item on your credit report that can be removed eventually. You need to know when that date will arrive. Each type of account has a length of time it will be on your credit report. It might only be for a few years. For example, a credit card or personal loan account will stay on your report for seven years from the date of last payment or last use of that account.

But you want to set up dates on a calendar to know exactly when a negative mark is ready to be wiped off your record. That's when the positive marks start to stand out and start to help your credit score. The further you get from the original date of the negative mark, the less impact it has on your credit score.

Begin to interview lenders

You will want to call three lenders -- a car lender, a personal loan lender or a credit card lender. You will want to know the credit guidelines required to qualify for a loan or credit with them. You do not want to apply for credit yet, but you do want to know whether that particular lender is one that you can or cannot contact when the time comes.
You should ask:

•Can I be approved for credit even though I filed bankruptcy?
•How long after I file can I be approved?
•What is your minimum credit score requirement?
•Do you review all three credit bureaus or just one particular bureau?
•Can I be approved for credit without a co-signer?
•Do you know of any other reputable creditors that work with people who just filed bankruptcy?

Apply for a secured credit card

This is one great way to re-establish a post-bankruptcy filing credit line. You will give the bank or credit union some money, usually $500. In exchange, you will get a credit card with a matching credit limit. Make sure the lender reports this new credit line to all three credit bureaus.
You want all three bureaus to show post-bankruptcy payment history. You don't want to get a secured credit card, have it report to only one major agency and then be denied for credit because a particular lender does not look at that particular credit bureau report.

You need all three bureau's credit scores to improve after bankruptcy. Many lenders look at a "blended" score of all three bureaus. One bad credit score can bring down two better scores and disqualify you for a loan.

Also, find out when you will be able to increase the card's credit line and when you can receive an unsecured credit card. Try to choose a lender who will work with you to improve your credit.

Apply for an unsecured credit card

Some lenders will give you low, unsecured credit limits immediately after you have filed for bankruptcy. You can use these low-limit credit cards to re-establish credit. Just as with a secured credit card, make sure the lender reports that new credit line to all three credit bureaus and find out when you are able to increase the credit line.

Focus on banks and credit unions

Avoid finance companies and rent-to-own lenders. Instead, stick with banks and credit unions. Your credit score and credit reputation will be stronger if you can re-establish with the larger institutions.

Remain positive through bankruptcy

Eleanor Roosevelt once said, "No one can make you feel inferior without your consent." You will be denied credit as you start your recovery from bankruptcy. But you must remain positive. Don't let a few rejections keep you from the ultimate goal of re-established credit."

Source: Bankrate.com, "10 moves to make in bankruptcy in 2011," Justin Harelik, December 27, 2010, available at: http://www.bankrate.com/finance/debt/10-moves-to-make-in-bankruptcy-in-2011-1.aspx

Make Money in 2011: The Economy

2010-12-08T05:47:00.001-08:00

CNNMoney.com posted this article from MONEY Magazine discussing what could happen with the economy in 2011. Fortunately, most experts believe the economy will not get worse. Although, they are not sure of how much improvement we will actually see over the next 12 months. One positive prediction is that big companies have started to show impressive earnings. However, it is unclear how quickly they will begin to use that cash to start hiring again. Some experts believe the companies will make a big push to hire in the last quarter of 2011. The article is excerpted below:

"Here's the happy news: Despite fears of a dreaded double dip, the economy isn't likely to slip back into recession in 2011, most experts say.

Unfortunately, the more probable scenario is no great shakes, either: lackluster growth and persistently high unemployment. "We're in economic purgatory," says Barry Ritholtz, CEO of research firm Fusion IQ.

Indeed, the consensus of about 50 economists polled each month by Blue Chip Economic Indicators is that gross domestic product will rise just 2.5% in 2011, which is well below the long-term average of 3%. At that sluggish pace, the economy will barely be able to create enough jobs to offset the number of new workers entering the labor force.

Why the tepid forecast? Blame sluggishness in two areas that have led past recoveries: consumer spending and housing. Consumer spending, which accounts for about 70% of GDP, is rising, but more slowly than in previous expansions, due largely to concerns about jobs.

"People are nervous, so they're paying off debt and saving more -- and that isn't likely to change much next year," says Mark Zandi of Moody's Analytics.

Another big worry: home prices, which will remain under pressure from mounting foreclosures.

To help spur growth, the Federal Reserve appears poised to pump as much as $1 trillion more into the credit markets in 2011 to hold lending rates down. But most economists believe the influx of cash will have little effect because banks remain wary of lending to all but the most credit-worthy of customers. Meanwhile, the prospects for another big round of government stimulus are remote, given the massive deficit and the political climate.

The one major bright spot in the outlook: Big companies have racked up impressive earnings and are now sitting on a pile of cash.

"The only issue is how quickly they're going to start using that cash to rehire," says IHS Global Insight chief economist Nariman Behravesh, who expects employers to ramp up staffing in the last quarter of 2011.

That raises the prospect of an even happier new year in 2012.

The Wildcards

* Chinese slowdown. Chinese officials have been trying to slow down the country's red-hot economy. But can they cool it to the right temperature? If China falls too hard in 2011, U.S. growth will suffer.
* Political gridlock. A divided Congress means that policy-makers will have a harder time responding if the economy stumbles badly, notes Zandi. That would raise the odds of a double dip.

What to Watch

For growth to pick up, optimistic shoppers have to open their wallets. For insight, track the Consumer Confidence Index at conference-board.org. The consumer is coming back when you see a consistent reading above 60, vs. its recent level of 48.5."

Source: CNNMoney.com (MONEY Magazine), "Make Money in 2011: The Economy," Janice Revell, November 17, 2010, available at http://money.cnn.com/2010/11/11/pf/make_money_2011_economy.moneymag/index.htm

6 habits that will make you broke

2010-11-29T05:29:00.000-08:00

MSNMoney.com published this article from Investopedia discussing some habits that can keep you from saving money. The author states that "window shopping" is one of those habits that cause people to spend unnecessarily. She says to ask yourself a couple of questions before buying something: Do I need it, and can I pay cash for it? If your answer to either or both is no, walk away. The article is excerpted below:

"Even some well-intentioned practices like clipping coupons could result in your spending more. But if you know the dangers, you can find a way around them.

It's still a week until payday, but your checking account is almost empty already. Where did all your money go?

The best holiday deals and steals
We all have our black holes, those money pits that seem to magically make our cash disappear.

Here are six bad habits that will make you broke, and how to break them:

1. Window shopping
It can be fun to browse the aisles and see what's out there. We all have our weak spots, like home goods, electronics or clothes -- even if you don't like to go to the mall. You don't even have to leave the house to window shop anymore; those catalogs, the Internet and commercials advertising the latest sale can be just as tempting.

Window shopping is a bad financial habit that takes some discipline to break. Staying away from your favorite retailers and not requesting catalogs or e-mail updates from your favorite stores is a good place to start. Before buying that latest item you pine for, ask yourself two questions: Do I need it, and can I pay cash for it? If your answer to either or both is no, walk away.

2. Carrying lots of cash
You know that paying with plastic is bad, but carrying lots of cash can be a bad habit too. Cash can give you the feeling of having extra -- fun money that's just sitting there.

Carry only enough cash for what you need, and leave the rest at home. Avoiding plastic is great, but budgeting is just as important when choosing to pay cash.

If you like the green, try budgeting your cash with envelopes: one for groceries, one for entertainment, etc.

3. Saving your info with vendors
Those online shopping sites are so considerate to save your address and credit card information -- some even have one-click ordering buttons, so you can buy something in just a second. It's very easy and very dangerous. Not only does this easy shopping make you broke if you're prone to impulse shopping, it also eliminates the feeling of spending money, because all you do is click.

Don't allow vendors to store your credit card information. Avoid signing up for e-mails and catalogs if those tempt you to shop when you really shouldn't. It can be great to know about a sale, but if you didn't need anything, it's just another temptation.

4. Clipping coupons you don't need
We all feel the pinch in this tougher economy, especially when buying groceries. Clipping coupons is downright trendy today -- but is it really a good habit? Sure, getting 50 cents off that package of cookies or that brand-name detergent is a discount, but you may be surprised to find that your grocery bill isn't going down despite all your clipping.

The truth is that buying generic brands that are just as tasty is often cheaper; coupons can make us buy things we didn't plan for.

Start with a grocery list for the week, and then look at your clipped coupons. If you can use one, great, but try supermarket brands too for the best bottom line.

5. Shopping with your emotions
It was a rough week, or a good one, or you want to reward yourself for losing a few pounds, so you go shopping. You earned that new dress, that new gadget, that big pie -- it was on sale, too. Letting your mood dictate your buying decisions is the quickest way to go broke.

Sober up before shopping. Do you need these items, and can you afford them? Be honest with yourself. Reward yourself by doing something that doesn't cost, like taking a nice bath, or spending time with loved ones.

6. Not planning ahead
It's Tuesday, you're tired, and you have no idea what you'll make for dinner. A great night for takeout, right? Using data from the Bureau of Labor Statistics, it's estimated that the average family of four spends more than $4,000 per year on eating out -- a very expensive habit that will make you broke in a hurry.

When you make your grocery list, make a menu for the week at the same time, so you always have ingredients for a meal. If your week is hectic, try cooking on Sunday and freezing meals for the week. Plan for lunches the same way; not only will you save money, you'll eat healthier by avoiding fatty restaurant food.

The bottom line
It takes some discipline to break these bad habits. With some planning, restraint, and avoiding tempting situations, you can break these habits -- and maybe even find you have a little extra cash at the end of the month."

Source: MSNMoney.com (Investopedia), "6 habits that will make you broke," Claire Bradley, Nov. 10, 2010, available at http://articles.moneycentral.msn.com/Banking/BetterBanking/6-habits-that-will-make-you-broke.aspx

Make Money in 2011: Your Savings

2010-11-25T07:19:00.000-08:00

CNNMoney.com recently posted this article from MONEY Magazine explaining ways to make and save more money next year. One great suggestion is to improve your credit score to 750 or higher, if possible, and you will be able to acquire the best deals on everything from credit cards to car loans. The article states that the quickest way is to pay down debt and keep any outstanding balances to less than 20% of your available credit. In addition, make sure your credit report is free of errors. The article is excerpted below:

"Savers, steel yourselves for another low-yield year. Interest rates on savings accounts, CDs, and money markets have been barely there for a while -- bank savings accounts are paying a paltry 0.2% on average, while money-market funds offer a dismal 0.04%.

Don't count on bigger payouts anytime soon, since savings rates are tied to the Federal funds rate, which has ranged from zero to 0.25% for two years.

"The Fed won't move rates until the second half of 2011 at the earliest," says Diane Swonk, chief economist for Mesirow Financial. Even then, the consensus forecast from the National Association for Business Economics puts the Fed funds rate at just 0.5% by year's end.

The upside for 2011? The credit spigot that's been tightly closed will slowly start to open.

Exhibit A: U.S. households should receive an estimated 2.3 billion credit card offers in 2010, up 62% from 2009, and the number is expected to hit 2.8 billion in 2011, according to the research firm Synovate.

Still, don't expect a return to the freewheeling-credit days before the financial crisis. Banks are firmly focused on lending only to those with sterling credit histories.

Two out of every three card offers now go to people with excellent credit, Synovate reports, vs. two out of five before the downturn.

Adding to lenders' reluctance to make risky loans: Many of the fees they could earn have been limited by 2010's landmark banking reforms. New rules limiting overdraft fees and credit card rate hikes will cost the industry $11 billion a year, according to bank advisory firm R.K. Hammer.

800 club: Couples with perfect credit
With the new Consumer Financial Protection Bureau scheduled to be up and running in July, expect an even bigger focus on enforcing those reforms, says Travis Plunkett, legislative director of the Consumer Federation of America.

Banks, though, will keep inventing fees to offset losses, experts say. Watch for higher fees on overseas purchases, paper statement fees, card replacement fees -- possibly even a fee for complying with reforms, similar to the 9/11 security fees on plane tickets, says John Ulzheimer of Credit.com.

WILDCARD: A worsening foreclosure crisis could infect all credit markets, says Bankrate.com analyst Greg McBride. If mortgage investors have doubts about the value of the real estate behind the loans they own, or if banks can't foreclose quickly enough, the availability and price of credit could be hit hard. Says McBride, "Worst case scenario: We're back to the post-Lehman days of 2008."

Money matters: Your goals for 2010
WHAT TO WATCH: Keep an eye on the five-year Treasury yield. If you see a sustained move in one direction for at least a month and a change of one full percentage point, bank rates will follow, says Richard Barrington of MoneyRates.com.

ACTION PLAN 1: Spread out your bets. While you wait for rates to perk up, you can squeeze out extra yield without locking up your cash by using a strategy called a barbell. Divide your savings among very short-term vehicles, like savings accounts and six-month CDs, and longer ones, like four- and five-year CDs, for a higher average yield.

The score you need to nab the best rates
Just make sure the withdrawal penalties on the longer CDs aren't too steep.

"If rates pick up in two to three years, you can withdraw the money from the five-year CD, fork over the penalty, and still come out with a better rate than on a two-year CD," says McBride.

Ally Bank's five-year CD, which pays 2.5%, docks you for only two months of interest when you cash out early. So even after paying the penalty, you'll end up with an effective yield of 2.3% if you take out the money after two years.

ACTION PLAN 2: Join the credit elite. Burnish your credit score to 750 or higher next year and you'll have more choice when it comes to landing the best deals on everything from credit cards to car loans, says Ulzheimer. (Check your score for $16 at myfico.com.)

The quickest way is to pay down debt and keep any outstanding balances to less than 20% of your available credit. Also, to make sure credit report errors aren't dragging down your grade, order a free copy of your history at annualcreditreport.com.

Our 2010 predictions revisited
ACTION PLAN 3: Don't settle. Bank competition is back, says Barrington of MoneyRates.com, so shop around, especially at online banks. For example, a savings account at Sallie Mae Bank pays 1.40%, vs. 0.2% for the average account.

And use your excellent credit score to your advantage, especially for rewards cards, which are beefing up programs to entice the best users.

"Issuers are very aggressively pursuing people with excellent credit," says Bill Hardekopf of LowCards.com.

For example, Chase Freedom is offering a $100 cash-back bonus after you spend $799 in the first three months. But you need a score of at least 730 to qualify, estimates Curtis Arnold of CardRatings.com. At nerdwallet.com, you can search for cards based on your spending patterns.

ACTION PLAN 4: Say bye to the big boys. One way to beat the sneaky fees of the megabanks: Move your dough to a community bank or credit union (search at findacreditunion.org).

Those institutions will probably fight for customers by offering services like free checking, says Mike Moebs of Moebs Services, a bank research firm. Indeed, even as major banks charge more for the basics, Bankrate's most recent survey reveals that 39 of the nation's 50 biggest credit unions still offer free checking accounts, no strings attached. That's a good deal any year."

Source: CNNMoney.com (MONEY Magazine), "Make Money in 2011: Your Savings," Ismat Sarah Mangla and Tali Yahalom, November 15, 2010 available at: http://money.cnn.com/2010/11/11/pf/make_money_2011_savings.moneymag/index.htm

Give Yourself a Tax Cut-11 ways to drive down your 2010 bill

2010-11-23T05:10:00.000-08:00

AARP.org recently published this bulletin discussing ways to reduce your tax bill for 2010 and every year after. One great tip for reducing your taxes paid for the year is to work on making your house more energy-efficient. Tax credits are better than tax deductions because they are a direct dollar-for-dollar reduction in your bottom-line tax bill. You are allowed a 30 percent credit of what you paid in 2010 to outfit your primary residence with certain energy-saving improvements. The article is excerpted below:

"After-tax dollars are real dollars; when you spend them, they're worth 100 cents. Before-tax dollars are something of an illusion. They're worth less than 100 cents, depending on your tax bracket. It's this difference that makes it so important to increase your after-tax dollars by reducing your income tax.

It's too late to do anything about last year's tax bill, but there's still time to reduce your income taxes for 2010 — and all the years to come. Here are some pointers:

1. Organize your records.

If you scramble every April looking for receipts and other tax records, you're probably missing some healthy deductions. So, get a leg up by organizing your records well ahead of tax time.

"Organization doesn't have to be fancy," says CPA Sally Herigstad of Kent, Wash. "Just have a place for everything, a place so easy to get to that you'll actually use it for receipts and for all those tax statements that come in after the first of the year."

2. If you can afford it, make the maximum allowed contribution to a tax-deferred retirement account.

The federal government recently raised the maximum contribution ceilings. For 2010, it is $16,500 for a 401(k) account, with an extra $5,500 allowed if you're 50 or older. The maximum Individual Retirement Account contribution for 2010 for people under age 50 is $5,000, and $6,000 for people 50 or older.

3. Consider itemizing your deductions.

If you're paying mortgage interest and property taxes on your home, or have other tax-deductible expenses, you may well save on taxes by itemizing instead of claiming the standard deduction. But be careful — deduction rules are complicated. Make sure you're claiming only qualified write-offs.

4. Defer income.

Herigstad says that if you have self-employment income, you should consider deferring some of that income until 2011. For example, you could hold off sending invoices for work done until after the first of the year, or ask those that you have already billed to hold off payment until after the first of the year. That way, you won't owe taxes on that income until next year. However, if you think you might have a higher income next year and be bumped up to a higher tax bracket, or that you might be affected if there's no renewal of federal tax cuts that are due to expire at the end of this year, it may be better not to defer income. That consideration also applies to the next two tips.

5. Pay some bills this year instead of next year.

If you have outstanding tax-deductible medical bills, state or local income taxes, property taxes or mortgage payments, you should consider paying them before year-end, even if they aren't due until next year. Herigstad points out that any payments you make before Dec. 31 will be deductible on this year's tax return.

6. Make charitable deductions before the end of the year.

Consider filling Christmas shopping bags with serviceable used items that you no longer need, then donating them. "A needy person gets something they can use," Herigstad says, "You get neater closets and a tax deduction for the current year." For a bigger deduction, consider giving your old car to charity. The IRS publication "A Donor's Guide to Vehicle Donations" tells you how. Important reminder: You need a written receipt for all charitable donations, regardless of the amount.

7. Consider making tax-free investments.

Income from municipal bonds is exempt from federal and in some cases state taxes. If income tax rates go up, municipal bonds will become even more attractive.

8. Take a partial write-off on investment losses.

If you lost money on investments this year, you can use the loss to offset capital gains on investments that rose in value. Even if you have no gains, you may still deduct up to $3,000 of your losses each year to offset ordinary income. If you have more than $3,000 in losses, you can carry the excess forward to deduct in future tax years. While this may not be enough to fully recoup your investment loss, it will help by reducing your tax bill.

9. Make the smart choice between deducting state income tax or state sales tax.

Tax law allows you to deduct one or the other. If you live in a state that taxes income, the income-tax deduction is probably best for you. But if you bought a big-ticket item like a vehicle, boat or airplane during the year, deducting the state sales tax might be better. Do the math, then decide.

10. Make your house more energy-efficient.

Tax credits are better than tax deductions because they are a direct dollar-for-dollar reduction in your bottom-line tax bill. You are allowed a 30 percent credit of what you paid in 2010 to outfit your primary residence with certain energy-saving skylights, windows, roofs, furnaces, water heaters and central air conditioning units, up to a maximum credit of $1,500. And of course you will save energy as well. A taxpayer who owes no federal income tax for the current year does not qualify for an energy tax credit.

11. Remember those reinvested dividends.

Technically, this isn't a deduction, but it can help reduce your tax bill.

If you own mutual funds that automatically invest dividends in extra shares, keep in mind that each reinvestment increases your "cost basis" in that fund. (Cost basis is the original price, plus fees, of an asset such as stocks, bonds and mutual funds.)

Adding the dividends to the cost basis will reduce the taxable capital gain (or increases the loss) when you redeem shares. If you forget to do this, you'll be overpaying your tax."

Source: AARP Bulletin, "Give Yourself a Tax Cut-11 ways to drive down your 2010 bill," William J. Lynott, October 20, 2010, available at: http://www.aarp.org/money/taxes/info-10-2010/give_yourself_a_tax_cut_.html

Knee Deep in Debt

2010-09-10T13:07:00.001-07:00

The Federal Trade Commission posted these facts for consumers who are facing a financial crisis. The article discusses realistic budgeting, credit counseling, debt consolidation, and bankruptcy as possible options. The Federal Trade Commission works to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. They are available at ftc.gov/credit, or by calling toll-free: 1-877-FTC-HELP.

"Having trouble paying your bills? Getting dunning notices from creditors? Are your accounts being turned over to debt collectors? Are you worried about losing your home or your car?

You’re not alone. Many people face a financial crisis some time in their lives. Whether the crisis is caused by personal or family illness, the loss of a job, or overspending, it can seem overwhelming. But often, it can be overcome. Your financial situation doesn’t have to go from bad to worse.

If you or someone you know is in financial hot water, consider these options: realistic budgeting, credit counseling from a reputable organization, debt consolidation, or bankruptcy. Debt negotiation is yet another option. How do you know which will work best for you? It depends on your level of debt, your level of discipline, and your prospects for the future.

Self-Help

Developing a Budget: The first step toward taking control of your financial situation is to do a realistic assessment of how much money you take in and how much money you spend. Start by listing your income from all sources. Then, list your “fixed” expenses — those that are the same each month — like mortgage payments or rent, car payments, and insurance premiums. Next, list the expenses that vary — like entertainment, recreation, and clothing. Writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending patterns, identify necessary expenses, and prioritize the rest. The goal is to make sure you can make ends meet on the basics: housing, food, health care, insurance, and education.

Your public library and bookstores have information about budgeting and money management techniques. In addition, computer software programs can be useful tools for developing and maintaining a budget, balancing your checkbook, and creating plans to save money and pay down your debt.

Contacting Your Creditors: Contact your creditors immediately if you’re having trouble making ends meet. Tell them why it’s difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level. Don’t wait until your accounts have been turned over to a debt collector. At that point, your creditors have given up on you.

Dealing with Debt Collectors: The Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector may not call you before 8 a.m., after 9 p.m., or while you’re at work if the collector knows that your employer doesn’t approve of the calls. Collectors may not harass you, lie, or use unfair practices when they try to collect a debt. And they must honor a written request from you to stop further contact.

Managing Your Auto and Home Loans: Your debts can be unsecured or secured. Secured debts usually are tied to an asset, like your car for a car loan, or your house for a mortgage. If you stop making payments, lenders can repossess your car or foreclose on your house. Unsecured debts are not tied to any asset, and include most credit card debt, bills for medical care, signature loans, and debts for other types of services.

Most automobile financing agreements allow a creditor to repossess your car any time you’re in default. No notice is required. If your car is repossessed, you may have to pay the balance due on the loan, as well as towing and storage costs, to get it back. If you can’t do this, the creditor may sell the car. If you see default approaching, you may be better off selling the car yourself and paying off the debt: You’ll avoid the added costs of repossession and a negative entry on your credit report.

If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you’re acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an additional amount toward the past due total. Other lenders may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly debt. Ask whether additional fees would be assessed for these changes, and calculate how much they total in the long term.

If you and your lender cannot work out a plan, contact a housing counseling agency. Some agencies limit their counseling services to homeowners with FHA mortgages, but many offer free help to any homeowner who’s having trouble making mortgage payments. Call the local office of the Department of Housing and Urban Development or the housing authority in your state, city, or county for help in finding a legitimate housing counseling agency near you

Credit Counseling and Debt Management Plans

Credit Counseling: If you’re not disciplined enough to create a workable budget and stick to it, can’t work out a repayment plan with your creditors, or can’t keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But be aware that, just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, which may be hidden, or urge consumers to make “voluntary” contributions that can cause more debt.

Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.

Debt Management Plans: If your financial problems stem from too much debt or your inability to repay your debts, a credit counseling agency may recommend that you enroll in a debt management plan (DMP). A DMP alone is not credit counseling, and DMPs are not for everyone. You should sign up for one of these plans only after a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money. Even if a DMP is appropriate for you, a reputable credit counseling organization still can help you create a budget and teach you money management skills.

In a DMP, you deposit money each month with the credit counseling organization, which uses your deposits to pay your unsecured debts, like your credit card bills, student loans, and medical bills, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates or waive certain fees, but check with all your creditors to be sure they offer the concessions that a credit counseling organization describes to you. A successful DMP requires you to make regular, timely payments, and could take 48 months or more to complete. Ask the credit counselor to estimate how long it will take for you to complete the plan. You may have to agree not to apply for — or use — any additional credit while you’re participating in the plan.

Protect Yourself

Be wary of credit counseling organizations that:

charge high up-front or monthly fees for enrolling in credit counseling or a DMP.
pressure you to make “voluntary contributions,” another name for fees.
won’t send you free information about the services they provide without requiring you to provide personal financial information, such as credit card account numbers, and balances.
try to enroll you in a DMP without spending time reviewing your financial situation.
offer to enroll you in a DMP without teaching you budgeting and money management skills.
demand that you make payments into a DMP before your creditors have accepted you into the program.

Debt Consolidation

You may be able to lower your cost of credit by consolidating your debt through a second mortgage or a home equity line of credit. Remember that these loans require you to put up your home as collateral. If you can’t make the payments — or if your payments are late — you could lose your home.

What’s more, the costs of consolidation loans can add up. In addition to interest on the loans, you may have to pay “points,” with one point equal to one percent of the amount you borrow. Still, these loans may provide certain tax advantages that are not available with other kinds of credit.

Bankruptcy

Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far reaching. People who follow the bankruptcy rules receive a discharge — a court order that says they don’t have to repay certain debts. However, bankruptcy information (both the date of your filing and the later date of discharge) stay on your credit report for 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job. Still, bankruptcy is a legal procedure that offers a fresh start for people who have gotten into financial difficulty and can’t satisfy their debts.

There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. As of April 2006, the filing fees run about $274 for Chapter 13 and $299 for Chapter 7. Attorney fees are additional and can vary.

Effective October 2005, Congress made sweeping changes to the bankruptcy laws. The net effect of these changes is to give consumers more incentive to seek bankruptcy relief under Chapter 13 rather than Chapter 7. Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car, that they might otherwise lose through the bankruptcy process. In Chapter 13, the court approves a repayment plan that allows you to use your future income to pay off your debts during a three-to-five-year period, rather than surrender any property. After you have made all the payments under the plan, you receive a discharge of your debts.

Chapter 7 is known as straight bankruptcy, and involves liquidation of all assets that are not exempt. Exempt property may include automobiles, work-related tools, and basic household furnishings. Some of your property may be sold by a court-appointed official — a trustee — or turned over to your creditors. The new bankruptcy laws have changed the time period during which you can receive a discharge through Chapter 7. You now must wait 8 years after receiving a discharge in Chapter 7 before you can file again under that chapter. The Chapter 13 waiting period is much shorter and can be as little as two years between filings.

Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments and utility shut-offs, and debt collection activities. Both also provide exemptions that allow people to keep certain assets, although exemption amounts vary by state. Note that personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. And, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or security lien on it.
Another major change to the bankruptcy laws involves certain hurdles that a consumer must clear before even filing for bankruptcy, no matter what the chapter. You must get credit counseling from a government-approved organization within six months before you file for any bankruptcy relief. You can find a state-by-state list of government-approved organizations at www.usdoj.gov/ust. That is the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees. Also, before you file a Chapter 7 bankruptcy case, you must satisfy a “means test.” This test requires you to confirm that your income does not exceed a certain amount. The amount varies by state and is publicized by the U.S. Trustee Program at www.usdoj.gov/ust.

Debt Negotiation Programs

Debt negotiation differs greatly from credit counseling and DMPs. It can be very risky, and have a long term negative impact on your credit report and, in turn, your ability to get credit. That’s why many states have laws regulating debt negotiation companies and the services they offer. Contact your state Attorney General for more information.

The Claims

Debt negotiation firms may claim they’re nonprofit. They also may claim that they can arrange for your unsecured debt — typically credit card debt — to be paid off for anywhere from 10 to 50 percent of the balance owed. For example, if you owe $10,000 on a credit card, a debt negotiation firm may claim it can arrange for you to pay it off with a lesser amount, say $4,000.
The firms often pitch their services as an alternative to bankruptcy. They may claim that using their services will have little or no negative impact on your ability to get credit in the future, or that any negative information can be removed from your credit report when you complete their debt negotiation program. The firms usually tell you to stop making payments to your creditors, and instead, send payments to the debt negotiation company. The firm may promise to hold your funds in a special account and pay your creditors on your behalf.

The Truth

Just because a debt negotiation company describes itself as a “nonprofit” organization, there’s no guarantee that the services they offer are legitimate. There also is no guarantee that a creditor will accept partial payment of a legitimate debt. In fact, if you stop making payments on a credit card, late fees and interest usually are added to the debt each month. If you exceed your credit limit, additional fees and charges also can be added. This can cause your original debt to double or triple. What’s more, most debt negotiation companies charge consumers substantial fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee of a percentage of the money you’ve supposedly saved.
While creditors have no obligation to agree to negotiate the amount a consumer owes, they have a legal obligation to provide accurate information to the credit reporting agencies, including your failure to make monthly payments. That can result in a negative entry on your credit report. And in certain situations, creditors may have the right to sue you to recover the money you owe. In some instances, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home. Finally, the Internal Revenue Service may consider any amount of forgiven debt to be taxable income.

Damage Control

Turning to a business that offers help in solving debt problems may seem like a reasonable solution when your bills become unmanageable. But before you do business with any company, check it out with your state Attorney General, local consumer protection agency, and the Better Business Bureau. They can tell you if any consumer complaints are on file about the firm you’re considering doing business with. Ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.

Some businesses that offer to help you with your debt problems may charge high fees and fail to follow through on the services they sell. Others may misrepresent the terms of a debt consolidation loan, failing to explain certain costs or mention that you’re signing over your home as collateral. Businesses advertising voluntary debt reorganization plans may not explain that the plan is a bankruptcy filing, tell you everything that’s involved, or help you through what can be a long and complex process.

In addition, some companies guarantee you a loan if you pay a fee in advance. The fee may range from $100 to several hundred dollars. Resist the temptation to follow up on these advance-fee loan guarantees. They may be illegal. It is true that many legitimate creditors offer extensions of credit through telemarketing and require an application or appraisal fee in advance. But legitimate creditors never guarantee that the consumer will get the loan — or even represent that a loan is likely. Under the federal Telemarketing Sales Rule, a seller or tele-marketer who guarantees or represents a high likelihood of your getting a loan or some other extension of credit may not ask for or accept payment until you’ve received the loan.

You should be cautious of claims from so-called credit repair clinics. Many companies appeal to consumers with poor credit histories, promising to clean up credit reports for a fee. But you already have the right to have any inaccurate information in your file corrected. And a credit repair clinic cannot have accurate information removed from your credit report, despite their promises. You also should know that federal and some state laws prohibit these companies from charging you for their services until the services are fully performed. Only time and a conscientious effort to repay your debts will improve your credit report.

If you’re thinking about getting help to stabilize your financial situation, do some homework first. Find out what services a business provides and what it costs, and don’t rely on verbal promises. Get everything in writing, and read your contracts carefully.

For More Information

For more information, see Fiscal Fitness: Choosing a Credit Counselor, at www.ftc.gov/bcp/conline/pubs/credit/fiscal.shtm

The FTC works to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. Watch a new video, How to File a Complaint, at ftc.gov/video to learn more. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad."

Source: Federal Trade Commission (http://ftc.gov/), "Knee Deep in Debt," December 2005, available at http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre19.shtm

Are Americans de-banking?

2010-09-02T07:56:00.001-07:00

CNNMoney.com posted this article from Fortune that discusses several trends showing that some Americans are de-banking. De-banking means that people and even some corporations are moving away from using large financial institutions for funding sources. Unfortunately, financial hardships are causing many to take out loans against their retirement accounts, sometimes in order to keep from being evicted or losing a home to foreclosure. The article is excerpted below:

"The financial crisis that destroyed some of the world's biggest banks and sent others to the brink of failure have changed Americans' idea of lending and borrowing. While most still seem to have no problems storing their money at banks small and large, a few trends indicate that everyone from consumers to some of the world's largest companies are straying away from large financial institutions as sources of funding.

Fortune lists three signs that there might be a subtle de-banking happening in America:

1) Tapping into retirement

Most financial planners would belt a big 'No!' when it comes to taking a loan out against a retirement account. But a modest uptick of those in their peak earning years -- 35 to 55 years olds -- have gone against that advice amid the dismal economy, according a report Fidelity Investments released last week.

In a survey of 11 million people with retirement funds, 21.9% have a loan outstanding against their retirement during the three months ending in June. That's a 10-year high from the 18.1% recorded during the first three months ending in March 2001.

What's more, Fidelity reported 2.2% more people during the latest quarter of 2010 withdrew from their 401(k) because of financial hardships compared to the previous year during the same quarter. And 45% of participants who took hardship withdrawals a year ago also took another one this year to do everything from staving off an eviction to avoiding a home foreclosure.

Unlike hardship withdrawals that require applicants to prove financial pain, the loan option doesn't require a reason. And the amount loaned is usually limited to about $50,000 or half of your 401 (k) balance. The benefits some see in borrowing against their retirement is that they would essentially be paying themselves (as opposed to a bank) back with interest.

It's true most financial planners would say it's a bad altogether to tap into your retirement early because of taxes and penalties involved, as well as raising the long-term potential of not having enough money to retire. But for some at least, unprecedented times call for unlikely measures.

2) Tap into investors directly

In an effort to diversify their funding away from banks, some of the country's biggest corporations have increasingly been going directly to investors for loans. The Financial Times reported this week that the growth of private placement deals, "whereby companies tap investors directly for loans," are on the rise. That signals, according to the FT, that banks, having survived this financial crisis, aren't keen to reload their balance sheets with business loans in the near future.

Companies tapped the market for $27.4 billion in the first half of the year, an increase from the $28.5bn raised during all of 2009, according to the FT, citing data from Thomson Reuters. Mid-market groups typically favor private placements as a way to build relationships with investors, but large multinational corporations such as Heineken and Millennium Pipeline have been scurrying into this market.

Banks aren't totally out of the picture, however. Private placements fall somewhere between bank loans and the bond market. Banks usually facilitate the private placements, which often involve an agreement between several investors and the borrower, and of course they collect fees for their work.

3) Tap into friends and neighbors

In the online world, peer to peer lending has become a growing option for needy borrowers.

The social lending sites are often used by those who are self employed or have financial profiles that make it less clear for banks or credit unions to asses them. Some of the more popular sites include Prosper.com and Lending Club. Borrowers, depending on what social lending service they use, can borrow anywhere from $7,000 to $250,000 to pay everything from tuition bills to business start-up costs.

Banks in recent years have tightened lending standards, however, requiring higher credit scores and debt-to-income ratios. But peer-to-peer lending has proved a popular alternative to traditional banks. And right now, given rising credit costs and tightened lending standards, any alternative to traditional banking is, for many, an option worth exploring."

Source: CNNMoney.com (Fortune), "Are Amercians de-banking," Nin-Hai Tseng, August 27, 2010, available at http://money.cnn.com/2010/08/27/pf/middle_class_debanking_alternatives.fortune/index.htm