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Are Student Loans America’s Biggest Rip-off?

frustrated womanEveryone needs to go to college, right? Right. If you want any sort of job today – up to and including clerking or being an executive assistant – you’re told you need a college degree. On the other hand, some people believe that the whole idea that everyone needs to go to college is nothing more than ill-founded social engineering much the same as the idea in the early 2000s that everyone should own a house.

What this has lead to

Most young people who buy into this idea do not have enough money to pay today’s super-inflated college costs. The solution? They borrow the money. This year’s college students graduated owing an average of around $29,000 only to discover that due to the poor job market they have less of a chance than ever of actually getting a good job in a field commensurate with their degrees.

Young and naive

The problem begins when 18 and 19 year olds sign up for student loans without realizing that they’re agreeing to a relationship that’s more unbreakable then a mortgage. Plus, their debt usually starts relatively small with a loan of maybe just $3,000 or $4000 — but then four years later, surprise! That $3,000 has somehow ballooned to $20,000 or more.

Why college costs so much

The reason why colleges cost so much now has very little to do with the quality of the education they offer. In most cases it’s because the schools are building extravagant athletic facilities, hotel-type dormitories and other such embellishments and hiring big name professors as they race to become “prestige” schools. Why do schools raise their tuition and fees year after year? One reason is because most states are cutting back on financial aid to their schools. The other is the “easy money” that’s available through student loans that has become a huge subsidy for the education industry. In fact, in the last six years it spent between $88 million and $220 million lobbying the government. The cost of tuition at both private and public schools is rising faster than almost anything else in the US — energy, health care and even housing. Between the years 1950 and 1970 if you sent your child to a public university it would cost you about 4% of your annual income. Now, in 2010, it accounts for 11%. Moody’s recently released statistics that tuition and fees rose 300% versus the Consumer Price Index between 1990 and 2011

The secret behind the curtain

What the federal government does not want you to know is that it makes an enormous profit under the federal student-loan system — an estimated $184 billion over the next 10 years. Some critics of student loans say that it’s nothing more than a boondoggle paid for by super-inflated tuition costs and driven by the government-sponsored and predatory lending system. A second little secret is that the Department of Education (ED) actually profits if you default on your loans. This is because it makes money on students that default. It’s estimated that the ED collects an average of 100% of the principal on these loans, plus an extra 20% in fees and payments.

Debt collector hollering into micDefaulted loans may be turned over to debt collectors

There’s a third dirty, little secret of student loans that if you do default, your loan will likely be turned over to a debt collector. Student loan debt collectors have powers that would make a dictator envious. They can garnish everything from your tax returns to Social Security payments and from wages to disability checks. If you default on a loan you can also be barred from the military, lose professional licenses and suffer other serious consequences that a private lender could not possibly throw at you.

Interest rates are irrelevant

While you may think you’re getting a good deal when you take out a low-interest student loan, nothing could be further from the truth. The reforms that Pres. Obama was able to make in 2010 eliminated the possibility that interest rates would double permanently so it was nice that this was avoided. It was at least theoretically a good thing when the president took banks and middleman out of the federal student-long game so that all loans now come directly from the government. But interest rates are largely irrelevant. Is not the cost of the loan that’s the problem. It’s the principle – due to those staggeringly high tuition costs that have been soaring at two to three times the rate of inflation. This is very reminiscent of the way that housing prices skyrocketed in the years before 2008. And look what happened to the housing market.

The truth about Pres. Obama’s recent executive order

Pres. Obama recently issued an executive order that would make more people eligible for the Pay As You Earn repayment program. If you have what’s termed a “partial financial hardship” your monthly payments would be capped at 10% of your discretionary income. However, you would be required to document your income every year meaning that your monthly payments could increase or decrease annually. Also, it would take you much longer to pay off your loan, which means you would end up paying more interest. This could be of some help if you have the right kind of federal loans and have had trouble repaying them. However, all of these reforms really do nothing to attack the basic problem, which is your balance or the amount of money you owe. There are people well into their 50s who are still paying on their student loans. As of the first quarter of 2012, people under the age of 30 had the most borrowers (14 million) followed by the age 30 to 39 group with 10.6 million who owed on their student loans. In the category of age 40 to 49 there were still 5.7 borrowers and 4.6 million in the age 50 to 59 category.

What should you do?

The whole student loan thing may be a rip-off but that doesn’t mean you should just walk away from yours. As noted above, there is a serious price to be paid if you default on your loans. If you have not already done this, you need to go to the National Student Loan Database System (NSLDS) and check up on your federal loans – how much you owe and to whom. Once you’ve done this you will need to make a plan for paying off your debt as quickly as possible. There are a number of different repayment options available in addition to the aforementioned Pay As You Earn program. For example, there is Extended Repayment, Graduated Repayment and three other Income-Based Repayment programs. It can be seriously confusing and you might need help, If this is the case, National Debt Relief offers a program  designed to help people find the best debt relief program given their student loan debts. It’s a consultation service where we match your specific situation to the best debt elimination program. We take into consideration factors such as your employment, financial capabilities, amounts owed, types of loans and salary. We then recommend what we believe will be the debt relief program given your circumstances. We even prepare all of the paperwork necessary to get you into the new repayment program. This service requires just a one-time payment that we put into an escrow account. There are no other fees or charges. And we don’t take your payment out of the escrow account until you’re totally satisfied with the repayment program we’ve recommended and the paperwork we’ve prepared. In the event you are not satisfied with one or the other, we refund your money. So, this is basically a no-lose proposition.

Congratulations On Graduating From College! Now, Send Us $33,000

Graduation cap with moneyIn the past month millions of young Americans graduated from college. However, most of them didn’t receive just a diploma.

They also received a bill – probably from the US government – regarding their student loans.

According to one recent study, the average student graduated in 2014 owing $33,000 in student loans. Those who had government-subsidized loans weren’t required to pay anything on them while they were still in school. But now, or at least in six months from now, it will be time to pay the piper. And if you owe just $20,000, you can look forward to making a $200 a month payment for the next 10 years to erase that debt.

Start a to do list

If you’re typical, you may not even have a job yet. Or you may have to complete an internship before you get an actual diploma. So what do you need to do about your student debts? First, you need to sit down and put together a to do list. Again, if you’re typical, you didn’t have a single loan. You had multiple loans at different interest rates. Before you do anything else, get your loans and your books in order. The Consumer Financial Protection Bureau has a tool on its site (www.consumerfinance.gov) that can help you get your student loans organized. It also offers some information about repayment options including income-based repayment programs that are available if you have federal student loans.

Determine what types of loans you have

Once you’ve written down a list of your loans, you need to determine their types as they could be federally subsidized, unsubsidized or private loans. Go to the site National Student Loan Database System and look for your loans. Then click on each one to see who services the loan – or the company that will be collecting payments from you. It’s possible that your loan servicer could be a different company from your original lender. Also, keep in mind that the system will show only your federal student loans and not any private student loans.

When November rolls around

If you graduated in May, your first payment or payments will be due in November. Make the payment(s) even if you have not yet received a coupon book. The government considers you to be in default on a federal loan the day after you miss a payment. This would mean an increase in your interest rate and possibly some penalties. In the event you go 90 days without making a payment on a federal loan loans, it will be reported to the three credit bureaus and will have a seriously negative effect on your credit score. It’s also important to understand the payments are not necessarily credited the day they are received. So if your payment is due the 15th of the month, it would be best to make sure it gets to your lender no later than the 12th.

Your grace period may not be six months

Most federal student loans come with a grace period of six months. The reason for this is to give you time to find a job, get on your feet and get ready to start repaying your loans. However, that grace period kicks in any time you drop below half-time status in your school. As an example of this, if your status changed to less than half time in the fall of 2013, it doesn’t matter how many courses you’re taking now. Your six-month grace period began then and the clock is ticking. On the other hand, if you had a Stafford loan and return to at least half time status within 180 days, you will preserve your a six-month grace period.

Perkins loans have a nine month grace period and then another six-months after most periods of deferment. If you have a Graduate PLUS Loan you would have something the equivalent to a grace period every time your in-school period ended. If your parents have a Parent PLUS Loan made on or after July 1, 2008, they could ask for the same. But they won’t automatically get a grace period the same as you would.

Given all this, it’s not uncommon for some students – especially those who have taken off a semester here and there – to have some loans in grace status while others are due for payment the minute they graduate.

Document everything

You need to monitor your loans to make sure that your payments are credited on time. If you discover a discrepancy, you can’t fix it with just a phone call. You’ll need to start documenting everything in writing. In fact, the best idea is to use the loan servicers’ online payment platform to target your payments against specific loans whenever possible.

To consolidate or not to consolidate?

If you feel overwhelmed by the idea of having to make half dozen different payments every month to a half dozen different loan servicers, there is an alternative. It’s a Federal Direct Consolidation Loan. If you were to choose this option, you would then have to make just one payment a month and to just one lender. While this can be a very tempting alternative, it’s nothing to rush into. The problem is that if you take out one of these loans you may lose some of the benefits that came with your original ones such as a low interest rate that significantly reduces the long term cost of your debt. For example, your current loans might have an average interest rate of 4%. But the interest rate for a Direct Consolidation Loan is the weighted average of the interest rates on the loans that you’re consolidating rounded to the nearest 1/8th of 1%. If you’d like to know what your interest rate would be on a Federal Direct Consolidation Loan, here’s the formula.

Step 1:
Multiply each loan by its interest rate to obtain the “per loan weight factor.”
Step 2:
Add the per loan weight factors together.
Step 3:
Add the loan amounts together.
Step 4:
Divide the “total per loan weight factor” by the total loan amount and then multiply by 100.
Step 5:
Round the result of Step 4 to the nearest higher one-eighth of one percent if it is not already on an eighth of a percent.

Alternatives to paying off student loansman chained to debt

While it may be in your best interests to just buckle down and start making payments on your student loans, there are some alternatives available. One of these is called loan deferment; another is loan forbearance. It’s possible that you could qualify for a loan deferment given circumstances such as being enrolled at least half-time in an eligible postsecondary school, in a full time rehabilitation program, experiencing severe economic hardship or serving in the military on active duty during a war or other military operation. (Note: you can find more information about student loan deferment by clicking on this link)

You might be granted a forbearance if you are unable to make your loan payments because of financial hardship or illness, if you’re serving a medical or dental internship or the total amount you owe each month on your Title IV student loans is 20% or more of your total monthly gross income. In addition, there are some other criteria where you might qualify for forbearance and you can get information on them by clicking on this link.

Loan cancellation

It is also actually possible to get a student loan canceled. This means you would not be required to pay anything on the loan and, in fact, might receive a refund for any payments you had made.

As you might expect, the criteria for getting a loan canceled are very limited. They are:

1. You die or are disabled
2. Your school falsely certified that you would benefit from the education and you don’t have a GED or high school diploma
3. You didn’t get a refund where appropriate
4. Your school closed
5. You work in certain occupations after graduation (like teaching or some public service jobs)

Good help is available

National Debt Relief recently launched a program that will help borrowers find a debt relief program for their student debt. It provides a consultation service that will match your specific student loan situation, employment conditions and financial capabilities with the right debt elimination program. It will also help with the paperwork that will allow you to enter into such a program. National Debt Relief charges only a one-time time flat fee that will be placed in an escrow account. There is no maintenance fee or additional charges. They will only withdraw your payment once you’re satisfied with the paperwork and the debt relief program you were recommended.

5 Things You Think About Retirement That Are Probably Wrong

Happy old couple looking at a cameraIf you’ve been salting away money for 20 years or more, looking forward to those golden years of retirement, there are undoubtedly some things you think you know that are not entirely true. In fact, if you’re not careful you could retire and then learn that some of your fundamental beliefs were flawed. Here are five areas where most retirees just don’t know as much as they think they do.

1. I’ll work until I’m 70

One of the most critical factors is determining how much you need to have saved before you begin withdrawing money is when you’ll retire. If your idea is to delay retirement so that you will have more money available, it may not work out the way you have planned. For example, some 22% of workers recently surveyed said that they don’t expect to retire until they reach age 70. Unfortunately, only about 9% of retirees actually got to age 70 before retiring. The Employee Benefit Research Institute has also determined that a large number of retirees stop working earlier than they had planned for negative reasons. In the EBRI’s most recent survey, 49% of those queried retired early but 61% of them said it was due to a health problem or disability. Many others reported that they had been forced out by their companies or because of a health problem suffered by their spouses or another family member. On a brighter note, 26% of those who retired early told the EBRI that they had done so because they could afford to.

Of course, the downside to this is the fact that if you retire earlier than you had expected, you’re probably going to have less money available to begin withdrawing. For that matter, you may even have to sign up for Social Security sooner than you had anticipated, which can yield a smaller monthly check.

2. I’ll just go back to work

The EBRI also reports that retirees often find it tough to get new work. While roughly 66% of retirees said they plan to work in retirement only about 27% actually found work. The problem is that the same factors that make it tough for older workers to find jobs is also true of retirees. If you were forced to retire, you will likely seek reemployment that requires the same job skills. The problem is that most retirees are not well equipped to compete with younger, more socially savvy employees. Plus, employers aren’t eager to “pay the price” for experience. In fact, experience can be a negative these days, especially in the technological sector.

If you do find work you may learn that it pays much less than you’re used to earning. While there are almost always jobs available in the hospitality and food service industries – even for older workers – these jobs often pay no more than $10 or $11 an hour. People who are used to pulling down $70,000 a year or more may find it very difficult to take one of these jobs given their low pay. However, depending on your circumstances you might find it best to swallow your pride and take one of those jobs as it could mean an extra $800 a month (less taxes), which could go a long way towards making your life easier and more comfortable.

3. I’m going to buy a second home

What is a mistake, very expensive and a hassle? In most cases it’s buying a second home. We know that the dream of many retirees is to have a second home to live in part time that would eventually become their primary residence. However, most advisors have one word for this: “Don’t.” In many cases you could stay for less at the Ritz-Carlton than a second home and would have none of the problems of neighborhood disputes, frozen pipes and volatile housing values. The challenge of maintaining a house gets magnified as you age and become less able to maintain one house let alone two. You could probably find a company or handyman to do much of that maintenance and those repairs for you, but you would need to factor this into your retirement planning. Good handyman where we live command at least $25 an hour. This means that just one day’s worth of fixing things around the house, painting or repairing a stuck toilet could cost you as much as $175.

4. Medicare will cover all my healthcare costs

Do you believe that once you pass age 65 that health costs will no longer be a major burden? Well, that’s not even close to reality. The federal health insurance program, Medicare, covers just on the average of about 48% of an enrollee’s health costs. This is according to the Kaiser Family Foundation. For example, there are many routine costs Medicare usually doesn’t cover. This includes eyeglasses, hearing aids and dental care. These are areas where it’s easy to rack up huge bills totaling thousands of dollars for something such as a root canal. Plus, you will still need to pay deductibles that can quickly run up the tab when you’re dealing with a chronic or serious illness. But none of this is even the biggest problem. It’s that Medicare doesn’t cover the cost of a long-term care facility or of home healthcare aides. What you will likely find is that you will need a Medicare supplemental insurance policy that’s usually known as Medigap insurance. The average Medigap premium, according to Kaiser, was $2200 a year in 2010. But, of course, premiums change by age. As an example of this, 80-year-olds pay 52% more than 65-year-olds. This makes it critical to budget the cost of a Medigap policy into your retirement years. But do be aware that even Medigap policies won’t cover nursing home care.

5. I have a realistic budget

As you plan for those golden years a big part of that planning is determining how much money you’ll need. This almost always focuses on generating the income you need to sustain your current standard of living. When many people budget for retirement they work off the assumption that they will end up spending less when they are no longer working. It is true that lower taxes and the end of contributing to a retirement account will reduce the amount of income needed. Unfortunately, what many advisers have found is that retirees don’t account for a general rise in out-of-pocket spending – especially those who retire when young and healthy. These people have more time to go out, travel, golf and shop. This creates the risk of putting a hole in the nest egg that can never be repaired as once the money is gone it’s almost impossible to replace. A little “extra expense” such as $1000 worth of plane tickets to Bimini might not seem like much of a big deal when you’re still earning money. But when you’re living off your retirement savings, that’s $1000 that you just can’t easily replace.

So what’s the answer? The key, according to most retirement counselors, is to build extra room into the budget. The way that you do this is by putting together a spreadsheet of how much you’ve spent each year for the past few years before you retired and then adjust for an increase in hobby or travel expenses. Of course, as you grow older, you will also need to allow for increased medical costs.

We used to teach a class where we taught the four levels of conscious competence that begins with “unconscious incompetence (you don’t know what you don’t know)” and ends with unconscious competence. The problem for many people planning for retirement is that they are conscious incompetents in that what they think they know is wrong. But with some extra foresight and planning, it is still possible to retire and enjoy those golden years you’ve been looking forward to for so long.

10 Things It’s Important To Know Before Choosing Debt Settlement

woman looking at documentsIf you’re seriously in debt and by that we mean you owe $10,000, $15,000 or more, you’re probably lying awake at night wondering how in the world you’re ever going to get out from under that burden. Fortunately, you have several alternatives such as a debt consolidation loan, consumer credit counseling, debt settlement or filing for bankruptcy. While you might be familiar with debt consolidation loans or even consumer credit counseling, you might not exactly understand what debt settlement is and whether or not it would offer you a good way out of that debt burden. If this is the case, here are things you need to know about debt settlement.

1. What exactly is debt settlement?

Debt settlement is sometimes called debt negotiation or debt arbitration. It’s where your lenders accept less money than you actually owe but agree to treat the debt as paid in full.

2. How a debt settlement program works

The way a debt settlement program works is that when you sign up, you make monthly payments to the debt settlement company, which is deposited into a trust account. You are then not required to make any more payments to your creditors. Only you can manage your trust account and you do this through a secure login. When you have deposited enough money into your account, the debt settlement company will begin negotiations with your creditors.

In these negotiations, the debt settlement company will work with your creditors or collection agencies to settle your debts for sums that are acceptable to both you and your creditors. Once the settlement company has settled on an amount with your creditors, you then pay off the settlement either in installments or as a lump sum. Debt settlement usually means a substantial reduction in the amount of your outstanding debt. However, how much of a reduction that you get will depend mostly on how good the debt settlement company is.

Here’s a short video that explains a bit more about debt settlement and how much of a reduction you could expect based on the type of your debt.

3. When it makes sense to choose debt settlement

  • There are certain circumstances where debt settlement makes sense. They are:
  • You can’t pay your bills
  • You have unsecured debts
  • You could repay if your debts are reduced
  • You’re thinking of declaring bankruptcy
  • You’re five to six months behind in your payments

4. Debt settlement is legal

There is nothing at all that’s illegal about debt settlement. In fact, it is one of the most popular options for paying off debts. Unfortunately, there are swindlers that have made money off people struggling with debt. Fortunately many of them have been shut down because of their failure to comply with state and federal laws.

5. Why lenders accept debt settlement offers

If a lender accepts a debt settlement offer it is forgiving a part of your debt. This means it’s losing money on the deal. So why would a lender agree to work out a debt settlement? It’s because they are smart people. They understand that when your finances are in very bad condition, you could decide to file for bankruptcy. In this case, your creditors would recover very little if any money from you. This makes debt settlement a better deal for them because they will get back at least a significant part of what you owe.

6. The biggest pros and cons of debt settlement

The biggest pro of debt settlement is that you will have your debts reduced and you will no longer have to put up with debt collectors. In addition, debt settlement can help you avoid the hazards of bankruptcy, which can be severe. As an example of this, if you were to file for a chapter 7 bankruptcy, your credit score would probably drop by 180 to 200 points, you will have a tough time getting any new credit for two to three years and the bankruptcy will stay in your credit report for 10 years.

The biggest con to debt settlement is that your credit score may drop although it won’t be as severe as if you had filed for bankruptcy. The reason for this is that any time you don’t pay back the full amount of the debt, your lenders will report the account as “paid as agreed” or “paid as settled” to the credit reporting bureaus. And this will stay in your credit report for seven years. However, if you’re already having a serious problem with debt, this might not be that big a negative.

7. How long  debt settlement usually takes

How long it would take you or a debt settlement company to settle your debts will depend on how many debts you have, the type of debts and the amount of money you would have to pay for your settlements. In general, debt settlement programs require two to three years. However, the more you owe, the longer it will take. For example, if you owe $10,000 or more, it might take you two to four years to complete your program.

8. How to know you would be eligible for debt settlement

Debt settlement isn’t for everyone and although it can be beneficial, not everyone will qualify. However, it is likely that your lenders will agree to settle your debts if you have defaulted on a loan, are continuously missing payments and have some source of income. You would also likely be able to have your debt settled if you have a very large amount of debt and are facing a financial hardship.

9. Why choosing a debt settlement company could be better than doing it yourself

You might be able to do debt settlement yourself, depending on what kind of person you are. You need to be patient, a good negotiator and able to understand complicated legal documents. Plus, you must have the cash available to pay for any settlements you are able to negotiate because that’s one of your chief bargaining tools – that if the lender will settle with you for less than you owe, you will send immediate payment. If you don’t have the requisite cash on hand to pay for your settlements or if you don’t feel that you would be good at negotiating with lenders, your best option would be to turn your debts over to a professional debt settlement company.

10. How to select  good debt settlement company

There are numerous debt settlement companies available via the Internet but as noted previously, some of them are swindlers. Here are some tips that could help you select a good and ethical one.

  • Does the company require you to pay an upfront fee? It is actually illegal for debt settlement companies to charge upfront fees but some will try. Avoid them at all costs.
  • How much does the debt settlement company charge? Ethical debt settlement companies will tell you upfront how much they charge for their services. If fact the good ones won’t charge you anything until they have settled your debts to your satisfaction and presented you with a payment plan that you approve.
  • Read reviews. There are reviews available of all the top debt settlement companies. Check them out to make sure that most of the reviews are positive. Some of them will be negative as that’s just the nature of the business – it’s impossible to make everyone happy when it comes to money and debt.
  • Check with the Better Business Bureau. The top debt settlement companies will be members of the Better Business Bureau and will have a rating of at least an A.
  • Make sure it’s licensed in your state. Not all debt settlement companies are licensed in every state. Be sure to check to make sure the company you’re thinking of using is licensed in your state.
  • Be certain to understand your contract. Your contract with a debt settlement company should be clear and easy to understand. If the one you’re offered is complex, complicated and difficult to understand you should either take it to a friend or an attorney for help or find another company.

Need To Cut Your Spending Dramatically ? Here Are Nine Can’t-Miss Strategies

Scissors cutting $100 billUnless you’re part of that lucky 1%, you probably get in trouble with your spending periodically. Or maybe it’s because you’ve lost your job, are underemployed or there’s just some other reason why money is very tight. Whatever the reason, if you find that you have to drastically reduce your spending, here are nine strategies that could help. If you implement all or most of these and your income stays constant, you shouldn’t have to think much about your finances going forward.

1. Cut discretionary spending

The first and maybe most important strategy is to review your budget. There are undoubtedly places where you could cut back. For example, could you reduce the number of cable channels you get? Could you eat out less? Do you need to buy as many snacks from those vending machines at work? This may sound simple but these kinds of expenses can add up to a lot. The website LivingSocial did a survey of 4000 Americans and discovered that the average family goes to restaurants or fast food places 4.8 times a week. Another survey of 1005 adults discovered that American consumers were having lunch at restaurants at an average of almost twice a week and spent about $10 every time. Whichever might be true for you, if you put a halt to eating out this could save you nearly $100 a month or maybe even more.

2. Negotiate

You say you don’t want to eliminate your cell phone or cable services? Then you should at least be able to talk your way to a better price, particularly if you can convince that provider that you are thinking of dropping your service. The secret here is to tell your provider’s customer service representative that you’re thinking of going to a competitor. He or she will probably send you on to a customer retention specialist and this person is almost certain to offer you some concessions.  Here’s a short video with some good tips for negotiating with credit card companies to get your interest rates reduced.

 

3. Plan ahead

One of the reasons that many of us overspend is because we fail to think about what will be happening during the next week. We might have no idea as to what to cook for dinner so grab fast food at the last minute. Or maybe we forgot about a wedding or birthday party and have to rush out at the last minute to get a gift and we spend a lot more than we had thought we would. Planning meals in advance and using coupons will definitely reduce your grocery costs.

4. Reduce your fuel costs

Gassing up our vehicles can take a big chunk out of just about anybody’s budget. As an example of this, my wife filled up her car yesterday and it cost nearly $50. If you go to a site such as Gasbuddy.com or Gaspricewatch.com you will find the least expensive gas in your area. Also, if you stop to think about it you could combine errands, use public transportation, drive less or use a bicycle. The California Energy Commission once calculated that if you are a commuter you could save about 30% on your gas expenses if you carpool in place of driving to work. Given the fact that the average household spent $2912 on gas in 2012, a 30% savings would translate into $70 a month or more.

5. Downgrade your insurance

It could pay to contact your insurance sales representative for a review of your coverage, as you might be eligible for a downgrade. As an example of this if your car is getting old and especially if it’s paid for you might be wasting money by paying for both collision and comprehensive insurance. The collision insurance covers your car in the event you’re in an accident. On the other hand, liability insurance is if you damage another car and comprehensive insurance is to get your car repaired if it’s damaged in some way besides an accident. What’s typical is that you buy comprehensive and collision insurance as a package. But it’s not a necessity. If your car is older and hasn’t kept anything close to its original value, you might want to redo your policy. You should also go online to a site such as Esurance.com and do some comparison shopping. Automobile insurance is just as competitive as the car business and it’s likely that you will be able to get the same or even better coverage for less by switching to a different insurer.

6. Lose one of your vices

You’ve probably read that cliché about not getting that drive-through coffee every day. But your vice might be something different. For example, according to Survey Analytics the typical consumer pays more than $1200 a year buying beer. Also, the American Lung Association says that the average price of a pack of cigarettes is now $5.51. If you smoke a pack a day, you would save $167 in a single month if you gave up smoking. And you’d save a little more than $2000 over the course of a year. Do you gamble? You should be able to cut back on that. Or you might have a fairly innocent habit like soft drinks where you could drink fewer cans and save money.

7. Pay down your debtdebt pit with ladder

You might not be saving money due to your debt. We’ve seen reports that the average household carries $7123 just in credit card debts. If this is you and if you were to pay off that debt without incurring more debt a few months later, you’ll ultimately save money. Here’s an example of this. If you owe $500 in debt at 10% interest on a credit card, you’ll run up $50 in interest — assuming you don’t pay off your balance — and then the next month you will owe $550. Do nothing and next month and you’ll owe $605. What this boils down to is that if you eliminate debt – especially the kind that accumulates interest quickly – you will have a lot more money left over to save.

8. Get organized

If your finances are kind of chaotic you could get them better organized. We’re not talking budgeting here. It’s just things as simple as determining when your bills need to be paid. If you stay on top of your finances, you should start saving money pretty quickly. For example, you pay a late fee anytime you have a late credit card payment.

This might be just because you accidentally threw away the credit card statement and couldn’t remember your due date.

When you have a late fee, you get a negative mark on your credit report, your credit score will likely go down and lenders will see you as a greater risk. In fact, some credit score experts say that just one late payment could drop your score by as many as 40 points.

9. Review those auto-pay subscriptions

Also make sure you review your subscriptions – particularly those that are on automatic pay. Do you have a gym membership that’s on auto pay but you haven’t seen the gym in four months? You need to eliminate that subscription. Do you pick up fast food habitually because you feel that you’re too tired to cook? Or do you buy snacks out of vending machines at your workplace, which are costing you twice as much as if you bought them with you from home? All these could easily be more than $100 a month or more than $1000 a year. And that’s serious money.

5 Conventional Ideas About Money Management You Might Want To Forget

stressed old manThere are a number of ideas about money management that you may have been taught over the years – either by your parents, a teacher or books you read. Of course, some of these are still true. For example, Ben Franklin’s old adage about, “a penny saved is a penny earned” is still true although it might be updated to something along the lines of, “$10 saved is $10 earned” as pennies just don’t seem to be as important today as they were in Ben’s days. But there are some long-time beliefs about good money management that are no longer valid because the financial landscape here in the US has changed so much.

As an example of this, the average interest-bearing checking account today offers 104% more interest income than the typical savings account. So “a penny saved is a penny earned” might better be stated, as “a penny put in a checking account is a penny earned.” In addition, there are other long-held beliefs about money that are no longer true and here are four of them.

1. Depreciation makes it better to buy a used vehicle than a new one

It has long been said that it’s better to buy a used car or truck than a new one because of depreciation. The old adage is that once you drive that vehicle off the dealer’s lot, it drops thousands of dollars in value. However, there is data shwoing that the average new car loan charges approximately 15% less interest than the average loan for a used car. Plus, this same data shows that if you plan to keep that car or truck for just three years, you’d be better of leasing. To put this another way, it’s best to begin your car shopping process with an open mind and to do a lot of comparison-shopping so that you will know exactly how to proceed.

2. It’s better to borrow from a bank

This also is no longer true. While banks used to be a prime source for vehicle loans – whether for a new or used car or truck – credit unions today are a better source. While these institutions used to limit their membership to certain people such as employees of a particular company or members of a certain union, many of them are now open to the public. They generally offer vehicle loan rates that are 40% lower than national banks. And those small local banks usually charge 30% higher rates than the national banks.

3. FHA loans are the best choiceStreet of residential houses

While loans from the Federal Housing Administration (FHA) used to be the best choice for many homebuyers, this is not necessarily the case today. If you have a really good credit score and a high down payment, you’ll save more with private mortgage insurance versus an FHA loan.

4. Small businesses should have business credit cards and business checking accounts.

Just a few years ago, it made the most sense for a small business owner to get business credit cards and a business checking account. However, unlike consumer credit cards business credit cards are not protected by the CARD Act (the Credit Card Accountability Responsibility and Disclosure Act of 2009). This means that the companies that issue business credit cards can raise their rates on existing balances just about whatever they want. In addition, business checking accounts are no longer really very competitive. They may have more features but they also charge 20% higher fees than standard checking accounts and offer 84% lower interest rates on the average then consumer accounts.

5. You don’t need to teach your teens about personal finances

Teenagers didn’t used to have a lot of spendable income. Most existed on allowances or small allowances supplemented by whatever they could earn in part-time jobs. Today, however, teenagers are big-time consumers. In fact they spent nearly $91 billion just in 2011 alone. Unfortunately, very few of them are not saving for college or for any other long-term goal, nor do they understand basic financial terms. For example, in one survey more than 75% of 16- to 18-year olds said they were financially savvy but only 20% knew what a 401(k) plan was and a mere 32% understood credit card interest and fees and how they work.

Since only four states require require high school students to take a course on personal finance, this burden falls on their parents. As you might guess, this comes with its own issues, as the whole subject of personal finances tends to make kids’ eyes glaze over. Plus, many parents are uncomfortable sharing information about the family’s finances or don’t know how to effectively communicate about money in ways that their children will understand. If you’re the parent of a typical teenager you probably hear a lot of, “why can’t I have that (fill in the blank).” It can be tough to respond to this question in a way that not only stops the child’s nagging but also makes for a lesson about your money values. In fact this is much harder than just saying, “no.”

Share the reason

The best way to handle this is to try to let your teenager know your reasoning for why you won’t allow that purchase. This can go a long way towards determining their values about money even if you simply say that the item is too expensive or that all of you in the family don’t buy anything just when you want it. Your teenager might not like either of these answers but he or she will eventually begin to appreciate that you at least explain why you are making the choice that you did.

Have an allowance

Also, if you don’t give your teenager an allowance you should. This can be a very good tool for teaching money values to your kids. If you introduce the allowance as a sort of paycheck and make them responsible for purchasing things on their own as well as saving for long-term goals, this can help establish good money management fundamentals. And while you might not want to use that bedtime story to discuss Roth IRAs, you could turn some of life’s little moments into teaching opportunities. For example, the next time your teenage daughter asks for a new pair of shorts you might turn this into a short discussion of budgeting and of deferring today’s wants in order to achieve a longer-term goal such as a new pair of Uggs. This is another reason why giving a teenager an allowance makes good sense because it forces him or her to make decisions.

We know of some parents who deposit money into their child’s savings accounts every month, which the child can then access via a debit card. Most teenagers learn very quickly that when the balance in that savings account falls to zero, they’re through for the month. These parents tell us that this eliminates much of the arguments over money because when the child runs out of money he or she knows it’s because of the way they managed it. Most learn how to do a better job of managing their money after just a few months and these are lessons that can help them throughout their lives.

Don’t bail them out

Finally, if your teenager runs out of money, don’t bail him or her out. This is tough but is one of the most important lessons you can teach your children. If your teen becomes overextended on credit – despite your best efforts, you need to take a firm stand. Let him or her experience the consequences of having made bad financial decisions. It’s much better to help your child take responsibility for the $500 debt now then a $5,000 debt later in life.

5 Simple Ways To Trim Your Budget

We stumbled onto this Infographic from Mint.com the other day and felt it did a great job of “visualizing” simple things you could do this year to trim your budget.

 

Cutting down on your daily expenses

Rework your monthly payments

Dine out smarter

Cut down on daily indulgences

Pay in cash

5 Benefits To Turning Down Your Thermostat That Will Surprise You

woman looking at documentsWe’re sure you already know the major benefit of turning down your thermostat, which is that you will save energy and this means saving money. But did you know that if you turn down the thermostat so that you’re dropping the temperature just one to five degrees it will help you lose weight and get a better night’s sleep?

Get a programmable thermostat

The easiest way to turn down the temperature is with a programmable thermostat. You could set it to lower your temperature at night or when you’re at work. We have seen tests that show you will see a difference in your utility bill if you lower your home’s temperature for just four hours a day. Beyond this, here are five ways you could improve your life by lowering your home’s temperature that would probably never occur to you.

Prolong the life of your plants

Plants will actually live longer if you drop the temperature in your home to below 75°. We won’t get into the technicalities of this but suffice it to say that when the house is cooler your plants basically need less water. If you’re heading out of town this is especially important as it reduces the chances that you will come home to lifeless plants. Of course, this is assuming that you don’t have tropical plants.

Lose weight

Want to lose weight without hitting your neighborhood health club? We have a little-known weight loss secret. It’s that you can shed a few pounds just by dropping your thermostat below 70°. While you don’t want your house to be so cold that you’re uncomfortable and shivering, it can be cool enough that a light sweater would feel just perfect. Here’s how this works. Your energy expenditure increases as the temperature drops so you burn more calories or roughly 100 more a day. This increased energy can translate into an extra 3500 calories burned in just a few weeks. This means you would lose one pound.

Give your refrigerator and freezer a longer life

You know that your freezer and refrigerator work really hard to keep your food fresh and safe. But you could cut them some slack. When your house is below 65°, those big appliances don’t have to work as hard to keep your food cool. This can easily translate into fewer maintenance problems and a longer lifespan. The fact is that the lower the temperature, the easier it will be on your refrigerator and freezer. Also, try to drop the temperature down dramatically when you’re heading out of town for a few days. But don’t go below 55°F or you’ll be risking frozen pipes.

Get a better night’s sleep

If you lower your home’s temperature by about 5° – or below 65° – you’ll get a better night’s sleep. The reason this works is because when you go to sleep your “set point” or the temperature your brain needs to reach before going to sleep is lowered. If your room is too warm, you’ll have a tougher time reaching this point and falling asleep.

Just one little degree

If you’re serious about lowering your energy bill, think about this: A one-degree drop in temperature can reduce your energy bill by 1% to 3%. You could save even more money by dropping your thermostat by 5° to 10° while you’re asleep. You’ll not only get a better night’s sleep you’ll also lower your energy bill by anywhere from 10% to 15%.

Nest thermostatThe thermostat that learns you

You could make things even easier by investing in a Nest thermostat. This is a new, smart thermostat that actually learns how you live and adjusts the temperature in your home accordingly. It’s so smart it will ask you a few basic questions and will then optimize itself to your system and begin learning from your temperature changes. So instead of having to learn how to program a thermostat, it will program itself. Nest learns the temperatures that you like and then builds a personalized schedule for you. All you have to do is teach it your preferred temperatures for several days and within a week it’ll start setting them on its own. Nest also has an “Auto-Away” mode that will turn off your system when your home reaches the minimum temperature you choose when you set it up. And of course, the lower the temperature the more you’ll save on energy. If you have pets or plants, be sure to keep their needs in mind before you set the thermostat too low.

Turn it down at night

You can keep warm at night by sleeping under a thick blanket and with the temperature down to save money. Do this for a couple of nights and Nest will learn this and begin doing it for you. Just remember that if you turn the temperature all the way up your home won’t heat up any quicker. You could turn your thermostat all the way up to 85° but this won’t make the air come out of your finance any hotter. It just causes your heater to run longer. Instead you could use Nest’s “Time to Temperature” to determine exactly how low or high to set your temperature. You may not know whether you want the temperature to be 72° or 74° but it will be easy for you to see the difference between running your furnace for 15 minutes vs. an hour.

Watch for the leaf

The Nest “Leaf” shows up when you turn it to an energy-saving temperature. And the more often you see the Leaf, the more you’ll save. Nest will track your energy usage in its Energy History memory so you can see exactly how much you’ve saved.

What else you could do to save energy

We don’t know about where you live but we’re seeing extraordinarily cold weather. If this is also true for you, now would be a good time to not only invest in either a programmable or Nest thermostat but to also take stock of the other things you could do to stay comfortable and yet cut your energy bill. One of the cheapest and most effective things you could do is weather strip your windows and doors. These are where cold air most often finds its way into your home. You should be able to buy all the weather stripping and vinyl foam tape you would need for less than $20. If you have really old windows you might consider covering them with clear plastic storm windows. We have seen two packs of 36″ x 72″ plastic storm windows for less than $4.50. And 3M has a window insulator kit for five windows that usually costs about $18. These plastic windows are said to be easy to apply. Once you tape them in place, you simply use a standard hairdryer to shrink them tight and they should be wrinkle free and clear. 3M also says that one of these windows will increase the R-value of a single-pane window by 90%.

Unplug ‘em

Another way you can reduce your energy costs is by making sure you unplug appliances that you don’t use very often such as a second refrigerator in your basement or garage. This may sound silly but you should unplug your chargers when you’re not using them to charge one of your devices. You could also use a power strip to turn off your televisions and stereos when you’re not using them. This may surprise you but when you think these products are “off,” their energy consumption when on “standby” can be the equivalent of a 75- or 100-watt light bulb running continuously. You should also set your computers to hibernate and sleep. If you enable the “sleep mode” it will use less power when it’s inactive.

More ways to cut your electricity bill

Watch this short video to learn more things you could do to cut your electricity usage.

Let your computer to sleep and hibernate

And, finally, you could configure your computer to “hibernate” automatically after you have not used it for 30 minutes or so. This will turn the computer off but in a way that doesn’t mean you’ll have to reload everything when you switch it back on. When you allow your computer to hibernate, you will save energy and it‘s more time-efficient than shutting it down and restarting it from scratch. Of course, you should be sure shut it down when you’re through for the day.

8 Critical Lessons To Learn About Personal Finances

couple talking to a counselorWe humans make mistakes. That’s just part of being human. Take decision-making. I’ve certainly made some bad decisions and I bet you have, too. The problem with making decisions is that the only way we could always make the right ones is if we could see the future, which certainly isn’t one of my strengths. So, we make a decision and then learn whether or not it was a mistake. In some cases, it will turn out to be a small mistake like choosing the wrong dress or sweater. But in other instances it can be a big mistake such as marrying the wrong person. However, we can save ourselves some grief by learning from the mistakes made by other people and here are eight lessons that could help.

1. Learn to sometimes say “no” to your children

Kids can grow up and turn out to be good people even if they don’t get absolutely everything they see on TV or in stores. We know it’s always fun to watch your kids’ eyes light up when you give them that special something they’ve been wishing for but you don’t have to do it all the time. Many parents give their children an allowance, which helps them learn to manage their finances and to prioritize, which can mean learning to save to buy something big rather than giving in to every impulse.

2. Don’t borrow money to finance home improvements

As tempting as it might be to go into debt for home improvements like upgrading your appliances or redecorating, avoid the impulse. Home improvements are rarely an “emergency” and you can plan for them. It’s just much better to save up until you have enough money to update that kitchen or finish off the basement and not go into debt to do it now. If it isn’t broke, don’t try to fix it until you have enough money to pay for that improvement up front.

3. Learn to have fun on the cheap

It’s really not necessary to rush out and see that new film the week it opens, and all your personal and family activities don’t have to be expensive. You could wait until that new film hits Redbox or one of those discount movie theaters. It’s possible that you could check out a movie at your local library, buy a pizza and have a fun “night at the movies” right at home. You could probably find some fun, free things to do just by going through the entertainment listings in your local paper. We did this recently and found a bunch of free family-oriented activities ranging from a free day at the zoo to a fun pet run.

4. Don’t buy a home until you have an emergency fund

If you’re a young couple or family, don’t make the mistake many people have and that’s to buy a home before you’ve considered all the expenses you’ll encounter, and have a realistic plan as to how you’ll pay for them without running up a lot of unsecured debt. If you’ve never owned a home it’s hard to imagine everything that can go wrong and need to be repaired or replaced. You really need to have a good-sized emergency fund in addition to your down payment before you become a happy homeowner. We moved into our first house and turned on the water the next morning only to discover we couldn’t get by without adding a $250 water softener, which immediately put us in debt and kept us hurting for money for nearly three months. Also, don’t forget that many household expenses can get higher over time while your salaries might not.

5. Learn to say “no” to friends and family members

If you have family members or friends who need financial help, it’s okay to say “no” to them if you would have to go into debt to help them and especially if it’s debt you can’t afford to repay. It’s tough to say “no,” particularly if it’s a family member asking but if you help him or her who will be there to help you repay the debt?

6. Pay careful attention to your personal financescouple worrying about finances

Good financial practices and habits don’t just happen naturally. You have to learn them. The best way to do this is by approaching them like your job with determination and focus. You can’t use the excuse that you were never taught about personal finances or that your parents set bad examples. There is a multitude of websites and books on money management you could read to teach yourself about personal finances. It’s just not that tough.

7. Teach your children about personal finances

No matter how you’ve handled money in the past, you owe it to your children to take the steps necessary to teach them about personal finances, especially about delayed gratification and the importance of saving money. If your schools are like ours you can’t count on them to teach your children about personal finances, as this just isn’t on their curriculums. So you’ll have to make sure you do the job. You wouldn’t let your children grow up without knowing how to ride a bike and you shouldn’t let them grow up without knowing the basics of personal finance.

8. Learn what to do if you get into serious debt

Naturally, the best thing is to not get into serious debt. But if you do it’s important to learn how to deal with it. The most popular alternatives are a debt consolidation loan, snowballing your debts, debt settlement, and consumer counseling. While a debt consolidation loan is fairly self-explanatory, you may not know about the strategy called a debt snowball. This is where you order your debts from the one with the smallest balance down to the one with the largest. Step two is to put all of your efforts into paying off the debt with the smallest balance, while continuing to make the minimum payments on your other debts. When you get that first debt paid off – which should be fairly quick – you then use the new money you now have available to begin paying off your second smallest debt etc. This strategy was developed by the financial guru, Dave Ramsey and here’s Dave explaining more about it himself.

Has Your Credit Card Information Been Stolen?

Masked thief with bag labeled dollarsAre you one of the 40 million Americans who used your credit or debit card recently at Target? If so, it’s likely that your card information has been stolen. Target has reported that anyone who made purchases by swiping their cards at Target terminals between Nov. 27 and Dec. 15 may have had their accounts exposed to fraud. The stolen information includes customer names, credit and debit card numbers, expiration dates and even the three-digit security number on the backs of cards. The cards that were hacked or had their information stolen included Visa, MasterCard and Target store cards.

What to do if you believe your information was stolen

If you did use your debit or credit card at Target between the dates listed above, you should check your next statements carefully looking for suspicious charges. If you find any, you will need to report them to your credit card company and call Target at 866-852-8680. And if you think your identity was stolen, report this to law enforcement or the Federal Trade Commission.

How did this happen?

Target isn’t admitting how this happened. Companies such as Target spend millions of dollars every year on credit card security. One analyst believes that given the magnitude of the theft that it might have been an inside job and that today’s security standards are not working. Another expert said that something definitely went wrong with Target’s security systems as the fact that 40 million cards were stolen shows a severe security failure that should not have ever happened.

The good news

What happens if you find fraudulent charges on your statement? The good news is that you probably won’t be on the hook for them. First, the credit card companies often are able to flag the charges before they go through and shut down your card. In the event your credit card issuer doesn’t do this, it will usually strip off the charges you claim are fraudulent. This means that the worst thing you may have to deal with is getting a new card.

If you used a debit card

Debit cards offer a lot of the same benefits as credit cards without the worry that you’ll overspend as they are tied to your checking or savings account and you can’t spend more than you have in the account. However, they usually don’t offer the same degree of fraud protection. So, if you used a debit card and your number was stolen, you may have a harder time getting your money back. The reason for this is because debit and credit cards are not treated the same under consumer protection laws. Federal law mandates a $50 limit on your personal liability for fraudulent charges on a credit card. On the other hand, if your debit card is hacked you could be out $500 or more depending on how fast you report the theft. If a thief uses your debit card, your account could be drained and it could take as long as two weeks for your bank to investigate the theft and reimburse you.

Breaking news!

As we were about to post this article, we learned that Chase has put some temporary restrictions on its cards that were affected by the Target security breach. These restrictions will stay until Chase can replace the cards. The restrictions are that cardholders will be limited to a maximum of $100 on cash withdrawals and $300 in purchases per day. However, Chase has also said that less than 10 percent of its customers are affected.

What else you can do

If you did use your credit card at a Target store this holiday shopping season, there are things you could to protect yourself besides checking your statement and notifying Target. If your bank hasn’t replaced your card, you should replace it immediately. This will definitely put an end to any fraudulent charges. When you get your new card be sure to update the information for any accounts where you have it on file for automatic payments or monthly fees. You could also consider signing up for a fraud monitoring service like Lifelock that will monitor the activities on your card and alert you if your account has gotten into the wrong hands. Most credit card companies have similar services that are free but the threat detection services claim they go further, including protecting your credit card information if you lose your wallet or are hacked when shopping online.

Be sneaky

There are a couple of sneaky things you can do to protect yourself from credit card theft. First, when you write you name on the back of a new credit card, use a Sharpie so that a thief couldn’t change your signature. And second, leave that little “Please Activate” strip on your cards. That way, if a thief gets one of your cards and sees that sticker, he may not bother with it because he’ll think it’s never been activated.

The Minimum Payment Credit Card Debt TrapAlways be vigilant

While banks and credit card companies have their own fraud controls, you need to be ever vigilant as the data breech that occurred at Target won’t be the last. Fraud is a real-time crime so waiting until the end of the month to check your credit and debit card activity doesn’t cut it anymore. You need to check your debit and credit card account activity every few days. If you spot any suspicious activity, be sure to immediately notify your bank or credit card issuer.

Watch out for “hotspots”

Be careful about using a debit card online or at retailers that are more venerable to fraud. ATM machines and gas stations are considered to be are credit and debit card “hot spots” for “skimmers” or machines that capture your card information. When you use an ATM, watch out for any parts that look unusual. The slot where you insert your card should be even with the rest of the machine or have only a very tiny edge. If the slot looks or feels different or if it has an extra bit of plastic sticking out, this could be a skimmer and you should not use the machine. If you don’t notice something looks fishy until after you’ve used your card, be sure to notify your bank immediately so that it can be on the lookout for any fraudulent charges. When you’re using an ATM you also should cover your hand whenever you’re typing in your PIN to prevent a thief from “shoulder surfing” to see and copy it.

Other tips for preventing credit card fraud

There are some other simple ways you can protect yourself from credit card fraud as reported in this video … which also explains why thieves love gift cards.

Be careful with your mail

Another important thing you can do to prevent identity theft is to be careful with your mail. For example, most experts say you should never leave outgoing mail in your mailbox or mail slot. A thief could grab your mail. If it included a payment of some kind he would instantly have your credit card and checking account information. You should take your outgoing mail to the post office instead – especially your credit card payments. For that matter, you should probably go paperless, get your financial information electronically and make your payments online. That way, no thief would ever be able to access your important financial information. If you do get your information on paper, be sure to shred it so that no thief can go dumpster diving and retrieve it.

Lock it all up

Identity thieves don’t need all your information to steal your identity. They need only a bit to get the rest. Be sure to put your passports, Social Security cards, birth certificates and other important documents in a safe deposit box at your bank. If you can’t do this at least put them in a safe you hide in your home. You should also put any credit cards you’ve stopped using into that safe or safe deposit box.

Identity theft is the fastest growing crime in America. In fact, last year about 12.4 million Americans fell victim to this crime. There’s no way you can protect yourself 100% from it but if you follow the advice you’ve just read in this article, you can minimize the odds that you’ll be victimized.

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