Bad Credit Loan Articles and Blog Posts

Submitted by Alice Bryant  on Thu, 02/26/2015 - 14:59
Even if your credit is just decent, it's not all that difficult to find a credit card. Besides those card offers that arrive in the mail from your bank, you can also go to the websites of major credit and financial companies to apply for cards there. That's to say nothing of the huge variety of credit cards offered by airlines, stores and hotel chains.
 
Of course, with so many options to choose from, you can bet that they're not all created equal. It can be difficult to find the card with the best terms, but with a little diligence, you can often narrow down your choices to just a few. Here are some of the signs that indicate a bad credit card.
 
No Rewards Program
 
These days, many credit cards offer rewards programs that give you special perks when you pay with the card. There are all kinds of them available. Many cards may qualify you for special discounts at certain stores, restaurants or hotels. Others may reward you in the form of a percentage of your money back on purchases. Some even help you save money on gas when you pay for it with your card, potentially tens or dozens of cents off of each gallon.
 
Then there are the credit cards that use a points-based rewards program. These are most often seen with cards issued by retailers. As you make purchases on the card, you accumulate points that can later be redeemed for products or services offered by that company.
 
If you play your hand right, these rewards programs can even be used to reduce your spending on everyday items, like groceries or household products. There are dozens of cards available that have these rewards programs, so don't settle for one that doesn't even give you an incentive to use it.
 
High Interest Rates
 
When you don't pay off your credit card balance each month, you're inevitably going to pay interest on what you owe. Unfortunately, if a card comes with a high annual percentage rate (APR), you could end up paying a ridiculous amount. In some cases, a high APR can keep someone from being able to fully pay off their balance in a timely manner, keeping them in long-term debt. Furthermore, once they do finally manage to pay off the balance, they've likely paid considerably more for the original purchase than it was worth.
 
For instance, assume for the moment that a card has $1,000 with a 20 percent APR and minimum payment of four percent. If you just pay the minimum, you'd need to pay around $40 per month. However, it will take you almost seven years at that rate. Because of the added interest, by the time the balance is paid off, you've paid over $500 more in interest alone, for which you received nothing.
 
Now assume that you have the same balance and minimum payment percentage on a card with a ten percent APR. The monthly payment will still be about the same, but instead of seven years, it'll take you less than five with minimum payments. Plus, you will have only spent an additional $200 or so as interest.
 
Although it's never recommended to carry a balance on your credit card, it's not always avoidable. Because of this, it's wise to steer clear of cards with an obscenely high APR, which only cost you more money. When you really need to use the card for something that will take months to pay off, you don't want to pay more than you have to.
 
Low Limits
 
Every card has a pre-defined limit that dictates how much you can charge to it. It's not often advisable to max out any credit card, but a high limit can be a blessing in an emergency. For instance, if your car breaks down and needs repairs your bank account can't handle, you likely won't be able to cover them with your low-limit card, either. In addition, having a card with a high limit can even boost your credit score. This is because a higher credit limit compared to your balance gets you a better rating. If you stumble across a card offer that only gives you a $500 or lower credit limit, you should keep looking.
 
Costly Penalties and Fees
 
Credit card issuers make most of their money by nickel-and-diming customers. They charge a fee for things like cash advances and withdrawals, ATM use, balance transfers, paying your bill online or over the phone, and possibly much more. For this reason, be sure to take a close look at the fine print or terms of use for any prospective credit card. If it looks like they'll levy you with fees left and right, especially if you intend to do the things they charge you for, find something else.
 
Varying Interest
 
Varying interest rates are a clever but devious tactic used by some credit card providers. It's the old bait and switch. They lure in customers by offering temptingly low interest rates, which is the first sign that something is amiss. If it seems too good to be true, it usually is. In reality, this great interest rate you think you're getting can be changed by the company whenever they choose, without notifying you. What's worse is that you can rest assured that it will change, and it'll hit you below the belt, right in your wallet.
 
Always choose a card that comes with a fixed interest rate, even if the APR is a little more. However, it's necessary to advise caution even with these. In certain cases, companies can and will change the interest rate even on a fixed-rate card. Again, be sure to read the fine print before committing.
 
Foreign Transaction Fees
 
If you travel outside the country at all, whether it's for pleasure or business, you'll want a credit card that doesn't work against you for this. Many cards levy special fees on credit transactions done overseas, which are often around three percent of what you charged to the card. When you're paying for your entire trip with your credit card, this seemingly low figure will quickly grow. If you need a credit card for use in a foreign country, look for one that works with the payment terminals there, and that has the lowest possible fee on these transactions.
 
Credit cards can be nice to have, but selecting one that saves you money instead of costing you takes some effort and research. Fortunately, by sticking to the tips above, you can better understand what to avoid and what to look for when choosing the right credit card for your needs.
 
Submitted by Alice Bryant  on Fri, 02/20/2015 - 16:37
Most people recognize the importance of maintaining good credit and aim to make the right decisions to maximize their credit scores. However, these same people almost always fail to maintain a good credit score because they have bad credit habits that guarantee failure from the start. Therefore, it is critical to recognize your bad habits so that you can make decisions to avoid the most common mistakes that can crash your credit score. Below are seven of the most common habits that you will need to break in order to maintain a good credit score.
 
1. Accepting Every Credit Card Offer
 
Most consumers get new credit card offers on an almost daily basis. However, it is not a good idea to accept a high number of credit cards because this can severely damage your credit score. Consumers who have dozens of outstanding credit cards demonstrate to prospective lenders that they doubt their own ability to make their future payments on time. For this reason, credit agencies tend to lower the credit scores of consumers who have a high number of outstanding credit cards.
 
It is generally recommended to hold no more than five credit cards. You can have a couple of store cards in your name, but avoid accepting every offer that you come across. Making a habit of this can save you great amounts of money on higher interest payments in the long-run.
 
2. Ignoring Small Payments
 
Even the smallest payment is just as important as your largest bills. Credit agencies can penalize you severely if you fail to make a small payment on time. Failing to pay small balances that you owe shows lenders that you likely to engage in unethical behaviors that could cost them money. Therefore, it is important for you to pay attention to small payments and make sure that you pay them on time.
 
Consider using one of the hundreds of smartphone apps that are available in today's world for consumers to manage their expenses. You can use these apps to give you routine alerts that remind you about small payments that you might otherwise neglect. Developing a system to help you remember to make your small payments can clean up your credit report and make you more attractive to lenders.
 
3. Ignoring Credit Card Payments
 
Some consumers get so fed up with paying for their credit cards that they start to ignore their monthly credit card bill. Unfortunately, this will only hurt you in the long-run. Your credit card might only charge a small late fee, but your account will go into collections after 60 days. When this happens, you will have to pay the penalty interest rate and could face a lawsuit if you continue to ignore this problem.
 
The most damaging effect associated with late credit card payments is their effect on your credit score. Even a single late credit card payment can bring down your credit score by dozens of points. Get in the habit of allocating enough money for your monthly credit card payment to prevent ruining your credit score for this reason.
 
4. Not Checking Your Credit Report
 
Federal laws require credit agencies to make free credit reports available to consumers. Credit reports can keep you informed about the status of your credit history and help address small disputes before they become big problems.
 
There is no reason why you should ignore your free annual credit reports. Simply get your free credit report every year to know where your credit rating stands.
 
5. Paying Bills at Random
 
You should devise a strategy to make your outstanding bill payments in the most advantageous way possible. Bills that have the highest interest rates should always come first. It is also important to pay down bills that have the potential to accumulate significant costs through miscellaneous fees or more expensive penalties.
 
You should carefully analyze your personal financial situation to determine which payments should be made first. Sit down with all of your bills and contracts to find which creditors are likely to charge you the most in interest and fees. You should then start to make your payments beginning with the most expensive loans. From there, work your way down to the less expensive bills as time goes on. Paying your bills down in a methodical way can save you great amounts of money and improve your credit score.
 
6. Borrowing Cash
 
Most credit cards offer the ability to borrow cash for making routine installment payments. However, many consumers do not realize that borrowed cash is treated differently than ordinary purchases. Most credit card companies charge a much higher interest rate for borrowed cash than with ordinary purchases. Cash balances also stay on your credit card for a longer period of time because ordinary purchases come off of your outstanding balance before cash purchases.
 
Borrowed cash can hurt your credit score because it demonstrates that you could be struggling to make your payments on time. Consider any alternative to get some extra cash on your hands before you borrow cash from your credit card company to make purchases.
 
7. Skipping Payments
 
Monthly installment payments are not optional choices for consumers who have signed a contract and agreed to make payments on time. Late payments almost always go on your credit report and can quickly bring down your score. Even during the hardest financial times, you should always make your payments on time. It might cause you short-term financial pain to not have some extra spending money for the next month, but late payments can cost you thousands of dollars in the long-run.
 
If you have no choice but to make a payment late, you should at least consider contacting your lender to see if you have any available options. Many lenders are willing to move a payment to the end of your loan's term if you have demonstrated an ability to make your payments on time. Lenders are also more likely to grant you a grace period on their own initiative if you contact them in advance about your potential inability to make a payment.
 
Executing Your Credit Strategy
 
The most important thing that you need to do is take action to eliminate the bad habits that are ruining your credit score. Consider working with other people in your life to help you stick with your commitment to make good credit decisions. You should also routinely refer back to these bad credit habits to ensure that you are not starting to stray from your intention to change your ways. By following the right credit habits in the years ahead, you can look forward to a good financial future that is free from worries and stress.
 
Submitted by Alice Bryant  on Fri, 02/13/2015 - 16:06
When you make a purchase, should you opt to do so with cash or with credit? The answer depends on what type of purchase that you are making and whether you can afford to do so upfront or need time to make the payments. Let's take a look at when it is best to pay for something with cash and when it is best to put the purchase on a credit card that can be paid off over time. 
 
Can You Afford to Pay the Bill at Purchase Time?
 
If you can afford to pay the bill at purchase time, you should pay for the item in cash. This allows you to gain more equity in a large-ticket item such as a car or enjoy more of the appreciation of your home's value after it is remodeled. When you go to the store to buy groceries or buy pizza online, you should opt to pay in cash whenever possible because you don't want a $5 slice of pizza or $50 in groceries costing you $100 after interest and other charges because it took six months to pay down the balance.
 
Can You Pay Your Bill Before the Closing Date on Your Credit Card Statement?
 
The one reason why you could benefit from making a payment with a credit card is if you can pay it off by the end of the current billing cycle. If you pay the bill by the time it comes due, you won't have to pay any interest. This can be helpful for folks who may need groceries or need to go to the dentist but don't get paid until next week or are expecting a large bonus in the future. In that scenario, you won't pay any more than you would with cash.
 
Do You Budget Your Money Appropriately?
 
If you have a hard time saving your money, it may be better to pay cash instead of using a credit card. This is because you will have an emotional attachment to your cash that you don't have when using a credit card. When your money is gone, you know it is gone because there is nothing left in your wallet. In addition, you actually have to hold it, count it and hand it to someone else. Therefore, you are fully immersed in the transaction. Hopefully, this will help you keep better track of your money and how much you can actually spend. Otherwise, you could rack up a large debt faster than you intended. 
 
Do You Get Perks or Rewards Points From Using a Particular Credit Card?
 
These days, you may get cash back, rewards points or some other perk for making a purchase with a credit card. If your credit card offers you five percent cash back on your next purchase, it may make sense to use the card and save the money as long as you can afford to pay the bill in a reasonable amount of time. 
 
For larger purchases, you may feel better about making that necessary purchase because you are getting points that can be redeemed for airline miles or other gifts that you actually want to spend money on. Knowing that the airfare for your next vacation is paid for can take the sting off of having to pay for a new roof or braces for the kids.
 
If you are getting your money interest-free for the next 12 to 18 months, you may also be better off using your credit card assuming that you can pay off the debt. This may allow you to get cash back or other perks without paying any interest on the transaction. The overall outcome could be that you actually make money on the deal. 
 
Can You Get a Better Return Keeping Cash in the Bank?
 
One consideration that is often overlooked in answering this question is whether or not you can put your cash to work for you elsewhere. Instead of paying $10,000 upfront for a new car, it may be better to keep that $10,000 in the stock market and simply pay $200 a month to finance the car. Over the length of the loan, the money in the market could double or triple while the car is guaranteed to lose value. In addition, it may be a good idea to consider what would happen if all of your cash was put toward a purchase that drained your savings account. Could you afford to pay for food or groceries without using a credit card if you did use your entire savings account to make a large purchase?
 
Is This a Necessary Purchase?
 
If you are making a large purchase, do you need to make it today? Could you save up for a few months and pay cash instead? For instance, if you were going to buy a new refrigerator for your house, you should ask yourself whether you will be happier with that new appliance. While there is nothing wrong with wanting the best in your home, you don't want to go into debt if your current product serves its purpose. However, if your refrigerator wasn't working properly, you may need to buy whatever you can afford right away. 
 
There is a lot to think about when you decide whether you want to pay cash or credit for your next purchase. If you can afford to pay cash, that is almost always the best way to go. However, if you have a 0 percent interest credit card or can pay it off by the end of the month, you may not put yourself in a financial hole by doing so. Ultimately, you have to know your financial situation and analyze the purchase itself to understand which is the best decision for you.
 
Submitted by Alice Bryant  on Fri, 02/06/2015 - 16:05
 
If someone finds himself in a situation where they have more bills than income, he or she needs to make sure that they are looking for some sort of credit counseling or repair. Credit repair should go far beyond paying off debt. You must come up with a plan of action that will dictate how you manage their finances in the future. Look over the steps below to see what you can do to make sure your bills and income line up properly.
 
Make A Budget
 
You need to make a budget. A surprising amount of people do not have a budget that they work from. You need to have all your expenses written down, and you need to make sure that you are accounting for all the money that comes in and goes out. 
 
It can be hard to see immediately how much money you have, how much money you need to pay the bills, and where to make cuts. Many people need to make cuts to their monthly budget before they make other changes that involve credit counseling or repair. People need to be sure that they get rid of anything in their budget that is not absolutely necessary. Most times, you will see that there is a lot you can cut to balance your budget every month. However, you may need to make extra cuts if you are going to get your budget into a comfortable area.
 
Contact Creditors
 
When people are thinking of getting credit card help, they need to contact their creditors first. When people contact their own creditors, they may be able to work out payment plans that make the most sense for them. Creditors may reduce payments, discharge part of the debt or make it easier for you to make payments by reducing interest rates. 
 
Make Changes
 
Since most people have a lot of credit card debt, you may need to consider consolidating your debt into a loan that will be much cheaper every month. In essence, you will get a loan from a lender that allows you to pay of all these debts. You will make one payment every month on a loan that has much lower interest rates than the rest of your debt. Also, you will be able to find that extra room in your budget that you need to be comfortable. If all else fails, you can work with a credit repair agency.
 
Making changes to the budget may require changes services, cancelling services or contacting companies to get out of contracts. When you have made all these adjustments to your budget, you will be able to start anew with their finances. The money you have saved will help you to pay off your debt, but it will also help you improve your credit score by taking minor items out of the picture.
 
Credit Repair
 
When you contact a credit repair agency, they are going to start on a program that is predicated on the credit agency doing most of the work. The credit agency is going to go over all the debt, and they are going to show you how you can pay off your debt. You may not know where to start, but the credit repair agency knows exactly what to do.
 
The Plan
 
The credit repair agency is going to come up with a plan that will help you pay off all your debts. These plans are often progressive so that you can pay off smaller debts first. When you get into the program, you will be able to use the money you have saved to pay more on other debts. Using a snowball effect to pay off debt is going to make it much easier for you to deal with their debt.
 
Also, the credit agency can contact all the creditors for you. They will provide you with services that help to discharge debt or to get payments reduced. The credit agency does all the work, but you benefit from that work. The credit agency may also help you find a loan that will help with consolidation.
 
True Repair
 
When you are in need of credit repair, the credit agency can submit all the corrections to each credit bureau. The credit bureau can take the advice of the credit agency, and they will work to make changes to a credit report. Many people have incorrect items on their credit report, and it is wise to get these items taken off. When you have taken all these steps in credit repair, you will see your credit score go up much higher than they ever thought possible.
 
Submitted by Alice Bryant  on Fri, 01/30/2015 - 16:34
It can seem like having “no credit” and “bad credit” are essentially the same thing because of the way credit card companies can frown on and shy away from both; however, they’re not the same thing. A score tells a credit company or other lending institution how much risk is involved with lending a certain amount of money to a borrower. 
 
Bad Things Happens
 
Sometimes, things happen. People with messy divorces can find themselves quickly in debt. People lose loved ones. People get injured and lose their jobs. At times, people are faced with either paying for rent or paying for food to fill their little ones’ stomachs. Life can get tough and credit scores can take a hit during tough times.
 
Complications
 
Having no credit and having bad credit can be devastating. It can prevent people from obtaining mortgage loans, student loans, credit cards, and auto loans, amongst other types of loans. While having bad credit and no credit won’t permanently put life on hold, it can become a huge obstacle when things need to be done urgently. It’s better to plan ahead and steadily build or rebuild credit so that there aren’t any surprises down the road. This is better than needing to find a place to live and not finding a possible solution due to credit issues. 
 
Negative Impacts
 
It can take time to repair bad credit and it can take time to build up credit—either route results in raising scores. However, bad credit can be worse than having no credit. For example, a foreclosure can negatively affect a person’s credit score such that the impact stays with them for seven years on their credit report. While a person without credit can apply for a secured credit card to raise their credit score, a person with a foreclosure on their credit report will take additional time to raise their score. 
 
“No Credit” Explained
 
“No credit” simply means there is nothing in a person’s credit history to indicate whether they’re a trustworthy person to lend to. A person with bad credit indicates to a company that a person is risky to lend to. The lower a person’s credit score, the higher the risk for the company to lend out this amount. The higher the risk involved in lending money, the higher the interest rate and other fees will be. A company simply does not know whether a person without credit is trustworthy to lend to and will usually err on the side of caution. They may not lend money to a person without credit in the event the person defaults on the amount lent. 
 
“Bad Credit” Explained
 
Bad credit simply refers to a score that has been negatively affected by various issues. These issues can be a default on a utility bill or other payment. Late payments can also negatively affect a person’s credit score. While these issues can lower scores, there are ways to raise a score as well. There are financial solutions for bad credit and no credit situations. For instance, getting a secured credit card is one way to raise a credit score. 
 
Secured Credit Cards: One Way to Increase a Credit Score
 
A secured credit card, like an unsecured credit card, has a specified limit on it; however, it is a reserved amount. This amount can be $250 or some other variable amount. With a secured credit card, the “borrower” provides this amount to be kept on the card. The card is then used for purchases and rather than paying off the debt, as would be done with an unsecured credit card, the card owner pays the amount charged to consistently keep the balance on the card at $250 or whichever amount the secured credit card company specifies. Each month, the secured credit card company reports to the credit bureau and a credit score can be raised in this manner. 
 
Other Ways to Increase a Credit Score
 
Other routes to raising a credit score are available too. Lowering debt is one way to increase a credit score. Also, it is wise to obtain a credit report to see which companies are owed money. At times, there may be mistakes on a credit report. Writing to these companies can result in removing these items from a credit report, which can raise a score. Paying off debt or making an arrangement to make payments on debt can help to bring an account into right standing. Making regular monthly payments can help to increase a credit score as well. 
 
Prudence is Key
 
A word to the wise: Applying for numerous loans can lower a credit score. While it is wise to obtain money needed for emergency situations, it is foolish to repeatedly apply for loans, which can consistently lower a score. Applying for a couple every few years won’t hurt a credit score; however, too many inquiries can. It’s best to do research on which cards are best to apply for. 
 
Short Term Loans
 
Having bad credit doesn’t have to stop people from obtaining short term loans either. In fact, there are lending institutions out there that will help those with bad credit to obtain a short term loan. A short term loan may also be referred to as a payday loan. These short term loans provide people with a way to obtain money for a short duration of time when emergency situations arise. They’re not only available for those with excellent credit scores. Some companies require a social security number while others simply request pay stubs for proof of employment. The application procedure takes a matter of minutes and there are brick and mortar places to apply in person, or people can use the internet as well. It is not uncommon for people to have money credited to their checking account the very next morning after applying the night before. 
 
Raising Credit Scores Provides Other Benefits
 
Building and rebuilding credit can take time; however, the sooner a person begins the process, the better. Raising a credit score doesn’t just result in being able to obtain loans. Raising a credit score can help to increase the amount of money in a person’s pocket. As a person raises their score, the amount of their monthly payments generally decreases. Generally, raising a credit score is directly proportionate to the amount saved on monthly payments in terms of percentage. Raising a credit score is not impossible; it just requires diligence. In the meantime, there are credit card and short term loan solutions available to help out when needed. 
Submitted by Alice Bryant  on Fri, 01/16/2015 - 16:06
Many people see the start of every New Year as a good time to reevaluate their financial status and goals. It is a time of clearing out old bills and financial records to prepare for taxes and setting up new files for the current year. This is also a good time to reflect on personal financial progress over the past year and evaluate what the coming year looks like financially.
 
When it comes to finances, the oft-used expression “Today is the first day of the rest of your life” is especially appropriate. Decisions made today and carried out over the coming months can have significant long-term implications, including into retirement and estate values.
 
To make the most of the financial future, it is important to understand the basic principle of the time value of money. One of the most important elements in gaining financial freedom is being in a position to have savings compound over time. Likewise, minimizing current taxes to allow even more savings to accumulate is important. Putting these principles to work is even more effective when combined with workable financial goals.
 
The following are 10 steps anyone can follow to evaluate their current financial status and use to make 2015 a year of financial success.
 
  • Evaluate sources of income. Many people talk about developing a budget. Starting with the income is important to gaining a perspective of what money will be coming in over the year by months. This is especially important if there is any seasonality to the income, such as bonuses and periods of high earning. This is also an excellent time to evaluate potential ways to increase income from different sources.
  • Understand all expenses. Once there is a detailed understanding of total income, it is possible to evaluate the impact of all the expenses that are a part of living each year. It is easy to look at total income and forget about both regular expenses and contingent expenses, such as major auto repairs, medical costs, and unexpected losses. Once those are totaled up, and a contingency and savings fund is added in, the net shows the real cash flow for the year. Assuming it is positive, that amount is what is available to increase total savings and net worth. If there is a gap based on realistic numbers, that will explain why there seems to be more month than money every pay cycle.
  • Maintain an emergency and contingencies fund. Unexpected expenses are simply a fact of life. They are the biggest busters of savings plans, both eliminating the ability to save and draining what is already set aside. An emergency fund of at least two months income is considered a prudent financial planning step.
  • Maximize savings and investments. Note the expectation of calculating expenses includes a specific allocation for savings. Simply planning on saving what is left over from paycheck to paycheck is often nothing more than a plan for failing to save. In fact, there should be a specific amount set aside each pay period, with additions coming from what is left over. As Americans age, more are getting concerned about retirement and are focusing on saving. Really building net worth includes both setting aside cash and developing a prudent investment plan.
  • Make retirement a priority. There are a number of ways to save for retirement that provide the potential for real tax savings. It should be a priority to fund IRAs and 401ks each year, and to work with a financial planner to ensure the best approaches to developing a long-term savings and investing strategy. This is where the concept of time value of money is most important, with early savings making a big difference in total funds available at retirement.
  • Apply the “Pay Me Now or Pay Me Later” concept. Most financial planners point to the single greatest secret of financial security as living beneath, rather than above, one’s income. On the other hand, the greatest mistake is living above one’s income. In the first case, a family can set money aside and have it earn its own income, working for a secure future. In the case of overspending, one is not only losing the potential to earn income, there is the added burden of paying interest. Many are surprised to learn that they can still be paying for the shoes they bought their grade-schooler when they start college if they put it on a high-interest credit card and only pay minimums each month. Avoiding that trap is essential to achieving long-term financial freedom.
  • Avoid interest expenses. While credit can be a useful and necessary financial tool for certain things, it is useful always remember what interest really is. When debt is incurred, interest works in the opposite direction from when it is earned on savings. In other words, it either works for or against the average person. Pay credit cards in time to avoid interest charges, pay mortgages and car notes on a bi-monthly basis, and take the opportunity to avoid any unnecessary loans, no matter how small the interest charges seem to be.
  • Manage credit cards and personal credit wisely. While this sounds much like avoiding interest, it implies even more discipline. Instead of having multiple credit card accounts and small loans, consolidate them into one or two with the lowest possible payment. This makes it easier to maintain credit ratings by not missing small payments. Also, it is easier to understand the total paid each month when it is in one or two larger amounts. Importantly, avoid the trap of getting further into debt with new accounts after consolidating existing amounts.
  • Buy a used vehicle. Other than home mortgages, the biggest lifetime expenditure for many families is for autos and trucks. Simply buying a good used car and paying cash, while saving the difference, can mean as much as an additional $100,000 to $200,000 in retirement savings.
  • Save any unanticipated income. Rather than spending an extra bonus, increases in salary or other additional income, consider setting a large part of it aside into the savings, investment, or emergency fund. If the amount is large enough, it can make a significant difference over the ten to twenty or more years it accumulates in a 401k or other investment. 
 
Finances don’t have to be a mystery, and can bring a lot of peace of mind when a few simple steps are followed to achieve even modest financial goals.
 

 

Submitted by Alice Bryant  on Thu, 01/08/2015 - 16:55
Introduction
 
The New Year is here and many people have already committed to resolutions for improving their lives for the next 12 months. A fantastic goal to include in those objectives, even if it wasn't an original choice, is to include a budget for managing income, monitoring expenses, eliminating debt, and even saving for the future. This is also an excellent tool for establishing credit for large purchasing power by knowing when and where debt to income ratio can be reduced. 
 
Money is a vital part of everyone's daily lives and without a budget it can be very hard to manage. In fact, it is almost impossible to establish good credit without first establishing a working budget. The simplest way to get started planning and implementing a budget is to use a management program such as Microsoft Excel or Pages by Mac to set up a visual banking system. By setting up columns for income and expenses, the flow of finances can be easier to track showing where debts are vulnerable or opportunities for savings. 
 
There are several moving pieces to any good budget and this breakdown will help identify where to start and which areas to prioritize. Consider the following tips and tricks for setting up a 2015 budget that can work for any family. The subsections below will be based on a 12 month budget for the 2015 calendar year and give a good foundation on establishing credit.
 
Basics of Balancing
 
Any good budget starts with balance, just like with a checkbook register. In order to know what can be done with their money, first the person making the budget must be sure of exactly how much is available. Many people are fooled into thinking their disposable income is greater than it actually is, therefore they continue to accrue deficits each pay cycle because they spend more than they make.
 
1. Income – Income is the amount of money brought into a household each month. The most basic form of this is the standard paycheck. Paychecks are money earned from services provided to an employer. To keep things simple, this budgeting guide will focus on a standard pay check, however, it is important to know that income can be generated in a multitude of ways. Annual annuities, dividends paid from stock ownership, returns on investments, pensions, and social security are all considered forms of income to consider when creating a working budget. 
 
2. Expenses – Expenses are important to note and not just the big ones. To properly balance a budget every little expense must be meticulously noted and registered on your new 2015 budget. Everything from rent, utilities, internet services, fuel for automobiles, groceries all the way down to the coffee purchased from McDonalds. It’s tedious, but it shows exactly where disposable income can bust an overview budget. 
 
Living within Means
 
In a perfect world, income in should always exceed expenses out. That is how a budget remains balanced and is referred to as living within ones means. In the real world, however, Murphy’s Law can often supersede plans and forcefully redirect resources. Water heaters can suddenly bust, cars can stop working, and plumbing can spring leaks. There is an endless list of unforeseen factors that can cause financial stress on a family and this is where credit becomes a factor. Credit is what allows us to live beyond those means in emergencies but it should always be respected and controlled. It is an intricate part of a budget that must be managed just the same as income and expense. In fact, with well managed finances, credit actually becomes an expense that can be absorbed. That, in fact, is the ultimate goal for sustaining a balanced budget. 
 
Basics of Debt to Income Ratio – The Prequel to Good Credit
 
Debt to income ratio is a statistical analysis of a person’s finance that is used to determine credit. It is most often used by banks in determining if someone is able to adopt a mortgage for purchasing a new home, but it can also be used to determine other potential loans such as car or land purchases. It is established by taking a person’s total monthly payments and dividing that number by their total monthly income. There are a few basics to understand when thinking about debt to income ratio.
 
1. Ideally the debt-to-income ratio should be 15% or less. Higher ratios are acknowledged by lenders as indicators of potential problems with making payments while paying other bills on time.
2. Ratios in excess of 20% often send up red flags to potential lenders and my require the assistance of outside credit counselors. 
3. Up to 30% of a person’s credit score can be affected by outstanding debt.
 
Managing Debt
 
A debt is an outstanding asset. It is money owed to a bank or other institution that generates and interest on return for their investment. As such, most companies offer money to higher risk borrowers with the caveat of tacking on higher interest rates. This is a risk management technique widely used in the financial market today.
 
To effectively manage a budget, debts must be eliminated where available. This, however, doesn’t necessarily mean attacking the highest interest rate debt available it just means knocking out debts as quickly as possible. More subtle means of debt reduction can lead to much faster results. Please consider the debt snowball:
 
• The Debt Snowball is a technique used to use excess income to attack and eliminate the smallest debt available first and work up from the bottom. An example would be a credit card payment of $100 a month on a $1,000 loan or a car payment of $550 a month on a $10,000 loan. By using the debt snowball and working on the smaller credit card payment first, even doubling up payments, they could pay the loan off in half the time and then use what they were paying to then pay $750 a month on the car loan. It effectively halves the time of both payoffs and greatly reduces the interest accrued instead of making minimum payments. 
 
Savings & Retirement
 
Unfortunately this is last on the list when balancing a budget and managing credit. The first two are vital steps that are stepping stones to being in a position for savings and retirement. Once debts have been reduced and credit established, savings are simply the next chapter in budget maintenance. To manage finances properly it doesn't make sense to hold back capital that can be used in clearing debts. The interest generated on savings pales in comparison to the massive interest being accrued on outstanding debt. That’s a simple horror that many people have trouble coping with when first considering a budget.
 
Conclusion
 
Hopefully these tips and tricks for establishing an effective 2015 budget have been helpful. In today’s world having good credit is almost just as important as having a balanced budget. With some sacrifice and hard work, both can be accomplished. 
 
Submitted by Alice Bryant  on Fri, 12/19/2014 - 15:04
Each Christmas, you have a long list of holiday expenses that need to be paid. In addition to paying for Christmas gifts, you may need to pay for a holiday dinner or for that nice tree in your house or apartment. However, is it worth it to take out a loan to pay your Christmas expenses? Let's take a look at whether or not a holiday loan is right for you. 
 
Loans Are Not Free Money
 
While a holiday loan may be fairly easy to get, it may not be as easy to repay. Therefore, you still need to stick to a budget before you start spending whether you borrow the money first or pay the bills with your own money. In addition to repaying the money that you borrow, it is also important to remember that you will be charged interest to borrow the money. 
 
Interest is the amount that it will cost you for the right to borrow the money. If you have good credit, your interest rate could be as low as 0 percent if you apply for a new credit card. However, those who have poor credit may be forced to take a personal loan from the bank or an online lender. Personal loans could have an interest rate of 15 percent or higher. 
 
Can You Find a Loan That Works for You?
 
After asking yourself whether you can afford to repay the money that you borrow, the next step is to find a loan that works for you. Different loan types will have different repayment schedules and other terms. A personal loan may allow you to repay the loan over the course of a year or more while a loan while a peer-to-peer loan may force you to repay the loan within six months or less. 
 
In the event that you take out a loan that doesn't require a credit check, you could be charged an interest rate of 30 percent of more. This means that you would have to pay roughly $130 for every $100 that is borrowed. You also have to repay that loan within two weeks or risk financial penalties. In that scenario, it may be better to scale down Christmas instead of taking out a loan that may be impossible to repay. 
 
Credit May Cause You to Overspend
 
Having access to credit may cause you to spend more than you can reasonably afford to. Instead of spending $500 on your friends and family for Christmas, you may splurge for a $500 gift for one person and put the rest on credit. While there is nothing wrong with taking care of your friends and family during the holiday season, you have to make sure that you are being responsible with the financial resources available to you. 
 
Unless you are going to buy a gift that performs an essential function or may appreciate in value over the next few years, it probably isn't worth buying on credit. Remember, most people rarely remember how much you spent on a gift. In many cases, thoughtful or handmade gifts are the ones that people like, and they are the ones that rarely cost more than you can afford to spend. 
 
What Happens if You Cannot Repay the Loan?
 
If you cannot repay the loan, you could experience several consequences. First, you could have your credit score ruined for several years for missing even a single payment. Second, you could be taken to court by your creditors for failure to pay the loan back. Finally, you could have to go to court to file for bankruptcy if you cannot reach an agreement with your creditors to modify your loan payments.
 
It is important to note that your credit could be harmed no matter how large or small the amount of a missed payment is. As long as the lender reports the late or missed payment to the credit agencies, your score could drop 100 points whether you missed a $5 payment or a $5,000 payment. Accounts that go into collection do not leave your credit report for up to seven years even if you pay the bill that went into collections. 
 
What Happens if Your Financial Circumstances Change?
 
One factor that you need to think about when taking out a loan is what you would do if your circumstances changed. For instance, what would you do if you lost your job or suffered from a condition that forced you to go to the hospital? What would you do if you had to pay to fix your car and it drains your savings? If that happens, you may not be able to pay the loan back. 
 
Therefore, you need to know that you can make payments three, six or nine months from the date that you took the loan. Those who know that they can't afford to make payments for more than a few months at a time should refine their budget or make sure that they obtain a loan that they are forced to repay as fast as possible. 
 
Is it worthwhile to take out a loan during the holiday season? Depending on the interest rate and other loan terms, it may be easier to borrow the money now and repay it later. Having extra cash in your bank account may make it easier to cover bills during a time of year that may be slow in terms of available work. However, if you are borrowing just to have extra money to spend, it may be best to skip the loan this time. 
 
Submitted by Alice Bryant  on Fri, 12/12/2014 - 15:32
Historically, mortgage lenders have looked at several key factors when making a decision to approve a loan request, and high on the list of these factors are credit scores and the amount of the down payment that the loan applicant is willing or able to put down. If you did not have a sizable down payment and an excellent credit rating, chances were low that your loan request would be approved. In fact, until rather recently, Fannie Mae and Freddie Mac mortgage loans required borrowers to have at least a 20 percent down payment. The good news for those who are in the market to purchase a new home is that lenders are now loosening their requirements, and this is enabling many who do not comply perfectly with historically stringent requirements to qualify for a home mortgage and to take ownership of a house that they have their eye on. 
 
What Happens When a Borrower Defaults On a Mortgage 
 
Fannie Mae and Freddie Mac essentially were designed to make home ownership more affordable and financing easier to qualify for, and these agencies have been serving this role for many decades. However, Fannie Mae and Freddie Mac also had the right to require lenders who make loans that quickly fall into default status after their closing to buy back their loans. Buybacks can be expensive for lenders, and because of this, lenders typically make an effort to complete thorough underwriting so that the risk of a buyback trigger is minimized.
 
When Fannie Mae and Freddie Mac Back a Loan
 
The guarantee offered to lenders by Fannie Mae and Freddie Mac is supposed to be a benefit to banks and mortgage applicants alike. However, in the past, the rules regarding when the guarantee would go into effect has been fuzzy and often confusing for lenders. Because of this, lenders have been timid about extending credit through the approval of a mortgage loan to some applicants who did not neatly and perfectly fit into the underwriting guidelines. There was little ability or desire by lenders to think outside of the box or to be creative with structuring a loan that would be most beneficial to a home buyer. Recently, however, Fannie Mae and Freddie Mac have defined and clarified their position on guarantees. This gives banks greater comfort and confidence when making important underwriting decisions. 
 
The New Rules Regarding Down Payments 
 
In recent years, both Fannie Mae and Freddie Mac have stated that they will not buy back loans with a very low down payment, such as three percent down loans. It was commonplace over the last few decades for borrowers to apply for a very low down payment home mortgage, but approval of these loans was eliminated in recent years due to the economic recession in 2007. Only recently have both Fannie Mae and Freddie Mac shifted in this area. They have stated that they will back loans with as little as three percent down payment. Up until this point, the primary option available for low down payment borrowers was the t3.5 percent down payment loan available via FHA. The downside to the FHA loans is that borrowers are required to make a mortgage insurance premium payment for the life of the loan rather than only until the equity in the home reaches at least 20 percent of its value. 
 
The Clarification Regarding Buyback Guarantees
 
While Fannie Mae and Freddie Mac have both had a considerably beneficial shift with regards to the minimum down payment requirement in place, both have also clarified their stance on their buyback guarantee. The importance of the buyback is to give lenders confidence to extend loans to home loan applicants, thereby promoting the availability and affordability of home loans to the masses. However, with the uncertainty about when the buyback would actually go into effect, the strength and benefit of this guarantee was minimized. Recently, both agencies have stated that they will buy back loans after36 months if the borrowers make payments on time during this time period. In addition, both agencies will also permit two missed payments during this period of time without forcing a foreclosure. 
 
A Change on Private Mortgage Insurance 
 
Private mortgage insurance is required for all low down payment loans. There have been instances when the PMI requirement was pulled back on some loans due to underwriting issues or errors. In the past, this has resulted in the automatic buyback of the loan by the lender. However, this rule has also been clarified and revised to benefit the lenders. The newly clarified rule states that this type of error will no longer create an automatic buyback situation, and this is yet another benefit to lenders who have been timid about being less flexible with regards to underwriting. 
 
The Effect of These Changes on Underwriting Efforts
 
When lenders extend credit to a borrower for a home mortgage, they typically will underwrite the loan looking for a high level of assurance that the borrower will make timely payments and will not default on the loan. They will review income, expenses, length of time at a place of employment and credit scores in an effort to decrease uncertainty and to minimize risk. Buybacks can be expensive for a lender to deal with, and the guarantee offered by Fannie Mae and Freddie Mac was supposed to provide lenders with the confidence to extend loans to borrowers who do not have a perfect profile but who still are a low risk. The new changes that have been instituted by Freddie Mac and Fannie Mae have firmed up the strength of this guarantee, and this has helped lenders to extend mortgages to borrowers who are not entirely perfect in every area of their underwriting guidelines. They also are able to lend with confidence on low down payment loan requests. Essentially, this has created a more beneficial lending environment for both borrowers and lenders alike. 
 
The unfortunate truth is that some borrowers who have a reasonably good loan application and good credit had been declined when applying for a home mortgage in recent years due to issues created by the Fannie Mae and Freddie Mac guidelines. This is not a free ticket for all potential home loan applicants to obtain loan approval on a home mortgage request, however. Mortgage applicants will still be required to comply with underwriting guidelines and to have extenuating circumstances supported by other strengths in the loan request. If you are thinking about applying for a home loan in the near future, you may consider speaking with a mortgage consultant about how these changes may impact your loan request specifically.
 
Submitted by Alice Bryant  on Fri, 12/05/2014 - 16:41
It would seem as though bad credit is the result of a few poor decisions concerning personal finances, with impulse spending being the most common culprit. While it is a known fact that mental health and physical health often mirror each other, there is also evidence that an individual's overall health may reflect his/her credit score - or vice versa - especially where cardiovascular health is concerned.
 
Researchers and demographic study consultants have put together a very interesting map overlay of the United States-based consumer spending statistics, creditworthiness, and debt situation as compared to how healthy a particular individual is. The results of the studies indicate what was already suspected by some credit card companies as well as the majority of medical practitioners. A person's health history, especially his/her health forecast for the future, can be correlated to some degree with the individual's credit score or credit rating over the past decade or so. Bad health is reflected in lower credit scores.
 
Why Bad Health Leads To Bad Credit
 
It would be quite easy to argue that bad credit is generally the result of uneducated spending habits, linked more or less to underprivileged persons in the lower classes of society. However, most types of illness and disease show no preference for how much money an individual has. The wealthy are just as likely to suffer from heart disease, liver malfunction, diabetes, and other maladies.
 
The reason for the connection probably has to do with education about good decision making. If a person is taught to be conservative in spending, to look at the overall financial picture before rushing to buy, and to keep as much money in the bank as possible as a means of earning interest and showing responsibility, the person absorbing these teachings is far more likely to be responsible in other areas as well. Healthy adults are the result of healthy children, but healthy adults above the age of 40 are the result of looking far into the future and showing a level of preventative responsibility.
 
Therefore, the better one takes care of personal finance, the more likely he/she is in good health. Those who plan their spending wisely are more likely to plan ahead when it comes to health concerns. One of the most commonly found correlations in these demographic studies has to do with heart disease and overall cardiovascular health.
 
Credit Debt And Heart Attacks
 
No one is saying that a $3000 credit card balance will cause a heart attack. It is true that many will feel their pulse quicken when they realize just how much they are paying in interest charges each and every month. However, the monthly statement is not the direct cause of heart disease, high cholesterol, or myocardial infarction.
 
These studies do conclude that the more debt a person has, the more likely he or she will suffer a heart attack, stroke, or other cardiovascular problem at an earlier age than the national average. Specifically, the person who has a credit score of at least 100 points below average can be considered to be more than a year older in terms of heart health.
 
On the other hand, those who have a credit score - and have maintained their score - more than 100 points above the average are likely to be enjoying at least a year or two more of youthful health, especially in the areas of heart condition, health of blood vessels, and cholesterol levels.
 
The reasonable conclusion is that those individuals who take better care of their finances are also more likely to take better care of themselves. In other words, the educated individual who has been taught the importance of wise spending and conservative spending of at-risk funds is likely to be someone who is looking ahead long-term when it comes to a healthy, disease-free adulthood. These people tend to eat better foods, exercise more often, and avoid alcohol and tobacco. The interesting part of these studies is the demographic correlation between the current age of the individual and his/her age when these good habits were taught.
 
It Starts Early In Life
 
Young adulthood is a time of experimentation. For many, it is also the time of indoctrination into the world of finance. If college-age students are not prepared for how credit card debt works or how financed purchases can mean loads of interest accrual, they will experience stress and anxiety. It is an unfortunate fact that the other experimentation of this period - namely smoking, drugs, and drinking - is often the relief valve for stress, and this can be the starting point of the road to bad health.
 
Various studies have shown that the high percentage of young adults who are experiencing credit card debt in amounts exceeding $2000 also tend to be overweight, have hypertension, do not exercise regularly, have poor eating habits and often do not consume a full breakfast or lunch, and eat a lot of unhealthy fast food.
 
It is therefore no wonder that as these people continue to struggle financially, they also keep their old habits that equate to an unhealthy lifestyle. By the time they are in their 30s, many men and women have given up on the idea of actually taking control of their financial obligations and reward this decision with even more self-abuse in the form of alcohol, tobacco, or dangerous drugs.
 
Personal Health And Creditworthiness
 
Does this mean that credit card companies or other financial institutions are going to be taking a harder look at a person's health history before making a decision on whether to approve a loan? One thing is for certain. Most lenders are now basing their decisions on statistical information that is different from what was considered important just a generation ago.
 
For example, the number of credit cards held by an individual meant next to nothing just 20 years ago, but today it is a primary consideration when an application is received. Even if the majority of balances are well below the credit limit, some lenders are hesitant to add to the number of outstanding balances.
 
It may be that signs of an unhealthy individual are reflected in the total amount of debt versus the amount being paid against the principal and interest each month. One thing is for sure, however. Getting out of debt involves the same commitment as improving one's health. Habits must be replaced with newer, better habits. Once a plan is developed, it must be implemented in way that allows for recognition or reward for a successful attempt.
 
A credit consolidation consultant may be a good choice for finding out about options for debt reductions. It is important to know all the details, however. This type of debt relief for those with bad credit is not for everyone. The same is true with treatment or healing options for a medical condition. In order for things to be all right again, something must be done, but it is highly recommended that those who are suffering from mounting financial obligations or who are inattentive to their health explore all options before choosing a recovery plan. 
 
Last updated on Mar 3rd 11:29 pm