Top Personal Finance Blogs
Friday November 17th 2017

How Loan Modifications Work

The government’s mortgage modification plan, Making Home Affordable, had a weak first year, but that doesn’t mean homeowners shouldn’t try to take advantage of it. The plan consists of several programs that aim to make mortgages more affordable, including the Home Affordable Refinance Program (HARP) and the Home Affordable Modification Program (HAMP).

Here’s how the modification programs Work:

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How to Double Your Retirement Nest Egg

If you’re over 50 now and the retirement nest egg you had planned while you were younger was sidetracked by life, fear not. Although parental responsibilities, less than expected raises and higher than anticipated living expenses can cut into your retirement savings, you can still retire comfortably. If you begin now, there are a number of tools that can help boost your retirement account before the boss hands you that gold watch for all your years of service.

Increase Your 401k Contributions

If your 401k contribution does not equal the maximum amount of your employer matching contribution (up to 6% of your salary, depending on the plan specifications), you might consider increasing your contribution. There are few investments that will double your investment immediately and none that will do it on a tax deferred basis like the 401k does.

If you’re making $50,000 per year and your employer will match up to 6% of your salary, you are putting an extra $6,000 in your account annually, $3,000 of which comes from your employer. Making a contribution like this can add up quickly.

Even if you are already maxed on your employer matching contributions, you might consider contributing more into your account, since it is a tax deferred investment. The IRS permits you to contribute up to $16,500 into your account, depending on the plan limits. After 2010, the contribution limits will fluctuate depending on inflation. And if you are over 50, you can contribute an additional $5,500.00 annually as a “catch up provision.” This too will fluctuate in future years, depending on inflation.

Increase Your IRA Contributions

If you have a Roth IRA or traditional IRA, both are good retirement tools to use. With a traditional IRA, you receive a tax deduction up to the maximum allowable amount of your contribution. The interest earned on the account is also tax deferred, meaning you do not pay tax on interest earned until you withdraw the money. Plus there’s no reason you can’t have both on top of your 401k.

On a Roth IRA, you receive no tax deduction for your contribution. However, when you withdraw the money at retirement, you are not taxed on the interest earned. This can become important at retirement, when you will have less income to live on.

Both IRA and Roth IRA contribution limits have been increased in recent years. Contribution limits are now $5,000. If you are over 50, the limit is $6,000. Over 15-20 years, this investment will certainly add up, especially considering the interest accruing on the account.

For instance, if you are 50, and plan on retiring at 70, and invest $5,000 per year, and earn 5% on your investment, you balance at age 70 will be $185,542.21. If you have a traditional IRA, you have not paid tax on any of this money for the past 20 years. If you have a Roth IRA, you won’t pay tax as you withdraw it.

Use the Equity in Your Home

A house is still usually the biggest investment a typical person makes in their lifetime. In years past, most people had their mortgages paid down or paid off as they approached retirement years. This is not as true anymore, as many people will carry their mortgages into retirement.

If you are becoming an empty nester, you might consider downsizing. If you no longer need the room of a 4 or 5 bedroom home, consider moving down to a 2 or 3 bedroom home. You will not only most likely reduce your mortgage payment, but will also reduce your utility costs and real estate taxes. Consider these monthly savings as income, and use it to fund an IRA or increase the contribution to your 401k.

Consider a Second Job to Fund Your Retirement

This might be in the form of a second job or a small, home based business. Even a few hundred extra dollars per month will go a long way to increasing your retirement account. The internet has created reach to people on a world wide basis like never before. Use the web as your tool to increase your income, and use that income to increase your retirement portfolio. Better to work it now than be forced to keep working at retirement age.


8 Ways to Waste Money on Insurance

Consumers don’t like risk and that’s probably why insurance is such a big business in America. There are some types of insurance you absolutely should not go without, like health, disability or long-term care, auto, flood, and renters or homeowner’s insurance. But what about all those other policies out there being pedaled on TV and online? Should you buy them? Here are eight types of insurance policies to which you can comfortably say, “no thanks.” That wasted money is put to much better use buying the vital types of insurance you have been neglecting.

Private Mortgage Insurance (PMI)

You can’t always avoid PMI, but you should whenever possible. If you owe more than 80% of the value of your home on a mortgage, the lender is likely to force you to pay for PMI as a high-risk borrower. Focus all your energy on paying down your mortgage principal until it is under 80% of the home’s value, then kick PMI to the curb.

Credit Card Insurance

You see ads on television all the time that say, “How will my family pay my bills after I’m gone? I don’t want to leave them with that burden.” Well, as it turns out, that burden won’t be theirs to begin with. Credit card debt is unsecured debt. If there are no funds in the estate to pay the debt, then the credit card has no further option. They have no right to pursue your loved ones for the debt. You are better off using that $15 a month to pay down the principle and leave your cards paid down instead.

Some purchase credit card insurance in case of disability. But this type of insurance does little for you. It will only cover minimum monthly payments (and you know where that gets you) so the debt will not really get paid. In addition, most lenders will work with you if you are disabled. Disability insurance is a much better value for the money. That money can be used to pay down the debt instead of just stringing it along with minimum payments.

Mortgage Life Insurance

Just like credit card insurance, this policy will pay the balance of your mortgage if you pass away before paying it yourself. The only person this benefits is your lender, since they are the beneficiaries. A good life insurance policy will let your loved ones decide if they should pay off the house or sell it.

Children’s Life Insurance

What parent doesn’t want the best of everything for their children? Children’s life insurance seems like just one more good-parenting tip. While its true there is an off chance your child might grow to have a chronic illness making life insurance hard to get, more often than not, your kids will be able to get term insurance through their employers. Think hard about how much better of your child might be if you used the money to invest in college or a first home instead.

Extended Warranties

Warranties are simply not necessary. Most products break down during the manufacturer’s warranty period. The money you pay for the warrantee might be unnecessary. If you bought it with a rewards card that offers free warranties, it’s clearly a waste of money. A good warrantee plan costs the same as a maintenance visit minimum and gives you the option of buying the warrantee and having the visit covered by it instead. Then you have coverage for a full year for anything else that might go wrong. Some warrantees come with free technical service on computer products, another good reason to buy one.

But when you look at all the warranties in your home, chances are only one product has given you trouble. It’s also very likely that the cost of warranties overshadowed the cost of repairs on the troublesome appliance. Consider keeping keep a savings account instead and start putting $60 – $100 a year in it for each appliance. When something breaks, you’ll have the money sitting and waiting to pay for repairs or a replacement.

Physical Damage Auto Insurance

Collision and comprehensive auto insurance makes little sense for most cars. When the value of your car breaks even with the amount you have paid for physical damage insurance, stop paying for it. Start putting the money in a savings account so you can pay for damages if they happen. If your car is older than five years, it’s probably time to start saving that money instead of paying it.

Rental Car Insurance

Most people renting cars already have their own cars. If you don’t own a car, then rental insurance makes sense. But the insurance on the car you already own covers anything that happens in the rental, so why would you pay twice for the same thing?

Roadside Assistance

While being able to call for a tow without worrying about the cost is nice, there are cheaper ways to get this coverage than buying from your car insurance company. Dollar for dollar the charges are similar to a AAA membership, but the extra claims on your policy might hurt premiums in the long run. That’s why its smarter to keep roadside assistance on a separate policy for the same cost.


Do IDAs Actually Work?

A potent picture of a tear-stained face can send us delving quickly into our wallets. But making that giving a legal responsibility, and the sympathy of most citizens turns to a defiant glare. Why should our hard-earned end up in the savings accounts of the lowest societal denominators?

This is the controversy concerning Individual Development Accounts (IDAs). The dark horses of welfare, IDAs are special savings accounts for low-income persons and families. While entry requirements vary by state, participants must generally be within 200% of the Federal poverty line, have a steady source of income, and possess less than $5,000-$10,000 in net wealth, excluding home ownership and one car.

Money placed in an IDA is matched at a specified ratio (i.e. 1:1, 2:1, 3:1) either through a private organization or government assistance. Most IDAs have input limits, ranging from $500 to $3,000, and last between six months and three years. Generally, IDAs are for buying a home, returning to education, or starting a business. But IDAs are not just about money.

Participants are taught financial responsibility and literacy. Entrants are stringently screened prior to acceptance, and work one-on-one with business advisors, improving credit scores, developing entrepreneurial skills, and achieving a high level of business acumen. They get top notch business training at no cost, plus free money to put it into practice.

That’s the goal anyway. But does it work? Do IDAs make people richer?

In the short-term, yes. Programs such as San Francisco’s EARN; the Federal government’s AFI, which is the largest federally subsidized IDA program, averaging $25 million per FY, OCS, JOLI, and FSS; and the 21 states with IDA support (2009), have been shown to increase short-term savings. According to Community-Wealth.org (2007), 168 million in government funds has been injected into IDAs thus far, leading to an average of $1,543 in savings per participant.

Participants like Jenny Robinson and Dametria Williams, formerly poor and hapless women, have used IDAs to begin their businesses and give them hope. IDA proponents proudly point to similar stories and claim victory.

But how does the future play out? Not so hopefully it seems. Long-term, IDA holders have trouble saving, maintaining their homes, or rising above their economic position. And sadly, the ones that need help most may not be getting it.

A study by Mills, Gale, Patterson, Engelhardt, Eriksen, Apostolov, and Emil (2008) shows that, although participants showed an increase in home ownership, IDAs had almost no “discernible effect” on other assets, net wealth or poverty rates, and that many participants withdrew matched funds for unqualified purposes. Another study by Grinstein-Weiss, Zhan, and Sherraden (2006), state that the most disadvantaged (i.e. African-Americans, the unmarried, least educated and poorest) show the least long-term asset improvement. And most subduing, the Kansas City TCF IDA program has an estimated 30% successful completion rate (2006). As a result, millions of taxpayer’s dollars are frittered away on good intentions.

Still, a few successes may be better than none. Social trends may start small and grow to include many. The success of one leads to the hope of another and so on. While it’s true that taxpayer funds are sometimes lost on these programs, the cash contributions come from banks. Taxpayers foot the bill for the financial counseling portion of IDAs.

These plans do appear to help those who are willing to put in the hard work achieve goals that would otherwise be unattainable, even unimaginable. It’s those individuals who simply cannot believe that they might ever be successful who fail to use these programs to full advantage. And for those who have never seen anyone they know succeed, it’s hard to believe they might ever achieve anything greater than what they see around them.


Ways that Planning Ahead Saves Money

Many people are taking a growing interest in saving money in any way possible. When making large purchases, such as a car or a house, we all plan ahead and analyze the choices that we have so that we can get the best deal. But many of usneglect to do the same thing for common everyday items. If you save $100 on a TV, but waste $1 on 100 small purchases, where is the savings?

Planning ahead for all of your purchases saves you a lot of money in the long run, as you will be less likely to buy on impulse, have more time to think about what you are buying and see if there is any way that you can get the same item for cheaper.

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Should You Take Control of Your Escrow?

Gain Control of EscrowManaging your own escrow used to be a popular technique among homeowners. But like all things, it has gone in and out of fashion. There was a time when taking control of escrow saved time and hassles. When the bank managed the fund, homeowners had to forward all of the insurance and tax bills to the escrow account, wait for it to get lost in the mail so they could send it again and wait to get threatening letters from the tax man or the insurance agent. Then there was the inevitable one-hour call to the bank or servicing agent, getting transfered to five representatives until you could find one who was willing to help you get things straightened out. But these days, letting the bank manage your escrow is nearly hassle free. But there are still good reasons to manage your own escrow.

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Strongest Consumer Financial Reform Since FDIC

A new government entity is taking shape that should protect consumers from nasty credit card tactics and other lending problems that have been plaguing the market for years. The Bureau of Consumer Financial Protection will be a watchdog agency targeted at cleaning up the consumer marketplace. It will force companies to create more transparent product disclosures, increase consumer financial literacy, and regulate lending products such as credit cards, mortgages, overdraft fees, payday loans and others.

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Mortgage Basics: Terms You Should Understand

When you apply for your first mortgage, you’ll hear many new terms that can be confusing. Don’t assume you understand what mortgage terms mean. Take the time to educate yourself so you know what  you’re getting into. Before you ever see the mortgage contract, you’ll be discussing certain terms with the lender.

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Lost Your Job? Cobra Can Help

The Consolidated Omnibus Budget Reconciliation Act (COBRA), passed in 1985, works as a stabilizing force for families when the primary breadwinner loses his or her job. The unemployed can continue carrying health insurance despite the loss of employment. Unexpected medical expenses can cripple an already struggling family.

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The Economics of Car Theft

Jobs are hard to find, unemployment is on an ever-increasing upswing in spite of official talk of reprieve and support. It’s at times like that anyone would assume theft would increase. Items of extreme value such as cars are one of the most commonly sought after items. First of all, because they are in such demand, second of all, because of the relative ease of selling them off by bits and pieces rather than as a whole, making them hard to track in spite of registrations, vin numbers and such. So why is it that in this time of economic crises auto theft is not on the rise right along with unemployment and insecurity?

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