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Saturday September 23rd 2017

Put a Leash on It! Top Five Tips for Controlling Your Debt

Americans are facing an unprecedented level of debt. From credit cards to second mortgages, the majority of the country is in over its head. Here are five ways to get a handle on your debt and keep it under control.

Understand Good Debt vs. Bad Debt

There is such a thing as good debt. Investing in a mortgage or purchasing a car are ways that you can increase your credit rating and purchase expensive items that you need. Make sure you research the best rate options before you sign on for a large loan. Bad debt that should be avoided is usually in the form of high interest rates from credit cards. Try to pay for daily items with cash, and never buy anything with a credit card that you won’t be able to pay for by the end of the month.

Organize Spending Habits

Have a plan for your money. All of those small items that you pick up during the week are inexpensive one at a time, but they add up quickly. Make a realistic budget that includes all of the things you expect to purchase on a regular basis – including that danish with your coffee on Friday mornings.

Always Pay More than the Minimum

If you are carrying a revolving balance on your credit cards, always pay more than the minimum every month. Usually the minimum will only cover your interest payment on the balance. In order to make some headway into the principle balance, you will need to pay more than the minimum requirement.

Be Ready for Emergencies

It is important to be prepared for unexpected emergencies. Most financial planners recommend that you keep a savings account that is large enough to cover your expenses for three months. This safety net will provide you with the money you need in an emergency without having to resort to credit cards or other financial pitfalls.

Pay Debt Down in the Proper Order

How you pay your debt off is important. Begin by paying off the loans or credit cards that have the highest interest rate. Your debt will drop much faster as you reduce the balances on those loans because the interest that you are paying will be reduced right away. A good strategy is to make larger payments on one high interest loan and at least the minimum on your other loans. As you pay one off, you can start on the next one in the list.


Five Tips for Buying Your First Home

Buying a home can be an intimidating process if you have never done it before. These five tips are a great place to start if you are considering becoming a homeowner.

Clean up Your Credit Rating

Most homeowners need to acquire a mortgage. The recent problems in the housing market have led to a large number of foreclosures, so lending institutions have become much stricter in their lending policies. Your best bet is to have an excellent credit rating before you approach a bank for a mortgage loan. Before you begin house hunting, look into your credit report to see what your rating looks like. Take care of any outstanding problems prior to speaking with a lending institution about a mortgage.

Buy in Good School District

Whether you have children or not, a good school district is a great selling point for any home. The biggest benefit of living in a high quality school district is that it will help your home sell faster when you are ready to move. Most buyers place a high priority on school districts.

Work With a Professional

Some of the details of home buying can be confusing for someone who has never gone through the process. A professional realtor will be able to help you create a more successful strategy for shopping for the home as well as guide you through the steps involved in the purchasing process. Home shoppers have great access to home listings online, but a realtor can provide advice based on years of working in the housing market.

Lowering the Interest Rate

Many mortgages will allow you to choose to pay a higher down payment in return for a reduced interest rate. If you plan to own your home for more than a couple of years, the interest rate reduction will save you more money the longer you are paying on the loan.

Become Pre-approved

Pre-approval for a mortgage can help you become a more informed shopper while you are house hunting. You will know exactly how much you can afford to pay for a home, so you can avoid spending time looking at houses that may be outside your price range. Pre-approval helps speed up any offer you might want to make on a house that you like, as well. During the pre-approval process, the bank will examine your financial data to determine a realistic mortgage offer for you before you find a house.


What to do When You Can’t Pay the Minimum

It can happen to the best of us. For some reason or another you are unable to make your minimum credit card payment. As long as this only happens once in a blue moon you are okay; do not make it a regular occurrence or you will find yourself grave deep in debt. It is easy to just your minimum credit card payment if you can’t afford it and just go with the consequences. It is also incredibly stupid to do as well. If you find yourself in danger of missing your monthly minimum credit card payment follow the tips below to minimize its impact on your finances and credit score.

Be Proactive

The first action you need to take when you know you are going to miss your monthly minimum credit card payment is to call your creditor. Explain the situation you are in and why you can’t make your payment. Most creditors will waive the late fee and extend your due date as long as it is a one-time occurrence. The majority of creditors will also refrain from reporting late payments to credit bureaus. This is not guaranteed to occur. You may call and your creditor says they can’t do anything for you. However, if you choose not to call at all you will definitely be hit with the full extent of late payment penalties.

There’s Always a Way

Should you end up with a creditor that refuses to show any leniency you need to find a way to pay your minimum any way you can. You can try to find a friend or family member to burrow from, sell some items that are just collecting dust, get and advance on your next paycheck, or find a way to make a little extra money. It is important to keep any blemish you can from your credit score. The road to ruined credit often occurs from one missed payment slowly turning into more. Make the payment anyway you can.

Be Sensible

Do not put off other important bills to pay your credit card payment. While it is important to keep good credit, it is not worth losing your water or electricity. Should you find yourself falling behind regularly then you may need to try to work out alternative payments with your creditors or see a credit counselor as soon as possible. With a little proactive work you can to preserve your credit standing without sacrificing necessities. Do what you have to in order to stay in good credit today.


Credit versus Debit: What’s the Difference?

On the surface, debit cards and credit cards look very much alike. In either case, the user typically slides a wallet-sized piece of plastic through a card reader, and then signs a receipt or enters a Personal Identification Number (PIN), authorizing his or her transaction. Looking more closely at these forms of payment, you will notice a few fundamental differences. Let’s take a look at some of them.

Source of Funds

The most basic difference between credit and debit cards lies in the source of the funds used to conduct a purchase transaction. A debit card uses the money that you have previously deposited into a bank account, while a credit card essentially gives you a series of short-term loans that must be paid by the end of the month. With a debit card, it’s necessary to have the cash up front. With a credit card, you can make purchases even if you have not yet earned the money.

Protection from Debt

For this reason, debit cards can act as an excellent insulation against credit card debt. Credit card debt is the scourge that has enslaved so many people to an endless cycle of payments to credit card companies. The interest on their balances is so high, that a large portion of monthly earnings goes straight to paying for the interest.

With a debit card, it is still possible to overdraw your account, resulting in fees. Typically, a fee of around $30 is assessed on your bank account when this occurs. New laws in place require banks to alert you and only allow an overdraft with your prior permission. This makes it impossible to go deeply into debt with a debit card.

Purchase Protection

One advantage that credit cards have over some bank debit cards is purchase protection. If an unscrupulous person attempts to defraud you or fails to deliver on promised goods or services, then you can contact your credit card company to have the charge removed. This protection is mandated by law on all credit cards. You can still get this protection with a debit card, as long as your card carries the Visa or MasterCard logo. If your debit card is issued by a small local bank, then you shouldn’t assume that you are automatically protected; you should check with them on their specific policy and be sure there is a Visa or MasterCard logo on the card.

When Credit is Better

One of the greatest benefits of using a credit card instead of a debit card is taking advantage of rewards programs. You can get 1% or 2% cash back on all your purchases at the end of the year. Sometimes you can accumulate airline miles that you can exchange for airplane flights or for hotel or rental cars. There are also many credit cards with specific tie-ins with some of the major corporations. The GM credit card, for example, will allow you to accumulate credits that you can use to obtain a discounted price on your next GM vehicle. If you are responsible and can pay your bill on time, then these rewards are a great reason to choose a credit card instead of a debit card. If you don’t regularly make your payments on time, then these rewards end up costing you more than they give you.


Mortgage Rates at All Time Low…Expected to Continue

The mortgage market has been going through a deflationary cycle recently. Since the housing bubble first started to burst in 2007, interest rates on mortgage loans have been falling like rocks.  Mortgage rates have hit fifty-year lows. Demand, however, remains very weak.

There are various questions about this phenomenon running through the financial and business sectors. There is much confusion about how demand could be so low with such attractive rates. According to the standard supply-side formula, low interest rates should spur borrowing and investment. What’s really happening is that the savings rate has risen higher in the past eight years. In fact, in the second quarter of 2009, the personal savings rate hit five percent.

Low mortgage rates plus an increased sense of frugality combined with tighter lending standards results in homeowners who either cannot refinance or buy a home, or they are afraid to take the risk on buying a new home and prefer to live frugally within their current dwellings. The tighter lending standards mean that even borrowers who would have previously qualified for refinancing may not be able to do so. Many borrowers have found their financial situation worse off, due to factors such as a reduced credit rating, lowered income, and other negative factors that make it more difficult for homeowners to refinance because they cannot meet the stricter standards.

It is not surprising that the credit crunch brought down mortgage rates. The fact that the Federal Reserve was purchasing mortgage-backed securities from Fannie Mae and Freddie Mac helped to keep rates down. During the height of the financial crisis, the money market was suddenly gutted as depositors withdrew their funds. Since banks essentially create credit by lending out large loans such as mortgages, the expansion of credit was abruptly halted and in fact drastically reversed within a short period.

The sudden contraction of credit resulted in interest rates nose-diving because there was a sudden decrease in the amount of mortgage debt owed as the rate of defaults rose. The defaults were largely the result of falling home prices and high levels of consumer debt. Mortgage defaults decreased the overall debt load because the massive waves of foreclosures effectively wiped out hundreds of mortgage loans. This made the credit contraction even worse, and the rapidly shrinking money supply spurred the Federal Reserve’s lowering interest rates in order to keep the money supply from shrinking even further.

Unfortunately, the money supply continues to shrink due to deflationary trends despite the Federal Reserve’s efforts. The newly risk-averse banks simply do not lend out the money generated by the Reserve. Nationally, especially in the hard-hit areas of California and Florida, mortgage defaults continue to increase. Although the money market has appeared to recover, the contraction of credit continues to shrink the overall availability of currency.

This has resulted in low mortgage rates because of incredible deflationary pressures, not necessarily because of decreased risk. Even once the Federal Reserve stopped buying mortgage-backed securities from Fannie Mae and Freddie Mac, interest rates continued to fall. The deflationary trends have resulted in positive effects, however; the increased savings rate combined with the tighter standards have resulted in more consumers paying off their debts, with the salutary result that overall consumer debt levels in the United States have started decreasing.

In addition, there is a talk of a second wave of recession on the horizon. Whether the predictions are true or not, the negative sentiment makes already nervous lenders even tighter with their money. Why lend money at a risk when they can invest in government bonds and have a guaranteed profit?

All of the above notwithstanding, the low mortgage rates are continuing to stay low due to the continued credit contraction. Once the contraction bottoms out, mortgage rates should level off. They expected to remain low because of continued deflationary trends as the accumulated citizen and government debt is slowly paid off.