Friday, March 16

Subprime Mortgage's- Easy to get into, hard to get out of!

If someone is in a sub prime mortgage, why not just refinance into something different? Easier said than done. These mortgages were very easy to get into, but are often very difficult to get out of.


First, many borrowed 125% of their property value with a Payment Option ARM, believing the lender that told them that in a rising real estate environment, after a few years the loan to value (LTV) would balance. What they weren't telling them was that the minimum payment was interest only and by making an interest only payment, the balance owed would stay the same. So, now the person who has paid on this loan for a year or two, hasn't missed a payment on the mortgage, or with anyone else, wants to refinance. Much to their dismay, they cannot find a better deal because the LTV is still over 100%.

Second, there are probably steep prepayment penalties that further add insult to injury. These can add thousands to an already huge payoff. Unless the homeowner has socked away the money that they were 'saving' by making interest only payments, or if they won a lottery or received an inheritance, chances are that the borrower cannot come up with the cash to pay penalties. Moreover, because they're already upside down in their property, that is that the property is worth less than what is owed against it, they don't have money to pay down the principal.

Third, because these loans came with a variable loan rate, many of them have adjusted. Many stories in USA Today and New York Times talk about homeowners whose payment went from $500 per month to $1500 per month. Although these borrowers qualified for and could afford a $500 payment, they would never have qualified for a $1,500 payment on a conventional loan. Now, because they cannot afford the payment, they've fallen behind; some as much as 6 months behind on their mortgage! It becomes next to impossible to find someone to refinance with if you're 180 days late on a payment!

If you have one of these subprime loans, you might be able to negotiate a settlement with the lender. For example, you owe $100,000 on a home that is worth $90,000. You have saved a few bucks or could otherwise come up with a few thousand dollars to put towards the balance. Ask the lender to settle on $90,000, the value of the home. Give them a recent market opinion for a licensed real estate appraiser to support what you're telling them the current market value is.

If you can get the lender to agree, check with a local credit union about refinancing the loan. If you've had a good payment record over the past few years, you may find that you qualify for more conventional financing through a credit union. With your few thousand dollars to put into the deal, and the negotiated payoff from your current lender, you could very well go from owing $100,000 on a $90,000 property to owing less than $90,000 to your credit union.

Tuesday, March 13

10 Bad Habits That Lead To Debt Disaster

Little things add up fast. Learn from these mistakes and try these tips to start paying off your debt.

Sometimes the only way to stop a snowballing problem is to go back to the top of the hill and find out what started it.

If you're up to your eyeballs in credit card debt, take a step back and recount your money missteps. Knowing your weaknesses could help prevent you from falling back into the bad-credit pit and show you a way out.

According to Gail Cunningham, vice president of business relations at Consumer Credit Counseling Service of Greater Dallas, a nonprofit financial-management service, consumers mired in debt make common financial blunders, most of which they can prevent with discipline and behavior changes. Learn from these mistakes and start paying off your debt.

Bad Habit No. 1: Misusing balance transfers
Transferring balances on high-interest cards to lower-rate cards can be an effective technique, but it's easy to make it a good idea gone wrong. Transfer a balance onto a card with a low introductory rate and you can potentially save money on interest if you refrain from charging on it and focus on paying off the balance before that introductory rate expires. But most people continue to charge on the new card and wind up with more debt once the teaser rate expires, says Cunningham. In fact, new purchases may pull an altogether different interest rate. Read the fine print very carefully, and only attempt the balance-transfer maneuver if you can control your spending on the new -- and old -- card.

Try this: If you can't refrain from charging, balance transfers won't get you out of debt. If you're really in the hole, consider getting a part-time job and dedicating your earnings to your debt load. If that's not possible, go back to your budget and cut back on unnecessary expenses such as restaurant outings and cell phone extras. Put the money you save toward paying off your balances. Pay for new purchases with cash or a debit card.

Bad Habit No. 2: Not checking credit reports -- you can't change them anyway.
Wrong. If you have credit cards, pull your credit report at least once a year and check it for errors. Purging your record of inaccuracies can be crucial for getting better interest rates, landing the job you desire and stopping an identity thief from ruining your credit rating. Your credit report also affects your credit score, which determines how high your interest rates will be on future loans. Dispute anything you think should not be there. The Fair Credit Reporting Act allows for the correction or deletion of inaccurate, outdated or unverifiable information, provided that a reinvestigation into the disputed data sides in your favor. Unfortunately, negative but truthful data must stay put. A Chapter 7 bankruptcy filing, for instance, will remain on your credit report for 10 years, a Chapter 13 for seven years.

Try this: You can request one free copy here from each of the big three credit reporting bureaus, Experian, TransUnion and Equifax, every year. Why bother? Errors on your report, such as a payment marked late that came in on time, could raise your interest rates, lower your credit score and affect your ability to obtain credit in the future.

If you do find a mistake, send a correction letter to each of the credit bureaus that show the error. Experian allows you to dispute errors online, as do TransUnion and Equifax.

Don't bother with so-called credit-repair clinics that aim to charge you hundreds or thousands to fix your credit record. "Anything you can legally do to repair it you can legally do for free," says Cunningham. Of course, if you're not willing or dedicated enough to write those letters and follow up with the credit-reporting agencies, paying someone else to do it for you may not be such a bad idea. Better to have someone dispute the errors rather than no one. But be extremely careful in selecting such an organization -- try to get referrals and seek out others who have been satisfied with the service.

Bad Habit No. 3: Failing to alert creditors about a financial hardship
You heard the rumor: Layoffs are coming to a department near you next week.

Don't wait until it happens to worry about how to pay your bills. Do some damage control right away.

Try this: "The best time to negotiate is before the problem spirals downhill," says Cunningham. Call the credit card company and explain the problem you're about to have. Ask if they could temporarily lower your interest rate or extend your payment deadline. Some issuers have in-house help programs that provide such short-term services to customers.

Bad Habit No. 4: Thinking of 'budget' as a dirty word
The word may call to mind tedious self-trickery meant for those with low incomes, but everyone could benefit from deciding on certain amounts for spending, and sticking to the amount no matter what. It also makes sense to budget for known future expenses, such as quarterly insurance premiums, college textbooks and rent. Not saving up in advance means you'll have to charge expenses or cut into funds set aside for necessities. Budget these fixed costs while you can handle small financial pinches.

Try this: To find out what's draining your finances, keep track of where your money goes for a month. Use a spreadsheet, financial software or a pen and paper and categorize your expenses. Doing this will reveal whether you're spending too much on expenses you could trim, such as restaurant outings and gas. Then you can consider cooking at home more often or consolidating driving trips. Cut back as necessary without cutting out expenses important to you. Cunningham suggests that if you enjoy watching TV, but don't tune in to a majority of the 300-plus channels you have, consider cutting back on your cable package instead of cutting out TV altogether.

For a detailed household spending plan, try this home budget work sheet. Or, get help creating a budget with a budget calculator. (For a really simple budget, try the 60% Solution.) Plan for future costs by figuring out the total amount you'll owe and divide by the number of months you have until that day, says Cunningham. If you have money due next month, divide by the number of weeks you have and save that amount every week.

Bad Habit No. 5: Using retail store credit cards to make use of discounts
Chances are, that card carries a high interest rate you'll be forced to deal with if you don't pay off your balance each month.

Try this: If you must charge your purchase, use your general-purpose credit card, says Cunningham. If you can't pay off the balance, at least you'll pay a lower interest rate. Limit the total number of credit cards you have to just two, if you can: one you can pay off each month and one with a low interest rate for those large purchases you'll pay back over time.

Bad Habit No. 6: Procrastinating on creating an emergency fund
Learn to save for financial emergencies. Even if you feel robust and invincible, a single emergency room trip or car accident could force you to put large balances on credit cards, causing interest to accrue and more debt to pile up. "That rainy day will happen," Cunningham says. "It's not a matter of if, it's a matter of when." If your tire goes flat and you can't pay upfront for the replacement, for instance, you're stuck with charging it or reducing funds earmarked for necessities. That's where the emergency fund fits in.

Try this: Maintain an emergency fund of at least three to six months' worth of living expenses, and keep your insurance policies up to date. Work toward that goal by socking away 10% of your take-home pay each month in a liquid savings account, says Cunningham. If you receive a raise or bonus, add that money to savings. Since you're not used to the extra cash flow, you won't miss it.

Bad Habit No. 7: Paying bills in no particular order
While the order may not matter if you can pay all the balances, it will matter if you fall short one month. Say you pay off the balances on your credit cards first, then find you can't make the minimum on your house payment or monthly rent. You've put the roof over your head at risk.

Try this: "Pay for living expenses first," says Cunningham. After the house or rent payment, necessities such as utilities, groceries and medical care should top the priority list. Next comes the car payment -- you want to avoid repossession, obviously. On down the line, secured loans and co-signed debts follow in importance, then unsecured loans and credit cards. "Ideally, everyone can get paid, but if a choice has to be made, paying in this order will do a better job of keeping the home life stable."

Since bills often aren't due in this order, you'll need to work out a payment schedule and set aside money from each paycheck. See No. 9.

Bad Habit No. 8: Charging purchases instead of paying in cash or with a debit card
How many times have you charged services or merchandise when you had the money to pay with cash or debit? Insignificant purchases of $20 and $30 made several times over can quickly add up, particularly if you already carry a balance. Balances you can't pay off each month mean paying interest charges and, subsequently, more money for items you could have bought outright, interest-free.

Try this: Make a habit of paying for purchases under $50 with cash, debit or check. Knowing that the money has to clear the bank sooner could help curb your spending habits. Just be sure to check your balance regularly to ensure that you have enough funds.

Bad Habit No. 9: Making credit payments late After all, it's only a $39 late fee. Besides wasting money you could've put toward the balance, a payment that arrives at least 30 days past due can throw your account into default and triple your interest rate. Plus, other creditors may start charging you a default interest rate as well, thanks to a universal default clause buried in your contract.

"Creditors are constantly reviewing your credit activity, and if they see you falling behind with one creditor, even if you have a perfect payment history with them, they can raise your interest rate," Cunningham says.

Try this: On a calendar, mark upcoming paydays and payments that should come out of that paycheck, she says. If you're mailing payments, send them seven to 10 business days in advance. Better yet, sign up for online bill pay. Just check that the address on file and the address on the statement match, or the payment might not arrive on time. If you're still late, call the creditor, explain the situation and ask them to forgive the late fee. Check your credit report and be sure the information shows up correctly.

Bad Habit No. 10: Making the minimum payment only Paying the minimum is better than paying nothing, but it doesn't do much to pay off most balances and forces you to keep paying interest. By paying interest on interest, you lose any savings from buying a dress on sale, Cunningham says.

Try this: If you can afford to pay more or in full, go ahead and pay as much of the balance as you can. You never know when you're going to have a tough month. Pay in full every month and you can avoid interest charges altogether.

Or, if paying more than the minimum proves difficult, consider working an extra part-time job or decreasing your expenses -- or both, says Cunningham. Put all of your extra earnings toward the debt. Use the minimum payment calculator to see how much you're saving in interest charges.

By Leslie Hunt,

Sunday, March 11

Your Important Credit Rating

Your credit rating has everything to do with almost everything in your life! Wait a minute, everything? Well, just about. Your credit rating is basically a predictor of how you will pay your bills. It can effect everything from whether or not you can get a reasonable loan to whether or not you can be hired for the job you want. Read on...

Your Job
With our world of information and high technology, potential employers can, and will, get to know an awful lot about you before hiring you. It's understandable that the potential employer will look at a criminal background check, but a credit report too?

Your credit rating could effect the type of job you can get. For example, somebody applying for a job as a bank teller with a poor credit rating will likely be passed over for someone with a good credit rating. Why? A good credit rating comes from a good credit history. A good credit history shows that you've handled financial responsibilities appropriately, that you can be trusted. It shows that you've borrowed money and were responsible and had the discipline to repay it as agreed. A poor credit history shows that you might be a risk of not completing tasks as required, have poor follow through, are undisciplined and not very responsible. This isn't saying that you are or aren't these things, its just what a credit report might say about the way you handle things...

Your Money
Your credit rating will effect how much you pay for money. Pay for money you ask? When you borrow money from a lender, you will be charged interest (sometimes, instead of interest, you're charged a whopping upfront fee, like with payday lending)on the amount that you've borrowed. With a good credit rating, you'll get a preferred (low) interest rate. On the other hand, if you have a poor credit rating, you'll get a high interest rate. So, what's the difference? You aren't concerned about the rate, just the payment? You don't care what the rate is as long as you can afford the payment? Consider this...

A $10,000 car loan over 60 months. With a good credit rating, the interest rate is 5% and the payment is $189.00 per month. Take the payment of $189 and multiply it by term, and the total cost for the car is $11,340. Now, with a poor credit rating, the rate is 18%. Same amount borrowed, same term, same CAR! How much is the payment? $254 per month! Total cost for the exact same car is $15,240! This is $4,000 more, almost $1000 per year!

Insurance Companies
The price that you pay for your car insurance and homeowners insurance might be effected by your credit rating. Why? For some of the same reasons that you might not be able to get the job that you want; credit ratings have a tendency to mirror levels of responsibility. A high credit rating usually indicates that the person is of responsible character, a good or low risk. This is what an insurer is looking for; a low risk!

If you have a low credit rating, then you're looked upon as a high risk, and the price that you pay for insurance is effected by your risk level. Moreover, you may not be able to get insurance as a high credit risk!

Your Housing
Do you want to buy a house? Are you renting now? Do you already own a home?

No matter which applies to you, your credit rating is impacting your situation.

If you want to buy a house, a poor credit rating is going to keep you from doing so, and in more ways than one. Not only is a poor credit rating indicate a high risk to a lender who is looking at your loan application, you're cash reserves (savings) are impacted by the cost of the interest rates that you're paying on your other obligations. Remember the car loan example? That $4000 extra that you're paying in finance charges could have been socked away for a down payment on the home of your dreams!

Do you already own a home? With a good credit rating, you're probably enjoying the benefits of a preferred interest rate, which qualified you for a more expensive home. How? Because a lower interest rate can mean a lower, more affordable monthly payment. For example, a $150,000 home loan at a preferred interest rate of 6% over 30 years translates into a payment of $899.00 per month. On the other hand, the same loan with the not so preferred rate of 9% carries a payment of $1,207 for the same term. Now, it would be easier (from a bankers perspective, and maybe yours too) to qualify for the lower, more affordable payment.

Are you renting? That may be a good idea, especially while you take steps to fix up your credit! But, did you know that some landlords will check your credit rating? And, did you know that a low credit rating may prevent you from renting from some landlords? Why? Because your credit rating, high or low, gives them an impression of your level of responsibility.

Your credit rating gives others an impression of your level of responsibility. From employers, to bankers, to landlords, to insurers. The better the impression that you can make, the more willing they will be to do business with you at preferred rates.

If you have a low credit rating, stay tuned for suggestions on ways to improve it. Or, if you would like to contact me personally for more information, send an email to .