Personal Finance Advice

October 12, 2013 by  
Filed under Debt & Credit Free

Knowing the way to properly manage one’s personal finances is not an ability that people are born with. To acquire the most out of your money, and manage your personal resources in a way that protects your financial safety, it does take a bit of instruction and familiarity with certain concepts. The information in this article is intended to help you better manage your individual assets.

 Buying used can save you a substantial amount of money. Cars for instance, lose at least 20% of purchase price just by signing on the dotted line and driving away. Let someone else pay for that devaluation by acquiring a vehicle that is a maybe a year or two old. It will usually have low mileage and still have a partial manufactures warranty.

 When selecting a credit card you should consider getting a rewards credit card. Contingent on your lifestyle, you might select a card that offers cash back for your purchase. If you travel select one that provides maximum airline miles. Choosing a card that best fits your spending behaviors will return money to you for buying products and services that you already purchase. It is critically important you pay the balance in full each month and don’t be tempted to spend more money than you can pay back.

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 Pay attention to any changes in the bank’s policy, adding fees and additional charges is a good indication that it might be time to examine other choices. Regional banks and credit unions typically offer more options and better rates than large national banks.  In the past buyers were permitted to write off the interest paid on their credit cards on their tax return,  for some years now this has no longer been the case. For this reason, the most important habit consumers can have is pay off as much of their credit card balance as possible.

 If you have regularly made your credit card payments on time, you may have some leverage to negotiate better terms, for example a lowered interest rate or an increased credit limit. Of course, only go for the latter option if you have a real need to do so.  

 Be diligent in keeping your checkbook balanced. If this is done regularly it will save you the expense and humiliation of a bounced check and the fees that are charged. It is much easier now that we are in the digital age as most of your accounting chores may be done on line.

 As was mentioned earlier, people are not born with the knowledge to effectively manage their individual finances. Successful financial management is an ability that is learned and practiced. Do try some of these suggestions and they could help you find your way to financial freedom.

Secured Loans

October 12, 2013 by  
Filed under Debt & Credit Free, Featured

Secured Loans

They are among the most common types of loans. In addition they are easy to obtain as long as the borrower has the required collateral. Generally, secured loans are considered to be a much better option as compared to unsecured ones mostly due to the friendlier loan conditions. There are however a few pitfalls that you should beware of.

Secured Loans – The Pitfalls

 You need to have enough collateral to obtain the loan. If you do not have something of value such as a house or car, then you will not be able to obtain a loan. This prevents many people from getting secured loans.

 You expose yourself to the risk of losing property in case of a default in repayment. Even if you have a well laid down repayment plan, unexpected things still happen and you may be unable to repay your loan. In such a situation you stand to lose your hard earned property.

If you have poor credit, the lender may decline to give you the loan. In the event that you qualify for a secured loan even with the poor credit score, the interest rate is bound to be high due to the increased risk to the lender.

Secured loans also depend on your income. This means that inadequate income may disqualify you from getting the loan or getting less than the amount you anticipated.

Late repayments may attract higher interest rates or additional fees.

 How to Avoid These Pitfalls

 Before taking out a secured loan, have a well laid out repayment plan and consider all aspects before making the final decision. If things go wrong after you have already taken the loan, credit counseling may help. 

 

 

Can You Get Credit?

October 11, 2013 by  
Filed under Debt & Credit Free

One thing that has been made very clear to people over the last few years is that taking out credit comes with some risks attached. If you are borrowing either on a credit card or a loan, it really is not advisable to borrow “as much as you can”, when the amount that you can borrow tends to be dictated by the bank or institution from which you borrow it. There is some link between your monthly income and your credit rating, and the amount that the banks will lend to you. However it does not seem to apply in the same way with all banks.

Most people who have worked in credit control will tell you of an account they saw which showed a customer defaulting on a credit card where their credit limit was pretty huge and their monthly salary was comparatively small. Due to the limitations of the process used to judge some bank’s credit limit provisions sometimes there will be excessive money lent to people who give in to the temptation to spend it even knowing that they cannot afford to pay it back.

Alternatively if you have not shown a good history of paying back credit when you get it, you run the risk of either not getting credit or getting it in woefully short amounts. Depending on your reasons for needing the credit in the first place this may not matter so much – indeed it may be good news – but it is still something to be aware of.

Clever Credit

October 1, 2013 by  
Filed under Debt & Credit Free

Let’s face it: Most people feel the need to have things “things” to be happy. There’s nothing wrong with that; even the most frugal people need material possessions in order to survive. It’s not about materialism; it’s about establishing our very identities as individuals in this society. Who wouldn’t want to have a better car, a better computer or a better house? Wanting those kinds of things is only natural; it shows us that we are alive. But sometimes we want -and we need- something that is just out of our economic reach. No matter how much we struggle, some things just seem to be impossible to get, even those we need the most. This is the kind of situation where most people decide to take a loan.

Obviously, there are more reasons to decide on a loan. Sometimes loans are essential when building up a new business venture; you usually need to have money in order to make money. People who are in debt are usually offered loans that would unify all their different debts into a big one, easier to pay off. There are a lot of reasons for taking out a loan.

Most loans work in a very simple way: The requester asks for an amount. The lender gives away the money. The requester repays the money, plus the appropriate commission, during a fixed period of time. Every month, the requester pays off the same amount of money, making it easier to repay and to calculate exactly how much money will be needed every month. It’s a very clear and simple system that allows all the parties involved to retain some degree of control over their finances. But what happens if the requester has unexpected health problems and becomes unable to pay off the monthly fee during a short period? That shouldn’t be a problem; there are a lot of lenders who add an insurance policy, paid by the requester, to the loan. This insurance can cover up the monthly fees of the loan during the time the requester is sick, ensuring that the debt is properly repaid. Although this system may sound solid and bulletproof, it is very advisable that anyone requesting a loan reads the small print of the insurance policy’s terms in order to avoid uncomfortable situation with insurance companies.

During the last twenty years, many people lived off loans, scamming banks and lending agencies. Nowadays that’s nearly impossible, as most lending institutions share some amount of information on your credit history. A requester with a poor credit history, one who has been bad at repaying loans, will have a hard time asking for another loan. In other words, if you want someone to lend you something  specially if it’s money-, it’s essential to have a spotless reputation.

Banks – Financial Irresponsibility

September 12, 2013 by  
Filed under Debt & Credit Free

Global financial crisis is a reality that only a few want to face rationally and objectively. It’s very easy and simple to pin the blame for the crisis entirely on the financial sector, or any other organization working within that field. However, the main reason why the finances of a lot of countries are performing abysmally cannot be put at the doorstep of one single thing. Nevertheless, a part of the responsibility can be attributed to unwise and irrational lending by banks and other financial institutions. While it is not the sole reason for the financial crash, it surely didn’t help much with the situation.

The recent financial crunch severely weakened the banking industry. Many banks have succumbed to these failures, and their number is only increasing as days pass by. As a result, bank stocks have plummeted to a record low, making investors lose a plenty of money. In response to the dire financial conditions of both the financial industry and economic recession, banks have tightened their control over lending by introducing new terms and standards. However, as result of even tighter control over the finances, the economic recovery can be delayed even further, or worse, it could lead to the collapse of the financial system. However, things have stabilized to a certain extent now.

In the initial stages, when banks started to relax their lending norms, it looked like a great idea from the outset; the banks looked forward to reap greater rewards from their risky lending, and the customers were happy to have a lot of capital in their hands. However, as it turned out in the end, it wasn’t such a simple affair where everyone made a profit and were satisfied. The banks had huge debts on their hands, whereas the customers who’d taken the loan had no means of paying them back. As a result, the banks bore great loss and put the entire financial sector in jeopardy, making it necessary for the government to intervene.

As soon as the financial crisis was in effect, banks that were lucky enough to survive tightened their loan contracts than their peers, even if they catered to a different industry or geographical region altogether. The credit shock many lenders faced was very hard to withstand at first. As a result of that, the credit availability dipped many percentages in the economy in just a few months’ time. Moreover, loan rates jumped by many basis points, while the loan terms were still pretty much relaxed in the initial stages. Having lost significant amount of money in investments, and with many loan payments to meet, the customers continued taking loans from the bank, even at higher interest rates. This perpetual cycle further fueled the economic crisis until the whole financial industry came crashing down, creating a havoc in the marketplace.

Thus, the banks had to exercise even tighter control than they did when the financial crisis began. From 2007 to 2010, the average loan spread increased by almost one percentage point. Medium and large-sized banks exercised tightened control over their loan rates, while smaller banks continued to be more lenient; however, smaller banks charged more when compared to large-sized banks. Large borrowers suffered the most, even though they were less regulated than small loans. Small borrowers continued to benefit at the expense of the bank, but most of them still didn’t have any viable investment opportunities.

To tighten the loan rates, banks used channels such as decreasing the discount on large loans, while increasing the premium customers pay on more risky loans. Also, non-commitment loans were priced substantially higher than commitment loans during the initial stages, but even they were more regulated after the financial crash set in. To minimize their risks, banks started considering multiple parameters such as including loan portfolio quality, amount of unused loan commitments, and capital ratios to judge the worthiness of the borrowers. As a result, there is clear evidence that the loans are priced based on the supply-side effect, rather than a preconceived norm.

There are many more reasons for the financial crash, but no one can deny the role banks played by lending irrationally to risky borrowers. Thanks to tighter regulations from both the government and the banks themselves, the money won’t flow as freely as it did before. Hence, you must be extra diligent and careful when borrowing money from a bank from now on.

Learning from Irresponsible Lending, Spending and Borrowing

August 30, 2013 by  
Filed under Debt & Credit Free

People are looking at all sectors and areas of society to blame for the financial crisis that has caught the world by storm. But while they are looking elsewhere, they forget to see themselves for their Irresponsible Lending, Spending and Borrowing. True enough, all persons can be faulted for this irresponsibility at one point in their lives. Others have however made it a regular part of their life.

Not all people have the luxury of having money within arms reach all the time. While some people work hard every day of their lives making both ends meet, others struggle to avail of almost all loans available in the market. In most cases, the latter mismanage and find themselves not knowing how to repay such loans resulting to bad credit later on.

Ask around and you will realize that while some people blame the government for financial crisis, others look at most people’s Irresponsible Lending, Spending and Borrowing for being caught in such situation. Simple logic will tell you that if you do not have enough money to pay something in cash right now, then you are better off not buying it on credit because you simply could not afford it.

Irresponsible Lending

Some people blame the US economic crisis on the lending blitz conducted by banks and mortgage lenders. To improve their statistics, banks lent money to borrowers with bad credit exposing them to the risk of defaulting on their mortgages. The increase in non-payment of mortgages led to bank losses and then ultimately to the mortgage crisis which threatened the US economy.

Research shows that lenders issued credit cards to people who obviously did not have the capacity to pay. Up to 88% of borrowers who were issued with credit cards were not even required to provide details of their paying capability. This is obviously tantamount to irresponsibility on the part of the lenders.

Lending irresponsibility can take many forms including the following:

  • Giving bad advice to a borrower
  • Bad handling of arrears
  • Pressure selling
  • Lending without considering ability to pay
  • Increase in credit card limit without borrower’s permission

Irresponsible Spending

If there are lenders who are irresponsible in providing mortgages, credit cards and cash to people who are not capable of paying them, there are also people who spend irresponsibly. Spending irresponsibly means spending cash or in credit even if you are well aware that you could not afford such spending due to limited budget, existing credit or some other reasons.

Irresponsible Borrowing

The financial crisis being experienced by individuals all over the world is a result of Irresponsible Lending, Spending and Borrowing. Why blame the lenders for lending irresponsibility when the borrowers themselves should have been responsible enough to know that they are better off without such debts? It takes two to tango and in this case, the world can blame both the irresponsible lender and borrower for their misfortune.

Lenders will always find a way to increase their loan portfolio so the responsibility basically rests on the borrowers. No lender can force you to take on a loan without your consent and active participation.  Borrowers should take on a more proactive role in becoming responsible borrowers if they do not want to be caught in a pile of debt they are not able to pay.

 

How Times And Views Have Changed

August 1, 2013 by  
Filed under Debt & Credit Free

There was a time when to talk of having debts was like admitting that you liked to pull the wings off flies. People simply would not admit to having debt. Even if they did have debts, and even if a quite considerable one, they would hold this fact as a closely guarded secret, however now days this is really not seem to be the case. It now appears that debt is seen as an accepted peril and a fact of life by most folks. There have been some good outcomes to this however; with many responsible people especially those with lower incomes, are able to spread the cost of necessary expenditures over a manageable period of time. This can occur when the debt is managed carefully and in a responsible manner.

People need to become educated or instructed professionally to be able to differentiate between different types of debt. Instead of assuming that all debt is bad, we need to be able to understand the difference between manageable verses unmanageable debt and unnecessary and necessary debt. Then it would much easier to discern when going into debt is an acceptable step and if it is the most viable option on the table This alone would help to stop many individuals from getting into damaging and excessive obligations which could bring severe blight to one’s life and lifestyle.

It would not be true to say that our present-day predominant view on debt is the absolutely correct one. Nor would it be accurate to assume that the old-fashioned attitude was strictly fair or correct. What we can hopefully all agree on is that debt awareness is more important than anything, and education is the best tool to pave a path to a greater and more sensible approach to understanding your debt obligations.

How Debt Can Ruin Your Life

August 1, 2013 by  
Filed under Debt & Credit Free

In most financial institutions, the process of acquiring a loan does not take place in one day. The desire to apply for a loan also sneaks into peoples lives without knocking. It grows slowly and overtakes us whenever we get overwhelmed to contract ourselves with the financial institution. The end result finds us in mountains of debts that are stressful to handle.

 There are several reasons why people approach financial institutions for a loan. Some of the reasons can arise from unanticipated emergencies that are likely to leave you with long –term and huge financial burdens. Some of the emergencies could include medical fee, school fees for your children as well as other personal issues that arise from day to day.

 Even though emergencies can force you into acquiring a loan, they are not the only reasons why people take loans. At times, people have the desire to buy some of the products they have admired for a long period of time. Instead of saving up until the buying time is ripe, most people opt to use their good credit score to get loans using their credit cards or other forms of credit. In most cases, people visualize it easier to take a loan, buy the product they want and pay for the loan later.

 Public thinking has it that credit card purchases are not harmful in any manner. However, before you start misusing it, you should understand that small purchases are the main reason why your friends are stuck into serious debt problems.

 Debts train you to lead a very peculiar life that requires you to spend more than you can actually afford. With time, you will get used to this kind of lifestyle and will be full of debts that you can not handle with your monthly pay. You will actually feel a false sense of being wealthy in order to keep up with the competition among your friends and family members but the end result would be too painful.

 Relying on debts blindfolds you from accumulating your own wealth and instead accumulates that of your lender. The huge interests you pay on your lender could easily benefit you in building up your wealth. In addition, incurring debts is a bad financial decision that has a negative impact on your future. Your family will defiantly find it rough surviving on the limited income especially if you are still paying for your debts.

 They also affect your future financial plans. You cannot get future financial support if you are still paying off a loan. At times, you may develop a negative or poor credit score that will definitely affect your future loans even if you managed to completely pay off the loan.

 Many people have suffered from stress due to problems arising from debt payment. It becomes tough seeing your creditor and collectors calling you to make payments when you actually know you cannot make any payments. People get traumatized by the threats and harassment they undergo in order to pay the loan.

 This article does not aim at discouraging you from picking up loans for your personal needs. Instead, it exposes you to how debt can ruin your life without your knowledge. Before committing yourself to the creditor, think twice about the option and whether it is directly necessary.

The Risks of Living On Credit

May 12, 2013 by  
Filed under Debt & Credit Free

If there’s one thing the movie “Confessions of a Shopaholic” taught us, other than compulsive buying disorder, haute couture brands and the latest fashion trends are the consequences of poor credit management. A girl’s addiction to shopping causes her to max out on her ‘oh-so-many’ credit cards and manages to drown herself in an enormous debt.

What does “Living on Credit” mean?

“Living on credit” is just almost as common as common cold. If you have at least one credit card on you and are relishing the convenience it offers in terms of frequent payments, you have this cold too! The easiest definition of the term living on debt would be being under debt obligations. For example, when you borrow money from the banks or any other such source, you are living on credit. Credit cards explain this phenomenon the best.

As helpful as this service may sound, with the frills of not having to carry cash all the time and the thrills of that swipe, this best friend is capable of becoming your worst enemy under different circumstances. One may or may not understand the repercussions of living on credit in the very short run, however this is one shadow that will eventually come back to haunt you.

What are the Risks of Living on Credit?

“Excess of everything is bad.” Since childhood, we come across this phrase a lot – whether it’s about the eating too much candy or talking to much or having huge debts, the rule applies to all of them. Living credit-free may be an overstatement but living debt-free is definitely an achievable as well as a desirable goal.

Some of the risks involved with excessive credit may be enlisted as below:

 Buying or renting a house

As debt troubles are becoming more popular, most landlords ask for credit details before renting out their house. If your credit history has been shady, you might be denied renting the place. Also, while applying for a loan to buy a new house, it is only obvious that the financial lender will do their background check and scrutinize your credit reports. In case they feel that there is high risk involved, getting the loan may be problematic. Even if you get the loan, it will be at a very high interest rate. Higher is the risk that the institution senses, more is the interest rate you’ll have to pay.

 Credit Cards

Bad credit scores give the lenders an impression of “risky business”. Worse are the credit scores, more are the chances of you having to pay a higher rate of interest over time. Upon observing, you will not that the amount of interest you end up paying due to bad credibility is much more than you would have under normal circumstances. Also, in worst case scenario, you may be completely denied to get a credit card.

Loans

Whether you are looking to purchase a car or a house or trying to finance your kids’ education, you are more likely to apply for a loan. The banks keep your credit scores under great scrutiny before they sanction your loan. If they feel that there is a lot of risk involved when it comes to you repaying your loan, they may deny you the loan or allow the loan at extremely high interest rates. Eventually it becomes very difficult for you to pay back the loans at such exorbitant rate of interest.

Insurance

Insurance companies tend to charge higher insurance premium from people who they deem as being risky prospective. They relate bad credit worthiness to more claims and thus may even deny insurance to you in case they find a lot of negative elements in your credit reports

Security deposits

All utility companies, as a part of their application process, check back your credit background. There is a very high possibility that they may deny your application or charge you higher rates for their services due to a bad credit score.

Phone services

Nowadays even phone companies check back on your credit reports. If the credit report in not clean, they feel that you might not be able to pay back your bills and as such they might not allow you their services.

Getting a job

As unfair as it may sound but many employers now check on the credit worthiness of prospective candidates for a job and it has a tendency to affect the probability of someone getting the job, directly or indirectly

 Stress

All of the above mentioned and other factors added, a bad case of living on credit affects you financially and also has a prominent effect on your health. A cause of stress, anxiety and depression, having a huge debt may cause problems to your life at large.

As such there are a lot of grave risks involved with living on credit and it requires keen management on our part to ensure that we build a good credit.

You Do Have a Second Chance

It is extremely rare to come upon anyone, who at some point in time or another has not had financial difficulties. A missed credit card payment doesn’t make you a bad person, and it doesn’t mean you are a huge debt risk to creditors either. This isn’t to say you should miss payments, in the ideal world you wouldn’t, it is simply to say that there is a way to turn things around if you do miss a payment. It is important to find a way to turn things around, and once you do, to take that path. Keeping your mind clear, makes this manageable, and will help you get things back on track.

 Although one missed payment won’t cause your score to plummet right away, it is important to take this missed payment as a sign, and to find a way to turn things around as soon as possible. If you allow longer term financial problems to occur, it is going to be much harder for you to get out of these financial woes. So, when you do miss the payment, focus in on it, and get yourself back on track; tell yourself it is not going to happen again in the future.

Make it a point to make the late payment when possible, and to make sure your future payments, are made on time. When you make this commitment and promise to yourself, that one missed payment will truly be only a one time occurrence. It might be a case where you find it hard to make payments in the future. If this is the case, look for alternatives right away. From debt consolidation to debt management plans, these are solutions that can help you, and are simple ways for you to stop the problem, before it continues to grow.

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