4 Moves to Consider Before Interest Rates Rise

interest rates riseThere are expectations that interest rates could rise soon. With the Federal Reserve announcing earlier this month that it will begin tapering asset purchases, and with Treasury yields starting to creep up, the signs are there for some higher interest rates.

While there is no way to completely predict what will happen next with the markets or with monetary policy, there are some things you can consider now in order to prepare for what might be higher interest rates later:

1. Don’t lock in your CDs for too long.

If rates do rise, that is likely to mean higher yields on your cash products. High-yield savings accounts should see rates creep up (especially online accounts), and CDs should also see some improvement.

As a result, it might not be in your best interest to lock your money up into a long-term CD. If rates are expected to rise in the next two years are so, you’ll want to be free to take advantage of that situation. A CD ladder can help, but think twice before you lock in today’s low rates.

2. Consider refinancing.

Earlier this year, my husband and I refinanced our house. I’m glad we did, since the average 30-year rate is already almost 75 basis points higher now than our current rate. If you’ve been dithering about refinancing, now might be the time to take action. Generally, if you can refinance to a rate that is about 1% lower than your current rate, it is considered worth it.

If you can lock in today’s near-record-low rates now, you’ll be in better shape for the future.

3. Think about moving out of bonds.

If you are considering whether or not it’s time to shift your asset allocation, now may be the time to move out of bonds – at least temporarily. If you can reduce your exposure to long-term bonds, and move into short-term bond funds, you could avoid some of the long-term bond fund losses that might be coming. Then, later, as rates start rising (and prices drop – usually prices and rates have an inverse relationship with bonds), you can shift back into long-term bonds.

4. Pay down high-interest debt.

One of the best investments you can make in your finances is to pay down high-interest debt. This is especially true right now. While rates are comparatively low, make as much progress as you can on your consumer debt. If you can consolidate to a relatively low fixed rate, it might be worth considering.

Once interest rates start rising again, your high-interest debt will become even more expensive and even more difficult to pay off. You’ll make better progress now if you can attack some of your high-rate debt while your payment will have a bigger impact on your principal.

Bottom Line

Consider your financial situation, and think about what would happen if rates started rising. We’re probably going to see a little more stock volatility in the near future, so it might be worth it to be ready to buy on dips, or just stay the course with dollar cost averaging. Additionally, rising interest rates will affect borrowers and savers alike, although the results are likely to be different.

Think about the changes that will come to your own situation, and adopt strategies to reduce the impact rising rates are likely to have on your budget and your portfolio.

Are there any additional moves you should consider as interest rates rise? Leave a comment!


Are You as Financially Literate as You Think You Are?

financial literacyAs a financial writer, I see all the hand-wringing about the low financial literacy in America. It’s not just those immersed in finances that see the problem, though. Many regular Americans agree that financial literacy is somewhat lacking.

However, many Americans think that they aren’t the problem; it’s always someone else who needs to know more about finances. Are you financially literate?

Unfortunately, the latest National Financial Capability Survey from FINRA highlights the fact that most Americans do not have high levels of financial literacy, no matter what they think of their own performance. So, even though about 75% of respondents gave themselves high marks for financial literacy, only 39% were able to answer four questions on a five-question quiz correctly, and only 14% could answer all five questions correctly.

How Much Do You Really Know?

I took the quiz, and felt surprised at how “easy” the questions seemed. I got them all right. But I write about finances for a living. I took a few minutes to honestly consider my performance, and my situation. Would I have been able to answer all five questions correctly eight or nine years ago? The depressingly honest answer to that question is no.

If I hadn’t been living and breathing personal finance for the last seven years, I probably would only have answered two or three questions correctly. But, back then, I thought I was pretty smart about money. It’s only looking back that I see some of the mistakes I made, and see that I really wasn’t all that smart about money at all.

Do Your Actions Match Up with What You Know?

The Financial Capability survey also brings to light some interesting questions about the types of financial actions we take – even when we should know better.

On one hand, it is somewhat encouraging to see that only 19% of Americans spend more than they earn. That number is a little lower than the 20% seen in 2009. However, that’s still a big chunk of the population living beyond their means. A little more disturbing is the fact that the survey indicates that 56% of Americans do not have an emergency fund capable of covering three months’ worth of expenses. Forget an emergency fund of six to nine months; America will be doing better if its citizens could be supported for three months.

Most of us know that an emergency fund is essential to long-term financial security. However, more than half of us don’t have a remotely adequate emergency fund. On top of that, nearly half of Americans don’t pay off their credit card balances each month. It’s nice to think that a rewards card is paying off big, but if you carry a balance (and chances are that you do), you are defeating the purpose of rewards credit cards.

Even though many of us know what we should be doing, we aren’t doing it. And, if the financial literacy quiz results are indication, there is a large swath of the population that thinks it is doing the smart thing, when really it is making poor financial decisions that can result in difficulty.

Bottom Line

It’s time to take stock of your financial situation. Be honest with yourself. Are you really doing what you should with your finances? Do you truly even know what you should be doing with your money? Take the time to get educated about how money works, and what you can do to improve your situation, then make a plan to follow good financial principles and get back on track.

Did you take the quiz? How did you do? Leave a comment!


Capital One Quicksilver Rewards vs. American Express Blue Cash Everyday

When big banks fight for their share of the cash rewards market, credit card users will always come out on top. Capital One just released its new Quicksilver Rewards card that sets a new standard for flat rate cash back rewards. But at the same time, stalwart American Express still has an attractive option in its Blue Cash Everyday card. Both products offer excellent levels of cash back, but with no annual fee. Let’s take a look at these two cards and figure out which one is best for you.

Capital One Quicksilver Rewards

QuicksilverCapital One recently replaced its Cash Rewards card with its new Quicksilver Rewards card. The old Cash Rewards card offered 1% cash back on all purchases each month, and an additional .5% return that was distributed once each year. The new card simplifies this award arrangement by offering 1.5% cash back on all purchases each month, and with no annual fee. In addition, new cardholders earn a $100 sign-up bonus once they spend $500 on their cards within three months of opening their account. New cardholders also receive 12 months of interest-free financing on both new purchases and balance transfers, but there is a 3% balance transfer fee. After the promotional financing expires, the standard interest rate is 12.9%-20.9%. There is no annual fee for this card and there are no foreign transaction fees for any Capital One credit cards.

Insider tip: This card is actually offered in two versions. The Quicksilver Rewards card is for those with Excellent credit, and there is a card called the QuicksilverOne that is offered to those with Average credit. The card is nearly identical, except that it has a 19.8% interest rate, no promotional balance transfer offer, and a $39 annual fee. Double-check your credit, because if it has some serious blemishes, you won’t be approved for the standard Quicksilver card, but you could consider applying for the QuicksilverOne instead.

American Express Blue Cash Everyday

American Express Blue Cash EverydayThis card may not be as new as Capital One’s Quicksilver but this American Express card is time tested. New applicants earn $100 in rewards when they spend $1,000 on their card within three months of opening an account. 3% cash back is earned at U.S. supermarkets (up to $6,000 annually then 1%), 2% at U.S. gas stations, and 1% cash back on all other purchases.

In addition to the sign-up bonus, new cardholders receive 12 months of 0% APR financing on purchases, but there is no 0% APR financing offer for balance transfers. After the promotional financing expires, the standard interest rate is 12.99% to 21.99%, depending on the applicant’s credit worthiness when they applied for the card.

Card members also receive benefits such as a return protection policy, a purchase protection policy, and extended warranty coverage. There is no annual fee for this card, but there is a 2.7% foreign transaction fee that applies to all charges processed outside of the United States.

Insider tip: Be very careful when using this card at the bonus categories, as their are exclusions. For instance, only gas and grocery purchases in the United States are eligible to receive extra cash back. In addition, purchases at warehouse and discount stores are excluded, which means you won’t get any extra cash back at Costco or Sam’s Club. In addition, gas stations have to be “stand alone,” which excludes the fuel center at your local supermarket.

The Verdict

If more than half of your spending is at gas stations or grocery stores, you have the chance to earn more cash back from this American Express card than you do from the new Quicksilver card. That said, I am not sure if this describes many cardholders. In fact, it appears as if the majority of cardholders would be better off with a card that offers a simple, flat rate of return such as Quicksilver. In addition, I love cards from Capital One with no foreign transaction fees. With all of American Express’s experience and creditability in travel, I am still surprised that most of their cardholders must still pay an unnecessary 2.7% fee any time they step across the border. Capital One also offers a more attractive promotional financing offer, however those who have debt should be looking for a card with the lowest interest rate, not the best rewards.

In the end, since most cardholders are going to save the most money with the simpler Quicksilver card, I have to go with the new-comer. By offering valuable and simple rewards, Capital One Quicksilver has become the card to beat in the no-fee cash rewards marketplace.

Which card is your favorite? Leave a comment!


Reverse Mortgages 101

mortgageReverse mortgages have gained popularity in recent years among people in the retirement phase of their life. Reverse mortgages are attractive to retirees living on fixed incomes because they don’t have to make any payments while they’re living in their house.

However, it is important to remember that although you’re not making payments, a reverse mortgage is a loan and at some point it will have to be paid back – along with fees and interest.

How Does a Reverse Mortgage Work?

Applying for a reverse mortgage is similar to getting other types of loans, but your credit and income don’t matter because you’re borrowing against home equity. Lenders look at your age, interest rates, and how much equity you have in the home (as well as the market value of the home) when considering applications for a reverse mortgage. Since the reverse mortgage is intended primarily for retirees, income levels are a moot point.

A mortgage lender will get an appraisal to determine the market value of your home and how much you are eligible to borrow. Then you can decide how you want to receive your money; as a single lump sum, as a line of credit, or in the form of regular payments.

Reverse Mortgage Payments

How you elect to receive the money depends on what you use the money for. Some people take out a reverse mortgage and use a lump sum to pay some major expense. Others are looking to make up for a shortfall in their monthly cash flow, and choose to receive payments monthly.

Reverse Mortgage Fees

Lenders will charge you an origination fee, mortgage insurance, and closing costs to process a reverse mortgage. This can be a lot to pay if you’re on fixed income so many lenders will let you roll these costs into the loan. When the Federal Housing Administration (FHA) defined the reverse mortgage product they created a cap on the origination fee. The fee can’t be more 2% of the first $200,000 and 1% thereafter, with an overall cap of $6,000.

Reverse Mortgage Eligibility

Since the FHA insures reverse mortgages, they set following criteria about who qualifies for a reverse mortgage. You must:

  • Be at least 62 years old. (Some lenders will offer non-FHA reverse mortgages to those who are younger.)
  • Own the property, or have a small balance remaining on your original mortgage.
  • Have no federal debt delinquencies.
  • Meet with a counselor about the reverse mortgage.

Repaying a Reverse Mortgage

As long as you live in your home as your primary residence, you do not need to make payments on your reverse mortgage (although you can). Once you have not been living in the home for a year, though, the reverse mortgage comes due. For many, this happens when long-term care is needed, or upon death.

The reverse mortgage is repaid with funds from the sale of the home. This is why the market value of the home – and the equity in the home – are such important considerations when getting a reverse mortgage. Unless the estate or heirs pay off the reverse mortgage, the home will have to be sold to repay the obligation.

Reverse Mortgage Insurance

It is important to note that a FHA reverse mortgage cannot be repaid for more than the amount of the home’s market value. This means that if home values plunge after the reverse mortgage is made, the lender can only take the amount the home is now worth – even if more is owed on the home. This is why you’re required to buy mortgage insurance on a reverse mortgage.

The FHA offers two different types of reverse mortgages, the Home Equity Conversion Mortgage (HECM) and the HECM Saver. The HECM Saver reduces the amount of mortgage insurance you pay up front at closing but also puts a lower limit on the amount you can borrow relative to the value of your home.

Bottom Line

It is important to research the pros and cons of reverse mortgages before making the decision to borrow against your home. You should read more about the benefits of reverse mortgages for seniors as well as reverse mortgage disadvantages.

What are your thoughts on reverse mortgages? Leave a comment!

This article was originally published October 1, 2010.


How to Get Free Apps on Your iPhone Without Hidden Costs

Free iPhone appsApple’s App Store has seen over 50 billion downloads since its inception. Some of those apps are paid, other iPhone apps are free with ads, and a minuscule amount are free without ads. Considering Apple gets a 30% cut of any paid app download they’ve made quite a bit of money thanks to the developers that publish those apps.

With over 900,000 apps in the App Store (and about 375,000 of them optimized for the iPad) there is truly a staggering amount of options. While some paid apps are truly worth the price of admission, many times a free app can get the job done if you know how to look for them.

How to Get Legitimate Free Apps for Your iPhone

There are four types of free apps you can get on your iPhone and not all of them are good:

Free Apps with Ads

The developer or teams of developers that put together an iPhone app have spent countless hours working on it. From a pure economic perspective if they put out a great app that users love they deserve to generate revenue and hopefully a profit off of that app. With enough profit they will be incentivized to create another app in the future that hopefully users will also love.

One way developers can generate revenue without charging for the actual app is through ads inside of the app. While some users find this unsightly or annoying it really is a simple choice of supporting the developer if you don’t want to buy the app outright.

Free Apps with Micro Purchases

Another trick developers will use is what is called micro purchases. This is done a lot with games. The app is free and without any ads, but you have to buy upgrades of some kind to move forward in the game or to level up to a certain level. These micro purchase transactions get a lot of parents angry at Apple because often their children know the password to the App Store account and end up buying thousands of dollars worth of points, coins, or other game perks. So if you have children, be careful about giving out your password!

Free Apps with Pro Versions

Developers will sometimes publish a free “lite” version of an app to entice users to buy the full version. Sometimes the lite version is enough for basic use and sometimes it is so heavily locked down that it doesn’t do you any good so you are forced to upgrade to the “pro” version.

Free Apps from the “Black Market” of Apps

You can also get apps from the jailbreak online app store called Cydia. Apple locks down their phone software and developers are constantly trying to find a way to crack the code in order to open up the full features and capabilities of the phone. Once a phone is jailbroken you can use apps that Apple won’t allow in the App Store from places like Cydia.

Where to Find Free Apps

If you are looking for free apps, here are some options:

The App Store

Naturally you can find just about any app you want in the App Store. It just might come with some of the restrictions mentioned above like ads or micro purchases.

App of the Day Websites

Another option are the countless numbers of “app of the day” websites. App developers will advertise on these sites to be featured for a day in order to drive up interest and downloads. These apps might come with the same hangups mentioned above depending on what the developer includes.

Cydia

Lastly you can try the more secretive app marketplaces like Cydia. (Be careful trying to jailbreak your phone; if you don’t know what you are doing you can end up “bricking it” which means turning it into a nice fancy paperweight that won’t turn on.)

It should be noted that just because an app is in the Cydia marketplace it doesn’t make it an illegitimate or illegal app. Sometimes developers just open up functions on the phone that Apple doesn’t like, so they disallow the app from the App Store. Those apps end up in places like Cydia.

Do you know of any other ways to get free apps? Leave a comment!


Want that Job? The Little Things Matter More Than You Think

little things matterOver the past few weeks, I’ve been watching my husband as he applies for university jobs. He’s had two years’ teaching experience (including graduate level classes) as an adjunct professor, and now he’s ready to try for a full-time job. His teaching evaluations have been overwhelmingly positive, and some of the students he’s worked with have done great things, like present at conferences and have their papers accepted for publication.

Because academia moves slow sometimes, he’s only now just hearing back from some of the jobs about moving on to the next step in the hiring process. And this is the part of the process where things will start to get a little dicey. That’s because, according to a recent column from USA Today, at this point it stops being about his skills and experience, and more about how he “seems” to the people doing the hiring.

Little Things That Matter When You Apply for a Job

According to a column written by career consultant Andrea Kay, employers are looking at the little things that you do during the hiring process. Some of the things she says can leave a bad impression on potential employers include:

  • Becoming defensive about your past.
  • Being slow to respond.
  • Using excuses to defend your slow responses.
  • Complaining about something during the interview.
  • Sharing too much information about your personal life.
  • Asking about salary, benefits and (perhaps especially) break times.
  • Sending writing samples (including cover letters and resumes) with errors.

Kay points out that these things indicate that you are careless and, perhaps, disinterested. When one of the universities my husband applied to sent him an email asking him if he was still interested in the position and ready to move to the next phase, he didn’t wait two days to write back. He responded within a few hours, and he did so in an upbeat manner.

The little things you do send subtle signals to your would-be employers, giving them clues about how you might “fit in” at a company. If you send the wrong vibe, an employer is likely to choose someone else over you.

Part of this also has to do with your attitude. It can be hard to strike the right balance in the way you present yourself. You want to be honest, but you also don’t want to belabor problems you might have had in the past. You want to present yourself as confident (since some studies indicate that confidence can go a long way toward giving the right impression), but you don’t want to cross the line and be seen as arrogant.

It’s a hard line to walk, but it’s one that you have to get used to as you begin searching for a job. You want to make sure that your attitude conveys an interest in the job, as well as a positive attitude. Employers want someone who’s a go-getter, and someone who can help morale as well as get the job done right.

As you look for your next job, take the time to consider how you might appear to a potential boss. And remember that the little things matter a lot.

What are some other little things that matter when you’re looking for a job? Leave a comment!


Money or Time: What’s More Valuable?

time or moneyIn the quest to save money or make money, it’s easy to get caught up in the strictly financial aspects of what you’re doing. After all, if you want money – whether you are trying to get the best deal on something, or trying to earn a few extra bucks – it doesn’t matter how long it takes you to get that money. You’ll do what it takes when it comes to the bottom line.

But what are you giving up?

While money, to some degree, is a necessity when it comes to survival, is it the most important thing? And are there things more valuable than money?

Time Once Spent is Gone Forever

Before getting too wrapped in how much money you’re going to earn, or how much money you’re going to save, consider also thinking about how much time you’re going to spend. To a certain extent, you can always earn a little more money.

However, once you spend your time, it’s gone forever. You can’t get that time back. From that standpoint, time might actually be more valuable than money. While you might be able to save $30 by changing your oil, how fast can you do it? And what could you be doing with that time instead? Will spending another hour on your pet project to earn another $50 worth the sacrifice of time you could have spent playing with your kids?

You might be making a trade, turning in valuable time for money.

Financial Freedom Allows You to “Buy” More Time

Of course, not everyone has the choice to decide whether or not to trade time for money. In some cases, it’s practically a requirement to give up some time in order to get the money that’s needed to survive on a day-to-day basis.

If you don’t have that choice, then, perhaps, time becomes even more valuable. At some point, the goal is often to reach a level of financial freedom that allows for that choice to be made. If you are working and sacrificing your time to save more or to earn more, it’s likely that you also hope to one day be able to have more control over your time.

Financial freedom can buy you a greater ability to decide what you will do with your time. It’s not just about being able to spend your money on the things you want to buy; financial freedom also allows you a choice. When you work to achieve financial freedom, you are also working to get to a place in your financial life where you don’t have to always trade time for money. It’s the ability to decide that you are going to forgo that extra $100 so that you can spend time with a loved one, or relax and enjoy your favorite hobby.

It’s worth it to take a little time to think about the value of money vs. the value of time. Understanding how financial freedom “buys” you time, as well as the ability to buy items that you want, can provide you with a framework for moving forward with the lifestyle you want.

What do you think? Is time more valuable than money? Leave a comment!


Top 10 Ways to Beat Your Bills Big Time

beat your billsDon’t let your bills get the best of you. You can save money, get a better deal, and still enjoy many of the things you enjoy in your daily life. Here are some tips on how to overcome your monthly bills.

10 Ways to Save on Monthly Costs

1. Don’t have bills.

The easiest way to beat you bills? Don’t have them. If you have extra cash left over each month then you have more freedom to splurge on monthly bills. But if you are drowning in debt you need to cut back to the basics: a roof over your head, food for your family, clothing on your backs, and transportation to continue to earn income. That may mean selling your financed car and buying a beater to drive while you get out of debt. It may mean living without cable for a while. These sacrifices can accelerate your journey out of debt and into your financial future.

2. Cut back on services.

If you can’t force yourself to completely eliminate a bill, you can try cutting back. Maybe you need the Internet to be able to earn income at home as a freelance writer. Instead of getting the maximum speed plan, cut back to a slower speed. You’ll be able to keep the functionality of the service while saving money on a monthly basis.

3. Avoid fees: Set up auto-pay.

Companies want to keep you as a customer, but they also want to get paid. Late fees are essentially a short term extension of credit so you have time to get the funds together to pay a bill. But if you calculate the annual interest rate you are paying with a $15 late fee on a $100 monthly cable bill, it is astronomically high. Setting up auto-pay can help you track those bills that come in at various times at the month. With auto-payment your bills are guaranteed to be paid on time. This should cut out all the fees that are hitting you from service providers.

4. Don’t let auto-pay fool you.

While setting up automatic payments for your bills can help you avoid late fees, it can also be an easy mental trap to fall into. You might not notice an extra maintenance charge that the service provider slips into your monthly bill because you aren’t paying as much attention to your bills. It is a lot easier to “set it and forget it” with your bills, which can end up costing you over time.

5. Negotiate a better deal.

If you’ve been coasting along on automatic payments for a while, your bill has inevitably edged higher ever so much. Call the company and ask for a discount. It really can be that simple. If the customer service representative gives you push back, ask to be transferred to customer retention or to the cancellation department. These departments have the tools to get you a “new customer deal” in order to keep you as a customer. You could cut your bill by 25 to 50% just by asking. If they call your bluff, cancel! You can always get cable from someone else or come back in a month or two.

6. Pay in full, not in installments.

American society is built on installment payments. Everything can be made in “14 easy payments” or costs “only $9.99 per month!” While it is certainly easier to only have to pay a certain amount per month for an item, it is never the better financial choice. When you pay in monthly installments one of two things happen: you either pay interest to the firm, or you lose all negotiating leverage and end up paying full price. Worse yet, you might pay interest and pay full price. The alternative is to walk in to a store knowing you can buy the item for cash that instant. The company won’t have to worry about collecting your payments, and you won’t risk defaulting on the balance. You can usually negotiate a better deal by paying in full up front.

7. Become a new customer.

It’s ironic: to attract new customers, service providers give the best discounts to someone that isn’t a customer. Their loyal customers of five years pay full price and don’t get any discounts. If you try to negotiate in step five and it doesn’t work, simply cancel your service and become some other company’s new customer. There are more than enough businesses out there waiting for your call. They’ll cut you a deal to get your business just like your service provider did originally.

8. Get rewarded for payment.

Do you write paper checks and mail them in for payment? Are you able to control your spending on credit and pay off your balance every month? If so, ditch the checks, save the cost of stamps and envelopes, and start earning credit card rewards for your monthly bills. You could earn points to be redeemed for gift cards, miles for your next plane ticket on a vacation, or my favorite, straight up cash back that can be used or saved wherever you like.

9. Research before buying.

The best time to save money on a monthly bill is before you agree to a contract. Really dig in and do your research before signing on the dotted line. Do research online about the quality of the service, if other users feel they have been scammed, or if the company really is legitimate. A lot of headaches can be avoided by not buying from a company. The headaches start after they have your cash.

10. Read the fine print.

Likewise, if you are ready to buy, do yourself a favor and read the fine print one last time. Keep the mentality of “What’s the catch?” Is there an early termination fee? Are you signing a long-term contract? Is your price guaranteed for a short period of time before jumping up? All of these details will be included in your customer service agreement or contract. Read it!

What are some other ways you can beat your bills? Leave a comment!


Home Equity Loans vs Home Equity Lines of Credit

Home Equity Loans vs Lines of CreditYour home equity is the market value of your property minus the amount you own on your home loan. Home equity is typically built up over time through your principal payments and real estate appreciation. During periods when home prices are appreciating quickly your home equity will likely increase but in years when the market is down you will probably lose home equity.

Some banks will let you borrow against the accumulated value of your home if you have enough equity built up. These types of loans are known as second mortgages and there are two main types: a home equity loan and a home equity line of credit.

Home Equity Loan

In general, a second mortgage of this type is a loan that comes in a single lump sum. You have to remember that it is an entirely different loan from your original mortgage. You will need to have a credit check and fill out a mortgage application. You’ll also need to keep your eye on interest rates and lock in at the best mortgage rate you can find.

A second mortgage in this form is sometimes used for debt consolidation. People who have high interest debt may borrow at the lower rates available via home equity loans and use the money to consolidate all their debts at a lower interest rate. One of the financial benefits of this approach is that the interest you pay on a home equity loan is tax deductible, unlike interest you might pay on a credit card.

Another popular use for home equity loans used to be borrowing money for big home improvement projects. Of course the problem people ran into was that when the value of their home decreased, they still had to pay back the loan even though their house was no longer worth the amount they had borrowed against. Now days credit in general is harder to come by and banks are less likely approve loans of this type.

You do have to be careful when taking out a home equity loan since you are adding to your debt levels. If you default on a home equity loan your home can be foreclosed on so it is important to carefully think about whether you want to take that risk with your home.

Home Equity Line of Credit

Unlike the home equity loan, which is usually paid in one lump sum, a home equity line of credit is a type of revolving credit that allows you access to an approved amount of the equity in your home for a fixed period of time.  Typically you’re given special checks or a credit card that you can use to tap into your equity as needed.

This is still another loan, so you will have to go through the credit and application process and the bank will determine how much equity they’ll let you borrow against. Once you are approved for a line of credit, you can get money as you need it for the life of the loan, known as the “draw period.”

Most home equity lines of credit come with variable rates, rather than fixed rates, so your payment can change as you pay off the loan. Like a home equity loan, the interest you pay on a line of credit may provide you with a tax deduction.

It is important to be careful with home equity lines of credit, since you have access to the cash it can be tempting to take more money than you need.

Bottom Line

If you’ve built up equity in your home the home equity loan and line of credit make it possible for you to access that money without selling your house. While the interest you pay is tax deductible you are putting your home at risk by taking out a second mortgage so be sure you have a plan to pay it back before taking out the loan.


Fair Debt Collection Practices: Your Rights

debt collectionIf you find yourself trying to get out of debt it can be overwhelming to know that you owe a great deal of money. It can be even more overwhelming when collectors contact you repeatedly in order to try and get you to pay. The good news is that you do have some rights.

The Fair Debt Collection Practices Act (FDCPA) is designed to protect consumers from harassing behaviors on the part of debt collectors. It is important to know your rights under the FDCPA, and be ready to report violations of the act.

Debts Protected by the FDCPA

Most personal, family and household debts are protected under law. Money you owe on your credit card, as well as auto loans and mortgages, are protected. You are protected from those who regularly collect debts.

For instance, collection agencies, lawyers and companies that buy delinquent debts are all considered debt collectors. When they attempt to collect a debt, they have to follow certain rules, and avoid engaging in practices that might be considered:

  • Unfair
  • Abusive
  • Deceptive

Get a Debt Collector to Stop Calling You

Debt collection calls can add a great deal of stress to your life. Chances are, you already know that you owe someone money, and that it needs to be paid. If you want the debt collection calls to stop, there is a rather simple procedure: Ask, in writing, for them to stop calling you. Write a letter requesting that the contact stop, and send via certified mail (so there is a record of the collector receiving it). Make sure you keep a copy for yourself.

Once the collector receives this letter, the only contact that can be made with you is to inform you that no further action will be taken, or to let you know that further action is coming (such as a lawsuit). You can also stop the contact by designating a representative. If you make it clear that an attorney is representing you regarding your debt, the debt collector must contact him or her, rather than you, to make arrangements.

Note, too, that debt collectors can’t call you at your place of work if you tell them (on the phone or in writing) that you aren’t allowed to get those types of calls while working.

Verifying the Debt

In some cases, you might think that you don’t even owe the debt! And, even if you do owe on it, debt collectors must send verification of the debt. Within five days of contacting you, a debt collector must send out a validation letter telling you how much you owe, the creditor you owe the money to, and steps you can take if you don’t believe you owe the money.

Keep records of contact, and the date on the letter, since a debt collector not adhering to the standards can earn you some reprieve. You also have the right to ask for proper documentation of the debt, including a copy of the bill that you are supposed to pay.

What Debt Collectors Can’t Do

In the past (and sometimes still today) strong arm techniques have been used to scare people into paying the debt – even if the debt isn’t theirs, or they can’t pay. Here are some practices that are forbidden to debt collectors:

  • Threatening violence against you.
  • Use of obscene language while speaking with you.
  • Publicly humiliation by publishing a list of people who haven’t paid (although this information can be given to your attorney, spouse and the credit bureaus).
  • Making false statements, including claiming they represent the government or some other organization that they don’t, and misrepresenting the amount of money that you owe.
  • Implying that you will be arrested or a warrant will be issued if you don’t pay your debts.
  • Depositing a post-dated check early.
  • Threatening to take your property or garnish your wages (unless allowed by law in your state) without a proper court order.
  • Calling you at inconvenient times, including before 8 a.m. or after 9 p.m. your time.

While you should repay your debts when you can, there is no reason to bow to harassment. You do have rights, and you should make sure you claim them.

Have you ever had to deal with a debt collector? What tips do you have for the readers? Leave a comment!

This article was originally published on November 2nd, 2011 at MoneySmartLife.com.



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