How Debt Can Hurt and Help Your Career

When we think of the harm that debt can do, we often just think about the way it can lead to higher loan costs – or the risk of being turned down for a loan.

However, debt can also have an impact on your career. Depending on the job you want, and the situation you’re in, debt can be a real hindrance. In other cases, though, a little debt can make sense.

Employers Checking Your Credit

It’s becoming increasingly common for some employers to check your credit as part of the screening process. Technically, employers aren’t supposed to look at your credit score. However, they can look at a version of your credit report.

Since the information in your credit report is used to calculate your credit score, employers can get a pretty good idea of your financial situation just from the information in your credit report. In some cases, your credit report might raise red flags. If you are having trouble making your payments on time, or if you have a very high amount of debt, employers might be reluctant to hire you.

If you apply for a job that requires security clearance, or if you are in a position to handle money, employers might worry that you could be prone to bribery or embezzlement if your credit history shows difficulty with your finances. It’s possible that an employer just decides the risk isn’t worth it.

You do have to give your permission for a potential employer to pull your credit report, though. However, refusing to provide consent could just mean that you have something to hide. Some employers might see your reluctance as an admission that something is wrong, and decide not to hire you.

Using Debt to Get Ahead

Debt isn’t all bad, though. In some cases, it can represent an investment in your future. Taking out a small loan so that you can take a class or earn a certification that will make you more marketable can make a lot of sense. It can also make sense to earn a different degree if you are switching careers, or if you want to see some advancement in your current job field.

You still have to be careful, though. Even so-called “good” debt can go bad. Weigh the cost of the education against what you hope to realistically earn after completing your course of study. If a $8,000 training course can earn a certification that results in a raise of $10,000 a year, then it can be worth it take the loan now, and improve your skill set. Even if you only get a raise of $4,000 or $5,000 a year as a result, it can still be worth it to get that sort of loan, just because of the lifetime earning potential.

Make sure that you aren’t getting additional education just for the fun of it. While it can be a matter of personal satisfaction and achievement to get a degree, or continue your education, consider the cost of going into debt. If you don’t have a way to pay for it through a higher income, think twice.

What do you think? Is debt sometimes a smart choice? Or is it always a burden? Leave a comment!

Could You Use a Short Sale for Your Home?

One of the difficulties that many homeowners still face is the fact that low home values make it harder to sell a home. Even now, with home prices rising a little bit, it’s still difficult to get what you paid in some cases.

If you need to sell your home, you might be able to get your lender to agree to a short sale.

What is a Short Sale?

A short sale is fairly straightforward. It takes place when the lender allows you to sell your home for less than you owe on your mortgage. In many cases, the lender absorbs the loss, forgiving you of the remaining debt.

Short sales have been increasingly popular since they usually cost the lender less than a foreclosure, and the lender can often sell a short sale property for more than a foreclosure property. It’s an arrangement where both parties can limit some of the unpleasant effects associated with not being able to sell a home for the mortgage balance.

How Can You Get a Short Sale?

Lenders have to decide whether or not to sign on to a short sale. Usually, you are required to demonstrate financial hardship before you can receive approval for a short sale. On top of that, some lenders like to see that you have tried to sell the home for a higher price first. Often, you won’t be approved for a short sale unless your home is on the market for at least 90 days.

Realize, too, that having a second mortgage can complicate matters – especially if that second mortgage is from a different lender.

Consequences of a Short Sale

Because a short sale is seen as a form of debt forgiveness, there are consequences to taking this action. Your credit score is going to take a hit as a result of your short sale. In some cases, depending on how the lender reports the short sale, your credit score can be impacted almost as much as if you had gone through foreclosure.

Be prepared for a lower credit score, which could result in a higher interest rate on your next loan. A lower credit score might also cause other problems. And, while you can still get another mortgage after a short sale, you might have some difficulty finding a lender to agree.

Another consequence might have to do with taxes. Right now, the Mortgage Forgiveness Debt Relief Act of 2007 is still in effect. It was going to expire at the end of 2012, but it has been extended to the end of 2013. Normally, a short sale results in the amount forgiven being taxed as income by the IRS. However, with the extension of the Mortgage Forgiveness law in place, you avoid taxes on the forgiven debt.

Realize that the Act might not be extended another year, so it might make sense, if you are going to attempt a short sale, to take care of it this year.

What If You Can’t Get a Short Sale Approved?

In some cases, you might not be able to complete a short sale. The lender may not agree to it. In those cases, you ned to decide what you will do next. Some of your options include:

• Continue trying to sell the house: You can leave the home on the market for what you owe on the mortgage, and hope that someone eventually buys.
  
• Rent the home: Another option is to move out of the home and then rent it out. You can have the new tenants essentially pay the cost of the mortgage. Then, when home values rise, you can decide to sell.
• Make up the difference: If you have the resources, you can make up the difference between what you can sell the house for, and what you still owe.
• Strategic default: For many homeowners, this is the solution of last resort. However, if nothing else works, you always have the option to just walk away.

What do you think? How would handle the situation if you needed to sell your home but were underwater? Leave a comment!

Why You Should Never Co-Sign a Loan

There are times when co-signing a loan seems like the right thing to do. It could be to help a young adult child get a car loan or a mortgage to buy a house. Or it could be helping a family member or friend re-establish credit after a bankruptcy or foreclosure. As good as any reason may be, and as good as your intentions are, think long and hard before you co-sign a loan for anyone.

There are consequences to co-signing a loan that go well beyond the realm of a family relationship or friendship. Anytime you co-sign a loan for another person, you are in some way compromising your own financial position.

A Co-Signed Loan Becomes Your Obligation

Most people in a non-lending world think of co-signing a loan as something more of a gentleman’s agreement. In fact, many people completely forget about a co-signed loan shortly after the fact. But rest assured that from a legal and financial standpoint, it carries significant meaning.

When you co-sign a loan it automatically becomes your obligation. If you later apply for a loan for yourself, the co-signed loan will appear on your credit report under your name. The entry may be notated as a co-signed loan, but the lender will view it as fully your obligation. They will consider the monthly payment on the loan as if it were being paid by you, even if it isn’t. It will be added to your total debt payments, and calculated as part of your debt-to-income ratio. It is even possible that you will be denied a loan because of the co-signed obligation.

Certain lenders, such as mortgage lenders, consider co-signed loans to be contingency obligations. They will allow you to exclude the payment from your total debt if you can get evidence that the primary borrower on the loan has made all of the payments, and made them on time, for at least the past 12 months. But if the loan has been outstanding for less than 12 months, or if there are any late or missed payments, or if you have made one or more payments yourself, the debt will be considered as it were yours alone.

The Affect on Your Credit Report

Since a co-signed loan is a credit obligation, it will appear on your credit report. That can have an effect on your credit scores. New loans, and loans with high outstanding balances compared to the original loan amount will have a negative effect on your credit scores (credit utilization). You can fully expect some drop in your scores as a result of co-signing a loan.

Late Payments by the Primary Borrower

Should the primary borrower be late with any payments, whether it is 30 days late, 60, or 90 days late, it will appear as such on your credit report and have an even bigger negative effect on your credit score.

Credit scoring does not differentiate between loans that are actually yours, and those on which you are only a co-signer. Any derogatory information will reflect on your credit scores as if you were the cause of the problem.

Even if the co-signed loan is paid off, the derogatory information will continue to appear on your credit report for at least seven years (and the primary borrower’s too). During that time it will have a negative effect on your credit scores. Even if the rest of your credit is outstanding, the delinquent information on the co-signed loan will continue to weigh on your credit scores.

Co-Signed Loans Will Become Your Responsibility Upon Default

Should the primary borrower default on the loan, the lender will come after you to payoff the account. That’s the entire reason why the lender wanted a co-signer on the loan in the first place!

Now ultimately you may be able to go after the primary borrower to reimburse you for the money you had to pay to settle the account. However the default will still appear on your credit report for at least seven years. Once again, the credit reporting agencies will not remove the derogatory information simply because you settle the account.

Better Ways to Help

If a loved one needs financing – and your co-signature – in order to accomplish a certain goal, there may be better ways to help without co-signing.

If you’re in a position to do so, it will be better if you make them a personal loan. You can set it up with a note, including interest and monthly payments. That will mean you’ll have to put money out of your own pocket, however if the primary borrower defaults on a co-signed bank loan, you’ll have to do that anyway.

Another option is to convince them to buy something less expensive that will not require the use of a loan. Failing that, recommend that they delay the purchase until they can save up more money so that they don’t need a loan – or a co-signer.

Co-signing a loan for loved one is only convenient at the moment that you do it. After that . . . is when the trouble starts.

Have you ever co-signed a loan for someone? Leave a comment and tell us a little about it!

How to Use Lending Club to Pay Off Debt

If you’ve dug yourself into a hole in regards to your debt burden it can sometimes be impossible to dig out without filing bankruptcy. The minimum payments, late fees, and interest charges continue to rise to a point that you simply can’t earn enough money in a given month to pay everyone. Your credit score starts to dwindle and with it goes your ability to refinance some of your debt in order to lower your overall outgoing payments each month.

It’s ironic because under most situations, even when you’ve got too much debt, you are still getting offers to take on additional debt to help you juggle your balances through balance transfers and the like. But eventually the amount of debt you are carrying goes too high and no financial institution will throw you a lifeline.

All hope is not lost if you are in this situation. There is one potential lifeline left: peer-to-peer lending.

What is Peer-to-Peer Lending?

Peer-to-Peer lending (or P2P) is where a group of individuals, not a financial institution, lend money out to other individuals. One borrower might have 50 people they are repaying each month and each payment made is split back up amongst the individual lenders.

P2P lending isn’t free because the individuals loaning you the money expect a return on their investment. Yet the rates charged may be significantly lower than what a financing company would charge you. You can get a P2P loan through popular P2P lending websites like Lending Club. Lending Club helps connect people needing to borrow money with individuals looking to lend money for profit, and takes a small cut of the overall transaction.

How Can Lending Club Help You Get Out of Debt?

Since individuals have different risk profiles than financial organizations, you may be able to get a loan at a low enough interest rate to consolidate all of your payments back down to a level you can afford. Instead of owing three different credit card companies debts of 16%, 19% and 22%, you could get one loan through Lending Club at 11.5% and save thousands of dollars in interest.

Lending Club Prevents Adding to Your Debt

One of the benefits of using Lending Club to pay off your other debts is, if done correctly, it can prevent you from adding to your debt in the future.

Here’s how: You have three credit cards with balances of $5,000 (at 16%), $2,000 (at 18%), and $800 (at 22%). If you just pay the minimum payments you will be in debt for over 26 years and pay $12,965 in interest on top of the $7,800 in principal that you owe.

You get a Lending Club loan for $7,800 at 11.5% and use the proceeds to pay off your credit cards. This alone would drop your interest from $12,965 on the credit cards to $1,460 with the Lending Club loan. Your payments would increase from (assuming 2% minimum payments for the credit card) $156 in total to $257.21 with the Lending Club loan, but the extra you pay helps drastically reduce your total interest paid.

Here’s the kicker: your Lending Club loan will last 3 years. To make sure that you don’t add insult to injury by consolidating your debts and then getting new debts, you need to cut up your credit cards. You can keep your credit card accounts open for the health of your credit score if they don’t have annual fees, but you cannot use them. Cut up the cards or freeze them in a block of ice. This is the only way to keep yourself from compounding your debt problem by having new debt on top of old.

Have you used Lending Club to help you pay off debt? How did it work out? Leave a comment!

5 Characteristics of People Who Get Out of Debt

This article was written by Benjamin Feldman, a personal finance expert at ReadyForZero.com. ReadyForZero is a site dedicated to helping Americans manage and pay off their debt – for free. You can find more of his writing at the ReadyForZero blog.

There’s no denying that it’s hard to pay off debt. So what makes some people successful when others are not? At ReadyForZero, we’ve been studying this question for the last two years as we try to learn how to best help people when they want to get out of debt.

As it turns out, we’ve noticed a few characteristics of those who are successful in paying off their debt. Below we’ll describe these characteristics – and how they can help you too:

1. Have a support network.

Humans are social creatures. We live and die (sometimes literally) based upon our interactions with other people. And that means having a support network is absolutely critical – to everyone, but especially to those who are tackling a difficult goal like getting out of debt. When we talk to people who are making progress paying off credit cards, student loans, etc., they often tell us about the people in their lives who give them encouragement and advice: their mothers, husbands, friends, or girlfriends who celebrate with them when they get the first credit card paid off and who give them advice when they’re struggling.

Your support network takes on a whole other level of importance if you live together with your significant other. In this case, it’s extremely important that you share the goal with your loved one, since your household and finances are also shared. In the cases where we’ve had ReadyForZero users get out of debt as a couple, we always find that both people got on the same page and agreed that the goal was worthwhile – even if they didn’t necessarily agree right from the beginning.

2. Check up frequently.

It stands to reason that people who check up on their progress more often are more likely to be successful in getting out of debt, and that’s what we’ve seen among our users. Almost every time we talk to someone who has paid off all their debt, they tell us how they checked their progress on a monthly (or even weekly) basis. And when we looked at the data several months ago, we found that people who updated or checked their plan in ReadyForZero were paying off debt twice as fast as the rest.

Bottom line: you have to be a little obsessed, or at least care a lot, in order to make this goal happen.

3. Be willing to change your lifestyle.

People who get out of debt usually have to make some sacrifices in order to get there. Either that, or they identify behaviors they must change in order to improve their financial picture. For example, if someone has an expensive car payment and they want to pay off their credit card debt, the first task might be selling the car. On the other hand, if you find that you’re always going over budget because you spend too much money on clothes, you’ll need to find ways to prevent yourself from going to the mall (or department stores).

When we’ve talked with those who successfully paid down their debt, many of them had to make these kinds of behavior changes. And you can too! For starters, read through our Credit Card Debt and Student Loan Debt resource centers.

4. Focus on positive progress (don’t let setbacks stop you).

Even though it’s listed fourth, this may be the most important characteristic of all. The people we talk to about getting out of debt have all said that staying positive was critical to their progress. In fact, no matter what your goal is, you will run into some hurdles along the way. When you’re trying to get out of debt, there will be days – maybe even months – when things don’t go as planned and you will feel like your progress is stalled. These are the times when many people quit. However, if you resolve to stay positive no matter what hurdles you come across, then you will keep your motivation burning inside and you won’t quit.

5. Get rid of your credit cards if they tempt you.

How well do you know yourself? If you are the kind of person who doesn’t have willpower when it comes to credit card spending, you’re not alone. Many of the people we’ve talked to have had the same problem. However, they were able to overcome it by getting rid of the credit cards. While it’s not always a good idea to close a credit card account (because of the impact to your credit score), sometimes you just have to bite the bullet and close it. Or at the very least, use some of these tips to prevent yourself from using the card.

If you are someone who wants to get out of debt but hasn’t been able to, there’s a good chance that these characteristics can help you achieve your goal. The first step is to train yourself to think differently and begin to adopt the attitudes and behaviors discussed above. The truth is, anyone can make progress as long as they commit wholeheartedly to the task at hand. Good luck, and let us know how it goes!

Do you know of any more characteristics of those who are able to get out of debt? Leave a comment!

Identity Guard | Identity Theft Protection Overview

Identity Guard is a company that provides identity protection services to consumers.

Why Consider an Identity Protection Service?

Identity theft is a big, serious business.

Credit card and bank account numbers, social security numbers, and website login information are stolen every day around the globe. This sensitive data is then resold on black markets from one criminal to the next. The bad guy (or guys, more likely) at the end of the road commit fraud by purchasing as much loot as possible online and shipping it to a nondescript location, clean out your bank accounts, and try to open new lines of credit in your name.

It’s a massive, sad industry with long repercussions for its victims. It can take up to 26 hours of work to wipe out the damage done by identity theft. There’s a lot of paperwork involved: a police report, certified letters to defrauded creditors, and contacts with the three major credit bureaus to name a few.

An identity theft protection service’s goal is to help you avoid that situation. They monitor various aspects of your financial life and look for suspicious activity and alert you to it.

What Services Does Identity Guard Offer?

Identity Guard offers four monthly plans that offer a varying range of protection.

All four plans include:

• Identity theft insurance – you get paid if thieves steal money from you that is not recovered.
• ID theft recovery assistance – you receive access to an identity theft recovery center.
• Internet surveillance – if your personal information (SSN, credit card info, etc.) is revealed online you’ll be alerted.
• Some online tool access – basic tools to let you look at your credit and plan for your financial future.
• Lost wallet protection – the company will assist you in canceling your credit cards.

After that the benefits you receive depend on the monthly cost.

We’ll cover cost in a moment, but some additional options available to you include:

• Credit scores – quarterly credit scores from the three credit bureaus.
• Credit bureau monitoring – if a new line of credit is opened in your name you will be alerted (from mortgages to car loans to cell phone accounts).
• Public record monitoring – the most expensive plan will monitor public records to make sure you are aware of new aliases, addresses, licenses and registrations, and court cases against you.

How Much Does Identity Theft Protection Cost?

The plans range from $4.99 per month to $17.99 per month. All plans include the first set of benefits listed above.

The second plan is $9.99 and the third plan is $14.99. They offer the exact same benefits except for two notable distinctions. The $9.99 plan offers identity theft insurance, but unlike the other three plans that pay out up to $1 million in insurance, it only pays out $2,500 and has a $250 deductible. I found that kind of strange. It also only offers 1 credit score (the two more expensive plans offer 3 credit scores).

What Alternatives Do I Have?

If you don’t want to pay a monthly fee to have your identity protected there are still options available to you. You can set up a self-monitoring service using AnnualCreditReport.com. This site is the official, government mandated website that lets you check your credit report once per year with each credit bureau. Instead of checking all three reports at the same time you simply space them out throughout the year – once every four months. (If you’re married you can rotate who checks their score and check every two months.)

This won’t provide you instant monitoring, but can give you some peace of mind in keeping tabs on what might be going on with your credit profile.

You can download free tools to help you keep your computer clean of malware and viruses that can assist thieves in stealing your personal data. Some tools of note include AVG Antivirus (Free Edition), CCleaner, and Spybot Search and Destroy.

Do you have identity theft protection? What do you think about Identity Guard? Leave your thoughts below!

FHA Loans 101

An FHA loan is one of the tools available if you want to buy a home but don’t have much money for a down payment. I actually bought my home with the help of a FHA loan. However, it is important to consider the pros and cons of a FHA loan before jumping in.

What is an FHA Loan?
The FHA loan is backed by the Federal Housing Administration. With a FHA loan, the government guarantees the loan, so that a lender is at a lower risk should you default. FHA loans were not terribly popular before the financial crisis of 2008, since it was possible to get 0% down home loans fairly easily.

Now, though, with many mortgage lenders tightening requirements, the 3.5% down payment requirement for a FHA loan seems attractive to many. It is important to note that the 3.5% down payment option is only available to those who have a credit score of at least 580. If your credit score is between 500 and 579, you will need a 10% down payment. FHA loans are not available to those with credit scores are less than 500.

You do need to show sufficient income to be approved for a FHA loan, and some of the guidelines are stricter than what was available prior to the financial crisis.

Private Mortgage Insurance
When you borrow for a mortgage that’s not an FHA loan, banks and other lenders ask for at least 20% down on the home to protect themselves against a default.  If you don’t have enough money to make a 20% down payment, they may still lend you the money but you’re required to buy private mortgage insurance.

Private mortgage insurance (PMI) usually amounts to between 0.5% and 1% of the entire loan amount each year. If you have a $200,000 loan, and the PMI is 0.75%, you will pay $125 a month each year until your loan to value ratio drops to 80%.  Although the existence of PMI does extend home ownership as an option to many that might not be able to afford it, that monthly fee can add up to a big expense for the homeowner.

PMI vs FHA Insurance Premiums
If you borrow money with an FHA loan, you don’t pay PMI but you do have to pay into a fund that guarantees FHA loans.  This fund is an escrow account setup by the U.S. Treasury Department.  Lenders are still exposed to the risk of default (even more so since the down payment is so small) but the Federal Housing Administration is agreeing to back the loan with the escrowed funds paid into by FHA borrowers.

When you have a FHA loan, you will need to pay 1% of the loan amount up front (Upfront Mortgage Insurance Premium), and then an annual premium depending on the term of the loan and how much you put down. (You can add the 1% up front premium to the loan amount.) You have to pay the premium for at least five years, and you stop paying the premium once your loan to value ratio reaches 78%.

The table below is based on the rates on the FHA website for new loans after April of 2011.  The table shows the annual premium for an FHA loan according to the length of the loan and the size of your down payment.

		Loan Term
		<= 15 Years	> 15 Years
	< 5%	0.50%	1.15%
Down Payment	>= 5%	0.50%	1.10%
	< 10%	0.50%	1.10%
	>= 10%	0.25%	1.10%

 

So, to figure out how much mortgage insurance you’d pay with a conventional loan vs FHA loan you’d first figure out your monthly premium based on your loan term and the size of your down payment.  Multiply that times the number of months it would take you to pay down the loan to less than 78% loan to value ratio.  Then add that number to the amount of your Upfront Mortgage Insurance Premium and you’ll have the total cost of insurance for your FHA loan.

There are many variables involved in this decision.  In addition to the term of your loan and the amount you have to put down, you also have to factor in what the appraised value of the property will be.  In terms of determining if you can afford the monthly payments, you’ll also need to know what interest rate you’ll pay.  The combination of the interest rate and the term of the loan will determine what your monthly payments will be – which you need to know in order to figure out how long it will take you to pay down your loan to the point where you have at least 20% equity in your home. I haven’t seen a good calculator that compares a conventional loan vs an FHA loan but if I find one I’ll be sure to write about it.

Saving Up for a Down Payment

Right now, with tighter lending standards, a FHA loan can be quite tempting. You have a lower down payment requirement — and a lower credit score requirement. However, you might end up paying more. A bigger down payment can save you money in the long run, since you will be financing less, and paying mortgage insurance premiums for a shorter period of time.

What you decide depends on your priorities: Do you want to buy now and long in a lower home price and lower interest rate? Or do you want to save up for a down payment and borrow less? In the end, it depends on whether you want the home now, without saving up, or whether you want to wait until you have a bigger down payment.

Stop Getting Pushed Around!

Hank Trotter was one of those bullies that you’d take the long way home to avoid. Unfortunately for me, I rode the bus with Hank so I lived in daily fear of our ride to school & back.  Although everyone knew to keep their head down & mouth shut on the bus – one Monday afternoon I’d had enough of being pushed around so instead of hiding from Hank I stood up to him.

It was straight out of an after school special – I challenged him to a fight by the neighborhood bridge at 4 o clock (here’s a picture of the spot we went at it) I remember feeling scared, I wasn’t a fighter, I was just sick and tired of his bullying and knew I had to make it stop.

Have You Had Enough?

How often do you feel that way? I know we’re not kids anymore but let’s face it, getting pushed around doesn’t stop when you leave school.  Whether it’s your boss or your bank, it seems there’s always someone trying to make you work longer or pay more than you should. Eventually you get fed up with it and you have to decide if you want to stand up for yourself and your money or just sit there and take it and be miserable.

Don’t Be Intimidated

Back to my battle with Hank, I never really stood a chance, he was taller & stronger. I remember walking home bruised and sore after the fight, wondering if it had been worth it.  I knew going into it that Hank had the upper hand, as is usually the case with bullies.  They rely on a perception of dominance, whether it’s deserved or not.  This fear gives them power over you, the power to make you do what’s in their best interest.

When you’re a kid, it’s just fear of getting whaled on, maybe a bloody nose and a black eye.  That’s enough to keep most kids “in their place” and let the bully do whatever they want.

Do It, Or You’re Fired…

But that fear can take many forms, and does, as you get older and the bullies become more sophisticated. One simple example that we’re all well aware of is the boss who makes you work long hours for years on end without a pay raise or promotion. 

His job is to keep the department budget low, so he tries to do more with less people.  Even though it’s not right, he knows the fear of losing their jobs will keep most people doing exactly as he demands.

They Know Your Biggest Fears

Looking back, I actually had it easy with Hank.  There was no question of whether I needed to stand up for myself, the only question was if I had the guts to do it.  Standing up to your boss is a lot more complicated, it takes a lot more thought and planning than a emotional challenge to meet after school for a fight.

But it doesn’t stop there, bullies can be more subtle than an intimidating boss threatening to fire you.  When it comes to your money, bullies often leverage their expertise to make you hit the panic button and do irrational things. 

Just think about your broker or insurance agent.  They know more about investments or insurance than you do and you look to them for guidance.

They know your biggest fears when it comes to protecting your money, your belongings, or your family and know what buttons to push to make you worry your way into adopting their agenda.

How Do You Fight Back?

How do you fight back against someone who’s supposed to be helping you? How do you know if they’re really looking out for your best interest, or looking instead to pad their pockets? 

Even worse, how do you stand up against a member of your family who’s a money bully? How many people struggle to pay their bills or are even suffering under massive debt because of their spouses ill-advised decisions? 

What If the Cards Are Stacked Against You?

And how do you fight back against a system that you have to follow?  For example, the IRS has the law on their side, they’ll come and get your money and charge you with fees and interest if you’re late. 

Or take the credit scoring system for example. You may not want to use credit at all but unless you follow the system and establish a positive credit history you won’t be able to get a loan to save your life! Now days, it’s not just getting approved for a loan. Now your credit score can impact your insurance rates and even whether you get hired for a job.  You have to follow their rules, you have to work in their system. 

Big & Pushy

The bigger money bullies get, the more frustrating they are to deal with.  I’m sure you’ve worked with at least one of the mega phone or cable companies who overcharged you for their service then put you on hold for 20 minutes when you call in to straighten it out. 

Companies like these have a history of trying to sell you more than you need, overcharging you for service, under delivering on what they promised, and then making it nearly impossible for you get it fixed.  Simply ridiculous!

The only reason we jump through their hoops and run the gauntlet is that they have our money.  They know from experience that enough people will just take the abuse that they can keep on pushing us around and stay in business.

I don’t know about you but I can get pretty worked up when dealing with some of these bullies. I don’t blame you if you’re angry after dealing with them, it can get overwhelming and sometimes you just feel like you’ve had enough. 

The Most Important Thing I Learned

That’s how I felt with Hank and why I finally stood up to him. Like I said, compared to the army of bullies we just went through above, I had it pretty easy when dealing with Hank.  It may sound strange but I’m actually glad that he terrorized me all those years ago.

The thing is, I learned a very valuable lesson that afternoon when I met Hank by the bridge.  I’m glad I learned it a young age, it’s probably one of the most important keys to financial success I’ve had in my entire life. 

It’s simple, yet powerful. 

It’s kept me out of debt, my family fed, and helped me get ahead in life. 

It’s a lesson that not everyone learns.

I’m sure if people understood what a difference it could make they’d be clamoring to know why it works.  Thanks to Hank, I’ve had this ace up my sleeve since I was a kid. Can you guess what it is?

I think it’s time I shared it with you.

The lesson I learned all those years ago was ….

[stay tuned until my next blog post]

10 Money Mistakes To Avoid

Sometimes it’s hard to keep track of all the things we’re “supposed” to do with our money.  If you’re feeling overwhelmed, it can help to start by focusing on a smaller list of things that you shouldn’t do. The following money mistakes can cost you dearly whether they impact you immediately today or slowly over time. Avoid them and you’ll be better off.

1. Spending More Than You Earn
The root of most financial problems is the inability to control spending. No matter your income level, if you spend more than you earn you will be broke and in debt. Whether you have $10,000 in income or $1,000,000 in income, you must spend less than you earn.

2. Not Doing an Annual Review of Your Finances
It’s “okay” to make a money mistake for a little while if you are unaware of it. Real problems start if that mistake sustains itself for years on end. Sitting down at a specific time every year to review your finances can ward off these problems.

You might notice an extra fee on your cable bill due to a data entry error. Or you can make it a habit to comparison shop your car insurance and home internet costs in order to negotiate for the best rate. They say ignorance is bliss, but it can cost you dearly.

3. Over Paying for Convenience
It’s easy to justify spending money when it is convenient. You don’t plan out your meals and find nothing in the fridge to eat, so you go out to a restaurant and spend enough money to feed you off of groceries for a week. You need your coffee in the morning, but instead of getting up a little bit early to make it for pennies per cup you spend $5 at Starbucks. Paying for convenience is fine, but do it all the time and in excess and you will always wonder why you never got ahead financially.

4. Avoiding Tough Decisions
Sometimes life is tough. Sometimes your income goes down or disappears. Sometimes your bills go up dramatically. During those times you have a choice: you can try to finance the gap between what you make and what you spend, or you can start cutting items from the budget.

Having an argument with your spouse and whether to cut cable or not isn’t fun, so you avoid the conversation even though you could really use $100 per month to buy groceries. At the end of the day if you have the necessities of life: food, water, shelter, clothing on your back, your health, and a way to generate income to live, you’ll be okay.

5. Not Protecting Your Credit Score
A bad credit score can cost you thousands of dollars in interest. People with bad scores are seen as credit risks, there’s no doubt your credit score impacts your interest rates. It might cost you $1,000 on a car loan or $40,000 on a home mortgage to have a bad credit score. That’s a mistake when you can improve your credit score by making your payments on time and lowering your overall debt utilization.

6. Spending Impulsively
A big mistake many people make is buying impulsively. They see something they want (or think they want, thanks to clever commericals), and it is right in front of them so they buy it. A few weeks later they discover they don’t really use what they thought was so important, and have wasted money.

Before making a big purchase, sleep on it. Your emotional craving for the item should die down after a while and you may come to your senses with the realization you didn’t really need it in the first place.

7. Avoiding Preventative Maintenance
Doesn’t it make sense to spend a few dollars now in order to save hundreds of dollars later? Avoiding maintenance is one of the easiest mistakes to make because it doesn’t usually immediately impact you. You avoid some car maintenance and it saves you $300 now, but the engine blows up a year from now costing you $3,000 for it to be rebuilt.

Or maybe you live an unhealthy lifestyle and don’t exercise. It doesn’t cost you much today to sit on the couch, but when you have a heart attack or stroke earlier than you should the cost will be real. Spend the time and money necessary for preventative maintenance and avoid the major costs on the back end.

8. Thinking Everything is an Emergency
It is wise to have an emergency fund handy for when things go wrong. Having 6 to 12 months of living costs set aside really protects you from unemployment or big disasters. But even if you’ve been smart enough to build an emergency fund, you can start to think everything is an emergency. That’s a mistake that can whittle your emergency fund down below what you really need, and when the actual emergency comes along you aren’t financially prepared.

9. Letting Compound Interest Work Against You
Compound interest is a beautiful thing if you are the one with the money being lent out. If you deposit funds into a savings account, you are letting the bank borrow from you to lend to others. They pay you interest for this privilege. On the flip side if you are carrying a balance on a credit card or taking out payday loans, compound interest works against you.

10. Paying Your Bills Blind
A simple mistake to make is to simply pay your bills without looking at them in detail. Every bill you receive has a summary of the charges and then a breakdown showing what you were charged. It is easy for companies to have data entry “mistakes” that throw an extra charge in on your account. If you don’t review the bill it can easily slip past you. While setting up online billpay and automatic payments is a good thing because it helps you avoid late fees, be sure to check the actual statement to make sure you were charged the right amount.

5 Secrets to Surviving a Short Sale

Thanks to Neal for this guest post on things he learned about surviving a short sale. A generation ago a “short sale” was a special on Capri pants at and the local department store. A decade ago a “short sale” was a stock transaction that bet on failure.And now, it’s something completely different, and depressingly omnipresent.

A short sale is a way for you to get out from under your upsidedown mortgage and lessen the blow of foreclosure. At least, it offers a way to have to admit that you were foreclosed upon. We all know what the term “short sale” means these days. Many folks know less about what it involves, and more alarmingly, what it feels like to be on the receiving end of that short stick.

5 Secrets to Survive a Short Sale

Here are five little nuances that, if you’re just now considering this, you may not yet have been told, all of them something you need to weigh.

1. In comparing a short sale to a foreclosure, you’re basically trading one pain for another. Because in either case the bank won’t like you, and in return will send the credit bureaus a smear campaign with your name on it. Foreclosure will mercilessly ruin your credit for seven years. A short sale, if you can pull it off, will put a black mark next to your name for two, and give you quicker access to credit-rebuilding programs, which are suddenly all the rage.

But don’t sign up yet. Because your credit score isn’t the only variable involved.

2. Foreclosure is relatively easy. You just stop making mortgage payments, and then one day you get notified that you need to be out the door by a specific date. Which may or may not be the date you really need to be out of the house (some folks have been known to squat in their own home for up to year after a foreclosure notice).

When the real date arrives, you just pack your stuff and go. Simple.

3. By comparison, a short sale is like taking out your own appendix versus going to the emergency room. Nothing easy about it, and orders of magnitude more painful. First, you have to stop making your payments completely or the bank won’t even talk to you about a short sale. Don’t even thing about making a partial payment because, after all, you’re one of the good guys, it’ll back-fire on you.

What they will do, however, is turn your account over to a collection agency who will call you with some of the nastiest, most confrontational rants you’ve ever heard. Best advice here, if you truly are heading toward a short sale: don’t answer the phone. Instead, call your bank (not the collection agency) yourself every six weeks or so and tell them – yes, tell them – that you’ve chosen to do a short sale on the house, and you’re ready when they are, and in the meantime, no further payments are forthcoming.)

It gets worse from there. Once the short sale fuse has been lit, the bank will have a market appraisal done on your house, and your ego won’t like the number. They’ll want the highest price they can get, which is contrary to your desire to sell the house as quickly as possible. And by the way, at this point you are completely out of the conversation, on any and all issues. Just sit back and let your real estate agent handle the chaos.

Which brings us to the next little secret.

4. You absolutely need to work with an experienced short sale real estate professional. Ask for references and credentials. Anybody with a business card with the words “real estate” on it will say they can do it, but only a fraction actually specialize in it. Why do you need a specialists? Because the runaround you’re in for is astounding, and you need someone who can cut through the crap the bank will throw down in this process.

An attorney is a good idea, too, but that’s no secret.

5. There’s no such thing as a free lunch or a completely scott-free mortgage forgiveness, according to the I.R.S. You will receive a Form 1099-S in an amount equal to the amount of the loan forgiveness that results from a completed short sale. There are ways around actually claiming this income on your tax return, including the possible extension of Obama-generated tax breaks based on certain factors that you, your CPA and your attorney need to kick around.

But exempting this “income” from taxes is not remotely a sure thing, making this the dirty little secret of short selling.

6. There’s help out there. Go online and search for “short sale advice,” as well as “government programs for foreclosure avoidance.” The programs have income thresholds and expiring timelines, and this landscape is shifting constantly.

The banks, for example, have an incentive to help you apply for a kickback of up to $3000 — because they get a kickback of their own from taxpayers, which means you should thank all your neighbors for the help if you go this route – as part of the matrix-like cluster-bomb of paperwork and closing costs you’ll encounter.

Remember, while you may feel alone with your problems, you’re not.

Short sales are at an all-time high, and banks are resigning themselves to it as an alternative to foreclosure, which is the epitome of a pain-in-the-asset where they are concerned.

Just remember, though, that the short sale buyer is a close DNA match with the common shark, and they’re on your porch smelling blood for the sole purpose of capitalizing on your misfortune. Thus, coffee and cookies during showing are not expected… save the five bucks and buy yourself a sandwich. Just don’t tell your bank that’s how you’re spending your money, because they’re looking for any reason at all to tell you no.

Nolan Hoffman is the lead writer for onlinebanks.com and also blogs about his short sale experiences at debtkid.com.

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