prancingbull.com

As an employee of a financial institution I have the ability to view prospective member’s credit reports. It is amazing how many people are in collections from the library. Did you know that not repaying that nominal library charge for turning in your books is actually hurting your credit scores? What do you think lenders think when they see that you have been in collections with the library for the past two years over an $80 fee? If you can’t repay the library (who lets you read their books for free), why would you repay your normal debts at an institution?

Before you decide to not pay your library fee out of principle, remember that potential creditors have the ability to see this and it will hurt your credit score. Lower credit scores equate to higher rates on your loans. You will easily pay over $80 in additional interest with a higher rate loan. Do the smart thing, pay off your library fees because they may come back to haunt you.

Credit, Personal Finance collections, Credit, credit report, fee, interest rate, library

Sometime in May the government will be sending out checks worth up to $600 per individual or $1200 per household. The government feels that by doing this they will be able to stimulate our currently stagnant economy. It seems like a fairly good idea and all, but will people really spend the money? I think that for the most part people will spend it. People will look at the money as an unexpected gift and by spending it they won’t be deviating from their budget because they were never expecting this money in the first place. Sure, this may give a temporary boost to the economy, but it won’t be anything long lasting or long term.

Here is what I project people will do with their money:

50% will go out and blow it all within the first few weeks on something that they been wanting but not able to afford. These are the people who probably need this money the most to go towards paying off debt, but that isn’t going to happen.

20% will save the money. These people have always been good savers, and they most likely see this as a golden opportunity to increase their savings without doing any extra work.

10% will put the money towards their credit cards or other sort of loan product in order to pay it off earlier. These people have made an excellent choice for their personal finances. Any opportunity to pay off more debt should be taken advantage of. This is a golden opportunity to do so.

20% will do some combination of the above three things. It will likely be more spending than saving though.

Here is one thing that I don’t like about this rebate. Americans are drowning under piles of debt, but with this free money, most people aren’t going to put it towards paying off their debt. I think that the government should automatically put at least half if not all of this so called “relief” money towards their current debt. They would put half of the funds towards the debt and half as a refund check to the citizen. For those who were in collections or had late debts, all of the refund check would be put towards the creditors. This would encourage people to get up to date with their accounts so that they could get the majority of their check.

All this credit checking would theoretically create a high cost for the government, but the relief act would require creditors to submit a petition for funds if their debtors met a certain criteria. If they did not submit the petition they would not receive a portion of their refund.

I know that this is most definitely a fantasy idea, but I believe that if something like this were to take place, the American citizens would be much better off than they would be with just a straight refund check. I do agree that the government should not be one to tell people what to do with their money, but I do believe that if there was a financial incentive to do the right thing with it, people would be more receptive.

I am really curious to hear what others think about this idea. Do we need to encourage people to pay off their debts? Should the the government have a say or an influence in this? And last but not least, what will you be doing with your relief check come May?

Credit, Personal Finance, Savings creditor, debtor, government, relief check, taxes

I was at Barnes and Noble earlier today when I came across a “new” book written by Suze Orman. Now when I say that the book is new, I mean that it is new to me. The book has actually been out since March of 2005, so it is actually about three years old. Nevertheless, the information that is inside does not really change from year to year. For those of us who do not know who Suze Orman is, she writes articles for Yahoo! Finance and also has her own show on CNBC called the Suze Orman Show. Her specialty is personal finance.The book that I found was called The Money Book for the Young, Fabulous & Broke. The book is geared towards the younger generation who is in their twenties up until their early thirties. It is most directed to those who have accumulated a pile of debt going through college, and now that they are out they are struggling to make ends meet with a low paying job, high cost of living and endless debt. Even if you aren’t hopelessly in debt, a younger person can find this book to be especially beneficial. In this book, Suze covers a variety of topics over the course of 10 chapters and 360 pages.

Here is a summary of the table of contents:

1. Know the score (Credit scores)
2. Career moves
3. Give yourself credit (Get the most out of credit cards)
4. Making the grade on student debt
5. Save up
6. Retirement rules
7. Investing made easy
8. Big ticket purchase: Car
9. Big ticket purchase: Home
10. Love and money

The thing that I really liked about this book when I was browsing through it was how simple the author makes things seem. Suze puts all her points into really simple terms that people can relate to and understand, even if they have never taken a finance class before. If you or someone you know is going through a financial rough patch, this could be really helpful to get them to understand where the best places would be to put their money. Currently you can buy this book for only $6.25 at Abebooks.com

Credit, Personal Finance, Reviews, Savings book, credit card, debt, finance, review, suze orman

Credit card companies have a lot of competition for your business. Often, they market gimmicks in hopes that you will join their card. 8.9% introductory rate for 6 months they say! That works out great for the 6 months, but then they bump you up to 26% or something crazy like that. Not fun at all.

Yesterday I got a credit card offer from Fidelity that was very intriguing. They offered a 0% introductory fixed APR for cash advance checks and balance transfers until April 2009! That is 13 1/2 months away! This is a great opportunity to make a nice riskless profit. What I could do is apply for the card. Once I am approved, I can write a cash advance check to a bank and open a CD with it. For a 1 year CD the average rate is somewhere around 4% right now. For every $1000 that I am approved for I can make a free and riskless $40! That means if you are approved for $10,000 you can earn $400. This sounds great, but there is one catch though. In the offer they state that there is a 3% cash advance fee. You still stand to make a profit though. The riskless profit would be 4% - 3% = 1%. So for every $1000 you will make $10 risk free! Disappointing I know, but imagine if rates were at 6%.

Just something to think about for when rates go back up again.

Credit, Personal Finance apr, credit card, fidelity, profit

Every day at work I come across a new situation that needs to be handled a bit differently. Today was no exception. I had a mom come in who had for this example about $5,000 in a 14 month CD paying approximately 4.75%. The maturity of the CD was in August, so she was about halfway through the term of the CD. She also had about $1,800 saved up in a money market account. For the purpose of this example, let us assume that the trip costs a flat $5,000. Let us also assume that the funds in the money market are needed for every day household expenditures, so they could not be used to pay for the trip. She told me that her daughter was going to be traveling abroad for a few months this summer, so she was going to need some extra money to finance it and was thinking about making an early withdrawl from her CD to cover the costs. At my financial institution, as well as the large majority of others, fees are charged for early withdrawls on CD accounts. Here, we charge 180 days of interest for withdrawls no matter when they are taken out.

I told the member that if she were to make an early withdrawl, then we would have to assess a 180 day interest penalty. She wasn’t too keen on that idea, so we started searching for ways around this. Initially I thought that she could take out a personal loan to finance the trip, but even at the lowest rates they are still in the 7 - 8% range for a good credit borrower. If she took out a loan at that rate she would be paying more in interest on the loan than she would be receiving on the funds that are still in the CD. In this situation, it would make more sense to just liquidate the CD, pay the early withdrawl fee, and then use those funds to pay for the trip. Although she would lose out on 180 days of interest, she would be able to pay off the trip in full and not have to worry about any debt. She would also save money by not having to pay that higher interest rate.

After talking to her a little more, I came to find out that she had a promotional rate credit card where the rate was only 2 - 3% through the end of 2008. Since the rate she is paying on this card is less than what she is earning, it would make sense for her to keep the CD open and finance the trip through the credit card. What worked out even better for this member was that the trip did not have to be paid for until April. This means that she could put the entire trip on the card, make the minimum payments for the next few months, and then pay the card off with the funds from the matured CD. At this point, the card will be entirely paid off before that high interest rate kicks in.

This example is a great way to take advantage of a low introductory rate on a credit card. Just be sure you know when those high rates start up and have your card fully paid off by then!

Credit, Personal Finance, Savings cd, credit card, interest