Month: December 2010

FEATURE ARTICLE: If you’re in debt, you’re not alone. Consumer debt in America is extraordinarily high. Sometimes it’s hard to know – or admit – if you have a problem with debt. It can be overwhelming to realize that you’ve gotten in over your head, and to worry that you won’t be able to pay back what you owe. The key to getting out of your situation is to act now. Don’t procrastinate. Taking charge of your finances and creating a plan for tackling your debt will cut down your anxiety and get you on the path toward a better financial future.

First, ask yourself whether debt has become a problem for you. Here are some circumstances that might indicate it has:

• Next month’s bills arrive before last month’s have been paid
• Your bills often include late fees
• You avoid opening bills when they arrive in the mail
• You procrastinate balancing checkbooks
• You bounce checks

Write it Out
Do you actually know how much debt you have? Many people don’t. Start by making a list of everything you owe, whether it’s a mortgage, a credit card balance, student loans or even money you borrowed from family or friends. Write down:

• The lender’s name
• The amount you owe
• The term of the loan
• The interest rate and fees

Then total them up. Looking at the numbers can be worrisome, but this is a positive – and necessary – first step to tackling your debt.

The power of 50
Paying the minimum amount due on your credit cards is one of the fastest ways to fall further into debt, and it can keep you in debt for years or decades.

If you have a credit card with a $3,000 balance at an annual interest rate of 18%, and you pay only the 2% minimum monthly payment of $60 per month, it would take you 8 years to pay off your bill. Not only that, you will have paid $5,780 by the end of the 8 years – almost double the $3,000 you thought you were spending when you made the charges.

Paying just $50 above the minimum amount due each month will make an incredible difference in how quickly you can pay down what you owe. If you pay an additional $50 per month toward your $3,000 balance for a total payment of $110 a month, you could pay off the debt in 3 years instead of 8, and save yourself over $1,800 in interest. Imagine what you could do with $100 more per month.

But if you can pay an additional $50 per month on that debt, for a total payment of $110 a month, you will pay down more of the $3,000 you originally owed. And that means less money for the creditor to charge interest on. As a result, you would pay off the debt in 3 years and save over $1,800 in interest payments.

Imagine what you could do with $100 more per month.

Be realistic
Now that you have analyzed your debt situation, it’s time to look at your monthly budget and set realistic goals. That trip you had planned for next summer, or the new car you were hoping to buy may not be in the cards right now given your new outlook on reducing your debt.

Don’t get discouraged
Reducing debt is like losing weight. You’re not going to lose 50 pounds in a month – you need realistic goals in reasonable timeframes, and debt works the same way. For most people, it takes years to become debt-free. This doesn’t mean you have to stop enjoying your life. It’s just a reminder to live within your means and be diligent about adjusting any spending habits that have contributed to the situation you are in today. Dedicating yourself to paying off what you owe and becoming debt-free will be worth the wait, with the payoff being a brighter financial future.

For a complete budget worksheet, click here.

MONEY SAVING TIP: Wanting or needing to purchase a computer?  Check out Apple or Dell for great deals under their refurbished section.  They even offer free shipping!

DID YOU KNOW… about the Rule of 72? Doubling your money is easy to figure with the rule of 72. To determine about how many years it will take to double your money, divide 72 by the interest rate. For example, if you have a 10% interest rate, divide 72 by ten. At that rate, you’ll be able to double your investment in 7.2 years.

You can use the same principle to understand what interest rate you’ll need to double your money in a targeted number of years. To find out, divide 72 by the number of years you want to keep your money invested to come up with the interest rate required. For example, if you want to invest for 15 years, divide 72 by fifteen to find that you can double your money in fifteen years with an interest rate of 4.8%.

FEATURE ARTICLE: Top 5 red flag items that may drive you into debt.

1. Cosigning.  When deciding if you should cosign for someone, the most important question you need to ask yourself is, “can I afford to pay for this loan?” Ultimately, if things go wrong with the original borrower, you will have to pay for it. When you cosign, you are equally responsible for the loan.  Your credit report also takes a beating if the original borrower is late on payments. Once that happens those negative marks stay on YOUR report for seven years.
2. Misusing. When you live beyond your means, you are misusing your credit; and this only leads to mounds of never-ending credit card debt.  If you find that you need to use your credit card for everyday items like gas and groceries, take immediate action and readjust your budget or find an additional source of income, i.e. a second job. Always spend less than what you earn. Forget about what your neighbor has and be comfortable with what you have. Keeping up with the Jones’ by using credit only leads to trouble.
3. Not saving. If you are not putting somewhere close to 10% of your net income into savings, you are only hurting yourself. When that rainy day arrives and you have to depend on a credit card to bail you out, you will be sorry. When a major medical expense occurs or some other event dampers your finances, it’s better to have those extra funds than to revert to a card that charges you high interest.
4. Driving upside down. If you are driving a car that is worth less than the amount you owe on it is bad. Everyone is well aware that a car depreciates immediately after it’s driven off the lot. Unless you make a big down payment toward the purchase of the car, it will quickly become upside down on the loan.  You will also experience this if you tag on the loan of a previous car on the car you’re purchasing. Be careful with this big purchase; if the monthly payment is a stretch for you, a change in your financial status may put you upside down and in default.
5. Borrowing. The two popular assets people borrow from are their home and their retirement account. This is ok only if it’s absolutely necessary and IF you have a good, firm plan to pay the loan back.  A good tip…keeping the equity line (mortgage loan) under 80% or less of what the home is valued at. Your retirement is inevitable, so try not to mess with this account unless you’re ok with its risk.

Always refer to your budget to keep you in check and under financial control. If you need assistance creating a budget, contact DMCC. Their certified credit counselors can help you over the phone or you may download their free educational worksheets to create your own budget at home.

MONEY SAVING TIP: Cheapism.com is a buying guide for consumers who want to spend as little as possible on something that will last as long as possible. The site’s editors evaluate the lower price ranges in almost 100 product categories – including electronics, appliances, home, beauty, fitness, and travel. Check it out!

DID YOU KNOW?….that warehouse clubs are worth the cost?  Warehouse clubs have great deals on eggs, butter, milk, cereal and cheese as well as other household staples. The savings on big-ticket items like furniture and electronics can more than pay for the annual membership fee of $40 to $50. However, you must use your membership wisely. You must only purchase what you are going to use. Make sure that the amount of food and items you buy are comparable to what you or your family consumes in order to get the most out of the membership.  And if you’re not certain, ask the customer service clerk to see if there is a way you can make your first purchase as a guest to see if the membership is something you will use. Most warehouses offer something like this as an incentive to get more members.

FEATURE ARTICLE: Tips for Avoiding Loan Modification Scams

According to the Federal Trade Commission (FTC), these are the most prevalent scams;

Lease-Back or Repurchase Scams – In this scenario, a promise is made to pay off your delinquent mortgage, repair your credit and possibly pay off credit cards and other debt. However, in order to do this, you must “temporarily” sign your deed over to a “third party” investor. You are allowed to stay in the home as a renter with the option to purchase the home back after a certain amount of time has passed or your financial situation improves. The trouble is once you have signed away your rights in your property, you may not be able to repurchase the property later, even if you can and want to. After the new owner takes ownership of your property, the new owner can evict you. Furthermore, the scammer is under no obligation to sell the house back to you. Typically, after the deed is signed away, the property changes hands numerous times. The scammer may have taken a new mortgage out on your home for hundreds of thousands of dollars more than your mortgage, making it impossible for you to buy back your home.

Partial Interest Bankruptcy Scams – The scam operator asks you to give a partial interest in your home to one or more persons. You then make mortgage payments to the scam operator in lieu of paying the delinquent mortgage. However, the scam operator does not pay the existing mortgage or seek new financing. Each holder of a partial interest then files bankruptcy, one after another, without your knowledge. The bankruptcy court will issue a “stay” order each time to stop foreclosure temporarily. However, the stay does not excuse you from making payments or from repaying the full amount of your loan. This complicates and delays foreclosure, while allowing the scam operator to maintain a stream of income by collecting payments from you, the victim. Bankruptcy laws provide important protections to consumers. This scam can only temporarily delay foreclosure, and may keep you from using bankruptcy laws legitimately to address your financial problems.

Refinance Scams – While there are legitimate refinancing programs available, look out for people posing as mortgage brokers or lenders offering to refinance your loan so you can afford the payments. The scammer presents you with “foreclosure rescue” loan documents to sign. You are told that the documents are for a refinance loan that will bring the mortgage current. What you don’t realize is that you are surrendering ownership of your home. The “loan” documents are actually deed transfer documents, and the scammer counts on your not actually reading the paperwork. Once the deed transfer is executed, you believe your home has been rescued from foreclosure for months or even years until you receive an eviction notice and discover you no longer own your home. At that point, it is often too late to do anything about the deed transfer.

Internet and Phone Scams – Some scam lenders convince you to apply for a low-interest mortgage loan on the phone or Internet. They then extract vital information, such as your social security and bank account numbers. In this scam, the loan is immediately accepted, after which you start faxing the documents and sending wire transfer payments to the phony company without even meeting the lender. Unfortunately, this scam will put you in twice as much trouble–your personal details have been stolen or sold, putting you at risk of identity theft, and your home is still at risk of foreclosure.

Phantom Help Scams – The scam operator presents himself as someone who is able to help a homeowner out of foreclosure or qualify for a government loan modification or refinance program. In exchange for his or her “services,” outrageous fees are charged and grand promises are made for robust representation, which never occurs. The “services” performed entail light paperwork or occasional phone calls that you could easily have made yourself. In the end, you are worse off than before, because you have little or no time to save your home, or seek other assistance.

If you think you may have fallen victim to any of these or another type of scam, contact the FTC at their toll-free helpline: 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. Or visit their website at www.ftc.gov.

MONEY SAVING TIP:  Use less.

Purchasing appliances that are energy efficient to cut down on the utility bill is a wise idea.  However, these appliances can be costly.  Instead, have your power company do an “Energy Audit” on your home appliances.  This audit is free for the consumer and it can teach you which of your appliances is braking the bank.  If you live in a cooler climate, put a sweater on before turning on the heat/furnace.  If your climate is more tropical, invest in fans.  Fans can circulate air and are much less expensive than running the air conditioning unit. Check the air filters in the air conditioning/heating unit.  Make sure they are clean and replace them regularly.  This will allow your equipment to run more efficiently.

DID YOU KNOW  that there are warning signs to look for to alert you that you may be dealing with a mortgage foreclosure scam operator?

If the company:

• Has no legitimate organization that works with borrowers to avoid foreclosure or negotiate a loan modification will ever ask for money up front.
• Makes unsolicited offers or “lofty” advertisements, claiming they can help save your home.
• Recommends you break off contact with the lender and any counselor that you may have been working with.
• Advises you to stop making mortgage payments or tells you to send your mortgage payment to anyone other than your loan servicer.
• Instructs you to transfer ownership of your property.
• Asks you to sign a document that has blank lines or spaces

Protect Yourself

Know with whom you are dealing. Before you hand over any money or provide any personal information, check out the company or person. You can check your local Better Business Bureau or state consumer protection office to see if the company or organization is legitimate and if any complaints have been filed.

Contact reputable non-profit housing or financial counselors, such as those you can find by contacting the:

• U.S. Department of Housing and Urban Development (HUD)
  at (800) 569-4287 or
  Talk to a Housing Counselor
• Homeownership Preservation Foundation
  at (888) 995-HOPE or
  www.995hope.org.

Report suspicious activity to the Federal Trade Commission, your State Attorney General’s Office or your state and local consumer protection agencies. Reporting con artists and suspicious schemes helps prevent others from becoming victims.