Archive for February, 2008:
Written on February 29th, 2008 by CleanedUpCreditno shouts
Even though most financial advisors will tell you that taking a withdrawal, and many times even a loan, from your retirement account, should only be a last resort if you’re in a financial pinch, many people lately have been taking early withdrawals (with penalties and taxed as income), and loans against their 401k retirement accounts to help them through difficult economic times.
Although I must admit that I did take a loan against mine about 6 years ago for a financial hardship, I can honestly say that I will never, if I can help it, take that loan again. Even with me paying myself interest when I paid the loan back, directly out of my paycheck, I still missed out on precious compounding interest on my stocks because my balance was lower and the money I had withdrawn was not earning interest during the time.
Although when you take a loan, versus a withdrawal, there are no tax consequences, you are still taking money out that could be earning interest and is not, until you fully pay off the loan, and this can definitely impact your bottom line when you finally retire.
Many people are citing difficulty in paying their mortgages and credit card and other debt as reasons for taking withdrawals and loans, however, financial planners say that it still should be used as an absolute last resort, because who knows when you’ll get around to paying it back.
Also cited as reasons for the increase in borrowing against 401k’s is the whole credit crisis, as well as credit card companies lowering charge limits, when many people rely on credit cards (not good) to pay monthly expenses in one way or another. Also, it is increasingly harder to get low APR credit cards, so people are more heavily relying on lump sum money and other sources of income.
Written on February 27th, 2008 by CleanedUpCreditno shouts
We’re going to talk about something that is very important, but that some people neglect thinking about or talking about with family members. It’s life insurance, and it’s one of the most important small investments you can make in your family, to ensure their financial well being if anything were ever to happen to you.
I’ve seen families impacted by this, when a big earner, or even just a financial contributor in a family passes away, and did not have life insurance, the rest of the family is left with a financial burden and sometimes even has to sell their home and/or belongings and dramatically change their way of life. If there was a way to relieve this and give you the peace of mind that your family was going to be ok, I’m sure that you’d have no problem contributing a small amount to low cost life insurance, so that your family wouldn’t have to struggle should something happen to you, your spouse or partner.
As I said, it is something that we don’t like to think about, but it’s important, and should be just like having homeowners insurance and car insurance, a no brainer, so to speak, and one that could dramatically change what could potentially be a dire financial situation should a bread winning or contributing head of family die. Life insurance isn’t just all about covering for a potential situation that already is hard enough without the financial aftermath, but also has a ton of value simply for the peace of mind it provides, in my opinion.
Written on February 26th, 2008 by CleanedUpCreditno shouts
There are a variety of ways to mitigate your “losses” from using traditional credit cards. When I say losses, I mean the interest you invariably will pay for the right to charge things that you don’t actually pay for up front or in full.
As far as actually “mitigating” your losses, what I really mean is getting benefit, in some form of compensation, for paying that higher than average interest every month. By higher than average, I mean that you are paying that interest on a revolving basis, which means that any balance that carries forward month to month will also be charged interest, not just the initial, or principle balance. Hopefully there are some months you can pay the balance, but we all know that is not always possible.
Perks like money towards flights with the all time popular airline miles credit cards, or even points toward Disney products as offered by some Disney sponsored cards are options. There are also credit cards for gas that will help you build up “points” toward free gasoline, which is quite the hot commodity these days when gas prices seem to be as unstable and unpredictable as the economy.
If you sign up for a rewards credit card, just watch the types of annual fees you are signing up for, as some may be a bit excessive when considering what you’re getting in return. I’d say the higher fees are really only justified by cards that offer airline miles points with purchases, since airline miles are a significant monetary benefit that can really accumulate to your benefit. Free travel is always good!
Written on February 23rd, 2008 by CleanedUpCreditno shouts
I bet you can count on more than one hand how many credit card offers you get in the mail every week that offer you crazy low balance transfer rates and an introductory interest rate for a fixed period to boot. Well, that is, if your credit is pretty good, because it does seem that these days credit card companies are scaling back on the generous offers, what with the mortgage crisis and credit crunch that is going on.
Occasionally though, you may get an offer that you can’t refuse, depending on the situation you face financially. Say, if you are currently paying a lot on a certain credit card for interest, and have the balance up pretty high, you are paying an arm and a leg in interest, unless you have a really good low apr credit card that stick to that low rate for extended periods.
As far as what is a “good” interest rate, you should really be getting the prime rate (like the title of this blog!) interest rate that is going on balance transfer credit cards as well as new credit cards that do not offer the balance transfer option, at any given time to truly be getting a good deal on your credit purchases.
You can usually look up what the prime rate is, simply by doing a search on a search engine and looking up what the latest rate is, since it does fluctuate fairly often as I understand. If you feel that you want to sort of play the credit card game and transfer higher interest debt over, make sure you can pay the transfer off at least by the time the intro period is over, or this defeats the purpose.
And you may want to limit that game too, as you can’t keep switching forever without some sort of credit report repercussion.
Written on February 20th, 2008 by CleanedUpCreditno shouts
This is a very interesting concept that I just recently learned from a friend, and to be honest, I’m really unsure of all the ins and outs of doing things this way to invest money for one’s retirement, but I thought it sounded like a sort of innovative idea nonetheless.
This person, who happens to be approaching retirement age, told me that they just got a second mortgage on the house (which by the way, was almost paid off, another point that probably must be taken into consideration), and took the proceeds of the second mortgage and reinvested them into a retirement investment account of various investment instruments.
There are probably several factors to consider if you wanted to try something that is innovative like this in an effort to extend your retirement resources and invest more for the future. For example, it probably depends on what type of interest rate you are receiving on the mortgage. If it’s a high one, it may not even be worth it, unless you can guarantee you will be making more on that investment percentage wise in interest.
Another may be how much equity you have built up in your home. If you don’t have a whole lot, that may be another consideration. You’d be essentially re-debting yourself when you don’t even have much worth built in the house to begin with, and that could definitely deter some people.
Yet another consideration might be how far from retirement you are. In other words, is the compound interest you are going to earn on the money invested going to have enough time to compound to make this somewhat radical move worth it? Compound interest basically means that you are multiplying your money many times over by letting it stay invested for a longer period of time, ie 15-20 years.
There are probably tons more considerations I’m not even thinking of, but that might be a good starting point.
Written on February 17th, 2008 by CleanedUpCreditno shouts
Debit cards are one of the fastest growing forms of payment in this country. Convenience is probably the biggest reason for their popularity. Some of the advantages of a debit card are they are easier than carrying cash. Sometimes you can even get debit cards that reward you with airline miles, or work like gas credit cards where you can earn free gas, so that’s another potential advantage.
There is no interest payment accrued for using a debit card since they directly draw the funds from your checking account. You also benefit from using a debit card by not having to write a check and you can request cash back at stores when making a purchase.
There are also some disadvantages to using a debit card instead of cash or a credit card. With a debit card, you are not building your credit as it is a direct draw from your bank account. Usually, when using a debit card, you won’t get some of the rewards offered with the usage of a credit card. Debit cards usually don’t have extra added services like credit cards do such as extended warranties on purchases.
Another disadvantage of using a debit card is the problem of not keeping track of your spending as you are less likely to immediately write each purchase in a ledger book. If you overdraw your account, it can cost you up to $34.00 per bounced item.
To try to avoid this problem, keep a specific amount in your account at all times as a cushion. Try, for example, for $500.00 in the account above what you think you are spending to stay away from overdrafts. Save all of your receipts and go online to see immediately what your balance is.
If you have a problem with a purchase, you can not stop payment with the use of a debit card. The merchant already has your money so you have less leverage if there is a dispute. With a credit card, you have a float time before you have to pay your bill so you can leave your money in the bank earning interest.
With the debit card, your money is deducted immediately. Fraud protection is not as good for a debit card as it is with a credit card. If a credit card is lost or stolen, you usually pay the first $50.00. If a debit card is lost or stolen, you are responsible for up to $500.00. A debit card is like a blank check so a thief can quickly empty your bank account.
Report it immediately if your card is stolen as a thief can shop online or order items over the phone with just your name and the account number. A debit card is useful in our fast paced society but just be cautious about the possible disadvantages.
Written on February 14th, 2008 by CleanedUpCreditno shouts
According to many financial experts, we are presently in a recession. Some say we are heading towards a recession soon. Either way, it’s important now to make extra efforts to keep your job and try to make it recession proof. Of course we know there is no such thing as building a recession proof fortress around your job security, but every little bit helps in this day and age to help secure your job.
Keep a positive attitude towards your job. Avoid whining and complaining or any negativity towards your work or your coworkers. Act like you enjoy your job and show enthusiasm.
Volunteer to learn new technologies, duties and procedures. For example, now would be a good time to learn that new computer program that you have been putting off. If a new promotion and title are offered to you, take it with enthusiasm, even if there’s no extra monetary gain at the time.
Accept the new responsibilities and welcome them. Cross train, if possible, for a number of different positions within the company. This way, if your department is downsized or your position is eliminated, you still have skills that are needed in your company. In short, make yourself less expendable to the company and too good to be replaced easily.
If a pay cut is inevitable, accept it if hopefully it is not too severe and still continue to learn new duties and responsibilities. At least this way you can stay the course and try to wait it through the tough economic times.
Check out your health insurance, flexible spending or health savings account to ensure that you can keep your coverage in the event that your job is eliminated. See if you would be able to keep coverage through COBRA if you should need to.
If your company is on very shaky ground, it’s a good idea to research other possibilities for employment but don’t discuss this at all at work. This action may be necessary if a pay cut is too severe or you fear your company may be headed for inevitable bankruptcy.
Written on February 11th, 2008 by CleanedUpCreditno shouts
In an interesting display of trying to win back my using of their credit card, my Bank of America credit card recently sent me a notice that they would dramatically increase my credit limit, enticing me (and yes, it did entice me, but I haven’t used it yet) to start spending on the card that I stopped using more than a year ago. This must be a campaign by the credit card company to get customers to start spending using the card again, who haven’t used the card in a while, but also haven’t cancelled the card yet.
I have heard of some credit card lenders who will actually cancel the card for you if you haven’t used it in too long a time. I’m not sure what the purpose of this is, nor whether it supposedly will hurt your credit as it would if you’d requested the cancel yourself, but I think it actually happened to me before, as well as to my boyfriend. This may be the credit card company’s way of cutting their losses or a tax reason or something like that, but I am unsure as to exactly how this would benefit them.
With the Bank of America credit card that I had stopped using, which was a great low fixed apr credit card when I got, and I believe I also used it for several balance transfers, I honestly can say I had a great experience with them. Whenever I had an issue, their customer service team would solve it quickly and efficiently, and their online billing was totally convenient.
They also had an excellent security system in place where you had to have a key word to get in, in addition to your username and password, and since I actually have had an account hacked before online, this made me feel more at ease about paying my credit card bills with them online, as well as conducting a lot of my business online with them.
Since I switched all of my business expenses over to my business credit card though, I found that it was simpler if I cut out the other credit cards since I make most of my purchases with my debit card now anyways. Also, since my business credit card is one of the best airline miles credit cards where I get United Airlines points every time I use it, and I love to travel, I found no reason to keep using other cards.
Written on February 8th, 2008 by CleanedUpCreditno shouts
Apparently this slumping economy, or so everyone is saying, has affected not only the working, blue collar class here in the US, but also is affecting the more affluent spenders, which make up a smaller portion of the population here in the US, but also who are the bigger spenders and who contribute greatly to those that are in the working class with their patronage and spending, including gratuities and other spending habits that benefit not only the rich buyer, but also the less rich who are receiving the tips, money and business.
Many businesses that cater to the upper class say they’ve noticed the crunch a bit more as of late as even the more affluent spenders have been holding onto their credit cards a little tighter in anticipation of a worsening economy as well as a possible recession, if we’re not already smack dab in the middle of one now.
As far as the working class who depends on tips, I can say that I definitely felt the crunch when I was waiting tables as a college student when economic times weren’t so great, so I can definitely appreciate this type of news story! With increased gas prices (there are some of the best gas credit card deals going on right now by the way, which can help offset the effects of this sort of economy and high gas prices), we again see another fan on the fire.
Economists report that cutbacks by the richer class always have a sort of domino effect on the population, because when they cut back, the middle class that relies on their spending cuts back, and that cutback affects the working poor class, and so on and so forth, until you have every income class affected by the economy being weak. Isn’t this what a weak economy is, in essence though?
I mean, unless you are directly affected by a business closing it’s doors via a layoff, there is really no reason to cut back on your spending now, and I think that precise mentality has caused this spending cutback in the first place, so it all plays into the weakened economy, and it’s all one common factor that causes reduced spending in any class : Fear!
Written on February 5th, 2008 by CleanedUpCreditno shouts
Well, the last person you want to hear admit that the economy forecast doesn’t look so hot is a politician – namely the president. And President Bush has recently stated that he admits the economic forecast, based on the information we have now, isn’t looking too hot. He’s even proposed the now well known package which include rebates in the several hundred dollar range to workers in the US to try to stimulate the economy out of its doldrums, which has many businesses and individuals suffering unfortunately.
The economy is, has been, and always will be cyclical in nature, meaning that it will go through ups and downs, and we won’t always have the rosiest outlook on how things are running money wise in this country, that’s just a fact of life. However, I do think that the media’s role in inducing panic and near hysteria has taken a turn for the worse, and is partly to blame for the faltering economy, as much as any job rates and interest rates or subprime mortgage issues has.
What I mean is, I wish the media would be a bit more responsible on reporting things like speculation about recessions. It’s hard not to panic when every day you see headlines that seem to over exaggerate what’s really going to happen, or say things that aren’t true and may not come true on pure speculation from people who don’t know for sure what’s going to happen any better than I do.
The Fed though, has responded to this outpouring of concern about the economy and what direction it is headed by cutting key interest rates several percentage points, or at least fractions of percentage points, in efforts to try to stimulate the economy and make consumers “consume” more by giving higher chances of them getting low fixed APR rates rather than higher variable rates on loans and mortgages. Many think this is only a very temporary bandaid though, which I happen to agree with, and some even go as far as to say that they believe the government should just stay out of economic issues.
I’m not sure if I believe that, but I’m also not sure that a tax rebate should be done either, as it’s not clear where this money is actually going to come from. Hopefully Bush will have better news about the economy than saying that there are “troubling signs” ahead or at present. Could this potentially make things worse in the long run? Thoughts?
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