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Archive for the ‘Economy’ Category

If it was just a matter of evaluating the wisdom of using your life insurance to pay off your charge card debt, I would be inclined to tell you that it would probably be a smart move. However, there is a big wrinkle in the whole equation: namely, you stated that your job is ending soon. Normally, I would have counseled you to seriously consider paying off the debt quickly while you can – especially since taking a loan from your whole life insurance policy should have no tax consequences to you. However, the bigger issue is your looming unemployment status.

Use Insurance as a Cash Cushion in the Future

If you don’t find another job or a replacement contract, you will have to consider how you will pay all your normal monthly obligations – housing, food, utilities, transportation, and so forth. I assume you have little to no savings (or some of that likely would have paid the debt already). Unfortunately, it is taking people longer than ever to find jobs. And with 10% unemployment, 1 out of 3 job-hunters has joined the ranks of the “long-term unemployed.” This means they have been out of work for at least six months. So given the current economic environment, and the fact that your credit card debt is carrying an extremely low interest rate right now, I would suggest continuing to pay on that debt as aggressively as you can, but don’t yet tap the cash value of your whole life insurance policy. Keep it untouched for now, as a standby cash cushion that you can access in the future if things get especially tight and you can’t easily replace your income.

Saving money can be particularly tough on one salary – not to mention during an economic downturn. But there are many money-saving strategies that can boost your bank account and help you save a few hundred dollars per month. Here are some ideas:

• Save on Your Current Housing

Some of the ways you can cut your existing housing costs are to get a roommate, rent out a room, and cut back on decorations and upgrades. Needless to say, if you rent, and you decide to bring in another tenant, make sure you’re not violating any provisions of your rental or lease agreement.  Also, only pick a tenant or family member you’d be comfortable having around your kids.

• Save on Your Car

Lowering your transportation expenses isn’t always easy, but it can be done. If you live in a city with reliable public transportation, like New York or Boston, and you don’t actually need a car, consider selling it to raise cash. If you have a car and need to keep it, start following these cost-cutting tips.

Take account of all the expenses involved with having a car: your monthly car payment, gas and maintenance charges, insurance, parking, and so forth. See if you can renegotiate any of your current costs or shop around for better deals. For instance, if you’re paying $50 a month for parking at your apartment complex, can you park it outside the building and get a $50 discount from your landlord? (Obviously, you only want to do this if it’s relatively safe for your car to be parked on the street, as well as safe for you to enter your building from outside.) Then there’s insurance. Ask your insurer about any discounts for which you might be eligible: good driver discounts, lower rates for taking a defensive driving course, or even decreased premiums for having an alarm system or antitheft device. Also, by raising your insurance deductibles, you can save 10% to 25% off of your annual premiums.

Get a Lower Car Payment Via Auto Refinancing

Even your car payment itself can be re-negotiated, through a process called auto refinancing, which allows you to get a lower interest rate and a smaller monthly payment than you currently have. Many people don’t know that you can refinance your car loan just as you can refinance a mortgage. A car refinancing is faster, simpler to do, and costs virtually nothing. There aren’t any closing costs or points, like you might have with a mortgage. Most auto refinancing companies do business online. Capital One Auto Finance (www.capitaloneauto.com) allows you to refinance your car loan in just 15 minutes, saving the average customer more than $1,300 over the life of the car loan. So if your car has a high interest rate, check out a lender like Capital One to knock down your monthly car note and save yourself some big bucks. I once refinanced my auto loan with Capital One and saved more $100 a month on my car payments. Two caveats though: don’t try to refinance your car right before you go in to apply for a mortgage. You don’t want extra inquiry on your credit report. Also, if you do refinance your car, don’t extend the life of your payments. If you only have three years left to pay off your car, refinance with a lender that lets you keep a three-year payoff. Otherwise you’ll stretch out your payments and wind up paying additional money in interest charges. When you do save money with auto refinancing, apply your savings toward your home down payment or build up your cash cushion.

• Save Money on Food

Avoid wasting money on the things that can really blow your budget like eating out frequently. I’m not only talking about restaurants. I don’t have to tell you the impact of spending $50 or $75 for dinner for two. I’m talking about eating out at fast food places, or spending what seems like small change on local delis and the like. If you’re not careful, before you know it that “chump change” can really add up.

For starters, stop making your daily run for coffee and donuts or a bagel and juice before work. Many people spend about five dollars a day on these items, which equals $100 dollars a month, or $1,200 a year. Just as bad are those trips to the vending machine for junk food each day at work. If you spend $3 a day on these small items, eliminating those purchases saves $900 in a year.

At the grocery store, use coupons and choose your purchases based on the price per unit for everything from toiletries to food products, and take advantage of sales and reward cards from retailers who offer discounts to repeat customers.

• Save Money on Medicine

I love to tell people to do a makeover to save money – not a personal makeover, but a makeover of their medicine cabinet at home! This is an area to which most people never pay any attention. You probably don’t either. I’m sure many of you adore brand-name clothes and shoes, but when it comes to medicine, you don’t need brand-name products. Get generic drugs from your doctor or pharmacist. By law, generic drugs have the identical chemical makeup and active ingredients as brand-name medications—without the hefty price tag. The typical brand-name prescription costs $100, while the average generic drug is just $30, a 70% difference. If you hit the pharmacy once a month, in the span of a year you’ll save $840 just by using generic drugs instead of brand-name prescription drugs.

• Save Money on Household Items

Get creative about stretching the stuff you already buy and use at home on a regular basis. We all need toothpaste, right? To save money reach for the tubes, not the pump toothpastes sold in many stores. Why? Pumps don’t last as long as tubes, so they give you less bang for your buck. What about that deodorant you buy. Did you know that budget-conscious people purchase sticks or roll-ons because aerosols get used up faster? (Not to mention that aerosols are less friendly to the environment.)

• Save Money By Kicking Bad Habits

If you have a habit that’s hurting you, financially or health-wise, it’s high time you kicked that habit. Take cigarettes as a case in point. The average pack of cigarettes costs $4, excluding state taxes. If you smoke two packs a day, that adds up to $10 daily (taxes included) just for the “pleasure” of sucking on a nicotine stick! Do your best to rid yourself of that bad habit. If you can, you’ll save $300 dollars a month or $3,600 dollars a year, not to mention the savings you’ll reap from fewer medical bills.

• Save Money on Utilities

Being a lot more conscientious about your habits around the house can help you save thousands of dollars on utilities. Here’s how to be savvier in this area. Unplug appliances when you’re not using them. That goes for toaster, coffee maker, blender, and other appliances. Leaving them plugged in is just draining power and wasting money unnecessarily. If you make a habit of unplugging these items, you’ll save 10% on your energy bills. The same thing goes for wasting energy by having so many lights on in the house. Turn off lights when you leave a room. Also, switch high-watt bulbs to lower-wattage ones or fluorescent bulbs to save even more money. Lower your hot water costs by up to 50% just by taking showers instead of baths. Only run your dishwasher, clothes washer, and dryer when they’re full for additional savings on your utility costs.

• Save Money on Clothes

Do you want to save money on clothes? Well, at the risk of being called a “traitor” by my own people (i.e. those of the female persuasion), let me start by making this suggestion, especially to you ladies: just stop shopping so much! OK … I’ve said it. I had to get that off my chest because so many people I know, particularly women, moan about how they don’t have any money whatsoever. Somehow, however, they always seem to have the money to go shopping for clothes – either with cash or credit. If you must go shopping, go when there’s a sale, or use those store coupons that come in the mail or that you can find in the newspaper in which your favorite retailer advertises. Additionally, save yourself money by simply shopping around. Take advantage of some really great deals you can find on the Internet. Quit always buying designer labels. Places like H&M and Target have really cute clothes, too, and usually no one will ever know that you bought that nice pair of jeans from a discount store or an outlet. If you make it a practice to avoid paying full retail price for your clothes, you can save yourself hundreds, if not thousands, of dollars in the course of a year. Ditto on clothes for the children. Check out bargains at Target or WalMart, as opposed to pricier retailers like Children’s Place or Macy’s. Why do we insist on spending gobs of money on high-priced shoes, clothes and outer-wear for our kids – knowing full well that those children are going to grow out of those items so quickly?!

• Save Money on Entertainment

When you’re building your cash cushion and trying to get a down payment together you might think that all things fun have to go out the window. Not so. You can enjoy yourself plenty if you do it the smart way – namely by sticking to free or low-cost forms of entertainment. For example, choose free museums and local cultural spots and historic venues over other activities that cost money. If you’re dating, have picnics in the park or cook your sweetie dinner at home, rather than the traditional movie and restaurant thing. If you’re a partier, get to the club early to avoid paying a cover charge. Better yet, go to someone’s house party where there’s no price for admission, except maybe an inexpensive bottle wine if you want to bring one to your host. The idea is to select fun diversions that won’t bust your budget.

• Save Money on Miscellaneous Expenses

Here are some other ways you can cut back on the dollars going out your door. This advice comes from AmericaSaves.org:

Notice that if you follow all these tips, you can save $237 a month – in addition to the many thousands of dollars saved annually using the strategies I recommended earlier. That’s a nice chunk of change to set aside for the future, isn’t it?

As of early 2010, I don’t know of a single mortgage lender who will approve a home equity loan on investment or rental property. They may exist, of course. But I’m simply not aware of any. Before the market downturn, banks would readily extend loans and lines of credit on rental real estate. Lenders typically stipulated that those properties could have no more than an 80% loan-to-value ratio. In the current market and amid the credit crunch, however, it’s very difficult (if not impossible) to find such a lender for three reasons:

• declining property values in many parts of the United States

According to the Case/Schiller housing index, home prices have fallen 30% since their peak in April 2006. And in many regions of the country, the declines continue.

• increasing foreclosures throughout America

There were more than 9 million foreclosure filings in the U.S. between 2007 and 2009. Moreover, experts at RealtyTrac predict we’ll see another 3 million foreclosure filings in 2010.

• more rental properties falling into default

It’s not just mom and pop rental property owners who are getting into trouble as landlords. In New York, the owners of the biggest apartment complexes in Manhattan even recently defaulted on their loan. Those apartment complexes, known as Stuyvesant Town and Peter Cooper Village, were bought in 2006 by real estate investors/property managers Tishman Speyer and BlackRock for a record $5.4 billion. Less than four years later, the property is now valued at less than $2 billion. The rental income never covered the mortgage/monthly debt service. But the investors had bet that New York’s normally solid rental market would help them attract tenants willing to pay higher rents, as the owners intended to convert the units from rent-regulated apartments into pricier apartments. Unfortunately, they bet wrong. Plans to convert apartments were thwarted. Plus, average rents are down in New York – just like property values.

Easier to Get an Equity Loan On Your Primary Residence

Lenders know that in a tough economy and a rough housing market, most owners of investment property will walk away from those properties, or go late with their payments, before those owners will sacrifice their own homes. Thus, if you need a home equity loan, you’ll get better interest rates, more available financing, and find more willingness on the part of lenders to get a deal done by taking a home equity loan on your primary residence – as opposed to the rental property you own.

As you probably know, student loans are generally not dischargeable in bankruptcy court. So despite your recent bankruptcy filing, any loans you had with Sallie Mae remain outstanding. To bring an overdue student loan current, simply contact your lender or loan servicer and make arrangements to pay the amount due – either in a lump sum or over time. If your student loan is seriously delinquent and is in default, you can do one of four things:

•           Consolidate the loan(s)

•           Enter a loan rehabilitation program;

•           Pay the loan(s) off completely

•           Get the loan(s) totally discharged or cancelled

More details to your question about resolving your past due/defaulted student loan(s) can be found in the article below that I recently wrote.

How to Fix Defaulted Student Loans and Wage Garnishments

In this tough economy, an increasing number of college graduates (and college drop-outs) are falling behind on their student loans. According to the Department of Education, federal student loan defaults were up to 6.9% in 2009, well above their 2008 level of 5.2%. For those carrying private loans, defaults hit 3.37% in 2008 versus 1.47% in 2006, according to Sallie Mae, one of America’s largest providers of private loans.

How Student Loans Become Delinquent

As you probably already know, defaulting on a student loan is a very serious matter. A federal college loan falls into default status if you are supposed to make monthly payments, but have not done so for 270 days. For those whose student loan payments are less frequent, a default occurs once you haven’t made payments for 330 days. In either case, the government has the right to take your federal tax refund check or garnish up to 15% of your disposable pay in order to collect on a defaulted federal student loan. Defaulted student loans also negatively impact your credit.

Appealing a Wage Garnishment

The good news is that you can appeal a wage garnishment and request a hearing on the matter in order to demonstrate why it is that you can’t afford that the payments and wage garnishment your lender or guaranty agency is seeking. The U.S. Department of Education Debt Collection Services Office (DCS) holds the hearing after you fill out a “Request for Hearing” form regarding your wage garnishment, and send it to the Department of Education. Find the document online at: http://www.ed.gov/offices/OSFAP/DCS/forms/Request.For.Hearing.pdf

Your hearing can be done in-person, over the telephone, or in writing; the choice is up to you.

IMPORTANT NOTE: When you submit your Request for Hearing, make sure you also send another EXTREMELY IMPORTANT document. It is the “Financial Disclosure Statement,” a 3-page document in which you must document your income and itemize all your expenses. Here is a link to the document online: http://www.ed.gov/offices/OSFAP/DCS/forms/fs.pdf.

This “Financial Disclosure Statement” form will be critical in the hearing/appeal process, and will be closely evaluated, so take the time to carefully list all your bills, and provide copies of those bills as requested.

On page 3 of the Financial Disclosure Statement, you will notice a line that says:

“Based on this Statement, I think I can afford to pay $               per month.” This is where you have an opportunity to essentially offer a counter-proposal to the Department of Education about your student loans. Regardless of what you’ve been asked to pay in the past, here is where you should realistically evaluate your budget and come up with a number that you can undoubtedly pay (without a huge financial strain) month after month.

The Department of Education will make a decision about your case within 60 days after your hearing. But in the meantime, any wage garnishment that has already started will continue to be in force.

Four Options to Cure a Defaulted Student Loan

Now, in order to get your student loan(s) out of default, you have four options:

•           Consolidate the loan(s)

•           Enter a loan rehabilitation program;

•           Pay the loan(s) off completely

•           Get the loan(s) totally discharged or cancelled

The last two are probably not realistic options. I know you don’t have the money to pay off the loan(s). That’s why you’re in this predicament; and loan cancellations are rare (though they can be obtained). You’ll likely have to “rehabilitate” your loan(s) or consolidate.

Should You “Rehabilitate” Your Loans or Consolidate?

Before you can consolidate, you have to bring your loan(s) out of default status. You do this by making just three monthly payments — on time, and in any amount that you and your lender agree upon. To find out if you qualify for loan consolidation, contact the Federal Direct Consolidation Loan Info Center at 800-557-7392 or go online to http://loanconsolidation.ed.gov.

If you call, the staff there should be able to tell you what your monthly payment will need to be for those three months while your loan is in repayment. The one drawback to consolidation is that your credit remains tarnished. Even though your loan will be paid off and listed as “paid in full” on your credit report, you’ll get a new loan through consolidation and that previous default still shows on your credit report for seven years.

The Benefits of Student Loan Rehabilitation

An alternative, to fix your credit, and have all past negative information about your student loans completely deleted from your credit file is to go through loan rehabilitation:

In a nutshell with rehabilitation you make 9 or 12 on-time payments on your student loans in an amount you can afford. You make nine monthly payments on Direct Loans and Federal Family Education Loans, or 12 monthly payments on Perkins Loans. This, in my opinion, is the preferred route as it will help you restore your credit in a big way, so your past default won’t haunt you for years to come.

A Guidebook for Cash-Strapped Borrowers from the Department of Education

For more details about various alternatives to cure your student loan delinquency, check out the Department of Education’s guidebook called “Options for Financially-Challenged Borrowers in Default.” Here is a link to the guide online: http://www.ed.gov/offices/OSFAP/DCS/forms/2004.Borrower.Options.pdf

Get Help From an Ombudsman

Additionally, you should know that if you ever have a dispute with your lender or loan servicer about anything related to your federal student loans, there is a government agency that may be of assistance in resolving that dispute. It’s called the Federal Student Aid Office of the Ombudsman (http://www.ombudsman.ed.gov). Always try to work things out first with your lender by using this online “Self Resolution Checklist” from the Ombudsman’s office: http://ombudsman.ed.gov/resources/toolschecklists/selfresolution-checklist.html. But let’s say you think your loan was mistakenly placed in default by your lender – maybe you were in school at least half-time, you had a loan deferment or forbearance, or you actually made payments on your loan – and you can’t get a satisfactory resolution of the issue, then it’s time to reach out to the Ombudsman’s office.

Here is a link to the section of the Ombudsman’s website that gives you more information about handling defaulted student loans: http://ombudsman.ed.gov/loandefault.html. Also, this link gives you more info about wage garnishments: http://ombudsman.ed.gov/garnishment.html.

Zero Debt for College Grads: From Student Loans to Financial Freedom

No matter what economic challenges you’re facing, you don’t have to live with wage garnishments and blemishes on your credit report because of defaulted student loans. Reach out for help today, and start the process of turning that college debt problem around. Lastly, for more information on paying off your student loans, check out my book, Zero Debt for College Grads: From Student Loans to Financial Freedom.  Click the following link to get the book now at Amazon.com http://www.amazon.com/exec/obidos/ASIN/1427754640/writersandpoetsc/102-5147702-8114506

Although homeownership offers many benefits – not the least of which are tax perks – buying a home should never be done just because you can get a tax break from the government. Making the leap from renter to home owner is best done when you’re financially ready, credit-worthy and personally prepared for the rights and responsibilities of homeownership. Having said this, let me first briefly explain the $8,000 tax credit and then tell you why I think you should definitely wait to buy a home later.

Some Basics About The $8,000 Housing Tax Credit

The First-Time Home Buyer Tax Credit offers up to $8,000 to individuals who sign a written, binding contract by April 30, 2010 to buy a new home. Then you must close on the home by July 1, 2010 in order to be eligible for that tax credit. The government’s definition of being a “first-time” home buyer is someone who hasn’t owned a home in the past three years.

The tax credit can be used as a down-payment or closing costs on a FHA-insured mortgage. In 2009, figures from HUD show, the typical FHA borrower had a credit score of 670. That’s because FHA loans are primarily based on your debt-to-income ratio, not your credit scores. In fact, there are no credit score minimums required to get an FHA loan – at least none imposed by the government. Most lenders do, however, want to see credit scores of 700 and higher amid the current credit crunch, in order to give you a mortgage with a decent interest rate.

Better to Wait and Prepare for Homeownership

In your case, unfortunately, several factors lead me to believe that you and your husband are simply not ready at this time for homeownership – and thus should wait to buy a house.

First, your message indicated that you have three credit cards that you’d like to pay off. You didn’t say exactly how much debt is on those cards, but you did state that the $8,000 tax credit can be used to pay off those cards. (That’s not actually true.) In any event, I’m assuming you have thousands in credit card debt.

I also assume you don’t have very much saved, because if you did, you likely would have used that savings to pay down debt. The ability to save money consistently over time is good preparation for becoming a homeowner because you will no doubt have to dig into savings to pay for the ongoing costs, maintenance and upkeep that all homeowners face.

Lastly, the poor credit scores that both you and your husband have tell me definitively that you’ve not yet learned to responsibly manage credit – or are in the early phase of re-building credit after past problems. Why take on the biggest form of credit there is – a mortgage of perhaps a few hundred thousand dollars – if it’s only going to potentially get you in more trouble or further damage your credit rating? Don’t run into buying a home under these circumstances. Worst-case scenario – for a couple that’s deep in debt, with no cash reserves and poor credit already – is that the two of you could wind up in foreclosure. We had 2.8 million foreclosures filings in America in 2009, according to RealtyTrac. Experts predict there will be between 3 million and 3.5 million foreclosure filings in 2010. I don’t want you to become one of those statistics.

I also don’t want to completely dash your dreams of becoming a homeowner, because I truly do believe that it’s a great thing – once you’re ready for it. But instead of rushing to try to buy a home in less than six months, take the necessary time to do what’s required to become a successful homeowner. This means get your credit together, work on becoming a disciplined saver, and knock out a good chunk of that credit card debt. If you can do those things, you’ll be setting yourself up to enjoy the joys of homeownership – as opposed to setting yourself up for failure.