First and Foremost I would advise you to take a hard look at your credit report! To get a copy of the credit reports go to: www.annualcreditreport.com.
After you have received a copy of your credit report total up all of your debts and prioritize them. There are two ways to sort them: By Credit Card Balance or by the Interest Rate on the Credit Card.
If you have been keeping up with my posts you will recall that I am a huge Dave Ramsey fan and an advocate of his baby steps program.
Dave would tell you to sort them by balances and start with the smallest balance. Concentrate on paying that credit card off and once you have succeeded continue on to the next on the list.
However, other financial advisors emphasize the importance of prioritizing your cards based on interest rates, focusing your efforts on the cards with the highest rates first and moving down the list.
I believe the solution depends on the person: If you are a person that must see results to say motivated then Dave’s approach will probably be best: Prioritize your cards based on the cards balance, pay the smallest balance first and once you have completely paid the card off proceed to the next. Always pay the minimums on the rest.
The goal is to improve your credit and become debt free – not ruin your credit by only making payment on one card
However, if you are very analytical and somewhat disciplined: Then I would advice you to focus first on paying down the credit card that is nearly maxed out. Pay minimums on the others. Next, start paying off the card with the highest interest rate. Pay minimums on others.
Be honest with yourself and what it takes you to stay motivated and pick one of the two. Most people need to see results to stay fired up and eventhough prioritizing your cards based on interest rates is the most “logical” answer - you may have to wait a little longer to see results.
Other Tips:
- Call your credit card companies, tell them you've got offers for cards at lower rates and ask them to lower your rate. If you've paid regularly, they are likely to negotiate.
- Stick credit cards in a drawer. Don't use them, but don't close accounts. Closing these accounts can lower your credit score. I highly recommend cutting the cards so you don’t have access to them at all! Out of Site – Out of Mind!
- Do automatic withdrawal from your checking account to your credit cards so you're never late.
- Use only debit cards. Money comes straight out of your checking account. You're not charging anything.
- As you continually pay off cards and free up cash make sure you put any additional cash toward your debt. Do NOT use it toward anything else. You monthly credit card payments should increase as you make progress.
Monday, February 25, 2008
Sunday, February 24, 2008
Step #4: Saving for Retirement: Building a Nest Egg
Most people panic in retirement planning because they think they have to replace their entire salary. You don't. You have to replace your current cash flow, and that's a big difference.
Let's assume that you earn $60,000 a year. You won't need $60,000 from your investments, because you probably didn't live off $60,000. You can adjust your needs downward for:
•Taxes. You paid Social Security and Medicare taxes while you were working, but you won't when you retire. So you can get along with 7.65% less than $60,000, or about $55,000, says Ray Ferrara, a financial planner in Clearwater, Fla. If you're self-employed, the tax was 15.3%.
•Savings. If you put a percentage of your salary into a 401(k) savings plan at work, you won't be able to any more. If you contributed $4,200 to your 401(k) annually, 7% of your salary, that's another big expense you won't have. Assuming you did just fine while you were paying Social Security taxes and saving for retirement, you can adjust your income goal down to $51,000.
•Social Security and pensions. You may not believe you will get Social Security, but you probably will get some benefit. Social Security's online Quick Calculator (www.socialsecurity.gov) says a 50-year-old earning $60,000 today would get about $1,214 a month in benefits if she retired at 62. That's $14,568 a year in benefits. So you'll really only need to replace about $36,500 in income. Any additional pension you get would reduce that even more.
Before you get too giddy, remember that you'll have to buy health insurance if you retire before age 65, when Medicare kicks in. A 62-year-old male or female in Washington, D.C., would have to pay about $640 a month, or $7,680 a year, for health insurance, Ferrara says. And that's a policy with a $2,500 deductible and a 20% co-pay until you hit $3,500 in deductibles and co-payments.
Assuming our person with $60,000 income gets Social Security and pays for insurance, she will need to replace about $44,200 a year in income at retirement.
It's the big things
What can you do to reduce that more?
•Pay off your mortgage by retirement. Most people pay a quarter or more of their income to their mortgage. If your mortgage is $12,000 a year, that's $12,000 a year that won't have to come from savings.
•Think about moving. If you've made scads of money on your house, consider cashing out — by moving somewhere more affordable. Granted, it's possible only if you would like living elsewhere, but it may be one way to cut expenses.
•Retire later. If you retire after 65, you won't have to buy private insurance until Medicare kicks in. (Medigap insurance, which pays what Medicare doesn't, is another story.) And you'll collect more in Social Security benefits.
•Kick the new car habit. Car payments can eat up $300 or more a month. Keeping your car an extra few years can reduce your expenses in retirement.
•Don't lend money you couldn't give away. THIS IS MY MOTTO! I HONESTLY DO LIVE BY THIS! All too often, loans to friends or children become gifts. That's fine, if you can afford it. If you can't, then be leery of lending it. "One of the best retirement investments is making sure your children are financially independent," Shine says.
START SAVING FOR RETIREMENT SOON, SAVING A LITTLE NOW CAN LESSEN THE BURDEN LATER! THE MAGIC OF COMPOUND INTEREST CAN TAKE YOUR NEST EGG FROM DRAB TO FAB!
Every little bit helps, whether you save $5, $50 or $500 you must start somewhere.
Let's assume that you earn $60,000 a year. You won't need $60,000 from your investments, because you probably didn't live off $60,000. You can adjust your needs downward for:
•Taxes. You paid Social Security and Medicare taxes while you were working, but you won't when you retire. So you can get along with 7.65% less than $60,000, or about $55,000, says Ray Ferrara, a financial planner in Clearwater, Fla. If you're self-employed, the tax was 15.3%.
•Savings. If you put a percentage of your salary into a 401(k) savings plan at work, you won't be able to any more. If you contributed $4,200 to your 401(k) annually, 7% of your salary, that's another big expense you won't have. Assuming you did just fine while you were paying Social Security taxes and saving for retirement, you can adjust your income goal down to $51,000.
•Social Security and pensions. You may not believe you will get Social Security, but you probably will get some benefit. Social Security's online Quick Calculator (www.socialsecurity.gov) says a 50-year-old earning $60,000 today would get about $1,214 a month in benefits if she retired at 62. That's $14,568 a year in benefits. So you'll really only need to replace about $36,500 in income. Any additional pension you get would reduce that even more.
Before you get too giddy, remember that you'll have to buy health insurance if you retire before age 65, when Medicare kicks in. A 62-year-old male or female in Washington, D.C., would have to pay about $640 a month, or $7,680 a year, for health insurance, Ferrara says. And that's a policy with a $2,500 deductible and a 20% co-pay until you hit $3,500 in deductibles and co-payments.
Assuming our person with $60,000 income gets Social Security and pays for insurance, she will need to replace about $44,200 a year in income at retirement.
It's the big things
What can you do to reduce that more?
•Pay off your mortgage by retirement. Most people pay a quarter or more of their income to their mortgage. If your mortgage is $12,000 a year, that's $12,000 a year that won't have to come from savings.
•Think about moving. If you've made scads of money on your house, consider cashing out — by moving somewhere more affordable. Granted, it's possible only if you would like living elsewhere, but it may be one way to cut expenses.
•Retire later. If you retire after 65, you won't have to buy private insurance until Medicare kicks in. (Medigap insurance, which pays what Medicare doesn't, is another story.) And you'll collect more in Social Security benefits.
•Kick the new car habit. Car payments can eat up $300 or more a month. Keeping your car an extra few years can reduce your expenses in retirement.
•Don't lend money you couldn't give away. THIS IS MY MOTTO! I HONESTLY DO LIVE BY THIS! All too often, loans to friends or children become gifts. That's fine, if you can afford it. If you can't, then be leery of lending it. "One of the best retirement investments is making sure your children are financially independent," Shine says.
START SAVING FOR RETIREMENT SOON, SAVING A LITTLE NOW CAN LESSEN THE BURDEN LATER! THE MAGIC OF COMPOUND INTEREST CAN TAKE YOUR NEST EGG FROM DRAB TO FAB!
Every little bit helps, whether you save $5, $50 or $500 you must start somewhere.
Monday, February 18, 2008
Why an Emergency Fund is Imperative
Having an emergency fund can save you a lot of heart ache! Everyone has their rainy days and we all know that bad luck comes in three's. To prevent an unforeseen event from ruining your week, month or even year; save at least 3-6 months of living expenses in a liquid investment.
These funds are not to be used for holiday savings, birthday savings or any other event that is not considered an "emergency". A good place to save the money would be an online savings account, normally they pay a higher rate of interest than your regular saving account with your bank and the money isn't as easily accessible as you don't have a ATM card and normally a transfer from your saving account to your checking account takes a day or two.
These funds are not to be used for holiday savings, birthday savings or any other event that is not considered an "emergency". A good place to save the money would be an online savings account, normally they pay a higher rate of interest than your regular saving account with your bank and the money isn't as easily accessible as you don't have a ATM card and normally a transfer from your saving account to your checking account takes a day or two.
Wednesday, February 13, 2008
Question: How can I improve my credit score
Your first step in repairing poor credit should be to obtain a copy of your credit report. The three major credit reporting agencies are Experian, Trans Union, and Equifax. You can obtain a copy of your report by contacting these agencies by phone, by mail, or through their websites. Check the report carefully for any errors and make sure that all the information contained in the report is correct.
Next, you can try mitigating the impact of any derogatory credit you may have on your credit report by adding positive account information to your credit file. Start by contacting creditors with whom you have a good credit relationship and give them permission to release your account information to credit reporting agencies. You should then contact the credit reporting agencies and provide them with the names and telephone numbers of the creditors with whom you have good credit. For a small fee, most credit reporting agencies will call your creditors and add the positive account information to your file.
Another option is to go directly to your creditors and try to clear your credit record. If your poor credit resulted from circumstances that were beyond your control (e.g., hospitalization, layoff), and you have reconciled your account since that time, you may be able to convince your creditors to upgrade your rating.
If you have bad debts that are current, you may be able to negotiate away poor credit by agreeing to pay off your debts over a period of time. Contact your creditors and propose a deal in which you will agree to a reasonable repayment schedule if they agree to upgrade your status with the credit bureau.
You can also add a statement to your credit report that tells your side of the story. You have the right to include a 100-word statement in your credit file. The statement should list any extenuating circumstances that could possibly mitigate the negative credit information in your credit report. Perhaps you were hospitalized for a period of time and were unable to pay your bills, or maybe you were laid off from your job. If your credit history shows that you typically pay your bills on time, this statement could help to explain an isolated instance or period of derogatory credit.
Finally, you can always choose to wait out your credit problems. With some minor exceptions, derogatory credit will be purged from your credit report within seven years. However, if you can show income stability and prompt payment patterns, your situation will improve within one to three years. Keep in mind that you should avoid incurring any more derogatory credit while you try to repair your poor credit. If you do incur derogatory credit, the seven-year clock resets and starts ticking again!
Next, you can try mitigating the impact of any derogatory credit you may have on your credit report by adding positive account information to your credit file. Start by contacting creditors with whom you have a good credit relationship and give them permission to release your account information to credit reporting agencies. You should then contact the credit reporting agencies and provide them with the names and telephone numbers of the creditors with whom you have good credit. For a small fee, most credit reporting agencies will call your creditors and add the positive account information to your file.
Another option is to go directly to your creditors and try to clear your credit record. If your poor credit resulted from circumstances that were beyond your control (e.g., hospitalization, layoff), and you have reconciled your account since that time, you may be able to convince your creditors to upgrade your rating.
If you have bad debts that are current, you may be able to negotiate away poor credit by agreeing to pay off your debts over a period of time. Contact your creditors and propose a deal in which you will agree to a reasonable repayment schedule if they agree to upgrade your status with the credit bureau.
You can also add a statement to your credit report that tells your side of the story. You have the right to include a 100-word statement in your credit file. The statement should list any extenuating circumstances that could possibly mitigate the negative credit information in your credit report. Perhaps you were hospitalized for a period of time and were unable to pay your bills, or maybe you were laid off from your job. If your credit history shows that you typically pay your bills on time, this statement could help to explain an isolated instance or period of derogatory credit.
Finally, you can always choose to wait out your credit problems. With some minor exceptions, derogatory credit will be purged from your credit report within seven years. However, if you can show income stability and prompt payment patterns, your situation will improve within one to three years. Keep in mind that you should avoid incurring any more derogatory credit while you try to repair your poor credit. If you do incur derogatory credit, the seven-year clock resets and starts ticking again!
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