Category: Finance

Confused About Refinancing Your Home? Consider These 6 Tips

refinancing your home

With interest rates still at low historical levels, many homeowners may have considered the idea of refinancing their homes to save some money – but may be concerned about the hassles and headaches involved to pursue the option.

It turns out that the time spent doing your research and shopping around for a mortgage refinance deal can definitely be worth it. The National Bureau of Economic Research recently surveyed the market and indicated that at least 20 percent of homeowners could qualify for refinancing, saving them an average of more than $11,000 – and a total savings to consumers of more than $5 billion.

Refinancing is not a simple process, but if you follow these six steps, you might find a solution that could save you a significant amount of money – even if you’re challenged by credit issues.

Do Your Research

The best approach to finding a deal is to do some detective work. Start with your own lender or bank, and simply ask them if refinancing is an option. Then, do some research and speak with the competitors. You might even be pre-qualified for refinancing; certainly ask them for some good-faith estimates on what they might be able to do to work with your loan. Do some online searches, or even go to a lender or financial institution in a nearby city – the more evidence you have of the potential to save money, you might even be able to get your own lender to step up to the plate.

Prepare for the Paperwork

Part of most homeowners’ aversion to the idea of refinancing stems from the challenges involved in the process – and they’re certainly real. Banks have made refinancing a much more complex process than it was in the free-wheeling days a decade ago, with some homeowners spending as much as three months to score a deal, even with sterling credit.

Be prepared to do almost as much work as you did when you initially purchased your house. That means having all of your documentation and supporting materials at hand, even when you’re making those initial inquiries with potential lenders. It’s critical to have copies of your recent income tax returns, your bank statements, copies of your pay stubs and other financial details that a lender can use to start the process. Some lenders will also allow you to begin an application online, which can ultimately save time. And be prepared for the long haul.

The 1 Percent Rule May Not Apply

When people are considering the benefits of refinancing their mortgage, the standard wisdom suggests that it’s not really worth the effort unless you can reduce at least 1 percent of your current interest rate. While that’s probably good advice if you’re not willing to do the work involved, experts say that even a one-quarter of a percent change could save you significant money down the road, provided that the timing and your long-term plans for the home all add up.

To see if refinancing is right for you, consider what your own financial break-even point might be for a refi deal. How long do you think you’ll be living in your home? Are you planning on sticking with your current job for a long period? Those computations will help you figure out if the refinance is worth the effort.

The math should be straightforward: Consider your total projected savings per month as a result of refinancing, and divide it by the expected closing costs involved. If it costs approximately $6,000 to do a refinance but it looks like you’ll be saving $200 a month for the life of the loan, it’s going to take you at least 30 months to begin to break even. If that fits into your long-term plans for the home, then even a small percentage change will pay off in the end.

Banks are Willing to Refinance – Really

As mentioned before, banks have indeed cracked down on the rules and procedures involved in refinancing. But they haven’t made it impossible, and still need your business, so keep an open mind and talk with your banking representative.

You may be surprised by their relative flexibility. Experts say that even folks with less-than-fantastic credit can qualify: A credit score of 580 may put you in the running for a Federal Housing Administration loan or refinancing offer, and a score of at least 620 could be sufficient to work with some traditional lenders.

Even the idea of a 10-percent downpayment on a home is not the absolute rule nowadays, with some lenders willing to accept as little as a 3-percent down payment. Asking does not hurt, and you may be surprised by the flexibility.

Better credit will definitely get you a better deal, so you may want to consider the option of working with a credit repair company to help address inaccuracies or issues that may be dragging down your score.

Score a Deal on Your Closing Costs

One of the biggest disincentives for refinancing is the fear of major closing costs. Those are certainly valid concerns, but savvy homeowners are also discovering many ways to roll those costs into the loan themselves, or have considered taking a marginally higher interest rate in order to cut those closing costs. It’s a math game, but for some borrowers, it works.

The notion of “no-cost” financing can indeed be helpful, especially for those who only see themselves living in their house for three to four years, and can accept a higher interest rate or avoid the impact of closing costs to maximize their savings.

Don’t Feel Attached to Your Lender

Ultimately, the best deal is going to drive the refinance process, so don’t feel beholden to your current lender. If they’ve been demanding, discourteous or have tried to dissuade you from heading down the refinancing road, shop around. You’ll likely find other options who are more amenable to your business.

If you’d like some professional suggestions on the best ways to help fix your credit score, we can provide some answers.

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You Should Make Good Credit a Priority – Even in Retirement

Good Credit Priority in Retirement

Each month sees thousands of baby boomers joining the ranks of the retired, as one of America’s most significant waves of population finally reaches the age where Social Security benefits and post-work plans start to come to life.

Today’s retirees are a little different from the somewhat simpler times of the past. Fewer are retiring with guaranteed pension benefits from their employers, and many will have to rely on a mixture of savings and Medicare benefits to help them enjoy a long and healthy retirement.

What’s more, longevity rates are at an all-time high for Americans. Many of those retiring today could conceivably live into their late 90s (or beyond), making their financial plans and a positive credit score all the more important to long-term happiness.

The Boomer Debt Burden

Today’s boomer-aged retirees are also leaving the workforce under different circumstances than their parents. According to data from credit bureau TransUnion, the average baby boomer has amassed $100,000 in debt, leaving many questioning whether they can afford to fully retire or if they will have to continue working into their golden years.

The reality of long-term financial issues, even at retirement age, makes it all the more important for those in their late 50s or mid-60s to keep on top of their credit situation.

The uncertainty about retirement-age financial plans means that more older folks will have to consider loans, credit cards, and other financial vehicles to help them cope with the loss of a regular paycheck.

And while it might be nice to think that creditors or banks might be willing to cut a retiree some slack when it comes to paying bills on time, just a few late (or entirely missed) payments can cause a serious impact on your credit score.

As a result, you might face higher interest rates on cards or be denied loan privileges. Poor credit can also impact your ability to get a second mortgage or to pursue the increasingly popular reverse mortgage as a means to help subsidize medical or other senior-living costs.

It Pays to Keep on Top of Your Credit

Experts suggest that retirement-age folks do what the rest of the working public should be doing. That is, paying much more attention to their credit reports and engaging in financial behavior that helps build, not burden, your overall credit picture.

The good news is that it is not impossible to keep on top of your credit situation, though it takes a little bit of extra dedication. Maybe a little extra time on your hands can help, if iyou can examine your purchases and other details in your credit reports and your financial statements.

The three major credit bureaus, as well as many banks and credit cards, now make it easy to get free copies of your monthly credit report. They will let you know what your credit score is and can alert you to any changes, credit inquiries, or changes that might cause a drop in your credit score.

You may want to consider a professional service to help monitor your credit, which can be helpful in spotting erroneous items, or tracking inquiries that have all the tell-tale signs of identity theft.

Don’t Chop Up the Cards

More and more seniors face the same quandary as their younger working peers: How to drive down their personal debt while also maintaining their credit power.

It can be tempting to go to the old standby in do-it-yourself credit repair – chopping up your credit cards – as a way of forcing yourself to make better financial decisions, but that route may not be the best, especially if you have limited resources in retirement.

Your credit score is generated by a number of factors, with almost a third of the value generated by your overall credit utilization. Consumers should try to use less than 30 percent of their available credit, though people often think this suggestion applies to only the credit limit on any particular card.

In fact, credit utilization looks at all of your credit resources, the pooled potential of your credit cards and lines of credit. That’s also measured against your ability to handle other existing debts such as automobile loans, mortgage payments, and outstanding student loan payments. Your mix of credit usage is also a factor.

Cutting up a card means eliminating that extra credit float and shifting the burden onto a smaller available body of credit.

Credit agencies also give credit score points to the longevity of an account, so closing a card, especially one yo have had and kept in good standing for many years, can also produce an accidental negative.

Maintaining a Healthy Credit Picture

Like any other consumer, retirees and pre-retirees are wise to do their best to keep on top of their credit obligations, as payment history is yet another significant factor in retaining a positive credit score.

Paying your bills on time, every time, is key to keeping creditors happy. And checking your credit report on a regular basis can help you know if you’ve accidentally missed a payment or if a creditor has said you have done so, as a billing mistake on their part. Learning to pay bills online or even via a smartphone is also an important skill to develop, and a valuable one even for seniors.

Modern retirement is certainly not always the riding-bicycles-on-the-beach utopia we see in retirement investment companies’ ads, but it doesn’t have to be a financial nightmare, either. By keeping a closer look at your credit score and your use of the credit you have, you’ll have better opportunities to access financial help if you need to do so.

How can I fix my credit? We can help, with an array of professional resources designed to assist you in better understanding and improving your score.

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3 Areas to Keep an Eye on as US Debt Raises

United States Debt

Americans may have learned a sense of frugality in the tough days following the 2008 financial meltdown, but those thrifty ways seem to have gone by the wayside.

According to the Federal Reserve, U.S. consumers now owe almost $13 trillion for car, home and credit card loans, a number that’s even higher than it was before the days of the Great Recession.

Spending may help keep the economy buoyant and be beneficial to the country’s hospitality, service and tourism industries, but there are also some key concerns to watch as that collective debt load grows ever larger.

Student Loan Debt at Record Numbers

While home and car loans do help produce a bit of equity and keep America on the road, our staggering student loan load has become a significant burden for more and more graduates, especially those who haven’t been able to land the higher-paying jobs they’d hoped their degree might help them get.

Americans now owe $1.34 trillion in student loans – a number about the same as the annual gross domestic product of Russia – and with college tuitions on the increase and more students heading to universities or trade schools each year, that number is rising at a fast rate.

Student loan debt can also become a serious burden for workers, most of whom would rather be spending that money on new purchases or rent, and almost 11 percent of student loan holders are now 90 days or more behind on making their payments.

Car Loans Also on the Increase

If there’s one thing Americans love, it’s new cars, and with average transaction prices on the rise and the SUV and pickup truck craze filling the country’s garages with large, high-value, low-mileage vehicles. It’s a $1.17 trillion part of the economy, with record sales.

And as those costs go up, car buyers are also signing much longer and longer car loan agreements to lighten their monthly payments, with the average car loan now 62 months or more.

Making a hefty monthly payment for almost six years can become a strain on many consumers’ budgets, not to mention the ever-escalating prices for car insurance, and about the only respite is low fuel prices – though they are sure to not last forever.

Charging it is Back in Style

Credit card debt is also a major part of America’s overall, escalating debt load, with three-quarters of a trillion dollars now on consumers’ monthly bills.

And with deepening credit card debt comes credit issues – missed payments, total defaults or consumers carrying balances that are too large or spreading their credit too widely with too many bank, department store or gas station cards.

Those who realize that they’ve spent themselves into a spot that they can’t get out of may also want to consider some professional help. Are you looking for credit repair services?

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Americans are Reaching $1 Trillion in Credit Card Debt

credit card debt

A debt milestone of a colossal scale has finally been reached by American consumers, and the impact on their credit scores and their ability to achieve their financial dreams could make it all the more significant.

This summer, American consumers bought coffee, clothes, and online purchases to a point where our collective credit card debt now totals more than $1 trillion.

To put that in perspective, the cost to put American astronauts on the moon was only about $120 billion in current dollars. Our annual U.S. foreign aid programs amount to only $50 billion a year, according to the Council on Foreign Relations.

Amazingly, only our collective U.S. student loan obligations – some $1.4 trillion – serves to put credit card debt in perspective.

A Bigger Impact for Consumers

But unlike student loan debt, which still plays a small but significant role in personal credit scores, the world of personal, revolving credit card debt has a much more immediate impact, and can often serve to be the biggest factor in raising or lowering an individual’s credit score.

The $1 trillion mark, which now tops previous record consumer credit card debt levels from 2008, just before the long-term economic downturn of the Great Recession, equates to about $9,600 in debt per household.

Based on average incomes, that accounts for about 17 percent of most folks’ overall take-home pay. And as a result, more people find themselves merely paying the monthly minimum on the ever-growing balances on their cards, meaning that many people are paying an average of $1,200 to $1,300 a year in interest alone.

Add to that the steep fees now charged for late payments – which average $37 on most credit cards – and you have a gigantic and challenging debt burden that hangs over most people’s heads, complicated even further by our slightly outrageous student loan obligations.

If there’s any good news, overall credit card defaults are at just 2.3 percent, versus the alarming 6.8 percent of credit card users who simply walked away or were totally unable to pay their credit card obligations during the height of the recent financial chaos.

What Credit Card Debt Means to Your Credit Score

All of this is particularly important as those credit card balances so directly impact our credit scores. The three national credit bureaus (Experian, Equifax and TransUnion) collect and analyze and generate their own credit scores based on our credit behaviors, and credit card usage is a vital factor.

Creditors use what is called a debt utilization ratio to determine how much of a customer’s potential credit is in use at one time. Generally, anything above 30% of a card’s maximum is considered too much debt, even if you are making regular payments to cut down on the amount.

Racking up the balances on a single card can be bad enough for our credit scores, but when that load is applied to multiple cards – and factored into your overall credit load, which includes car loans, personal lines of credit and those ever-present student loans – the impact of a large balance can be even more critical.

The timeliness of payments toward your balance is also a massive factor in building and maintaining your credit score. The credit bureaus track on-time (and late) payments and use that information to form approximately 35 percent of your overall credit score.

That means that just one or two late payments can have a huge impact on your numbers. For some consumers, that might mean that a card automatically raises your interest rate, not to mention tacking on the late payment fees.

And low or lowered credit scores can also spell bad news when it comes to other non-credit-card-related necessities, such as the ability to rent an apartment, score an attractive monthly payment for a new car or open other lines of credit when necessity arises.

Credit Management Tips

Given this new and potentially troubling milestone for credit card debt, what are the best strategies for managing your debt load and making sure that your credit card expenditures don’t result in even bigger credit issues?

Most importantly, remember to make your payments on time – even if they’re just the minimum. Consider setting up automatic recurring payments on a credit card’s website or through a mobile app, or by arranging an automatic bill payment through your bank.

It takes a bit of diligence, especially if you’re one of the many consumers who carries balances on multiple cards, but timely payments (and, of course, money in the bank to make those automatic payments in the first place) is your most important mission in keeping up on your obligations.

Handling your overall credit balances is an equally challenging step. Try to keep that 30 percent utilization rate in mind and, in the absence of making significant cash payments to drop your balances, consider some other strategies.

Many expert consumers, especially those with spotless credit records, are able to spread that load around and get more attractive zero percent interest deals or even travel or incentive point bonuses by taking advantage of balance transfer programs with their various cards.

Do keep in mind that any new credit card application will also raise alarm bells on your credit report, and that you should keep new applications to a minimum as a result.

Budgeting your credit card usage is also a key strategy in keeping balances low and also building your credit score. To that end, using a debit card to make all those daily credit card-styled transactions can be helpful in resisting the urge to spend money you don’t really have.

If you’re additionally motivated by all of this to keep an eye on your own credit score, we can provide professional advice and the services to help improve things, as well.

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Credit Wise Money Management

credit wise money management

Each year, as we do our duty with the Internal Revenue Service, there’s always a hope that we’ll score a significant refund from our income taxes.

That extra money is always a great gift, but what if you could turn those extra dollars into some long-term savings or credit-building strategies? Here are 5 ways to put your tax refund to use while being wise with your credit.

Give Your Credit Cards a Break

Are you the recipient of an unexpectedly large check from Uncle Sam? Consider using that bonus to attack the balances on your credit cards, rather than racking up more debt. A one-time payment can help significantly reduce both the interest you’ll owe in the long run, as well as cutting down your credit utilization ratio – and that’s a positive factor for your credit report, and your ability to get more credit at a better rate in the future.

Upgrade Your Home

A surprise return from the IRS can also go much further if you use the funds to make some much-needed repairs or upgrades to your home. With housing prices skyrocketing in many regions of the country, even a small investment in your home can mean a positive boost in equity or resale value, so consider that kitchen upgrade or the long-awaited fence or roof repair project you’ve been procrastinating.

Upgrade Yourself

One of the best investments you can make is in your own professional future, so maybe it’s time to consider spending a bit on an educational upgrade. Your ability to land a higher-paying job can certainly be boosted with some college courses. An associate’s degree, a specialty certificate, or even a master’s degree in your field, may make you a more attractive candidate or help prompt the boss to consider a promotion to a better position.

Create a Rainy Day Fund

Though the economy has certainly improved, we’re all aware of the uncertainties that life sometimes throws at us. Unexpected layoffs, sudden medical costs, car accidents, or unplanned travel expenses are all examples. Rather than resorting to credit cards to cover your emergency needs, why not invest that money into a savings account and hold onto it until you really need it?

Think About Your Retirement Plans

In an era of never-ending political drama, the one issue you never hear discussed is America’s retirement crisis. Too many working Americans have entirely neglected to begin building any retirement savings.

Consider using your tax refund as a contribution to an IRA, or use it to put some extra value into your 401(k) savings plan at work. The more you pre-load your retirement savings accounts, the better off you’ll be when you reach retirement age.

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