Entries from February 2011 ↓

Are 125% Home Equity Loans Right For You?

It can be very stressful to consider borrowing money using your home as collateral. When you borrow using the equity in your house than a default may mean that you forfeit your home. It is very important that you only borrow the amount you can afford to payback each month. There is a range of zero to one hundred percent involved in home equity lending. There can be 125 home equity loans. This means that the some loans allow financing an additional twenty five percent above the current market value of the home. People that choose to do that do so in order to pay down debts for credit fix, repairs on their homes, or more.

When you get a home equity loan, it is very risky compared to a low percentage equity loans. When borrowing higher amounts the rate of interest also increases. This often results in a large increase in your monthly payment. There is a tax disadvantage as well. If you borrow more than a hundred percent against your home, you cannot deduct that amount on your income taxes.

It may be even more of a risk when it comes time to sell your home. This is important because you have now borrowed more than the actual value of your home’s worth. You now need to sell your house for twenty-five percent more than the market value.

Because there is such a high risk involving the loss of your home, if you are unable to pay the loan back each month, this type of loan needs to only be taken out if there is absolutely no other way to survive. So be positive that you can make the monthly payment amount. If you are not able to pay a home equity loan, you will lose your property. Some people do this to make the repairs needed, in order to sell the house. This may be a necessary reason.

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Pros And Cons Related To How Does A Reverse Mortgage Work

If you have been thinking about getting a reverse mortgage on your home, then you will want to take some time to read this article. It can help you make some very important decisions and you will be able to learn about the process of reverse mortgages. Taking the time to answer the question, “how does a reverse mortgage work?”, will help you determine if it is the right thing for you in your retirement years. There are a lot of people that think it is a very good idea but it can also have a lot of drawbacks – as you are basically giving your home back to the bank if you can’t hold up to your end of the bargain.

So, what is so good about reverse mortgages? First of all, it means that you will be getting a payment monthly from the lender. The amount of money that you will be getting will be related to how much equity you have in your home. Next, you might not have to pay this money back any time soon and this is also an aspect that many people really like.

You might be wondering what the down side to all of this is. That is a question that can be answered simply as well. If you take out a reverse mortgage and you do not have it repaid before you pass away, your family might have to turn your house over to the mortgage providers in order to cover this debt. Just think about how difficult this could be for your family.

There really are a lot of things to think about when it comes to a reverse mortgage. Always make a list of questions and ask for clarification if you are unsure about something. Your situation may warrant using a reverse mortgage, but make sure you do the proper due diligence to make sure it is the right path for you to take.

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The Top 5 Things that Affect Your Credit Score

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Monitoring your credit score has become more and more important in today’s world, helping you make decisions on when to make big purchases as well as safeguarding you against identity theft.  To some, the process through which those scores are calculated can seem nearly occult.  It is true that none of the three major credit bureaus share their exact formulas for arriving at credit scores, any more than Google shares their formula for search results.  However, we do know, roughly, what impacts those scores.

Payment History

At 35% of your overall credit score, payment history remains the largest factor.  If you pay your bills on time, every time, and don’t leave anything unpaid then you’ve got a good chance at maintaining a decent score, even in the face of other factors.  Conversely, any of these items can drop your credit score like a rock.  Even a simple library fine can make your score plummet if it winds up in a collection agency and on your credit report.

Amounts Owed

The amount you owe makes up 30% of your score.  This is also the portion creditors look at when they begin trying to calculate your debt-to-income ratio, another important figure that helps them determine how big a risk you are.  Owing too much can drop your credit score significantly even if you’ve paid on time—which is why a strong payer might well see their score isn’t quite as high as it could be.

Length of Credit History

The longer your credit file has been opened and positive the better your score will be.  This is why people who have never had credit can have a hard time getting apartments or taking out loans.  Fortunately there are still plenty of lenders who don’t take this as a particular negative.  There are even some places that take this as a positive.  The length of credit history only accounts for 15% of your overall score.

New Credit Accounts

A bunch of brand new credit accounts opened in a very short period of time can send a bad message to lenders, making them wonder if you aren’t just opening up lines of credit left and right that you never intend to pay off.  The “newness” factor of your credit accounts, and how many of these accounts there are, affects 10% of your score.

Types of Credit Used

Lenders want to see “diverse, non-repetitive” credit.  If they see one house loan, one car loan, one student loan, one Visa card and one Kohl’s card, for example, you’ve got a mix of credit that will make sense to them.  It’s credit that looks reasonable: more reasonable, say, than 5 different credit cards, 3 retail store cards, and 1 student loan.

 

Jon is a writer for www.SafeIdentityProtection.com where you can find helpful advice on keeping your personal information safe with identity protection.

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3 Basic Principles You Must Not Ignore If You Want to Get Out of Debt

The first step to getting out of debt is accepting your situation and making that decision to resolve it.; Once you’ve made the decision, here’s three principles you can follow to make your trip out of debt-land successful.

1. Pay Off Your Debts

It can be overwhelming to look at all the bills piled up and trying to think of a way to make them all disappear.; There’s no magic spell, but there is a logical and effective way of doing this.

  • Lay your debt on the table, including how much you owe and whom do you owe.; Do not cheat!; Once you know how much debt you have, you can start planning how to go about paying all of them off.
  • Make a list of all your bills and your monthly necessities.; Your goal is to pay off your debt, but it’s also important to keep within your monthly income.; That way, you are slowly paying off debt, without acquiring new ones because you’ve stretched your budget too thin.
  • List all your credit card balances in order of priority and pay them off according to that list. Credit card balances that are above 50% of the credit limit affect your credit rating, so they need to be reduced to below 50%. Once all of your credit card balances have been reduced to less than 50% of your credit limit, start paying off the balance on the credit card with the highest interest rate. Every month, pay off the credit cards with the next highest interests until you reach the end of your list.

2. Work Out Your Budget

This is going to be hard, especially if you’re used to swiping your plastics. So be firm, and don’t give in to temptation.

  • Draw up a realistic monthly budget, which will allow you pay your debts, utilities and basic necessities, and even allow for a little monthly savings. Do not spend on anything extra unless you have already covered everything in your budget.
  • Stop spending unnecessarily.; Limit the frequency of dining out and do not go beyond your cell phone plans.; Avoid impulse buying, learn to bargain-hunt and discover the power of discount coupons.
  • Do not borrow money to pay off your loans.; Instead, take on a second job or sell or take on a loan on some assets.; There are other sources of extra income too like garage sales, leasing off a room or property.
  • Examine your expenses.; Often, you can refinance your mortgage, find lower car and house insurance rates, and change to utilities that charge lower, so that you are not drowning in payments and will have more money to pay off your debts and more left for your savings.

3. Be wise with your plastics

One of the most common causes of being buried in debt is the overuse of credit cards.; Here are things you can do so that you don’t ever end up in debt again.

  • After paying off credit cards with high interest, cut them and throw them away. ;Retain only the credit cards with the most favorable payment terms and interest rates.; If you’re trying to build your credit rating, you can retain at least 4 cards. If not, then one is enough.
  • Try to find credit cards with much lower rates than what you currently have.; Opt for a more stable low rate versus those offering 0% initial period but will charge higher fees with renewal.; Accept only a credit limit that you can easily pay off in 3 months and decline any offer to increase credit card limit.
  • Stop using credit cards and pay out with cash as much as possible.; That way, you stay within budget, and do not accrue any more additional debt. Use credit cards only for emergencies and important purchases and never use credit card for everyday spending.;
  • Stop using store cards.; Store cards have the highest interest rates, plus, store cards limit your desire to shop around and compare prices and you end up buying more expensive products.

 

Believe it or not, you can do a background check on yourself and find your credit score. Take a look at these background check services for a start. Then you can go with other more advanced services like KnowX, LexisNexis and so on.

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Student Borrowers – Study the Fine Print

 

A credit card can be highly advantageous to students who are looking for a bit of the boost to the money they can spend – however, this doesn’t mean that you shouldn’t study the fine print in advance.

If you are young and looking for credit, it is likely that you will not have had experience in finding a great deal before. In this case, there are several things which you should prioritize finding over everything else, and these are:

Interest rates. You need to compare and contrast interest rates when looking for student credit cards. Even though you may not be able to get the lowest deals around (and this is because you are new to the lending market and haven’t got a reputation through your credit score yet), you still look around and read the fine print of different credit card descriptions to figure out which one aligns best with your needs.

Early termination of contract. Should you require to end the relationship you have with a credit card provider early, and intend to pay off your balance in full, you should ensure that the lender won’t levy a higher-than-normal interest rate for your final repayment.

The benefits of going with a particular lender. They say that some of the best things in life are free – and you certainly should look out for the advantages that some credit cards provide as unique selling points. This could be generous levels of cash back with your purchases (with some services offering $100 when you spend $500 in 90 days); or discounts on travel and accommodation-related products. If you are making a journey back home to be with your family, this could be more useful than you would envisage.

Before you apply, you should also ensure that the lender is offering a card that is tailored towards students. This way, the lender will be far more lenient on the matter of your credit score, a measure of your financial reputation that is usually built over time. This score is usually referenced by lenders when you make a request for a credit card, but as you will have little to no financial background with your application, a declination on your first attempt could leave a footprint on your report that could damage your future prospects. At the beginning of your life as a consumer, this is the last thing you need.

A top tip to ensure that you get a fair deal is to get someone who has applied for a credit card before – such as a parent or a friend – to review the contract you receive and scrutinize the fine print for any terms and conditions that might be questionable. You should also ensure that you use your card responsibly once the plastic is sent to you. By spending within your means and ensuring that you budget the money you receive from your job carefully every month, you will minimize the risk of something going wrong with your credit card.

Student credit cards are a great way for you to get experience in financial responsibility, and if your first tenure as a borrower goes successfully, you will be able to take advantage of cards with lower levels of interest in the future – meaning that the cost of credit will decrease substantially.

Connor Stephens is a writer from London, covering personal finance tips with a global perspective.  He teaches his two young daughters that personal finance wisdom starts at home.

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Do Not Borrow Money Unless You Absolutely Have To

Americans of late have been doing a better job of getting  themselves out of debt. All around you, you can see signs of people tightening their belts and doing their best to live within their means. It is really important to try to stay within your financial limits.  In the past, people would get themselves into trouble by spending more money than they bring in. Each month, if you spend more than you earn, you will have a negative balance at the end of the month. This means that your credit card will never get paid off.

Eventually, the amount of debt that you build up increases to the point where you have no choice, but to try to get one of those bad credit loans. These loans, sometimes referred to as payday loans have been known to cause problems for those people who get them. One of the biggest issues with these types of loans is the overall expense.

These debt instruments have very high rates of interest and have high fees. What can even be worse is that if you are in the situation where you continue to deficit spend (spending more each month than you are earning) you will have a very difficult time paying off this debt. So the lenders will continue to offer to extend your loan out further and further. You keep making payments on the loan, but essentially, you are just making payments via high interest charges and not paying down much of the principal. This creates an never ending debt burden. This situation is even worse than credit card debt. Avoid these if at all possible.

As I mentioned above, people are doing a better of staying with their financial means. Do everything that you can do avoid spending more money than you earn.

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