June 6, 2013 By

Thursday’s need-to-know money news

YCS4 coverGood credit, stolen credit and ways to save on travel to the vacation home you should have purchased when mortgage rates were historically low.

Five Reasons Why You Can’t Ignore Your Credit

While living debt free is a good thing, living credit free can have unforeseen and expensive consequences.

Here’s Everything We Know About The Rakuten/Buy.com Credit Card Breaches

If you’ve shopped at the online marketplace recently, you should pay very close attention to your statements.

26 Secrets to Save on Travel

Flying on a Saturday afternoon may not sound like fun, but it could save you big bucks.

Farewell 3% Mortgage Rates

Job gains and an improving economy signal the end of historically low mortgage rates.

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March 18, 2013 By

Homeownership isn’t for everyone

Dear Liz: I’ve gone back and forth over whether to buy property to live in. I would only consider a condo, because I don’t think it’s ecologically responsible for a single person to live in a stand-alone house, plus I have no interest in or aptitude for maintenance. But through family and friends’ experiences, I’m worried that condos can be a nightmare to own. That leaves me stuck with renting, which gives me flexibility. I also live in an extremely expensive area (Boston) and do contract work, so purchasing something I would want to live in might be tricky. But I feel I’m being barraged by people telling me that renting is a losing proposition and that buying is great for my future. I’d rather keep putting money away in my retirement funds, but I wonder if I’m just refusing to “be responsible” as others say. I have no debt at all, so I feel responsible.

Answer: You would think the recent economic unpleasantness would have cured people of the idea that homeownership is right for everyone all the time.

Real estate investors often tout the benefit of “leverage”–using borrowed money to control an asset that can appreciate in value. As we learned, though, leverage can work both ways and can leave you owing more than a property is worth.

In reality, much of the financial benefit of homeownership comes from the “forced savings” aspect of paying down a mortgage. Homes do tend to appreciate in value over time, but on average the appreciation usually doesn’t exceed the overall inflation rate. Plus homes are expensive to own and maintain, which can dramatically reduce the return on your investment. Investments in stocks and stock mutual funds probably will give you a better return over the long haul, and you’ll never have to buy a new roof for them.

Homeownership can be a good idea if you can afford all the costs, plan to stay put for several years and truly want to be a homeowner. Otherwise, renting gives you freedom and flexibility. That’s neither irresponsible nor a losing proposition.

Filed Under: Credit & Debt, Q&A, Real Estate Tagged With: , , , ,
March 11, 2013 By

Should you pay to boost your credit scores?

Dear Liz: I’ve seen advertisements for services that promise to help you raise your credit score by the exact number of points you need to qualify for a good mortgage rate. Are these services worth the money?

Answer: There’s one thing you need to know about these services: They don’t have access to the actual FICO formula, which is proprietary. So what they’re doing is essentially guesswork.

They may suggest that you can raise your score a certain number of points in a certain time frame, but the FICO formula isn’t that predictable. Any given action can have different results, depending on the details of your individual credit reports.

Rather than pay money to a firm making such promises, use that cash to pay down any credit card debt you have. Widening the gap between your available credit and your balances can really boost your scores. Other steps you should take include paying your bills on time, disputing serious errors on your credit reports and refraining from opening or closing accounts.

Filed Under: Credit & Debt, Credit Cards, Credit Scoring, Q&A Tagged With: , , , , , , ,
March 7, 2013 By

My book is out! Get it for free.

DWYD cover2013“Deal with Your Debt” is now available, and I’m giving away five copies this week.

To enter to win, leave a comment here on my blog (not my Facebook page).

Click on the tab above the post that says “comments.” Make sure to include your email address, which won’t show up with your comment, but I’ll be able to see it.

If you haven’t commented before, it may take a little while for your comment to show up since comments are moderated.

The winners will be chosen at random Friday night. Over the weekend, please check your email (including your spam filter). If I don’t hear from a winner by noon Pacific time on Monday, his or her prize will be forfeited and I’ll pick another winner.

Also, check back here often for other giveaways.

The deadline to enter is midnight Pacific time on Friday. So–comment away!

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January 21, 2013 By

Skip a payment, trash your scores

Dear Liz: We are trying to negotiate our second mortgage and have not paid it since June. Will this affect my wanting to purchase an auto?

Answer: It may not affect your desire to purchase a car, but it’s likely to affect the actual transaction if you’re not able to pay cash.

Failing to pay a credit obligation can devastate your credit scores, the three-digit numbers lenders use to gauge your creditworthiness. The worse your scores, the less likely you are to find a lender willing to do business with you. Even if you can secure a loan, it’s likely to come with a scandalously high interest rate.

Filed Under: Credit & Debt, Credit Scoring, Q&A Tagged With: , , , ,
November 5, 2012 By

Selling home could ease student loan burden

Dear Liz: Your answer to the parents with $200,000 in student loans for their daughters’ educations was interesting — and cautionary. I wonder, since they mentioned refinancing their home, why not explore using their equity by selling the home and renting?

Depending on the amount they have in the home, they might be able to fund more retirement as well as reduce the loan balance. Also depending on the size of the mortgage, they might be able to rent for the same monthly amount or less. Presumably, their house was big enough for four, but now they could “live well with less.” And be more flexible.

Answer: The writer did mention getting a new mortgage, but didn’t say whether it was a refinance or a modification, or whether the couple had any equity in the home. Although a conventional refinance requires considerable equity, a mortgage modification or a refinance made through the government’s HARP program would not require that they owe less than the house is worth.

If they do have equity, it would be worth considering using at least some of it to alleviate their debt burden and supplement their retirement funds. If they don’t have equity, selling the house might still be an option if they could substantially reduce their living costs. Given that their income plunged by more than half, they would be smart to cut their expenses as far as possible to free up money to save for retirement and pay their debts. Taking such a big step down in their lifestyle might be painful, but it’s often to better to do so now rather than risk being old and broke.

Filed Under: College, Credit & Debt, Q&A, Student Loans Tagged With: , , , ,
September 27, 2012 By

Many goals, few resources: How do you focus?

Dear Liz: I have read tons of books on finance and debt repayment, but I’m having trouble deciding what to do next. My husband and I are 52. He receives a monthly disability income, and I work two days a week. We still have about $105,000 left before our mortgage is paid off. We also owe about $7,000 in credit card debt and $5,500 in overdraft charges.

Should I concentrate solely on paying off debt, including the mortgage? Should we modestly renovate our 20-year-old home because after six kids, it is in need of a little TLC? We could downsize, but I’m somewhat emotionally attached to this house, and downsizing would still mean renovating to get the house in shape to sell. At the same time, we’d like to start a small business in our town. It wouldn’t be a huge investment of money, but it’s an outlay nonetheless. I don’t really want to wait five or 10 years to have to do this because it would mean income for one of our children who needs it and sometimes has to rely on us financially. How should I focus?

Answer: You didn’t say a word about retirement savings, but that should be a priority for most people.

If you don’t make a lot of money, Social Security is designed to replace 40% to 50% of your earnings. (The more you make, the less Social Security will replace, on the assumption that you’ve had more opportunity to save.) But most people, of any income level, would have trouble adjusting to living solely on their Social Security checks.

You can estimate your future benefit checks by using the Social Security Administration’s calculator at http://www.ssa.gov/estimator. Your results will be based on your actual earnings. Then you can use the AARP calculator (in the “work and retirement” section of the website) to figure out how much you need to save to have a comfortable retirement. You may not be able to reach that goal, but you should at least try to put aside something to improve your future life.

You don’t need to be in a rush to pay off your mortgage, but you should target that credit card debt and that shocking amount of overdraft charges. You also should know that renovations rarely pay for themselves when you’re ready to sell a home. At best, you typically get back 80 cents for every dollar you spend. A better approach is to make some cosmetic fixes that don’t cost a lot, such as new paint, clean windows and freshened-up landscaping.

As for opening a store, understand that small businesses can take a while to get off the ground. If you don’t have adequate savings or access to a line of credit, the business could fail and take your investment with it. The Small Business Administration at http://www.sba.gov has resources and Small Business Development Centers to help you understand what lies ahead. Do your research before you begin, and consider holding off at least until your toxic debts are repaid.

Finally, you didn’t explain why your child needs your money. If he or she is still a minor, that’s one thing. If he or she is an adult and not disabled in some way, however, then the parental dole needs to stop. It doesn’t sound like you and your husband are adequately providing for your futures. Your kids need to know they have to provide for their own.

Filed Under: Credit & Debt, Credit Cards, Q&A, Retirement Tagged With: , , ,
August 28, 2012 By

Now available: My new book!

Do you have questions about money? Here’s a secret: we all do, and sometimes finding the right answers can be tough. My new book, “There Are No Dumb Questions About Money,” can make it easier for you to figure out your financial world.

I’ve taken your toughest questions about money and answered them in a clear, easy-to-read format. This book can help you manage your spending, improve your credit and find the best way to pay off debt. It can help you make the right choices when you’re investing, paying for your children’s education and prioritizing your financial goals. I’ve also tackled the difficult, emotional side of money: how to get on the same page with your partner, cope with spendthrift children (or parents!) and talk about end-of-life issues that can be so difficult to discuss. (And if you think your family is dysfunctional about money, read Chapter 5…you’ll either find answers to your problems, or be grateful that your situation isn’t as bad as some of the ones described there!)

Interested? You can buy this ebook on iTunes or on Amazon.

Filed Under: Annuities, Banking, Bankruptcy, Budgeting, College, College Savings, Couples & Money, Credit & Debt, Credit Cards, Credit Counseling, Credit Scoring, Divorce & Money, Elder Care, Estate planning, Financial Advisors, Identity Theft, Insurance, Investing, Kids & Money, Liz's Blog, Real Estate, Retirement, Saving Money, Student Loans, Taxes, The Basics Tagged With: , , , , , , , , , , , , , , , , , , , , , ,
August 6, 2012 By

Will her bad credit prevent him from getting a mortgage?

Dear Liz: Is it possible for me to buy a home without having my wife on the mortgage? She lost her business because of the recession. I do not want to deal with her creditors.

 Answer: You can apply for a mortgage based solely on your own income, credit scores and debt-to-income ratio, if those are sufficient to buy the house you want. Your wife’s income and credit does not have to be considered.

If you can’t swing the purchase without her income, though, you’ll both need to spend some time improving her credit scores. That might include adding her as an authorized user to your credit cards. Another option is to negotiate settlements with her creditors in return for their deleting the collection accounts from her credit reports. You’d want to be cautious in these negotiations, especially if the statute of limitations on the debts hasn’t expired and your wife could be sued. Consider visiting DebtCollectionAnswers.com for help in negotiating with creditors.

Filed Under: Couples & Money, Credit & Debt, Q&A, Real Estate Tagged With: , , , ,
April 10, 2012 By

Regulator targets mortgage servicers

The Consumer Financial Protection Bureau wants to “whip the mortgage servicing industry into shape,” as this post on The Consumerist puts it, and such action is long overdue. Mortgage servicers have been the choke point in the mortgage mess, often costing people their homes because of their inefficiency, inaction and indifference. The CFPB wants to increase transparency and accountability among servicers, which take people’s mortgage payments and pass them along, minus a small cut, to the loans’ owners. Here’s how CFPB head Richard Cordray put it in a speech today to Operation HOPE:

“This industry has never had a requirement, or a strong incentive, to meet the needs of consumers.  Even before the crisis, there were already problems with bad practices and sloppy recordkeeping. When the financial crisis hit, however, things got much worse…And instead of investing in new personnel and processes, too many mortgage servicers took short-cuts that made things far worse for homeowners in trouble.

…

Picture every bad customer service experience you have ever had: calls going unanswered, glacially slow processes, mistakes made and not fixed, a kaleidoscopic cast of human beings who never seem to deal with you more than once, your paperwork submitted and lost repeatedly.  Now, multiply that mountain of frustration exponentially, and you can begin to get an inkling of the scope of the problems that Americans face:  house by house, neighborhood by neighborhood, and community by community.

…

And it is not just consumers who suffer.  Mortgage investors do not benefit from a broken system where servicers do not fulfill their obligations or make reasonable efforts to mitigate losses.  And this failed business model widened the pain of the housing crisis and destroyed an incalculable measure of consumer trust in financial businesses, perhaps in a lasting way.”

Cordray points out that consumers have absolutely no control over which company winds up servicing their loans and can’t walk away from bad service. He quotes Abraham Lincoln, who said, “The legitimate object of government is to do for a community of people whatever they need to have done but cannot do at all or cannot do so well for themselves in their separate and individual capacities.”

Like everyone else who’s covered the mortgage industry, I’ve heard horror story after horror story from people given the runaround by their mortgage servicers. People have lost their homes, and investors have suffered far worse losses than necessary, because the servicing industry is so messed up.

The CFPB’s proposed rules won’t give people back the homes they’ve already lost, but it could prevent needless foreclosures in the future.

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