Basic Financial Information Tips Part I

Basic Financial Information Tips (Part I)
Savings .​
Pay yourself first .​
Start now stashing 10% of​ your income in​ an​ Emergency savings .​
Don’t use it​ for anything but real emergencies .​
Keep a​ For Sure savings account for yearly expenses you know are coming and you can estimate (e.g .​
Christmas, insurance, taxes, etc.) .​
Also have a​ Buy Stuff account .​
If you do, you’ll be able to​ avoid many financial disasters which will face you, and you can avoid borrowing money from high-rate lenders .​
Borrowing .​
Don’t borrow money unless you are willing and able to​ pay it​ back .​
Failure to​ pay debts – on time – causes severe financial, emotional, and family problems .​
Experts recommend you don’t borrow for wants, only for needs, or​ for things that increase in​ value .​
Many lenders will loan you money you can’t afford to​ pay back, especially high-rate lenders .​
Co-signing .​
Don’t co-sign on a​ loan unless you are willing and able to​ pay it​ back .​
Often, co-signers end up paying off loans they are unprepared for, and financial hardships follow .​
Numerous co-signors now have negative credit ratings because a​ primary borrower paid late .​
Many lenders do not notify the co-signor before reporting delinquencies or​ repossessions to​ the credit bureau .​
Compare .​
Before you decide who to​ borrow from, compare! Find out who is​ offering the best deal at​ that time – look for the loan with the lowest rate (APR) .​
APR .​
The Annual Percentage Rate (APR) .​
It is​ the standard rate, so we may compare the cost of​ borrowing .​
It is​ the cost of​ credit expressed as​ a​ yearly rate .​
When you borrow, always beat 13% APR (consider 13 to​ be unlucky when it​ comes to​ borrowing) .​
Some have been illegally stating other rates such as​ weekly or​ monthly rates .​
Compare APR to​ APR .​
If you pay your bills on time, and you aren’t over-extended, you can nearly always find loans or​ financing arrangements at​ rates lower than 13% .​
Beware though, because beating 13% does not always mean you are getting a​ good deal .​
For instance: the difference in​ total interest paid on an​ 11% versus an​ 8% 30-year, $100,000 mortgage loan is​ $64,283 (assuming all payments are made as​ agreed) .​
Consolidation Loans .​
a​ consolidation loan can result in​ great savings to​ borrowers if​ the new interest rate is​ significantly lower, and if​ you don’t run-up debt similar to​ what was just consolidated .​
But beware, because consolidation loans usually result in​ substantially more money out of​ your pocket into the lenders’ .​
For instance, mortgage loans usually involve closing costs .​
They increase the total debt .​
Many refinances involve reducing the monthly payment, but increasing the length of​ payback, which substantially increases the total interest paid .​
Borrowers, who refinance unsecured debt (e.g .​
credit cards) into a​ home mortgage, also increase their risk of​ losing their homes .​
Also, remember to​ keep all of​ your payments current until the old debt is​ paid off .​
Too many people have damaged credit ratings, and are in​ bad financial condition because they counted on money which didn’t come when they expected it .​
Expect delays when applying for loans, especially consolidation loans .​
Don’t spend money before you get it .​
Desperation .​
Don’t get desperate for money .​
The more desperate you are, the less likely you are to​ get a​ good loan .​
Auto insurance .​
Keep your auto insurance current .​
If you fail to​ keep your insurance up-to-date, you could end up making loan payments for years after your car has been totaled .​
Establish good credit .​
To avoid bad credit, don't borrow too much, and do pay your bills on time .​
Inexpensive ways to​ establish good credit: (1) Obtain a​ good credit card .​
When you charge things, pay off the balance each month – on time – and pay no interest .​
(2) Establish a​ revolving line of​ credit (an empty loan) as​ an​ overdraft protection against bounced checks, and don’t use it​ as​ a​ loan .​
(3) Get a​ loan to​ buy a​ car, or​ furniture, or​ etc.) and pay it​ off within a​ few months .​
Late fees .​
To avoid late fees (which multiply the cost of​ borrowing), pay early, or​ at​ least on time .​
Repossessions .​
To avoid repossessions and associated fees, pay early or​ on time, and keep your insurance current .​
Extra principal ® less interest .​
To pay less interest on loans, pay more than the minimum required payment .​
Even small amounts of​ extra principal, can significantly reduce the total amount of​ interest you would otherwise pay over the life of​ the loan .​
Before doing this, however, make sure your lender accepts extra principal payments, and find out what particular procedure you need to​ follow to​ ensure your extra principal is​ properly applied.
Bi-weekly payments .​
If you get paid weekly, or​ every other week, paying bi-weekly is​ a​ very convenient (almost painless) way to​ reduce your loan term and interest .​
For instance, if​ you make ½ of​ your required monthly payment every 14 days (a bi-weekly period), you pay the equivalent of​ 13.052 payments in​ an​ average year .​
If you don’t get paid bi-weekly, or​ if​ your lender doesn’t like biweekly payments, you can pay the equivalent amount in​ monthly installments .​
If you pay 1/12 of​ the sum of​ 13.05 payments each month, you will match the bi-weekly advantage (minor rounding differences) .​
Contrary to​ popular belief, the frequency of​ paying ½ payments bi-weekly doesn’t accomplish much, the real advantage is​ paying the extra principal (13.05 payments, or​ more, each year) which reduces the term and the interest paid .​
If you are considering signing up for a​ bi-weekly program, pay close attention to​ the cost .​
Some servicers have large set-up fees and transaction fees .​
Also consider the credibility of​ any company handling your money, some have diverted payments into their own pockets, leaving borrowers to​ make payments twice (once to​ a​ corrupt servicer, and a​ second time directly to​ the lender).

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