Monthly Archives: February 2011

What Folks With Great Credit Scores Do Right

Hello,

This is basically a continuation of what we were talking about yesterday, that is, managing your debt and credit. Managing a great credit score entails a lot of financial discipline on the part of the borrower. As I said yesterday, the days of buying a house or a car for cash are long gone, and this means walking into a financial institution and requesting for financing. And this is where you credit score comes into play, and your credit information is scrutinized for the last ten years by the lender, before they decide whether they are going to do business with you! As you go about your business, it is advisable that you get a glimpse of the kind of information that makes or breaks the deal for you. Ray Martin explains in the following article some of the areas that are critical to your credit score.

Earlier this week I answered a reader’s question on steps to take to improve her credit score. But what about folks who don’t want to just to improve their credit score, but want to get it to the highest possible range? Before you make a move, you first need to know the most important information used from your credit report in determining your score. Check out MyFico.com for more detail on what make up your credit score.

Here are the two things that account for two-thirds of your credit score:

  1. Your Payment History: Having a long history of making payments on time on all types of credit accounts is one of the most important items lenders consider before approving you for a loan.
  2. Owed versus Available Credit: This compares the amount you owe versus the total amount of credit available. Your credit score can be lower when you use more than 50 percent of your available credit for each account. That’s because when you are close to maxing out on all of your credit limits, lenders see you as a higher risk and more likely to make late payments in the near future.

There are three other factors that account for about a third of your credit score:

  1. Length of Credit History: In general, a credit report containing a list of accounts opened for at least ten years or more will help your credit score. The score considers your oldest active account and the average age of all accounts.
  2. New Credit: Opening several new credit accounts in a short period of time can lower your credit score. Also multiple credit report inquiries may be seen as risky credit behavior on the near horizon, and can therefore lower your credit score. But “soft credit inquiries”, which include requests made by you, an employer or by a lender who “pre-screens” or “pre-approves”, have little or no impact. Also, multiple inquiries by automobile and mortgage lenders over a 30-day period count as just one inquiry, so shopping the lenders to get the best rate should not hurt your score.
  3. Type of Credit You Use: Your mix of credit cards, retail accounts, finance company loans and mortgage loans is considered.

Your credit score ignores your age, salary and occupation. It also does not take into account financial gifts, support you receive, or your financial assets. For this reason, credit scores are less important for borrowers who seek loans that take these factors into account.

If you want to take action to increase your credit score, then take a look at folks with the highest credit scores. About 13 percent of folks have credit scores of 800 or higher. If you look at their credit profile, they have:

  1. Four to six credit card accounts,
  2. No late payments in the past seven years,
  3. A least one installment loan — a mortgage or a car loan — with excellent payment history,
  4. An average of 10 years credit history per account and a few accounts with 20 years of good history,
  5. A low number of credit inquiries (fewer than three in the past six months),
  6. No bankruptcies, foreclosures, charge-offs or collections, and
  7. Debt levels at no more than 35 percent of their overall credit limits per account.

The Bottom Line: Having a long history of making all payments on time, using the right mix of credit, and not maxing out on available credit are the keys to a having a great credit score.


Managing Debt and Credit

Hello,

It’s two months down the line, and you have realized that managing your debt will not be as easy as you had anticipated. This is the dilemma that is facing many people today, and the thought of closing the year with a mountain of debt, is not very appealing. Managing debt is not as easy as you think, as you will be required to make sacrifices in your life, some quite painful depending on what you are losing, but at the end of the day, your financial sanity is more important.  The first thing you need to do is understanding what debt management entails. The following article that explains how to go about managing debt and credit.

Credit was once defined as “Man’s Confidence in Man.” But in fact, the definition of credit today is more like “Man’s Confidence in Himself.” Using credit today means you have confidence in your future ability to pay that debt. Forty years ago, your parents may have paid cash for their homes and their cars, a largely unheard-of event today. If they borrowed money at all, chances are it was from a relative or friend, and not a financial institution.

Today debt and instant credit are part of our everyday lives. The convenience of instant credit, however, has taken its toll. Many individuals use credit cards to spend more than they earn, and a few of these people actually build themselves a debt prison from which some never emerge. On the other hand, those who never use credit can be denied a loan or credit when they have a justifiable need or use for it. Using credit establishes a history of financial responsibility: Until you establish a credit history, your chances of qualifying for an important loan, such as a mortgage, are greatly reduced.

What is the balance between using credit wisely, and staying out of overwhelming debt? Let’s look at the facts and some pros and cons.

Installment Debt

Debt comes in many forms, and most types help us in our daily lives — when used responsibly. Most people cannot buy a home without some financial help, and many cannot buy a car (especially a new one) without some sort of financing. The money borrowed to purchase large-ticket items is called installment debt: The debtor pays a portion of the total at regular intervals over a specified period of time. At the end of that time period, the loan with interest is paid off.

Installment debt allows you to purchase items at a competitive interest rate: for example, 5% to 7% for a 30-year home mortgage and 8% or 9% for a car loan. The loan is paid back on an amortizing schedule, monthly payments of a fixed amount that remain constant over the life of the loan. At first, most of the monthly payment consists of interest. In later years, principal begins to be paid down.

Installment debt is easily budgeted and the debt is eliminated on a predetermined date. Even for those who may actually have the cash to purchase the desired item, installment debt can make financial sense if you can earn a higher return (after taxes) on your investment of cash than you must pay on your installment debt.

Revolving Credit

A revolving line of credit, also called “open-ended credit,” is made available to you for use at any time. Examples of revolving credit are credit cards such as Visa, Mastercard, and department store cards. When you apply for one of these cards, you receive a credit limit based on your credit payment history and income. When you use the credit line, you must make monthly minimum payments based on the total balance outstanding that month. Some lines of credit will also have an annual account fee.

While revolving credit is a convenient way to borrow, it can also become an endless pit of minimum payments that barely cover the interest due. Many cards charge annual rates of interest of 18% or higher. As you pay off your debt, the minimum payment is also reduced, thus extending your payoff period and, consequently, the interest you pay. Paying just the minimum due on a $2,000 credit card loan could mean making monthly interest payments for 10 or more years!

Revolving credit, in addition to being convenient, eliminates the need to carry a lot of cash and can help establish you as a creditworthy risk for future loans. The itemized monthly statements also can help you track your expenses. But some people can easily yield to the temptation that the convenience of credit cards offers. Impulse buying, failing to compare costs, and purchasing large items you can’t afford are all downfalls brought on by always available purchasing power. Spending more than you earn in any given period is a dangerous practice at best, but doing it over an extended period of time can be financial suicide.

Using Credit Wisely

To use credit intelligently, start by examining the terms of the card(s) you are currently using. Keeping track of your cards, their rates, and your current balances will help you to be aware of how you use credit cards. Increased competition in recent years has led some credit card companies to offer enticing features to attract new cardholders, including no annual fees and low interest rates for an introductory period. (And credit card companies sometimes will give their introductory rates to existing cardholders so that they won’t transfer their balances to another credit card company.)

Eliminating Credit Card Debt

If you think you may have too much credit card debt, begin to address it by honestly evaluating your spending habits. Examine your existing expenses to analyze how your money is spent. You will most likely be able to identify the problem areas where you are more likely to spend too much or too readily with credit cards. Then, based on your current spending practices, create a realistic budget to pay off your credit card debt in the shortest time possible while not adding any more debt to it. For assistance, you may want to turn to your financial advisor, who can help you to allocate your resources wisely to address your credit card debt.

The Role of Debt

Today, carrying installment debt is almost a fact of life. Mortgages, car loans, or small-business loans (to name a few) are part of almost everyone’s life. On the other hand, carrying credit card debt is usually not a good idea. At interest rates of 16% and up, it’s hard to justify keeping savings that could pay off that 18% department-store credit card in the bank at 2%.

Debt and credit play increasingly important roles in our lives. As the aging Baby Boomers get closer to their peak earning years, many are realizing the need to reduce debt and increase savings. Even though analyzing your spending habits and creating a budget to address your debt may seem a little overwhelming, the simplicity of the philosophy of the Depression era still stands: Never spend more than you earn. Once you have come to grips with this basic fact, managing your debt will become far easier and more rewarding.

Summary

  • Installment debt means the loan is paid off in a specified period of time by making predetermined payments periodically.
  • Revolving credit is a line of credit that is instantly available through use of a credit card (and sometimes a check).
  • As you pay down your debt in a revolving line of credit, the minimum payment is also reduced, thus extending your payoff period and, consequently, the interest you pay.
  • Spending more than you earn in any given period is a dangerous practice at best, but doing it over an extended period of time can be financial suicide.

Financial Abundance: 5 Factors

Hello,

We all want to achieve our goals, and live the kind of life we had envisioned for ourselves and our families. But many have failed to achieve this because of lack of one major resource, money. Financial resources are what drives our lives theses days, because there is very little you can achieve with lack of finances. Financial Abundance is more than financial resources, there are other aspects of your life that also need nourishing. In other words, financial abundance has more to with every aspect of your being, as it is explained by Kurt Turell  in the following article.

As an “Abundant Life Coach” I get asked about the meaning of “financial abundance” very often. What this means to you can be the difference between living the lifestyle of your dreams, or settling for something less than your dreams. I want you to live the life of your dreams!

Here, then, are 5 Essential Factors of Financial Abundance:

“The Abundant Mindset”

Thousands upon thousands of books, articles, media, programs, and so much more have been produced that discuss the awesome power of our minds, and the influence of our thinking upon our lives. It is difficult to say enough or emphasize enough that truth. As I see it, we are exactly as we think.

In my work, I recommend the adoption of an “Abundant” mindset. This means so much more than finance or money, however, for the purposes of this article, I will discuss abundance only as it applies to the world of money and finance.

A financial abundance mindset means enjoying an abundant amount of money, and yet not allowing greed. Greed does not work (sorry, Gordon Gekko). Of course “financial abundance” will be a relative concept; it will probably mean something different to each person. Greed, however, is fairly obvious; it is almost like knowing (within your mid or heart) the difference between right and wrong.

Further, a financial abundance mindset means having the monetary means or resources to enjoy an abundant lifestyle, yet balancing your financial wealth with philanthropy and generous giving (see point 4). When one’s personal motives are clearly defined and one’s goals are aligned with those motives, then financial abundance becomes clear.

“Specialized Knowledge”

The largest difference between the rich and poor (or the “haves” and “have-nots”) is knowledge. Or, more specifically, the largest difference is a specialized knowledge; meaning that they have the “right” knowledge and also know how to use that knowledge to their advantage. In other words, specialized knowledge is the information or data itself, coupled with the wisdom to know how to use the information or data.

For many, specialized knowledge is an academic education such as medical or law school, while for others this might mean computer programming, aviation repair, or something. Further, many of those with a financial education know how to leverage their own money to make more money. Obviously the point is that specialized knowledge translates to earning ability.

“The Power of Compounding Interest and Investing”

For many people, diligent savings and investment of a consistent percentage of income over considerable lengths of time has led to financial abundance. I would certainly add that economic factors always play a significant role with regard to risk in investments. Even so, living well within one’s means while investing and saving can very often lead to financial abundance.

“Generous Giving”

Generosity does not necessarily mean giving away or donating money. Mr. Zig Ziglar has said: “If you can dream it, then you can achieve it. You will get all you want in life if you help enough other people get what they want.”

This is so very true. It must be an unwritten law of nature that over time, our generosity is paid back several times over. Of course there are exceptions to every rule, and yet employing an attitude of generosity is always a safe bet for a great return. And, if nothing else, it is an illustration of excellence of character.

“What You Love Over Time”

We should seek ways to turn what we love to do into a good living. I am a firm believer that when we do what we love doing, money very often comes as a byproduct, because our focus is not so much on making money as it is on enjoyment and lifestyle. Over time, money tends to take care of itself in large part when we are doing what we enjoy, especially when it helps others.

In conclusion, the very first point – having an abundant mindset – sums up all of the points I have made in this article. When we do what we love to do; when we are generous and seek to help others; when we live within our means and save money; when we always seek a more specialized knowledge…we then have an abundant mindset, and are bound to realize financial abundance.


The Importance Of Putting Money Aside

Hello,

I know I have said this enough times, but sometimes there are topics that no matter how many times you repeat them, you will never really capture the importance of the topic. Take the example of saving, a lot of people always have a reason not to save or put money aside on a monthly basis. People view this as a way of reducing their current income, but what they forget is that they are at the same time increasing their future income. So the next time you come up with an excuse not to save, think of all the emergencies that may require ready cash that you may not have, or living a comfortable retirement life, or meeting your kids future college education expenses etc. The best way to see the potential benefits of saving is reading the  following article by Nelson Taff, who is practising what he preaches.

You have to realise the importance of saving money. It’s a very good idea to have some cash stashed away, as in life, we can never predict what the future might bring, what emergencies are around the corner that require us to splash some cash. By putting money aside, you’re insuring yourself against any unexpected event. When you do begin saving, and have a fair amount saved, even if just to cover a months worth of expenses, you’ll feel a good sense of accomplishment and a drive to save more. Gradually building this up as time passes, you’ll feel more secure in your life, as you’ll know that if for whatever reason you did happen to lose your job, you’d be prepared for a certain period, instead of panicking, wondering how you were going to pay the next upcoming bill.

A key point in saving cash is identifying precisely why you’re saving money to begin with. Maybe, it’s as I suggested in the last paragraph, you’re saving as you would like to be able to cover yourself in an emergency, or perhaps it’s something entirely different, by way of example, saving in order to go on holiday to a destination you’ve only dreamt about. In spite of the key reason why, stating it, writing it down, and keeping it fresh in your thoughts can help you in staying on track. When beginning to save, I’d recommend before saving for any particular item, that you save for you first, so saving for an emergency fund, which acts as your back-up. In my opinion, you really want to aim for about six months worth of bills, which should ensure that you get ample time in order to find another job. Once you’ve reached your safety net, I then personally recommend to begin saving to one’s retirement, along with anything else in which you ought to save for. I save for both concurrently. I have my emergency fund already sorted, so I’m now splitting my salary, and putting some of it aside into a retirement fund, and some of it towards my holiday to America.

Again, it is also imperative that you set realistic expectations. There is no point in stating that you’ll save 50% of your next wage, if you frequently end up broke a week before your next payday. Doing this is setting yourself up for failure. Instead, set an objective you know you could keep, yet which will help you on your way. Not too small of a goal, though not too large either. Each pay check I receive, I automatically take a 10% cut off and place into my retirement fund. I then take another 5% and place this into my holiday fund. A combined total of 15% each and every month in savings. It is a low figure, and when you element in that I’m being economical elsewhere, i.e. I will no longer buy a coffee along the way to work, after a matter of months you’ll notice a large improvement inside your financial situation.

My Final piece of advice when planning to save is to pay yourself first. Paying yourself first basically means that before you spend cash within your pay check, before you’ll pay any bill, or buy any item of food, the 1st payment from your account must be going from your bank account, right into a savings account. The simplest way I’ve found of managing this is to set up an automatic system with my bank. I performed this by creating another account, and telling them that right at the end of the month, which is the day that I am paid, I would like some money to go out of this account, and to be transferred to my new account. This occurs monthly automatically. Therefore, I’m saving my money monthly automatically.

I hope you’ve found this informative article an appealing read, and that it can help you on your way to financial freedom.


How To Identify Unreliable Sources Of Financial Information

Hello,

This is basically a continuation of what we were talking about yesterday, that is, how to achieve financial success with the right kind of financial information. The source of financial information plays a critical role in determining how reliable that information is, for example, financial information from different financial institutions may be treated differently by investors and the general public, simply because one source of information may be considered more reliable than the other. But, just because the information is from a certain source, does not necessarily mean it is reliable. I think we all remember a few months before the financial meltdown, how even the most trusted names in the finance world, were selling worthless financial products to investors who believed on every word they said. Ok, I’m not telling you to run for the hills now, simply put, all I’m saying is that you always counter-check the information you have received with different sources as Kevin Raad explains in the following article.

There are some people who want to assume control of their finances by reading a book or consulting a financial advisor because they were smart enough to realize that they’re not financial savvy. But you must be aware that there are several challenges and pitfalls when choosing an advisor.

There’s also a problem when reading to learn how to manage your finances. Although reading a book is good and fundamental to your learning process, you can find sources not too reliable and get misinformed and that is something to avoid at all costs.

You may think that any renowned investment guru would make you rich but beware of that. I remember one formerly bestselling book about personal finance that gave the advice to “Buy disability insurance only if you are in poor health or accident prone”. There are two major problems with that statement. First, how in the world would you find an insurance company that is concerned on making a profit that will extend a disability policy once you have fallen into poor health? And second, can you please tell me how would you know when you are accident prone? It seems to me that if you follow this kind of advice you will need the help of your horoscope to see disabilities coming.

Consider also the famous investment seminars offered everywhere. These seminars promote themselves promising huge returns that don’t seem credible. Most of the time this seminars promise you will have returns as high as 20% per month on your investments, and comparing the annual return of 10% the stock market generates over long-term, you can easily spot some kind of fraudulent publicity. This is why you have to understand how all those investment gurus get so popular even with visible defects in their advice. In most cases, this gurus work the media and given that many members of the media are financially illiterate themselves, they get great coverage and publicity, and get quoted in the press and get invited to renowned talk shows.

Be aware that talk shows and the media in general provide useful information on a wide variety of topics, but sometimes bad advice appear. Don’t assume that just because someone with something to sell is getting good publicity is going to be a good advice to you. It can only be a good job on public relations and marketing. More important, remember that virtually all the newspapers, magazines, web sites, television, radio, etc. are completely dependent on the money from advertisers. And in some cases these advertisers are the ones dictating the content you read, listen or view in the media.

You may be wondering how can you identify or separate good publications from the biased publications, and following are some ideas on the subject.First, consider how dependent on advertising a publication is. For example, most of what is published on the internet is driven by advertisers. Many of the sites publishing investing advice on specific stocks are derived from brokerage firms looking for more clients.

Your feelings must always be involved to determine if some publication, television show or radio program is oriented to consumers, and if you believe they’re looking for your interests or the advertisers’. For example, if you are reading a car publication and you see a lot of auto manufacturers advertising, is that publication talking about the importance of saving money when buying a car or is it just telling you to buy a car by all means?


You Can Have Financial Success With The Right Financial Education

Hello,

Before the financial crisis, everybody was talking about how wealthy they were and we were spending like crazy. Debt was the in-thing back then, and you were the odd one out if didn’t have more than one. Everybody, including the so-called experts, were of the opinion that the economy could be able to sustain this kind of debt ‘comfortably’, and then BOOM! everything around us came to standstill, and for some people, it’s still is. What become obvious after the financial meltdown is that, everybody was duped into believing that this was the way to go, and the only thing positive that came from all this mess, depending on how you look at it, is that, we learnt that you will never achieve financial success with the wrong financial information. Like the great book (The Bible) says,never build you house on sand, instead if you want it to stand firm, build it upon a rock. The same thing with financial success, you will only achieve it, if you rely on the right financial education as illustrated by Matt Zavadil in the following article.

Let’s talk personal financial success. Most people in the current economy are not finding personal financial abundance even though they all secretly desire it. I’ve yet to meet anyone who doesn’t want to create wealth, and do well with their personal finances. However, during the six years I spent working as a financial planner, I met many families who struggled with the concepts of financial prosperity and making more money.

Here’s what I saw when meeting new clients: High debt, low investment funds, and an over-all lack of financial education. I rarely saw financial success.

My clients were searching for a way to eliminate debt, stay out of debt, invest wisely and achieve financial abundance. All the while, they were making decisions and had created financial habits that had them straying down the road of poverty. One of the things I realized after working in the personal finance field is that there is very little personal finance education for the average person. Too many people operate their financial lives without a plan.

If this is how you’ve been living your life and you’re struggling with becoming more comfortable financially, it’s time to formulate your goals and dreams. It’s as if you were taking a trip. You wouldn’t set off on a trip from New York, NY to Orlando, FL (Disney World sounds kind of nice) without a map, would you? No, you’d get out the map and formulate a plan to get there correctly. So, why try to accomplish success with your personal finances without figuring out the best route?

If you fail to plan, you plan to fail. If you desire personal financial success, it won’t come from over-spending on frivolous purchases, racking up a ton of credit card debt, or living without some sort of personal financial plan. What you must do is center yourself on realizing a debt free life. Therefore, you must focus your attention on the following areas of personal finance: budgeting, planning, get out of debt, reduce taxes, investments, real estate, etc.

If you truly desire financial success with your money matters, you’ll need to get a handle on these areas. If you desire this goal, there’s no other way around it…you must put your attention on these areas. Very few people are handed wealth and financial abundance on a silver platter, but it can be attained by adjusting your wealth consciousness, using some visualization, formulating a plan and sticking to it.

Imagine the inner peace you will feel when you perfect your personal finances as well as your spiritual growth!


Retirement Has Become A Problem For Many People, But You Can Reinvent Yourself

Hello,

Retirement is a word that scares the hell out of people in this economic environment, and it all has to do with financial resources. Many would-be retirees are finding themselves working longer and longer because they have just realized the little financial resources that was left after the financial meltdown will not be able to sustain their basic needs. This has brought about depression which is on the increase due to the fact that many retirees were hoping that by now they would have sorted things out, and were enjoying their retirement. Stressing over the problem will not solve it, instead you need to find a supplemental income that can cover the difference between what you are currently earning, and your expected monthly income. There are a number of ways of making money as demonstrated by Matt Zavadil in the following article.

When it comes to planning for retirement, many people are finding that things aren’t working out the way they had hoped. The Golden Years don’t look golden at all as the current economic climate that has dampened the hopes of expectant retirees the world over.

The reality of needing to work long into the time they had planned for traveling or simply enjoying life has hit many a hopeful retiree. This is not only a financial issue in our society, but also a mental issue. When a person sees that they’ve worked all their lives simply to wind up needing to work until death, depression can easily set in. This is why, if you find yourself in this unfortunate situation in regards to retirement, it’s vital for you to figure out a positive solution. Not only for your financial health, but your mental health as well.

In order to make sure you actually don’t need to work until they place you in your grave, let’s take a look at a few possible solutions. First of all, you need to accept it and come to terms with it. Acceptance of any challenge in life is the first step toward discovering the solution to that challenge.

Next, I’d like you to take a serious look at the Internet as a possible solution. Yes, I know you may not be an expert at the computer…it may even scare the heck out of you. However, you’ve learned many things in your life and you can learn some basic computer, Internet and marketing skills, too.

There are a number ways to earn money from the Internet, and the great thing is that much of that income becomes residual once you get everything all set up. This will help you not only earn the money to lessen your need of working a job, but it will eventually “retire you” because it keeps rolling in month after month. I highly suggest that you find yourself a basic Internet marketing course that teaches you the beginning steps to setting up websites or blogs, getting some traffic to them, and then earning money from that traffic. Three great ways to leverage the power of the Internet are to use network marketing, affiliate products, and the Google Adsense program.

Google’s Adsense program is easy because you simply allow the program to place ads on your website or blog and every time someone just clicks those ads, you get paid real money. Over at Clickbank.com, you can sign up as an affiliate for various products and earn a commission every time a person buys them through your affiliate links you’ve placed on your site.

Network marketing can be wonderful for two reasons. One, it keeps you plugged into a network of positive people who benefit from teaching you how to earn more money. Second, as you build your business, the residual income stream gradually grows. I highly recommend you follow the above advice to solve any retirement issues you currently face.


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