Monday, March 29, 2010

Short Sales Better Than Foreclosure

On April 5, 2010, a new federal program will be implemented to help homeowners facing foreclosure. The new program called the Home Affordable Foreclosure Alternatives (HAFA) will push mortgage companies and banks to allow homeowners to do a short sale instead of foreclosing on their homes. A short sale is when a homeowner sells their home for less than what is owed on the home and does not have the money to pay the lender the difference.

Banks are already lost millions on homes due to foreclosures since 2008. Banks are still in denial and are only concerned with working with customers who can make them a profit. Working with homeowners who are facing foreclosure will help the economy and help current homeowners. Would a bank rather get $0 or get hundreds of thousands of dollars? Either way banks will take a loss but the short sales will be cheaper to process than foreclosures.

Unfortunately the housing crisis is still affecting many Americans. However, the number of foreclosures this time last year was 803,489. According to the number of foreclosure as of February 2009 was 624,240, but it is still too early to determine if the rate of foreclosure filings is declining from last year's numbers.

Under the new HAFA program, homeowners who don't qualify for the Home Affordable Modification Program (HAMP) and have mortgages backed by Freddie Mac or Fannie Mae or have missed two consecutive mortgage payments have to be offered a short sale. This will force lenders to forgive the difference.

Homeowners will also have the option of doing a "deed in lieu or foreclosure". Under this option a homeowner can voluntarily give their home back to the mortgage company and the lender records the mortgage as paid in full. However, with either option it will be reported on your credit report and greatly lower your credit score even if you have good credit.

Under the HAFA program, homeowners can get up to $1,500 to help them relocate to a new residence. If a homeowner has a second mortgage they can receive up to $3,000 of the short-sale proceeds.

The program may also lure more investors who are able to snap up homes at record low prices. The short sale program will still produce vacant homes but at a cheaper cost to mortgage companies than foreclosures.

Millions of homeowners were targeted to be helped under the HAMP program but so far due to banks unwillingness to assist homeowners, only a little over 100,000 have been helped by the program. Only time will tell how many homeowners will actually be helped under the HAFA program.

Thursday, March 25, 2010

How the Healthcare Overhaul Affects You

Health insurance costs increase at a rate higher than inflation every year without a justifiable reason for the increase in costs. Subscribers do not get more coverage, better service, advise or quicker appointments. The Health care law that was signed on March 23, 2010 by President Obama will provide health insurance coverage to approximately 32 million Americans and guarantees that 95 percent of Americans will be covered.

In 2014, those Americans who don't get health insurance will have to pay $95 or 1 percent of their income, whichever is greater provided the amount does not exceed the cost of the health plan.

In 2016, those Americans who don't get health insurance will have to pay $695 per uninsured adult and can increase up to $2,085 per household or 2.5 percent of their income, whichever is greater. An adult would be penalized if they went more than three months of the year without health insurance. If your income is below a certain amount, or if the cheapest health insurance would cost 8 percent of the person's income, they would not be charged a penalty for lack of coverage.

Health insurance will be more affordable for the middle class and small business owners. The health care law would provide the largest cuts for the middle class which will reduce health care premiums and out-of-pocket costs. The law will also improve Medicare benefits by providing lower prescription drug costs.

Americans will also have the option to shop for the same type of private health insurance that members of Congress have which will reduce costs.

Health insurance companies will now be accountable by being required to keep premiums down and prevent healthcare coverage denials including pre-existing conditions. Health insurance companies will be required to offer coverage regardless of your health condition and cannot increases rates or cancel your coverage when you get sick.

There will be limits on how much is paid to receive health care coverage. Based on your income millions of Americans will get a tax credit to help pay for coverage.

If you like your current coverage you can keep it. If you have existing individual coverage on your own, your premiums would decrease by 14 to 20 percent and you may qualify for tax credits and will be provided better coverage.

If you get your health insurance coverage through your employer you will also see a decrease in premiums due to a reduction in administration costs and competition between insurance companies by up to 3 percent.

Insurance forms and health plan guidelines will now be written in plain english and forms will be standardized. Insurance companies that raise rates with no valid cause will not be able to sell their insurance poicies in the new insurance market.

Monday, March 22, 2010

It's Not to Late to File Your Taxes

This time of year accountants get very happy because they are busy with many customers. Everyone is not so happy unless you are getting a refund. A lot of the laws from last year have changed so please be sure to read the instructions when filing your 2009 taxes. Here are 6 tips to help you file your taxes. Thanks.

1. Gather all receipts, monthly/quarterly statements, medical bills, student loans, credit card debt, etc.

2. Be cautious when purchasing a tax preparation software. Research the credibility of the company and verify if the software provides automatic updates to tax laws contained in the software. Go to Better Business Bureau website to check out a company's history. Click on the Business Link under the Check It Out section. Use a software package like Quicken or Quick Books to record all of your deductions. If you don't have this software then you can use an Excel spreadsheet with these basic column headings, Item, Date Purchased or Sold, Cost, Quantity, Total Cost. If you don't have the Excel software program just use plain old pencil and paper.

3. Identify all items that can be used as itemized deductions and put them in one pile. Determine if the standard deduction for your tax bracket is greater than your itemized deductions. (The list of items you gathered in step 2 and verified against the tax form instruction manual as items that can be itemized). If your standard deduction is greater than use the standard deduction, if not, use the worksheet included with your taxes to calculate your itemized deductions.

4. To save money file your taxes electronically. You will receive your refund in approximately two weeks from the date of filing.

5. Don't get a tax refund loan or refund anticipation loan. This is a waste of time and of money. You usually have to pay a fee to get the refund loan which usually have high interest rates and associated fees. See the article discussing this issue.

6. If you are owed taxes this year and are unable to pay your taxes by April 15, 2010, file an extension no later than April 15, 2010 or setup a payment plan. If is never wise to owe taxes because the interest and penalties fees that accrue each day will put you further into debt.

Friday, March 19, 2010

8 Ways to Use Your Tax Refund

This time of year is when many people file their taxes in hopes of getting a tax refund. A tax refund is free money you get back when you file your taxes. A better way to get your tax refund is to increase your tax withholdings and get your money back during the year.

Getting your tax refund at the end of the year helps the IRS make money but may not help you as much as you think. Some people are not very disciplined and when they get a large sum of money them don't spend it wisely. In some cases they are worse off with the tax refund than they were before they got the refund.

Don't make that mistake. Use your tax refund wisely and improve your financial situation. Do even better next year than you did this year. Here are 8 ways to spend your tax refund.

1. Pay down debt. Pay down credit card balances first, then pay collection accounts, judgments, liens, then pay extra on any loans.

2. Create an emergency fund. Create a savings account to cover bills for 9-12 months.

3. Invest it. Start a retirement account. If you don’t have a retirement account with your employer sign up tomorrow. You can also start you own individual retirement account in addition to your employer account.

4. Save for your children's college education. If you haven't already done so start saving for your children's college education. College tuition increases at 3 times the rate of inflation. Put the money in a 529 plan.

5. Purchase a home. Now is a great time to buy a home. Use the money to put towards down payment and closing costs.

6. Repairs. If your home need major repairs use the money to fix them.

7. Increase job skills. Take an inexpensive class to boost your skills at work. This can help you find a job or increase your chances of staying employed.

8. Donate. Make a tax deductible donation which you can write off on your taxes next year.

Another way to get a tax refund is to check to see if you have an unclaimed refund from a previous tax year. Contact the IRS for more information at

Tuesday, March 16, 2010

10 Smart Ways to Cut Back

I hear many clients and other people say that there is no way they can reduce their spending, cut back or stop buying this and that. Yes you can! If I could do it you can to. Reducing your spending is all about control, discipline and changing how you think about money.

You are your worst enemy. Only you can change your current financial life, only you can prevent collections, late payments, liens, judgments. Even if you don't have the money to pay back the debt there are other things you can do to prevent negative marks on your credit report. The first step is by reducing your spending. Here are 10 ways to cut back on spending. You can use the extra money to pay down debt, create an emergency fund and accomplish your financial goals.

1. Live like college. Live like you did when you were in college or when you first moved out on your own.

2. Eat out of a can. Eat noodles, soup, tuna, canned meat, bologna sandwiches, peanut butter & jelly sandwiches and whatever else you can buy for a few dollars. No one has to know.

3. Buy generic brands. Skip buying name brand products when you go to the drug store or grocery store. Many times the generic brands are just as good as the name brands and are in many cases cheaper.

4. Buy on sale. Buy items on sale, in bulk and use coupons. Some stores honor coupons and give you double the coupon.

5. Buy raw foods. Only buy raw foods such as fruits and vegetables in season.

6. Reduce expenses. Reduce expenses such as cable, cell phone, eating out, shopping and entertainment.

7. Reuse. Reuse bags, printer and fax paper, and boxes for shipping.

8. Downsize. Move to a smaller home or trade in a luxury car for a smaller cheaper car. One of the richest men in America, Warren Buffet bought his house for $31,000 and still lives in it and he is worth $47 billion.

9. Skip drinks. Buy water instead of soda or buy generic soda.

10. Make your own. Use fresh fruits and vegetables to make your own juice drinks and smoothies.

Saturday, March 13, 2010

Surviving a Car Recall

Lately we have heard about many products being recalled. There is a consumer protection magazine report called "Consumer Reports" that is sent out every month to inform consumers of products that are recalled and identifies any possible dangers of using the recalled products. Most recently we have heard of the recalls from auto manufacturers. The biggest recall was by Toyota who had to testify before Congress about the cause of the recalls and what the company plans to do to prevent future recalls.

Toyota is currently considering recalling the Toyota Corolla model for complaints of a steering problem. Toyota has recalled 8.5 millions cars in the past four months due to various malfunctions. Here are 5 ways to survive a car recall.

1. Call. Contact the auto manufacturer directly to get accurate information on the model being recalled.

2. Research. Find out what the process is to get your car fixed and if you will be compensated for the recalled part or for the loss of using your car while you car is being repaired.

3. Status. Check on the status of your car repair frequently and document all phone calls with the car dealer and car manufacturer. Ask for a letter in writing from the car manufacturer stating what model what recalled and the process for addressing the recalled model.

4. Car Fund. Credit an emergency car fund so if you have to get your car repaired you are not greatly impacted financially. This also minimizes using your credit card to cover the cost of repairs.

5. Purchase. When purchasing a car do your research and check to see if any of the auto manufacturer's models have been recalled, the date of the recall and what the company did to address the recalled models. Also check the financial stability of the company. Don't purchase cars that may be discontinued because it may be hard to find parts for the car. Make sure you buy a car that has been rated as a good buy.

Wednesday, March 10, 2010

The CARD Act and Debit Cards

The CARD Act that went into effective on February 22, 2010 has resulted hundreds of changes to credit cards but did you know that the CARD also affects debit cards? Well here are some changes about debit cards you should know about. These new changes implemented by the Federal Reserve go into effect on July 1, 2010. Your bank should be sending you very soon an explanation of their new overdraft services including fees and changes.

Currently, for standard overdraft services your bank will cover the transaction by charging a flat fee of $20-$30 each time you overdraw your account (bounce a check or use your debit card).

If you have an overdraft protection account or service your bank provides a line of credit that is linked to your savings account to cover transactions when you overdraw your account. Banks charge a fee each time you overdraw your account but using the overdraft protection service may be less expensive than using the standard overdraft service.

Under the CARD act, your bank can no longer charge overdraft fees. Your bank must get permission to apply the standard overdraft services to debit and ATM card transactions. You can grant permission by opting in to the overdraft notice your bank sends you.

For existing accounts if you do not opt-in by August 15, 2010, your bank's standard overdraft services won't apply to your debit and ATM transactions and future transactions will be declined when you don't have enough money in your account, and you will not be charged an overdraft fee.

For new accounts opened on or after July 1, 2010, your bank can no longer charge overdraft fees for debit and ATM transactions unless you opt-in. If you open a new account before July 1, 2010 your bank will consider you an existing customer and you will receive a notice about your bank's overdraft services.

Determine if you want the standard overdraft services for debit and ATM transactions. If you decide to opt-in you can cancel at any time. If you do not opt-in before the deadline you can opt-in in the future.

The new overdraft guidelines do not affect checks or automatic bill payments. Your bank may automatically enroll you in their standard overdraft services plan for these transactions. Contact your bank if you decide to cancel the standard overdraft service to verify what options are available.

Sunday, March 07, 2010

FICO 8: The New Credit Score

Your credit score it is one of the most critical factors in your financial life and determines if you will be approved for a loan or line of credit. A credit score is a number developed by the Fair Isaac Corporation (FICO) that lenders use to rate potential customers in determining the likelihood that a customer will pay their bills on time.

A credit score determined by using five main criteria as defined by your payment history (35%), the total amount owed (30%), the length of your credit history (15%), new credit (10%), and types of credit used (10%).

Payment history shows the history of how you paid your bills either on time or late but unfortunately does not show if your bills were paid before the due date. Amounts owed show the total amount of debt you owe. The length of history indicates how long you have had credit. If your credit history is 2 years or less this could lower your credit score.

New credit indicates how many times you have applied for new credit. If you open too many new accounts in a short period of time this may lower your credit score. The types of credit used indicate the types of accounts you have such as revolving or installment accounts. Revolving accounts are usually credit cards and installment accounts are usually mortgages, auto loans, etc.

The FICO 8 credit score which was developed in 2009 ranges from 300-850 with 850 being an excellent score and 300 being the worst score. The FICO 8 uses the existing 5 factors from the original FICO score plus 4 additional ones: high credit card usage so keep credit card balances at 20% or below the credit limit; isolated late payments do not weight as heavily on your credit score as multiple late payments; authorized user accounts are factored into your credit score; and small balance collection accounts with a balance of $100 or less are not factored into the credit score.

Your credit score varies from each credit bureau because each agency collects their own data from various sources and may collect different data for the same account. Your score can vary anywhere from 5-80 points between the three credit bureaus.

Your credit score changes due to updates to your credit report which changes based on account activity such as balance changes or additions to your credit file (i.e. new accounts or deletion of older negative accounts more than 7 or 10 years old). As a result, you may see a difference in your score from one month to the next.

If you plan on purchasing a large item such as a car, house or investment property, pull your credit yourself to see if any negative items appear so you can fix those issues before applying for a loan.

Thursday, March 04, 2010

The CARD Act and Your Credit Score

Your FICO credit score and is used to determine if a customer will pay their bills on time. A FICO score is made up of 5 factors: payment history (35%), total amount owed (30%), length of credit history (15%), new credit (10%), and types of credit used (10%). Ninety-percent of the largest banks use the FICO score. Based on the CARD Act effective February 22, 2010 many changes in the act will now affect your credit score in a different way. Here is a comparison of how the CARD act changes affect your credit score:

1. Previously your credit utilization could be 50% or more and it was not seen as a red flag. Since the CARD act, your credit utilization credit usage/credit limit should be 20% or less.

2. Previously if you had bad credit your credit score was greatly reduced by late payments. Now, The higher your score the more points you lose from a late payments or bad credit. The balance on your previous statement is reported to the credit bureaus. If you have bad credit, one 30 day late payment can lower your credit score by approximately 60-80 points and 90-110 points for those with good credit.

3. If you decide to settle do so quickly to increase your credit score. Your payment history is not affected much if you settle a debt, however, if you pay down a debt over a period of time say over 3-6 months this increases your credit score. If you try to settle a debt with the original creditor ask that the account be removed from your credit report. If the account is still open ask that the account be re-aged. Overall settling a debt or debt consolidation can lower your credit score approximately 45-65 points for those with bad credit and by 105-125 points for those with good credit.

4. Previously you could get another home 6 months to one year after a foreclosure if you had bad credit. Now, a foreclosure can lower your credit score by approximately 85-105 points and by 140 to 160 points for those with good credit. If you lose your home to foreclosure, do a short sell or deed-in-lieu of foreclosure and make sure the mortgage company does not report it on your credit report as a settlement usually reported as "settled", "settled for less than the full amount", or "foreclosure", or something similar.

5. Previously you could file bankruptcy and reestablish credit a few months after filing. Now, if you have bad credit and file for bankruptcy your credit score will be lowered by approximately 130-150 points. For those with good credit it can be lowered by approximately 220 to 240 points.

6. Previously you could close a new account and not worry about the impact on your credit score if you had good credit. Now, it's best not to close an account if you have balances on any open accounts because it will lower your credit score. If you have zero balances on all of your credit cards and close an older account your credit score will be lowered but not by much.

7. Previously when paying off debt, paying off the smallest or largest amounts helped increase your credit score. Now, if you are not making any purchases that require viewing your credit score within the next year pay off debt with the highest interest rate first, then tackle debt with the smaller interest rates.

Monday, March 01, 2010

13 Easy Tips to Help You Plan for Retirement

There are many ways to plan for retirement. Some people contribute to an employer-sponsored retirement plan or 401K, some people are self-employed and contribute to a Self-employed plan (SEP) and some employers contribute money to a retirement account for employees without a required employee contribution.

Whatever method you choose it is a known fact that unless you are born in a wealthy family you will have to save for retirement. If you are in good health when you retire at age 65 you could live another 10-20 years which means you will need on average $1,000,000 to $1,600,000 depending on your salary.

This translates into contributing to a retirement account for a minimum of 20 years depending on your salary but more likely for 25 to 30 years on a consistent basis. The key to planning for retirement is to start planning as soon as your get your first job, planning early eliminates the need to play catch-up in your later years in life.

However, it is never too late to plan for retirement. No matter what your age you should put some money aside for your retirement even if you have to get a job after retirement which is better than having no money saved at all. Many people do not save enough for retirement and end up having to work well past their desired retirement age or have to get part-time jobs because social security is not enough to cover all of their expenses. Here are 13 tips on how to plan for retirement.

1. Sign up for matching contributions (free money)

2. Increase retirement contributions with each salary increase

3. Save at least 10-20% towards retirement

4. Purchase health, life and disability insurance

5. Pay mortgage off early (bi-weekly, principal) before you retire

6. Keep debt at 15% of your monthly income

7. Need 70%-80% of your income at retirement

8. Setup protections to protect your retirement account(s) such as establishing a will, trust, investing in tax free accounts such as Roth IRA or purchasing an annuity.

9. Establish goals for your retirement years

10. Create an emergency fund to cover expenses for 9-12 months

11. Consultant a financial advisor

12. Don't depend on your spouse's retirement account because your spouse may not have saved enough money for retirement

13. Scale back expenses within at least one year to five years of your retirement date