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May 30, 2006
When is it OK to rack up credit card debt?
I know I preach not to use your credit cards to excess but sometimes it is a good thing to rack your credit card to it's limit.
Huh??? What is this freak talking about? Is he saying go on a spending spree and all will be well?
It sure sounds like fun to throw caution to the wind and head off and buy stuff...
OK PUT THE BREAKS ON NOW
I am not saying that you should go on a spending spree. I have just racked my credit card to it's max but I am not in a panic about this. Why? Because I have just racked the plastic to it's limit to invest in my business. I am a bit agitated about the $10,000 limit on my card and the delay in online payment processing.
OK, no spending spree on new clothes, toys, gadgets etc...then where did you spend this...what business?
I just spent a lot of money investing in words...that's right words!
How do you invest in words?
Easy, go to Google or any other search engine and you will find what is known as contextual advertiser or in simpler terms "words".
That's right, I have just bought a bunch of words. This month I purchased about $10,000 worth of words. Those words have actually produced $20,000 for me... A net profit of $10,000.
Now the answer to the question: "When is it OK to rack up credit card debt?"
It's OK to do this when you double your money spent on your credit card!
Yes, I am a bit thrilled about this. 100% return on investment in a month, hmmm...I think that is slightly better than any stock market returns.
Off to buy some more words now....
Posted by Colin at 02:37 AM | Permalink | Comments (0) | TrackBacks (0)May 24, 2006
Investing To Get Outta Debt - Agitated with Annual Reports
Ever finished reading one and wondered: What on earth is going on at this company? I certainly have. Some management discussion and analyses offer little more than breathless cheerleading about a public corporation's purported accomplishments, while skillfully avoiding sensible discussion of genuine business challenges. Other reports deluge the reader with reams of opaque financial data, which leave investors no closer to understanding the opportunities and risks of the underly¬ing business. Some entirely fail to mention things you'd really like to read about—you know, those wacky related-party transac¬tions or the under-the-table payments to senior executives, for instance. And don't get us started on companies that encounter chronic difficulties getting their reports out accurately, or on time.
Not all reporting is so opaque. However it certainly raises skepticism when it comes down to trying to gain headway in your personal finances. I am a full time entrepreneur and have dabbled in the stock market and reading through report after report not only created nauseam, there is always a sense of distrust going on. I know the company who produced the report is trying to paint a beautiful and rosy picture of how the company is doing. One could say it’s a bit of spin doctoring that’s going on. Companies can get in severe trouble for not reporting accurately however if they manage to create confusion and put the right spin on the numbers it can certainly leave the average investor under-informed.
There’s my little rant for the day. I must go and try to make sense of a few annual reports now. Why so long? Why not just tell it like it is? Save me some time – If you tell me things are going wrong, say it. I will trust you in the future. Maybe even buy your stock now if it’s at a low. Wouldn’t that be nice Mr. Big Company – Yes, if you were just blunt in your annual reports I just might be more inclined to jump in a pick up your stock. Ok…I am frustrated with these things. Maybe if somebody could help me in reading these things…if you can please leave a comment (Click on Comments below and scroll down to the bottom – Your real name is not necessary – Just looking for any tips on reading these stinkin’ reports)
May 23, 2006
Are you a lose canon with your credit?
What is it about credit that creates the sense of entitlement? In today's world of instant gratification and
the ease at which credit is available certainly gives the average consumer a sense of "I can have it all and have
it now".
Credit card and loan companies have certainly made it easy for us to get credit. A quick call to a lending institute and
sometimes within hours we have a line of credit at our disposal. Now what? We go off and spend up a storm on stuff.
It could be a home renovation or a luxury item such as a boat or car. Cool, we got a neat toy to brag to our friends
about but is that what we really need, bragging rights? We can now go off and live in the moment with our "cool new toy"
but after a day of zipping around the lake in the new boat or whizzing down the freeway in our new car we head home, back
to reality, and there's a mound of bills that need attention. How the heck are they going to get paid? Whoa... Did
we forget that our toy with an internal combustion engine requires maintenance? Did we forget that the cost of fuel
is skyrocketing out of control?
What if that same money was used differently? What if we put off our modernistic "I need it now" attitude and revisted
our parents or grandparents philosophy of save up for the toys we want and then buy them outright? What if we waited a
day, week or even a month before spending on frivilous items? Could we create a better life for ourselves?
Yes we could! How do I know? Well, let me tell you, I have been there done that!
I have been running an incredibly successful business, a business with an income that would well exceed most people's
wildest income expectations. Yet I find myself struggling to make ends meet on an income of $20,000 per month.
How the heck is it possible to struggle at this level? Over-zealous desire for stuff, that's how it becomes
difficult to make ends meet at this level. A new luxury home, 2 new luxury vehicles, over-spending on vacations and some
very fine dining, the list goes on but really what it comes down to is "what the heck...I don't have the cash for that
right now so why not just finance it". That is not a great attitude for creating financial freedom.
I hope my little rant here can save somebody from their "I gotta have it now" attitude - Wait till tomorrow, there will
be a new and improved toy coming out for less money. Consider paying off another debt instead of getting that "whatever it is" today.
May 20, 2006
Paying Off Debt – What’s Your Vice?
I have been looking high and low for ways to pay off some debt. Currently there are 2 lines of credit I have that I would like to see go the way of the dinosaurs. My family could do so much more in the way of vacations and outings if a few debts became extinct.
So, how does one go about paying off debt?
1. Go make more money. For most people this isn’t really a possibility. For me I do have the ability to do this as I operate a small internet based business which I can grow. So I am working harder on my business and planning to hire some help to reach higher levels.
2. Another way to pay off debt if you do not have the ability to increase your income is to find your vice. What thing is it that “nickel and dimes” you out of money? For me I have a bit of an addiction to cigarettes which I am working on giving up. Bought some nicotine patches yesterday and nearing the end of day 1 of no smoking. Where I live it is $8/pack and at a pack a day that’s $240/month (assuming a 30 day month).
When I combine working harder to grow my business with giving up smoking my debt will be paid off quite quickly.
So what’s your vice? Daily lattes? Lunches out?
Everybody has some little vice that costs a small fortune – Find it – Curb it – And get out of debt!
Have you considered ways to make more money? Maybe you have thought about starting a home based business but don’t know how or what to do. If that’s the case please leave a comment here as I am working on producing an affordable training guide to get you going on earning more and paying off debt.
Hey, maybe you could even quite your “real job” like I did. Again, if this interests you please leave a comment by clicking on the “Comments” link directly below here.
May 19, 2006
Poor Credit History Applications
As I mentioned in my last post, I am taking all the notes I have made on credit applications. I started by posting credit card offers for students and now moving onto writing the reviews of credit card offers for those with poor credit.
My goal is to create a financially free world, a world of people who are happier because they are not over-burdened by debt. I posted the student applications first as I want to provide a good start to those who are just starting out in the world of finance - Get students informed to be pro-active with new card holders and help teach them good credit spending habits.
Now, I move on to those who have "been there, done that" and have done something to create poor credit for themselves. It is a fact of life today that you do need a credit card however the most overlooked element of credit cards is the right way to use them and pay them off.
While I am going to be updating Crediteria with bad credit applications, remember a credit card is to be respected. The cards that will be loaded onto the site will help you restore your credit rating but please use your card with care. Use it only to make purchases you normally would and then even before you receive the bill, pay it right away. Whatever you just purchased, go send a check to the credit card company for the amount you spent on groceries, gas, or whatever other necessary purchase you have made. If you are going out for a night on the town, leave your card at home. Get yourself on track!
Posted by Colin at 02:10 PM | Permalink | Comments (0) | TrackBacks (0)Credit Card Review Process Ongoing
It is no wonder consumers become overwhelmed when choosing a credit card. I have been going through literally thousands of credit cards and reading the terms and conditions fine print.
I do this for a living and know what to look for, I am finding it to be overwhelming myself. Offers that seem phenominal on the surface are not always what they appear to be. Seemingly awesome credit card offers are less then spectacular after reading the T&C's, this holds true especially when it comes to reward offers. Almost every reward offer I have reviewed really doesn't provide much benefit to the consumer if a balance is carried on the card. My advice after reading the fine print on rewards cards is to apply for an incentive card only if you pay your balance in full regularly if not every month. I do have plans to work on a tool that shows the cost/benefit of a rewards card so you can get a true feel for whether or not the rewards will actually benefit you.
I will be updating Crediteria.com with my reviews soon and have just added a new category to the site for applications. Currently the reviews are in a very rough format and I will be writing the final copy and posting on the site over the next few weeks.
In the meantime, don't be overwhelmed and avoid rushing into a line of credit. The best advice when it comes to taking on more debt is "go slow".
Posted by Colin at 11:30 AM | Permalink | Comments (0) | TrackBacks (0)May 18, 2006
Wow - Those Little Pieces of Debt
I don't know about you but it certainly seems every store and service out there offers a financing program with short-term interest free periods to entice the sale but the interest sky-rockets after the intro period.
Sitting at the kitchen table with my wife going through all our bills we realized that we are getting hammered on all the store financing for furniture and appliances we bought. At the time of purchase all we seemed to hear was "interest free" so heck why not, interest free money, I would rather pay something off slowly that doesn't cost a dime in charges. I guess we neglected to ask all the right questions such as "how long is this purchase interest free?". It would be nice if sales staff would mention this, at least do it after closing the sale. I guess they worry that might result in returned merchandise, that would not have been the case with me though, I simply would have liked a straight-shooter sales person.
While each bill isn't that large by itself when we add up all the small bills and store interest it IS a sizeable amount. We will be heading off the bank to take out a lower interest consolidation loan. If you find yourself in a similar situation you should consider doing the same, in our case consolidating loans will save a few hundred dollars every month which we are going to use to pay down the principal on the loan at an accelerated rate.
Posted by Colin at 10:43 AM | Permalink | Comments (0) | TrackBacks (0)May 17, 2006
Credit and Loan Categories Explained
Apart from credit cards, there are five basic categories of credit:
What Is an Instalment Loan?
An instalment loan is the typical loan you take out to finance such major purchases as a car, appliances or a new roof. It is a loan of a fixed amount that requires regular payments. These payments can be made weekly, bi-weekly, semi-monthly and/or monthly. There are two types of instalment loans: fixed-rate and variable-rate.
Fixed-Rate Instalment Loans
With a fixed-rate instalment loan, the conditions and interest rate are set for the term of the loan and payments are usually blended. That means the payments are set up as a blend of principal and interest designed to repay the loan in total by the end of the term. For example, if you borrow $5,000 at 10 percent, you'll pay a total of $500 in interest in the first year, assuming the interest isn't calculated on a declining balance. That means that over one year you'll make total payments of $5,500, or $458.33 a month.
Many financial institutions calculate the interest on your loan on the declining balance. To understand how this works, you have to look at the principal (i.e., the amount you borrowed) and the interest (the cost of the loan) as two separate payments. For example, if you borrow $5,000 at 10 percent on January 1 and your payments are $400 a month, this is how your monthly payments would be applied:
| Outstanding Balance | Monthly Interest | Monthly Payment | Applied to Principal | Principal Balance | |
| February 1 | $5,000.00 | $41.66 | $400.00 | $358.34 | $4,641.66 |
| March 1 | 4,641.66 | 38.68 | 400.00 | 361.32 | 4,280.34 |
| April 1 | 4,280.34 | 35.66 | 400.00 | 364.34 | 3,916.00 |
| May 1 | 3,916.00 | 32.63 | 400.00 | 367.37 | 3,548.63 |
| June 1 | 3,548.63 | 29.57 | 400.00 | 370.43 | 3,178.20 |
| July 1 | 3,178.20 | 26.48 | 400.00 | 373.52 | 2,804.68 |
| August | 2,804.68 | 23.37 | 400.00 | 376.63 | 2,428.65 |
| September 1 | 2,428.65 | 20.23 | 400.00 | 379.77 | 2,048.88 |
| October 1 | 2,048.88 | 17.07 | 400.00 | 382.93 | 1,665.95 |
| November 1 | 1,665.95 | 13.88 | 400.00 | 386.12 | 1,279.83 |
| December 1 | 1,279.83 | 10.66 | 400.00 | 389.34 | 890.49 |
| January 1 | 890.49 | 7.42 | 400.00 | 392.58 | 497.91 |
| February 1 | 497.91 | 4.14 | 400.00 | 395.86 | 102.05 |
| March 1 | 102.05 | 0.85 | 101.20 | 101.20 | 0.00 |
As you can see, since your principal goes down each month, the amount of interest you pay also goes down so that more of your payment goes to paying off the principal. Financial institutions calculate the interest on the declining balance from the outset, so the lender will provide you with a monthly payment amount that will pay off the loan in the term you request.
With a blended payment, you know exactly how much your payments will be each month, and how long it will take to pay off the loan so you can work the payments into your budget.
Variable-Rate Instalment Loans
Variable- or floating-rate instalment loans provide you with maximum flexibility during periods when interest rates are declining. The rate of interest charged fluctuates with changes in market conditions. For example, if you take a loan in January at 10 percent and in mid-month the interest rates fall, then the interest rate charged on your loan in February would be adjusted down to reflect the lower rate. Typically, though, the amount of your payments doesn't change. Instead, more of your payment is applied to the principal since less is needed to cover the interest.
With floating-rate loans, the interest rate is not fixed. Rather it "floats" with the prime lending rate. Prime is the lowest rate a financial institution charges its best customers — usually their corporate customers since they tend to borrow considerably high amounts than most individuals. We common folk usually pay several points above prime. The more valued you are as a customer, the lower the interest rate you'll be charged.
Be aware that with a variable-rate loan, if rates rise dramatically the monthly loan payment may not cover all of the interest since the payment was established based on interest rates in effect at the start of the loan. The interest not paid would still be owed, or you may be required to increase the monthly payment. If you choose a variable-rate loan, watch where interest rates are going and lock in when rates appear to be rising. The last thing you need is to get stuck with a loan with a variable rate going up, up, up!
What Is a Demand Loan?
This is a loan for which the lender can ask (demand) repayment at any time — referred to as "calling" the loan. However, a repayment schedule is usually established at the time the loan is granted. Payments on demand loans can be blended, fixed principal plus interest, or interest only. The interest charged usually floats.
Some people choose a "fixed principal plus interest payment" where a specified amount of principal plus the interest accrued is repaid each month. If you choose this method, the payments may not be a fixed amount each month because the interest charged may vary from month to month. Alternatively the financial institution may ask for additional payments to cover the increased interest amount if rates go up.
Susie decided to buy a partnership in a commercial property venture. A demand loan was being offered by the institution that was financing the partnership deal. Susie decided she wanted to use a "fixed principal plus interest payment" so that she would have the loan paid off within five years. She chose to pay off $500 a month in principal plus whatever interest was owed. That means she would pay off $6,000 a year in principal, plus the interest. She began by making monthly payments of $725 a month. Since interest rates went up midway during the term, she eventually had to make payments of $825 a month to keep up.
With an interest-only loan, while the monthly interest costs must be paid each month, no principal is repaid. The principal remains outstanding for the full term of the loan, and interest is calculated on the full principal each month. Some people use this type of interest calculation when they are borrowing for investment purposes and want to minimize their cash flow outlay, particularly when they wish to use the interest paid as a tax deduction for income tax purposes.
Susie's husband, Dalton, also took a share in the same commercial property venture. Dalton chose to use an interest-only loan so that his cash flow wouldn't be strapped. His payments started out at $225 a month and eventually rose to $325 a month. However, he made no payments against his principal. At the end of five years, he still owed the total principal, while Susie had her loan completely paid off. However, since Dalton was doing considerably more investing than Susie, this suited his purposes. He knew exactly how much interest he had paid each month (for tax purposes) and he could easily work the $325 payments into his cash flow.
What Is a Personal Line of Credit?
A personal line of credit (PLC) is a floating-rate loan that establishes a specific amount of credit available to you. Since the maximum credit limit available is established when the PLC is approved, you don't have to be concerned with the delays or justification associated with applying for a new loan each time you need credit. Once approved, you have immediate access to the credit line established, and can use it whenever you like for whatever you like. You are often provided with a set of PLC cheques, which you can write to access the line. So, when you go to buy that new furniture, you can simply write a cheque and the money will come from the PLC to cover it.
A PLC is "revolving credit" or "open-ended credit," like a credit card. However, unlike a credit card, you can take advantage of interest rates that are often lower than those offered on instalment and demand loans. Interest on a PLC is usually calculated daily on the outstanding balance and charged monthly. The payment amount is not fixed, but a minimum monthly payment is required. Payments are applied against the outstanding balance with no prepayment penalty so you can make a full repayment at any time.
PLCs are usually offered to customers who have established a good credit history and have proven their ability to handle credit effectively. Not everyone can get one. Many financial institutions require that you have a minimum household income of $50,000 a year to qualify. That's because a PLC is a revolving line of credit and lenders are especially cautious. When a financial institution grants you a PLC, it's a vote of confidence in your ability to handle credit. And a PLC can be a tricky form of credit to manage. The line is easy to access and payment amounts are very flexible so the line can grow quickly. Some people get PLCs for the right reasons, but use them in ways that are not really to their best advantage.
PLC are useful for a number of reasons, but instant gratification shouldn't be one of them. It cost Patsy about $693 more than necessary to carry that PLC balance. You can buy a lot for $693. And that's all after-tax dollars. She would have to earn about $1,025 at her marginal tax rate to break even. There are good reasons to borrow, and not-so-good reasons to borrow.
Posted by Colin at 11:54 PM | Permalink | Comments (0) | TrackBacks (0)May 15, 2006
Burdened by Credit Card Debt?
If you are burdened by credit card debt you must start seeking ways to pay that debt off as soon as possible. Signs of a recession are starting to appear. Last week stock markets throughout the world saw mass stock sell-offs. Investors are taking their money and running. Such a mass sell-off of stocks is an indicator of a looming recession. Not to mention a very weak US dollar which is another factor in foreign investors lacking confidence in the US economy – When confidence is gone, investment slows and ultimately this impacts profitability of US companies and in a nutshell this means jobs will be lost.
If you are not prepared this could prove to be your financial ruin – So start now, plan for the very near future. Begin looking at ways to get your credit cards paid off. Look for ways to get more money in your bank account.
To begin chipping away at your credit card debt you will need to evaluate your lifestyle and make some adjustments.
Here are some ideas that will get you started on your way to ridding yourself of your debt burden:
- Postpone vacation plans – Rather than take an expensive vacation consider “playing tourist in your town”
- Arrange carpools at work or take public transit
- Purchase generic brand groceries
- Turn a hobby into a profit center – Think about ways to take a hobby and turn it into a home-based hobby business.
- Ask family for help – Try approaching family members for interest free or low interest loans, consider offering to work for the loan.
If you start planning now you will be in an excellent position in the event of a recession and if a recession does not occur you will be glad you did it anyway!
Posted by Colin at 01:05 PM | Permalink | Comments (1) | TrackBacks (0)May 12, 2006
Suffering From a Case of a Fool and His Money
Not too long ago I blogged about dumping the lease on my Chevy Avalanche, which incidentally the only way to do this is have somebody else take-over the lease payments or sell it for the amount of the buyout on the vehicle.
Now, not only do I have the vehicle for another year and a half, summer is coming and I have nothing to tow behind my truck. I have found myself visiting RV dealers and looking at camping trailers. Yup, considering taking out a loan to get one so the family can go on a bunch of getaways this summer. Am I being foolish by creating yet another desire for an expensive toy? Probably! I am hoping that by sitting here and blogging my wish for a trailer that some wisdom might enter my mind - Nope... Not working...I think I am going to look at a couple trailers again tonight - Hey, as the salesman said "If I buy now I can have it in a week, but if I wait it might take until August for delivery of the trailer"...Oh well, it's only money and life is short
I'll keep you posted on this one...I better go make more money now to pay for all these loans...
Posted by Colin at 03:31 PM | Permalink | Comments (2) | TrackBacks (0)May 11, 2006
To Borrow or Not to Borrow...
Many people fear getting into debt because of their upbringing or personal beliefs. The fact is that using credit is a part of life. Whether you are financing the purchase of new appliances, replacing your furnace or financing your children's education, borrowing can offer real benefits. After all, it'd be pretty tough on the family to have to to wait out a winter while you saved all the money you needed to buy a new furnace. Borrowing money, putting in the furnace and paying off the loan in easily manageable payments makes a lot more sense.
The question shouldn't simply be whether or not to borrow. Sometimes we have to.
Instead, ask yourself:
Do I really need it?
What's this going to cost me?
What else do I have to give up to buy this?
If you need a furnace, my best guess is that your answer to the first question is a resounding yes.
The next question is a very important one. The cost of borrowing can vary significantly. The higher the interest rate you pay, the greater the cost. Also, the longer the term of the loan, the greater the cost to you. By negotiating the lowest possible rate and taking the shortest possible term, you can pay off the loan faster while reducing the overall costs.
But don't overlook the last question either. The more the payments restrict your cash flow, the greater the cost to you in terms of stress and having to go without other things you feel contribute to a comfortable lifestyle. If you choose to make higher payments over a shorter term, you have to be sure your other important living needs can still be met. Resist the urge to steal from Peter to pay Paul. Paying off your loan quickly won't do you any good if you run up your charge cards during the process. If you choose instead to take a slightly longer term so that your payments are lower and fit more comfortably into your cash flow, remember this will mean a longer commitment and more interest over the full term of the loan. Weigh the answers to each of these questions carefully in deciding how you'll manage your credit needs.
Re-establishing Your Credit Rating
Whenever you fall off the track, your credit rating gets bruised. If you want to be considered a good risk, you have to work at reestablishing your credit rating. One way is to get a secured credit card and make your payments faithfully. A secured credit card is one that is fully secured, meaning there's no risk to the credit card company. What you do is provide the credit card company with enough cash to cover your balance. Financial institutions typically want twice the amount of credit you're asking for. So if you want a credit card with a $500 balance, you must put up $1,000 in cash. After you've made regular payments for about a year or so, the financial institution will drop the security requirement and return your deposit.
Banks and financial institutes are forgiving and want your business however they also need to trust that you will repay your debts. It is important to avoid a debt over-burden especially with rising energy costs.
Let's face it, the cost of living is going up and wages are not matching the rise in day-to-day expenses so approach debt with caution and factor in what it really costs to make ends meet and plan your credit and loan applications accordingly.
It's as simple as "wait until next week to determine if you really need it" before applying for any credit.
Posted by Colin at 12:47 AM | Permalink | Comments (0) | TrackBacks (0)May 09, 2006
What Is a Secured Personal Line of Credit?
A Personal Line of Credit can either be secured or unsecured. That is, with or without collateral being offered as security for the loan. A secured Personal Line of Credit can mean significantly lower interest costs. When a PLC is secured with equity in your home, it is often referred to as a "home equity line of credit" (HELC) and sometimes as a "collateral mortgage." If you have equity in your home in excess of the current market value of the property less any outstanding debt, you can use that equity to secure your personal credit line . For example, if you have a home worth $170,000 and an outstanding mortgage of $100,000, you would have $70,000 in equity.
When you use your home to secure a line of credit, the equity must usually equal a minimum of 30 percent. That means that outstanding debt registered on the property, including the PLC limit, cannot exceed 70 percent of the appraised value of the property.
Cathy and Robert have a home worth approximately $200,000 and an annual family income of $65,000. Their outstanding mortgage is $100,000. That means Cathy and Robert would qualify for a home equity line of credit of $40,000: 70% of $200,000 = $140,000 less outstanding mortgage of $100,000 = $40,000
May 06, 2006
All About Secured Loans
With many personal loans, the only security required for the loan is your signature as a representation of your willingness to repay. However, in some circumstances lenders may require that security take the form of real estate, or investments such as stocks and bonds. When these types of assets are offered as security, they are referred to as collateral.
By offering collateral, you may be able to borrow more than you could simply on your signature. As well, it is also very likely that you will be able to borrow at a lower interest rate. The reason for this is that if you default, the lender can take possession of the collateral as payment toward the balance of the loan.
In order to benefit from the secured rate, loans must often be 100 percent secured. Real estate equity and investments such as Savings Bonds, GICs or debentures, and mutual funds are often used as collateral. For collateral other than real estate, often referred to as "paper securities," only a percentage of the asset's value may be accepted as security. This is referred to as the "margin requirement." The amount you qualify to borrow will be based on the fair market value of the security — what it's worth when you're using it as collateral, not what you paid for it.
Margin requirements vary with the type of security being pledged and from one financial institution to another. For example, typically only 50 percent of the market value of stock is accepted as security for a loan. The reason is that the price of stocks can be volatile, increasing or decreasing very quickly. Since, typically, only 50 percent of their market value will be accepted as collateral, even significant decreases in value will not result in insufficient collateral to cover the loan.
Assets pledged as collateral are reviewed periodically, and if the value of the assets has decreased and there is not enough collateral to cover the loan, you will be asked to pledge additional assets to secure the loan.
In legal terms, most movable property such as cars, boats and trailers are referred to as chattels. When you use this type of property to secure a loan, you are often required to sign a promissory note and a chattel mortgage giving the lender the right to take possession of the property if you default on the loan. Most car loans are actually chattel mortgages with the car being used as security for the loan.
A chattel mortgage contains a number of conditions that you must meet. For example, you cannot use the same property as security for any other loan or PLC, the property cannot be sold without the permission of the lender, nor can the property be removed from the jurisdiction outlined by the lender.
May 03, 2006
A Word about Store Credit Cards and Financing
Sometimes when people think they won't qualify for a bank loan, they decide to take advantage of store financing. Sometimes store financing looks so attractive, it seems like the best deal going. You've seen those ads that say, "Pay nothing down and make no payments till..." Well, here's what happens if you can't pay off your purchase on time.
Sometimes the store where you bought the item has its own credit financing. When it does, the interest paid is often tied to the store's credit card rate. That means you'll be charged the same rate as you would have been if you'd put the purchase on your credit card. While in October 1992, financial institutions were charging between eight and 10.5 percent annually for a loan, a store credit card was charging 2.4 percent a month, or 28 percent annually. That's a big difference.
Sometimes the store where you bought an item does the financing through a third party. This company takes over your debt, you make your payments directly to them and they charge you a financing cost. One company surveyed was charging 2.233 percent a month in October 1992. That's 26.79 percent a year.
It's all in the paperwork you sign when you buy the item. Make sure you read it carefully before you sign on the dotted line. The last thing you need is to find out, too late, that the financing you agreed to will cost more than you thought.
At that point you might think that all you have to do is get a bank loan to pay off the furniture. It may not be as easy, or as inexpensive, as you think. Often financial institutions tie the money they lend to the purpose of the loan. If you want a loan to pay off a furniture purchase, the financial institution may charge you its credit card rate of interest. (In October 1992, that was about 17 percent.) Why? Simple. They don't want you to use a loan for a purchase you could make on your credit card. They don't want the hassle of going through all the paperwork and procedures for what they consider to be a small loan. Instead, they would rather you used your credit card. So they charge you the same rate of interest to dissuade you from using their loans to finance such small purchases.
Not all financial institutions make their decisions strictly on the basis of purpose. Shop around. There are companies that base their decisions on you, your credit history, and your worth to them as customer. Find a lender who treats you like a person and recognizes your individual needs. Then give him your business. Remember, you're the customer. You have rights, and one is the right not to pay outrageously high interest. Shop around. Be discriminating. Make your decision based on the following:
Is it the best deal going?
Is the price negotiable?
Does this lender deserve my business?
May 02, 2006
Don't Forget the Fees
Many credit cards charge a transaction fee or an annual fee. Prices range dramatically. Some cards have no fees, but these usually don't offer any of the special features such as cash back or travel rewards.
When you're trying to decide which card is best for you, weigh the fee charged against how often you will be using the card. It may be less expensive to have one credit card for which you pay an annual fee for all your purchases than several credit cards for which you pay transaction fees. Perhaps the best solution is one card with all the bells and whistles that suit your needs, for which you will likely pay a fee, and one with no fee at all, which you can use as a backup, if necessary. Remember, not all cards are accepted at all retail locations, so having two different types of cards can he a distinct advantage.
May 01, 2006
Choosing the Right Type of Credit for Your Needs
The type of loan you choose will depend on:
The purpose of the loan will have an effect on which type of loan you choose. If you're financing the purchase of a car, an instalment loan may be your best bet. If, on the other hand, you need access to an ongoing source of credit to use for investment purposes, a PLC may be just the ticket.
Where interest rates are and where they are going also have an impact on the loan you choose. If rates are rising and you choose a variable-rate instalment loan, a demand loan or a PLC/HELC, then the interest you pay will rise too. However, if you choose a fixed-rate instalment loan, you can lock in the current rate for the term chosen. Of course, the opposite is true in periods when interest rates are falling. Then you may wish a loan with a fluctuating rate of interest so you can pay less interest as rates fall.
Also consider how the loan repayment amount affects your overall cash flow. If you want a loan that charges interest only so you can minimize the impact on your cash flow, a demand loan may be the answer. If you want a loan that allows you to make minimum payments, a PLC/HELC can do just that for you. If you are looking for a guaranteed, fixed payment amount for the full term so you can budget accurately, a fixed-rate instalment loan is the answer. If you need an option that lets you make your repayments more often than once a month (i.e., weekly, bi-weekly or semi-monthly) to fit in with how often you are paid, an instalment loan likely meets that need.
Whether or not you qualify is also part of the decision-making. For example, while most instalment and demand loans have no minimum household-income requirements, many financial institutions require that you have a minimum household income of $50,000 a year to qualify for a PLC.
As you can see, there is a wide range of options from which to choose if you need to borrow money. Knowing what you want is the first step. The second step is being flexible so that you can take advantage of any advice offered by the lender. Remember, you're in this together. You need the money to meet your immediate needs. The lender wants to be sure you'll repay the loan in full and on time. Working together, you can both achieve your objectives.
What If You Have Trouble Making Your Credit Card Payments?
It happens to the best of us. There are lots of books written about getting out of debt and there's a good reason. It's far easier to get into debt than to get out of debt. If you run into trouble making your credit card (or any type of credit) payments, you can get out. It just takes time.
Begin by calling the credit card company and explaining the problem. If you've lost your job, or become ill and are not working, tell the credit card company. If you are simply in over your head, tell the credit card company. The important thing is to tell the credit card company. They would much rather talk to you than send you nasty letters and wonder if they will ever be paid. You will probably be able to work out a repayment plan. You may even be able to negotiate with them to reduce the total amount you owe if you make a full payment.
Susie was desperate. She was laid off six months earlier and her credit cards were up to their limits. Her ex-husband hadn't given her any child support for almost a year. She didn't even know where he was. She owed $3,400 to VISA and $2,200 to MasterCard. She didn't have enough to make even the minimum monthly payment. She also owed almost $800 on two store cards, and she hadn't made her car payments in almost three months. She was just starting a new job, but didn't see any way of ever being able to catch up. I suggested she call her creditors and try to work something out. She did, and they were happy to co-operate.
One company set up a payment schedule with her. She could pay $50 a month until she was caught up provided she didn't charge any more on the card. Another agreed to accept a single payment of half of what she owed if paid immediately. She borrowed $1,100 from her mom, which took care of that problem. She called her bank and explained her position. Since she only had six months left on her loan, they agreed to refinance her loan adding the $800 she owed the stores so she could have one single payment she could work into her cash flow. Her dad co-signed the loan and she promised to get on a budget. She was on her way to recovery.
Now, not everyone has a mom or dad willing to bail her out. Susie was lucky. But the steps she took apply to just about everyone:
1. Contact your creditors and tell them what's happening.
2. Try to work out a payment plan that fits with your cash flow.
3. See if the creditor will take less if you agree to make a single repayment.
4. See if your bank will agree to give you a consolidation loan. By doing this you can save a good deal of interest.
5. Put yourself on a budget.