Personal Finance Advice

You see a fantastic interest rate advertised for a loan, so you eagerly fill out an application with the lender and you are told that you’re approved. It isn’t until you go to sign the paperwork that you realize the interest rate on your loan is much higher than the interest rate that you saw advertised. When you ask the representative to explain the higher interest rate, she shrugs and says, “Oh, that was just the teaser rate.”

What is a teaser rate? This is the very lowest interest rate offered by the lender. This rate only goes to the applicants with the very highest credit scores. People with “good” credit don’t get teaser rates, and some people on the fringe of “excellent” credit still aren’t eligible to receive these attractive rates. These interest rates only go to the applicants who have no blemishes on their credit report, and sometimes there are further qualifying factors such as employment history or amount of assets.

In other words, it is usually the people who probably don’t need the loan to begin with who are eligible for the teaser rates.

Not every lender has teaser rates. With some lenders, what you see is what you get because they only have one interest rate that is offered to approved applicants. Not all lenders are very forthcoming with whether the interest rates they offer are offered to all approved applicants or if instead these interest rates are only for people who fall into the upper echelons of credit scores. If you look carefully on the advertisements you may notice a very small note accompanying the interest rate that says something along the lines of WAC or With Approved Credit, which essentially translates into You may get approved, but we’ll charge you a higher interest rate than this one if your credit history isn’t impeccable. If you ask a representative from the lender whether an interest rate is guaranteed with application approval, the representative may have been trained to dance around the subject a little. If you don’t think you are getting a complete response, ask this question: “Am I guaranteed this interest rate if my application is approved?”

Sometimes the interest rate you get instead of the teaser rate isn’t all that bad, especially when interest rates are low to begin with. As long as the lender makes it clear that not everyone is eligible for the lowest interest rates, there really is nothing blatantly wrong with teaser rates at all. The problem is when lenders try really hard to make everyone think they will get the advertised interest rate when it isn’t true.

This is one of the reasons why it is so important for borrowers to read through loan paperwork carefully and thoroughly before signing the documents. Just because a representative for the lender told you one thing, it does not necessarily mean that your loan documentation will say the same thing. Sometimes it’s a matter of errors on the paperwork and other times it’s a matter of the lender trying to trick you into a higher interest rate, but whatever the reason, remember that once you sign the paperwork it becomes legally binding.

Make sure that the loan paperwork you sign features the interest rate you were told you would receive.

Do you find the words, “I’m broke” coming out of your mouth more than you would like to admit? The term broke varies in meaning; it might mean that you don’t have any funds to spare for fun expenses or it may mean that you are about to lose your house to foreclosure and you haven’t a dime to your name. Your definition of “broke” probably depends on your life circumstances, but nonetheless it has everything to do with your access to money for whatever it is you want to buy.

No matter what your life circumstances are, there are four basic reasons why people wind up broke. Do any of these sound familiar?

1. You don’t have a written budget, or if you do, you don’t follow it. If you don’t tell your money where to go every time you get paid, you don’t really have any control over your money. Take control of your finances by composing a realistic budget and following it.

2. You don’t stay up to date on your bill payments. Whether it’s because you just can’t keep track of your payment due dates, or if it’s because you are overwhelmed by the vast amounts of debt you have, falling behind in your payments is going to result in huge fees and higher interest rates. This can cause a ripple effect that makes the money even more difficult to manage overall.

3. You don’t know how much you have or owe. You can’t properly handle you money if you don’t know how much money you actually have or how much money you actually owe. Do you know how much money is sitting in your checking account right now? Do you know how much money is in your savings account? If you wanted to pay off your car loan today, how much would it cost? These are the types of things you need to know if you hope to manage your money and stop winding up broke. 

4. You spend money with reckless abandon. Face it; you’re never going to get your personal finances under control if you spend money as though it will never run out. It doesn’t matter if you earn an impressive salary because even people with a great deal of money need to budget their spending. Money does run out, even if you start out with a lot of it. Stop spending money like it’s water and you’ll stop being broke.

You might not be broke as a result of how much money you make or how much money you owe. Instead, winding up broke usually has more to do with how you manage the money you actually have. Get control of your finances so you can stop winding up broke.

People who actually have emergency funds set up in savings accounts usually guard that money pretty well. They worked hard to build up a decent financial cushion, so they are generally reluctant to part with the money. They like knowing that the money is there, and they may get uncomfortable at the thought of tapping into any of that cash even when it makes sense to do so.

In  fact, it isn’t uncommon for a person’s first reaction to a financial crisis to be whipping out a credit card to cover the expense. Whether it’s an unexpected car repair or a plane ticket to visit an ailing relative, some people have a hard time realizing that the situation actually merits a withdrawal from their emergency funds.

When should you use your emergency fund? The answer is simple: You should use it when there is a financial emergency.  In other words, that money is there in case an unexpected and unavoidable expense occurs. Additionally, you should not feel guilty about using money from your emergency fund when it’s needed. If your car breaks down, and you need your car to get back and forth to work, pulling money from your emergency fund to pay for the repairs is completely justified. If, on the other hand, your car is running fine but has a few dents you want repaired and maybe a new paint job, this is not an appropriate use of emergency funds because the dents and faded paint have nothing to do with the performance of the car. You can get to work driving a car that has a few dents in it, but you can’t get to work in a car that isn’t running and needs major repairs.

Use your emergency fund to pay for other sudden, unavoidable expenses. For example, suppose you get injured and have a medical bill resulting from a lack of sufficient medical coverage. If you cannot work out an interest-free payment plan with the billing office and you don’t have the money readily available to pay the bill, use your emergency fund to pay it. Your emergency fund is there to cover you whenever you find yourself truly in need of money, not just for when you experience a job loss.

Don’t use your emergency fund for things you don’t need, but don’t pull out your credit card to pay for items that should be paid for with money from your emergency fund. If you do find yourself needing to use some of the money from your emergency fund, aggressively work toward paying it back until your fund is replenished. This should be a financial priority for you until your emergency fund is sufficiently funded again to protect you from sudden financial problems.

Even if you want to make huge changes to the way you deal with your personal finances, sometimes it is best to not make huge, sweeping changes. It’s similar to dieting to lose weight: if you suddenly change your eating habits dramatically, you will have a much harder time with the changes. You will probably experience less success in the long run because the changes will just be too tough, and you might just get fed up with all the sudden sacrifices you have to make in order to reach your goal.

Try starting small. A small change is better than no changes at all, just like a small change that lasts is better than a huge change that doesn’t stick. Resist the urge to make huge changes if you know that you probably won’t keep the changes if they happen all at once.

Here are some examples of taking small steps to improve your personal finances:

Instead of I will never eat out ever again say I will pack my lunches for work most days. You can save a great deal of money by packing your lunch at home and bringing it with you to work instead of grabbing a bite to eat at a restaurant, but if you have grown accustomed to eating out quite a bit you will feel really deprived if you suddenly quit eating out altogether.

Instead of I will stop buying anything I don’t need say I will compose a budget and leave a little wiggle room for fun spending. Making a sweeping statement of never again allowing yourself an indulgence with money will only lead to feeling too restricted in your spending. Instead, make a realistic plan and follow it.

Instead of I will start saving $1000 a month in my savings account say I will budget a reasonable amount to go into savings. If $1000 is a big chunk of money to you -and to most people it is- a new plan of $1000 saved every month may be daunting or downright impossible. If you aren’t saving any money right now, start small. A $25 deposit is better than no deposit, and eventually you’ll figure out a way to get on the right savings track.

Instead of I will pay off my credit card in full later this month say I will make a payment now and then pay off the balance when I have the money available. Far too many people get the idea in their head that they will scrimp and save and pay off a debt balance in full, but in the meantime they forget to make the minimum monthly payment and wind up with huge fees. Don’t let your noble goal allow you to stumble.

Big changes can be good, but you have to make sure that your mind is going to follow along with your intentions. Try not to make sweeping changes that will deprive you of basic needs, but instead make the small steps to better finances lead to much bigger steps a little down the road.

By the end of 2009, more than 1.3 million unemployed consumers will be losing their unemployment benefits. If you’re one of the many jobless, then now is the time to start making plans before all avenues of income dry up.
First, if you haven’t already, you need to start pulling back on unnecessary expenses. Don’t abuse your credit cards to keep up with the Joneses, because it can lead to credit card debt that you won’t be able to pay back. Drinking, smoking and that morning latte at Starbucks aren’t options anymore. You need to cut anything that isn’t an absolute necessity. Sit down and look at your budget. Figure out ways you can downsize your lifestyle. Tally your savings and figure out how much longer you can make it without your unemployment benefits.

Second, it’s time to face reality about your job prospects. Don’t hold out for that “perfect” job. You need to take a job that will get you through this difficult time. This might mean reinventing yourself. Reread your resume and prune areas that might make you “too qualified” or don’t apply to the job that you’re trying to get. Consider getting a part time job that will help with the bills once your unemployment benefits dry up.

Third, don’t be afraid to ask for help. Friends and families might be able to refer you to a job before it gets listed publically, or let you live with them while till you’re able to get back on your feet. If you’re a parent, consider asking a stay-home mom to watch your kids while you’re out job hunting and save on daycare expenses. Don’t allow your pride stop you from getting the help you need.

Fourth, look for state and federal programs that can help you after unemployment benefits stop. For example, North Caroline Division of Social Services offers a Temporary Assistance for Needy Families (TANF) program, called Work First, which offers short-term training and other assistance to help families to get back on their feet. Other states have work assistance programs designed to help unemployed workers get back on their feet.

Lastly, try to stay positive. Your self-esteem is probably taking a bruising because of your situation, but you can’t let that defeat you. Every time you start feeling overwhelmed by your situation, get out there and exercise. It will burn off that negative emotion and help you get refocused.

How many times have you been told that you need to pay as little as possible for everything you buy? While this is certainly sage financial advice, it does not take into consideration that sometimes the things you want cost more than lesser versions. For example, buying organic food usually costs more than paying for conventionally produced food, but if you are adamant about eating organic foods when possible then the cost of the food becomes less of an issue for you. You already know that you are going to pay more for the food because it costs more to produce, but as far as you’re concerned the extra cost is worth it.

The trick isn’t to always buy the cheapest thing possible, but instead to buy what you want at the lowest price possible. There is a big difference. For example, imagine your cell phone breaks and cannot be repaired, so you go into your cell phone provider’s store to get a new phone. Being financially responsible, you gravitate toward the cheapest cell phone available and take a look. You quickly discover that this phone does not have the features you really want, and in addition you are also warned by the salesperson that the cheapest cell phone models may not have very good sound quality. You know you don’t want to get a phone that not only lacks the features you need but also does not offer very good sound quality, so you start looking at phones that cost more.

This is no reason for you to feel as though you are wasting your money. Buying the cheapest thing is not always the most financially feasible choice. You should get the features you need and want, but you need to make sure that you don’t pay full price. How do you do this? Look for coupons, look for sales, and don’t be afraid to talk to the salesperson or manager in order to haggle the price down. You may wonder if people indeed haggle in today’s age, and the answer is yes, they do. Keep in mind that managers usually have the ability to offer discounts to anyone, whether it’s a small discount of 5% or a hefty 50% discount, but either way, it’s worth asking.

Just remember that if you’re paying more for the things you want, you better be paying with cash or a debit card. The last thing you want is to not only pay more for something but to also wind up paying interest charges and fees from a credit card purchase.   

If you’re buying a car or a house, you may find yourself looking toward loan programs that require no down payment at all. The prospect of walking into a car dealership and driving away in a new car without needing to put any money down may seem quite appealing to you, just like purchasing a home without a down payment may seem as equally appealing as it does slightly devious. After all, you have probably always heard that you need to save for a sizeable down payment for any major purchase, so when you are able to buy a car or a house without putting any money down you might feel like you’re getting away with something.

The truth is that loans with no down payment are getting harder to find. When credit was much more accessible a couple of years ago, it was standard practice for lenders to figure out ways to approve applicants for loans without a down payment. Mortgage companies aggressively offered loans that split the standard down payment into another loan and auto lenders knew that a good portion of borrowers were expecting to drive away without paying anything out of pocket except for whatever fees the dealership could get away with. Fast forward to present day, however, and while there are indeed some lenders who will allow you to get some types of loans without a down payment, you need to ask yourself if that is really the best idea.

What is a down payment? It is a lump sum that you pay at the beginning of a loan that does two very important things:

1.  It shows the lender that you are seriously invested in taking ownership of the property, whether it’s a home or a car.

2.  It lowers the principal balance of your loan, lowering your payments and allowing you to finance less than the total amount of the purchase.

Lenders like when borrowers make down payments -especially substantial down payments- because this shows that you are serious about the loan. You are probably less likely to miss your first payment on a mortgage or car loan if you have already dropped some cash into the loan because a foreclosure or repossession will result in the lender keeping the down payment you made and you winding up with nothing but a huge negative mark on your credit report. The money you use to make the down payment demonstrates that you are less likely to just walk away from the loan.

Any down payment you make will also lower the overall principal of the loan and may substantially lower the total interest payments you make. For example, if you make a $1000 down payment on a car loan that has $350 monthly payments, you’ve already eliminated almost three payments from your debt obligation. In other words, the $1000 you pay in the beginning reduces the total amount you have to pay with interest tacked on. In fact, you may get a better interest rate overall if you can provide a down payment.

Yes, you can get a loan that does not require a down payment. If you have the capability of making a down payment, however, you should do so.