Top ways to eliminate personal debt

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With a steady rise in the rate of interest, mortgages, credit card repayments and individuals being made redundant, it is becoming very difficult for many to meet with their repayments, something which was not a problem in better times. If you face a similar problem, you will also be aware that defaulting on loan repayments incurs hefty fines as well as leading to a drop in credit ratings. This leads to the lower probability of being able to borrow from banks and other financial institutions which approve loans on the basis of an individual’s credit score.

There’s more to debt than just debt

Stress, insomnia, relationship difficulties – all come from the effects of mounting debt (Read more about the emotional effects of debt here.)  Getting in control and stopping the debt taking over your life as early as you can is vital for your personal wellbeing, and that of your family.

The main cause of an increase in debt

To begin with, one of the primary reasons for an increase in debts is inflation, which has resulted in a higher cost of living. It is becoming increasingly difficult for individuals to balance their monthly budgets with the spiralling costs of living that need very careful budgeting. Balancing the budget at the end of the month is increasingly becoming more challenging for most individuals, especially when debt levels are increasing and salaries are not. This is evident in all age groups, as seen from statistics provided by a payday lending brand Wonga. In a recent study they discovered that borrowers come in a range of age groups, with 30% of people as young as 18 borrowing loans, and 15% of over 45s seeking short term financial solutions. Customers also borrow as much as £178 in their first loan, usually to cover short term financial needs like a sudden bill, car or medical expense. In such an unpleasant situation how do you manage to get out of this financial bog?

A possible solution – Debt Consolidation

One possible way out is opting for a Debt Consolidation Loan, generally termed as a Secured Personal Loan. This can help to get you out of a debt crisis but should only be opted for as a last resort. Going for a secured personal loan can help you to reduce your monthly debt to quite an extent, but you will have to pay more interest in the long term. These are generally offered to individuals who have low credit scores and involve putting up collateral (in most cases a home) which lower risk levels for the lender, but raise the margin for the borrower in the event they default on payments.

Other credit options to be explored 

☑     Balance Transfers: Most of the top credit card companies offer 0% interest rates on balance transfers for new cards, for a specific period of time. It could range from six months to a year and if applied correctly, it offers a great way to reduce debt. The only limitation is that you must be able to clear the remaining sum prior to the 0% offer expiry.

 

☑     Use savings to clear debts: Rather than retain the hassle of debts and to save on interest repayments, a more feasible option is to pay them off using any savings you might have. After all the interest on savings is going to be less than that incurred on loans. It is not very practical to have savings and on the other hand have debts. It is far more prudent to use the money saved to pay off your debts, so that you could start afresh with a clean slate. The only exception is when your savings and debts are about the same and you do not have job security to support you in the future.

 

☑     Go for a remortgage: The principle of remortgaging also commonly known as refinancing, is when you swap your existing mortgage to a new lender, to get a lower rate of interest. The thing to look out for here is to see if there are any charges applicable. Although it is not the most suitable idea when it comes to paying off your debt, since the primary purpose of opting for it is to reduce your interest rates and mortgage expenses.

 

☑     Try to renegotiate: There is no harm in attempting to renegotiate, especially when it comes to debt. The main concern for any lender is bad debts i.e. where the capital amount is not recovered.  You might be able to strike a deal with the lender, if you negotiate the payment term, penalties and even interest rates. There is no dishonour in trying, as long as it benefits you in the long term!   

Resolving a debt situation is of utmost importance to your economic well being. It is left to your discretion as to what method would suit you best of the mentioned steps, to resolve any niggling debt issues you might have. Debt is not a problem, but rather a consequence of overspending or lack of planning. The best way to remain debt and stress free is to adopt a personal finance management method to ensure you have a secure future for your family and you.

Author Bio: The writer has worked as a personal debt advisor, with a national debt advice organisation and takes a keen interest in helping individuals to resolve their monetary liabilities. 

How to Meet Your Retirement Goals

Retirement is an all too elusive goal for many people today. At one time we have the promise of social security, but most people in my generation will never see a dime of that money. Instead it is up to us as individuals to ensure our own retirement, and not rely on the government and others to fund it for us. The early 1980’s saw the invention of the 401k, and then over the years came other tax-deferred accounts like the plethora of IRA’s available today. While there are income limitations on some of these accounts, they tend to be quite broad so that a majority of the public can use them as a savings vehicle for retirement. In order to adequately save for retirement you are going to need to consider a strategy that goes above and beyond these tax deferred accounts.

First and foremost, taking advantage of any employer sponsored retirement accounts is very important. Most employer sponsored retirement accounts comes with voluntary contributions that are matched, to an extent, by the employer. When you avoid contributing to the plan it is like giving up on free money. If you are able then it would benefit you to contribute the maximum allowed amount each year.

Binary options are another method of investing and saving for retirement. These options are an easy way for an investor to trade price fluctuations in different global markets. These types of investment vehicles can involve a stock, indices, and commodities. Check out this site http://www.whatsbinaryoptions.com/binary-options-trading-strategies/ for some basic binary options trading strategies.

In order to remain well diversified it is important to save some money in risk-free accounts, like a CD or money market account. Since these are typically held by banks they are federally insured and relatively risk free ways to save money. The catch here is that they earn very little interest, and generally the rates are less than inflation. Regardless, after seeing the economic turmoil a few years ago it is smart for people who are nearing retirement to hold more of their money in these types of accounts.

Dividend paying stocks are generally my investment of choice. I only invest in stocks that pay an increasing dividend each year, and one’s that have done so for 20+ years. Surprisingly there are quite a few companies that meet these metrics. If you reinvest the dividends each time they are paid then you can avoid the taxes until you start drawing on them.

What is the Volcker Rule?

The Volcker Rule is a federal regulation, forming part of the Dodd Frank financial reform – originally passed back in 2010. The Rule aims to reduce the ability and will of banks and their affiliates to invest in hedge funds and private equity, as well as banning proprietary trading. In particular, the rule strives to stop the speculative investments that were so common in the pre-financial crisis environment, and which many believe was a strong root cause of the 2008 crisis. Whilst this is much debated amongst financial experts, the former Federal Reserve Chairman Paul Volcker, who the rule was name after, stressed that:

“Many factors were involved [in causing the crisis]. However, losses within large trading positions were in fact a contributing factor for some of our most systemically important institutions, and proprietary trading is not an essential commercial bank service that justifies taxpayer support.”

The complexity of the terminology in use, and the ruling itself, means that it was only recently fully implemented on 1st April 2014 – 3 years after the initial passing of the Dodd Frank Act. It was finally approved by the five federal agencies – with a huge 71 pages of regulation and more than 900 pages of commentary. Compliance must be achieved by the end of July 2015.

Overview

Generally speaking, the regulation focuses on:

-          Prohibiting banking entities from engaging in short term proprietary trading of securities, derivatives, commodity futures and options on these instruments for their own account.

-          Prevent the same institutions from owning, sponsoring, or having certain relationships with hedge funds or private equity funds (also known as ‘covered funds’).

Exceptions to the rule are included via some asset classes, and the Rule also excludes U.S. Treasury and municipal securities.

Effects

The Rule’s implementation has led to many top proprietary traders leaving large banks to form their own hedge funds – a drain of top talent that has come as a direct result. However, since the passing of the bill itself, most banks and firms have suggested that the Volcker Rule is not expected to affect their profits or workings significantly.

Is waiting to get your Social Security payments a good idea?

Understanding the basics of Social Security, even if your retirement is still decades away, is extremely vital. You simply must have a good understanding of not just when you can take out your funds but, more importantly, when you should.  If you’re already in the process of planning for retirement (and you should be, no matter how old you are) knowing this information can help you to determine how much money you actually need to  save.

In its simplest terms, during your working years you paid into Social Security through taxes, and built up benefits that you will receive once you reach retirement. While this may seem simple, effective that retirement age varies based on a number of things, including your birthday. Also, the amount of benefits that you get either increases or decreases based on when you actually start receiving them.

Specifically, each month past the specific retirement date that is assigned to you based on your birthday, the funds in your Social Security will grow, until you reach the age of 70.

Calculating your lifetime earnings

When Social Security is determining how much your monthly benefit checks will be, the first thing they consider is what they call your “lifetime earnings”. They also take into account your average life expectancy and the actual date that you begin to collect. Even though how long you live affects the best time for you to start collecting, since it can’t be predicted with certainty it’s very difficult to say.

Keep in mind is that, for every year that you wait until you reach the age of 70, your retirement monies from Social Security will increase by 8%.

What are the tax implications?

Another reason to delay getting your Social Security benefits is to avoid taxation. Some people that withdraw Social Security right away also withdraw money from their IRAs, 401(k)s and 403(b)s in order to have enough to cover their monthly expenses. These withdrawals however can actually push you into a higher tax bracket and cause more of your Social Security benefits to be taxed.

What are the drawbacks of waiting?

If you have a family history of early death, or perhaps are suffering from a disease process that may end your life sooner, then there’s really more of an incentive to take out your Social Security as fast as you can. You may also need the money to pay for basic needs like housing and food, in which case taking it out only makes sense.

The fact is that the decision rests on your shoulders as to when is the best time to start taking your Social Security payments but, whenever possible, it’s best to leave them alone as long as possible in order to build your funds higher.

Of course one of the smartest things that you can do is talk to a financial expert who has your best interests in mind and find out what their opinion happens to be. Everyone has different situations and circumstances and these will definitely play a role in whether to take your Social Security funds out quickly or leave them in longer.

Why Updating Your Financial Forms is So Important

The reason updating your financial forms is so important is best explained by way of example.

A couple of years back there was a gentleman who, before he died of cancer, make sure that the balance of his retirement funds would go to his children by working with financial advisors and his attorney.

The gentleman however, unfortunately, made a mistake on his IRA beneficiary form. Where he should have specifically listed his children’s names and the percentage of money he was designating each of them, he simply wrote “to be distributed pursuant to my last will and testament”.

Since the form was filled out incorrectly, the man’s surviving spouse (who had married him just two months before his death) became the sole beneficiary of all of his money by default, all $400,000 of it, and his children got nothing.

The problem in this case was that the gentleman had forgotten to update his beneficiary forms, which likely would have led to the discovery that they were filled out incorrectly. Oftentimes this happens when people have major life changes.

It’s important to note that the designation on your IRA outranks any stipulations in your will. The reason is that your estate is actually governed separately from any beneficiary accounts like retirement accounts, bank accounts, CDs, stocks, bonds, mutual funds, insurance policies and annuity contracts.

It’s also vitally important to remember that there are no automatic reminders to update these forms, and thus you need to somehow remind yourself to do it regularly. The tips below can help you to do that.

First, you should set aside a regular time at least once a year to update any beneficiary forms that might have. Since they override your will 99% of the time, it’s vitally important to keep them up-to-date and make sure that they don’t contradict other beneficiary forms.

It’s also important that you designate specific percentages for your beneficiaries. If you want your beneficiaries to get the same amount, you can write “in equal shares” on the form. If you want to make sure that the descendants of your beneficiaries get the funds, then you should write the term “per stirpes” which means “bloodline” in Latin.

If a bank that you’re using changes its name or merges with another bank, you should definitely fill out new forms to make sure that the new bank’s name is on your new forms. In many cases forms with the name of the old bank will be invalid and, unfortunately, most banks won’t bend over backwards to tell you.

You should also have an emergency file in your home where you keep hard copies of all of your beneficiary forms. This should include forms like your “payable on death” and “transfer on death” forms. This should be done even if you have all of your forms online. Simply print them out and keep hardcopies at home.

Finally, you may wish to hire a certified estate planner as, simply put, many financial planners and attorneys don’t know the laws well enough to avoid making mistakes when filling out these vitally important documents.

Five Negotiation Mistakes to Avoid when Buying a Used Car

Purchasing a used car is a great way to avoid the hit of depreciation and drive away on a steep discount in comparison to new models. Many used cars are in fine shape, as today’s models are built to last. However, buying used does involve the risk of driving away with a lemon. As with buying a new car, you can reduce your risk of disappointment by investigating your options in advance and rolling up your sleeves when the time comes to negotiate. It’s easy to get intimidated on a used car lot, but try to avoid the following common mistakes to get the best possible deal.

Image Source: Jonathan Boeke/Flickr

Image Source: Jonathan Boeke/Flickr

1. Not Following Up on a Car

A used car may look like it’s in perfect condition in the online listing, but when you turn up to see it in person there will be new details to check out. Photographs can potentially be misleading, and not all car accidents are reported. Take the time to see the car in person, take it for a test drive, and order a car history report from sites like AutoCheck. Ideally the seller will have a full service record for the vehicle as well, but it’s your responsibility to follow up.

2. Forgetting to Do your Research

Before you even get to the point of going to see cars in person, you don’t want to make the mistake of being an uninformed buyer. You might like the look of a Mitsubishi Lancer, but it’s best to read a Mitsubishi Lancer review to learn more about its features and potential drawbacks before you decide it’s the car for you. Make sure that the model has the features you’re looking for, whether these pertain to safety, entertainment, or efficiency.  Online blogs and reviews can be quite helpful as you get started.

3. Settling for What’s on the Lot

It’s easy to get carried away when you start your search for a car, and you may decide that the first car you see is the perfect fit. Although this could be the case, it’s better to shop around a little bit and review multiple options before taking the plunge. Remember that both new and used car dealers may have access to more vehicles than what’s currently on the lot, so there’s no reason to settle for a vehicle that’s anything but a perfect fit.

4. Not Ordering your Own Inspection

Along with taking a test drive and looking at the car thoroughly, with used cars you may also wish to have an independent mechanic give it a once-over. Although this involves a small investment up front, it could prevent you from driving away with a car that will cost you a bundle down the road in service and repairs. Mechanics can inspect the underside of the car for damage that you might not otherwise notice, and will give the car an extra road test.

5. Being Afraid to Stand your Ground

Finally, don’t be afraid to stand up for yourself and walk away if a car is not for you or the price is too high. You are not obligated to purchase any vehicle, so don’t cave in to sales pressure and leave if you feel uncomfortable. You can always take your time and think it over.

By exerting a bit of effort and doing your research before you start negotiations, you can improve your chances of finding a great deal on a used car that will stand the test of time.

 

Why you should swear off debt, but not swear off credit cards

While getting out of debt is no doubt a good thing, many consumers are surprised to see their credit scores fall after finally paying off their debt. That’s led to a bit of a misconception about needing debt in order to have “good” credit but, while using credit is a good way to increase your credit score, there are certainly good and bad ways to do it.

For example, if you use credit cards and pay them off in full every month you won’t have debt and you’ll also be building good credit. The lesson? Avoid debt but don’t avoid credit cards.

Many people fall into the trap of paying off their credit cards and then promising themselves that they’ll “never go into debt again.” While staying out of debt is definitely an excellent plan, cutting up your credit cards and never using them again isn’t, and could leave you with either a low or no credit score.

While there are different credit scoring models and the way they figure out your score isn’t always the same, in order to have a credit score you need to have had at least some recent activity on your credit report. Not using your credit card after you pay off the outstanding balance will likely cause the card issuer to close your account due to inactivity and, once that’s done, they won’t report anything to the major credit bureaus. If that card happened to be your only type of active credit, you will lose your credit score altogether.

The easiest way to work around this is to use your credit card occasionally and, when the bill comes due, paid it off in full immediately. If you’ve just emerged from heavy debt and didn’t have a credit card, getting a secured card and using the same strategy is an excellent idea.

The fact is that, depending on what type of debt you have and what you did to pay it off, paying off your credit card debt in full can cause a number of different shifts in your credit score. If, for example, a high percentage of your credit limit was being used before, your credit score might actually improve because your “debt to credit ratio” will be lowered.

If you stop using the card completely however, as we mentioned above, the card issuer may close your account. What this does is reduce the available credit that you have, something that could hurt your “credit utilization ratio” and lower your credit score.

The type of accounts that you are using at the same time, or the “mix” of credit that you have, can also affect your credit score. If, for example, you had credit card debt and student loan debt and you’ve recently paid off your student loans, your credit score may go down because you don’t have any active installment loans on your credit report. On the other hand, paying your credit bills on time and keeping your credit utilization rate as low as possible is much more important to your credit score.

Having an understanding of how your various credit accounts affect your credit standing, as well as how credit scores work, is always a good idea. If your goal is to get out of debt without hurting your credit score, use the advice above and do your own research as well so that you’ll not only be debt-free but also keep your credit rating healthy.

Budgeting Tips to Help You Buy a New Car

For new car buyers, it’s a common mistake to get caught up in the asking price while forgetting about the overall cost of car ownership. If you’re in the market for a new vehicle, start thinking about running costs in addition to the sticker price as you work out a feasible budget. You may see a great deal on a convertible sports car that seems impossible to resist, but will you really be able to afford the cost of fuel and maintenance? It’s important to take the following factors into consideration as you create your initial car-buying budget.

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Starting Price

Naturally, the first thing you’ll need to do is narrow down your options to a range of starting prices that you can afford. Seemingly similar cars can vary in price, as you can see in this article comparing the Audi A3 Sedan to more expensive competition. Think about whether or not you’ll be taking out a loan to pay for this car. If so, look at what monthly payments might look like. How much can you really afford to put aside each month to repay a car loan? Don’t stray from that figure at the dealership.

Fuel

Fuel is one of the most significant running costs that will impact your finances on a daily basis. Rugged SUVs can be surprisingly affordable, but oftentimes they make up for it with less than perfect fuel economy. New cars come with an official MPG figure, but it’s better to use these for comparison purposes rather than as a realistic figure. The only way to see what type of fuel economy you can really expect is to take the car for a test drive. Take a look at the CO2 emission rating as well, as this will impact road tax.

Insurance

Car insurance is another necessary running expense that should be added to your budget. Insurance will vary widely depending on the make and model of car, your driving record, and even your occupation. To work this into your budget, try running the details of the car you’re interested into an insurance price comparison website (or several).

Repairs and Maintenance

If you’re purchasing a brand new car, it should be covered for at least a year under a manufacturer’s warranty. This will take care of any repairs for the first few years. If you’re buying used, you can expect to pay repairs and maintenance out of pocket. Factor in the cost of annual servicing, which should include a thorough check-up and oil change. The cost of servicing is another factor that can vary, so it’s worth shopping around to find a reliable garage with fair prices. Independent garages may offer better deals than dealer garages, for example.

Depreciation

It’s often overlooked, but one of the biggest costs of car ownership is actually depreciation in value. When you buy a new car, it starts losing value the minute you drive it off the lot. As a result, many models have lost half of their starting value only three years after the initial purchase. If you’re planning to buy a car that will last you for the next decade, this won’t be too much of a worry. However, if you plan to trade your car in only three years down the line, this is a very important budgeting factor.

These are all ongoing costs that should be added to your budget before you start shopping around. This allows you to see the big picture and avoid any costly mistakes.

Late Payment: Who are the Worst Offenders?

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According to The Times, Government bodies are amongst the very worst offenders when it comes to late payments in the UK. This news is a blow for a Government actively fighting to tackle late payments and the impact they have on the economy. The problem is particularly rife for sole traders and mobile microbusinesses who could be owed up to £2.5bn in collective late payments every year. Overall, however the problem is even larger with over £36.5bn chalked up in late payments each year. While Whitehall point the finger at big business and implement a strict new Prompt Payment Code for them to sign up to, it seems that their own Government bodies are leaving smaller suppliers stranded thanks to late payment.

So who are the real worst offenders when it comes to late payments in the UK? We’ve been using RM Online’s free company credit checker to look more closely at the information available about late-paying businesses. Tools like this list valuable data which can help smaller companies make more informed decisions about who they work with and who they don’t. CCJs, late payments, non-payments, insolvencies and bankruptcies can all be accessed for free – helping businesses to minimise the impact of late payment on their livelihood. But if you don’t have time to vet every single client, recent research has highlighted a few key culprits to look out for…

The Worst Offenders

Restaurants and bars in Scotland

According to a UK-wide survey, suppliers to the restaurant trade in Scotland face the longest wait for payment after their invoice due date. Hospitality businesses of this kind in Scotland take an average of 19 days to make payment after the terms of their invoice have run out.

Government bodies

Though not among the very worst on paper, the hypocrisy involved in public sector late payments is pretty hard to stomach. Government bodies currently make less that a third of their payments on time and their performance has been getting worse. Towards the end of 2013, prompt payments decreased by 3%.

Large businesses

Despite progress on the Prompt Payment Code front, large businesses are still up there on the list of late payers. Big businesses are more than twice as likely to pay late (30.9% do) compared to SMEs (15.1% pay late).

The Worst Affected

Plumbers

New research from WorldPay shows that plumbers have to wait for payment for longer than people in any other profession. Chasing payments can take up to 27 weeks for the average plumber. That’s almost double the national average of 15 weeks. While this problem affects tradespeople across the board, it is plumbers who appear to be the most badly hit. While the average tradesperson is owed an average of £799 in late payments every year, for plumbers this figure skyrockets to £1,948.

Small businesses

The position of small businesses right at the bottom of the food chain makes it difficult for SMEs to be pushy about payment. They rely on contracts with big businesses and fear jeopardising valuable client relationships by forcing through late invoices. This has a serious impact on SME growth and forces many to turn to poor value forms of finance just to keep themselves ticking over until their eventual pay day.

Have you been a victim of late payment? What effect has late payment had on your business? How do you get your invoices paid on time? Share your tips, tricks and experiences with our readers below.

Survey finds that many Parents don’t feel Comfortable Teaching their Children about Finances

While it’s a fact that the average parent wants to be a good financial role model for their child, many parents today don’t know where to start as they face financial difficulties of their own.

According to a survey by investment management firm T. Rowe Price, over two thirds of parents said that, when it comes to setting a good financial example for their children, they are “very or extremely concerned” about doing it. Even worse, nearly 25% of parents surveyed admitted that they are “not good with money” and don’t believe that they should be the ones to teach their kids about how to handle it.

Many parents admitted in the survey that they simply don’t want to talk to kids about finances because they don’t want them to worry about financial challenges that their family might be facing, while others believe that they’re simply not prepared well

“A lot of parents think they don’t know enough about money themselves, so they’re reluctant to talk about it,” said Stacy Francis, a New York certified financial planner who is also founder of “Savvy Ladies,” a nonprofit financial empowerment organization for women.

“Parents in huge amounts of debt or living paycheck to paycheck think they’re least qualified to talk to their kids when they may be most qualified,” Francis said. “They can share what’s been working and what’s not been working.”

Unfortunately, many parents believe that in order to explain finances to their child they need to have all the answers. Most financial advisors will say that this isn’t necessary and what’s more important is that they simply encourage their children to have good financial behavior, although that’s sometimes not easy to explain.

Stuart Ritter, a certified financial planner with T Rowe Price, says that ”the relationship with parents, kids and money is pretty complicated.” He goes on to say that “One of the things we learned from parents is they’ll borrow money from their kids to tip the babysitter. Hopefully they’re putting it back. And they’re bribing their kids. They’re using the money as a reward.”

Indeed, one thing that’s problematic is that, according to the T. Rowe Price report, 50% of the parents surveyed admitted that they  bribe their children with money to encourage them to do the right thing. Nearly a third of them also admitted that, when things get a little “shaky” financially, they sometimes “borrow” money from financial accounts that they have set up for their children like college education funds.

Interestingly, having a “piggybank” and using cash is something that, for today’s child, isn’t nearly as prominent as it was for their parents. 924 children aged 8 to 14 were surveyed by T. Rowe Price and over half of them said that they’ve used mobile apps to make purchases and over 60% said that they’ve shopped online. A third of the parents surveyed said that they feel that cash has become obsolete.

Francis says however that getting a conversation started about finances is still easy to do with an allowance, something that might be a little old-fashioned but still works. “It’s a good way for kids to start to learn responsibility—allowing them to spend a portion now, save some for a big goal, save some for college and give a portion to charity.”

Parents have the opportunity to teach their kids about finances on a regular basis and simply need to be more proactive about it and, when it comes to money matters, incorporate them more frequently into family conversations.

 

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