Buy Your Cars With Cash

Here is a slide show from the Dave Ramsey website:


http://www.daveramsey.com/media/flash/elearning/drive-free/player.html

More on Debt in our Economy

The "public" debt of the federal government is over $6 trillion (as mentioned in previous posts, the total debt of the government is higher but it is not all held publicly). It is a lot, though, and the Treasury is selling Treasury bonds on a regular basis to cover the annual deficits.

State governments combined are over $2 trillion in debt.

Corporations and other non-corporate businesses sell bonds, too. That debt is actually more than the federal and state government's debt at over $11 trillion.

Of-course, households top both the governments (state and federal) and all businesses with $14 trillion of debt ($10 trillion on mortgages alone).

However, with all of this debt that is only one side of the coin. Those debts bought "stuff" in many cases.

The total net worth of the U.S. (land, buildings, businesses, etc.) is over $55 trillion. So even though the debt seems high at a combined $30-$35 trillion (and it is), it is important to keep those huge numbers in context as compared to what the U.S. owns in aggregate.

Just a thought.

Credit Card Rules Change February 22, 2010

First, I do not believe credit cards are necessary, do not use them (I have used debit cards, cash and checks for the past 7+ years) and have seen, too often, how the balances get out of control.

Second, no, the rewards points are not in your best interest. They make money for the provider. How? Because, based on several studies, credit card users spend 25%-30% more when purchasing small items (under $25) and spend 15%-18% more on larger purchases.

Third, some credit card companies have proven their intentions as we fast approach this February 22nd deadline when the Credit Card Accountability Responsibility and Disclosure Act of 2009 takes effect. The credit card provider will no longer be able to increase your interest rate without 45 days notice, not increase your rate on a new card for one year, and then, if the rate is changed, can no longer apply that rate to past purchases...

unless...

the rate on your credit card is variable and not fixed (though the rate won't apply to past purchases as I understand it but you better check your situation).

As reported in the February 2010 issue of Kiplinger's, "...Issuers have been switching cardholders from fixed interest rates to variable rates for months to take advantage of this loophole..."

Get Your Credit Report Free - Every 4 Months

Hopefully, you have started your 4 month rotation of obtaining your free credit reports and put it on your calendar to do. For most states, it became available in Septemebr 2005 though some have had this option longer than that. Go to: http://www.annualcreditreport.com/ not "free credit report" that you see advertised. This is a timely reminder:

The Fair and Accurate Credit Transactions Act of 2003 amended the Fair Credit Reporting Act and requires the nationwide credit bureaus to provide consumers, upon request, a free copy (effective September 1, 2005 for everyone) of their credit report once every 12 months.

Here is a suggestion to, in effect, get an update on your credit history every 4 months for FREE:

If you choose a credit report only from Equifax to start the rotation for example, then, now you can get one from Experian in 4 months, and finally then from TransUnion 4 months later (or whatever order you prefer), you will, in effect, be getting an update on your credit history every 4 months for FREE and can then repeat the process. Each reporting agency presents the material a little differently but essentially it is similar content on your credit history.

(If you are married, you can do a different reporting agency for your spouse so you can see how the reports differ).

Simply go to http://www.annualcreditreport.com/ and submit your request. This is the website you can use to request your free report (or by phone or mail or as shown below). I have absolutely no affiliation with this site and receive nothing from providing this free, public information to you. DO NOT GO TO ANY OTHER PLACE (for example, freecreditreport.com which is NOT necessarily free if you end up agreeing to buy a monthly service).


THE FOLLOWING INFORMATION PROVIDES FURTHER DETAILS ABOUT OTHER METHODS TO ACCESS THE CREDIT REPORT WITH OTHER SUGGESTIONS. THE REST IS OPTIONAL READING (you sure don't have to read beyond this unless you are a really detailed person or don't want to do this on the computer):

This central site allows you to request a free credit file disclosure, commonly called a credit report, once every 12 months from each of the nationwide consumer credit reporting companies: Equifax, Experian and TransUnion.


Request your Credit Report by PhoneCall 1-877-322-8228 to request your credit reports by phone. You will go through a simple verification process over the phone. Your reports will be mailed to you. Request your Credit Report by MailYou can request your credit report by mail by filling out the request form and mailing it to: Annual Credit Report Request Service P.O. Box 105281 Atlanta, GA 30348-5281 You must have an Adobe viewer to download the request form. Download the free Adobe viewer. For your security, and in order to ensure you are using the request form that has been authorized by the Central Source, please use the link above to download the form from this website. Only this Central Source (http://www.annualcreditreport.com/), and Equifax (at http://www.equifax.com/), Experian (at http://www.experian.com/) and TransUnion (at http://www.transunion.com/) as it's members, have been authorized by law and the government (see FTC.gov) to provide free credit reports as described on this site. We cannot ensure your personal information will be kept secure and used for proper purposes if you use forms or provide information to persons, addresses, numbers, etc. not authorized by this site or the entities listed above. If you are under 13 years of age or you are requesting a credit report for your child under 13 years of age, instructions for completing these requests can be accessed by clicking mail request for a child under 13.

A word of caution from BourGroup:

Be very careful when viewing any "promotions or advertisements" that may come up. If you avoid these options your credit report will be absolutely free with no strings attached.

For example, you will be asked if you want your FICO score for an additional cost. You will be asked if you want continuous checking of your credit file and notification if something strange occurs but this also costs money. And there are several other promotions like this that, if you choose them, will then cost you money but the new law now allows the actual credit report to be provided free.

If you live in one of these states (Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington or Wyoming), then you were eligible for your free credit report awhile ago! Other states became eligible over the year 2005. Free reports were phased into all states over 2005. The schedule for eligibility was as follows: Eligible for free report on March 1, 2005 - Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin. Eligible for free report on June 1, 2005 - Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, Oklahoma, South Carolina, Tennessee, and Texas. Eligible for free report on September 1, 2005 - Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, Vermont, Virginia, and West Virginia, Puerto Rico, and all U.S. territories.

Credit Card Balances 30 days past due

Newsmax.com reported today (November 21, 2007) as follows:

"...The American Bankruptcy Institute reported that personal bankruptcies increased 40 percent in the first half of 2007 from a year earlier..."

Sounds horrible, doesn't it? The economy is falling apart or at least that is what it seems like from this statement but in the same article, it is reported:

"...Data compiled by the FDIC show credit card payments more than 30 days late fell to $7.04 billion in the second quarter from $8.37 billion two years earlier..."

The average household (and there are about 100 million households in the U.S.) holds over $9,000 in credit card balances. If only $7 billion is 30 days past due, then that averages to about $70 per household - and that is less than 1% of the average of $9,000 - if I am reading these numbers right.

The numbers sound huge (billions) but put in perspective the default rates are not so bad. Oh yes, much higher than a few years ago when everyone enjoyed increased home equity and very low interest rates. But the credit card companies, banks and mortgage brokers all have bad debt reserves for some of this potentially bad debt. Look beyond the hype.

Managing debt

Monitor your "debt-to-income" ratio. Your debt, not including your mortgage, shouldn't exceed 15% of your take-home pay. In my opinion (which is what this blog is), it should be zero, but if it is even getting close to 15% then you need to make some big changes in your lifestyle as that is the absolute maximum.

Credit Cards and ID Theft

Place the contents of your wallet on a photocopy machine. Do both sides of each. Save in a safe place.

If you lose your wallet/purse/whatever wtih valued information, then:


CALL: All 3 credit bureaus, put your account on fraud alert

PLUS CALL: Social Security Administration (fraud line):800-269-0271

Loans from your 401k is a taxing experience

Another point that is often overlooked is that you will be taxed twice on the loan amount. The money you borrow is money that you contributed before taxes. But you pay it back with after-tax money (unlike your contributions, it is not deducted from your paycheck before taxes). When you withdraw the money at retirement it will be taxed again.

Some doubt this logic because it is said:
Yes, the loan itself is not taxable income...
But the money borrowed has not been taxed and you are now using it freely for anything you want (to buy something or to put back into the 401k again).

Many plans also allow employees to take loans from their 401(k) to be repaid with after-tax funds at pre-defined interest rates. The interest proceeds then become part of the 401(k) balance. The loan itself is not taxable income nor subject to the 10% penalty as long as it is paid back in accordance with section 72(p) of the Internal Revenue Code. This section requires, among other things, that the loan be for a term no longer than 5 years (except for the purchase of a primary residence), that a "reasonable" rate of interest be charged, and that substantially equal payments (with payments made at least every calendar quarter) be made over the life of the loan. Employers, of course, have the option to make their plan's loan provisions more restrictive. When an employee does not make payments in accordance with the plan or IRS regulations, the outstanding loan balance will be declared in "default". A defaulted loan, and possibly accrued interest on the loan balance, becomes a taxable distribution to the employee in the year of default with all the same tax penalties and implications of a withdrawal.