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Maryalene LaPonsie

The Perils of Skipping Loan Payments This Holiday Season

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

The holidays are fast approaching and that means there are presents to buy, trees to trim and merriment to be made, all of which will cost you money. Fortunately, your credit union, bank or credit card issuer may be willing to let you skip your monthly payment in December or January.“Skip-a-pay [programs] are a popular way for banks to add quick fee revenue while giving their clients some extra cash in their pockets,” says John Oxford, a spokesman for Renasant Corporation, which operates 171 banking, investing and wealth management offices in the South. While Renasant Bank previously offered a skip-a-payment program, it does not currently have one.At other institutions, these programs allow customers to skip their monthly payment in exchange for a small fee. Some lenders may even donate a portion of the fee to a local charity so it seems like a win-win for all involved.Not so fast, say some financial experts. Skipping one payment might not seem like a big deal, but it can have a negative impact on your finances.5 Reasons to Skip the Skip-a-Payment OptionRich Hyde, the COO of Prestige Financial Services in Salt Lake City, works with clients trying to raise their credit score and finds some use skip-a-payment programs to stretch their money through the holidays to buy gifts for friends and family. Although skipping a payment may be preferable to racking up debt on a high-interest credit card, it doesn’t come without drawbacks.You lengthen the term of your loan. You may be skipping a payment, but you’ll still need to eventually make it. “They are essentially letting you take the payment from December or January and adding it to the life of the loan,” says Kelsa Dickey, owner of Fiscal Fitness Phoenix. Skipping a payment every year means you could be paying an auto loan for five to six months longer than originally planned.You add to the interest you pay. Not only will the term of the loan be longer, but you’ll pay more interest as well. A $5,000 credit card balance at a 24.99 percent APR accrues roughly $100 in interest each month. As a result, skipping a payment means you’ll end up owing more the next month even if you haven’t used your card.You might forget to make the following payment. Hyde is concerned skipping one payment might snowball into several payments. “Customer behavior can be impacted [by skipping a payment],” he says. “Anything that gets people out of the habit of paying is a bad idea.” You could ding your credit score. If you do happen to forget the next month’s payment, than you could see a drop in your credit score. Plus, you’ll likely get hit with a late fee which typically runs around $35. Dickey adds that some people might be tempted to skip payments even if their lender doesn’t offer a skip-a-payment program. However, doing so could negatively impact your credit score and damage your relationship with the lender, making it difficult to receive loans or lines of credit in the future.You are reinforcing poor money habits. While all the above reasons are enough to say “no thank you” to skipping a payment, Dickey says there is one more to consider. “By skipping a payment, you’re saying Christmas gifts are more important than something like a car that gets you to and from work,” she says. “There’s a much deeper rooted problem of putting things that are not essentials in front of things that are essentials.” Declining to skip a payment is one step toward creating healthy money habits and smart spending priorities.When Skipping a Payment Might Make SenseWhile experts say skipping a payment to buy gifts doesn’t make much sense financially, there may be a time and place for skip-a-payment programs.“If a consumer wants to free up cash for the holidays and doesn’t mind a minimal fee and an added month on their loan, it can be a beneficial short-term move,” Oxford says, “but it should not be used to avoid a payment just because the offer is there.” To minimize the impact of skipping a payment, he recommends people use a portion of their tax refund, if possible, to make an extra payment later in the year. For people who are in a bind and considering a payday loan or going into debt to pay the bills, Hyde says skipping a payment would be the lesser of two evils. Meanwhile, Dickey believes using a skip-a-payment program is understandable in cases of unemployment. “If it comes down to putting food on the table, yes [skip a payment],” she says.Skipping a payment may also be a good strategy if you are planning to use the money from that payment to wipe out a high-interest debt. Installment loans, such as those for cars, typically have a much lower interest rate than what might apply to a credit card. Financially, it might make sense to skip an auto loan payment for one month, and send that money to pay off a credit card account.However, Dickey says most people don’t skip payments for strategic reasons. Instead, they do so to spend more on gifts or holiday deals. She asks, “If your parents knew you were skipping a payment or going into debt to give them a gift, would they want it?” She’s betting the answer is probably no. .

February 21, 2020 0 comment

Banking & Credit

Goodbye FICO, Hello VantageScore?

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

For more than 25 years, credit scores have been practically synonymous with FICO, the shortened name of the Fair Isaac Corporation. However, a new company, VantageScore Solutions, has emerged in recent years and is chipping away at FICO’s dominance in the credit score business. “VantageScore Solutions is an effort to provide more choice in the marketplace,” says Ezra Becker, vice president of research and consulting for the credit bureau TransUnion. The credit scoring company is the result of a combined effort of all three major credit bureaus: Experian, Equifax and TransUnion.The company was founded in 2006 and has gained traction. From 2014 to 2015, VantageScore credit scores were used more than 6 billion times, double the amount used from 2013 to 2014. Just as with FICO scores, VantageScore credit scores are used to determine the likelihood someone will pay back a debt. “Credit scores are a scaled representation of the probability of default,” Becker explains. Last December, House Resolution 4211 was introduced in Congress to allow Fannie Mae and Freddie Mac to use alternate credit scoring methods when making mortgage decisions. Jill Gonzalez, analyst for WalletHub.com, says if the bill is passed, it might result in the programs adopting VantageScore, a move that could be a major coup for the company.“What Fannie and Freddie do now is use outdated models,” Gonzalez says. A switch to VantageScore would change the way applications are evaluated and make it easier for borrowers who have low credit scores under the FICO model to purchase a home. Plus, it could further dent FICO’s hold on the credit score industry. Navigating the Sea of Credit ScoresBecker is quick to note Americans use the word FICO to describe credit scores in the same way they may use the word Kleenex to describe facial tissue. The word has turned into a generic term for how lenders evaluate creditworthiness, but Becker says there is actually a variety of credit scores that can be used.Each of the major credit bureaus has, at one time, created its own score. Other companies, like CreditXpert, are in the business as well. Even within FICO, there are numerous scores. While FICO Score 8 may be most widely used for credit card applications, student loans and other credit decisions, there are FICO Auto Scores, FICO Bankcard Scores and older versions of FICO’s main scoring model that may be used for mortgages.VantageScore seems to be making in-roads in the industry, in part, because it offers a simplified scoring method. “VantageScore has three scoring models,” says Bethy Hardeman, chief consumer advocate at Credit Karma. “For comparison, FICO has over 50 different scoring models.” While each credit bureau may use a different version of the FICO score for various lending scenarios – for example, for mortgage lending, Experian uses FICO Score 2, while Equifax uses FICO Score 5 – VantageScore is uniform across all three companies. The only reason a VantageScore could vary from one bureau to another is if a lender chooses not to report an account to all three companies, according to Becker.What It Means for YouA move to VantageScore could be good news for consumers, particularly those with a weak credit history. VantageScore 3.0 is the most current version and looks back 24 months at a person’s credit history, a feature that allows it to score more people who have little or no recent credit history. “[The company’s] latest scoring model can score up to 35 million more consumers compared to other models due to its broader consideration of credit data,” says Hardeman, adding that the free scores offered on Credit Karma come from VantageScore. The wider consumer net is also because the model can score people with as little as one month of credit history compared to six months for FICO scores, Gonzalez explains. Score models are created using anonymous sample consumer demographics and credit data. While VantageScore 3.0 is a relatively new model, older FICO scores may be based on decades old data. “A score created in 2002 may not be appropriate for the lending environment and consumers today,” Becker points out.The bottom line for borrowers is that VantageScore may make it easier for some people to get access to credit, but it won’t wipe away all financial sins. “If someone is undeserving of credit due to a history of not paying [bills], that won’t change [with VantageScore],” Gonzalez says.Rather than hope a change in score will make credit available, consumers should stick with the tried-and-true methods of paying on time and limiting the debt they carry. .

February 21, 2020 0 comment

Banking & Credit

What Millennials Want From a Bank

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

As the youngest and largest generation, millennials are making their mark on society. From trading taxis for Uber rides to delaying marriage and home ownership, young adults are turning many conventions on their head.Even their banking habits can be unconventional, although industry experts say all generations share certain values when it comes to wanting a financial institution that is stable and secure. "Core expectations are the same, but the way millennials interact with banks is very different," says Matthias Goehler, senior vice president and head of industries at the e-commerce solutions company SAP Hybris.[See: 10 Retirement Planning Moves to Make in Your 20s.]Here's a look at some of what's important to millennials when it comes to banking, and how those things differ from older generations.Technology is a must. As digital natives, millennials are unsurprisingly looking for ways to integrate technology into their banking experience. "Their preferences are very orientated toward quick interactions, either online or on a mobile app," says Lars Holmquist, senior vice president for the Americas at Collinson Group, a global firm that develops loyalty and lifestyle benefits programs. Those interactions could range from checking a balance to making a deposit digitally. "To me, convenience and access are the main drivers," Holmquist says, when explaining millennial interest in mobile banking.Cash is still king. Despite their inclination toward technology, millennials aren't planning to give up their cash anytime soon. Qualtrics, in conjunction with Accel, surveyed 8,000 adults to learn how the different generations approach their money and payment options. "What we found is that 80 percent of millennials say they still use cash, and 64 percent carry cash most of the time," says Mike Maughan, head of global insights at Qualtrics and a millennial himself. Mobile payments not as hot as online payments. Mobile payments may seem like a logical choice for millennials, but they have been slow to catch on. While millennials are 16 times more likely than baby boomers to use Apple Pay or Android Pay, their use still lags far behind that of cash. Millennials are five times more like to use cash than mobile payments, according to the Qualtrics study. "What that's indicating to us is that there's a long ways to go before mobile payments catch up," Maughan says. However, what is hot among millennials is the use of online services such as Venmo and PayPal, which allow users to send payments that bypass the bank completely. Maughan notes 62 percent of millennials use Paypal, and young adults are six times more likely than older generations to use Venmo.[See: 12 Financial Terms Every Retirement Saver Should Know.]Privacy may be exchanged for a personalized experience. When it comes to privacy, Goehler says millennials may be more inclined to share personal information, assuming it benefits them. "In terms of day to day life, millennials are less concerned than older generations," he says. "[They say] I'm OK sharing something if I get something of value in return."That something of value may be a more personalized banking experience. For instance, millennials may be OK with their data being used if it results in offers tailored to their interests or an app that intuitively knows what to display first. "Call it almost the Amazon effect of offer management," Holmquist says. Instead of having to search for relevant information, millennials may gravitate toward systems that use their personal data to display relevant information immediately. Branches are not obsolete. As banking apps become more functional, "One might have anticipated that millennials aren't visiting the bank," Maughan says. However, they are visiting the bank and in roughly equal numbers to baby boomers. The Qualtrics survey found 30 percent of millennials report they visited a bank in the past week. Meanwhile, 33 percent of baby boomers said the same.[Read: The 10 Best Banks of 2016.]Future wants center around quick and easy banking. Goehler anticipates millennials will continue to press for banking changes that will make transactions more flexible and mobile. For instance, he notes some banking activities, such as mortgage applications, may require a personal meeting to verify a person's identity. "Millennials want to do this instantly," he says. "[They're wondering], why can't I do that on a video conference?"Banking laws and regulations will undoubtedly play a role in how much financial institutions can do remotely, but millennials would probably be happy to do as much as possible from their phone. "In the end, it's the ease of doing business [that's important]," Goehler says, summing up just what millennials want from a bank.How to Save for Retirement on Less Than $40,000\r
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February 21, 2020 0 comment

Banking & Credit

Why Life Insurance Premiums Are Expected to Decrease

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

For the past decade, the insurance industry and state regulators have been working on a new system for how life insurance companies determine whether they have enough money in reserve to pay out their claims. Known as principle-based reserving, the framework has been adopted by 46 states and was rolled out across the nation on Jan. 1, 2017. Insurance companies have three years to transition to the new system that uses simulation models to estimate the necessary reserves to cover future claims. Some experts in the industry expect life insurance premiums to drop as companies adjust to the new reserve requirements.[Read: 10 Things You Didn't Know Life Insurance Could Do.]The move to modernize life insurance reserves. The use of principle-based reserves represents a major shift for the industry, and one that reflects the changing face of life insurance policies. "If we go back 50 years, most of the life insurance products were very similar," says Nancy Bennett, senior life fellow with the American Academy of Actuaries. So it wasn't too problematic that state regulators required insurers to use a standard formula to determine how much cash to keep in their reserves for claim payments.However, the market has changed significantly, and companies now offer a variety of term, whole and universal policies. As a result, the old rigid system of calculating reserves no longer worked. In some cases, companies had accumulated large reserves, "far larger than what you would think would be needed," Bennett says.Since the formula didn't allow for variations, companies were unable to adjust the size of their reserves on their own. "We and other companies went to the NAIC [National Association of Insurance Commissioners] and said we want to work with you to right-size the reserves," says Shawn Loftus, senior vice president and chief actuary of USAA Life Insurance Company. The result of that work is the new principle-based reserving model, which offers companies more flexibility when determining how much capital to have on hand. The first wave of regulations affects two types of polices: term life and universal life with secondary guarantee.[Read: Should You Use Life Insurance to Fund Your Retirement?]Some premiums may go down. Bennett says it's hard to tell whether premiums will be affected as a result of the new principle-based reserves, but those in the industry are optimistic consumers will see savings. "The big picture from our end is this rule is going to make life insurance premiums cheaper," says Justin Halverson, founding partner at Great Waters Financial in Minneapolis.Term life insurance, in particular, could benefit from the change. According to a 2012 Impact Study from NAIC, companies are projected to reduce their reserves anywhere from 38 percent to 64 percent as a result of principle-based reserving. Loftus says USAA Life expects to drop premiums by up to 15 percent on some policies, with the average savings being 2.6 percent. Reduced premiums only apply to new policies and will not affect current customers.The situation for universal life with secondary guarantee is a little more complex. Joseph E. Roseman Jr., managing partner for O'Dell, Winkfield, Roseman and Shipp in Charlotte, North Carolina, says the structure of permanent policies shifted from whole life to universal life in the late 1970s and early 1980s. During the next two decades, business for universal life boomed, but reserves didn't always keep up. "They were minimally funding policies," he says.Now, the new regulations may result in some of those universal life policies needing to beef up their reserves. The 2012 Impact Study found some reserves may drop as much as 44 percent while others may need to boost their coffers by up to 63 percent. However, better reserves mean consumers can feel confident their plan will remain solvent. And life expectancy tables have been recalculated so premiums will be spread over a longer period, a change that should keep premium increases to a minimum.Lower your life insurance premiums. Consumers shouldn't expect to see their existing premiums drop as a result of principle-based reserves. The lower prices will only be for new policies, but that should still be welcome news for those living on a tight budget. "About 35 percent of our members are living paycheck to paycheck, so price is a big deal for them," Loftus says. To find out if they can take advantage of lower premiums, the company is recommending all its members conduct an annual insurance review.Part of that review includes getting quotes for a new policy or additional coverage to supplement an existing policy. Halverson cautions anyone getting quotes to be sure the company in question is actually using principle-based reserves. While some firms, such as USAA Life, are implementing the change immediately, insurers have until Dec. 31, 2019 to comply. And a handful of states have not yet adopted the new framework.[Read: 10 Financial Perks of Getting Older.]"[Another] big warning would be to not go dump your current coverage," Halverson says. Getting a quote at a lower cost doesn't mean the company will sell you a policy. The results of a health exam, for example, could result in an application being denied. "Make sure you've had a guaranteed offer," Halverson urges.Principle-based reserving represents a major change for the insurance industry, and it could have benefits for your bottom line as well.10 Tax Breaks for People Over 50.

February 21, 2020 0 comment

Banking & Credit

Payment Etiquette: The Ps and Qs of Sending Money Online

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

If you’re still forking over cash to pay back your co-worker for your share of last week’s lunch, you might want to get with the times. A growing number of apps are making it simple to instantly transfer money electronically to others with what are called person-to-person, or P2P, payments.“What we’re seeing is a major once-in-a-lifetime change,” says Stuart Sopp, CEO of Current, a debit card for teens that also allows digital P2P payments. The widespread adoption of P2P payment services could mean we are inching ever closer to a cashless society.A Bank of America survey of 1,005 adults who have a checking or savings account as well as a smartphone found 36 percent of respondents currently use P2P services. Among millennials, usage jumps to 62 percent. For those who don’t currently make electronic person-to-person payments, half expect to do so in 2017. Seniors are the one exception, with only 25 percent of non-users in that group saying they will make P2P payments in 2017.“We think P2P is the new social norm,” says Mark Monaco, head of enterprise payments for Bank of America. If you’re ready to get on the bandwagon, here’s how to do it right.[Read: What Millennials Want From a Bank.]Choose the right payment method. There are lots of options for making P2P payments. PayPal and Venmo are two popular services that link to external bank accounts to transfer money. Bank of America, as well as eight other major institutions, use Zelle, a P2P service that is integrated into mobile banking apps. “You can use it without ever leaving the safety of your financial institution,” Monaco says.When selecting a payment service to use, think of the recipient. “You should pay someone in the mode that works for them,” says Greg Lisiewski, a former director with PayPal and CEO of Blispay, a company that helps small and medium businesses finance consumer purchases. That means people shouldn’t send a Venmo payment to someone who uses PayPal or a PayPal payment for someone who prefers a check.Remember the sender pays the fee. Some P2P services are free, while others charge a fee, particularly if a credit card is used to fund the transaction. “The clear etiquette is that the person receiving should get the full amount they are expecting,” Lisiewski says.Before hitting send, know whether a fee is charged and how it is applied. If the fee is taken out of the amount delivered to the recipient, adjust your payment to compensate for it.[Read: 3 Payment Platforms for Parents.]Understand the expected timeline for payment. Just as payment methods are evolving, so too are people’s expectations. “The expectation of paying someone back is no longer 'when I see you next,'” says Michael Landau, payments research lead for global financial firm PwC. Instead, people want to be repaid almost immediately.The Bank of America study found 53 percent of those requesting money via a P2P platform expect to be paid within 24 hours. Fifteen percent want it within minutes. To avoid hurt feelings, get on the same page with the other party about the timeline for payments. If the money will be delayed, the right thing to do is communicate, rather than avoid the subject.Exercise some discretion. Most P2P transactions are conducted privately, but there may be instances in which others see a payment. Most notably, Venmo maintains a feed for users that includes who was paid along with a brief description. The privacy settings for transactions can be adjusted to limit who sees them.Lisiewski stresses that discretion must be considered. Some friends may not want the details of their finances made public, even if it’s for something as inconsequential as a coffee. In other situations, such as a birthday or wedding gift, a public transaction could ruin the surprise.[Read: 7 Banking Services That Can Save Retirees Money.]It’s nice to send a note. Person-to-person payments are easy, but they can also be impersonal. “We can’t forget there is a human element behind it,” Landau says. “It would be off-putting to send a request for money before the reason is communicated.” This can be achieved, on many platforms, by including a brief note with the payment request.As for acknowledging a payment, there is no easy way to do so within most apps. Sopp says it would make sense to include the ability to “thumbs up” or “like” a transaction as a thank you. Until that feature is developed, the only way to acknowledge money would be through a separate email, text or call.That level of communication might be appropriate for a large sum, but Sopp says it isn’t needed for most routine P2P transactions. “A physical contact – a call – would almost defeat the purpose of it,” he says.While P2P payments are relatively new, they still benefit from old-fashioned social norms. Be polite when making requests, pay promptly and if there is a problem, follow up with a personal contact rather than letting a digital payment ruin a relationship.10 Money-Saving Websites to Check Before Shopping.

February 21, 2020 0 comment

Banking & Credit

Everything You Need to Know About ABLE Accounts

by sshrx_ns3li1 February 20, 2020

written by sshrx_ns3li1

After nearly a decade of lobbying from disability advocacy groups, Congress passed the Achieving a Better Life Experience Act in 2014. The law, now known simply as ABLE, allows for the creation of tax-advantaged accounts for people with disabilities, similar to 529 plans for college. The accounts allow eligible individuals to save money without jeopardizing their eligibility for government programs."The advantage of using an ABLE account is that the income will not be used for means testing for (Supplemental Security Income) or Medicaid," says Marc Scudillo, managing officer of financial firm EisnerAmper Wealth Management and Corporate Benefits LLC.Despite their benefits, ABLE accounts still aren't widely used or understood. Fewer than 57,000 accounts have been opened nationwide, according to the National Association of State Treasurers (as of publication).If you or someone you love has a disability, keep reading for answers to all the questions you may have about ABLE accounts. Why should someone open an ABLE account? Who is eligible to open an ABLE account? Which states offer ABLE accounts? Are there tax incentives for using an ABLE account? How much can I contribute to an ABLE account? What expenses are eligible to be paid from an ABLE account? How much does it cost to open an ABLE account? Should I consider a special needs trust instead?Why Should Someone Open an ABLE Account?"Living with a disability can be costly, hence the reasoning behind ABLE accounts," says Matt Schechner, president and founder of financial planning firm Essential Advisory Services in Westbury, New York.People with disabilities may have out-of-pocket medical expenses or additional costs related to transportation, education and housing. At the same time, they may receive income and benefits from government programs such as SSI and Medicaid. These programs typically limit a person's assets to $2,000. Prior to 2014, this put disabled individuals in a position where they could not save for future needs without jeopardizing current benefits."The ABLE account is the way a person can have assets that they control," says Scott Butler, a retirement income planner with Klauenberg Retirement Solutions in Laurel, Maryland. Up to certain limits, money held in an ABLE account isn't counted toward government program asset limits.Who Is Eligible to Open an ABLE Account?An individual must be deemed to be blind or disabled prior to age 26 to be the beneficiary of an ABLE account. Those who are receiving SSI or Social Security Disability benefits are automatically eligible to open an account. Others need to meet Social Security's definition of a disability and receive a physician's letter to that effect in order to qualify, according to The ABLE National Resource Center. Which States Offer ABLE Accounts?Currently, 42 states and the District of Columbia offer ABLE accounts. However, even those who live in a state that doesn't offer ABLE accounts can open one through another state's program. At this time, 26 states allow anyone to open an account while the remainder limit their programs to state residents. Are There Tax Incentives for Using an ABLE Account?Like 529 accounts for college savings, ABLE accounts are administered on the state level, and several offer state tax incentives to residents.For instance, Michigan and Arkansas allow single filers to deduct $5,000 in contributions to an ABLE account on their state tax forms. For joint filers in both states, the maximum deduction is $10,000. Meanwhile, Illinois offers state income tax deductions of $10,000 and $20,000 to single and joint filers, respectively, while Kansas limits its deductions to $3,000 for individuals and $6,000 for couples. Other states, including New York and California, offer no tax incentive for contributions. These deductions are typically only available to residents who are making contributions to their own state's ABLE program. While contributions to another state's account won't garner a deduction, Butler says people should consider whether other plans have lower fees and better investment options. "Sometimes it's better to pick a different plan than to get that tax (deduction)," he says.Regardless of which state you choose, withdrawals from an ABLE account are tax-free so long as the money is used for a qualified expense related to the beneficiary's disability.How Much Can I Contribute to an ABLE Account?An individual can contribute $15,000 to an ABLE account each year. While anyone can make a contribution, be aware that only the first $100,000 of an account's balance is shielded from asset means testing for government programs. "If it's over $100,000, it could affect your SSI benefits," Butler says. What Expenses Are Eligible to Be Paid From an ABLE Account?Money in an ABLE account can be used for a wide range of products and services such as medical treatment, transportation, housing, education and assistive technology. The only requirement is that the expense be related to a person's disability.Withdrawals used for non-qualified expenses may be subject to both regular income tax and a 10% tax penalty. How Much Does It Cost to Open an ABLE Account?Fees vary by state, so it pays to compare costs. For instance, Ohio charges a $30 annual fee for its residents and a $42 annual fee to non-residents. In New York, which doesn't allow enrollments by non-residents, the annual fee is $45 unless paper statements are selected. In that case, the annual fee is $55. There may also be investment fees associated with an ABLE account, and these may depend on which funds you choose for your money. "ABLE accounts have account service fees, which keep ABLE accounts up and running, and an asset management fee, which compensates managers for choosing stocks and managing the portfolio," Schechner says. Investment fees may be taken from an account balance rather than being paid directly by the account owner.Each state's plan offers different investment choices, so make sure to carefully review low-fee investment options to pick a plan that you're comfortable with.Should I Consider a Special Needs Trust Instead?While ABLE accounts have the potential to help millions of Americans with disabilities, some people may still choose to set up a special needs trust, sometimes called a supplemental needs trust. These trusts cost more to set up but offer more flexibility in their use, Scudillo says. Plus, they are typically the only option for those who did not become disabled until after age 26..

February 20, 2020 0 comment

Banking & Credit

How a New Law Will Let You Freeze Your Credit Files for Free

by sshrx_ns3li1 February 20, 2020

written by sshrx_ns3li1

Credit freezes help prevent thieves from opening new lines of credit in another person's name, but most states allow credit bureaus to charge a fee for the service. That will change this autumn.The Economic Growth, Regulatory Relief and Consumer Protection Act, signed on May 24, will let Americans freeze their credit files for free. "It's a small step in the right direction," says Jeff Taylor, co-founder and managing director of Digital Risk, a technology services company that works with the mortgage industry. Eliminating fees will make this security tool more accessible, but consumers also need to be aware that a credit freeze is not a cure-all for identity theft.Here's what you need to know about credit freezes, the new law and whether a freeze is right for you.[See: 10 Ways to Protect Yourself From Online Fraud.]How a credit freeze works. The three major credit bureaus – Equifax, Experian and TransUnion – are required by state laws to provide a method to freeze credit. Also known as a security freeze, a credit freeze restricts access to a credit file.That means a new creditor can't retrieve or review your credit report if you've frozen it. In theory, this should prevent any new lines of credit from being opened in your name. Those who have been victims of identity theft or who know their personal information was accessed in a security breach are often encouraged to use a credit freeze to ensure their data isn't used to open new accounts. Anyone who freezes their credit file will have to request the credit bureaus unfreeze it if they wish to apply for a loan or other credit line themselves.In many states, the credit bureaus are allowed to charge a fee to freeze and unfreeze a credit report. While the fee is often waived for victims of identity theft, others may be required to pay anywhere from $3 to $10, depending on what their state's law allows. Consumers must initiate a freeze with each credit bureau individually, which means the total cost in some states could be as high as $30 each time they add or lift a credit freeze."It's a nominal fee," says Victor Powell, a certified financial planner with financial firm Tanglewood Total Wealth Management in Houston, "but it can definitely add up, especially if you have a number of people in the house."What you need to know about the credit freeze changes. The need to pay for credit freezes will end this year. Plus, the new legislation will make changes to banking laws regarding mortgages and credit, among other things. It also requires credit bureaus to provide free credit freezes to consumers. The provision will go into effect 120 days after the bill's signing, which will be likely be in mid-September."This new law … will help consumers by improving the economy and assisting in the fight against identity theft," says Francis Creighton, president and CEO of the Consumer Data Industry Association, a trade group that includes 100 corporate members including credit bureaus and mortgage reporting companies.[Read: How Consumers Can Protect Their Online Privacy Right Now.]In addition to providing free credit freezes for adults, the law allows parents to freeze the credit of their minor children as well. Doing so prevents someone from opening an account using a child's name and Social Security number without the parent's permission or knowledge. Currently, credit freezes can be requested either over the phone or online, and there is no indication that will change after the provisions of the new law go into effect.How the new law will impact consumers. Credit freezes can be a useful tool, but consumers need to be aware of their limitations. For instance, a freeze should eliminate the possibility of a scammer opening a new line of credit, but it won't prevent someone who has access to an existing account from using it. A credit freeze also won't prevent tax identity theft in which someone files a fraudulent tax return in another person's name.Creighton says consumers can take additional steps beyond a credit freeze to protect themselves. "People should make sure they are checking their bills for erroneous activity," he says. "They should check their credit reports every year to make sure there are no errors."Another thing to consider before placing a credit freeze on an account is whether you'll be making a major purchase in the near future. This may be particularly important for those in the market for a new home."We have the tightest [housing] inventory we've had in a couple decades," Taylor says. Homebuyers who need to quickly get preapproval for a property in a competitive market could find the process of unfreezing credit to be cumbersome. "It could slow down the speed at which you can proceed." Each credit bureau provides a phone number as well as a web form that can be used to make a freeze request. Consumers who want all three bureaus to freeze their file must contact all three companies separately. Once their identifying information is verified and the freeze is enacted, a PIN number will be issued. Since each credit bureau issues its own PIN, consumers may have three numbers to store. To unfreeze a credit file, the correct PIN must be provided to the issuing bureau. If that number has been lost, the process of unfreezing a report can be further delayed. "It's not that big of a deal," Powell says, "but it's one more thing to keep track of."Remember: A lock is not a freeze. Credit bureaus like Equifax offer services that lock an account, and these locks may be more quickly removed than a freeze. "A lock and a freeze have the same impact on your Equifax credit report, but they aren't the same thing," says Jerry Grasso, a spokesperson for Equifax Global Consumer Solutions. Locks don't require a PIN and typically may be managed via a mobile app, but they also aren't regulated by the government in the same way as freezes are monitored.Locks are offered directly from credit bureaus to consumers and may be bundled with credit monitoring and fraud alert services. Currently, the TrueIdentity service from TransUnion and Lock & Alert service from Equifax are offered free of charge. However, there is no law requiring they remain free, as is the case with credit freezes. The third major credit bureau, Experian, has a CreditWorks program that includes a lock and $1 million of identity theft insurance for $4.99 for the first month and $24.99 for each following month.[See: 9 Financial Tools You Should Be Using.]Despite the convenience of lock programs, Powell still says people can't go wrong with a credit freeze. They're available at no cost starting this fall and with government regulations behind them, "it's the best bang for your buck," he says..

February 20, 2020 0 comment

Financial Advisors

5 Times Going Into Debt Makes Sense

by sshrx_ns3li1 February 20, 2020

written by sshrx_ns3li1

Books, blogs and financial programs all have a message for you: Ditch your debt.However, some finance experts say that advice is short-sighted. "Debt is a tool," says James C. Kelly, vice president and wealth strategist with financial firm PNC Wealth Management. He likens debt to a hammer. Depending on how debt is used, you can make something great or cause significant damage.And while high-interest credit card debt isn't advisable, other forms of debt can be leveraged to make money. A mortgage can buy property that will appreciate in value, while student loans can lead to a degree that opens doors to higher-income professions.Shannon Lynch, a senior financial advisor with online advisory firm Personal Capital, says people need to be smart not only about when they use debt, but how much debt they incur. She recommends that your total debt, including a mortgage, not exceed 36 percent of your household's gross income.[See: What to Do If You've Fallen (Way) Behind on Your Credit Card Payments.]While every family's situation is different, here are five times when it may be worthwhile to go into debt.Higher education. You'll increase your chances of getting a good job if you pursue a college degree. Since 1991, good jobs for those with only a high school education have declined, while those that require some postsecondary training increased by 3.5 million. And jobs requiring a bachelor's degree doubled from 18 million to 36 million, according to a 2018 analysis by the Georgetown University Center on Education and the Workforce, which defines a good job as one that pays at least $35,000 and has a median income of at least $56,000 for those without a four-year degree. "A college education is not an inexpensive proposition," says Scott Witherspoon, chief credit officer at Affinity Federal Credit Union. Scholarships, grants and work-study programs can defray costs, but many students still need to take out loans. And though student loans can be a smart use of debt, it's important that the program the student is enrolled in will lead to a job with an income that's high enough to justify the cost.Housing. Mortgages are another common form of debt. "There are very few people who are in a position to pay cash for a home," Witherspoon says.The housing market crash preceding the last recession is a grim reminder that mortgages come with risks. Subprime loans with variable interest could quickly become unaffordable if rates begin to rise. Lynch warns against letting housing costs, which include principal, interest and insurance costs, exceed 28 percent of your gross income.However, buying an affordable property with a fixed-rate mortgage can be a smart use of debt for property that has historically increased in value over time. What's more, interest and property taxes can be written off on federal tax forms by those who itemize their deductions.[See: How to Manage Your Money in Your 20s.]Investments. Some people borrow money in order to invest in the stock market. The math for this investment strategy may work out if the current bull market and low interest climate continues. However, it can also be a risky proposition since market downturns can occur with little to no warning. A better way to invest using debt may be to buy rental property. Those new to this type of investment should consider getting professional guidance and avoid taking on too much debt initially. Kelly says a good guideline is to borrow no more than 50 percent of an asset's value. Even that may be too much for some people, depending on their financial situation. People should only go into debt for an investment if they are confident they can earn more than the debt will cost them in interest charges or other fees. Business. Buying or starting a business is another form of investment that may require debt. Capital may be needed for a storefront, inventory or salaries, and in many cases, businesses wouldn't be able to grow without access to credit. A 2017 survey of 503 small business executives conducted by the U.S. Chamber of Commerce found that 77 percent say cash from financial institutions is important for small businesses to succeed.As with other types of borrowing, Lynch says people need to understand how a debt will affect their bottom line. According to Lynch, the type of question that must be answered is: "What sort of income can this help me yield?" Having a business plan and repayment strategy are also important and necessary steps before taking out a business loan. Transportation. Since cars are depreciating assets, not everyone thinks it makes sense to go into debt to afford an automobile. However, Witherspoon says you may not have a choice. "Earlier in life, debt is something of a necessity," he says.Having reliable transportation is critical to maintaining employment, but not everyone has cash for a vehicle. In that case, taking out a loan for an affordable used car can be a smart strategy. A common rule of thumb has been to put 20 percent down on a vehicle and pay off the balance in no more than four years. Ideally, the car payment and insurance premiums shouldn't exceed 10 percent of a household's gross income.[See: 8 Financial Steps to Take After Paying Off a Debt.]Witherspoon says people should be more wary of going into debt as they get older. "When you reach your golden years and enter retirement, it's important to not have this burden of debt hanging over you," he says. Still, before you start planning for retirement, debt can be a tool to help further a family's finances..

February 20, 2020 0 comment

Financial Advisors

Financial New Year's Resolutions You Don’t Have to Keep

by sshrx_ns3li1 February 20, 2020

written by sshrx_ns3li1

It's that time of year when people begin thinking about how they'll improve their lives in the new year. For many that includes looking for ways to make a fresh start with their money. Nearly a third of adults are planning to make a financial resolution for 2019, according to a survey of 2,005 adults for the Fidelity Investments 10th annual New Year Financial Resolutions Study.While taking steps to improve your financial situation is laudable, be careful not to fall into common traps that can sabotage your success. "Don't be too ambitious about your goals," says Maura Cassidy, vice president of retirement and small business for Fidelity. That means not stretching for goals you're unlikely to reach. "Don't try to save $1 million by next year," Cassidy says as one exaggerated example.[See: 9 Financial Tasks to Complete Before the New Year.]Instead, develop resolutions that are not only attainable but also pertain to your specific situation. "You have to sit down and figure out your financial goals for the year," says Kevin Brauer, chief financial officer for Affinity Federal Credit Union. Once you know those, you can identify specific steps, such as increasing savings, reducing spending or making lifestyle changes such as moving or finding a new job.It's best to create resolutions that are both specific and measurable so you know when you've achieved your goal. However, be aware that some common resolutions can actually make it more difficult to be financially successful. For example, the five resolutions below are ones you shouldn't make, let alone keep.Resolution No. 1: I Will Focus All My Extra Money on Paying Down DebtWhy you shouldn't keep it: Nearly 3 in 10 survey respondents told Fidelity they were likely to make paying down debt their New Year's resolution. That's not a bad resolution, but you want to be smart about it."If you make it so that you eliminate all the fun out of life, you're most likely to fail on your financial resolutions overall,” Brauer says. Rather than earmarking every last cent for debt, budget some money for discretionary purchases. How much to spend on these expenses can vary depending on your income, but generally, it's a good rule of thumb to budget no more than 10 percent of your take-home pay for this purpose. By spending a small amount on the things you want, you're more likely to stick to your financial plan in the long run.A second risk with this resolution is neglecting other financial priorities. “Focus on paying off debt, but not to the detriment of savings,” says Joe Wirbick, author of "Everything They Never Told You About Retirement" and president of advisory firm Sequinox in Lancaster, Pennsylvania. Without emergency savings, it could be harder to get out of debt, and you don't want to wait years to start putting money aside for retirement.[See: 20 Financial New Year's Resolutions for 2019.]Resolution No. 2: I Will Consolidate My Debt Using Whatever Means PossibleWhy you shouldn't keep it: Consolidating debt can be helpful, particularly if you have high-interest credit cards that can be rolled into a lower-interest loan. However, not all consolidation methods are created equal. For instance, it might be tempting to take out a 401(k) loan to pay off debt, but these loans can negatively impact retirement savings and may be subject to taxes and penalties if not paid off prior to leaving your employment. Plus, five years is the maximum term allowed for most 401(k) loans. Consider taking out a personal loan from a bank or credit union instead.What's more, rising interest rates make some previously attractive consolidation options less appealing. "Now is a terrible time to refinance," Wirbick says. Given increased interest rates and closing costs that can run into the thousands, he doesn't recommend consolidating debt using this method.A home equity line of credit may be a better option, but don't think you can deduct the interest from your federal income taxes. Under the Tax Cuts and Jobs Act, interest on home equity loans or lines of credit taken out for debt consolidation cannot be deducted.Resolution No. 3: I Will Work Through a List of GoalsWhy you shouldn't keep it: It can be natural to want to check items off a list, but this approach can backfire. "Don't make one financial goal that gets in the way of your other goals," Cassidy says.Instead of planning to run down a list of financial goals in order, create resolutions that you will pursue independently and simultaneously. Not only will that position you to achieve multiple goals at once, but it also prevents you from getting bogged down in one aspect of your financial life, such as paying off debt, while ignoring other priorities like saving for retirement or college.[See: 10 Foolproof Ways to Reach Your Money Goals.]Resolution No. 4: I Will Contribute More to a Traditional 401(k) or IRAWhy you shouldn't keep it: It can be hard to imagine there is anything wrong with contributing more to your 401(k) or IRA next year, but putting money into a traditional retirement account isn't ideal. A better resolution is to contribute money to a Roth accounts.While traditional 401(k) and IRA accounts provide taxpayers with an immediate deduction for contributions, Roth 401(k) and IRA accounts are funded with after-tax dollars. Then, the money grows tax-free and can be withdrawn tax-free in retirement. Meanwhile, money in traditional accounts will be subject to income tax in retirement. With lower tax brackets in effect for at least the next five years as a result of the Tax Cuts and Jobs Act, it may make financial sense for most workers to pay taxes on contributions now and avoid the taxman later.Plus, Roth IRAs have an added perk. "If you needed to tap into it for some emergency or to buy a house, you can," Cassidy says. Since contributions to a Roth IRA are already taxed, people can withdraw the principal at any time without penalty. Since withdrawals from Roth 401(k) accounts are prorated between contributions and earnings, a penalty-free early withdrawal isn’t usually possible with these accounts.Resolution No. 5: I Will Shop for Cheap Car InsuranceWhy you shouldn’t keep it: Fifteen percent of people say they think they'll resolve to spend less in the next 12 months, according to the Fidelity study. If this is your New Year's resolution, shopping for new car insurance could be on your list of ways to cut costs.However, Wirbick cautions against reducing costs by dropping coverage. Eliminating comprehensive coverage can save a significant amount in premiums, but it could leave you worse off financially in the long-run. "You have one accident, and it could wipe out your savings," Wirbick says.A better approach is to determine your coverage needs, and then look for a highly rated company that provides that level of protection at a reasonable rate, or check with your current insurer and see if you might be eligible for discounts that don't involve raising your deductible or lowering your coverage. In the end, you don't necessarily want the cheapest car insurance, but rather the policy that offers the best value..

February 20, 2020 0 comment