February 19th, 2010
The Case for Walking Away From Your Mortgage
“Strategically defaulting” and walking away from your home is becoming less taboo and more mainstream as the 2009 housing collapse left 10.7 million families underwater on their mortgages– meaning they owe more on their mortgages than their homes are worth. With an additional 6.7 million estimated homes expected to be underwater by the end of 2010, homeowners face a very difficult question– to pay or to walk away.
When It Makes Financial Sense
Let’s say you took out a mortgage in 2002 for a $600,000 home that is now worth only $300,000. Depending on how home values fluctuate, it could be decades before your home returns to the sales price you started paying on years ago. You can sit back, enjoy the home, and pay off your mortgage as planned, but you may be left with a home valued at less than what you paid. On the other hand, you could walk away from your mortgage and rent a similar home for less than your current monthly mortgage payments. This could save you thousands of dollars a year, and hundreds of thousands over the life of your mortgage.
February 11th, 2010
Protect Your Credit Score From Medical Bill Disasters
One in six adults, about 46 million people, in the U.S. are living without health care coverage. For uninsured and insured Americans alike, a sudden medical emergency and its accompanying bills can land a huge blow to one’s bank account and possibly their credit score. In fact, medical costs remain the leading cause of bankruptcy in the United States. Here’s how to plan ahead and responsibly manage medical costs should you come up against a medical emergency.
January 25th, 2010
Big Banks and Credit Card Issuers Lend a Hand In Haiti Relief Efforts
Opening your heart and your wallet to relief efforts in earthquake-ravaged Haiti can be done by credit card, text message, and even through your iPhone thanks to companies’ innovative charity campaigns. Credit card issuers and banks have been particularly active in supporting Haiti relief efforts, with nearly every major financial company–from JPMorgan Chase to Goldman Sachs– facilitating donation programs or pledging donations themselves.
After media outcry criticizing credit card companies for taking a cut of “transaction fees” from cardholders’ charitable donations to Haiti relief efforts, American Express, Visa, Discover, MasterCard, and others have waived transaction fees for donations to charities. All of the familiar names in the financial sector are also contributing to the cause: Goldman Sachs, JPMorgan Chase, and Morgan Stanley are donating $1 million to the Red Cross and other charities; Citigroup, which has a branch in Part-au-Prince, Haiti, is donating $2 million plus supplies; Jefferies Group, an investment bank, donated a day’s worth of trading commissions totaling $5 million, and topped it off with an additional $1 million donation from the bank itself.
If you want to contribute personally to recovery and rebuilding efforts in Haiti, consider the following company initiatives committed to lending a helping hand:
- Discover cardholders can donate their CashBack bonus points to the American Red Cross, in addition to donating directly to select charities minus transaction fees. Discover is also matching cardholder donations dollar-for-dollar, plus an initial $100,000 company contribution. This is your opportunity to convert cashback bonuses from a shopping spree into a life-saving donation.
- In addition to waiving transaction fees, Bank of America is allowing consumers to make donations at their bank locations. Whether you show up at a BofA branch or donate via credit card, 100% of your money will be given directly to the charity of your choice. Bank of America has also committed $1 million to relief charities and pledges to match donations made through the Matching Gifts program, with no cap to their overall contribution.
- Take 30 seconds to contribute $10 to the Red Cross by texting “Haiti” to 90999 (charge will be added to your monthly cell phone bill). This successful “mobile giving” texting campaign has spread through social media networks Facebook and Twitter like wildfire, raising $10 million in its first week. Yele Haiti Earthquake Fund is another texting campaign, just text “YELE” to 501501 to donate $5. It’s such a simple and easy way to do your part to help out in Haiti.
- Gamers can contribute too by playing video games online or via iPhone. AppRelief features iPhone apps that will donate 100% of profits to the Red Cross. Also, video game website IGN is hosting a Haiti Charity Event webathon on Jan 27; tune in to donate to Habitat for Humanity or bid in a charity auction while getting your fill of video game entertainment.
- Several airlines, hotel chains, and businesses in the travel industry have come up with creative ways for customers to support Haiti relief efforts by donating airline miles, hotel loyalty points, or supporting travel companies that will do charitable donations on consumers’ behalf. Check out this Los Angeles Times blog post for a list of participating companies.
Whether you charge a donation to your credit card or text to a charity, please take advantage of these humanitarian opportunities to support relief efforts in Haiti by contributing and spreading the word.
At Credit Karma Blog, what goes around comes around… So what do you think about this post? Agree, disagree, or have something more to say? We’d love to hear your reactions!
September 30th, 2009
Buying and Bailing
There is a new trend developing due to the sagging housing economy where a homeowner who is underwater with their home, acquires a new bargain priced home and then walks away from the overvalued property. This practice, known as “Buying and Bailing,” has been a hot topic for homeowners looking for an escape route from paying a mortgage on a home that has lost significant value.
It sounds too good to be true; mortgage rates are still very low and you’ll be able to get a great deal on a home which is more affordable than your current home. More real estate and mortgage brokers are becoming familiar with the ins and outs of these transactions and are more than willing to coach you through this type of endeavor. However, accomplishing this in reality is difficult, you will need to be able to afford a new down payment as well as support both loans in order to qualify for the loan on the second home. Some consumers have set up a short sale, put the home in a spouse’s name or told the bank that they plan on renting out the first home as work around to help qualify for the second loan.
This type of exit strategy will only work in markets where the home values have dropped considerably. At first glance this may appear as a miracle from above, but consumers need to understand the repercussions of a buy and bail. Specifically, their credit score will be battered once they start missing mortgage payments which will ultimately end in foreclosure. Once they have a foreclosure on their credit report they won’t be able to get a Fannie Mae loan for up to four years. Additionally, anything requiring a credit check like insurance, new credit cards, employment screening will present your past misdeeds and likely affect pricing of other financial products or even cost you a job.
No one really knows how much this will affect consumers’ credit as this is the first time homeowners have made this type of risky and possibly illegal maneuver. One thing is for sure, consumers attempting a buy and bail will always have a looming uncertainty around if a lender or worse the police may come after them. At minimum, lenders can put a lien on the new property; as well as sue for fraud if you misrepresented yourself on your loan application. Many are rolling the dice that most lenders are severely understaffed and hoping their situation may get lost in the shuffle and never be addressed.
Predictably, lenders are calling this practice unethical, deceptive and fraudulent. They are quickly looking at ways to close this loophole to reduce future risks in their portfolios. For many it’s comical to hear the lenders call something “deceptive” when only a few years ago, they were creating variable rate mortgages with complex minimum payments and negative amortization, as well as 100% financing programs that contributed to the housing collapse. Regardless, lenders are now adopting stricter underwriting conditions when evaluating new purchase loans for borrowers with existing home mortgages including producing an executed lease agreement or requiring documented income to verify the consumer will be able to support both mortgages. Both of these are precautions to help weed out Buy and Bailer’s before they take ownership of that second property.
Buying and Bailing may be a way out for those who have the means to pull off such a complicated transaction and simply get lucky that lenders are understaffed and unable to properly follow up, but it requires a perfect storm of having the funds on hand, adequate employment/income to satisfy the underwriting, and a family member or spouse that can assist in securing the second home by being the primary applicant. Realistically, while this option does provide a viable, albeit difficult escape route for some, it’s very questionable of its legal and the long term ramifications are unknown at best.
September 28th, 2009
Financial Emergencies Don’t Need To Panic Your Credit Score
People with good and even great credit can, at times, find themselves in a bad financial situation. Whether it’s a home loan gone upside down, unemployment lasting longer than expected, or medical bills piling up from a recent accident, the unexpected can take control of your financial plan and often your credit score. While there is no simple cure, here are a couple tips to keep in mind when you face some of the more common financial emergencies.
- For many, purchasing a new house meant an opportunity to make money by watching their home value blossom. Due to risky loans and low or zero down payment requirements, many now find themselves upside down on their home loan, owing more on their mortgage loan than the home could sell for in the market. Walking out on the mortgage may seem like a simple solution, but the foreclosure on your credit report will have significant impact on your credit score for several years to come. If you can continue to make your monthly mortgage payments, try to stick with it. Now that many of the speculators and real estate investors have pulled out of the market, there is some stabilization in home prices and increases in home purchase volume.
- Divorce is never easy on the heart or pocketbook, but oftentimes it’s bad for your credit health as well. An important part of divorce proceedings is making sure your name is removed as an accountholder on any mortgage, credit card, loan, or even banking account that you will not be responsible for going forward with. While closing old credit cards will definitely affect your credit score, it’s better than leaving your name on the accounts and the risk that your ex-spouse will have late payments, default, or have balances charged off – all of which will affect your credit if your name is still on the account. Take the opportunity to open new credit cards and banking relationships so you are in control of your credit health and once again standing strong and independent.
- With unemployment lasting on average of over 25 weeks, many are finding their emergency funds running dry. Don’t give a credit card issuer any reason to cancel the card or reduce your limit; use your credit regularly and wisely if you find yourself unemployed. Credit cards can become the lifeline to covering daily expenses in periods of extended unemployment.
- It’s easy to become overwhelmed quickly when medical bills start stacking up in your mailbox. Unfortunately, they are not going to go away. The best thing you can do is get a sense of your total medical obligations and call the hospital or medical service accounts to see if you can work out a payment plan. Past due or unpaid medical bills can show up on your credit report and will negatively affect your credit score.
Financial emergencies are hard on the family, hard on your finances, but they don’t have to be hard on your credit health. Be proactive in determining the best way to protect your credit in any financial crisis; a good credit score helps you keep your credit costs to a minimum and provides you with better options and offers when you go in for a loan, a new mortgage, or new credit line when you’re ready to start rebuilding your financial life. These tips aren’t foolproof nor will they guarantee that life will be easier after a major life trauma like divorce or unemployment, but it can help you minimize the financial strain as much as possible and help your credit survive till the sun comes out tomorrow.
September 2nd, 2009
eBillme Review: Start Shopping Online With Cash
eBillme, a payment alternative that lets you pay cash when you shop online, is an innovative solution to debt-free, credit-free shopping that gives you the convenience and savings of online shopping without a credit card. Swapping your credit card shopping habits with eBillme avoids interest rates fees, identity theft, and possibly even some of those spontaneous, one-click impulse buys. For careful consumers sticking to spending only what’s in their bank account, eBillme is a free and easy option that is less hassle than a debit card, less complicated than PayPal, and far less risky than credit cards.
eBillme is super simple. Just shop where you normally shop and when you’re ready to check out, look for the eBillme logo; it’s available at over 800 merchants and growing every day. If eBillme is a payment option, select it and submit your purchase and eBillme will send the bill to your online banking account. Log into your online bank and pay the eBillme bill just like you would your cell phone or credit card bills and viola — the retailer will release your purchase for shipping! While you will dodge potential credit card debt, paying cash will immediately shrink your bank account with every purchase, so make sure your late-night shopping sprees won’t shortchange you on your utility bills the next morning. This also limits the type of purchases you can make online since you will need to have the available money now in order to buy, rather than relying on credit to let you pay it off later.
eBillme also provides consumers several money-saving opportunities including rebates, deals, giveaways and even cash back on purchases. eBillme Stores helps you save more money by offering rebates for shopping with eBillme at select merchants, while the Debt Free Shopping Mall helps you search through products, deals, and even giveaways and contests at participating sites. eBillme Rewards gives shoppers more to cash in on by providing similar earning power as a rewards credit card with 1% cash back on all purchases. Along with the savings comes some protections, like Satisfaction Guarantee for no-hassle returns, a Buyer Protection policy that price-matches your order within 90 days of purchase, and protection against hackers and identity thieves.
Paying with cash at eBillme gives you the control, convenience, and security often only associated online banking. It is a great option to keep in mind if you are trying to keep yourself from getting in over your head with debt or if you don’t have a credit card yet. However, keep in mind that retiring your credit card from online shopping also means you will not be building credit or improving your credit report through regular credit use. But at least with eBillme, you can shop debt-free using secure cash payments with some of the benefits of a credit card and absolutely none of the fees.
July 22nd, 2009
Standing Side By Side With Consumers In Rough Economic Times
What started as an innovative automaker’s marketing ploy, which helped move inventory by offering purchase protection plans for jobless customers, is now becoming a standard level of consumer support across many different markets. Companies are coming up with more creative solutions—rebates, penalty-free refunds, special offers should you become unemployed—to get consumers back into stores and opening their wallets again.
Hyundai kicked off the recession trend of buyer incentives with its Assurance plan launched in January, which gives customers who are laid off within a year of purchasing a new Hyundai the option of returning the car and being absolved of the remaining payments (up to $7,500).
And where one good offer goes, many were sure to follow:
AutoNation, the largest U.S auto dealership chain, pledged to cover car payments of the recently unemployed for 6 months through its Protection Payment program; Ford’s Advantage Plan covered monthly car payments of $700 for a year for customers who bought a vehicle between March 1 and June 1 and lost their job by the end of 2009; GM’s Total Confidence program covered payments of $500 for up to 9 months for customers who purchased between April 1 and June 1 and lose their job within 21 months of purchase.
With unemployment creeping to near 10% nationally, job-loss protection offers are a smart strategy to give nervous consumers a sense of security to spend money while also easing consumers’ fear of possible unemployment. The idea to provide offers based on possible future job loss spread quickly from carmakers to financial service companies to airlines and even to drug companies.
Nowadays, a little peace of mind has become a way of business.
- Need that new dishwasher or stove but concerned about losing your job? Sears’ Buyer Protection Plan gives consumers a safety net in these troubled times. Use your Sears card to purchase a major home appliance totaling $399 or more and you are protected if you are involuntarily laid off. If consumers lose their job after 60 days and up to one year from the date of purchase, 1/12 of the entire purchase price is credited to your account each month until it is paid off or you are employed again. The Buyer Protection Plan is in a nationwide testing period from July 6 to August 1, 2009.
- Want to get the high rates of a CD but concerned about the penalties that could come with locking up your money in a CD? Discover Bank aims to help you earn more while worrying less. Their new Penalty Free 12-month CD earns consumers 2.00% APY, and if customers loses their job, they can withdraw their savings principal plus interest without any penalties or fees.
- JetBlue wants you to plan your vacation free from the worries of your employment status. If you are involuntarily laid off, The JetBlue Promise Program will fully refund your fare as long as your travel plans are prior to December 31, 2009, you are over 18, and you paid for the itinerary. JetBlue also offers a Getaways Vacation Package Refund as part of the Promises Program. The Promise Program was originally slated to end in June, but has been extended through 2009.
- Don’t let unemployment stop you from staying healthy. Pfizer’s MAINTAIN (Medicines Assistance for Those who Are in Need) program is a free medicine program for the newly unemployed. Pfizer‘s MAINTAIN program gives away 70+ types of prescription drugs for up to a year or until you become re-insured. To be eligible, you must be taking a prescribed Pfizer medication for 3 months prior to becoming unemployed; enrollment is open through December 2009.
- K-Mart is running the Smart Assist Savings card pilot program, in which unemployed customers can save 20% on all Kmart private label goods for 6 months. This discount program is being run first in Michigan, where unemployment is at the national high of over 14%.
In these rough times, it’s great to see companies reach out to meet consumers half way on the risk scale of unemployment. Not only are companies going to drive additional sales by providing consumers the confidence to shop, but there’s a significant amount of good karma these companies are building with both unemployed and employed consumers alike.
February 16th, 2009
Planning Ahead For Financial Emergencies
Are you prepared to handle a surprise disability or a serious illness, the loss of your job, a natural disaster, legal problems or some other financial industry? There are too many people out there that simply are not preparing themselves for the unexpected expenses that may be incurred over time, even those that are as minor as a home or vehicle repair. By planning ahead for financial emergencies you can significantly minimize the amount of stress that normally occurs when these types of emergencies rear their ugly heads.
There are a lot of different ways that you can plan ahead for financial emergencies. Many of these tactics are small and do not take a lot of time or money, but they have a grand impact on your financial readiness, should an emergency ever occur that requires you to tap into savings or other sources of financing.
>> One of the best defenses that you can possibly mount against emergencies is to acquire adequate insurance. You should take the time to check and see if you have the right amount of insurance for Life, Property, Disability and Long Term Care insurance for some much needed peace of mind.
>> You should take the time to prepare an emergency budget so that you can determine the minimum amount of income and the minimum amount of expenses that you would need should a financial crisis occur.
>> You should be aware of potential loan sources, or establish potential loan sources like personal lines of credit or home equity loans so that you can get the emergency funds that you need, when you need them, without worrying about whether or not you will be approved when there is no time to waste.
>> You should put together an emergency savings account fund, so that you always have easy access to savings account money that will help you get through an emergency when there is no other source for lending or financial aid. The more you have in savings, the more readily you will be able to weather the storm when a financial emergency occurs.
>> You should remember that good times do not last forever, and neither do bad times. By creating solid investments and building up your investment portfolio you can significantly reduce the need for a much larger emergency fund in the long run. By varying what different protections you have, you can create a much stronger protection plan, should a financial emergency ever occur.
>> You should take the time to completely and fully plan out your estate. This way, if you should happen to pass away unexpectedly the remainder of your family will remain financially secure even when they cannot count on your income to support them. A fully thought out financial estate plan should include where your assets should go, and should also include adequate life insurance so that your mortgage and other bills and debts can be paid without requiring your loved ones to struggle any harder than they have to in your absence.
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December 18th, 2008
Ten Ways to Handle Financial Emergencies
For most people, the thing that launches them into credit trouble in the first place is an unexpected financial emergency. Individuals who pay their bills on time, people who use credit cards wisely and people who always keep up with their mortgages can suddenly be thrown into a complete financial crisis when a surprise strikes them. Here are ten ways that you can prepare for and handle financial emergencies.
1 – Plan ahead in order to make a difference.
Start a savings and make provisions for whatever may occur. You should put a portion of every pay check into a savings account.
2 – Expect the unexpected so that you may plan and prepare accordingly.
You should be prepared for every scenario. Plan for the worst, so that you can handle anything that may come your way.
3 – Pay yourself first rather than waiting until the end of the month to put money into your savings.
Putting the money into savings now will ensure you do not spend it easily through out the month. Otherwise, you may not be able to save when the time comes.
4 – Increase your income if you are having trouble paying your expenses.
This may entail finding a better job, or supplanting your income through another job. You may also be entitled to a raise at your current job.
5 – Sell off some assets to accrue extra income if you are having trouble paying your expenses.
This can be as small as a garage sale or as large as selling one of two cars. Having stuff is pointless if you are unable to pay for rent or utilities.
6 – Borrow against your home if you absolutely have to, so that you can pay off emergency expenses without allowing them to overwhelm you and put you further into debt.
The equity in your home should be used as a last resort, as you are putting your home at risk. It is your largest asset, however, so it can be helpful for a tight spot.
7 – Call on friends and relatives to see if you can get some financial assistance in your time of need.
Those close to you can provide the assistance you need. Everyone is connected and those close to you would help you; you would help them if the situation were reversed.
8 – Defer your retirement contributions, funneling the money toward a more important cause such as an emergency expense instead.
If you are unable to proceed in the now, planning for the future is worthless.
9 – Seek professional help if you cannot find any other way to deal with the emergency expense without putting yourself into debt.
There are experts out there who are specially trained just for this purpose. Do not ignore this important resource.
10 – Declare bankruptcy if there is no other option available for you to overcome the obstacles created by a financial emergency.
Bankruptcy is a government provided way to get out of debt and start anew, although it carries with it a stigma which will be hard to shake off of your credit report.
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December 12th, 2008
Planning an Emergency Fund
Financial planning articles and books often recommend that you put away between three months and six months of your expenses into a savings account. On occasion it may even be recommended that you put away between six and twelve months of your average expenses just in case anything should happen. But what if your first emergency is an eleven to eighteen month financial crisis? It really is quite difficult to plan on the emergency situation that will come up and exactly how long it will last. For this reason, it is best that you put yourself in the best possible financial situation and stay there.
An emergency fund can easily provide the financial resources that you need whenever a financial emergency prevents you from earning an income, or consumes your regular household income. Some of these emergencies may include a major illness, loss of income or another type of financial emergency. Minor emergencies also make such financial planning necessary; such as an unexpected home repair or vehicle repair, or medical bills that you did not anticipate. If you want to establish financial security, then planning an emergency fund is absolutely vital.
If you do not have an emergency fund in place, then you may feel compelled to acquire debt instead using a credit card for traditional expenses such as a mortgage, rent or groceries. This new debt can take as many as several years to repay, and interest will be accrued to cost you even more unnecessary expenses. However, if you decide to regularly allocate income to an emergency savings account or a short term savings account, you can contribute significantly to the security in an emergency that the future may eventually bring. In doing so, it is highly recommended that your emergency fund be looked at as an additional bill that needs to be paid, just as any other obligation would be required of you every month.
Here are some tips to keep in mind for planning an emergency fund or emergency savings account.
1 – How much funds should you have?
At least three months of expenses should be stored in your emergency fund, but more is always better. It is vital that you be consistent with your deposits, and only dip into your emergency savings when you absolutely must. Look for high interest sates for such short term savings accounts, so you can let your money make money for you while it is sitting.
2 – Come up with a minimum “comfortable balance” and stick to it.
Once you have reached this, you may also want to begin considering longer term savings accounts.
3 – The amount that is saved from your budgeting can go into your savings goal or your emergency fund, or can be split between the two.
This way you will be achieving your goals in your savings and still contributing to your emergency fund at the same time.
4 – Whenever possible, pad beyond your first few months of expenses when putting together your basic emergency fund.
Keep in mind that the more you plan, the more prepared that you will be when it comes to handling emergencies.
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