Month : May 2013

Money Management

Pay Day Loans: Rogue Lenders or Necessary Evil?

Much has been written recently of the growing popularity of Pay Day Lenders, but some of the stories circulating regarding their practices are so worrying that you would be forgiven for believing it is an industry out of control and poorly regulated. Here www.yourdebtexpert.com takes a look at what this means for you.

A good example emerged earlier this year in relation to Wonga, the most high profile of all pay day lenders. The Office of Fair Trading (OFT) slated them for what was said to be aggressive and mis-leading debt collection practices. They were found to have been collecting debts by suggesting customers had committed fraud and threatening to report them to the police. The punishment for Wonga was public censure, but they were warned that if the conduct was repeated they could face a fine of up to £50,000.

Then the OFT stripped another lender of its consumer credit licence and fined it £544,505. This company, MCO Capital, was found to have breached money laundering rules by allowing fraudsters to use the details of up to 7,000 individuals to make false applications. The company then, even though it knew some of the loans were fraudulent, continued to pursue the real individuals for the money.

The problem is payday lenders are becoming increasingly popular as many consumers struggling with rising living costs try to make ends meet. The National Debt line, a national charity, has reported that the 116% increase in calls it has experienced is largely down to customers who have taken out pay day loans.

So should you avoid using them?

Well the short answer is yes, if you can afford to. There are, however, circumstances when a payday lender may be cheaper than going to your normal bank for a short term loan, especially if it means paying the banks unauthorised overdraft fees.

However, what is key is never to borrow more than you need and make sure you can pay the money back when it is required. One in three pay day loans are made to “flip” or “roll over” a loan which someone couldn’t pay back. When you do this additional charges are added and interest begins to get added rapidly.

Efforts are now being made to improve regulation of pay day lenders and a new voluntary code is due to come into force in November of this year that should cover over 90% of the lenders. There is still a strong suspicion, however, that there are other companies, like MCO Capital, still operating and using rogue practices. It’s also a sobering thought to realise that MCO Capital are still lending despite having their licence revoked. They have 28 days to appeal the decision of the OFT against them and if they do, it could take up to 2 years for that process to be completed: in the meantime it will be business as usual.

Home Ownership

Avoid Downsizing Through Equity Release

When your children have left home and you no longer need quite such a big family home, it can be tempting to downsize and move somewhere smaller, which is cheaper to run and maintain, and this also allows you to access some of the value held in your family home.

However, it’s not something you should rush into. Many people have followed this course and then regretted their decision because of the disadvantages of moving home at this stage of life. While you are able to actualise some value from your home, you often have to move to a different area, and you may lose the network that you have established during the years you were raising a family. This can be more isolating than people might think, and it’s hard to start finding new friends when you’re older.

One way to stay where you are, but to increase your income is to take in lodgers. This can be a great solution for people who enjoy the company of others, but for some people, it may feel like an invasion of their privacy. You have to be ready to adjust to share your home with other people.

Something that more and more older people are turning to as an alternative is equity release. This is where you can access some of the financial value held in your home without having to leave it. You can find out about cheap equity release schemes at Age Partnership, an independent company that searches the equity release market for the best available deals for its customers.

It has become a popular choice in recent years due to the increase in the value of property across the board. To find out how much equity you could access from your home, use the types of equity release calculator at Age Partnership.

Equity release may not be suitable for everyone, so before going ahead with a policy, make sure you get some independent financial advice first.

Investing

Why buy stocks when you can trade stock options?

Many of us would jump at the chance of buying stocks in a company, be it one that is already successful or one that you know is going to be successful. However, for many the dream of been a stakeholder dies as soon as the stock price is quoted! You see, buying stocks is not cheap, or maybe I should say buying enough stocks to make a return on your investment is not cheap.

As I write this article, the current price of buying a share in Facebook is $24.31, this is not a lot of money by a long stretch of the imagination but I would need to buy at least 100 shares to see any kind of significant return – and there is no guarantee that I will see a return. However, there is another way that I can invest in Facebook stocks without having to pay thousands of dollars for shares, and a way that I can profit regardless if the share prices rise or fall. How you might ask, and I would answer by buying stock options, not stocks!

So what is the difference between Stocks & Stock options?

Stock options are the derivatives of stocks, deriving their value from the movements of the actual physical stocks. The main difference between the two is ownership, when you buy stocks you have an equity stake in the company but when you buy stock options you have no ownership in the company, you simply have the right to buy or sell the option.

Stock options are limited by time; purchased as contracts they are valid until a given date. Buying or selling is possible until that date, but after the date passes, the option contract expires.

The advantages of stock options:

The main advantages of stock options over stocks are accessibility, price, and profitability. Stock options can be purchased at a fraction of the price that you would pay for a stock, and you can profit from your stock option in both rising and falling markets – so it is a win, win situation. In addition, the return you get from trading stock options is far greater; you can make returns of up to 71% or more stock option trading with anyoption.com or other such binary option brokers.

Stock option trading:

Getting started in stock option trading is straightforward, it does not require you to be present on a trading floor, nor does it even require that you even have knowledge of trading, or markets. All you need is an option broker and a little capital to invest – the amount needed will depend on the broker that you are using.

There is no shortage of online trading brokers; websites that allow you to set-up and account and trade assets from different stock exchanges around the world. They all require a minimum deposit before you can trade for some it can be a couple of hundred dollars other you can deposit as little as $20 dollars to get started.

The trading process itself is very easy: E.G, if you think that the price of Facebook’s stock is going to increase then you take what is known as a “Call” option, if you think that it will decrease then you place a “Put” option, if your predication is correct you can make high profits. However, if your predication is wrong then you stand to lose all of your initial investment.

Just to wrap this up!

So there you have it, if you have an interest in stock market trading but do not have the capital to buy physical shares in a company you should consider the alternative of buying stock options, you really can make considerable profit with this form of investment. However, keep in mind that you can also lose money but that is just the nature of the beast when it comes to investing and stock market trading.

Debt Management

Bankruptcy Need not be Your First Choice

Debt and Bankruptcy Debt Advisory LineSerious economic challenges can exert a high degree of psychological pressure. Especially when expenses are exceeding the available income for extended periods of time, strain levels in a household can get insufferable. During this period, many will consider bankruptcy their only available option. In itself, this need not be a problem. After all, declaring bankruptcy means all financial obligations owed to lenders will be dismissed if your filing is decided in your favor. Choosing to file, however, is a serious matter and will seriously affect your life for years to come. Ahead of declaring bankruptcy you should therefore take numerous aspects into account – especially since debt and bankruptcy don’t have to go hand in hand.

The first question you should ask yourself is whether you may be able to restructure and get rid of your debt by yourself. When debts are too much to handle, after all, you are going to struggle to pay the lender commitments you agreed to. In this case, bankruptcy can be an option. Before arriving at that conclusion, however, you should take all available steps into consideration to improve your financial situation: Is there a car which can be traded in? Can the house be refinanced for a decrease in the mortgage payment? Are there higher paying jobs that can be added to the household income? There are also a variety of practical steps you can take to at least return to breaking even: Cut back on household expenses and instead of going on expensive vacations, go for cheaper alternatives. This can often help to relieve the stress of debt for you and your family. Try cutting back on extras like cable, cell phones and eating out before deciding to declare bankruptcy.

Mostly, though, bankruptcy is something best handled by experts and you should consider getting professional help. A debt consolidation company can help you negotiate with creditors to reduce the amount you have to pay each month, for example, and thereby avert bankruptcy. They can help create a plan to get you out of debt and back on the right path towards a sound financial situation. They will also assist you to determine how much debt you actually have. Although it may sound hard to believe, many people tend to hold an exaggerated view of their financial misery. You may be one of them.

The Debt Advisory Line have years of experience in helping you establish a precise picture of your debt and systematically reducing it. If you’re in need of debt management, contact us now to find out how we can assist you.

Home Ownership

5 Reasons Homeowners Should Consider Refinancing

One of the best features about mortgages is that a homeowner does not have to live with the same one forever. Even though the original mortgage came with a long term 30 year commitment, the most common length of mortgage, a homeowner can turn it in for better terms. At a time when mortgage rates are low, which is happening right now, there are 5 reasons that homeowners should consider refinancing.

1. Low mortgage rates are in place and have never been better. Homeowners need to consider the fact that once rates rise, they may never fall this low again. For at least a year, rates have bounced around historical lows which has set new records. With this in mind, anyone who has a higher mortgage rate should take advantage of a rare opportunity to move to lower rates. Homeowners who are interested in a lower monthly mortgage payment can refinance to the same terms that they currently have, but at a lower rate. Although this will return the loan to the original term, such as 30 years, the lower monthly payments will instantly put more cash in the hands of the homeowner which they can use for other expenses.

2. When mortgage rates are low, it gives the homeowner more options to work with. Another solution for homeowners is to reduce the term of the loan. When going from a 30 year mortgage to a 15 year mortgage, the amount of time that the loan is active is shortened. Since 15 year mortgage rates are even lower than 30 year rates, the mortgage payment could possibly be equal to the current payment or, in some cases, even slightly less. The benefits of doing this type of refinance is that the mortgage is paid off faster, the overall interest paid is significantly less and the homeowner ultimately grows equity at a faster pace. For this reason, refinancing to a 15 year mortgage has become very popular in recent years.

3. There has never been a better time to move from an ARM to a fixed rate product. Many homeowners opted for an adjustable rate mortgage in the past when rates were higher. Now that rates are low, it is the ideal time to refinance to a low fixed rate mortgage. The fixed rate mortgage offers a homeowner stability because the rate never changes and security because the mortgage payment remains the same throughout the life of the loan.

4. Many long term homeowners have accumulated equity in their homes over the years of paying their mortgage. In recent years, the interest charged on credit cards has increased significantly. The cash out refinance is often used for debt consolidation which ultimately combines all of these payments into one monthly payment. There is usually a significant amount of money that can be saved each month by doing this type of refinance. In other cases, the cash out refinance is used for home improvements instead of obtaining a home equity loan which usually has a higher rate. It doesn’t really matter what the need is, as long as the equity is there, the cash out refinance is a way to use the equity as cash at the lowest rate of interest available today.

5. For diligent homeowners, refinancing can be used as a savings tool. When the new mortgage payment is lower, some homeowners will put away the savings each month. The accumulated savings can be used for other things, such as financial planning. However, the savings can also be used at some point to make a principal payment on the mortgage which will reduce the years and total interest due on the loan. This is usually done when a homeowner opts for the longer term loan which reduces the monthly mortgage payment. The longer term loan is then reduced with each payment made to the principal amount. Even though many homeowners feel secure with the lower monthly payment, they can still shorten the term by making payments to the principal.

Since refinancing is a financial decision, homeowners must take into account that there are costs involved. For those who will be staying in the home for a short period of time, refinancing may not be the best idea. For the long term homeowner, it is definitely something that should be considered. To determine the best option available, it is always wise to compare both the long term and short term loan. Lenders can easily give a homeowner a Good Faith Estimate for both types of loans which will show all of the costs, as well as, the estimated monthly payments. When looking at it in black and white, always remember what the original goals are for choosing to refinance.

Rosemary has been writing since 2010 for FreeRateUpdate.com, a company that matches consumers with banks and lenders offering low mortgage rates. Previous to her writing career, Rosemary spent 13 years working hands-on in the mortgage industry as a mortgage loan analyst, mortgage processor, property manager, and a mortgage underwriter.