Month : April 2019

Money Management

Should Politicians Tell You How To Spend Your Money?

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David Cameron got a little heat recently for “instructing voters to pay off their credit card bills” in a recent speech he was going to give. Because of that heat they changed the line. It was read out of context and I don’t think it was really a financial lecture, but none the less, it brings up the question of whether or not politicians that are dealing with our nations debt problems should be telling you how to handle your finances.

My take is that it doesn’t really matter. It’s just words and you can take the advice or not. It’s really up to you. Some of the best advice is given by people that don’t follow it.

Just because the advice is coming from a bad source doesn’t necessarily mean that it’s bad advice.

Another point brought up is that some people worried that what he was telling people would cause them to stop spending thus slowing down the economy. I say good. What got us in to this mess in the first place was spending too much money. We cry that the government has a lot of debt and needs to cut back yet we shouldn’t do that ourselves?

Of course we should.

Will that cause us to lose more jobs?

Yes!

But it’s not that jobs are just going away, it’s that they’re moving into different sectors and even newly created sectors.

For instance, after the housing boom tons of jobs were lost in the real estate and housing sector, but do you know what grew? Businesses that make money from bankruptcy. They grew at incredible rates, and what were they doing? Hiring people!

Debt consolidation companies and all of the other financial education companies grew too.

If a job goes away, there’s another job popping up somewhere to fill that void.

So what can be done about jobs?

Reeducate people so that they can find jobs in a new field.

All jobs aren’t going to be around forever. If I’m not mistaken, there aren’t any more Pony Express Riders. Do you think they rolled over and died? No they used their skills for something else, or learned how to drive.

So, if you don’t have a job and it’s not looking bright, Google something and learn all about it. Maybe start your own business.

What do you think?

Debt Management

Will Too Many Credit Cards Mean A Bad Credit Score?

With the holidays recently passed, it’s a fair guess that you were overrun with offers to sign up for credit cards, whether you’re at the cash register or checking your mail at home. Let’s take a look at two offers that always seem to make an appearance on a regular basis.

  • Clerk: “Hi, Would you like to open a credit card with Best Buy to save 15% today?”
  • Commercial Mail Offer: “Get 30,000 American Airlines Miles by signing up for the Citi AAdvantage Credit Card!”

We’re going to discuss how to make sense of choices like those above. What effect does opening a new credit card have on your credit rating? And what does it mean for your wallet when your credit score sags?

It might come as a shock, but to our mind the most important variable for the next year is your own readiness to take on loans. Below, we’ll go into why.

What is calculated in a FICO score calculation?

FICO uses a credit scoring system, which operates on a spectrum between 300 and 850 points. The exact calculation is not available for public knowledge, but there has been some information made available. This is the set of weighted factors that determine your FICO score:

Factor Weighting
Past Payment History 35%
Credit Utilization 30%
Length of Credit History 15%
Type of Credit Used 10%
Recent Credit Inquiries 10%

FICO focuses more on the recent past than the distant past

While the table above provides the basic picture of what goes into your FICO score, it’s also important to consider that your score is weighted towards your recent history overall, rather than the more distant past. If you’ve been making on-time payments on your credit cards for the last year or so, this can help minimize damage caused by past delinquencies. In the same vein, a pile of credit card payment notices that are a year old or more will do less harm today, but just a couple in recent months can be a big problem.

What is the impact of a new credit card on your credit?

A new credit card benefits your credit utilization since it lowers your total debt in proportion to available credit lines. On the other hand, it can decrease the duration of your credit history and increase your number of new credit inquiries. While it’s not fully clear how much each aspect of this choice will impact your score, its our opinion that this generally points to a small negative effect in the short term, while its long term effects have strong positive potential. In sum, opening a new credit card won’t have too much of an effect at all if you’ve got a score of 800 or more, but if you have a more limited credit history, this could push your score from the mid-range into “poor” and make it harder to obtain credit in the future.

What are the benefits of opening a card account?

Exercise careful judgment in how you use your credit card applications. Each airline mile is typically worth about a penny, so getting 30,000 of them by signing up for a new credit card means about $300 in real dollars. At the same time, the Best Buy 15% discount requires some very distinct math because the 15% savings probably won’t come out to be more than $300 unless you’re spending well over a thousand dollars on electronics.

Turn down all rewards credit cards that don’t offer some kind of immediate reward. The market is flooded with cards, like the Chase Freedom, that pay $100 or more for signing up, so unless you’re going to be getting some kind of incentive it’s not worth applying.

And how about the drawbacks of a lower credit score?

While most conversations about credit center around APRs and interest rates, the loan rate that a good FICO score can make available isn’t the most important thing to consider when thinking about the benefits of good credit. Even more important is how much money you plan on borrowing in the next year or so.

That is to say, if you’re going to be seeking a $45,000 home equity loan in the near future, having a good FICO score will be a much more significant factor than if you’re going to be looking for a $5,000 loan for your car. That’s because getting stuck with a higher interest rate on a smaller loan translates to a difference in interest payments that’s small enough to be negligible.

Input 1: Your FICO score and your interest rate

When seeking out a loan, your loan officer will base your interest rate off of a combination of criteria. A shorter loan duration and putting up collateral, as with a mortgage, can lower your rate. But the factor most within your control is your FICO score.

For instance, take a look at the table below, based on information from LendingClub’s average rates for a 36-month “debt consolidation” loan (note: these are not LendingClub’s actual rates, but our own estimates for illustration purposes only).

Credit Score Fico Score Interest Rate
Awesome 780+ 5.98%
Excellent 750-779 6.36%
Really Good 714-749 9.25%
Good 679-713 12.41%
Average 660-678 16.32%

Input 2: Loan Size

In terms of actual money that you’ll be paying, the most important factor is the amount you’re seeking to borrow. In the next table, you can see how a smaller loan minimizes the overall impact your FICO score has on how much your loan will cost you.

Loan Size Fico Score Interest Payment per Year FICO Score is 30 Points Higher FICO Score is 30 Points  Lower
$5,000 730 $483 Save $155/yr Pay extra $223/yr
$10,000 730 $965 Save $654/yr Pay extra $446/yr
$25,000 730 $2,413 Save $777/yr Pay extra $1,114/yr

Go for that new card if you’re not going to be seeking out any big loans in the near-to-middle future

In our opinion, opening 1-2 credit cards each year won’t have much impact on your credit score over the forthcoming year. In fact, it may raise your long-term credit score if you don’t have a very long credit history and keep the amount of credit you use at a low level.

If your future need for loans ranges from small to nonexistent, you should give some serious thought to the merits of an airline miles card. It’s likely that signing up for this type of card will net you a 30,000 mile reward, which translates to about $300 and thus ultimately cancels out much of the cost that comes from borrowing, according to our calculations. There are many rewards cards that have comparable deals.

But, if there is going to be a larger loan in your future, you should hold off on applying for a card or any other loan for around a year previous. In the context of taking out a loan over $25,000, its quite possible that whatever rewards your potential card offers to incentivize signing up will be outweighed by the increased interest rate that can come with a lower FICO score.

This post comes from the NerdWallet.com team of personal finance bloggers and experts in helping consumers find the best low APR credit cards.

Do you have too many cards?

Book Reviews

Should I Buy This Book? Review: Student Entrepreneurs

Student Entrepreneurs I’m a big believer that you’re not truly financially sound until you control your own income. If someone can get rid of the money you bring in by simply saying “We don’t need you here anymore”, then your financially dependent. So I’m trying to educate myself to not let that happen to me.

Every once in a while I’ll be reviewing Entrepreneur/Business books I’m reading, so I can pass on to you which books to read and which ones not to.

This week it’s Student Entrepreneurs. It’s a book about 14 student entrepreneurs that have won a Global Student Entrepreneur Award. It’s basically a short bio on each student going over their first business and how they got into their current business. Along the way they give you a few pointers for you to succeed. What I got out of the book, but that you should already know, is that creating a successful business is hard work.  That’s pretty much sums up the books.

The Negative

Some of the stories were kinda boring and there were really only a few tips that I could use in my life. The first couple of stories I could have done with out.

The Positive

It is full of success stories, so it is somewhat inspirational. Even though they were few and far between, there were some good tips in there that I’m going to use in the future.

Would I buy It?

I don’t think so. The stories were ok but it just didn’t give me much value.

Buy It

But if you want to give it a whirl since it’s pretty cheap:

Student Entrepreneurs New or Used

I really like this book. The title pretty much sums up the book. It goes over how to save money by

Spend Your Way To Wealth

getting discounts on pretty much everything. It gives tip on:

  • Coupons
  • Negotiating on everything
  • Traveling
  • Buying a house
  • Shopping
  • Buying a car
  • Shopping on the internet

I found it really helpful. My favorite chapter is the last one because it goes over making goals and goes over how saving money takes work.

The negative

The only thing I really found negative was that the author doesn’t believe in budgets, and equates it to dieting. I can see where he’s coming from but I think that budgets are essential to having a solid finance life. But to each there own.

The Positive

Pretty much the whole book is a positive. There are tons of money saving tips for the various things I mentioned before. It does promote buying but it does save over and over that it’s not about buying stuff you don’t need. It’s about buying stuff you would buy anyway and saving money on it.

Would I Buy it?

Absolutely. It’s a great book and I learned a lot from it as far as savings go. I would recommend it for someone who wants to learn how to save money and negotiate prices. If you are having trouble sticking to a budget then his advice on not budgeting might before you. I’d at least try it to see if it works.

Buy It

It has my recommendation.

Spend Your Way to Wealth New

Spend Your Way to Wealth Used

P.S. Some of the links in this post I earn a little bit of money from, in order to pay my bills. But I promise to never to intentionally lead you to a bad company and to never let the money affect my opinion.