New Bank Fees – Watch Out

Has this economy made you look more closely at fees and unessential services?  Earlier this year, the Credit Card Act was enacted to help consumers.  That was good for you, but your creditors lost sources of income. They want to take that money back.  The next wave of consumer fees is about to begin (or may have even started).

Banks are upping their fees. Here are some examples:

Do you have totally free checking? That’s probably going to change.  You will need to keep more money on deposit to qualify for free checking.

Do you prefer to make your deposits and payments in person? There could be a fee to use a bank teller.

Do you receive paper statements and cancelled checks by mail? The bank may start charging you for that.

Do you have overdraft protection? Previously, you only paid a fee when you used the service.  That’s changing.  My bank now charges $1.50 per month for  the privilege of overdraft protection.  Some banks are even charging you to link your savings and checking together for overdraft protection, along with the additional fee for actually using the service.

Want to open an overdraft protection account for the first time?  That could cost you a fee as well.

Banks are implementing these changes to increase their revenue, so watch your statement closely (you should be doing this anyway).  Read the inserts in your statements.  Call to question new fees, and if you’ve already been charged, ask for reimbursement.

If your bank account is costing you too much money, find out what you can do to avoid the new fees.  If all else fails, take your bank accounts elsewhere.  There are still banks with good lending and investment practices. These banks don’t need to overcharge their customers to make money.

Delaying Your Foreclosure

Recently, several banks have stopped foreclosure proceedings in states that require judicial foreclosures.  A judicial foreclosure means that the final proceedings require court action. Ideally, a judicial foreclosure offers additional protection to the homeowner, because the bank has to prove that payments have not been made. Connecticut is one of those states that has a judicial foreclosure process.

Now, banks are saying that they have potential paperwork problems and are taking more time to review their internal processes and documentation before presenting them to the court system.

Any foreclosure is, traditionally, a long process with a tremendous amount of paperwork involved.  With the current mortgage crisis coupled with the economic downturn, banks have been overwhelmed with the foreclosures.  When you add the multiple bank mergers of the past few years (with files being transferred from one corporation to another), you can see  the potential for incorrect and/or missing paperwork. According to the latest news, it  does seem that a few of the major banks need internal paperwork review before proceeding.

What does this mean to you?  If you are somewhere in the foreclosure process, this is going to delay the process for you.  I don’t believe that banks are going to stop the foreclosure process and give you back your home. Wouldn’t that be nice?  Only time will tell if the bank has all the proper paperwork in order to proceed.

Start Preparing Your Taxes in October

I know that you’re seeing holiday shopping displays  at the stores.  If you are like me, you’re thinking, “Is it time to think about that already? Halloween hasn’t come yet!”  Yes, it’s that time – not to prepare for Christmas, but to prepare for year-end.

For me, October is a time when I set up a meeting with my tax preparer and start year-end planning.  With three quarters of the year gone by, I have a good idea of where the year stands financially.

You can start now by taking the time to meet with your tax preparer. Gather up your information on income and donations, profit and loss statements, and any new financial circumstances or events. Did you have more out-of-pocket medical expenses this year? Mortgage changes? Defaulted loans?

After your tax preparer has reviewed your information, you can ask him what you can do before December 31 to improve your tax returns. Here are some questions you could ask:

• Should you pay your January bills in December
• Do you need to make more donations?
• Should you hold off on the major purchase?
• Should you contribute more to my retirement accounts?
• Should you do renovations / improvements to your home to take advantage of the tax credits that might not be there next year?

Don’t wait until mid-December when you are crazed with the holidays, or worse yet, January, when it’s too late to take action for 2010.

Lending to a Friend

A friend of mine recently asked about lending money to a friend.  I have always said that if you can afford to lend money to a friend, then give the money as a gift. If the gift is repaid, that’s an unexpected bonus.

But, you should never lend money to friend, especially money that you need to pay your own expenses.  I say this because when people lend money to a friend, they often never get the money back. That’s not because your friend isn’t trustworthy, or sincere, it’s a matter of need. Think about it. If your friend can’t afford to pay a bank loan or rent, then how will he be able to pay you? Especially before you need the money yourself? Unfortunately, lending to a friend often means  the friendship is lost along with the money.

It’s difficult to watch a friend drowning in debt or suffering without a car or apartment, but two drowning people are not better than one. There may be better ways to help out than putting yourself at risk.

Back to my friend. Unfortunately, she had already lent a substantial amount of money. She had also done everything possible to set up the loan legally – with a contract, lien against the borrower’s home, and a formal payment plan. It sounded OK, so, I asked what the problem was.  She said that her friend had filed for bankruptcy.  That’s a problem.

My friend did everything right and took all the steps to protect herself, and now she will be out a large amount of money that she needs to cover her own expenses.  She could never have afforded to give this amount as a gift, but that’s what it became. Will she get her money back? Probably not.  In this economy, her friend’s home may not sell and when it does, it probably won’t sell for enough money to cover the loan.

My friend learned a very hard lesson in life.  Their friendship will probably never be the same because of the damage that was done.  Before you lend money to someone, think about all the possible outcomes and then make your choice.

Having Trouble Selling Your Home? Try a Lease to Purchase Agreement

Are you trying to sell your home?  Are you finding the process challenging to say the least?  There might be another option for you and your potential buyers.

That option is a lease to purchase agreement. This is when a potential buyer rents or leases your home for fair market value AND pays additional money towards the future purchase of the home.

Let’s say someone is interesting in buying your home. He isn’t financially prepared to buy a home in your price range today, but he will be ready in a few years. Instead of letting the potential buy get away, you can sign a lease to purchase contract.  That means that he agrees to rent the home from you for a specified time period, and during that time period, you agree not to sell the house to anyone else.

In a lease to purchase contract, the potential buyer pays rent plus an additional amount towards the purchase down payment.  Let’s say your agreement covers a period of 2 years and your potential buyer pays you monthly rent of $1,000 plus $300 towards the option to purchase your home. Over a 2 year period, the buyer would have have paid $7,200 towards his down payment.

If the potential buyer doesn’t go forward with the purchase by the time the contract is up, the down payment money is typically yours (the seller’s) to keep.

Although they’re not widely used today, lease to purchase agreements have been around for years. They offer security and income for a seller who needs to move right away, and an opportunity for a buyer to turn his rent into an investment.

If this option is of interest to you (buyer or seller), discuss the specifics with your realtor and attorney, so that you can understand all the details and make informed choices as to what is best for you.

Beware of Debt Settlement

Are you working less hours or maybe even unemployed?  Are you having trouble paying your bills?  You’ve probably heard the TV and radio ads that tell you they can settle your debt for cents on the dollar.  These ads are promoting debt settlement companies, and they are in business to make money for themselves.

Well, I am here to tell you that you need to be cautious.  Let me say it again – be cautious.

Paying Fees When You Could Be Paying Off Debt

Debt settlement companies do try to settle your debt for cents on the dollar. They may even be successful at it.  But at what cost to you?  Many will require that you pay them a fee up front in addition to a monthly fee to administer your account.  That means you’ve added an additional monthly payment to your budget.

Debt Settlement Damages Your Credit Rating

Choosing debt settlement will damage your credit rating.  If you truly can’t afford your bills, then consider calling each of your creditors to work out an agreement and save your fee money.

It Could Affect Your Tax Return

Lastly, if you are able to reduce the debt you owe, you may have tax consequences come April 15.  The amount you save may be treated as income to you. So you may owe income tax.

As your parents told you, if it seems too good to be true, then it probably is. If you need this type of service, use a consumer credit counseling service, not debt settlement.  There is a huge difference between the services.  Research your options ahead of time if you are having trouble paying your bills.

Automatic Bill Payment: Should You Use It?

Whether you pay your bills online or with a check, you’ve probably seen the automatic bill payment option. It’s a great service for the companies you pay, but is it a great service for you?

Each company lists all the advantages of the service: your bills will be paid on time, you’ll never miss a payment, and you’ll never have late fees. Yes, those are great advantages. But they don’t mention the down sides.

You won’t be able to check your statement before the payment is made.

This is a definite downside. You might even get in the habit of not checking your statement at all.  There might be charges you need to dispute: maybe a purchase wasn’t yours, maybe a new service charge was added to your account, maybe there was an increase in fees.

On credit cards, you only have a limited amount of days to dispute a transaction. Once that time is up, you can’t be reimbursed.  Or, if the cost of a utility increases (after a promotional period), you may want to make other arrangements as soon as possible.

If you choose the automatic payment service, take the time to look over your statements as soon as they arrive.

A Payment Could Overdraw Your Account.

Many of our accounts have fluctuating balances. Utility charges change with the seasons and credit card spending increases on holidays and vacations. Do you keep enough money in your account to cover all your payments, regardless of the amount?

Here’s an example: August was  an unrelentingly hot and humid month in some states. Many people left on the air conditioning all month only to be shocked by the size of their electric bill. They didn’t realize that the rate per kilowatt would increase as their usage increased, which made the bill go even higher than expected. Some people thought they’d end up paying $100 more for August, but ended up paying $200-$400 more. How many people keep enough in their checking account to handle a $500 electric bill? Not many.

If you choose the automatic bill payment option, keep extra padding in your checking account and check your bank balances frequently.

Automatic bill payment works great for some people. Choose the option that works best for you. As always, take steps to protect your personal finances.

Can you minimize college expenses?

There isn’t anything that you can do about the cost of tuition once you have chosen your school.  But, you can plan for other costs: the books, room and board, technology, supplies, medical, and entertainment.

Books

Books are necessary for college, but can you lessen the costs?  Yes!  With the Higher Education and Opportunity Act that went into effect last month, assigned textbook prices must be printed in the course schedule.  This is a big win for your budget. In the past, most people didn’t know the price until they got to the college book store.  It gives you the opportunity to price shop for the textbook.  I suggest looking for  used or rented text books.  Check out www.Chegg.com or www.BookRenter.com.

Room & Board

You might be thinking that room and board are a fixed expense, and that’s true for freshman.  But, most colleges allow you to live off campus after your first year.  That opens up some new options. More roommates equates to more savings. If you want multiple roommates to really cut down on costs, you could consider a house rental. If you don’t want roommates, you could look for a room & board arrangement. These would be local homeowners who are looking to rent out a spare room. Prepared meals and access to laundry may be included as part of the agreement. If you want an on campus option, look into becoming a Resident Adviser.  RA’s typically get a room and board reduction but check with your school to confirm.

Technology

It’s a given that you will need a computer.  But do you need a printer?  If you do, check the back-to-school specials.  Remember, printers require paper and ink.  Shop around for supplies, don’t just rely on the campus book store.  You may also find that you don’t actually need a printer in your room.  Ask questions and see what’s available on campus. There could also be an inexpensive printing service off campus, like FedEx/Kinko’s.

Supplies

Think about what you need, as well as how much you need. You can minimize expenses by not overbuying. Your entire family may empty a bottle of shampoo in a month. But when it’s just you, a single bottle could last a whole semester or longer. Make a list, talk it over with other people, and revise your list as needed. Then shop for the best deals before you head to school. Prices may be higher in the town or city near campus.

Medical

Something you may not think about, but should, is medical insurance.  If you parents have insurance, you can probably be covered by them. But, do they have  in-network insurance? That means that you can only be seen by select doctors or medical centers. Do they have those options near your school?

Entertainment

Most people have some form of entertainment to help them relax. But, entertainment can be expensive. That’s why a lot of college students learn how to play card games, like Eucher. Or, they start kicking the soccer ball around in unofficial games of football. These types of games are free. But, you should plan on enjoying some paid events, whether it’s attending the games, seeing movies, or going out with friends. Plan ahead and budget how much you’re willing to spend each week on entertainment. Use cash, and don’t bring your debit card with you when you go out. It will help prevent overspending.

All your little expenses will add up. Give them thought and research ahead of time to save yourself a considerable amount of money.

What’s not on your credit report?

Last week, I told you what was on your credit report. This week, I’ll tell you what’s not there.

Your credit report doesn’t say much about you as a person.  It has your name, address (possibly your past address), and your social security number. But, it doesn’t show your age, gender, race, nationality, or religion.  It also doesn’t list your income, although it might show your employer. If you’ve recently changed jobs, that information might not be up to date.

Your credit report is a snapshot of your finances, not your life. And, it’s not even a perfect picture of your payment history. Credit reports can change daily as your financial life changes: purchases made on credit, new accounts opened, payments made (or not). There may also be errors that will need to be corrected whenever you find them.

Even though your report does not reveal everything about you, it is the  most important document that you have to show the world how you handle your money.  What you do today will stay on your credit for years to come.  When you make a financial choice, think about how it will affect you in the future.

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