by Elaine Courtney | Sep 4, 2013
Credit card debt is something that hangs over many Americans. According to the Federal Reserve, in April 2013, the average credit card debt equaled $3,364 per U.S. adult. This assumes that EVERY adult has a credit card and that those cards carry debt. Of course, not all adults own a credit card. Young Americans are among those ditching their credit cards.
The only way to reduce credit card debt is to make payments each month and not add to that debt. The main way to reduce this even faster is to pay more than the minimum payment each month.
Save Nearly $4,000 by Paying More than the Minimum Balance
By only paying the minimum monthly balance, you are guaranteed to pay this debt for a longer time and pay more in total cost. For example:
|
Total Credit Card Debt
|
Monthly Payment
|
Years to Pay Off
|
Total Cost
|
|
$3,364 (at 14.96% Interest)
|
$67.28 (min. payment)
|
19 Years 5 Months
|
$7,618.63
|
|
$3,364 (at 14.96% Interest)
|
$87.28 (min. payment +$20)
|
4 Years 4 Months
|
$4,533.67
|
|
$3,364 (at 14.96% Interest)
|
$107.28 (minimum payment +$40)
|
3 Years 4 Months
|
$4,225.11
|
|
$3,364 (at 14.96% Interest)
|
$167.28 (minimum payment +$100)
|
1 Year 1 Month
|
$3,841.40
|
Similar information is available on your monthly credit card statement. It will identify how long it will take you to pay your debt if you only pay the minimum or if you pay a little extra. More info on how to read your bill is found at: http://www.federalreserve.gov/creditcard/flash/readingyourbill.pdf
You also can use an online calculator to determine costs and payoff information.
http://www.federalreserve.gov/creditcardcalculator/
Want to avoid the minimum payment trap completely? Follow these tips from financial experts:
- Know What You Owe – Make a list of all outstanding debt balances with the names of creditors, monthly payments, and APRs (interest rates).
- Run the Numbers – Use the Minimum Payment Calculator http://www.federalreserve.gov/creditcardcalculator/ and calculate the cost of making minimum and larger payments on various amounts of debt.
- Use a “power payment” to pay off your debt. Visit http://powerpay.org/
- Read the Numbers – Check your credit card statements about the cost of making minimum payments.
- Pay Cash – Instead of making new purchases with a credit card and adding them to outstanding balances, save up and pay cash (or use a debit card) to avoid interest charges.
- Set a Goal – To know how much to save, set a target date and dollar amount and work backwards. For example, $3,000 for a big screen television in a year requires weekly savings of about $58 ($3,000 ÷ 52).
In the example above, finding an extra $100 a month to apply to credit card payments reduces the time it will take you to pay off this debt from over 19 years to just over one year AND saves you nearly $4,000.
Need help finding ways to save? Take the Florida Saves pledge to make a commitment to yourself to save and to receive emails and/or text messages to keep you motivated.
Contact your local UF/IFAS County Extension office to find more ways and resources to help you manage your money. Be sure to join us for the Women & Money Program Oct. 1, 8, & 15!
by Kristin Jackson | Jul 30, 2013
Evaluate your life insurance needs if you have children.
Life insurance is protection against the loss of income that would result if the insured passed away. According to Life Insurance and Market Research Association International (LIMRA), approximately 35 million households are uninsured and 50 million American have inadequate life insurance. September is national life insurance awareness month, but the time to start preparing is now. Take the first step and consider whether you need life insurance.
“The top two reasons people don’t buy life insurance are: competing financial priorities or because they think they cannot afford it,” (LIMRA, 2012). How do you know if you should give life insurance serious consideration or rethink whether you have enough? If one or more of the following situations apply to you or your family you may want to evaluate your need for life insurance:
- If you have children and both parents work
- If you have children and one parent works
- If you have children and you cannot afford to pay for their final expenses
- If you are a single parent
- If you have an outstanding shared debt
- If you are married and your spouse could not support your current lifestyle without your help
- If you are married and your spouse may have to care for one or more elderly parents
The above list is not exhaustive, but is meant to get you started thinking about the kinds of family or lifestyle situations when life insurance could benefit you in providing for your love one(s). For more research based information on life insurance you may want to read Understanding Life Insurance (http://web.aces.uiuc.edu/vista/pdf_pubs/LIFEINS.PDF) by University of Illinois Extension. Remember, family conversations about money can be difficult. “Can We Talk? Improving Couples’ Communications” (http://edis.ifas.ufl.edu/fy044) is a great refresher on effective communication before tackling a delicate topic like money.
by Judy Corbus | Jun 7, 2013
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Mortgage insurance is required if the down payment is less than 20 percent of the home’s sale price.
If you are shopping for a mortgage, be aware of changes to the Federal Housing Administration’s (FHA) mortgage insurance program. Most lenders typically charge a mortgage insurance premium (MIP) if the borrower puts down less than 20 percent of the appraised value or sale price on a home. Mortgage insurance protects the lender should the borrower default on the payments; the mortgage insurance pays off the loan. Mortgage insurance may be underwritten by private corporations or the federal government through FHA.
Once the borrower has paid down 20 percent of the loan (a loan-to-value ratio of 80 percent), they may discontinue paying the MIP. Federal law requires lenders to tell the buyer at closing how many years and months it will take for them to reach that 80 percent level and cancel the mortgage insurance. Lenders must automatically cancel mortgage insurance when the balance hits 78 percent. Until recently, the mortgage insurance on FHA loans could be dropped at the 78 percent loan-to-value ratio or after five years, whichever was longer.
Effective on FHA case numbers assigned on or after June 3, 2013, mortgages financed with less than a 10 percent down payment will be assessed the MIP until the end of the mortgage term or for the first 30 years of the term, whichever occurs first. In other words, most borrowers will pay mortgage insurance premiums for the life of the loan; they will not be able to drop the MIP at 78 percent loan-to-value. This will add to the overall cost of the loan.
If you are planning to purchase a home, do your homework. Check out the various mortgage options available through different lenders and shop around for the best interest rate. Remember, the larger your down payment, the smaller your mortgage and monthly payment. If you can put 20 percent or more down, mortgage insurance will not be required.
For more information, please contact your local UF/IFAS Extension Office.
Sources: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/fhahistory
http://portal.hud.gov/hudportal/documents/huddoc?id=13-04ml.pdf
http://www.bankrate.com/finance/mortgages/the-basics-of-private-mortgage-insurance-pmi.aspx
by Elaine Courtney | Apr 24, 2013
Have you ever been in this situation? You are with friends and they suggest going somewhere for dinner. Your finances are tight and you really can’t afford to eat out at the pricey place suggested. What would you do?
1. Admit you don’t have the funds and say, “I really can’t afford it.”
2. Keep quiet and go along—you’ll just order an appetizer and water.
3. You enjoy being with friends so go ahead and buy what you want!
Saying those words, “I can’t afford it,” is something many have struggled with at one time or another. Some may feel shame or embarrassment if they utter those words. But there’s nothing wrong with saying it! Money issues are often difficult to discuss or verbalize. Perhaps rephrasing it would help– “That’s out of my price range right now.”
It is important to be honest with yourself about what you can afford. Facing reality may be difficult but it can reduce your financial stress. Would you rather confront things now or when you are struggling to pay your credit card bill? However, do you even know if you can afford it?
Everybody needs to learn how to manage money. Good money management includes being able to pay your monthly bills, save for the future, and buy the things you need and want without creating unmanageable debt. A spending plan can be a helpful money management tool. For resources on spending plans and more, click here.
You probably have noticed that different people have different attitudes about money. Some people want to collect as much as they can, while others want to buy as many goods and services as they can. Recognizing your attitude about money can help you deal with situations where you say, “I can’t afford it.”
Recent articles by Jean Chatzky and the Wall Street Journal discussed having to admit when you can’t afford something.
Here are some tips for saying “I can’t afford it:”
• Know your situation and what you will say when presented with an offer: “Let me check my budget/spending plan.” “Let me think about that.” “That’s not in my plan for today. Maybe another time.”
• Understand the emotions that are involved. Friends often get their feelings hurt if you never want to go with them. Explaining your plans in advance can often help you avoid misunderstandings.
• Peer pressure encourages us to spend money when we can’t afford it. The constant barrage of advertisements or friends, family, or co-workers can exert pressure to part with your money. When you have a clear understanding of your money and financial goals, it may make it easier to resist. But it is not always easy!
Knowing and understanding your finances will help you find the courage to say, “I can’t afford it” or “That’s out of my price range.”
by Elizabeth | Mar 7, 2013
SHOPPING FOR A CARD
Here are some tips on choosing the best card for you:
- Will the card be accepted in places where you want to use it?
- Is there a minimum requirement for the card to remain usable?
- Are there reload limits?
- Is there a daily cash withdrawal limit?
- Are there convenient ATMs where you can make withdrawals?
- Are there fees charged for withdrawals or other activity?
MANAGING YOUR CARD:
Like any account you have, reloadable cards require that you monitor your account. This will prevent you from being charged for unnecessary services.
Monitor your balance to prevent over the limit usage.
FEES:
Not all cards are created equal just like credit cards. One needs to read the small print on the cards website before “loading “it. Below are the most common charges associated with prepaid cards:
- Purchase fees: A charge for buying the card normally at a retail store.
- Activation fees: One time charge also known as opening fee. This fee can be from $30 or more.
- Monthly maintenance fee: A common fee that can vary depending on the card. This fee can be upwards of $10 a month.
- Reloading fee: Fees applied when one adds more money to the card. These may also include third party fees.
- Purchase transaction fee: May be waived for some direct deposit cards.
- Overdraft fees: Just like debit and credit cards some cards will charge if one spends more than what is on the card.
- Cashier withdrawal: Charged when one withdraws at a bank or an agent location
- ATM fee: Charged for withdrawing money from an ATM machine. Some cards do have free withdrawals at participating ATM locations.
- Denied Transaction Fee: Some cards charge if your purchases are denied because there is no money on the card.
- Funds transfer fees: May be charged for transfers made from one card to the other.
- Balance Inquiry fee: Charged for getting your balance statement.
- Inactivity fee: If you don’t use the card (typically in 60 to 90 days) you will get charged.
- Card Replacement fee: Charged if your card is lost or stolen.
- Customer service fee: Charged by some card issuers when you contact their customer service department.
- Foreign Currency conversion fee: If you use the card outside the U.S., you may be charged. Credit and debit card issuers may do this as well.
For more information on pre-paid cards and the rules that govern them visit these federal agencies websites below or the University of Florida Family Youth and Community Sciences at http://fycs.ifas.ufl.edu/
*Federal Deposit Insurance Corporation (FDIC) www.fdic.gov
*Federal Trade commission (FTC) www.ftc.gov
*Federal Reserve Bank www.federalreserve.gov
*Consumer Financial Protection Bureau (CFPB) www.consumerfinance.gov
by Elizabeth | Mar 4, 2013
What are prepaid cards?
Pre-paid cards or network branded prepaid cards are not credit cards, although they are sometimes marketed as “prepaid credit cards”. No credit is offered by the card issuer and the cardholder spends money which has been prepaid to a card. The value is not physically stored on the card. Instead, the card number uniquely identifies a record in a central database, where the balance is recorded. In many ways, a reloadable card is similar to a credit or debit card. Like most debit and credit cards, many reloadable cards carry a logo from one of the major electronic payment networks; Visa, American Express, Discover or MasterCard. Any business that accepts these logos around the world are likely to accept the reloadable card.
Prepaid cards have been marketed to consumers with poor credit who are unable to qualify for the line of credit that backs a mainstream credit card. The fees associated with these cards are often very high. Though convenient, these cards can be an expensive way to spend your own money.
A major difference between prepaid cards and a credit or a debit card is that the cards have to be “loaded” before one can use them. In other words one must put money on the card before one can use it. When the balance gets low, one can reload (add more money) as the name implies. Depending on the card, one can reload online, in person, and/or through a direct deposit from a work place.
Prepaid cards advantages:
- The cards can be safer than cash. If the card is registered with an issuer and it’s lost, one can recover their full balance.
- They are convenient like credit cards but don’t allow users to carry a balance.
- Account activity does not impact one’s credit.
- Credit checks are not required to get a prepaid card.
- Prepaid cards that allow direct deposit may save one some money by allowing online and telephone payments for other debts just like a credit or debit card.
- The money on the card is protected by the FDIC insurance or by laws requiring consumers to have access to those funds.
- A prepaid card “may” teach young people how to use credit cards responsibly and how to stick to a budget.
- Prepaid cards can be used internationally.
Disadvantages:
- Prepaid cards are loaded with fees that make them more expensive to have and to use.
- Prepaid cards cannot help one establish or build a good credit history
For more information on this and other types and uses of credit cards visit the Federal Reserve “What You Need to Know Series” at http://federalreserve.gov/consumerinfo/wyntk.htm or the University of Florida Family Youth and Community Sciences at http://fycs.ifas.ufl.edu/
