I have had several inquiries regarding my article "Buying Your First Home" (3/30/07). There is so much information about home purchasing that it can be overwhelming. I just wanted to pass along a few websites that have some great information regarding home buying and mortgages, www.homeloans.va.gov, www.ginniemae.gov and www.fanniemae.com
If you have any specific questions, just let me know and I'll try to help.
Monday, April 9, 2007
Monday, April 2, 2007
Why Gold Should Surge
I have been a fan of gold and gold stocks for at least 6 years now. There have been many ups and downs and a lot of scary volatility. Trading for the short term is not an easy thing with gold, but looking at the larger long term picture I see nothing but upside. Of course there will be corrections in between, but if you can ride them out... this gold bull may just be in it's infancy. I ran across this article this weekend on the Dow Jones Newswire and thought it may be of some interest. Enjoy.
Seven Reasons Why Gold Should Surge 4-1-07 9:04 PM EDT
JUPITER, Fla. (M&M) -- I believe gold about to surge to $700 ... then $800 and potentially higher. Here are seven reasons why ...
1. China can't get enough gold
According to the China Gold Association, China's gold production hit 19.9 metric tonnes in January, up 25.7% from a year earlier. At this rate, China should produce 260 tonnes this year. And it's STILL not enough to meet Chinese demand - it falls about 100 tonnes short. And the gap may be even BIGGER! This is "The Year of the Golden Pig," in the Asian calendar, and many Chinese buy gold to celebrate. China's 2006 gold consumption grew by an amazing 17%, and the Shanghai Gold Exchange reports that gold trading volume 72.83% in January.
2. Two India gold ETFs are launching
The first gold ETF in India is Benchmark Mutual Fund's Gold BeES. It launched on February 15. The second gold ETF in India is rolling out now, launched by UTI Mutual Fund. The new ETF is called, naturally enough, UTI Gold Exchange Traded Fund. According to Rajesh Bhojani, President of Marketing for UTI Mutual Fund, about 30% of the gold market in India is investors. I wonder what the new gold ETF will do to that percentage?
3. Existing gold ETFs are pumping up demand
We already know what gold ETFs have done here in the U.S. When the StreetTRACKS Gold Shares gold ETF (GLD) started in November of 2004, it held about 100 tonnes of gold and gold traded at around $450 per ounce. Now, there are 476 tonnes and gold is trading around $650 per ounce. That's not a coincidence. The Gold Shares gold ETF and other gold ETFs around the world make it easier than ever for people to invest in gold. Why? Because there are several advantages of investing in GOLD ETFs:
* No hassles of safety
* No resale concerns
* Quality Assurance
* No making charges
* More tax efficient in absence of wealth tax and long-term capital gains tax
Despite the recent sell-off in markets of all types, the amount of gold held by the GLD barely budged (down 2.2% from its peak). I expect U.S. investors to start adding again, and that will drive prices even higher.
4. Investment demand is booming
Reuters reports that worldwide investment demand for gold should remain at historically high levels this year, with investors continuing to buy large volumes of gold in bullion, coin and jewelry. CPM's 2007 Gold Yearbook report predicted investors would likely add another 39.7 million ounces to their gold holdings in 2007, after investing 43.5 million ounces in 2006. I believe this estimate of demand is too conservative. See reasons 1 through 3 for why.
5. Central bank gold stockpiles have swooned to a 60-year low
The International Monetary Fund (IMF) reports that the amount of gold held by central banks and other government organizations declined for the eighth straight year in 2006. Bullion holdings were 867.6 million ounces last year, down 1.2% from 2005, the lowest since 1948, according to the World Gold Council.
The Russian Central Bank was the only one to make purchases last year, up 3.8% to 12.91 million ounces, according to the IMF. Speaking of China, it is still holding 19.29 million ounces in December -- unchanged since 2001. But here's some interesting news: China is setting up a managed fund to handle its more-than $1 trillion in currency reserves. This will be Asia's biggest government controlled fund. China has to do something -- 70% of its currency reserves are in the U.S. dollar and the greenback could get creamed as China's currency, the renminbi (or yuan) appreciates. China is already losing money on the deal, writing off $3.4 billion in exchange-rate losses in 2006.
In short, China needs to invest in something other than dollars. A smart move would be to buy more gold for its central bank reserves. Even a small move in this direction would send gold soaring.
What's more, central bank gold sales fell to 11.4 million ounces in 2006, down from 20.6 million ounces in 2005. If this trend continues, that will also boost the price.
6. Miners can't find new deposits fast enough
Analysis by Metals Economics Group shows exploration budgets increased to almost $7.13 billion in 2006 -- the fourth consecutive annual increase since the bottom of the exploration cycle in 2002 and the highest total since MEG began these reports in 1989. MEG analyzed budgets for 1,624 companies (using a $100, 000 cutoff), which MEG estimates covers about 95% of worldwide commercially oriented nonferrous expenditures. Adding in the other 5% of companies gives total expenditures for commercial nonferrous metals exploration of $7.5 billion. That blows past the previous high of $5.2 billion in 1997 to set a new pinnacle of global nonferrous exploration. So where is all this gold? Well, it takes time to bring new gold mines online ... and the big 'n' cheap-to-mine deposits have already been found. Meanwhile, production at existing but long-worked mines is grinding down. As a matter of fact ...
* South Africa's gold output fell nearly 8% in 2006 from 2005. It is now at its lowest level since 1922!
* U.S. gold output for last year declined slightly from 262 tonnes to 260 tonnes.
* Australian production fell 4.5% to 251 tonnes.
* Peruvian gold production fell to 203 tonnes from 207 tonnes.
* Russian gold output dropped to 152 tonnes from 156 tonnes
* Canada's gold production fell a whopping 11% to 104 tonnes.
Bottom line: Big gold producers are finding it tough to replace their reserves. That's why we saw huge mergers last year. Yamana merged with RNC Gold ... Glamis Gold bought Western Silver ... Goldcorp merged with Glamis ... Barrick bought Placer Dome. Heck, just look at mine supply. Despite the price of gold rising for years, supply from mines is actually going DOWN. Since mine supply doesn't cover demand, where does the rest come from? From scrap, central bank gold sales and stockpiles, all of which are being depleted. And that is a recipe for much higher prices.
7. Gold charts show opportunity
Take a look at a weekly chart of gold. You can see that gold is channeling higher. The rate of ascent is INCREASING. It is at the BOTTOM of the channel now. It appears that gold is presenting the best buying opportunity since January. The next big move will likely be over $700 per ounce. And if we have a breakout, all bets are off. Those are seven good reasons why I think gold will head higher. I could give you a lot more.
How to play the surge:
I prefer junior gold miners, but they can have wild ups and downs. There other ways to play this surge that are less cardiac-inducing. You can always buy the Street Tracks Gold (GLD) , which simply tracks the price of gold. For more leverage, consider a fund like U.S. Global Investors World Precious Minerals Fund (UNWPX) . Its holdings include Goldcorp (GG) , Northern Orion Resources( NTO) , Bolivar Gold and more. It has a total expense ratio of just 1.43%, which is lower than the industry average. And it returned 28% over the past year, beating the pants off its competition.
Dow Jones Newswires
04-01-072104ET
Copyright (c) 2007 Dow Jones & Company, Inc
Seven Reasons Why Gold Should Surge 4-1-07 9:04 PM EDT
JUPITER, Fla. (M&M) -- I believe gold about to surge to $700 ... then $800 and potentially higher. Here are seven reasons why ...
1. China can't get enough gold
According to the China Gold Association, China's gold production hit 19.9 metric tonnes in January, up 25.7% from a year earlier. At this rate, China should produce 260 tonnes this year. And it's STILL not enough to meet Chinese demand - it falls about 100 tonnes short. And the gap may be even BIGGER! This is "The Year of the Golden Pig," in the Asian calendar, and many Chinese buy gold to celebrate. China's 2006 gold consumption grew by an amazing 17%, and the Shanghai Gold Exchange reports that gold trading volume 72.83% in January.
2. Two India gold ETFs are launching
The first gold ETF in India is Benchmark Mutual Fund's Gold BeES. It launched on February 15. The second gold ETF in India is rolling out now, launched by UTI Mutual Fund. The new ETF is called, naturally enough, UTI Gold Exchange Traded Fund. According to Rajesh Bhojani, President of Marketing for UTI Mutual Fund, about 30% of the gold market in India is investors. I wonder what the new gold ETF will do to that percentage?
3. Existing gold ETFs are pumping up demand
We already know what gold ETFs have done here in the U.S. When the StreetTRACKS Gold Shares gold ETF (GLD) started in November of 2004, it held about 100 tonnes of gold and gold traded at around $450 per ounce. Now, there are 476 tonnes and gold is trading around $650 per ounce. That's not a coincidence. The Gold Shares gold ETF and other gold ETFs around the world make it easier than ever for people to invest in gold. Why? Because there are several advantages of investing in GOLD ETFs:
* No hassles of safety
* No resale concerns
* Quality Assurance
* No making charges
* More tax efficient in absence of wealth tax and long-term capital gains tax
Despite the recent sell-off in markets of all types, the amount of gold held by the GLD barely budged (down 2.2% from its peak). I expect U.S. investors to start adding again, and that will drive prices even higher.
4. Investment demand is booming
Reuters reports that worldwide investment demand for gold should remain at historically high levels this year, with investors continuing to buy large volumes of gold in bullion, coin and jewelry. CPM's 2007 Gold Yearbook report predicted investors would likely add another 39.7 million ounces to their gold holdings in 2007, after investing 43.5 million ounces in 2006. I believe this estimate of demand is too conservative. See reasons 1 through 3 for why.
5. Central bank gold stockpiles have swooned to a 60-year low
The International Monetary Fund (IMF) reports that the amount of gold held by central banks and other government organizations declined for the eighth straight year in 2006. Bullion holdings were 867.6 million ounces last year, down 1.2% from 2005, the lowest since 1948, according to the World Gold Council.
The Russian Central Bank was the only one to make purchases last year, up 3.8% to 12.91 million ounces, according to the IMF. Speaking of China, it is still holding 19.29 million ounces in December -- unchanged since 2001. But here's some interesting news: China is setting up a managed fund to handle its more-than $1 trillion in currency reserves. This will be Asia's biggest government controlled fund. China has to do something -- 70% of its currency reserves are in the U.S. dollar and the greenback could get creamed as China's currency, the renminbi (or yuan) appreciates. China is already losing money on the deal, writing off $3.4 billion in exchange-rate losses in 2006.
In short, China needs to invest in something other than dollars. A smart move would be to buy more gold for its central bank reserves. Even a small move in this direction would send gold soaring.
What's more, central bank gold sales fell to 11.4 million ounces in 2006, down from 20.6 million ounces in 2005. If this trend continues, that will also boost the price.
6. Miners can't find new deposits fast enough
Analysis by Metals Economics Group shows exploration budgets increased to almost $7.13 billion in 2006 -- the fourth consecutive annual increase since the bottom of the exploration cycle in 2002 and the highest total since MEG began these reports in 1989. MEG analyzed budgets for 1,624 companies (using a $100, 000 cutoff), which MEG estimates covers about 95% of worldwide commercially oriented nonferrous expenditures. Adding in the other 5% of companies gives total expenditures for commercial nonferrous metals exploration of $7.5 billion. That blows past the previous high of $5.2 billion in 1997 to set a new pinnacle of global nonferrous exploration. So where is all this gold? Well, it takes time to bring new gold mines online ... and the big 'n' cheap-to-mine deposits have already been found. Meanwhile, production at existing but long-worked mines is grinding down. As a matter of fact ...
* South Africa's gold output fell nearly 8% in 2006 from 2005. It is now at its lowest level since 1922!
* U.S. gold output for last year declined slightly from 262 tonnes to 260 tonnes.
* Australian production fell 4.5% to 251 tonnes.
* Peruvian gold production fell to 203 tonnes from 207 tonnes.
* Russian gold output dropped to 152 tonnes from 156 tonnes
* Canada's gold production fell a whopping 11% to 104 tonnes.
Bottom line: Big gold producers are finding it tough to replace their reserves. That's why we saw huge mergers last year. Yamana merged with RNC Gold ... Glamis Gold bought Western Silver ... Goldcorp merged with Glamis ... Barrick bought Placer Dome. Heck, just look at mine supply. Despite the price of gold rising for years, supply from mines is actually going DOWN. Since mine supply doesn't cover demand, where does the rest come from? From scrap, central bank gold sales and stockpiles, all of which are being depleted. And that is a recipe for much higher prices.
7. Gold charts show opportunity
Take a look at a weekly chart of gold. You can see that gold is channeling higher. The rate of ascent is INCREASING. It is at the BOTTOM of the channel now. It appears that gold is presenting the best buying opportunity since January. The next big move will likely be over $700 per ounce. And if we have a breakout, all bets are off. Those are seven good reasons why I think gold will head higher. I could give you a lot more.
How to play the surge:
I prefer junior gold miners, but they can have wild ups and downs. There other ways to play this surge that are less cardiac-inducing. You can always buy the Street Tracks Gold (GLD) , which simply tracks the price of gold. For more leverage, consider a fund like U.S. Global Investors World Precious Minerals Fund (UNWPX) . Its holdings include Goldcorp (GG) , Northern Orion Resources( NTO) , Bolivar Gold and more. It has a total expense ratio of just 1.43%, which is lower than the industry average. And it returned 28% over the past year, beating the pants off its competition.
Dow Jones Newswires
04-01-072104ET
Copyright (c) 2007 Dow Jones & Company, Inc
Friday, March 30, 2007
Buying Your First Home
Before you start with your home buying process, there are a few things you should do. Probably most important is to go over your current budget to see what your financial situation is and how much home you can afford. Consider what kind of home and neighborhood would fit your lifestyle and do some research in the neighborhood you are considering, like home prices and schools and convenience to your work/school. And ask family and friends for referrals for people who can help you in the home buying process like home inspectors, loan officers and of course real estate brokers.
Buying a home can be a good financial investment. Making mortgage payments forces you to save, and after 15 to 30 years you will own a substantial asset that can be converted into cash to help fund retirement or a child's education. There are also tax benefits. Like many other investments, however, real estate prices can fluctuate considerably. If you aren't ready to settle down in one spot for a few years, you probably should defer buying a home until you are. If you are ready to take the plunge, you'll need to determine how much you can spend and where you want to live.
So you really need to ask yourself how much mortgage can you afford. Many mortgages today are being resold in the secondary markets. The Federal National Mortgage Association (Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to investors. Mortgages that conform to Fannie Mae's standards may carry lower interest rates or smaller down payments. To qualify, the mortgage borrower needs to meet two ratio requirements that are industry standards.
1)The housing expense ratio compares basic monthly housing costs to the buyer's gross (before taxes and other deductions) monthly income. Basic costs include monthly mortgage, insurance, and property taxes. Income includes any steady cash flow, including salary, self-employment income, pensions, child support, or alimony payments. For a conventional loan, your monthly housing cost should not exceed 28% of your monthly gross income.
2)The total obligations to income ratio is the percentage of all income required to service your total monthly payments. Monthly payments on student loans, installment loans, and credit card balances older than 10 months are added to basic housing costs and then divided by gross income. Your total monthly debt payments, including basic housing costs, should not exceed 36%.
Many home buyers choose to arrange financing before shopping for a home and most lenders will "prequalify" you for a certain amount. Prequalification helps you focus on homes you can afford. It also makes you a more attractive buyer and can help you negotiate a lower purchase price. Nothing is more disheartening for buyers or sellers than a deal that falls through due to a lack of financing. In addition to qualifying for a mortgage, you will probably need a down payment. The 28% to 36% debt ratios assume a 10% down payment. In practice, down payment requirements vary from more than 20% to as low as 0% for some Veterans Administration (VA) loans. Down payments greater than 20% generally buy a better rate.
Many home buyers are surprised to find that a down payment is not the only cash requirement and that the cost of buying a home is much more than just the price of the house. A home inspection can cost $200 or more. Closing costs may include loan origination fees, up-front "points" (prepaid interest), application fees, appraisal fee, survey, title search and title insurance, first month's homeowners insurance, recording fees and attorney's fees. In many locales, transfer taxes are assessed. Finally, adjustments for heating oil or property taxes already paid by the sellers will be included in your final costs. All this will probably add up to be between 3% and 8% of your purchase price.
In addition to mortgage payments, there are other on going costs associated with home ownership. Utilities, heat, property taxes, repairs, insurance, services such as trash or snow removal, landscaping, assessments, and replacement of appliances are the major costs incurred. Make sure you understand how much you are willing and able to spend on such items.
Condominiums may not have the same costs as a house, but they do have association fees. Older homes are often less expensive to buy, but repairs may be greater than those in a newer home. When looking for a home, be sure to check the actual expenses of the previous owners, or expenses for a comparable home in the neighborhood.
Before you start looking at homes, look at neighborhoods. Schools and other services play a large part in making a neighborhood attractive. Even if you don't have children, your future buyer may. Crime rates, taxes, transportation, and town services are other things to look at. Finally, learn the local zoning laws. A new pizza shop next door might alter your property's future value. On the other hand, you may want to run a business out of your home.
Look for a neighborhood where prices are increasing. As the prices of the better homes increase, values of the lesser homes may rise as well. If you find a less expensive home in a good neighborhood, make sure you factor in the cost of repairs or upgrades that such a house may need.
If you are a first-time home buyer, you will probably want to work with a broker. Brokers know the market and can be a valuable source of information concerning the home buying process. Ask lots of questions, but remember that most brokers are working for the seller, and in the end, their primary obligation is to the seller and not to you. An alternative is a so-called buyer's broker. This individual does work for you, and therefore is paid by you. Seller's brokers are paid by the seller. Make sure that the broker has access to the Multiple Listing Service (MLS). This service lists all the properties for sale by most major brokers across the country. Brokerage commissions average 5% to 7% and are split between the listing broker and the broker that eventually sells the home.
Once you've determined a price range and location, you're ready to look at individual homes. Remember that much of a home's value is derived from the values of those surrounding it. Since the average residency in a house is seven years, consider the qualities that will be attractive to future buyers as well as those attractive to you. Although it can be difficult, try to remember that you will probably want to sell this home someday. The more research you do today, the better your decision will look in the years to come.
Buying a home can be a good financial investment. Making mortgage payments forces you to save, and after 15 to 30 years you will own a substantial asset that can be converted into cash to help fund retirement or a child's education. There are also tax benefits. Like many other investments, however, real estate prices can fluctuate considerably. If you aren't ready to settle down in one spot for a few years, you probably should defer buying a home until you are. If you are ready to take the plunge, you'll need to determine how much you can spend and where you want to live.
So you really need to ask yourself how much mortgage can you afford. Many mortgages today are being resold in the secondary markets. The Federal National Mortgage Association (Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to investors. Mortgages that conform to Fannie Mae's standards may carry lower interest rates or smaller down payments. To qualify, the mortgage borrower needs to meet two ratio requirements that are industry standards.
1)The housing expense ratio compares basic monthly housing costs to the buyer's gross (before taxes and other deductions) monthly income. Basic costs include monthly mortgage, insurance, and property taxes. Income includes any steady cash flow, including salary, self-employment income, pensions, child support, or alimony payments. For a conventional loan, your monthly housing cost should not exceed 28% of your monthly gross income.
2)The total obligations to income ratio is the percentage of all income required to service your total monthly payments. Monthly payments on student loans, installment loans, and credit card balances older than 10 months are added to basic housing costs and then divided by gross income. Your total monthly debt payments, including basic housing costs, should not exceed 36%.
Many home buyers choose to arrange financing before shopping for a home and most lenders will "prequalify" you for a certain amount. Prequalification helps you focus on homes you can afford. It also makes you a more attractive buyer and can help you negotiate a lower purchase price. Nothing is more disheartening for buyers or sellers than a deal that falls through due to a lack of financing. In addition to qualifying for a mortgage, you will probably need a down payment. The 28% to 36% debt ratios assume a 10% down payment. In practice, down payment requirements vary from more than 20% to as low as 0% for some Veterans Administration (VA) loans. Down payments greater than 20% generally buy a better rate.
Many home buyers are surprised to find that a down payment is not the only cash requirement and that the cost of buying a home is much more than just the price of the house. A home inspection can cost $200 or more. Closing costs may include loan origination fees, up-front "points" (prepaid interest), application fees, appraisal fee, survey, title search and title insurance, first month's homeowners insurance, recording fees and attorney's fees. In many locales, transfer taxes are assessed. Finally, adjustments for heating oil or property taxes already paid by the sellers will be included in your final costs. All this will probably add up to be between 3% and 8% of your purchase price.
In addition to mortgage payments, there are other on going costs associated with home ownership. Utilities, heat, property taxes, repairs, insurance, services such as trash or snow removal, landscaping, assessments, and replacement of appliances are the major costs incurred. Make sure you understand how much you are willing and able to spend on such items.
Condominiums may not have the same costs as a house, but they do have association fees. Older homes are often less expensive to buy, but repairs may be greater than those in a newer home. When looking for a home, be sure to check the actual expenses of the previous owners, or expenses for a comparable home in the neighborhood.
Before you start looking at homes, look at neighborhoods. Schools and other services play a large part in making a neighborhood attractive. Even if you don't have children, your future buyer may. Crime rates, taxes, transportation, and town services are other things to look at. Finally, learn the local zoning laws. A new pizza shop next door might alter your property's future value. On the other hand, you may want to run a business out of your home.
Look for a neighborhood where prices are increasing. As the prices of the better homes increase, values of the lesser homes may rise as well. If you find a less expensive home in a good neighborhood, make sure you factor in the cost of repairs or upgrades that such a house may need.
If you are a first-time home buyer, you will probably want to work with a broker. Brokers know the market and can be a valuable source of information concerning the home buying process. Ask lots of questions, but remember that most brokers are working for the seller, and in the end, their primary obligation is to the seller and not to you. An alternative is a so-called buyer's broker. This individual does work for you, and therefore is paid by you. Seller's brokers are paid by the seller. Make sure that the broker has access to the Multiple Listing Service (MLS). This service lists all the properties for sale by most major brokers across the country. Brokerage commissions average 5% to 7% and are split between the listing broker and the broker that eventually sells the home.
Once you've determined a price range and location, you're ready to look at individual homes. Remember that much of a home's value is derived from the values of those surrounding it. Since the average residency in a house is seven years, consider the qualities that will be attractive to future buyers as well as those attractive to you. Although it can be difficult, try to remember that you will probably want to sell this home someday. The more research you do today, the better your decision will look in the years to come.
Monday, March 5, 2007
Get Out of Debt
Today, carrying some kind of debt is unavoidable, and even desirable, for most households. But between mortgages, car payments, school loans and credit cards, many people find themselves in over their heads — unable to dig out from under growing debt. The average U.S. household now has credit card debt of more than $9,300. Credit card companies have made running up that balance deceptively convenient.
One of the first things to do is to start assessing your debt. How much debt is too much? The figure varies from person to person, but in general, if more than 20% of your take-home pay goes to finance non housing debt or if your rent or mortgage payments exceed 30% of your monthly take-home pay, you may be overextended. Other signs that you may be overextended include not knowing how much you owe, constantly paying the minimum balance due on credit cards (or worse, being unable to make the minimum payments), and borrowing from one lender to pay another. If you feel that you're overextended, don't panic. There are a number of steps you can follow to eliminate that debt and get yourself back on track. Working your way out of debt will require you to adjust your spending habits.
You need to begin with a making a budget, and if you already have one, it needs to be revised. The first step in eliminating debt is to figure out where your money goes. This will allow you to see where your debt is coming from and, perhaps, help you to free up some cash to put toward debt. Track your expenses for one month by writing down what you spend. At the end of the month, total up your expenses and break them down into two categories: Essential, including fixed expenses such as mortgage/rent, food, and utilities, and nonessential, including entertainment and meals out. Analyze your expenses to see where your spending can be reduced. Perhaps you can cut back on food expenses by bringing lunch to work instead of eating out each day. You might be able to reduce transportation costs by taking public transportation instead of parking your car at a pricey downtown garage. Even utility costs can be reduced by turning lights off, making fewer long-distance calls, or turning the thermostat down a few degrees in winter. The goal is to reduce current spending so that you won't need to add to your debt and to free up as much cash as possible to cut down existing debt.
Here are some tips on how to start reducing your debt. Pay off high-rate debt first. The higher your interest rate, the more you wind up paying. Begin with your highest-rate credit cards and eliminate the balance as aggressively as possible. For example, assume you have two separate $2,000 balances, one charging 20% interest, the other 8%, on which you can pay a total of 6% per month. Instead of paying 3% on each balance, if you instead paid 4% per month on the higher-rate card and 2% on the lower-rate card (which is typically the minimum monthly payment), you would save about $961 in interest and 18 months of payments.
Another thing to do is to transfer high-rate debt to lower-rate cards. Consolidating credit card debts to a single, lower-rate card saves more than postage and paperwork. It also saves in interest costs over the life of the loan. Comparison shop for the best rates, and beware of "teaser" rates that start low, say, at 6%, then jump to much higher rates after the introductory period ends. You can find a list of low-rate cards online from CardTrak at www.cardtrak.com. If you can only find a card with a low introductory rate, maximize the value of that low-interest period. By paying off your balance aggressively, you will reduce the balance more quickly than you will when the rate goes up. You can also contact your current credit card companies and ask about consolidation and lower rates. Competition in the industry is fierce, and many companies are willing to lower their rates to keep their customers. Even a percentage point or two can make a difference with a sizable balance.
Another good practice is to borrow only for the long term. The best use of debt is to finance things that will gain in value, such as a home, an education, or big-ticket necessities, like a washing machine or a computer, that will still be around when the debt is paid off. Avoid using your credit card for concert tickets, vacation expenses, or meals out. By the time the balance is gone, you'll have paid far more than the cost of these items and have nothing but memories to show for it.
By analyzing your spending, controlling expenses, and establishing a plan, you can reduce — and perhaps eliminate — your debt, leaving you with more money to save today and a better outlook for your financial future.
One of the first things to do is to start assessing your debt. How much debt is too much? The figure varies from person to person, but in general, if more than 20% of your take-home pay goes to finance non housing debt or if your rent or mortgage payments exceed 30% of your monthly take-home pay, you may be overextended. Other signs that you may be overextended include not knowing how much you owe, constantly paying the minimum balance due on credit cards (or worse, being unable to make the minimum payments), and borrowing from one lender to pay another. If you feel that you're overextended, don't panic. There are a number of steps you can follow to eliminate that debt and get yourself back on track. Working your way out of debt will require you to adjust your spending habits.
You need to begin with a making a budget, and if you already have one, it needs to be revised. The first step in eliminating debt is to figure out where your money goes. This will allow you to see where your debt is coming from and, perhaps, help you to free up some cash to put toward debt. Track your expenses for one month by writing down what you spend. At the end of the month, total up your expenses and break them down into two categories: Essential, including fixed expenses such as mortgage/rent, food, and utilities, and nonessential, including entertainment and meals out. Analyze your expenses to see where your spending can be reduced. Perhaps you can cut back on food expenses by bringing lunch to work instead of eating out each day. You might be able to reduce transportation costs by taking public transportation instead of parking your car at a pricey downtown garage. Even utility costs can be reduced by turning lights off, making fewer long-distance calls, or turning the thermostat down a few degrees in winter. The goal is to reduce current spending so that you won't need to add to your debt and to free up as much cash as possible to cut down existing debt.
Here are some tips on how to start reducing your debt. Pay off high-rate debt first. The higher your interest rate, the more you wind up paying. Begin with your highest-rate credit cards and eliminate the balance as aggressively as possible. For example, assume you have two separate $2,000 balances, one charging 20% interest, the other 8%, on which you can pay a total of 6% per month. Instead of paying 3% on each balance, if you instead paid 4% per month on the higher-rate card and 2% on the lower-rate card (which is typically the minimum monthly payment), you would save about $961 in interest and 18 months of payments.
Another thing to do is to transfer high-rate debt to lower-rate cards. Consolidating credit card debts to a single, lower-rate card saves more than postage and paperwork. It also saves in interest costs over the life of the loan. Comparison shop for the best rates, and beware of "teaser" rates that start low, say, at 6%, then jump to much higher rates after the introductory period ends. You can find a list of low-rate cards online from CardTrak at www.cardtrak.com. If you can only find a card with a low introductory rate, maximize the value of that low-interest period. By paying off your balance aggressively, you will reduce the balance more quickly than you will when the rate goes up. You can also contact your current credit card companies and ask about consolidation and lower rates. Competition in the industry is fierce, and many companies are willing to lower their rates to keep their customers. Even a percentage point or two can make a difference with a sizable balance.
Another good practice is to borrow only for the long term. The best use of debt is to finance things that will gain in value, such as a home, an education, or big-ticket necessities, like a washing machine or a computer, that will still be around when the debt is paid off. Avoid using your credit card for concert tickets, vacation expenses, or meals out. By the time the balance is gone, you'll have paid far more than the cost of these items and have nothing but memories to show for it.
By analyzing your spending, controlling expenses, and establishing a plan, you can reduce — and perhaps eliminate — your debt, leaving you with more money to save today and a better outlook for your financial future.
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