| Summer 2003 Newsletter | ||
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This issue of Money Sense celebrates the long, hot days of summer, and the
joyous freedom of being financially fit. You'll discover how Meghan W. found
the key to financial freedom, how to get your children financially ready for
college, and what to look for when choosing a credit card, using the
Internet, or refinancing your home.
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Pride Locked Me in Financial Prison |
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A CCCS-OC True Story: Widowed, unemployed, and deep in debt, CCCS-OC Client Meghan W. overcame her pride and embarrassment to free herself and her son from financial prison. |
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A Closer Look at Credit Cards |
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Zero-percent credit card offers look irresistible. But before you sign up, read the fine print. Annual fees, finance charges, penalty rates, and over-the-limit fees can cost you more than the interest. |
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E-Buyer Beware: Online Identity Theft |
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Online shoppers spent more than $26 billion on goods and services last year. It's fast, easy, and fun to let your mouse do the shopping, but identity thieves could make you pay a fortune for that speed and convenience. |
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High Time to Re-fi? |
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Historically low mortgage interest rates are tempting many homeowners to consider refinancing their mortgages, but there's more to consider than just low APRs. With a bit of homework, however, you can make a smart decision about when and how to refinance your loan. |
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Sally Says: Keep College Kids in School and Out of Debt |
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More people now drop out of college due to credit card debt than because of academic problems. And, 40% of people leaving college today are leaving with unmanageable debt. CCCS-OC Education Director, Sally Antwiler helps you keep your child from becoming one of these statistics. |
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The Best Gifts I Gave My College-Bound Children |
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Notes from CCCS-OC President, Jim Frannea: "If you give your children the financial education and tools they need to be successful, and then trust them to use those tools, you may be pleasantly surprised at how well they do." |
| Pride Locked Me in Financial Prison |
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I first realized I was in deep financial trouble two years ago, about the time my son graduated from high school. I had family in town for the ceremony and wanted everything to be perfect, including our home. We'd been struggling since my husband died and I was ashamed of how shabby our furniture looked. I went to purchase a new living room set from a rent-to-own company and ended up getting furniture for the entire house -- on credit. While the monthly payments didn't seem like much at first, they pushed our budget enough that I started to use credit cards for emergencies. When my employer suddenly laid me off I quickly charged five credit cards to the max. At first I could make the minimum payments on them all, but soon even that stretched my finances too thin. I kept falling behind and the creditors started calling.
They hounded me every day. I couldn't sleep at night. Owing money affects you in every way -- physically, emotionally, and mentally. I was too embarrassed to tell anyone about my troubles. Pride kept me from reaching out for help, even though I had no education, training, or experience in dealing with financial matters. My father took care of all the finances when we were growing up, and my husband did the same while he was alive. Now it was up to me, and I didn't have a clue. All I knew was that I could never live with myself if I went bankrupt.
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"I hit bottom and it was rock hard."
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Desperate for help, I discovered CCCS-OC and immediately made an appointment with a counselor. Everyone at CCCS-OC treated me with courtesy, compassion, and respect. My counselor was very encouraging and created a debt repayment program I could live with. She gave me the tools and resources I needed to get on the road to financial security and I felt she really wanted me to succeed. The seminars are so helpful -- I'm learning every day how to take responsibility for my finances.
I'd worried my son would think me a failure so I only recently told him how much trouble we'd been in. Instead of being ashamed, he said he was proud that I'd found a way to fix my problem. He's learned from my struggles, and even though he's still in college, he's already paid off his credit cards and has a savings account.
My advice to anyone struggling to pay their bills? Take action right away. Even if you feel ashamed or embarrassed, don't let your pride stop you from finding the people who can help you take control.
| A Closer Look at Credit Cards |
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With interest rates at a 40-year low, credit card companies have stepped up their marketing campaigns. No-interest, low-interest, and no-annual-fee credit card offers flood millions of mailboxes daily. But what sounds like a great deal may not be when you read the fine print. When shopping for a credit card, check the following:
Interest rates
Fixed rates remain at a constant percentage, such as 9.9%
APR. Variable rates can be tied to the prime interest rate, your account's outstanding
balance, or other variable indicators. Zero-percent offers always have a time limit,
after which they rise to a predetermined fixed or variable rate.
Grace Period before interest charges
This is the period when you are not
charged interest on your balance, usually this lasts 25 days from the day the credit
card statement is issued. However, for some uses, like cash advances and balance
transfers, the grace period may not apply, which means that the interest may begin
accruing from the date of the transaction. Look at each credit card offer carefully to
see how the grace period works on that card.
APR for purchases, Cash Advances, and Balance Transfers
APR stands for
annual percentage rate and is the rate you'll be charged for outstanding balances. Rates
may vary for the same credit card depending on special-offers and different uses. It is
common to have different APR's for new purchases, balance transfers, and cash advances
for the same card.
Annual Fee
Fees can range wildly depending on your credit score. However,
if you pay on time and carry an outstanding balance on your card, you probably shouldn't
have to pay an annual fee.
Additional Fees
Over-the-limit, late-payment, and returned-check fees are
prime ways credit card companies make money. In addition, some issuers may raise your
rate for just one late payment -- sometimes from the lowest offered to the highest.
| Zero-percent credit card offers look irresistible. But before you sign up, be sure to read the fine print to see how long that rate is offered and what rate you'll be charged after the introductory period. |
Find the Card the Fits Your Finances
If you don't pay your bill in full every
month, a card with a lower APR might be better for you. However, if you do pay your bill
in full each month, you might consider a card with no annual fee and a longer grace
period. Other features, such as frequent flyer miles or cash back on purchases, may be
more important to you, but the annual fee and/or the APR you will be charged may out
weigh any value you receive in benefits. Estimate the value of the benefit -- you may
find that a less expensive card might actually be the better deal. Cards that make a
donation to your favorite charity each time you make a purchase can also cost more than
if you choose a less expensive card and make the donation yourself.
Balance Transfers and Introductory Offers
Zero-percent credit card offers
look irresistible. But before you sign up, be sure to read the fine print to see how
long that rate is offered and what rate you'll be charged after the introductory period.
Also check to see if purchases are limited, cash advances allowed, and an annual fee
charged. Also watch out for offers that require you to transfer balances before you're
eligible for zero percent interest. Others may charge a transaction fee for balance
transfers that may outweigh any savings.
Ask and You Might Receive
If you've had a card for a while and have a good
record of paying your monthly bill on time, you may want to negotiate for a lower
interest rate. You may be surprised at how much your card's issuer wants to keep you as
a customer. Some will willingly lower interest rates or eliminate annual fees.
| E-Buyer Beware: Online Identity Theft |
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Identity theft is a real possibility, made easier by the information readily available on the Web today. Internet identity thieves steal your name, Social Security number, credit card number, or other personal information for their own use. They can then open new credit card accounts using it, change the current address of your billing statement to a new one, or open a new bank account in your name. Of course, they never make any payments to these accounts, so when one becomes delinquent it shows up on your credit report.
Before you enter any personal information online -- like your credit card number, social security number, address, or anything else -- follow these basic tips to ensure your Internet identity's security.
Watch what you download
Thieves can steal your identity by planting a
virus in your computer when you download programs. Some viruses check for specific bits
of data like bank accounts or social security numbers. To ensure the highest possible
protection, be careful what sites you download from. Also, install an antivirus program
on your computer and update it regularly. AVG is an excellent free antivirus program
available from www.grisoft.com.
Don't believe everything you e-read
The average Internet user receives
12-25 unsolicited e-mails every day. You can e-mail big name companies with instructions
to remove you from their mailing lists. Beware of companies or people you don't
recognize asking for important information or offering easy money schemes. Instead of
replying to these messages, delete them. Opt out of receiving unsolicited commercial
e-mail by filling out the Direct Marketing Association's online form at www.e-mps.org.
Pay it Safe
Wait until after you've made sure the company is one you trust
before entering your credit card number to make a purchase. Review the company's history
and background at your local consumer protection office or the Better Business Bureau.
Credit card information should only be entered over a secure, encrypted connection,
usually denoted by a small lock in the bottom right corner of your web browser. Credit
cards are the safest way to purchase products online because Federal law limits your
liability to $50 if someone makes unauthorized charges to your account. If you report
the theft promptly, most issuers will remove the charges altogether.
Password Playground
Don't use passwords similar to your real name or screen names. Passwords should be a
combination of upper and lowercase letters and numbers. Use a password you can remember
so that you don't have to write it down. Change your passwords at least once a month.
Find out how
to pick an easy-to-remember, hard-to-guess password.
Identity Crisis
If you suspect your identity has been stolen, check your
credit reports for any unauthorized activity. Visit our special web section ID Theft: Spot It and Stop It for more
information.
| High Time to Re-fi? |
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Is Refinancing for you?
Refinancing may be right for homeowners who:
- Want to get out of high-interest-rate loans to take advantage of lower rates
- Choose to build equity quickly by changing to a shorter-term loan
- Need to draw on current equity to receive cash for a major purchase
- Currently have an adjustable-rate mortgage and want a fixed-rate loan
- Want to change to an adjustable-rate mortgage with a lower interest rate or more features
- Have built up enough equity to eliminate PMI (Private Mortgage Insurance) on a new loan
When to Refinance
Often the question is not "should you refinance," but
"when should you refinance?" The adage of waiting for at least a two-point spread
between your current rate and the market rate before you refinance shouldn't be your
only deciding factor. How long you plan to live in your current house, how much equity
you've built up, the cost of closing, how much lower interest rates will be on the new
loan, and whether you're looking for cash all factor into your decision. For example,
those planning to stay in their home for a longer period benefit the most from a lower
interest rate, while those wanting to build equity quickly may find a 15-year loan a
better choice. Many excellent online calculators can help you determine the right time
to refinance.
The Costs
Refinancing costs are complicated and lenders don't disclose all
the fees up front. Before you agree to refinance, find out how much you'll be charged
for closing costs and if you must purchase points (usually 1% of the loan's cost per
point) to get a lower rate. Other fees to ask about include those for appraisals, home
inspections, mortgage insurance, and application fees. Find out first if your lender
refunds the application fee if you're not approved for the loan or change your mind.
Prepayment Penalty
If your current mortgage has a prepayment penalty it
could be very costly to refinance. The Better Business Bureau of Southern California
recently released a warning that many consumers are getting charged thousands of dollars
in prepayment penalties when refinancing to lower interest rate mortgages. Look for a
prepayment penalty in your current mortgage as well as the one you are considering, and
factor in these costs before you sign the contract.
The Equity Trap
It's tempting to use some of the equity you've built up to
pay for major expenses such as a child's education or home improvements. But be careful
about using equity to pay off credit card debt or to finance cars or vacations. You'll
be repaying these purchases for 30 years and, if you're unable to make the higher
mortgage payments, you'll put your home at risk. In addition, extending the term of a
new mortgage longer than your current mortgage to keep monthly payments low may cost you
thousands more in interest over the life of the loan.
First-time homebuyers can find valuable information in our special web section on Housing.
| Sally Says: Keep College Kids in School and Out of Debt |
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Establishing Credit
At 18, your children become legal adults who can sign
contracts without your knowledge or permission. They will easily be able to acquire
credit cards without any help from you but because their credit is not usually
established at that age, they may ask you to cosign for a car loan. Just keep in mind
that 75% of the cosigners end up repaying the debt themselves. In addition, late or
skipped payments adversely affect both the signer's and cosigner's credit ratings.
Credit Card Responsibility
The average college freshman receives eight
credit card offers during the first week of school. Credit cards can be a good way to
establish credit if used responsibly. While you can't control how many credit cards your
child applies for or receives you can make recommendations on how they can best be used
and the complications that can arise from them. If they do want a credit card, suggest
they open just one and charge only as much as can be paid off each month. College life
is rife with opportunities to overspend and the charges add up fast. Small charges for
things like pizza, clothes, and entertainment can quickly turn into thousands of dollars
in debt.
In fact, more people now drop out of college due to credit card debt than because of academic problems. And, 40% of people leaving college today are leaving with unmanageable debt. Don't let your child be included in one of these statistics.
Guarding Personal Information
Explain to your college-bound child why they
must be careful with their personal information. Social Security cards, credit card
contracts, and bank statements should be stored in a safe place no matter how much they
trust their roommates or friends. Unwanted credit card applications and old transaction
or ATM receipts should be shredded before being discarded. Encourage your child to opt
out of unsolicited credit card offers by calling 1-888-567-8688.
| The Best Gifts I Gave My College-Bound Children |
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President, CCCS-OC of Orange County
For many years my wife and I had planned for the time when our children would be ready for college. But when that day finally arrived, I found myself concerned about money issues. Being in the world of finance for most of my career, I had seen too many people starting their adult lives burdened with heavy debt right out of college. While we had saved enough to pay for their tuition, room and board, and books, I wanted our children to learn about financial responsibility and pay for some of the other living expenses with their own earnings.
Here are a few of the things we did to help them prepare and save for their college expenses:
- Each child made a list of all expenses that they thought they would incur
- Researched the cost of each item per month or per semester
- Negotiated the payment of the expenses with Mom and Dad
- Established a monthly budget for each month of the school year
- Set up a separate savings account for school expenses
- Determined much money had to be earned during the summer and school year to cover these expenses
Both children had small savings accounts that helped get them started. By the end of summer they both had enough money in their accounts to cover their expenses for the first year. All earnings during the school year were to be placed into the saving account for the following year. My son had earned enough to completely cover his first year and decided not to work at all during the school year.
Our daughter was my biggest worry. A born extrovert, she was a good student, but loved to socialize. Money and organizational skills were not her forte. Knowing this, I spent much more time with her and her budget before her freshman year. To ease my mind and provide a safety net, we set up a joint credit card account for emergencies. We agreed that the credit card bill would be sent directly to us, but that she would tell us ahead of time about any charges -- and who was expected to pay.
My son, the oldest, went away to school first, and from the beginning he handled his finances beautifully. Now it was my daughter's turn and I started worrying the moment she hugged us goodbye. I knew that she would have many friends, would join many social clubs and organizations, and loved to entertain -- a combination that could provide endless opportunities for overspending. I held my breath waiting for that first desperate phone call home. Surprisingly, it never came. Soon it was Christmas break and she couldn't wait to come home and show me the budget she had set up by herself on her computer. It showed her expenses in every category and where she had met or exceeded her goal to stay in budget. She was so proud of herself, and of course, I was even more proud.
My children have both graduated now and have remained excellent money managers, far exceeding my expectations. I am proud of both of my children, but am still a bit shocked and surprised at my lack of faith in their financial abilities.
I tell parents I work with here at CCCS-OC that the most important thing I learned was that if you give your children the financial education and tools they need to be successful, and then trust them to use those tools, you may be pleasantly surprised at how well they do.