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Your Mortgage Payment is Late: 5 Solutions

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Mortgage Payment

Sometimes, catastrophe strikes when you least expect it. Maybe you suddenly become unemployed, and your bank account isn’t holding up. Maybe someone stole your debit card number and some of your money is gone.

Whatever the reason, you couldn’t pay your mortgage on time. And, now, you’re late.

While falling behind on your mortgage is cause for concern, it doesn’t have to result in disaster. There are things you can do to get back on track fast, possibly preserving your credit score in the process. Here’s what you need to do. [Read more…]

5 Student Loan Deferment Tips

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Student Loan Deferment

If you’re a current student or recent graduate, making your student loan payments is a daunting prospect. Even if you have a job, that doesn’t mean you have the income to support what can be a sizable obligation. However, student loan deferment can help.

It’s also possible for professionals to struggle with student loan debt. A surprise financial hardship can make it hard to keep up, and it often seems that you have very few options for help.

In some cases, student loan deferment can provide some reprieve from your obligation, even from student loan interest. If you’re struggling to keep up with your payments, here are five student loan deferment tips that you need to know. [Read more…]

What is the Debt Service Coverage Ratio and What Does It Mean For You

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Maybe you’ve heard the term “debt service coverage ratio”, but do you know what it means? If not, you really should because there’s a chance it’s affecting your finances.

Basically, it is your cash flow available to pay your current debt obligations. The ratio is your cash flow availability compared to your debt obligations that are due within one year including any interest, principal, and lease payments.

In most cases, the term “debt service coverage ratio” applies to businesses and their ability to pay their lenders and cover their expenses. But it can be applied to individuals as well because it can have an impact on many areas of your finances. The higher your ratio (meaning high cash flow and low debt), the easier it will be for you to obtain a loan. And if your ratio is high, you can obtain that loan at a lower interest rate. A high ratio can also have a positive impact on your credit score. An acceptable ratio may even be a term for acquiring a loan, both for personal reasons and for business purposes. And if it is, your loan can be in default if your ratio lowers beyond the required limit. Which means your loan could be called in full.

Banks use your debt service coverage ratio to determine your qualifications for a loan so if you’re in the market for a personal loan, auto loan, or home loan, you’ll want to know your ratio. And if you’re trying to obtain a loan for business purposes, it’s almost guaranteed that your ratio will play into the outcome of your loan application.

Here’s how your ratio is calculated:

Debt Service Coverage Ratio = Net Operating Income (or cash flow)/Debt Service

Breaking it down, it looks like this:

Your Net Operating Income = Net Income + Amortization and Depreciation + Interest Expense + Non-Cash Items

Debt Service = Principal Repayment + Interest Payments + Lease Payments

To calculate your ratio, you need to know your entire cash flow. This should include your salary, commissions, investment income, rental property income, and any other income you may receive. Add all of this up for a one year period then deduct your expenses. Be sure to include every expense that you will need to justify like loans, rent/mortgage, utilities, and any other expenses.

If you’re looking for your ratio in regards to your business, you will need to look at your total income and deduct all operating expenses to acquire your ratio.

To be in good standing, your ratio should be above 1. To put that in perspective, a ratio of .8 means you only have enough cash flow to cover 80% of your debt. For the purposes of a new loan application, that’s not suitable to a lender. The higher your ratio, anything over 1, puts you in good standing for a new loan. Anything above 1 means you are able to cover 100% of your debt with something left over. Ideally, lenders will look for a ratio of 1.2 or higher in order to have confidence that you can cover your loan.

Knowing your debt service coverage ratio in advance of applying for new credit can put you in better standing for acquiring a lower interest rate and better loan terms.

Best Free Financial Advice

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Growing up, I was never taught about personal finances. Sure, I knew that money could buy you things, but that was the extent of my financial knowledge. When I graduated college, I had to teach myself everything about finances from scratch. Living on a small post-graduate income, I didn’t have lots of money to invest in financial courses and books. Thanks to the wealth of information on the Internet, I didn’t have to! Here is a list of the best free financial advice that I’ve learned in the years since graduating.

Spend less than you earn and get on a written budget.

Before you can become rich, it’s absolutely critical that you spend less money than you earn and get on a written budget. Ideally, you would not want to be living paycheck-to-paycheck but have some extra money in your budget each month.

Minimize debt.

Some people believe that debts such as mortgages and student loans are “good” debt, while some do not. Either way, any debt you have means you owe money to someone else and will (most likely) be paying interest on that debt. The less debt you carry, especially the high interest ones such as credit card debt, the more money you will have to invest. I personally am working towards being 100% debt free.

Save for emergencies.

It’s a fact of life: hard times are going to come. Be prepared for them by saving money in an emergency fund so you won’t have to go into debt to cover the emergency. I was so thankful I had my emergency fund when my car broke down recently. Financial guru Dave Ramsey recommends having $1,000 in your emergency fund ($500 if you’re low income), but I’m personally not comfortable with less than $1,500-$2,500 in a starter emergency fund. My eventual goal, once I pay off debt, is to save 3-6 months’ worth of living expenses in my emergency fund.

Diversify your investments.

When I was younger, I heard an elderly neighbor say something along the lines of “Don’t put all your eggs in one basket.” I always thought it was about just planning on only one outcome, but as I learned more about finances I realized the saying applies for it as well. I’ve heard stories of people who invest entirely into one stock, and when the stock market crashes their investment is entirely wiped out. Spreading your investments across a variety of assets is less risky.

Think long-term with your investments.

You know the saying “Rome wasn’t built in a day”? Well, the same is true for your finances. You won’t become a millionaire overnight, but by investing in retirement funds and mutual funds and thanks to the magic of compound interest, over time you can build up your net worth. I recommend investing 10-15% of your income into retirement and other investment accounts. If you can’t start with that much, start with as much as you can afford, even if it’s just a small amount. If your employer offers a match for a 401(k) or 403(b), I definitely recommend investing the maximum matching amount– otherwise, it’s like turning down free money!

Earn more.

I decided to work part-time in addition to working my full-time job (aka “side hustling”) when I decided I wanted to get out of debt. I love it! It allows me to gain work experience outside of my day job, plus it allows me to pursue something I’m passionate about—writing and inspiring others (through my blog.) Side hustle money can be used for anything from investing to paying off debt to travel.

Money isn’t everything.

Billionaires Warren Buffett and Bill Gates created the Giving Pledge, which encourages other billionaires to give away half of their earnings to charity. Buffett even went so far as to pledge to give away 99% of his wealth in his lifetime or within 10 years after his estate is settled upon his death. I love that idea. As much as I love finances, at the end of the day, it’s just money. You can’t take it with you when you pass away. This is why I believe in giving a portion of your income to charities and others in need.

 

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How People with Bad Credit Can Survive the Storm

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Credit ScoreThe upcoming storm of rising interest rates and increasing lender cautiousness makes life difficult for people with already bad credit ratings. In the coming year, you will have to tighten up and you will have to make a new start to get your credit rating back on track. Forget about the mistakes of the past and read our tips for how people with bad credit can survive the storm.

Don’t Cancel Your Credit Cards 

Do you have a spending bug you can’t seem to beat? The worst thing you can do is to cancel your credit cards. Unbelievably, this is a sign of panic and lenders will kick your credit score in the pants for doing it. The alternative is to leave these lines of credit open, but cut up the card. That way you’ve effectively closed your account without hurting your credit score.

Can You Kick a Debt Quick?

The reason why so many people have bad credit is spiraling debt. They get into a situation where they have so many bills coming in they can’t pay them all off and they barely remember who they owe and how much they have to pay.

Start the next year by hitting a debt right between the eyes. Get together a lump sum and pay off some debts in their entirety. This is a form of debt consolidation that will make it easier to rebuild your credit rating later on.

Talk to Your Lenders

It’s amazing how many borrowers won’t speak to the people who have leant them money. Nevertheless, this is a powerful tool in your resource. If you’re having problems paying your debts or rebuilding your credit rating, talk to these people. Tell them your difficulties.

They’ll often work out a different agreement to help you make your repayments. They don’t care about anything except getting their money back, so any chance to make a formal arrangement will be grasped with both hands.

Too Many Loans?

This is the first step. We’re not saying that you need to stop taking out all loans. You need some lines of credit if you’re going to rebuild your score. However, what people need to understand is that in the future lenders are going to be more stringent than ever before. Every rejected application leaves a stain on your credit record; therefore, you should only apply for loans you’re practically guaranteed to receive. A good choice might be a company like the scottishtrustdeed.co.uk where their focus is to help people find personal loans with bad credit.  Interest rates will be higher but again your best bet is to not apply for loans.

Get a “Bad Credit” Credit Card

Someone with bad credit has the problem of not being able to easily get any new lines of credit. They need a higher rating. This is where “bad credit” credit cards come in. These are types of cards designed specifically for people with bad credit.

Here are some characteristics of these cards:

  • Higher interest rates.
  • Lower limits.
  • Lack of choice.

As you can see, the upcoming debt storm isn’t a reason to panic. Keep a cool head and you should have no problems getting out of that pit of bad credit.

How to Fund a Startup When You Don’t Have Any of Your Own Money

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Happy employees make better employeesWhen you have a great business idea that you are eager to move forward with, there will be many things to consider, such as getting estimates for various expenses, preparing initial operating budgets and making marketing plans to launch your business. However, before you can get your business up and running, you will need to money to fund your business.

There are few options available to get your business idea off the ground.

Friends and Family

Many entrepreneurs find they have to self-fund their business at the start. This can be done through savings, leveraging personal assets or borrowing from friends and family. This proves to other potential investors that the business is viable, that you have some experience in running the business, but also that you have faith in the business and have put your money where your mouth is! Although borrowing from friends and family may seem like an easy option at first, you are risking your personal relationships if the business does not work out or the financial agreement is unclear. Approach this form of funding like you would any other form: produce a business plan, explain exactly what the money will be used for, what the investor can expect to get in return and when they can expect it. As well as putting investors at ease, it will also clarify your own goals and objectives.

After the initial self-funding, many business owners will seek to develop and grow their business by seeking funding from outside sources.

Seek Investors

One popular option is to seek investors for your business. Investors may be silent partners who simply contribute cash in return for a percentage of profits, or they may be active partners who play a key role in the daily activities and business decisions. Some silent investors may remain in a partnership with you until they have received a certain return on their investment, or there may be some other exit strategy in place. You may know individuals who you can approach about partnering or investing with you, or if not, you can look online for information about potential investors who are looking for opportunities.

Apply For Financing

Another option is to apply for a bank loan. There is a wide range available, and you can use an online calculator tool to determine which options are the most affordable for your budget. The right loan program will have attractive repayment terms and a great interest rate, but it also will provide you with all of the capital that you need to fund your operation until it begins to turn a profit. This could take several months or longer, so you may consider creating a budget that details expenses between and the projected breakeven point or beyond.

Each funding path will have its own advantages and drawbacks, so ensure the one you choose fits in with your business needs and allows you to focus on the most important task – running a successful business.

Debit or Credit: What Works For You?

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Credit and Debit Cards

There are pros and cons of both credit and debit cards. Before you load your wallet with a series of credit cards, or request a debit card for each of your bank accounts, you should educate yourself on the pros and cons of each. Here is a list of strengths and weaknesses of debit and credit cards.

Debit Cards

Pros: Debit cards are a convenient way to carry the equivalent of cash. Debit cards link directly with your checking or savings account and each time you use it funds are deducted directly from the account that card is linked with. Whenever you make a purchase with your debit card you must enter a four-digit PIN, as a security procedure. The limit of your debit card is the same amount of money you have in the account. Debit cards are easily acquired, as banks take no risks when they provide these cards. You can only spend what you already have so there are no monthly payments.

Cons: The cons of debit cards are few, but severe. If you spend more than what is directly in the account linked with the card you’re charged an overdraft fee. These fees can be anywhere between $30 to $50 for each transaction executed while there are no funds in your account. You must repay both the amount spent plus the overage fees. It’s a pricey consequence, especially if you’re unaware you’ve overdrafted and make more transactions with your card.

Another danger of debit cards are the lack of security which surround them. Since your card is linked with your bank account, if someone steals your card they have instant access. The PIN you set up should provide some protection, though many debit cards can be run as credit, bypassing the use of a PIN altogether. Investigating this kind of fraud can take a lot of time and the longer you put off reporting it, the more liability you’ll face. Look into your bank’s fraud protection policy so you know the risks of debit card fraud.

Credit Cards

Pros: Credit cards provide you a line of credit, or loan, which you will be expected to pay in full within 30 days. You can put off pricey items until your next paycheck comes in. Build your credit score every time you make a payment on time. Your credit score directly influences the loans banks will offer you. This includes home and car loans.

Credit cards aren’t your actual funds. If anyone steals your credit card, cancel it as quickly as possible. If the person has made purchases with it, you can claim fraud and fill out a claim. While this is a hassle, it’s also much easier to prove than with a debit card. Also, you may have noticed a small microchip on your newest credit card. This is an EMV. An EMV is a payment process like the magnetic strip on the back of the card. However, an EMV communicates a series of complex transactions which include cryptographic processes. This makes credit cards more secure, in many ways, than debit cards. Credit monitoring and identity theft prevention services are still helpful in case you’re account is compromised.

Cons: While credit cards can help you build up your credit score, they can also destroy it. Some Americans are financially crippled by credit card debt. Many credit cards have variable interest rates which can be increased and make it difficult for you to make minimum payments. If your credit score is poor it’s very difficult to take out a loan for a house or car, even after you’ve paid off your debt.

How to Finance Your First Car

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How To Finance Your First Car The Free Financial AdvisorAccording to NADA’s Annual Financial Profile of America’s Franchised New-Car Dealerships, dealerships sold or leased more than 15.5 million new cars and trucks in 2013. That accounts for a 7.5 percent increase from the year before. As car sales grow and everyone you know seems to be driving around the newest model, it’s tempting to jump in, buy it and speed off the lot with the wind in your hair. Despite the relative ease of purchasing a vehicle, it’s important to know your options, find the best financing available and negotiate a price in your favor. Here are some tips to get started.

Set a Budget

It’s impossible to know how much car you can afford without a budget in place. Make a monthly budget and see if you can stick to it for a few months before diving into an auto loan or car purchase. Make a list of your fixed expenses with a generous amount left over for emergencies and recreation. Use an app like Mint to help keep track of your budget and alert you on when you’re overspending on set categories. Remember it’s not enough to just plan for your auto loan. Consider the cost of your tag fees, car insurance, fuel, ongoing maintenance and extras like getting your car detailed or replacing a flat tire. As a rule of thumb, don’t devote more than 15 percent of your household income to transportation.

Know Your Credit Rating

Get a free credit report from a site like Annual Credit Report to check your rating. Your score can directly impact your interest rate on an auto loan. Your credit report can also alert you to any erroneous information, credit fraud or mistakes. Your rating is calculated with a combination of factors from your credit history, outstanding debt and payment history. Your score ranges from 350 to 800. The higher the score, the better loan you can probably get.

Shop Around for Funding

The upside to securing funding through an auto dealer is taking care of your loan and financing in one place. The downside, car dealers are often paid a commission for it. Instead, consider a dealer like DriveTime where sales advisers aren’t paid on commission, making it easier to trust their advice. They also offer a 30-day limited warranty, 5-day return guarantee and auto check history report on all used cars they sell.

Going with the car dealer’s loan offer or big bank isn’t the only way to secure a car loan. A community credit union generally offers lower rates and is more sympathetic to borrowers with lackluster credit history. Credit unions are known for offering more intimate customer service. Since they’re funded by their customers, they work for their members and aren’t motivated to sell you anything for their own financial gain. Profits from credit unions go back into their services and member offerings.

Negotiate the Price

Regardless of how you pay for your first car, remember the price is negotiable. Consumer Reports suggests purchasing a New Car Price Report to find out what the dealer paid and using it as a springboard for negotiation. Be warned, dealers like to lump everything together from financing to trade-in you might be offering. It can be difficult to figure out the numbers once it’s lumped together. Negotiate one thing at a time and stick to the monthly amount you want to pay. Start with your rock-bottom price and let the dealer work you up slowly to a reasonable price you can drive away with.

SME Business Focus: Is Invoice Financing for You?

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Start-up companies and SMEs that have managed to survive the economic crisis are now looking at brighter business skies. However, even though the growth reported by SMEs has risen in the last year, there is still a marked reluctance by banks and major lenders to provide financing for smaller firms. In order to fund growth and development, many SMEs are turning to alternative finance sources. One way in which companies can free cashflow is by using an invoice finance or factoring service. If you are interested in securing finance for your business that doesn’t pose huge financial risks, read on.

Bank

Advantages of Invoice Financing 

Invoice finance, factoring, and invoice discounting frees up the money that is tied into invoices and allows companies access to this money before the invoices are paid. When this tied-up capital is made available, businesses can use the cash to run their day-to-day operations or expand in the future. According to ultimatefinance.co.uk, one of the key benefits of the invoice financing system is the flexibility. You can access funds from invoices within days, rather than waiting months for an invoice to be paid. With this flexible source of funds you can choose to put business plans into action right away, or use the money to wait until the right moment comes to expand.

Avoid the Pitfalls of Common Financing Choices 

According to StepChange, the charity involved in dealing with debt, the number of people who have got into trouble with payday loans rose by 42 percent since 2013. Payday loans may seem like an attractive option as they offer ready money, but the fees are so steep that businesses can quickly discover themselves dealing with financial problems – particularly if companies regularly take out these loans. The APR on these loans is staggering. While it may be obvious to many people, others do not consider the representative APR when deciding which loan to take out – they only focus on how fast they can get the money and the amount of money that can borrow. Invoice financing is a much more affordable, less risky, and better value way of freeing money to use for business costs.

What Do You Need to Consider?

Bear in mind that the type of invoice you supply may affect the ability to get invoice financing. For example, most financiers will only buy commercial invoices so selling goods to the public may not be eligible. Be careful if you turn over the sales ledger to an invoicing company as your customers may prefer that you deal with them directly, not a third party – however, there are options available that allow you to retain control. You can also opt for confidential invoice finance where your customers are not aware that you are using a service. Always make sure you choose a reputable and established provider as it could ultimately affect the relationship with your customers if the company offers a bad service.

Sources: http://www.independent.co.uk/money/spend-save/money-insider-invoice-discounting-allows-firms-to-grow-9715857.html

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

 

Get Your Family Out of Debt & Onto a Happier Financial Path

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CalculatingWith car payments, home loans, student loans and household expenses, it’s easy to snowball into debt. You may be overwhelmed by the amount of debt that has accumulated, but the debt snowball method may be a great first step toward financial freedom.

Snowballing 101

The debt snowball method pays off your smallest debts first and, once those are paid off, you move on to the larger debts. Start off by listing your debts in order from smallest to largest. You will attack the smallest debt first. While finishing off the smallest debt, you will be paying the minimum payment on the larger debts.

Here’s a quick example:

  • $1,000 medical bill (minimum payment $50)
  • $5,000 credit card ($75)
  • $10,000 car loan ($200)

If you have an extra $1,275 a month, you can pay off your medical bill in the first month while paying the minimum on your credit card and car loan. After that you can move toward crushing the credit card debt and then move on to that pesky car loan.

Benefits of Snowballing Out of Debt

Some of the benefits of using the snowball method are purely psychological. Using this method enables you to see results sooner. Once you finish paying off your first debt, you no longer have to worry about paying that creditor. That gives you a sense of accomplishment; no more emails or calls from debt collectors.

A study by the Kellogg School of Business at Northwestern found that the snowball approach works. By relishing the small victories, debtors were more likely to continue to pay off their debts. The study used data from 6,000 people trying to eliminate credit debt and found this led to faster debt elimination.

Cons of the Debt Snowball Method

The debt snowball method does come with some controversy. Although you are paying off the debt with the highest balance, the debt snowball method fails to take interest into account. If your largest debt also happens to be the one you pay the highest interest on, you will end up paying a lot more in interest. Your interest payments may end up doubling after everything is said and done, so do your due diligence to see if this method will work for you.

Preparing to Pay Off Your Loans

Whether or not you choose to use the debt snowball method, you are going to have to prepare to pay off these loans. You may have to cut down on those iced soy lattes or find unique ways to generate cash flow.

There are several ways you can save some money to start paying off your debt now. If you receive periodic payments from a structured settlement or annuity, you could sell its future payments to a company like J.G Wentworth and use your lump sum to start paying off your debts.