Friday, April 30, 2010

Your Financial Questions, Answered

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A few weeks ago, I posted an opportunity to ask questions of Gail Cunningham, Vice President for the National Foundation for Credit Counseling (NFCC). I forwarded the questions and I'm happy to share her answers today.  Whether you asked these questions or you were wondering the same thing, I hope you'll find some useful advice here.

[Saving] We are a two-income family, currently living on one income due to a layoff. Where would you suggest that we look for ways to save money? Once we're back to having two paychecks, how do you recommend that we start setting aside money for retirement and college savings?

Since you’ve experienced a layoff, you’ve undoubtedly already tightened the budget belt. I think the next step should be tracking your spending. You’d be amazed at how much money flies out the door unnecessarily. It doesn’t sound like much fun, but commit to tracking your spending for 30 days. At the end of that time, reconvene and review your spending. Only when you see your spending in black and white can you discover the leaks. Plug them by moving money around to better reflect how you want to spend your hard-earned money. That will put you in charge of your money instead of the other way around. After this analysis, if there’s no money remaining for a savings account, consider getting a part-time job (until you can replace your primary job) and dedicate all that money to savings. You’ll never regret it, and before you know it, you’ll have built up a cushion that should sustain you through most minor emergencies. Once you’re back to two incomes, I suggest that you spend your money in the following order: satisfy all living expenses, followed by any secured payments, followed by credit card payments. Next, put 10 percent of each paycheck into a rainy day fund to protect against the inevitable emergency. Then, max out your retirement plan at work, and last on the list is plan for your children’s college education. Remember, there are many ways to finance a college educations, but no one is standing in line to help fund your retirement.

[Saving for Retirement] How much should a 30-year-old be putting aside each month for retirement?

The short answer is as much as you can. Of course, if there’s matching money available from your employer, you’re throwing away free money if you don’t meet the requirements for the match. Even if your employer isn’t in a position to offer a match, look out for your own future by contributing the maximum allowable amount to your retirement plan. You can always cut back if you have to, but commit to this effort. Remember, time is money’s best friend, so the sooner you start funding your retirement account, the more your money will grow.

[Credit Card Interest] ”I have racked up a too large credit card debt that I am currently trying to whittle away at. Last year however, I was late - did not miss - but was late 2 payments on a card and then Bank of America jacked my interest up to 29%. This of course is the card on which I am focusing to pay first. I asked if I could get a lower interest rate and they told me that because of my 2 late payments that I could not for at least 6 months. Is there anything I can do to get this lowered? I've never checked on my credit rating, but has this impacted my credit score? Really - almost 30% is outrageous - I'd be happy if they would lower it to under 20%. I joined a credit union and they have a credit card that I can do a balance transfer to for $0 transaction fee and 15%, but worry that my credit score is crap. Any advice?"

Whoa! One thing at a time. By being late on two payments, you moved yourself into the risk category at the bank. Picture the red flag running up the pole. Since you were more of a risk in your creditor’s eyes, they wanted to cover that risk by charging you a higher interest. Buried somewhere in the fine print of your agreement with them is their right to do this. My best advice is for you to faithfully repay B of A, demonstrating your willingness and ability to do so. Suffering with a double-digit interest rate for six months is no fun, but they’re in charge, and the only hope you have of it ever being lowered is to play by their rules. Regarding your credit score, it is my understanding that one missed payment can lower your credit score by as much as 100 points. Don’t panic. The credit scoring model will recognize your on-time payments and your score will begin to rise again. If the credit union will allow the balance transfer, go for it! That’s just what you’re looking for. Meanwhile, order your free credit report from http://www.annualcreditreport.com/ and see what it contains. Why? Your credit score is based on the contents of your credit report, so you want to make sure that it’s about you and only you, and contains no inaccurate information. Hang in there. You’ll get through this and will have learned a great lesson about paying your bills on time.

Thanks so much to Gail Cunningham and NFCC for this interview opportunity!  I hope you've found these answers helpful.

I'm linking up to Frugal Friday.  Click through for more money-saving ideas!

2 comments :

  1. Thanks for answering these questions!!! :)

    ReplyDelete
  2. Wonderful. Thanks for sharing! Checking out what you're up to today. I having my first weekly Button Swap Blog Hop over at my blog where bloggers can swap buttons. Swapping buttons helps bloggers reach new readers and expand their audiences

    You can check it out at http://bloggerchixdesigns.blogspot.com/2010/04/button-swap-blog-hop.html
    if your interested.

    ReplyDelete

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