Jill Russo Foster

Is My Bank Safe?

Reader Question: With banks failing, is my bank account safe?

Yes, but only if your bank is properly insured. Bank accounts should be in an FDIC insured bank (Federal Deposit Insurance Corp). Credit union accounts should be in an NCSIF insured credit union. (National Credit Union Share Insurance Fund).

The insurance will only cover checking, savings, and CD accounts. It will not cover investment accounts if your bank is also an investment house. For this year, the reimbursement limits have been increased to $250,000 per account holder. If you keep all your money in one bank, make sure that the balance of all your accounts is under that amount. If your total is more than $250,000, you should move some of the money to a different bank.

Remember, these limits go back down to $100,000 on January 1, 2010 (unless Congress increases them again), so make sure your money is divided accordingly.

Some of you may be thinking that you’ll never have more than $100,000 in the bank, so you won’t have to worry about it. But, there are circumstances that could make you the temporary holder of a large amount of cash such as a home sale with delayed home purchase, an insurance or legal settlement, or a pending asset distribution after the death of a relative. Even if you only have the money for a few weeks, that’s long enough for a bank to fail, so keep it safe by following these rules.

How Hard Is it to Market a Book?

This isn’t my typical finance topic, but Renee Giroux asked me to participate in her book marketing series and I thought I’d share the link here. If you’ve authored a book, or are considering becoming an author, please check out her series. I know I’ll be interested to read what other authors are saying.

To read today’s blog entry click here:
Why is book marketing and promotion so difficult?

To read the series, check this link every week:
Stimulating Conversations Blog

Refinance Now?

Reader Question: Mortgage interest rates seem to be coming down, how do I know if it’s a good time to refinance?

Refinancing is a long-term numbers game. Many people refinance thinking that a lower mortgage payment means they’re saving money. It’s not necessarily true. To find out if this is a good time for you to refinance, let’s do some math! Let your math savvy spouse, friend, or child help you with this if needed:

Take the refinance principle and interest payment and subtract it from your current principle and interest payment. This would be your savings per month.
Assume that the closing costs of the refinance will be about 4% to 6% of the mortgage amount. Example: Closing costs would $10,000 on a $250,000 house if they charge 4%. Figure out your closing costs and write that down.
Take the number from step 1 (your monthly savings) and divide that into step 2 (your closing costs). This is the number of months it will take you to recoup your closing costs.

Now that you know how long it will take you to recoup your loss, you should decide whether you’re going to be living in the house that long. If you are sure that you will be there past the months it will take you to recoup the closing cost, then refinancing might be a good idea. If not, then don’t refinance.

Good Credit Marrying Bad

Reader Question: I have excellent credit and have worked to keep it that way. I will be getting married to someone who has debt and past tax liens, will this affect my credit?

Fortunately, credit reports are by individual. A person with good credit will not be affected by their spouse’s bad credit UNLESS they have joint accounts.

For example, if you purchase a home together, the mortgage will be a joint debt. If your new spouse is handling the bills and often forgets to pay your joint mortgage on time, then his late mortgage payments will show up as late payments on your credit report. This applies to any other debts that have in both names. Any activity will reflect on both of your credit reports (good or bad).

Could his older tax lien prior to your marriage and mortgage come back and hurt you? Yes, I believe it could. If you purchase a new home together as I described above, your spouse’s old tax lien could be put onto your new house. This would definitely affect you. I strongly advise that you check with a real estate attorney before purchasing a home together.

What is the difference between a debit card and a credit card?

A debit card is a convenient way to make a purchase using your own money. When you use your debit card, you are authorizing the merchant to access the funds in your bank account. This is true even if you sign off on the purchase as though you were using a credit card (instead of using a pin number.) Always track your debit card purchases in a check ledger to avoid overdraft fees. A debit card has limited fraud protection, so know where your card is at all times and check your receipts against your bank statements.

A credit card (as the name implies) is a convenient way to make purchases using a credit company’s money. Every time you make a purchase with a credit card, you’re taking a loan that you will have to pay back – usually with interest. Credit cards are helpful for building credit and for the consumer fraud protection. But, they can be dangerous to your financial health if you use them to purchase items outside of your budget.

You CAN Lower Your Out-of-Control Expenses: Part 2

Using instructions from last week’s column, you figured out your average monthly expenses. Now, you need to ask yourself two questions:

1.) Are you spending too much on some items?

2.) Can you lower the amount you spend on some items?

Some fixed expenses can’t be lowered. Your loans and mortgage/rent are legal agreements, and full coverage insurance is mandatory with some loans. But, you do have some control over your utilities. You can choose a different phone company. You can also control how much water, gas, and electricity you use by making small changes. Try line-drying your clothes, using a fan instead of air conditioning, or running the dishwasher only when it’s completely full.

Look to your variable expenses to save money.

Do keep up your auto and home maintenance, but try to cut back on groceries, entertainment, gifts and clothing.
Try using the library, buying cheaper food brands, and buying seasonal clothes at the end of the season.
Instead of buying expensive gifts, give “service coupons.”
If you’re spending more than you earn, some of these changes will be mandatory.

With some creativity, it’s possible to reduce expenses without feeling deprived.

You CAN Lower Your Out-of-Control Expenses: Part 1

Not sure where your money is going? Let’s find out.

First, make a list of your fixed monthly expenses. (“Fixed” means the dollar amount is the same every month.) These include items like:

mortgage/rent
loans
and insurance.

Utilities go under fixed expenses because they only vary by season. If you’re on a utility budget plan then you already know the amount. If your utility bills vary month to month, then add up the last 12 months and divide by 12 to get your average for each utility company.

Now, make a list of your variable expenses. (“Variable” means the dollar amount changes every month.) These include items like:

your groceries
entertainment
auto/home maintenance
gifts
clothing
and more.

The amount will vary each month, so get the average monthly expense for each item by adding up the last 12 months and dividing by 12.

Were you shocked by how much you spend and how you spend it? Most people are. We’re busy people and we like convenience, which means we tend to spend more than we should. Check back next week for Part 2 to find out what to do with this information.

Your Money In Interesting Times

Have you ever heard of the old curse: “May you live in interesting times?” For the past ten years or so we’ve been obsessed with the Greatest Generation, a generation made famous by living through two World Wars and the Great Depression. What we loved about them, is that as the going got tough, they got tougher.

What we’re seeing now is hopefully not as bad as what they lived through, but we could still learn a lesson from them. This isn’t a great time for jobs, banks, investments, or mortgages. If you’ve been watching or listening to the news, you know that our country’s financial systems are in bad shape. Our government is working on saving the banks, but you’re probably wondering who’s going to save you? It’s not like the weather has been that great either in this La Nina year. So how do you keep your money and possessions safe in difficult times? By living carefully.

Banks

The Number 1 thing you must do is keep your hard-earned cash safe. You can do that by keeping your money in an FDIC insured bank. That means if the bank fails, a good portion, if not all, of your money will be refunded. For more information on this please go to my blog and read The FDIC: What You Need to Know.

Once your money is in an FDIC insured bank, then you need to make sure you would get a full refund if the bank fails. If you have over $100,000 in a bank, you need to talk to your banker. You may find that you need to move money into different accounts and maybe into multiple banks. Check out www.myFDICinsurance.gov for more information.

Home Disasters

If you were located in an area devastated by a hurricane, floods, or fire, and you had to evacuate your home, how would you access your money?

First, make sure that your income is direct deposited. It might be a while before you can get your paycheck by mail or pick it up at your company.

Second, make sure you have an ATM card. If you had to temporarily relocate to another area, you might not be able to cash your payroll check. You could possibly deposit it another bank, but taking money against it is something that not all banks will allow you to do if they don’t have a relationship with your employer themselves (or with you.) If you have an ATM card, there will be a machine somewhere that you can access. You might have to pay a fee if it’s not your bank, but at least you will be able to get cash for food, gas, and lodgings.

Mortgages

It’s going to be a lot harder to get a mortgage from now on. The best thing you can do for yourself if you need to refinance or want to get a mortgage is to protect your credit score. Read my article Fico Has Something to Say About You for more information on how a bad credit score can affect your chances to get a mortgage. Check your credit report 3 times per year, pay your bills on time and don’t over extend yourself.

Investments

I wouldn’t dream of advising you on investments. All investments are a gamble, with some bets beings safer than others. At this point, I’m not sure which investments are really the safest. We’ll have to wait and see.

I hope this helps you plan for interesting times. As always, the best thing you can do for yourself is plan ahead, take care of your credit, and choose your bank carefully.

What Is A Credit Inquiry Doing On My Credit Report?

A credit inquiry is when a potential creditor accesses your credit report. This can occur when you apply for credit.

For example, when you sign up for cell phone service, the provider checks your credit before they decide if they’ll work with you. If your credit is good, they’ll give you service. If not, they may refuse to work with you, or ask you to pay up front with a security deposit.

Your credit score is reduced every time someone makes an inquiry because each inquiry means a potential new account. As you’re wandering through the mall, allowing the check-out clerks to see if you’re eligible for a store credit card, you’re lowering your credit score. Please consider your priorities before allowing just anyone to check your credit. It’s not unusual to get declined for a reason of too many inquires.

Some types of major loan inquires will only count as one inquiry, as long as you don’t wait too long between. For example – if you are applying for a mortgage and are checking out several different lenders, then this is one inquiry as long as you’re doing it within a short period of time. Long periods will mean separate inquires. Note, that this is not true for student loans – each inquiry is separate and will reduce your credit score.

Why It Isn’t Enough to Pay the Minimum

“Can you tell me how long it will take to pay a $2,000 credit card balance? I’m paying the minimum every month and the balance doesn’t seem to be going down.”

You could be right about the balance. First thing that you should know is that credit card minimum payments are only about 1.5% and 2.5% of the balance. So for a $2,000 balance, that would be between $30 and $50 per month. Included in that minimum payment is the finance charges (that’s how the bank makes its income – from the fees). To let you know how long it would take to pay off, I would need your interest rate (which I don’t have), but here are two examples:

$2000 Credit Card Balance at 6% Interest

Rate	Minimum Pmt	Pay Off Time
6%	$30	80 months or 6 years
6%	$50	45 months or 3 years

$2000 Credit Card Balance at 12% Interest

Rate	Minimum Pmt	Pay Off Time
12%	$30	108 months or 9 years
12%	$50	51 months or 4 years

You can see that little of your payment is actually going towards reducing the $2,000 balance. The estimate above also assumes that you aren’t using the credit card to make more purchases.

You do have a couple options for a quicker payoff.

Option 1: Pay more than the minimum amount. Paying as little as $10 more per month will help you see some progress. You’re saying you don’t have an extra $10 to spend on your payment? Take a look at your spending habits and see where you can come up with that money. Bring your lunch to work, borrow books and movies instead of buying, and get your hair cut every 7 weeks instead of every 6 weeks. Little things add up. The great thing about this, is that it’s temporary. Once your debt is paid off, you can breathe a sigh of relief, and go back to the 6 week haircut or treat yourself to a rental. Or, you may find you have new habits that will allow you to start saving money.

Option 2: Lower the interest rate. You can do this by transferring the balance to another card that’s offering a zero percent rate or a low rate. These are limited time offers. If you don’t pay it off on time, you’ll get charged interest again. Make every effort to pay off the balance before the special offer is up. This way you can make sure that most or all of your payment is going toward the balance and not toward fees.