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It’s “National Splurge Day!” People who normally live modestly are encouraged to relax their boundaries and indulge in things they normally forgo. Yes, it’s one of those arbitrary holidays that someone just made up, but it’s actually a good excuse to address the topic of splurging.
I know what you’re thinking. “What the heck, Mint? You’re the place I come to for help with saving money.”
Hear me out. During the last few years I have learned that building money into my budget for little (and occasionally big) indulgences is a healthy way of keeping myself on track with my saving. It’s one good way to battle “frugal fatigue” and prevent myself from making foolish purchases on the days I’m sick of worrying about every penny all the time.
The occasional splurge approach works not only with money, but with other things we deny ourselves. My favorite splurge is taking a couple extra hours in my day for a spa pedicure, and ending with a donut. That’s indulging in time, money, and calories all in one! But a splurge might look very different to you.
Maybe there is really no room in your budget for a splurge today, but you can start preparing by putting some money aside for one in the future. If you do have some wiggle room, here are some suggestions for responsible splurging.
Fix what’s broken
Do you hate your clanky, energy-inefficient refrigerator/washing machine/dishwasher? Do you keep saying to your spouse “We really need to replace our pathetic window screens/beat-up mailbox/chipped paint job?” Are you putting off that car repair that will eventually make the difference between having a working car and taking the bus? Pick even one of these and take care of it. You’ll feel a whole lot better.
Invest in yourself
Check out local deal offers like Groupon or Living Social for discounts on gyms, art studio events, or tuition for extended learning centers. While the cost might be a splurge, the new physical fitness, artistic ability, or knowledge you gain from these classes will stay with you and increase your quality of life.
Buy some time
A very busy friend of mine likes to say that “throwing money at a problem” isn’t always a bad idea. Have a TaskRabbit or virtual assistant take care of your errands or data entry and use the saved time to do something for yourself. Pay a babysitter and go out with friends or significant other, whom you never see because you’re working and taking care of other people. Save time on meal planning by paying someone else to do the thinking for you.
Start the process
Take a bite out of a bigger splurge by setting some money aside toward the vacation that will satisfy your wanderlust or recharge you. Or finally pursue that elective medical procedure that could make your life easier: laser eye surgery, physical therapy for your aching back, even braces. Do you have a health savings account sitting around with a balance because everyone in your family is healthy? First, count your lucky stars, and then look into using your balance toward a procedure. If it’s a Flexible Spending Account, you have to spend the money by year end or you lose it, so you might as well use it for good, right?
Buy some happiness
I know that going to the movies with my kids makes all of us happy, but I almost never do it because the cost can be $40 for three tickets alone! We only go to the movies a few times a year, but when we do, the experience is fun and special. I go all out: the kids can choose any snack and drink, and we try to get to the theater early so they get their pick of seats.
What makes you happy? I hope you find a way to splurge on yourself, if not today, then when it works for your finances. It’ll make budgeting that much more rewarding.
Kim Tracy Prince is a Los Angeles-based writer who has a husband and two little boys. She often dreams of splurging on a nap and a margarita, not necessarily in that order.
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Save more, spend smarter, and make your money go further
If your identity is stolen, you may have trouble obtaining credit or getting a good interest rate, and creditors may pursue you for debts you haven’t incurred. You may even encounter problems when applying for a job because of fraudulent, negative information that appears on a background check. For all of these reasons, and more, if you become a victim of identity theft, you need to begin working to clear your name immediately. Here are the basic steps to take.
File an Identity Theft Report
Get a physical copy of the report, as you’ll need it for later steps in the identity recovery process. Also, get the name of the officer who took the report, the report number and a phone number for follow-up inquiries.
Call Equifax, Experian and TransUnion
These are the three credit bureaus that will use their dedicated fraud reporting phone numbers and automated systems to place a fraud alert on your credit file. A fraud alert notifies the credit agencies that your identity has been compromised. An initial fraud alert lasts for 90 days, and an extended fraud alert lasts for seven years.
The initial alert is more appropriate when you aren’t yet certain that you’re a victim. For example, you would file an initial alert if your wallet was stolen but fraudulent activity hadn’t cropped up yet. The extended alert is more appropriate if you know you’ve been a victim, because it requires creditors to take extra steps to verify your identity before issuing new credit in your name.
If you want to take an additional step to protect your identity, place credit freezes on each of your credit reports. A credit freeze prevents new creditors from accessing your credit reports, which should prevent them from issuing new credit. Identity thieves will be locked out, but so will you. You’ll have to unfreeze your credit any time you want to apply for new credit. Placing and thawing a credit freeze normally costs money, but in some states this service is free to identity theft victims.
Close Affected Accounts
If you’ve had any sensitive information stolen, close all accounts associated with that information. For example, if your wallet is stolen, immediately close the accounts associated with all the credit cards in your wallet. If information about your checking account was in your wallet, close your checking account, too. If your driver’s license was stolen, contact your state’s department of motor vehicles to notify them of the theft, and request a new card. If your health insurance card is stolen, notify your insurance provider and request a new policy number to stave off medical ID theft.
Examine Your Credit Reports Carefully
Identity theft victims are entitled to a free copy of each of their credit reports. Request yours when you place the fraud alert. If you find any fraudulent activity, contact the creditors associated with that activity, and ask them to send your application and transaction records, which is your right under section 609e of the Fair Credit Reporting Act.
Creditors may require a copy of your police report before turning over this information, and you may have to wait several weeks to receive it, as the credit agencies have up to 20 days to send it to you. Once you receive the paperwork, provide the evidence of the fraudulent transactions to the police department that took your initial report to help build your case. Also, report the fraudulent accounts to the credit agencies using a correction of errors form. The Fair Credit Reporting Act requires credit bureaus to remove inaccurate, or fraudulent, information from your account.
Finally, send letters to the creditors, associated with the fraudulent activity, notifying them that the accounts are fraudulent, and that you want them blocked from your file. Use form letters ITRC 100-1 and 100-3, available for free, online, from the Identity Theft Recovery Center.
Obtain Letters of Clearance From Each of the Credit Reporting Bureaus
In these letters, the credit bureau acknowledges that an investigation proved that your case was identity theft. These letters will help you if fraudulent accounts resurface on your reports in the future. They will also help you if a collection agency contacts you to pay a debt an identity thief incurred using your information.
Keep a Close Watch on Your Bills and Mail
If your identity is stolen, more than one ill-intentioned person may end up with your data, because thieves sometimes sell stolen information. Even after you clear up the initial problem, a new problem may appear later on.
The Bottom Line
Keep records of all contacts with law enforcement, creditors, credit bureaus and debt collectors. Also, keep copies of all correspondence. Send any mailed correspondence by a traceable method that allows you to confirm and prove delivery. Get detailed, written confirmation of any steps third parties take on your behalf (such as closing fraudulent accounts). Keep receipts for any expenses you incur in the process of clearing your name.
“What To Do If Your Identity Is Stolen” was provided by Investopedia.com.
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One of the monthly expenses many of us forget to include in our budgets is car repair and maintenance. Sure, we put down the price of gas, and maybe an oil change every two or three months, but we forget about most of the ongoing maintenance costs. Cars need regular maintenance over their useful lives, and most of us will pay through the nose to get it performed. But it doesn’t have to be that way. With parts bought online, some simple tools, and a little basic knowledge, many car repairs can be done without visiting a mechanic.
I talked to Richard Reina, the Training Director at CARiD, about some of the easiest car repairs you can do at home. You can find most of the replacement parts at CARiD or similar sites, plus many instructional videos and fact sheets that will ensure you have the help you need every step of the way. I also talked to several mechanics, including a family member who has had over 20 years of experience fixing cars. He, like many other experts, was adamant that with preparation, you can save a lot of time and money on repairs.
1. Change Your Own Brake Pads
When I first heard that, my reaction was “No way, I’m not messing with my brakes!” But as Reina points out, it’s a very simple and inexpensive procedure that mechanics and specialty brake shops will charge hundreds of dollars to do. The industry wants you to think it’s hard, because they make a lot of profit from a very simple procedure, but pads are way easier to replace than old fashioned drum brake “shoes.”
All you need is a wheel lug wrench, some basic wrenches, pliers, and of course a jack and set of jack stands (never get under a car unless it is on jack stands; you cannot rely on the jack as it may fail).
A set of new brake pads will set you back just $20–$40, depending on the car and pad material. Compare that to the industry average of $250 per axle, and you can see how much this DIY job will save you. The procedure is basic. Take off the wheel, remove the hardware, pull out the worn pads, push in the caliper piston, install the new pads, and reinstall the hardware. You should be able to do all four wheels in under an hour, even if this is your first time doing the job. The new pads will last between 30,000–50,000 miles, and you should check them every 10,000 miles. When the pad thickness falls below 2mm–3mm, it’s time for another replacement set.
2. Change the Battery
It amazes me how many people will get a shop to replace the battery, since this is by far the easiest of all DIY repairs. A battery will last 4–6 years, so you should be able to figure out when your current battery is ready to be changed. (Almost every battery will have a date stamped on it, so look for this if you want to be sure.) You do not want to wait until you start having problems. If you do, you could be stranded with a dead battery, and that’s dangerous for many reasons.
The average price of a new battery is around $80, although you can spend more or less depending on the make and model. A dealer will charge upwards of $200 to replace it.
To do the swap, you just need a basic set of wrenches. The biggest warning here, Reina says, is the order in which you remove the replace the cables. Remove the NEGATIVE (black) cable FIRST, and when you have installed the new battery, replace the NEGATIVE cable LAST. If you don’t do it this way, you could short circuit the positive (red) terminal to a grounded part of the car.
3. Do Your Own Oil Change
A typical quick lube place could charge anywhere from $30 to $70 for an oil change. Some can go as high as $90–$100, especially if you own an expensive import. But then you see signs like $15 oil change and think, “Well I’d pay that for the oil and filter anyway, so why not let them do it for me?”
Here’s why. First, there is always an asterisk on those oil changes. They come with conditions, and may not include the correct amount of oil required for your engine (this happens a lot when you bring in an SUV or truck). You will also be given a low-grade oil, rather than a full synthetic or even a synthetic blend. And most importantly, the cheap oil change is a loss leader.
The loss-leader oil change is a great way to get you to hand over your car to the garage so that they can get under the hood and see if it has problems. A reputable place won’t find any unless there are genuine problems. Others, well, let’s just say they find problems that don’t need attention.
Suddenly, the $15 oil change has become thousands in major repairs. Poor establishments will use high-pressure tactics to get you to sign up for the work, and you may not even get the chance to get a second opinion.
So, do it yourself. Buy a good quality oil filter and the best oil you can afford from your local supplier (it can be an auto specialist or a retail store). Other than jack stands and a jack, you’ll need an oil filter wrenchand a drain pan. These only have to be purchased once and will last you decades (my father-in-law has been using the same drain pan for 20 years). You can find videos online walking you through oil changes on a variety of different vehicles.
And one final note. As Richard Reina points out, the days of the “every 3,000 miles” oil changes are long gone. Vehicles these days can often go 10,000 miles between oil changes. Check your manual.
4. Change Your Spark Plugs
There is an episode of the iconic TV series Frasier that shows Niles and Frasier Crane attending an automotive workshop. The very first lesson is how to change spark plugs. It’s one of the easiest home repairs you can do, although these days it is very rare you’ll even have to perform this service. On modern cars, extended-life spark plugs can maintain a precise gap for 100,000 miles. However, it is still wise to check them every 30,000-40,000 miles, just to make sure.
When the time does come to replace your spark plugs, along with your regular set of tools you will need a spark plug wrench. Again, this is a “buy once, use for a lifetime” kind of purchase, and it’s not very expensive (under $10 in most cases). (WikiHow has a great instructional piece here.) And the savings…let’s just say it’s significant. You can pay over $300 for spark plugs to be changed, and spark plugs themselves are rarely more than $30 for a set.
5. Replace a Headlight or Taillight
If you are a good car owner, you will perform a regular walk around of your vehicle. It’s important to do this for many reasons, but one of the biggest is to check that all the lights are working. Not only are lights essential for clear vision, and alerting drivers to your intentions, but you can also incur traffic tickets if they aren’t working. So, try and do this at least once a month (you’ll need someone to help you check the taillights).
If one (or more) isn’t working, it’s time to buy a replacement and do it yourself. With the average hourly repair rate of a garage being $100, you could easily spend $25–$50 per bulb, especially if the shop has a minimum charge.
One of the most important things to do is bring the old bulb with you to the store. You want to make sure you are getting like for like. And, when it comes time to change it out, never touch the bulb glass with your bare hands. The grease from your fingers can cause the bulb to burn out early.
6. Replace Your Windshield Wipers
Some people go to a garage or dealership to have their windshield wipers replaced. This is, without a doubt, a massive waste of your time and money. A set of wipers will run you between $20 and $40 on average, plus the dealer will charge you one hour of labor (that’s about $100). Don’t throw your money away. It takes minutes to replace the wipers on your vehicle yourself, and all of the instructions are provided in the replacement wipers you buy.
When you go to a store — say Walmart or Target — they’ll have a reference manual (these days it’s often a small electronic terminal) which will tell you which wiper sizes you need to ensure a correct fit. In most cases, the old wipers slide out, and the new ones slide in. The last time I changed my wipers, it took two minutes for both…and most of that time was spent trying to hack open the vacuum-sealed plastic package!
7. Replace Your Air Filter
Richard Reina pointed out another simple fix that mechanics and dealerships will heavily mark up with labor costs and parts. And yet, it is a very quick fix (in most cases…if you happen to own a German import, you may have a few extra parts to remove to access the filter). On average, you’ll pay over $100 in labor costs, and $50 for the filter.
The typical cost of an air filter from a retail store is between $15–$20, but again, this can be higher depending on the make and model of your car. In most cases, you will simply have to open up the hood of the car, turn a few screws, open the air filter housing, swap out the old for the news, and replace the screws. It really is that simple, and you can save a ton of money doing it yourself.
8. Fix a Chipped Windshield
I recently had to do this one myself, and I can tell you…it’s so simple. I had a small rock chip in the windshield. I was tempted to go by one of those “fix it free” places that hang out near malls, but they operate through your insurance company, and I wasn’t keen on going through all that for a simple rock chip.
On Amazon or eBay, you can find windshield repair kits for under $15. Some run as low as $8. When you get it, all you need to do is dig out any loose glass with the pin provided, and then thoroughly clean it, and the surrounding area. You will have to stick a small device to the windshield that forms a seal around the rock chip, and then a vacuum contraption will work to apply the resin into the crack. It’s an operation that takes less than one hour, from opening the package to the finished result, and most of that is simply waiting time. Stop that crack from spreading, before you need to replace the entire windshield. That can be costly.
This article first ran on Wisebread.com, a community of bloggers here to help you live large on a small budget. Read more from Wisebread:
Save Hundreds Next Month with These 10 Grocery Shopping Tips
6 Ways to Transition to a New Career After 30
The 8 Classic Personal Finance Books You Must Read
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Save more, spend smarter, and make your money go further
A couple of months ago, a friend asked me for help choosing investments in her 401(k). Unfortunately, the investment options were a collection of expensive, actively managed mutual funds, some with sales charges. The only silver lining was her employer’s matching contribution, which is always a fantastic offering.
The price you pay for your investments is very important, yet many people aren’t aware of their retirement account fee structure. Expensive funds can cost a person tens of thousands of dollars (or more!) in fees and expenses over a career. I advised my friend to contribute enough to get the full match, contribute more to an IRA, and ask her employer’s benefits administrator to add some low-cost index funds to her plan.
Tibble v. Edison
Luckily, having low-cost funds at your disposal just got much easier. A recent unanimous Supreme Court decision found that retirement plans that offer expensive investments when cheaper, comparable ones are available are violating Federal law. So what did this mean for you?
The court’s decision was relatively narrow. The plan under scrutiny in this case was offering retail-priced funds when institutional-priced funds were available. In other words, they were forcing employees to buy an expensive product when the exact same product was available at a lower price (kind of like a name brand prescription drug vs. a generic brand.)
That’s illegal, because a 401(k) plan administrator is a fiduciary. A fiduciary means they’re required by law to make decisions in the best financial interests of the employees who keep their retirement savings in the plan. They’re not allowed to use the plan to enrich their employers or themselves. The court didn’t weigh in on how much is too much for a plan to charge, or whether a plan is required to offer index funds. But they offered a glimmer of hope and legal muscle to anyone saddled with a less than ideal 401(k).
How do you know if your 401(k) has lousy investment options? Names and numbers. A good plan will offer a variety of index funds (usually with “index” in the name), with an expense ratio of 0.2% or less. The expense ratio tells you how much the fund charges you per year, as a percentage of the money you keep in that fund. Since the cheapest funds charge under 0.1%, anything over 1% is more than ten times as expensive — and sadly common. The plan is required to disclose the expense ratio of each fund, but it’s not always in the same place. It might be found as a column in the list of investment options on your online benefits site, or you might have to click through to the specific fund.
Even if you find your plan is overpriced, you should still take advantage of your 401(k) to save for the future, especially if there’s an employer match. But it’s worth your time to send a note to the benefits office and ask for index funds. It could make a huge difference to your retirement stash down the road when you’re ready to use your money.
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In the past, there was one place to go when you wanted a loan: the local bank. In 2015, you have many more options, and peer-to-peer lending is proving to be an attractive choice for many borrowers looking for a good deal – plus individual lenders looking for an investment option. In fact, peer-to-peer lending companies, including Lending Club, Prosper and SoFi, are exploding so fast in popularity they are doubling their lending every nine months or so!
So what’s peer-to-peer lending all about? We have the scoop for you.
What is peer-to-peer lending?
Peer-to-peer (P2P) lending marketplaces offer loans outside of traditional banks by using algorithms that match borrowers with investors according to each party’s requirements. These companies face fewer regulations because they aren’t banks – they are simply acting as intermediaries between the borrower lender(s), meaning fees and rates are lower. Americans borrowed $6.6 billion in loans last year from P2P lenders.
What are the advantages to borrowing from a peer-to-peer lender?
For borrowers with good or excellent credit, you can expect to receive a more competitive interest rate than from a bank. This is especially helpful for consolidating debt: Lending Club recently revealed that borrowers who used a personal loan to consolidate debt or pay off high interest credit cards reported the interest rate on their loan was an average of 7 percentage points lower than they were paying on their outstanding debt. But don’t forget: when consolidating credit card debt you are moving it, not necessarily dealing it with it. Have a plan to make lifestyle changes so you can effectively pay the loan each month – Mint can help you make your plan!
Other advantages? Some lending marketplace create a loan-worthiness profile from credentials in addition to your credit score, including job history, education and social media activity. Plus, the entire application process is much more streamlined: you’ll fill out much less paperwork and can get approval in a day or two.
Who are the lenders on peer-to-peer marketplaces?
In short: anyone! Facing continued stagnation in savings interest rates, investors are looking for new options to grow their money or diversify their investment strategy. Most P2P loan terms are only a few years, so lending to peers creates a return on investment returns without locking up funds for long periods of time.
But a word of caution, there is more risk involved, so potential lenders should do their research – luckily, most marketplaces allow you to diversify investments across hundreds of loans taken by borrowers.
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Last Friday is affectionately known as Black Friday, and and today is Cyber Monday. These colorful monikers are used to describe two of the heaviest shopping days of the year, both of which kick off the holiday shopping season. This isn’t a secret and the retailers see you coming.
The National Retail Association will release the official results of Black Friday shopping on November 28th, but we already know that the numbers are going to be massive, because they always are. In fact, the billions that will be spent from Black Friday until the after Christmas sales will likely outpace what we’ve spent at retailers in the preceding 47 weeks.
So, why am I telling you all of this? I’m telling you because many of you have, or will open, new retail store credit cards or general use credit cards during the holiday shopping season because their offers are very enticing this year. Retail card issuers will offer between 10 and 20 percent off daily purchases, and some of the general-use card issuers are offering $100-$200 cash back bonuses if you charge more than $500 over the next three months.
Because you’re likely to spend more than normal, you’re more likely to consider at least one of these offers. While many of you will permanently add the card to your wallet’s inventory, some of you will use the initial discount offer and then close the credit card after the holiday season. For those of you who’ve followed my Mint blog, you know that closing a credit card can cause problems for your credit scores. So, what gives? Is it a good idea or not to close a credit card?
The Good News
The good news about closing credit cards is that you eliminate the potential for fraudulent use, which shouldn’t be much of a concern to you since the Fair Credit Billing Act caps your liability to only $50. There’s also no way you can use that card to get yourself into excessive (or even modest) credit card debt, and that’s not a bad deal either. Although, I’d argue that getting into credit card debt is a choice, not a requirement.
Generally, it’s ok to leave your credit cards open and use them all from time to time just to prevent the issuer from closing them because of inactivity. Having unused credit limits is actually very good for your credit scores, even if you never use the card. Of course, you only have unused credit limit if your cards are open.
The Bad News, and More Good News
The bad news when closing a card is made up of one big deal and one myth. When you close a credit card you lose to access to the credit line, which can lower your credit scores. The amount it can lower your scores is going to depend on how much of a line you just lost AND how much credit card debt you carry on other credit cards. If you have no debt, then the closure might be meaningless. If you carry a lot of debt, then the closure will likely be significant.
If you’ve ever explored the downside to closing a credit card on the Internet, then you’ve inevitably seen someone talk about how you should close newer cards and leave the older ones open. This is the myth and it suggests that closing older cards can make your credit file look younger, which lowers your credit scores. Credit scoring systems take the average age of your accounts when calculating your scores.
The problem, and what makes this one a myth, is that the average age of your credit accounts considers both open and closed accounts, including credit cards of all types. According to Craig Watts, a FICO spokesperson, “When assessing length of credit history, the FICO score considers the origination date on all accounts on the credit report, open and closed.”
This is great news for consumers who want to close down unused or unwanted credit card accounts. Now they can choose which ones to close based on how expensive the rate is or how high the annual fee, and not based on whether it’ll hurt the average age of your credit report.
I’d strongly suggest when you’re choosing which cards to close that you consider closing retail store cards instead of general-use cards like Visas, MasterCards and Discovers. The reason is the limits on retail cards are generally very low, at least when they’re initially issued, compared to the limits on your general use cards. This will limit the damage you’re going to cause to your credit scores because you’re probably not closing credit cards with thousands of dollars of credit limits.
Happy shopping!
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.
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Last month’s average temperatures nationwide were the second highest ever recorded, and July is showing no signs of relief. The hot weather paired with many large utilities already raising customer rates means that Minters could see their highest utility bills ever this year.
Luckily, there are steps you can take now to reduce the cost of cooling your home. So sit back, pour yourself a cold drink and take advantage of these tips to keep your utility bill from heating up.
Replace Your Air Filters
You should be replacing your air filters once a month, especially during the summer. Dirty filters restrict airflow, which means the air conditioner runs longer and uses more energy. Replacing a clogged filter will reduce your energy consumption by up to 15%! Buy several filters at once and create a recurring calendar reminder on your phone.
Cool Down Your Bed, Not The Room
Feeling hot when you try to fall asleep is uncomfortable at best, but running the air conditioning all night is the quickest way to a steep energy bill. Instead of turning down the temperature on your thermostat, consider purchasing a bed fan or cooling mat. Bed fans are special bed-height units that send cool air between your bed sheets, using much less energy than central air or a wall unit. Cooling mats use no energy at all! Just pop it in the refrigerator during the day, and place in your bed when you’re ready to turn in for the night.
Consider a Smart Thermostat
Your thermostat controls half of your energy bill, so any cost savings strategy deserves a long look at that tiny box on your wall. Thermostat innovator Nest reports that a correctly programmed thermostat – ones that make adjustments based on your activity – can save about 20% on your heating and cooling bill. In fact, average annual savings with the Nest Learning Thermostat is $173/year – with units costing around $250, you’ll see a return on your investment in your second year.
You can use Nest’s online tool to calculate how much money you can save based on your location, home size and system specifications. Even if you don’t have a smart thermostat, don’t forget: adjusting your temperature just one degree can cut your energy use up to 5%.
Get an Estimate for Radiant Barriers
If you live in a region with prolonged hot temperatures, updating your home’s insulation is a great option for reducing cooling costs for good. Radiant barriers – also known as reflective insulation – reflect heat away from the home.
Heat travels in three ways: conduction, convection, and radiation. Traditional insulation materials slow conductive and convective heat flow, but do not account for radiant heat that travels through your roof and into your house. Radiant barriers are easiest to install in new construction, but can be installed in your existing house, especially if it has an open attic. Studies show that radiant barriers can reduce cooling costs 5% to 10% when used in a warm, sunny climate.
What are some tips and tricks you use to keep things cool around your house? Share with us in the Comments or on Twitter with #MyMintTips.
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Last week, I tackled two questions from fans of Mint.com on Facebook. This week, I’ll tackle three more.
Q1: How does having student loans really affect your credit “image” and at what point/value?
A student loan is just that… a loan. And, if that particular loan (or loans, if you’ve got several of them) is reported to the credit reporting agencies, then the same rules about how loans impact your credit scores are going to apply. The point being, you don’t get more or less “points” simply because it’s a student loan.
Student loans are installment loans, which means there is a fixed payment for a fixed period of time. Installment loans don’t have a huge impact on credit scores because they’re normally more stable than, for example, credit cards. The reason installment loans are more stable is because the downside to not paying them is more invasive than the downside to not paying credit card debt. For example, your tax returns can be affected if you don’t pay your student loans.
Having said that, student loans are a perfectly effective way to build a solid credit report. If you’re paying your debt on time month after month, then that will help you to establish good credit scores.
Q2: How do I get credit for paying my student loan that’s in my parent’s names? The lender won’t let me switch or refinance it.
Well, that is quite a conundrum. Basically, you’re paying off a loan that belongs to your parents and they’re the ones getting the value of your on-time payments. While it might seem easy for the lender to swaps names on the promissory note, it’s never that simple.
Here’s a solution: Take out a personal loan and pay off the student loans in full. This way, you’ll become obligated to pay back the loan, which will show up on your credit reports and it gets your parents out of the equation. There are some downsides to this strategy that you should keep in mind:
First, if the aggregate amount of your student loans is too high, then you might not be able to qualify for a personal loan large enough to wipe it out. Second, you are going to lose any tax benefit because interest on personal loans is not deductible and interest on student loans normally is. Finally, the interest rate on a personal loan is probably going to be much higher than the rate on the student loans, so the debt just became more expensive.
I’d suggest that you perhaps look at other solutions for building your credit reports and scores. There are many credit card options that won’t cost you a dime, as long as you pay the balance in full each month. Opening a card is the most cost-effective way for responsible consumers to build credit.
Q3: Are my student loans going to ruin my chances for a mortgage, even with no late payments and excellent credit?
Coverage of student loans has been pretty negative over the past few years, and for good reason. We’re now in $1 trillion dollars of student loan debt, which outpaces our credit card debt. Student loan debt can’t easily be wiped out with a bankruptcy, so we’re stuck with it until we pay it… or die.
Having said that, from strictly a credit reporting and scoring perspective, there’s absolutely nothing wrong with student loans. In fact, your student loans could be help your chances to qualify for a mortgage, especially if you’re paying them on time, which it sounds like you are.
The one thing you should keep in mind is how the debt impacts your “DTI” or debt-to-income ratio, which is the amount you’re obligated to pay relative to the amount you earn. The point being, even with solid credit scores, having too much debt of any type can disqualify you for a loan, even if you’re got fantastic credit scores.
The best thing you can do is to continue to pay your loans on time, month after month.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.
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Don’t speak personal finance? Not to worry! Mint is celebrating World Dictionary Day with a list of must-know money terms to bring some savvy to your saving.
Quiz yourself to see how many terms you know! Have a definition of a term that’s not on our list? Need help with an tough acronym? Ask us on Twitter with the hashtag #MyMintTips.
Must-Know Money Terms
401(K)
A qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Employers offering a 401(k) plan may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.
IRA
An investing tool used by individuals to earn and earmark funds for retirement savings. There are several types of IRAs: Traditional IRAs, Roth IRAs, SIMPLE IRAs and SEP IRAs.
Traditional and Roth IRAs are established by individual taxpayers, who are allowed to contribute 100% of compensation (self-employment income for sole proprietors and partners) up to a set maximum dollar amount. Contributions to the Traditional IRA may be tax deductible depending on the taxpayer’s income, tax filing status and coverage by an employer-sponsored retirement plan. Roth IRA contributions are not tax-deductible.
Net
The final amount that remains after all other amounts have been taken away. Examples: net profit, net income, net worth
1095 Forms
In 2014 the Affordable Care Act, also known as Obamacare, introduced three new tax forms relevant to individuals, employers and health insurance providers. They are forms 1095-A, 1095-B and 1095-C. For individuals who bought insurance through the health care marketplaces, the 1095-A will provide information that will help to determine whether you are able to receive an additional premium tax credit or have to pay some back. 1095-B’s and C’s are for people with private insurance or from their employer — you just need these for your records, and they’re not required to file.
APR
The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.
FICO Score
A type of credit score that makes up a substantial portion of the credit report that lenders use to assess an applicant’s credit risk and whether to extend a loan. FICO is an acronym for the Fair Isaac Corporation, the creators of the FICO score. Using mathematical models, the FICO score takes into account various factors in each of these five areas to determine credit risk: payment history, current level of indebtedness, types of credit used and length of credit history, and new credit.
A person’s FICO score will range between 300 and 850. In general, a FICO score above 650 indicates that the individual has a very good credit history. People with scores below 620 will often find it substantially more difficult to obtain financing at a favorable rate.
ARM
An adjustable rate mortgage is also known as a “variable-rate mortgage” or a “floating-rate mortgage”.It’s a type of mortgage in which the interest rate paid on the outstanding balance varies according to a specific benchmark. The initial interest rate is normally fixed for a period of time after which it is reset periodically, often every month. The interest rate paid by the borrower will be based on a benchmark plus an additional spread, called an ARM margin.
Debt to Income Ratio
A personal finance measure that compares an individual’s debt payment to his or her overall income. A debt-to-income ratio (DTI) is one way lenders (including mortgage lenders) measure an individual’s ability to manage monthly payment and repay debts. DTI is calculated by dividing total recurring monthly debt by gross monthly income, and it is expressed as a percentage.
For example, John pays $1,000 each month for his mortgage, $500 for his car loan and $500 for the rest of his debt each month, so his total recurring monthly debt equals $2,000 ($1,000 + $500 + $500). If John’s gross monthly income is $6,000, his DTI would be $2,000 ÷ $6,000 = 0.33, or 33%.
Equity
Equity is the value of an asset less the value of all liabilities on that asset. The term’s meaning depends very much on the context. You can think of equity as one’s ownership in any asset after all debts associated with that asset are paid off. For example, a car or house with no outstanding debt is considered entirely the owner’s equity because he or she can readily sell the item for cash, with no debt standing between the owner and the sale. Stocks are equity because they represent ownership in a company, though ownership of shares in a publicly traded company generally does not come with accompanying liabilities.
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When they’re finally ready to make the jump from renting to home ownership, most first time homebuyers enlist a real estate agent to help them through the process. No wonder: buying a home is complicated and when it’s your first time, you feel like you could use some hand-holding.
Real estate agents provide a valuable service and are generally well-paid as a result. There’s nothing wrong with that. But money does have a way of distorting relationships — even when honest people are involved.
Here are some tips that will help you, as a first time homebuyer, take full advantage of today’s real estate market and get the most out of your relationship with your real estate agent.
1. Your agent is your agent
When you’re new to the process, it is easy to believe that the guy with 20 years’ experience calls the shots. This couldn’t be further from the truth. Your real estate professional is your agent: he or she works for you, gives you advice and negotiates on your behalf. He doesn’t make decisions for you and you should not expect him to.
2. Only fools fall in love
After you’ve looked at a few houses that weren’t quite right, your agent will probably tell you not to get discouraged, and that eventually you will “fall in love” with the right property.
Love makes you do stupid things. Stupid things like paying too much or looking past costly repair items. As a first-time homebuyer, you should develop a healthy ‘like’ for a property, but keep the relationship open, see other houses. There will be plenty of time for “love” after you’ve put in the 300 hours of sweat equity to make your house a home.
3. Be willing to walk away
If you never fall in love with a piece of real estate, you’ll never cry when you have to walk away from it. Real estate agents often use the phrase “my client will walk away” and some use it quite loosely to stress the importance of a point for negotiation. If you want to retain the full strength of your position as a buyer, you’ll need “I’ll walk away” to mean that you are done if your demands aren’t met.
For your agent to communicate this correctly to the seller, he needs to know that you mean what you say. And yes, if it reaches that point, you will need to walk away from a property. Not to worry: there are others out there. But don’t be surprised if you hear back from the seller a week later that he is willing to work with your demands.
4. Time is on your side
Your agent is going to tell you that you have to move quickly and make the best offer possible when you find the right property. This is not always the best advice. As a first time homebuyer, you are in a unique position of strength in terms of the real estate transaction. You aren’t selling your home, so you don’t have to move. You can look at and make offers on many properties. You can start with a low offer and negotiate upwards if the seller balks. You can table a counter-offer and look around a bit before deciding to pay more. The opposite is generally true of sellers in a buyer’s market. They need to sell the property and are motivated to move as quickly as possible. Use time to your advantage.
5. Your agent is not your friend
Your agent performs valuable services in the real estate transaction, but he really doesn’t make anything until you buy a piece of real estate. That makes him a salesman. Being a salesman, he wants you to feel like he is a friend who has your best interests at heart.
The reality is that your interests and your agent’s may not be aligned. He is actually better off financially if you make a quick decision and pay too much for a property. This is, after all, likely the largest business transaction of your life. Make sure that your agent, regardless of how personable he is, understands that you are a customer and that you need him to drive the best business deal for you.
6. The listing agent just might be your best friend
In the New York Times best-selling book Freakanomics, authors Steven D. Levitt and Stephen J. Dubner point out that real estate agents typically market their own homes for 10 days longer than they market their clients’ homes. Is this because they are so busy with their clients that they don’t have time to market their own homes?
No, it really comes down to how we incent real estate agents with commission. When an agent is selling his own home, he enjoys the full benefit of any increase in sales price so he is extremely motivated to market for as long as possible to get the best sales price possible. But when it comes to a client’s home, an extra week on the market might lead to a higher sales price for the seller — but the agent will only enjoy a very small amount of that increase in the form of marginal increase to commission. Meanwhile, marketing a home for another week would take him away from marketing someone else’s property. As such, the listing agent is highly motivated to convince the seller that your offer is the best offer he is going to receive. Use this to your advantage and make offers that are good for you.
7. There is no such thing as an embarrassingly low offer
When it comes to a property that has been sitting with no action, there is no such thing as an offer that is too low. Some agents will tell you that that you could offend the seller or that your offer is embarrassing. A good agent will encourage you to make strategically low offers. Offers are really not a lot of work and the worst thing that can happen is that your offer is not accepted. Often, however, in a buyer’s market a low offer will turn into a counter-offer. Think of the first offer as the starting point for negotiations and be prepared to consider counter-offers.
8. Online real estate companies can save you money
Over the past decade, online real estate companies have started to take market share away from traditional brick-and-mortar agencies. They’ve grown by offering discounts and rebates on the traditional 3% real estate commission. RedFin, one of the leading online real estate companies, offers buyers a rebate of up to 50% of the commission at close. RedFin also compensates their agents with salary as opposed to commission, which alleviates some conflict of interest issues. Granted, the service may not be as extensive or personalized — but the extra cash may offset the drawbacks.
8 Home Buying Secrets Your Real Estate Agent Won’t Tell You was provided by CreditSesame.com
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