Why Is Co-Signing Dangerous?

Good intentions can ruin you financially.

People who are looking for someone to co-sign a loan for them often look for the nicest, sweetest, and gentlest person they know well.  If you have been asked to co-sign for a loan, congratulations on being one of the nicest people in the world.  But, now it is time to do the right thing.

No matter how long and tragic story their story is, you need to remember that co-signing a loan is dangerous.

Why Is Co-Signing Dangerous?

  • The lending conditions are a high risk: If someone is trying to get you to co-sign with them, it is because they could not get a loan from a bank or other financial institution.  This means that those organizations consider this person too high of a borrowing risk.  When someone cannot get out of debt they are a credit risk.  If you look at how much money credit card companies are willing to extend to people, I take it as a very bad sign when a bank says someone is not lender worthy.  I would not lend to someone who is not eligible for a bank loan.  Best case scenario, I might point them in the direction of Lending Club, but depending on the situation, that could cause more damage than help. › Continue reading
Tuesday, April 6th, 2010 Credit No Comments

What Is Compound Interest?

One of the most important concepts to grasp when you are thinking of saving and investing and why it is such a worthwhile activity is the concept of compound interest. The power of compounding is considerable and can take a tiny nest egg to a sizeable sum over time.

The definition of compound interest  is “the interest paid on capital and any previously accrued interest.” But how, exactly, does it work? The best way to explain compound interest is with an example. Let’s say you have decided to open a savings account. The account earns compound interest. This means that once you deposit the initial amount, it will earn interest on that amount over a certain period of time such as a month, or a year. At the end of that time period, the interest earned is then added to the initial amount you deposited, and then interest is earned on the new total over the next period, and so on and so forth. That is why it is called compound interest – since the new amount is compounded, or combined with the old amount to get a new total figure.

The idea is that if you can leave your savings alone for a long enough period of time, the compounding will cause the initial sum to grow exponentially. If you are not certain what that means, let’s just say it means “by a lot!” › Continue reading

Tuesday, March 30th, 2010 financial Info No Comments

What is a 401K?

Many people have heard of 401K programs but may not be entirely sure what they are, how to get one, and then what to do with a 401K once they have one! It’s no wonder that there can be some confusion about different types of savings and investment plans  – since most people did not have a course about it in school, and some employers do not bother to educate their employees about options. However, continue to read on and you will get a clear idea of what a 401K plan is.

 A Tax Free Savings Plan. A 401K plan is a plan that can only be offered through your place of business and is also known as an employer-sponsored retirement plan. This is because the IRS allows special tax breaks to companies and their employees who use a 401K plan to save for retirement. A 401K plan is also called a defined contribution plan as well, because the plan allows employees and employers to contribute specific amounts or percentages of funds into the 401K plan on an annual basis, free from taxation! In other words, your pre-tax dollars go into the plan and can be saved, invested, and accumulated until you retire without any tax payment required. (That is, only if you keep the funds in the account until you retire or to age 59 ½ – early withdrawals will be taxed at regular income tax rates AND penalized at an additional 10 per cent.) › Continue reading

Tuesday, March 16th, 2010 Financial Planning, Saving Money No Comments

The Different Types of Mortgages

 

If you are in the market for buying a new home, you may be curious about the different types of mortgage (also known as a home loan) options available to you. The main types of mortgages are adjustable rate and fixed rate – however there are many different subsets of these mortgages, and some may be more or less suited for your particular needs.

What Do I Need to Know Before I Get a Mortgage? You should have a clear idea of your monthly income, expenses, and a general idea of the price of the house you are able to afford. This will be largely based on the amount of money you have saved for a down payment and your estimated monthly mortgage payment, taxes, and insurance costs, which many financial experts say should not exceed 28 to 30 per cent of your monthly income. Most borrowers should be prepared to mortgage 80 to 90 per cent of the home’s value, and also be prepared for a 10 to 20 per cent down payment.

 The Basic Mortgage types. As stated above, there are two main kinds of mortgages to choose from: fixed rate and adjustable rate. A fixed rate mortgage means that the interest rate that is charged on the amount you are borrowing will stay the same for the entire time you hold the loan. An adjustable rate mortgage (also known as an ARM, or a variable rate mortgage) is one where the interest rate can fluctuate over time, depending on the general level of interest rates in the overall economy. › Continue reading

Thursday, March 4th, 2010 financial Info No Comments

Reducing Household Expenses

There are many people who are looking to reduce household expenses and save money. There are many benefits to doing so. For one, reducing unnecessary waste can end up saving a lot of money in the long run that could be used toward generating savings, and another reason is that many times, reducing expenses can have a positive impact on the environment.

Save on Household Services. There are many services every household utilizes, such as Internet, Cable, and phone services. It is a good idea to do an inventory of your current service and shop around for a better price. Often times, you can call your current service provider and mention you are thinking of switching, and you will be amazed at the kinds of deals they send your way to keep you as a customer. The same goes for other services you might pay for, such as lawn care, or gym fees. › Continue reading

Tuesday, March 2nd, 2010 Budgeting, Saving Money No Comments