debt programs What’s the Deal with Interest Only Mortgages? Have you heard that commercial about interest-only mortgages...the one where you’re told about what a wonderful benefit it is to have a low, low mortgage payment and all the wonderful tax write-offs you will receive? Before you decide to buy now and pay later, that is pay “big time” later, take a moment to enlighten yourself a bit more about these so-called “interest only mortgages.” Think about it for a moment. If you just pay the interest on your home, will you ever start paying on principal and will you ever earn any equity into your property? By definition, a mortgage is a temporary, conditional pledge of property to a creditor as security for performance of an obligation or repayment of a debt. Simplified, that means you borrow money from a financial institution and they essentially buy your house and you pay it back. How can this happen if you’re just paying interest? More accurately, interest-only mortgages are a temporary reprieve for paying off a traditional mortgage. You may actually be prolonging the inevitable and eventually making it even more costly to pay off your mortgage. Far too many people are in debt way over their heads because of interest-only mortgages. They took advantage of attractive offers to buy now and pay later. With an interest only payment you’re keeping the principal at minimum value while continuing to pay interest at 100%. With a more conventional mortgage you’d be slowly dwindling down the total interest amount. Most interest-only payment schedules are offered on Adjustable Rate Mortgages (ARMs), but they can also be found on a fixed rate mortgage. Interest-only payment periods almost never run for the entire term of the loan which is typically 15 or 30 years. Depending on the terms of your contract, you could be expected to start paying on the principal in five, seven or ten years. Once the interest-only period ends, your monthly payment will go up because then you’ll be paying on both principal and interest. Conversely, interest-only mortgages can be a good thing for some people. For those people wanting to purchase a bigger/better home for a lower down payment AND who anticipate moving within seven years, the interest-only payment method may be the way to go. However, keep in-mind that in a "down" realestate market you generally won’t be building equity and making money by doing it this way. The majority of the money made from investing in real estate comes from an increase in value to the home. The average person moves every seven years anyway. Gone are the days when people stay in a home thirty years. Hence, if you anticipate moving before you’ll have to start paying on the principal, then an interest-only payment may be ideal for you. There’s a great deal of fine print to any mortgage. Evaluate your own goals; be vigilant when reviewing the terms on the loan you’re considering before acting. It Takes Credit To Build Credit Using a credit card wisely is an important step in building a good credit rating. If you're trying to re-build your credit or if you're young and just starting out, pay close attention the next time you receive a new card offer in the mail. When you're trying to build a positive credit history for yourself, using the right credit card makes sense. Making small purchases and then making your payments on time each month is a simple, reliable way to build an outstanding credit report. What to Look For On a Credit Card Application If you receive a credit card application that appears to offer a low monthly interest rate, don't make a decision until you turn it over and closely examine the Disclosure Box. In it you'll find a more important measure of credit terms - the Annual Percentage Rate, or APR. By federal law, the Disclosure Box will also tell you whether or not the card has what is called a grace period - a number of days, usually 25, until your purchase starts to accrue finance charges. If a card has a reasonable grace period and you pay off your balance at the end of each billing cycle, you won't have to pay finance charges. It isn't difficult to find credit cards that offer these grace periods, so if the Disclosure Box doesn't declare one then throw the application in the trash and look for a better offer. If you don't have any credit history at all, a credit card company won't want to give you a very high credit limit, but that's probably best when you're just starting out. You don't want to be tempted to go into serious debt with your very first credit card. Calculate Your Monthly Finance Charges Ideally you want to pay off your balance each month to avoid paying any finance charges, but when that isn't possible it's important to know the actual cost of the items you purchase. The annual percentage rate, divided by 12 months, gives you the periodic rate that will be applied to your outstanding balance each month. You can estimate what your monthly finance charge will be by multiplying the periodic rate times the outstanding balance. It may sound complicated at first, but taking the time to learn this simple equation can make a big difference in how you use your credit card. When you're able to see how much you actually spend on an item that you don't pay off at the end of the month, it might help you to resist the temptation to over-use your card. An item that you want to buy might be on sale at the time you purchase it, but if you don't pay off your balance at the end of the month then those finance charges can dramatically increase the actual amount you'll end up paying. Use Your Credit Card as a Tool Credit cards are only one of the tools available to help you build a positive credit history. Making on-time payments for other forms of credit, such as rent and utilities, are also important. Depending on your situation, within 1-2 years your credit rating will be improved enough that you no longer need to use your card for new purchases to maintain your good credit. Use these tools wisely, and they'll help build your financial future! Save Time, Money, and Frustration and Get the Right Credit Score You go into a lender's office prepared to apply for and receive a loan. After all, you've done your homework, you've pulled your credit reports and you know what your credit scores are--you even got one score from each of the three major credit bureaus: Equifax. Experian, and TransUnion. You are shocked when your loan is denied, or maybe you were approved, but the interest rate is much higher than you anticipated. How can that be you say? My credit score is good, I know I checked. Maybe it's not as good as you think. It all depends on there you got it and what kind of credit score it is. The fact is there are several different credit scoring methods. Credit scores calculated from the same credit reports can differ substantially from credit scoring method to credit scoring method. So how can you ever know what your credit score really is? Well, luckily, 75% percent of lenders use FICO scores exclusively and you can purchase FICO scores yourself--you just have to know where to go. (www.myfico.com) FICO credit scoring is a numeric method of scoring your credit worthiness developed by Fair Isaac and Company. Your credit score is a number between 300 and 850 that tells creditors how likely you are to pay your bills. The higher the number, the better it looks to potential lenders and creditors. The three major credit bureaus each have their own version of the FICO score: Equifax uses the Beacon system, TransUnion uses the Empirica system, and Experian uses the Experian/Fair Isaac system. Despite each credit bureaus' use of their own versions, all systems are based the original Fair Isaac FICO scoring method, so each credit score calculated with these systems are generally called FICO scores. However, although most lenders do use FICO scoring, some lenders may have their own scoring methods. There is only one place where you can get your FICO score from all three bureaus and that is at www.myfico.com. If you order your credit score from anywhere else, again be aware that these scores are "FAKOs" (or "fake") and can differ considerably from your FICO credit scores. Adding to the confusion is the credit bureaus themselves. Recently, Experian revealed that the national average credit score of its consumers is 678. This is very misleading to the average consumer. When you buy your credit report and score directly from Experians website, you are getting what they call the "PLUS Score," which is NOT a FICO score, and is NOT used by lenders anywhere. (Equifax is the exception--you can buy your FICO score directly from them at their website; however, the only place to get all three scores together is at www.myfico.com.) The 678 PLUS Score reported by Experian is actually the average of consumers' PLUS Scores, not their FICO Scores. Clearly, the PLUS Score (and all Non-FICO scores) are useless. Not only that, but such hype misleads consumers into purchasing their PLUS Score thinking that they are getting the same credit score that their lender will use. Non-FICO scores are worthless not matter what the credit bureaus or any website selling non-FICO scores claim. Even a few points difference in your credit score can mean confronting the reality of the loss of thousands of dollars out of your pocket--a loss that you probably didn't plan for. The next time you want the most accurate credit score available, do yourself a favor and get the industry standard: the FICO credit score. Federal Debt Consolidation Loans For Students Student Loan Consolidation For American college students, the U.S. Government came up with a plan that can help a student manage their student loan debt. The plan they came up with is called a Federal Direct Consolidation Loan. It does not matter if you are a recent graduate student, well into your career already, still at school, or in your grace period for repayment of a student loan. For any of those student categories, a Federal debt consolidation loan may be applied for. Students successful in their application for a federal debt consolidation loan may reduce the amount they need to repay each month, or increase the time that they have to pay off their current debt. How Does a Federal Debt Consolidation Loan Help a Student Pay Off Their Debt? For a student who has student loans under several different programs, bringing them all together under one direct Federal Debt Consolidation Loan can make your debts easier to manage. By combining all of your loans into one, you're only responsible for making one payment to one lender - the U.S. Government. To help make the option of debt consolidation more attractive, there are four flexible payment plans available, including two that which take income and/or income expectations into account. The Federal Debt Consolidation Loan is Available to Help you Manage your Student Debt. Student loan debt is not something that you want dragging at your feet like a ball and chain. It provides a good opportunity for students to learn to manage their finances. Even if you are still at school, it is a good time to learn to manage your debt. That will hold you in good stead as a consumer long into the future. For example, if you choose to consolidate all your student debts into one before you leave school, you can lock in an interest rate that as much as .6% lower than if you attempt to refinance later, after you have left and are no longer a student. For more how a Federal Direct Consolidation Loan can help lower your repayments, and manage your student debt, you can visit the Department of Education's web site. Once there, you can make use of their online debt calculator at https://loanconsolidation.ed.gov to estimate your projected monthly payment under the various plans. Can a Federal Direct Consolidation Loan help you manage your debt? There could be reasons why debt consolidation is not the best solution for any particular student. If a student is close to the end of their repayment term, for example, it may not be worth the work to consolidate. Prolonging the life of your loan is likely to increase the amount you pay overall. If you can afford the higher monthly payments to pay off the debt sooner, you can ultimately save money by doing so. If, however, you are sure that a Federal Direct Consolidation Loan will be to your benefit, you still need to be eligible for the program. The eligibility guidelines can be found at loanconsolidation.ed.gove/borrower/beligible.html In addition, the list of loans that are eligible for consolidation can be viewed at: loanconsolidation.ed.gov.borrower/bloans.html Which Federal Student Loan Consolidation Plan is the most suitable for you? Here are the 4 debt consolidation loan consolidation plans that are available to choose from: Standard: The standard repayment plan is fixed-rate, and runs for a maximum of 10 years. The minimum monthly payment is $50. Extended Repayment Plan: this is a fixed rate plan, with payments extending over the course of 12-30 years. Payments are a minimum of $50, and the life of the loan is dependent on the total amount of the debt. Graduated Repayment Plan: Under the graduated plan, payments start low and increase, generally every two years. The length of the repayment period can vary from 12 right up to 30 years. Income Contingent Repayment Plan: The monthly payment is based on a borrower's annual adjusted gross income, family size and the total amount of direct loans. If your student loan debt is out of control, or could be better managed, it is worth paying a visit to: https://loanconsolidation.ed.gov to see how the federal government can help you with your student debt consolidation loan for students. Practicing Realistic Spending Get out of debt and stay out of debt, are words to live by for Editor Lisa Laskey and her family. "By the time I met the man who would become my future husband, I was in more debt than I could handle. After a few years together, my husband's thrifty ways and his parent's great financial modeling helped me learn the importance of living within our means and not planning to pay it off "next month." This may sound unexciting and not spontaneous to some, but it has gotten us through many lean years and insures that we will enjoy the extra income of the non-so-lean years."