KNS Financial

Personal Finance From a Biblical Perspective

5 Simple Ways To Take Advantage Of Low Interest Rates

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Many people are disappointed because of the low interest rates available today. They look at the fact that their bank accounts are paying pennies per year in interest, and conclude that they cannot get ahead financially. However, there are things that you can do to take advantage of low interest rates.

Refinance Your Mortgage With Low Interest Rates

This is one of the most common ways to take advantage of low interest rates. This is because most mortgages involve hundreds of thousands of dollars and span across multiple decades. Even a small change in the interest rate of your loan can have drastic effects on your monthly payments.

The best time to refinance your mortgage is when you owe at least 20% less than the appraised value of your home. This way, you won’t have to worry about private mortgage insurance when you refinance.

Low Interest Rates

If you do decide to refinance, make sure you perform an analysis to see if the expected savings outweigh the points, fees, and other expenses associated with the refinance to make sure it is actually going to save you money.

A great way to pay off your mortgage early is to refinance at a lower rate, secure a lower monthly payment, but continue to pay the higher amount. This way you will be able to pay a few hundred dollars extra on your mortgage each month, without having to change your current budget. Just make sure that your additional payments are applied to the principle of your loan.

Negotiate Lower Rates

When you notice that interest rates are going lower, that should be a signal to you that it’s time to negotiate lower rates with your creditors. Give your credit card companies a call and ask them to lower your interest rate.

If you have an excellent payment history with that company and you have good credit, you should be able to get them to lower your interest rate. In fact, even if we aren’t in a low-interest-rate environment, you should be able to secure a lower rate if you have those credentials!

Consolidate High-Interest Debt

If your individual credit card companies and banks aren’t willing to give you a lower interest rate, a consolidation may be in order. Actually, depending on my situation, I may try to consolidate my debt first!

When dealing with high-interest credit cards, there are typically two ways in which you can consolidate your debt. First, you can apply for a consolidation loan. This is usually an unsecured, personal loan that you use to pay off all of your debt. The main benefit here is – hopefully – a lower interest rate, and only having to worry about making one payment each month.

The second way to consolidate your debt is to move all of your debt onto a single credit card. If you can find a card that has a balance transfer offer – such as 0% for the next year – then this can be a great move. Usually, you will have to pay a fee in order to process a balance transfer – just make sure that this fee is less than the money you plan to save by the reduced interest rate.

Refinance Your Car Loan

Many people only think of refinancing a mortgage when faced with low interest rates. However, with the price of a new car easily exceeding $30,000, you can save thousands of dollars by refinancing your car loan!

I would make the same recommendation to pay it off early. Refinance the loan in order to have a lower mandatory monthly payment, but continue to pay the same amount that you are paying today. If this amount is going directly toward the principle of the loan, you will finish paying it off much faster!

Make Prepayments To Secure A Lower Purchase Price

There are a number of financial agreements which we enter into, that will allow us to pay a reduced price if we pay the bill in full up front. The most common charge that I can think of which fits this description is car insurance. Most companies charge a fee for breaking your premium up into monthly payments; thus giving you a discount for paying the full charge up front.

Sometimes landlords will be willing to give you a discount on your rent if you pay up front. The discount may increase as you add more months to your initial payment. Paying your rent a year in advance can lead to real savings.

The same is true for many other arrangements where there is an option to pay over a long period of time versus paying the entire amount due in the beginning of the agreement.

You may be thinking to yourself, “I can make prepayments at any time! This has nothing to do with interest rates”. However, the reason why this is tied to low interest rates is because you have less incentive to put out $15 – $20,000 all at once, if rates are high.

If you can earn a high interest rate by putting your cash in a savings account or CD, then you will not be inclined to pay your rent a year in advance, unless the savings in rent are more than what you would earn in interest. Therefore, low interest rates make it financially feasible to make prepayments in order to secure a reduction in your purchase price!

photo by jscreationzs

A Few Questions About Low Interest Rates

  1. Do you take advantage of low interest rates to reduce your debt payments?
  2. Have you ever taken out a consolidation loan?
  3. Do you feel more justified in living above your means (borrowing money to pay for expenses) in a low interest rate environment?

 

Sponsored Video – When Credit Cards Can Help You

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The following post has been sponsored by Capital One, but all thoughts & experiences are my own. In fact, the great thing is that I’ve been a very happy customer of Capital One for years – with my business account (the account/card mentioned in the video below)!

As most of you already know, I’m no stranger to expensive car repairs. Keep in mind that anything over about $150 is expensive in my mind (one of the consequences of being broke and in debt). Well, we had to spend another $600 recently – this time on our SUV. Since we are trying to use every extra penny to pay off our debt and also build up an emergency savings account, we were putting off the repairs until they were absolutely necessary.

We had to get the air temperature door actuator replaced on our Ford Explorer – apparently, this is a common problem. We were originally told that it would cost about $750; mainly due to the labor involved – the center console and part of the dashboard had to be removed. Going through the winter without any heat is difficult in New Jersey, so once the temperature dropped down to the low 20s consistently (hitting the teens on a couple of days), we knew we couldn’t put it off any longer.

We have a credit card that is dedicated for car repairs. If our repair bill is over $299, then we have 6 months to pay off the balance before any interest is charged. So, in this case, our credit card has saved us from prematurely depleting our emergency fund or taking from our monthly budget, while allowing us to put heat in our vehicle!

We definitely plan to pay off the credit card before the 6 months are up – something that we have done each time we’ve used it – so we aren’t expecting to pay any interest for this loan. If we aren’t able to save enough in the 6 months by reducing our expenses (not likely since we don’t have many variable expenses), then we will still be in a better position to take money from our savings.

If we weren’t in debt, we would probably use credit cards for everything. We already use it for any online purchase (for security) or any other payment where we aren’t completely comfortable (like some gas stations, restaurants, etc.). Between the added security, the rewards, and the possible cash back, I am a big fan of credit cards.

Now obviously, this love only goes as far as the benefit gained combined with the responsibility of the user. To be fair, this can be said about most good things. Too much or a misuse of a good thing can easily make it detrimental. Someone once said that a credit card is like fire…useful, but handle with care.

photo credit: freedigitalphotos.net

I Hate To Say This, But I Was Saved By A CREDIT CARD!!!

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I have written a few times on my weight loss blog about having to bring my car to the mechanic. I think I have made 5 trips since the end of November for the same problem.

During this time we have replaced practically the entire cooling system – including the radiator! After spending $1,600 to do this, my car started overheating a week or two later. At the same time, someone brought a car like mine (just one year older) in to my mechanic with the same exact problems. They found air in her cooling system just like mine! However, they did not detect any problems inside of her cooling system, as with mine.

This prompted him to check the Internet to see if this problem was common. He not only found tons of complaints in forums and other places, but he also discovered that this is something that GM knows about but are choosing to ignore. It seems that the problem is with the intake manifold gasket, and it usually happens after the car is already out of the warranty period.

It cost us about $650 to replace it (this was mainly labor, since the job took many hours), bringing our total to fix this problem up to $2,250! That doesn’t even included all of the countless hours on the road to and from the shop, who knows how much gas and wear & tear on both of our vehicles, as well as dozens of hours driving, worrying, and even sitting on the side of the road waiting for the engine to cool down.

[Find out how to save money on car repairs!]

I’ve talked in the past about how having an emergency fund can help when these types of necessary but unexpected expenses pop up. Fortunately, we were able to pay for some of these repairs (specifically replacing the intake manifold gasket) by tapping our emergency account. However, in order to cover the other $1,600, we would have had to drain the account completely!

Saved by Credit Card

I hate the idea of have a $0 emergency savings account, so we really needed to come up with another way to pay for these expensive repairs. Since we are deeply in debt bondage, we don’t have a lot of “wiggle room” when it comes to our expenses and our paycheck (most of our expenses consist of nothing more than debt payments), and although we try to keep a cushion in our checking account, we don’t have an extra $1,600 sitting around.

We could have tried to take out a personal loan, but I really don’t like the idea of owing people money. Another option would have been to take out a payday or other short-term loan, but we are really trying to avoid increasing the amount of interest we have to pay out this year.

So, as a personal finance blogger, I had to turn to the one place that was probably the least expected…a credit card! I’ve written about the benefits of credit cards in the past, so it shouldn’t come as a surprise that I don’t hate them. I just hate that many of us us them for the wrong reasons.

Last year my wife and I found a credit card that would allow us to charge any car repairs over $299 and have the interest deferred for 6 months. This means that if we can pay off the balance by the end of the 6-month period, we will have received an interest free loan. 🙂

Normally, I don’t like to be put in a position to have to place an expense (or multiple expenses as in this case) on a credit card, especially since we already have a ton of debt, but in this case it seemed to be our best option. The very worst case scenario (outside of us needing additional repairs) has us draining our savings at the beginning of the summer to pay for the repairs, but if we are able to use every extra dime to pay down the credit card, things won’t be as bad for us.

So this is definitely a case where having a credit card was a great benefit to us. I just pray that we can get back to moving in the right direction with our debt repayment plan…having our car need over $2,200 in repairs (and it needs more, plus my wife’s truck has a few things wrong with it as well) definitely set us back.

photo credit: Dan Esparza

Reader Questions

  1. Have you ever used a credit card to bail you out of a jam? Not, to buy a tablet or a toy, but for an actual emergency.
  2. Do you think we should have just emptied our savings account even though the credit card may not cost us an interest payments? If so, why?
  3. How do you feel about someone not having an emergency savings account at all, and just having a credit card or two (especially a rewards card) to pay for emergencies?

A Review of Cardhub.com

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The following is a review, written by my wife, of one of the few credit card comparison sites that seems to have been created with the consumer in mind. This represents her real opinion, and not just some positive words that we were paid to write…

Card Hub’s credit card comparison allows the consumer to make an informed decision about the credit card that suits his or her needs. Instead of responding to the first ‘pre-approved’ offer that comes in the mail, or relying on your bank to give you their best presentation, this website accommodates your specific requirements for the card for which you want to apply.

I was impressed by the parameters with which the website searches for cards. Some areas in which you are able to narrow your search for cards are: based on your level of credit, a specific type of offer (e.g. 0% balance transfer, gas rewards), specific bank networks (such as Visa or MasterCard), and various other credit card benefits.

Each card that is recommended provides its purchase or transfer annual percentage rate (APR), monthly or annual fees, the current APR, and any rewards that come with the card.

While specific, the website at NO time asks for your personal information. Once you make a decision, you are then transferred to that bank’s website to apply for the card. According to the website, advertising, and a stipend from the consumer clicking on an ‘Apply Now’ button on the site, are the ways that cardhub.com generates income.

If you are not sure about your exact needs, the website offers a Credit Card Advisor which will give you card options based on your answers to a few simple questions. The site also offers a Free Credit Check estimate. Since you are not providing personal information, they gauge the estimated credit standing based on your answers to the questions, the same questions used for their Credit Card Advisor function.

There are also various calculators which allow you to forecast your interest, fees, monthly payments, amount needed to pay off a card, and other options.

Along with these offerings, the tools and advice tabs gives a lot of useful information, advice, and data regarding credit and credit card usage that is definitely worth perusing.

The site also gives you a list of prepaid cards to consider, which offers the same information as the credit card section.

Cardhub.com also has a section for gift cards. Like the credit card area, the main gift card section gives you many parameters to narrow your search, and you are directed to the seller’s website to complete your purchase. The search function is not only useful in regards to finding a specific card, but it also allows you to choose different countries for your needs.

There is also a social gift card exchange tab which allows you to purchase gift cards at significant savings, or you can sell gift cards in the neighboring tab as well.

The most notable thing about the website is its ease of use. The navigation was straightforward, and I was always able to find what I was looking for without wasting much time.

I will definitely visit this site again should any credit or gift card needs arise. I like seeing my options in one place, with clear information, and not a lot of hoops to go through.

Tips For Using Credit Cards Responsibly: Advice from Nora Dunn

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Nora Dunn is a former CFP who sold everything she owned, including her business, in 2006 to travel the world. While she’s never looked back and has been having a blast as a professional hobo ever since, Dunn still needs to travel in a financially sustainable manner.

A large part of her strategy? Using credit cards responsibly. I recently caught up with her during an internet-connected travel moment, and picked her brain about the practice of using credit cards in a way that makes good financial sense.

Tips For Using Credit Cards Responsibly: Advice from Nora Dunn

What Are Some Examples That Illustrate When Using Credit Cards Is A Good Idea?

First, using a credit card and paying it off in full each month helps you to build a great credit rating, which comes in handy when applying for loans and mortgages. The last time I took out a loan to buy a car, I received all sorts of special concessions and security deposit waivers by virtue of having an excellent credit rating.

Second, consistent credit card usage also can be handy for providing a good account of your spending habits. It’s considerably more traceable than paying with cash and wondering where all your money went at the end of the month.

However, my favorite reason for using credit cards (somewhat religiously) is for the accumulation of frequent flyer miles, which for me has been a way to reduce my full-time travel expenses drastically (and even experience a little business class treatment).

What Are Some Fees That People Should Watch Out For?

If you take out a cash advance with your credit card, interest accumulates from the day you withdraw the funds. This might come as a surprise if you’re expecting the same 20 plus day interest-free grace period that you receive on purchases.

Also, if you leave the country and buy things in foreign currencies, expect to pay a currency conversion commission of approximately two and a half percent. But if you know what to look for, you can find a credit card with no foreign transaction fee, and save a ton on travel.

What Should People Look For When Shopping For A New Credit Card?

What to look for in a new credit card depends on your needs. I like cards that have a rewards program of one sort or another, and my favorite type of reward is of the frequent flyer mile ilk (for obvious reasons). [Editor’s note: Take a look at our list of credit card benefits]

What Would You Say Are The Most Common Credit Card Mistakes People Make?

Carrying a balance on credit cards – especially high-interest department store cards – is one of the biggest mistakes you can make. I don’t consider my credit card a license to print money that I don’t have. Instead I use it in a similar manner to a debit card: only if there’s enough money in my bank account to cover the expense.

So There You Have It

Nora’s advice sounds an awful lot like the credit card gospel that I tend to preach, which makes me feel a lot better. At the end of the day, credit cards are tools to be used appropriately, and it always pays to respect their pitfalls.

Using credit cards as a convenience, to accumulate rewards, and to pay for travel expenses can save you a ton of money in the long run. But accumulating too much debt or not paying your bills on time can bring all those benefits crashing down around you.

This was a guest post written by Jake at Nerd Wallet. NerdWallet.com is a site dedicated to educating consumers about proper use of credit cards.

photo by Andres Rueda

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