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?

 

Be Wary of Short-Term Loans

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[The following is a guest post about the dangers of short-term loans.]

If you are facing a financial crisis, a payday loan may seem like the perfect solution to your problem. They usually offer to provide you with instant cash that may be in your bank account in just a matter of hours. They also promote the fact that they will lend to anyone with a steady job, even if you have no credit, or poor credit.

While this may seem like the answer to your financial problems, there are some things you should know about payday loans before making your final decision. Otherwise, what may seem like the perfect solution, may only add to your financial problems.

Payday Loans

How Short-term/Payday Loans Work

A payday loan company is likely to offer you a loan of up to $2,000 that you can spend on anything you want to. Through this loan contract, you agree to make regular payments to the lender until your loan is paid in full. They will attach various fees to your loan that you must also pay back in full. The application process is very easy and these companies do not do any type of credit check to see if you qualify for approval. As long as you have a steady income, you will probably be approved.

You may ask yourself why payday loan companies offer loans to people with little or poor credit when other lenders will not. This is because they set up an agreement with you where they are practically guaranteed to get their money back. This is because you agree to allow the payday loan company to withdraw the fund directly from your regular pay check or your bank account. These funds will then be directly forwarded to the payday loan company.

Repayments

It is very important that you realize the when you agree to a payday loan, you are authorizing the company to take funds directly from your pay check or bank account to cover your debt. Once you make the agreement, these payments will be automatic and there will be nothing you can do to stop the payments. This means that you will have fewer funds available to you every week until the loan is paid off.

If you are having the money directly deducted from your bank account and you do not have sufficient funds available, you are likely to receive an additional fee from your bank.

Added Fees

While the government has set some strict guidelines in place for payday loans, you will still repay a substantial amount more than you initially borrowed. Right from the start you will be charged a 20% establishment fee just for taking the loan out.  If you are taking out a $2,000 loan, the establishment fee would be $400. You will also pay a 4% monthly account fee on the balance you still owe. This will add up to a lot of extra charges.

For example, if you obtain a loan for $2,000 and plan to repay the loan over 16 biweekly installments, you will owe $190 every two weeks. This will equate to a total repayment of $3.040.00, which means you will be paying more than $1,000 more on a $2,000 loan. This does not even include late fees if you are ever late with one or more payment.

Alternatives To Expensive Short-term Loans

There are several alternatives to payday loans that you may want to consider. You definitely want to contact your lenders first and see if you can make alternative payment arrangements with them, so you do not have to take out a loan. You may also be able to borrow a small amount from a friend or family member and pay it back over a set period of time.

There are also some other loan alternatives, such as a standard bank loan or you may be able to obtain a low-interest credit card that you can use for some of your expenses. If you are low-income you may be eligible for specialty or Centrelink loans from bank and charity partnerships, such as the StepUp Loan and the No Interest Loans Scheme. If you receive payments from Centrelink, you may be eligible for an advance payment to help offset some of your current bills.

While taking out a payday loan may seem like a good idea initially, keep in mind how much you will need to repay in added fees. If you are not careful, this type of loan can actually add more financial stress on you than you currently have. This is because you will have to go with several weeks or months of decreased pay checks to cover all of your other expenses.

If you do obtain a payday loan make sure you read the contract through completely and that you are certain you will have the ability to repay the loan.

Why A Consolidation Loan May Be Worth Considering

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I know that many of you may think I’ve gone crazy with the title of this article – especially since I am trying to pay off debt myself – but I can assure you that I have not.

With interests rates being as low as they are right now, this may be a perfect opportunity to take out a loan in order to refinance debt or start up a business.

Don’t get me wrong, I still despise being in debt bondage, and I would still advise all of my clients, family, and friends to avoid debt whenever possible; but I also understand that taking out a loan isn’t always the worst option.

Here are a couple of situations for which getting consolidation loans might be the answer.

High Interest Credit Card Debt

Some people get into credit card debt because they decided to live above their means. For others, it may have been due to a few acts of desperation. Some may have even tried to take advantage of credit card benefits, and for some reason, were not able to pay off their debt.

No matter what the reason, if you are stuck with high-interest credit cards, it’s time to take action. First, call your bank(s) and try to negotiate a lower rate. If that doesn’t work, see if you have a card with a zero balance and a balance transfer offer. If your savings are higher than the transfer fee, do it!

If none of these options work, it may be best to take out a loan – be sure to take advantage of a personal loans comparison first from sites like http://www.comparethemarket.com/loans/ – and consolidate your credit card debt.

Student Loans

There are a growing number of people who are financing their higher education with the help of student loans. Unfortunately, many of those former students are then put into a difficult financial situation because of their high monthly student loan repayments.

Depending on whether you took out subsidized versus unsubsidized Stafford Loans (or some other instrument), you may end up owing a lot more than you realize once you’re out of the grace period.

Sometimes, the only option in these cases is to secure another loan, which will help you to lower your interest rate and/or extend the amount of time that you are given to pay back the loan – lowering your payments in the process.

Of course, your goal should always be to pay back any debt as quickly as possible, so don’t use your lower payments and a license to go wild with your spending!

Consolidation Loans For Your Car Note

Most people only think about refinancing their mortgage when overall interest rates in the economy drop. However, you can still save yourself thousands of dollars if you can get a new loan for your vehicle.

Don’t forget to compare any fees that you might have to pay with the amount of money you stand to save by refinancing.

The same exact things can be said about refinancing your mortgage – besides, people write about that so often that it gets boring! 😉

photo by Omar Omar

Reader Questions

  1. Have you ever had to take out consolidation loans for one or more of the reasons listed above?
  2. Do you think it’s a bad idea to try to fix a debt problem with more debt?

5 Tips For Saving Money On Vacation

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[The following is a guest post…]

When you’re on the road, whether it’s for leisure or business, it’s really easy to let the spending get out of control. This isn’t conducive to sticking with an overall savings plan, but it is important to keep your bigger financial picture in mind even when traveling; and to focus on saving money on vacation. There are several ways to keep expenses under control with a little bit of future planning. Here are some tips on how to save while away from home.

5 Tips For Saving Money On Vacation

By following these simple tips, you will be on your way to saving money on vacation expenses! Even if you are traveling on business, these tips can help you to save money.

Set A Budget

Before you leave the comfort of home, sit down and figure out a budget for your trip. Factor in what you’re willing to pay for food, lodging and transportation. Set an amount for incidentals, including souvenirs, and stick to it. If you happen to come in under budget, make sure to put that money back into savings.

Decide Your Method Of Payment

Some people research to find the best credit card offer and plan to pay for their entire vacation with plastic. This can be an effective strategy, but only if you have the money set aside already and can pay off the balance before the end of the billing cycle, otherwise you will be paying high interest rates. Choose a card with a reward program, and you can come out ahead. There is always the option of utilizing 0% balance transfer credit cards if you are unable to pay off the balance right away.

Use The Credit Card When Traveling Out Of The Country

Using a credit card when traveling outside the country affords you a little more protection than using traveler’s checks or cash. Some offer travel insurance, a much better exchange rate and other buyer’s protection options. Check your credit card agreement for more details on travel information.

[Khaleef’s note: Using credit card benefits to offset some of your travel costs is a great idea, you can also set up a similar plan for your day-to-day spending.]

Saving Money On Vacation By Shopping And Eating Locally

The native residents of an area will know the best and least expensive places to shop and eat. Ask your hotel desk clerks, housekeepers and gas station attendants where they like to go and what they like to do. Chances are they can give you the inside track and you can save a lot of money this way.

Do Not Pre-pay In Advance

It may look as if you are saving significant money when you book and pay for a hotel room in advance, but the truth is you won’t save more than a couple of dollars after all the fees are charged and pre-paid reservations are not refundable. If anything happens, you are out that money no matter the circumstances. Stay away from the third party vendors and book the reservation through the hotel’s website or directly with the hotel.

The best tip is to plan ahead as much as possible. You can’t plan for every contingency, but being prepared is the best way to save money when away from home.

photo by Graeme Weatherston

Can I Afford That?

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Can I Afford That?

I’ve been forced to think about this question a lot lately. If I have to borrow money in order to pay for something, can I afford it, really? If I have to borrow $30 to buy dinner for my family or even $300 to get new brakes, doesn’t that mean that I can’t afford it?

If you are thinking about spending $3,000 for a new flat-screen TV or $30,000 for a new car, but you have to borrow the money, that means that you are probably not in a good financial position to buy those items. In other words – you can’t afford it!

It’s really not that hard of a concept to get a hold of. If you do not presently have the money to pay for something, then you can’t afford it! In case you are wondering, my view of this doesn’t change with a mortgage. Borrowing $300,000 to “buy” a house, means that you can’t afford that house right now!

I know that people will talk about all the benefits to having a mortgage (pride of ownership, tax deduction, and even using it as a debt consolidation loan), but to me those are secondary issues that take away from the bottom line.

If you don’t have the money to pay for something and you have to borrow money (and pay interest) in order to buy it, then you can’t afford it! This is a simple concept, but many people will file for bankruptcy in the near future because they couldn’t get a hold of it. Many of us will continue to borrow and spend – hoping for unrealistic salary increases, asset appreciation, and even government intervention to bail us out!

I feel I must make something clear at this point…I do not have a problem with someone who has the ability (read: money) to pay for something outright, but they are purposefully incurring some debt because they are using their cash for investments from which they stand a reasonable chance of earning more than they are paying out in interest. Trying to leverage your money in order to wisely increase your investing gains is something that can be analyzed, calculated, and managed (of course, that doesn’t mean there aren’t risks involved).

What I am talking about is the constant need for everything to be financed in this country! You can finance a house, car, education, stove, sofa, computer, and practically anything else that you wish to buy. This means that people no longer look at whether they can truly afford something, but only if they can get by with monthly payments!

The biggest problem (besides feeding an already unfettered since of entitlement among most people) with all of this is that all of this debt is backed by depreciating assets (cars, furniture, electronics, etc) or things that no longer have any value (such as meals, old clothing, vacations, and a worthless degree in a subject you’ll never use)! Most people are not even in a position to sell their assets and pay off their debt!

In order to overcome this, we must learn to live below our means and think about more than our immediate desires! Debt consolidation is only an answer once you have taken care of the real problem! The same goes with any other type of hardship program or bailout you may receive.

In the end, it takes a change in thinking to stop this epidemic.

photo by renjith krishnan

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