New Mortgage Rules
Protect Against Risky Loans

alderman_color_1By Jason Alderman

Good news for people shopping for a mortgage — and for current homeowners facing foreclosure because they can no longer afford their home loan: New mortgage regulations drafted by the Consumer Financial Protection Bureau recently took effect, and they provide a slew of new rights and protections for consumers.

One of the cornerstones of the new mortgage rules is that lenders now are required to evaluate whether borrowers can afford to repay a mortgage over the long term — that is, after the initial teaser rate has expired. Otherwise, the loan won’t be considered what’s now referred to as a “qualified mortgage.”

Qualified mortgages are designed to help protect consumers from the kinds of risky loans that brought the housing market to its knees back in 2008. But obtaining that designation is also important to lenders because it will protect them from lawsuits by borrowers who later prove unable to pay off their loans.

Under the new ability-to-pay rules, lenders now must assess — and document — multiple components of the borrower’s financial state before offering a mortgage, including the borrower’s income, savings and other assets, debt (including alimony, child support and student loans), employment status and credit history, as well as other anticipated mortgage-related costs (home and mortgage insurance, property taxes, etc.)

Qualified mortgages must meet the following guidelines:

  • The term can’t be longer than 30 years.
  • Interest-only, negative amortization and balloon-payment loans aren’t allowed.
  • Loans over $100,000 can’t have upfront points and fees that exceed 3 percent of the total loan amount.
  • If the loan has an adjustable interest rate, the lender must ensure that the borrower qualifies at the fully indexed rate (the highest rate to which it might climb), versus the initial teaser rate.
  • Generally, borrowers must have a total monthly debt-to-income ratio (including regular bills, outstanding debts and potential mortgage payments) of 43 percent or less.
  • The guidelines don’t specify a minimum down payment or credit score to qualify.
  • Loans that are eligible to be bought, guaranteed, or insured by government agencies like Fannie Mae, Freddie Mac, the Federal Housing Administration, and the Veteran’s Administration are considered qualified mortgages until at least 2021, even if they don’t meet all QM requirements.

Most lenders adopted much tighter lending practices after the financial crisis. The CFPB estimates that over 90 percent of existing mortgages already comply with the guidelines. So-called “no-documentation” and “low-documentation” loans, where borrowers with shaky paperwork used to be approved regardless of whether or not they could actually afford the mortgage, are now forbidden.

Lenders may still issue mortgages that aren’t qualified, provided they reasonably believe borrowers can repay — and have documentation to back up that assessment. For example, many lenders plan to continue making interest-only and jumbo loans or waive the 43 percent debt-to-income ratio for certain customers. However, they’ll have fewer legal protections than with qualified mortgages should a buyer later default and decide to sue.

New, tougher regulations also apply to mortgage servicers. (Lenders frequently sell loans to investors after the mortgage has been signed. Those investors, not the consumers, often choose the mortgage servicing company, which is responsible for collecting payments, handling customer service, escrow accounts, collections, loan modifications and foreclosures.)

For example, mortgage servicers now must:

  • Send borrowers clear monthly statements that show how payments are being credited, including a breakdown of payments by principal, interest, fees and escrow.
  • Fix mistakes and respond to borrower inquiries promptly.
  • Credit payments on the date received.
  • Provide early notice to borrowers with adjustable-rate mortgages when their rate is about to change.
  • Contact most borrowers by the time they are 36 days late with their payment.
  • Inform borrowers who fall behind on mortgage payments of all available alternatives to foreclosure (e.g., payment deferment or loan modification).

With limited exceptions, mortgage services now cannot: initiate foreclosures until borrowers are more than 120 days delinquent (allowing time to apply for a loan modification or other alternative); start foreclosure proceedings while also working with a homeowner who has already submitted a complete application for help; or hold a foreclosure sale until all other alternatives have been considered.

A few other features of the new mortgage rules include:

  • Anyone who is paid to offer, arrange or assist in finding you a loan cannot be paid more to steer you into a higher-cost mortgage.
  • If you pay someone directly in connection with a mortgage, he or she generally cannot also receive payment from someone else for the same transaction.
  • Self-employed individuals and others with inconsistent income may have to show additional qualifying information, such as several years’ tax returns.
  • The new qualified mortgage rules do allow exceptions for refinancing a consumer out of a risky loan. For example, the ability-to-repay rule may not necessarily apply when a lender refinances a borrower from a riskier mortgage to one that’s more stable.

Bottom line: You should never enter into a mortgage (or other loan) you can’t understand or afford. But it’s nice to know that stronger regulations are now in place to help prevent another housing meltdown.

To participate in a free, online Financial Literacy and Education Summit on April 2, 2014, go to Practical Money Skills for Life.

This article is intended to provide general information and should not be considered legal, tax or financial advice. It’s always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

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 NFCC Receives Significant Grant
Supporting Foreclosure Prevention Counseling

GailCunninghamBy Gail Cunningham

NeighborWorks America has awarded the NFCC Intermediary $2,416,873 to support foreclosure prevention counseling.  This much-needed funding will enable the 50 NFCC member agencies that make up the Intermediary to continue providing foreclosure prevention counseling to families and individuals facing the threat of losing their home.

“The NFCC is proud to be recognized by NeighborWorks with this award – now in its 7th year -acknowledging the solid foreclosure prevention counseling our member agencies deliver,” said Susan C. Keating, NFCC President and CEO. “We look forward to meeting the demand for mortgage delinquency counseling and providing assistance to American families who are facing serious housing issues.”

The NFCC would also like to recognize the following member agencies that received a direct award from NeighborWorks: ClearPoint Credit Counseling Solutions, GreenPath, Inc., Money Management International, Inc., Novadebt, Inc., and Springboard Nonprofit Consumer Credit Management. As a group, the NFCC Intermediary and its member agencies were awarded in excess of $16,087,996 of the available $63.1 million in counseling funds, close to 26 percent of the total amount allocated.

For help saving your home from foreclosure, reach out to a NFCC member agency close to you  by dialing (800) 388-2227, or to find a certified housing counselor online visit www.NFCC.org.

Gail Cunningham is Vice President of  Public Relations with the NFCC.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

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 Register for Visa Inc. and the Chicago Fed’s
2014 Financial Literacy Summit

DrewKesskerBy Drew Kessler

You are invited to attend the eighth annual Financial Literacy Summit in person in Chicago. The program, co-hosted by Visa Inc. and the Federal Reserve Bank of Chicago, will be held on Wednesday, April 2. The event, which will be webcast live from the Federal Reserve Bank in Chicago, is themed “Providing Financial Literacy Resources to the Unbanked and Underbanked.” The program will bring together international financial literacy experts who will address potential solutions to improving financial literacy globally for the unbanked and underbanked. The Summit panelists will focus on the unique needs of this audience, and how they can be met with financial literacy resources.

To attend the event in person at the Federal Reserve Bank of Chicago, register here. To view the webcast online, register here.

Join the conversation online and share your participation or tweet questions to panelists prior to the 2014 Summit and include the event hashtag #FinLitSummit in your tweets.

Registration Links

Link to register for webcast:  

http://www.practicalmoneyskills.com/summit2014/regWebcast.php

Link to register to attend in person:

http://www.practicalmoneyskills.com/summit2014/inPerson.php

Drew Kessler is Vice President of Marketing & Communications with the National Foundation for Credit Counseling.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

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 Top Ten Reasons To Stop Receving
A Federal Income Tax Refund

GailCunninghamBy Gail Cunningham

The NFCC February online poll revealed that a strong majority of respondents intentionally plan to receive a federal income tax refund.  The findings suggest that receiving an income tax refund has become standard operating procedure for some people, as 2014 is the second year in a row that the majority of NFCC poll respondents confirmed their preference toward the once per year windfall.

People may argue that overpaying Uncle Sam each pay period is the only way they can save, as their withholding has become a method of forced savings. However, that reasoning pales when stacked against the many benefits of having an accurate amount withheld from their check each pay period.

The NFCC encourages taxpayers to consider the following 10 reasons to discontinue the practice of receiving a federal income tax refund:

  • Overpaying any financial obligation rarely makes sense. No one wants to end up owing more taxes than they are prepared to pay, but receiving an excessive refund is not the proper solution.
  • Intentionally choosing to loan money without the benefit of earning interest isn’t a smart use of money.
  • If saving is the objective, there are better options to meet that goal.
  • Not having ready access to one’s own money could put a person in financial jeopardy if an unplanned expense or emergency occurred.
  • Having less money throughout the year could add the burden of financial stress.
  • A lower paycheck could result in charging items that otherwise would have been paid for with cash, thus potentially creating debt.
  • Less money available for debt repayment could increase likelihood of late payments, resulting in a negative impact on the credit report and score.
  • A smaller paycheck diminishes the opportunity to save, pay bills, donate or invest.
  • In spite of good intentions, a once-per-year refund often results in a once-per-year splurge.
  • The solution is an easy fix.

Often the very people who celebrate receiving a refund are those who are most in need of extra money in their pocket each month.  Living paycheck-to-paycheck, people often fall behind on important priorities such as rent or vehicle payments. With the refund in recent years averaging close to $3,000, an extra $250 every month could mean the difference between eviction and repossession, yet many people remain reluctant to forego their habit of receiving refunds.

To calculate the proper number of withholding allowances, go to www.IRS.gov and type the words “withholding calculator” into the search bar. After determining the appropriate number of allowances, complete a new W-4 if necessary. Workers are allowed to submit an updated W-4 to their employer at any time during the year.

If the adjusted allowances result in a higher paycheck, make a conscious decision regarding how to best allocate the extra money. Whether the objective is to save money, catch up on past-due bill payments, or donate to charity or invest, without a solid plan to execute against, the money will likely not serve its intended purpose.

For answers and solutions to everyday financial concerns, reach out to a NFCC member agency and inquire about the three-step Sharpen Your Financial Focus program. To be automatically connected to the agency closest to you, dial (855) 374-2773, or visit www.SharpenToday.org or www.agudicehoy.org.

The NFCC February poll question and results are as follows:

Regarding income tax refunds

  1. I intentionally plan to always receive a refund each year 56%
  2. I intentionally plan to never receive a refund 28%
  3. I have not given it any thought 16%

Note: The NFCC’s February Financial Literacy Opinion Index was conducted via the homepage of the NFCC website (www.DebtAdvice.org) from February 1–28, 2014, and was answered by 996 individuals. 

Gail Cunningham is Vice President of  Public Relations with the NFCC.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

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 The Low-Maintenance Preppers

donna freedman photo (smaller)By Donna Freedman

I just went shopping in our basement, bringing up several items that were missing in our upstairs cupboards: catsup and ibuprofen (both from Costco), a jar of homemade jam, a can of chicken soup. It always tickles me to see how much we’ve got stored down there, from the kale we grew and dried to bedpillow-sized sacks of dried beans.

Since I live in a really seismic state, the stockpile also makes me feel safe and prepared. Well, as prepared as one can ever be for another Good Friday Earthquake. (And yes, I’ve thought about what might happen if the house collapsed into the basement: Anger, panic and finally rueful laughter.) That’s probably why an Everyday Cheapskate post called “Don’t be scared, be prepared” resonated so much and got me thinking, once again, about food preparedness. The post’s author, Mary Hunt (who also runs the Debt-Proof Living site and writes lots of books), noted that “as a nation we have little to no warehousing backup in the event of a supply shortage.” That’s because our stores tend to get daily shipments vs. having large stockpiles in the famous “back room.” Hunt talked with a Costco exec who figures that even in that emporium of excess the shelves would be emptied “within three to five days” in the event of a disruption in the food distribution system. Is such a disruption possible? You bet. Is it likely? Who knows? What if….? We think about these things in places like Alaska or Hawaii, where the majority of food gets flown or barged in. The difference between the 49th and 50th states, though, is that Hawaiians can raise quite a bit of grub (and livestock) in their own back yards. Alaskans really have to work at it, and there are some things we just can’t grow without serious greenhouse use.

Last year I attended a press open house at the National Weather Service, during which a representative for the National Tsunami Warning Center opined that another well-placed, high-Richter earthquake could put a world of hurt on Alaskan pantries. That’s because it might spawn monster waves that would wipe out the shipping areas in Washington and California – from which come most of the barges that supply Alaskan stores. So yep, I’ve been thinking along those lines. So has my boyfriend, who actually experienced the Good Friday Earthquake and who also spent his formative years in villages where the Bureau of Indian Affairs shipped food to teachers once a year. The upside of that: His parents, both educators, saved a lot of money because there was simply nowhere to spend it. The downside: You got food only once a year and filled in with seal, moose, fish or whatever else you could get your hands on. Is it any wonder that we buy flour by the 50-pound bag? Or that we have probably 40 pounds of dried beans and 30 pounds of rice stashed downstairs? Or jugs of vinegar and olive oil and loads of canned fruit, tomatoes and vegetables? We’ve even bought chickens on sale and pressure-canned them in jars, in order to have a shelf-stable protein that doesn’t require cooking. When someone gave us salmon that went into jars, too. Prudent or paranoid?

My former MSN Money colleague Liz Weston has long been a proponent of a well-stocked larder, calling it “the emergency fund you can eat.” I always had a fairly deep pantry even in my one-bedroom Seattle apartment, all of it bought on sale and/or with coupons. We also make our own yogurt, wine and beer, and preserve such vegetables and fruits as we can grow or glean. Maybe you, like me, consider this prudent rather than paranoid. If so, here are a few tips for low-maintenance food preparedness: Bulk buys. Not everyone can (or wants to) belong to Costco. But some grocery stores have bulk-bin items that can be noticeably cheaper than the stuff in the regular aisles. Even here in Anchorage I can buy oatmeal for $1.09 per pound vs. $5.99 for the 42-ounce box of Quaker over in the cereal aisle; the price dropped to 99 cents in January so I bought about 20 pounds, storing it in gallon-sized glass jars in the basement. When un-degermed cornmeal went on sale for about 59 cents a pound, I bought a year’s worth and stored it in the freezer; currently I’m working my way through the last bag and keeping an eye out for sales. Manager’s specials. I routinely check the scratch-and-dent bin at the back of the store and have gotten some decent prices on slightly marred cans or boxes/bags of food that have had corners torn or crushed. A fair amount of the yogurt I enjoy is made from close-dated milk that’s bought at 50 percent off; I freeze it if I can’t use it quickly enough. Then there’s the “used meat” section, as my boyfriend inelegantly calls it; these sell-it-now cuts are often tremendously discounted. Just use them right away or freeze them. More how-tos Loss leaders. If something you eat a lot of is advertised cheaply, get as many as you’re allowed. Simple enough. Learn to preserve food. We can’t all be Martha Stewart, but how hard is it to freeze produce that you’ve grown or gotten at rock-bottom prices during the height of summer?

The National Center for Home Food Preservation is a tremendous resource that will walk you throw the canning, drying, freezing, jamming and jerkying of flora and fauna. We canned fish that someone gave us, chickens we bought on sale, carrots we grew, jam made from home-grown or gleaned fruit, and jars of pickled red cabbage so tasty that we’re doubling our output this summer. Hit the bakery outlet. A few extra discounted loaves or some cheap tortillas in the freezer can go a long way toward padding emergency foods like peanut butter, canned soup and refried beans. Preserve commercially grown food. Once blueberries hit $2 a pound at Costco, we bought and froze them. When I found mandarin oranges for an unbelievable $3.88 per bag, you bet I wanted to preserve that price – you just don’t see citrus that cheap very often up here. Those of you who live near farms may be able to score good deals if you’re willing to buy more than a couple of pounds at a time. At times you may find low prices on local green beans or tomatoes even at the supermarket. Shop around. Watch for coupon specials. Last fall the Fred Meyer chain offered 20 percent off the total bill if you purchased $50, $100 or $150 in a single trip. We bought things like house-brand teabags, on-sale canned tomatoes, crackers (a frequent menu item at Café Awesome) and a few Christmas gifts (but not from the “gift” aisle, aka “the marked-up stuff aisle”). We’re still using up those groceries. Don’t just hoard it Speaking of which: This stuff won’t do you any good if it sticks around indefinitely. Write use-by dates on the fronts of cans and boxes (not on the tops!) with a black marker, and make it a point to use these items regularly. You can refill as you find sales and specials. A great deal of peace of mind comes with knowing you’re stocked up, especially if you’ve done it frugally. To paraphrase Thoreau, the food saves you money twice: once in the inexpensive outlay and again when you don’t find yourself running to the supermarket for a can of tomatoes (because do you ever really get out of the store with just that one item?) or, worse, ordering out because there’s nothing to eat. If the big one hits in our lifetime, one of the things we won’t have to worry about is how we’ll eat. Relatives who live nearby will also be taken care of if necessary; they’re welcome to bring sleeping bags and camp out here. There’s a certain amount of comfort in knowing that we’d all have enough to eat. And while we’re not as prepared as the Mormons or the preppers, we probably won’t have to buy teabags for at least another six months.

This article originally appeared at DonnaFreedman.com

Donna Freedman won regional and national prizes during an 18-year newspaper career, and earned a college degree in midlife without taking out student loans. She now writes the Frugal Nation website for MSN Money, blogs at DonnaFreedman.com, and freelances for national magazines.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

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 March Madness
How It Can Help Prioritize Your Finances

Jana CastanonBy Jana Castanon

Even if you’re not a college basketball enthusiast you have heard about March Madness. Avid fans research team’s stats and players capability before filling out their brackets. They examine strengths and weaknesses and rank their teams accordingly. You can look at your personal finances in the same way.  There are areas where you are doing well and other areas where you might want to focus.

Sometimes finances can be overwhelming and you don’t know where to begin. Here is your own Personal Finance Championship Brackets to help you prioritize 8 areas of personal finance to help you get started. As you move through the brackets choose between the options in the area that you feel you need more improvement in. At the end you will know where you need to focus to get your financial situation in a better place. Once that is under control take a look at the previous bracket and start working on those items. Before you know it you will have all 8 areas of your finances working together to help you achieve your goals.

Long Term Savings – Start small think big. What are some of your long term goals? College education for your kids? Homeownership? Don’t let the prospect of the amount you need to save overwhelm you and prevent you from doing it.  Through the magic of compound interest, even depositing small amounts over a period of time can add up. So next time you get that pay raise or that tax return put it in an account designated for your long term goal. You might be surprised at how fast you can get there.

Manage Debt – Take the time to sit down and add up all your debt obligations. Separate them out into categories: mortgage debt, installment debt (something you are paying off – student loan), revolving debt (credit cards), and other debt (payday loans, personal loans, etc.). Did that number surprise you? The best way to manage your debt is to create a spending plan and allocate any additional money to debt repayment. Apply that amount to the account with the lowest balance, or highest interest rate, and when that balance is paid off apply it to the next account. If there is no additional income you might need to prioritize your debt. Your house payment should be the first thing you pay, followed by your installment debt – credit cards and other debt are at the bottom of the list.

Improve Credit Score – A low credit score can cost you hundreds of dollars. Not only will you be paying a higher rate of interest on loans and credit cards, many services and insurance companies look at your credit report to determine your premiums or deposits. You might even get denied housing if your credit is poor. But the good thing about your credit score is what you are doing today has more influence on your score than what you did in the past.  So, most importantly, pay your bills on time and keep your balances low and your score is bound to go up.

Retirement/401K -   Regardless of your age you need to be planning for retirement. Start by figuring out what you want your retirement to look like and how much it will cost to maintain that lifestyle.  Once a year, you receive a statement indicating what your expected Social Security benefits will be. However, be cautious when planning your whole retirement on that amount as some experts predict this benefit won’t be around forever. If possible, consult a financial planner to help manage your plan. They can evaluate your situation and guide you to meet your financial goals.

Monthly Spending Plan – That is a fancy way of saying “budget”.  However, “budget” implies that you are either on it or off it. Having a spending plan is something that is changing as your life changes.  Start by tracking your spending for a month. After that you will have a good idea where you are spending your money. Then, take your total household income and allocate it to a specific expense. Make sure you are setting money aside for your irregular expenses like car repair, gifts, clothes, etc. There is only so much money so you need to prioritize your expenses. What are the things you have to pay, (mortgage, food, insurance, etc.) and what are the things lower on the list that you can cut back on, (cable, cell phone extras, clothes)? If you are having a hard time making it balance there are only two things you can do – increase income or decrease expenses.

Savvy Consumer – Being a savvy consumer means knowing what you don’t know. For example, when buying a car, researching the best vehicle that meets your needs and shopping for the best price and loan. It also means being aware of people who are trying to take advantage of you and taking precautions to protect yourself from identity theft and scams.

Frugal/Smart Spender – To be a frugal spender you need to know what you have to spend and find the best way to get it at the lowest cost. That might be shopping sales, cutting coupons, or knowing what restaurants the kids eat free at. There are many apps and websites that offer discounts or can assist you in comparison shopping. But the best thing that you can do is shop with a purpose. For example, when you go grocery shopping know what you have at home that you can use and shop with a list.

Emergency Savings – Most experts agree that you should have 6 months of living expenses saved up for an emergency. Don’t let that dollar amount intimidate you. Start by saving your change and gradually build on that. Don’t spend your change; only use dollars so you can have more change. Transfer a realistic amount into your savings account monthly if it is only $20 and if you don’t withdrawal it that amount will add up over time. Don’t have access to your savings account via online or ATM to make it difficult for you to access those funds. You will be surprised how fast your savings can grow if you add to it a little at a time.

Jana Castanon is Media Relations/Outreach Manager for Apprisen. Apprisen is a member of the National Foundation for Credit Counseling. To schedule an appointment with a certified financial professional call 800.355.2227, or visit Apprisen’s website at www.apprisen.com.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

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 Retirement Planning?
It’s Not As Far Off As You Think

GailCunninghamBy Gail Cunningham

Do we really need to worry about retirement in our twenties?

The NFCC and USA Today have partnered to give you the opportunity to ask NFCC Certified Consumer Credit Counselors and Educators everything you’ve ever wanted to know about credit. USA TODAY will host weekly Twitter chats every Wednesday from 3:00-3:30 pm ET with a dedicated NFCC Certified Consumer Credit Counselor participating in each chat. The last topic in the series will be:

March 19: Retirement Planning: What you should be doing in your twenties to prepare for your sixties and beyond. With Sheri Stuart of Springboard Nonprofit Consumer Credit Management Inc., tweeting from @CreditDotOrg.

You can submit questions ahead of time by e-mailing USA Today reporter Hadley Malcolm at hmalcolm@usatoday.com or connecting with her on Twitter at @hadleypdxdc. If you’d like your question to remain anonymous, please say so in your e-mail. We encourage you to log into Twitter at 3 pm each Wednesday to follow the chats live by using the #millennialmoney hashtag.

Gail Cunningham is Vice President of  Public Relations with the NFCC.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

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 Foreign Money Transfers
Just Got Safer

alderman_color_1By Jason Alderman

If you’re among the millions of U.S. residents who each year send tens of billions of dollars to family, friends, or foreign businesses overseas, here’s good news: The Consumer Financial Protection Bureau (CFPB) recently instituted new rules governing international electronic money transfers to better protect consumers against hidden fees and improve dispute resolution policies.

The CFPB was given oversight over international money transfers as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Up until then, federal consumer protection rules did not apply to most “remittance transfers,” whose exchange rates, processing fees, and taxes often vary widely and can be hard to decipher.

Here’s an overview of the new remittance transfer rules:

In general, most foreign money transfers for more than $15 sent by money transmitters (like Western Union and MoneyGram), banks, credit unions, and other financial services companies that consistently send more than 100 international money transfers each year are covered under the new regulations.

These institutions are now required to fully disclose their fees, taxes, and foreign currency exchange rates so consumers will have a clearer picture of the true cost of transactions and be able to more easily comparison shop. (Although, as explained below, you still need to do a bit of math to make apples-to-apples comparisons.)

Also, once a transaction has been concluded, the company now must provide a receipt that repeats this same information, as well as shows the date when the money will arrive and directions for reporting any problems with the transfer.

The new regulations include several additional protections:

  • Consumers are allowed 30 minutes (and sometimes longer) to cancel a transfer after they’ve paid — in which case, they’re entitled to a full refund. (However, if the recipient has already picked up the funds or had them deposited into their account before 30 minutes have passed, the refund guarantee is voided.)
  • If the wire was scheduled in advance, you can cancel it up to three business days before the transmission and receive a full refund.
  • Senders have 180 days to report any errors they later uncover. By law, the company must investigate such reports within 90 days. For certain errors (e.g., if the money never arrived), you can ask for a full refund or have the money resent.

While the new regulations are certainly welcome, they don’t go far enough when it comes to helping customers compare the net costs of making money transfers at different vendors. You’ll still need to carefully weigh each company’s exchange rate (which fluctuates frequently) and fees (which vary depending on how much you’re sending, how quickly you want the money to arrive and the funding method) to determine which one provides the best value — the so-called “effective exchange rate.”

One company may have a more favorable exchange rate than another but charge higher fees. Depending on how much money you’re trying to transfer and by what method, however, the balance could shift over which transaction is more cost-effective.

To calculate various effective exchange rates, add the amount you’re sending (in U.S. dollars) plus all fees; then divide that into the amount of foreign currency to be delivered. The company with the highest result provides the best value.

For example, say you want to send $200 to Mexico: Company A charges $10 in fees and has an exchange rate of 12.69 pesos per $1, while Company B charges $7 in fees and has a 12.57 exchange rate. Their effective exchange rates are 12.09 and 12.14, respectively, making Company B a slightly better value. (You’d save about $0.89.)

However, if you wanted to send $1,000 to Mexico, the outcome would be different: The exchange rates stay the same but Company B charges an increased fee of $15, while Company A’s fee remains at $7. Thus their effective exchange rates become 12.50 and 12.48, respectively, making Company A the slightly better value -a $1.88 savings.

For someone who makes a lot of transfers over time, these differences could really add up. If you don’t trust your math skills, the money transfer company Viamericas has a handy comparison tool that lets you plug in fees and exchange rates for up to three additional vendors and it will calculate their effective exchange rates. Use the tool’s manual comparison option to allow for more choices. Here are a few tips for lowering the cost of sending money overseas:

  • Check whether it’s cheaper to use a vendor’s walk-in location versus their website.
  • Don’t pay extra for a rush delivery if getting there a day or two later doesn’t matter.
  • Avoid extra transfer fees by making fewer, larger transfers if that’s financially feasible. (Just make sure the higher amount doesn’t increase the fee too much.)
  • Avoid automatic transfers, which may occur when exchange rates are less favorable.

For more information on the new remittance transfer rule, visit this CFPB site.

To participate in a free, online Financial Literacy and Education Summit on April 2, 2014, go to Practical Money Skills for Life.

Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney

This article is intended to provide general information and should not be considered legal, tax or financial advice. It’s always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

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 Homeowners and Renters
Both Pay for Upkeep

20051110PX Gary Silverman (4)By Gary Silverman

Rent or Buy?

When someone asks me any question, my most common answer is “I don’t know.” When I do know (or think I know) a good deal about the subject, more often my answer is “it depends.” So, when it comes to the question of buying or renting a home, my response is, “it depends.”

What does it depend on? To start, consider what it costs to own a home. Obviously, there’s the price of the home. If you take out a loan to pay for it, there is the price of interest. We’ll ignore both for a bit. Because first I want to look at the cost of the home after you own it.

When you own a home you have to pay taxes on it. Unless you are stupid, you will buy insurance for it. You’ll want to maintain it. This might include plumbing, electrical, the roof, and a host of other issues. Oh, and you might want to paint it now and then. We won’t talk about the yard…mine’s looking bad these days.

When you rent a home, you have the exact same expenses. “No way,” you may say, “I thought the landlord was responsible for all of that.” You are right. But if the landlord has to pay for it, don’t you think he’ll pass that on to you in your rent payment? So just because you don’t own the home doesn’t mean you aren’t paying to keep it up.

Add to that the landlord has to prepare for potential problems like foundation issues, mold, and termites. A renter might trash the place on their way out. The property might not rent for several months. All of these possibilities will not happen. But the landlord knows that if he rents long enough eventually something will happen that will take extra money. So he adds a bit to the rental charge to cover it.

The landlord also needs to make a profit, adding even more to the rent. This is why, over the long term, renting will normally be more expensive than buying. And it should be. After all, you are paying for the convenience of not having to worry about all that stuff. That convenience might not make renting cheaper, but it may make it a better option for you.

Don’t want to worry about painting? Rent. Don’t want to worry about the hot water heater leaking? Rent. Don’t want to worry about what the hail storm did to your property? Rent.

Then there is the time horizon. Depending who you ask, when you purchase a home, you should plan to be in it  at least 3-5 years to make sure that the gains over time cover the buying and selling expenses. Only going to be around a couple of years? Rent.

Now, before all my real estate friends get mad at me, I’m a homeowner and want to be. While it’s not the most fun in the world, I don’t mind being responsible for house upkeep and repair. My plan was to be in my home a long time. So far that has lasted two decades.

I like being a homeowner, even though it’s not for everyone. I’ll explore that in a future article.

Gary Silverman holds the Certified Financial Planner (CFP®) license, and is a member of the Financial Planning Association (FPA®). Gary is the founder of Personal Money Planning, a retirement planning and investment advisory firm. Find out more about Personal Money Planning at the company website or follow on Facebook.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

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 The Top 8 Overlooked Causes of Debt

Lauralynn 2013By Lauralynn Schueckler

Debt doesn’t always appear as flashy spending sprees; most often, it is built slowly and silently until it becomes the elephant in the room…that squashes the household. While job loss or medical expenses are well-known reasons for high debt and possible bankruptcy, here are the top eight often overlooked causes of debt:

1. Not Following a Budget
While most people have budgets, the act of following them is another matter entirely. Having a budget often creates a false sense of security; it’s only in the implementation that debt is avoided. Make a budget and stick to it every month!

2. A Booming Economy 
During a tough economy, many experience lean times and obviously feel frustrated at their lack of spending power. But the real harm often occurs during times of economic growth, when money seems abundant. During these times of unrestrictive spending, many people rack up debts that haunt them when belts must be tightened.

3. Constant Upgrading
These days, it may feel abnormal to keep a phone or vehicle for longer than a year, but constantly upgrading possessions can really put a dent in one’s finances, by rolling debts into one another until they seem insurmountable.

4. No Waiting 
Previous generations waited much longer to accomplish personal goals, ensuring financial security in the process. When once a person would have saved for a starter home and only later in life upgraded to a larger house, the current culture demands a higher standard of living much earlier in life.

5. All or Nothing
It can be easy to fall into the “All or Nothing” trap–if one can’t save $500, why save anything? But even saving $10-$20 a month can create a reserve that will save you during a financial crisis.

6. Temporary Setbacks
When a financial setback seems only temporary, it is tempting to maintain one’s lifestyle and way of living. But expenses should be reduced at the first sign of tough times, before debt can balloon. It’s called living within your means. If your income decreases, then your spending should decrease with it.

7. The Little Things
Large expenses can seem overwhelming, but daily indulgences are often what’s clogging up the credit card. Cutting back on little expenditures can make a big dent in debt. Forget about that daily expensive latte, buying bottled water all the time, and the little things that you buy with your credit card because it’s convenient.

8. Lack of Knowledge
From researching funds to knowing what’s in the checking account, one will always be more aware of potential debts when he or she maintains a view of the overall financial picture often. As the late Thomas Jefferson once stated, “Knowledge is power!”

Lauralynn Schueckler is the Online Marketing Specialist at Advantage Credit Counseling Service. She is the author for Advantage CCS’s Blog called Dollars & Sense. Advantage Credit Counseling Service is a member of the National Foundation for Credit Counseling. Contact Advantage Credit Counseling at 866.699.2227, or visit them online at www.advantageccs.org.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

 

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