Divorcing? Protect Your Finances,
Personal Data

alderman_color_1By Jason Alderman

No doubt you’ve seen many warnings against sharing personal or financial information with strangers, but what about your spouse – or ex-spouse? A recent study by McAfee revealed some unsettling findings:

  • Although 96 percent of adults surveyed trust their significant other with passwords, intimate photos, and other personal content they’ve shared via mobile devices, only 32 percent have asked their ex to delete the information when ending the relationship.
  • One in five people said they’re likely to log into their spouse’s Facebook account at least once a month.
  • Some 30 percent admitted they’d “cyber-stalked” their significant other’s ex on social media.

Given the high rate of divorce and how frequently marriages and other relationships end acrimoniously, it’s not a big leap to think that a scorned lover could cause just as much damage to your credit and reputation as an identity thief halfway across the world. If you’re getting divorced, here are some important legal, financial and privacy considerations:

Get good advice. If you and your spouse are in complete agreement on how you wish to divide assets and settle debts, you may be able get by with a do-it-yourself divorce kit. Laws vary by state, so make sure to get one that applies where you live. It’s still wise to have a divorce attorney review the forms to make sure you haven’t overlooked anything you’ll later regret.

If your separation is more complicated but relatively amicable, you may also want to try collaborative divorce, mediation or arbitration:

  • Collaborative divorce. Both parties retain a lawyer and the four of you hash out an agreement at a conference table, rather in a courtroom. You each control the final agreement instead of having to abide by a judge’s decision.
  • Mediation. You each have lawyers but hire a third-party mediator to work through differences on critical issues. Although mediators are often attorneys themselves, they don’t have the legal authority to impose final decisions.
  • Arbitration. Like mediation, except that the arbiter hands down a binding agreement by which you each must abide.

If you can’t settle out of court, be prepared to possibly pay many thousands of dollars in attorney and court fees. Ask around for referrals to lawyers who specialize in divorce. Another resource is the American Bar Association, which has a state-by-state search engine for finding legal help.

You may also want to consult a financial planning professional for advice on how to fairly divide property, calculate child support, and ensure you’re sufficiently insured, as well as explain Social Security and retirement plan implications. If you don’t know one, good resources are the Financial Planning Association and the Institute for Divorce Financial Analysts.

Safeguard your credit. To protect your credit status, close joint bank and credit card accounts and open new ones in your own name; otherwise, an economically struggling or vindictive ex-spouse could amass debt in your name and ruin your credit. If your ex retains the house or car, make sure your name is taken off the loan (and deed or pink slip) so you won’t be responsible if they flake on payments.

Be sure all closed accounts are paid off, even if you must transfer balances to your new account and pay them off yourself. That’s because late or unmade payments by either party on a joint account – open or closed – will damage both of your credit scores.

Check your credit reports before, during, and after the divorce to make sure you’re aware of all outstanding debts and to ensure that all joint accounts were properly closed. The three major credit bureaus, Equifax, Experian and TransUnion, don’t always list the same accounts, so to be safe, order credit reports from each. You can order one free credit report annually from each through AnnualCreditReport.com or more frequently for a small fee directly from each bureau.

Protect your reputation. Be sure to change all passwords, PINs, security questions/answers, and any other information your ex could use to access your electronic devices and financial, email, and social media accounts. Also, resist the temptation to email or post malicious, salacious, or revealing information that could be damaging if presented in court by opposing counsel.

A few additional tips:

  • If your ex knows the answers to common security questions (mother’s maiden name, first pet, etc.), you can always change them to something fictitious that only you know. Just make sure you keep track of all your fabricated answers so you’re not locked out as well.
  • Before hiring an attorney or financial advisor to oversee your divorce, make sure you fully understand how they will bill their time – whether hourly, fixed fee, or some combination, depending on the case’s complexity.
  • To simplify their task (and thereby lower fees), gather copies of important financial paperwork including: tax returns; retirement accounts; pay stubs; employee benefit statements; life, health, homeowners and auto insurance policies; bank, brokerage, mortgage and credit card account statements; home deed or lease; and wills, trusts and other legal documents.
  • Your attorney may need to file a Qualified Domestic Relations Order (QDRO), which establishes your right to receive a portion of your former spouse’s pension or other retirement plans. Be sure to consider the accounts’ future value, especially if an IRA or 401(k) suffered recent investment losses.
  • Appraise real estate, artwork and collectibles to determine their value before dividing. The same goes if you co-own a business and one spouse will be buying out the other.
  • If alimony or child support is included in the settlement, take out a life insurance policy on the person paying it, which names the receiving ex-spouse as beneficiary.

Bottom line: Divorce can be a painful experience to live through. Don’t make it worse by not protecting your own financial interests.

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

Jason Alderman is Senior Director, Global Financial Education, with Visa, Inc.           

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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 Ten Reasons Credit Card Applications
May be Declined

GailCunninghamBy Gail Cunningham

People apply for a credit card for many different reasons. Some are new to the world of credit and just getting started, while others are hoping to expand their access to credit. Regardless of the reason, no one applies for a card hoping their application will be rejected. To improve the likelihood of approval, consumers need to understand the credit decisioning process.

Each lender has different criteria for extending credit. Therefore, consumers should do their research in advance, and only apply for the cards that are likely to grant the credit they seek. The NFCC provides the following 10 reasons a credit card application could be declined, along with the steps consumers can take to correct the problem. The list is not inclusive, but will help borrowers better understand the review process and how to position themselves to increase the likelihood of credit being extended.

Not enough existing credit – Lenders prefer being able to review a track record of how a person has managed credit in the past.  A thin or nonexistent credit file can give a conservative lender reason to deny.

What to doJudiciously build credit, perhaps starting with a secured credit card, but confirm in advance that the issuer reports activity to the credit bureaus.  Also consider becoming an authorized user on another person’s card, as the activity of the primary cardholder as well as the authorized user is reported to the bureaus.

Poor pay history – The highest weighted element in the scoring model is how a person repays his or her debt obligations.  A history of skipped or late payments can be a knock-out punch when attempting to obtain new credit.

What to do – Identify any issues by obtaining the credit report for free at www.AnnualCreditReport.com.  Next, start making payments on all accounts including those that are past due. This begins building a positive history and helps to establish creditworthiness.

Existing credit lines maxed out – Creditors don’t like to see that a person is utilizing all of their available credit, as this can signal that they are living on credit and opening a new line will only increase current indebtedness.

What to do – Pay down credit card debt to equal no more than 30 percent of available credit.  Credit utilization is the second highest weighted element of the scoring model, so lowering debt could also benefit the credit score.

Overall debt is too high – A person’s debt-to-income ratio is a reflection of how much is owed relative to their income.  People have expenses beyond credit cards, thus lenders take all existing obligations into consideration.

What to do – Increase income or decrease debt.  The important thing is to not appear that more is owed than can be responsibly managed.

Too many inquiries – It’s a red flag if a person is attempting to obtain too much credit at one time.  Too many inquiries or recently opened accounts can make a lender reluctant to give the person another chance to spend.

What to do - Only apply for the number of cards that are necessary and are appropriate for your financial situation.  If declined, do not continue applying.  Instead, take steps to remedy the reason for the rejection.  Wait a few months to reapply, as that will give the credit report time to update.

Serious negative notations – Unpaid tax liens and Chapter 7 bankruptcy can remain on a credit file for up to 10 years. Foreclosure, late and missed payments, collection accounts and Chapter 13 bankruptcy can remain for seven years.

What to do – The further a person moves away from the date of the negative activity, the less impact it has on credit decisions.  A person doesn’t need to wait until the activity rotates off the credit report, but putting distance between the harmful information and applying for new credit is helpful.

Insufficient income – Although often not made public, issuers have minimum income limits that must be met in order to grant credit.

What to do – Research which cards are more likely to grant credit to people with low incomes.  In the absence of other eliminating factors, getting a part-time job to supplement the primary source of income should enhance the likelihood of credit being extended.

Unstable job history – Recent unemployment or consistent job hopping indicates an unstable income, thus putting a person at risk of default in the lender’s eyes.

What to do – Make steady employment a priority.  Changing jobs within the same field may not weigh as heavily against a person, particularly if it is a promotion.

Too young to apply – Applicants must be a minimum of 18-years-old to apply for a credit card.

What to do – As a result of the Credit Card Accountability, Responsibility, and Disclosure Act, Americans must be 21-years-of-age to independently receive credit unless they can prove ability to pay or have a co-signer.  It is not a bad idea for a young person to learn to manage money by living on a cash basis or using a debit card before applying for credit. 

Errors on the application – Credit card applications can be long, making it easy to inadvertently skip completing all areas.

What to do – Avoid unintentional errors by filling out the application online, as these forms often do not allow a person to submit until all required fields are complete.

When applying for credit, ask yourself if you would loan money to you.  If the answer is ‘no,’ then it’s likely the financial institution won’t either. That’s the signal that it’s time to take action and improve your credit profile. Credit card companies want to extend credit, but only to people who represent a low risk for default as defined by their business model.

If denied credit due to information contained in the credit report, the Fair Credit Reporting Act requires lenders to send the applicant an adverse action notification which includes the reason for the denial. To be in a better position for approval next time, review the reasons for the rejection and take the necessary corrective steps.

For help understanding the credit granting process and learning how to improve your credit picture, reach out to an NFCC member agency. Ask about the NFCC’s Sharpen Your Financial Focus™ program which offers solutions to many everyday financial issues. To be automatically connected to the agency closest to you, dial (800) 388-2227, or find an agency online by visiting www.NFCC.org.

Gail Cunningham manages Media Relations for 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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 What is a Credit Score Hard Pull?

Melinda_1By Melinda Opperman

When your credit report is pulled for any reason, it is counted as an “inquiry”. There are two kinds of inquiries; hard and soft.

  • hard inquiry is when your credit report is pulled by a financial institution for credit purposes. That is, if someone is considering whether or not to give you a loan, that’s a hard inquiry. Hard inquiries can include mortgage, auto, and credit card applications. Usually, the borrower will sign a form authorizing the inquiry when the application for credit is completed.
  • soft inquiry is when your credit report is pulled by you or someone else for different reasons other than loan applications. You might access your own credit report (do so for free at www.annualcreditreport.com), or a potential landlord or employer might check your credit as part of a standard background check.

If you’re concerned about your credit score, hard pulls are the only kind you need to be concerned about. No soft pulls affect your credit in any way; even soft pulls from pre-screened credit card offers will not impact your credit score. The only inquiries that have an impact on your credit score are hard inquiries, which result from your application for credit or a loan.

Inquiries remain on your credit report for 2 years, and will continue to have an affect on your credit score during that time. Over the two years, the impact will decrease until the inquiry goes away.

On a FICO score, new credit makes up make up 10% of your total score, and that is where inquiries affect your credit score. Hard pulls don’t have a huge impact by themselves, but a number of hard inquiries in a short period of time can have a great impact on that 10% of your score.

The scoring algorithm takes into account that you will want to shop around for the best rates, so if you make multiple applications for the same kind of loan in a 14 to 45 day period, those inquiries are lumped together as one. So if you apply for a dozen mortgage loans in one month until you get a rate you like, you’ll only have one inquiry counted against your credit score.

Melinda Opperman is Senior Vice President of Community Outreach & Industry Relations, Springboard Nonprofit Consumer Credit Management, Inc; and Executive Director, Springboard Education Foundation. Springboard Nonprofit Consumer Credit Management is a member of the National Foundation for Credit Counseling. To schedule an appointment with a certified financial counselor call 800.431.8157, or visit Springboard’s website at www.credit.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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 Complete a Financial Check-up
Before Beginning Holiday Spending

GailCunninghamBy Gail Cunningham

The NFCC encourages consumers to be aware of their current financial situation before beginning holiday spending, and provides the 2014 Holiday Financial Reality Check-up to evaluate their readiness to take on new debt.

Consumers may still be receiving the summer vacation and back-to-school bills, but should not lose sight of the fact that the holiday spending season is just around the corner. This makes it vitally important for a person to understand their current financial situation before taking on new debt obligations. Doing otherwise could result in damaging an already fragile financial situation.

The NFCC recommends that consumers take the Holiday Financial Reality Check-up quiz to determine if they are in a position to begin holiday spending. Complete the following sentence with a true or false answer: “Concerning my current financial situation, I…..”

  1. Know how much I currently owe on each credit card.
  2. Am receiving collection calls and notices.
  3. Have money saved to pay cash for holiday expenses.
  4. Will be adding new debt on top of old debt if holiday expenses are charged.
  5. Have reviewed my credit report and score in the past 12 months.
  6. Am near the maximum amount allowed on my lines of credit.
  7. Am current on my vehicle payment.
  8. Have applied for a payday loan, title loan, or credit card cash advance in the past 12 months.
  9. Have savings in addition to that earmarked for holiday spending.
  10. Have overdrawn my checking account more than twice in the past 12 months.

A person is in good financial shape to begin their holiday spending if they answered true to all odd-numbered statements. Consumers answering true to even numbered statements should use this quiz as a wake-up call to take action about their financial situation before it spirals out of control, and certainly before taking on additional holiday debt.

Reaching out to an NFCC member agency for help is one of the smartest things a person can do. Allowing a trained and certified financial professional to review the financial situation now can put a person into a much better position to enter the holiday spending season.

To be automatically connected to the NFCC member agency closest to you, dial (800) 388-2227, or visit the NFCC website at www.NFCC.org to find an agency online.

Gail Cunningham manages Media Relations for 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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 Leave Behind the Paycheck to Paycheck
Struggle and Build up Your Savings

MarkFoster_CCOABy Mark Foster

People who are living paycheck to paycheck are basically living in financial survival mode which is a stressful, exhausting, and a dangerous way to live. Fifty-nine percent of adults age 44 or younger do not have even $500 saved, according to the Social Security Administration. It wouldn’t take much of an emergency to derail a family’s finances if they only have a few hundred dollars saved up – an ER visit, paying the deductable on a car accident, having to repair a home appliance, etc.

Saving is an essential goal to have. Emergencies are a fact of life. It’s not a question of “if” you will ever have an emergency, but “when.” So having money saved is a necessity. It’s been widely recommended that adults save three to six months of their annual net pay. While this is a good long-term goal to have, it can unintentionally be very discouraging to those who have little or no money saved. A good short-term goal may be to save $500. Set short-term, mid-term, and long-term goals and write it down and post it where it will be a regular reminder to work toward your goals.

The most successful savers will have a budget to keep them focused and goals to motivate them to stay on-budget. Tracking expenses for a month to see where your money is actually going is an important first step to creating a realistic budget. Oftentimes someone will find a blind spot in their spending, such as spending too much on entertainment or dining out, and tracking expenses will discover this and allow the person to make necessary adjustments to a budget. With expenses tracked and a budget in place, it will be much easier to build an emergency savings cushion.

It’s typically easier to reduce or cut expenses than it is to earn more money. So review your spending. Look for ways to cut back or things to cut out entirely, at least until you reach your minimum savings cushion.

Mark Foster is Director of Education with Credit Counseling of Arkansas (CCOA). CCOA is a member of the National Foundation for Credit Counseling. To schedule an appointment with a Certified Consumer Credit Counselor contact CCOA at 800.889.4916, or visit CCOA online at www.CCOAcares.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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 Don’t Let Back-to-School Tasks
Sneak Up On You

alderman_color_1By Jason Alderman

Parents, if this is your first time at the back-to-school rodeo let me share a few lessons my wife and I have learned the hard way. Chances are you’ll be spending the next few weeks filling out piles of pre-enrollment paperwork, lining up carpools, and of course, taking the dreaded shopping excursions for clothes and school supplies.

If you’re a first-timer or simply need a back-to-school refresher course, here are a few suggestions that can help you save time, money and sanity:

Get organized. Maintain a correspondence file from your kid’s school for things like registration requirements, report cards, permission slips, required vaccinations, school policies (absence, illness, discipline, etc.), contact information for teachers, aides and classmates’ parents, etc. Ask whether the school has a website, online calendar, or email list you can join. Also, create a family master calendar noting registration deadlines, school holidays, vacations and field trips, doctor’s appointments, your work events, carpool schedules, parent/teacher meetings, athletic and arts events, parties, etc.

Back-to-school shopping. Between new clothes, classroom supplies, and extracurricular activity fees and equipment, many parents end up spending hundreds or even thousands of dollars per child. Ideally, you’ve been setting money aside all year. If not, you’ll need to determine what you can afford to spend on school-related expenses without blowing your overall budget.

Here are a few organizational and money-saving tips:

  • Before you shop, make a comprehensive list for each child. Use previous years’ expenses as a guide and compare notes with other parents and school officials.
  • Engage your kids in the budgeting process. Share how much money is available to spend and get them involved in prioritizing expenses between “needs” and “wants.”
  • Use this as an opportunity to teach the art of compromise: If your kids truly want something outside the budget, work together to determine how they can earn the difference. And, as an inducement to save money, agree to split the savings if you come in under budget.
  • Go through your kids’ closets and have them try on everything. Make an inventory of items that fit and are in good shape, and take it when shopping so you don’t accidentally buy duplicates. (While you’re at it, share, sell or donate unneeded items.)
  • Spread clothing purchases throughout the year so your kids don’t outgrow everything at once. Many stores hold fall clearance sales to make room for holiday merchandise.
  • Although shopping online can save money, time, and gas don’t forget to factor in shipping and return costs, which could undo any net savings. If your kids are old enough put them in charge of online comparison shopping and coupon clipping.
  • Ask which school supplies you’re expected to buy. Go in with other families to take advantage of volume discounts and sales.
  • Find out how much extracurricular activities (athletics, music, art, etc.) cost. Account for uniforms, membership dues, private lessons, field trips, snacks, etc.
  • Rent or buy used sporting equipment or musical instruments until you’re sure they’ll stick with an activity. (Try PlayItAgainSports.com and similar outlets.)
  • Factor in public transportation, school bus, or carpool expenses.
  • Learn what your school charges for meals and weigh their convenience (and nutritional value) against the cost of home-prepared lunches and snacks.
  • Know when it’s important to spend more for higher quality. Cheaper notebook paper shouldn’t matter, but you shouldn’t risk buying poorly made shoes that might hamper proper physical development.
  • Before buying new clothing or accessories, look for “gently used” items in the closets of your older kids, friends and neighbors, at garage sales, thrift and consignment stores, and at online sites like Craig’s List.
  • Many states offer a sales tax holiday for back-to-school purchases. Go to the Federation of Tax Administrators website and search for “Sales Tax Holidays” to see if and when your state is participating.
  • Before checking out, ask the salesclerk if there are any available coupons or discounts. Even if you don’t have your own coupon, many clerks, when asked nicely, will scan one for you to ensure that they make the sale.
  • At this time of year, some credit card reward programs offer extra points for office supply stores or other back-to-school retailers. Another strategy: If you’re short on cash but have lots of reward points, use them to buy gift cards for stores you frequent.
  • Back-to-school loss leaders begin to pop up in discount and office supply stores around mid-July.
  • Follow your favorite retailers on Facebook and Twitter where many post special savings for their followers.
  • Review the school’s dress code so you don’t waste money on inappropriate clothing.
  • Clip newspaper and online coupons. Many stores will match competitors’ prices even if their own items aren’t on sale. Plus, many consolidation websites post downloadable coupons and sale codes for online retailers, including: CouponCabin.com, CouponCode.com, CouponCraze.com, DealHunting.com and Dealnews.com.
  • Mobile shopping apps let in-store smartphone and mobile browser users scan product barcodes and make on-the-spot price comparisons, read reviews, download coupons, buy products and more. There are hundreds of popular apps including Price Check, ShopSavvy and PriceGrabber.

Bottom line: If you get organized before setting out on back-to-school shopping, you can save money, time and aggravation.

Jason Alderman is Senior Director, Global Financial Education, with Visa, Inc.           

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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 Poll Respondents Admit Personal Finances
Keep Them Awake at Night

GailCunninghamBy Gail Cunningham

Close to four in five respondents (79%) to the NFCC’s July poll admitted that their personal finances keep them awake at night. The second highest number of responses came in a distant second, with 13 percent indicating that they sleep like a baby. The remaining choices were marital concerns, job security, and problems with the children which each had single digit responses.

In addition to the obvious credit problems resulting from overwhelming debt, financial concerns can wreck marriages, tear families apart, and put a person’s job in jeopardy due to being distracted while at work. Debt is like a dark cloud that follows a person 24 hours per day. They wake up with it, take it to work with them, and as the NFCC poll confirmed, they take it back to bed with them.

There are two pieces of good news that can be gleaned from the poll. First of all, the respondents were able to identify the source of their distress, and secondly, they went to a reliable and trusted resource, www.DebtAdvice.org, for help. Their next step should be to reach out to an NFCC member agency for customized and solution-oriented assistance.

If someone has personal finance issues, they are not alone. The 2014 NFCC Financial Literacy Survey revealed that 71 percent of consumers, or roughly 179 million people, admitted to having personal finance worries, with not enough savings, job issues, debt, and credit topping the list.

Regardless of the problem, NFCC member agencies stand ready to help through the many services they provide, including the following:

  • Budget and debt counseling;
  • Financial education and literacy courses;
  • Debt management programs;
  • Housing counseling, including first-time homebuying, foreclosure prevention, and reverse mortgage;
  • Student loan debt repayment counseling, and
  • Bankruptcy pre-filing counseling and pre-discharge education.

NFCC members provide financial counseling and education to millions of consumers each year, with clients receiving comprehensive money management services based on their individual needs. Spending an hour with a trained and certified NFCC financial professional can put a person on the road to financial recovery. To be automatically connected to the agency closest to you, dial (800) 388-2227, or go online to www.DebtAdvice.org.

The NFCC’s July online poll question and answers are below:

What keeps you up at night?

  1. Financial worries = 79%
  2. Marital concerns = 2%
  3. Job security = 4%
  4. Problems with the children = 2%
  5. Nothing, I sleep like a baby = 13%

Note: The NFCC’s July Financial Literacy Opinion Index was conducted via the homepage of the NFCC website (www.DebtAdvice.org) from July 1–31, 2014, and was answered by 2,148 individuals.

Gail Cunningham manages Media Relations for 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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 Read Contracts Carefully Before Signing

alderman_color_1By Jason Alderman

If you always stop to read the fine print before signing anything, congratulations – your parents trained you well. If you don’t, beware: Your signature could commit you to a long-term gym membership you don’t really want, an apartment you can’t afford, or worst of all paying off someone else’s loan you cosigned.

Broadly defined, contracts are mutually binding agreements between two or more parties to do – or not do – something. It could be as simple as buying coffee (you pay $3 and the restaurant agrees to serve you a drinkable beverage), or as complex as signing a 30-year mortgage.

Once a contract is in force it generally cannot be altered unless all parties agree. And, with very few exceptions (e.g., if deception or fraud took place), contracts cannot easily be broken.

Before you enter a contractual agreement, try to anticipate everything that might possibly go wrong. For example:

  • After you’ve leased an apartment you decide you can’t afford the rent or don’t like the neighborhood.
  • Your roommate moves out, leaving you responsible for the rest of the lease.
  • You finance a car you can’t afford, but when you try to sell, it’s worth less than your outstanding loan balance.
  • You buy a car and only later notice that the sales agreement includes an extended warranty or other features you didn’t verbally authorize.
  • You sign a payday loan without fully understanding the terms, and end up owing many times the original loan amount. (The same goes for pawnshops and car-title loans.)
  • You buy something on sale and don’t notice the store’s “No returns on sale items” policy.
  • You click “I agree” to a website’s privacy policy and later realize you’ve given permission to share your personal information.
  • You buy a two-year cellphone plan, but after the grace period ends, discover that you have spotty reception and it will costs hundreds of dollars to buy your way out.
  • You buy smartphone insurance, but don’t discover until after it’s been stolen that they can replace it with a refurbished model.

Financially inexperienced teenagers and young adults often make these kinds of mistakes, so discuss the implications of signing contracts with your kids well before they turn 18.

Cosigning a loan. This can be particularly risky. If the other person stops making payments, you’re responsible for the full amount, including late fees or collection costs. Not only will your credit rating suffer, but the creditor can use the same collection methods against you as against the primary borrower, including suing you or garnishing your wages. Still, there may be times you want to cosign a loan to help out a relative or friend. The Federal Trade Commission (FTC) has a handy guide that shows precautions to take before entering such agreements. If you’re trying to help your child establish a credit history, another alternative would be to make him or her an authorized user on one of your accounts. They’ll get their own card, and you can usually restrict the amount they’re able to charge. But be aware: Authorized users aren’t legally responsible to pay balances owed, so oversee account activity closely.

Cooling-off rule. If you buy something at a store or online and later change your mind, you may have a difficult time returning it. But if you bought an item in your home (e.g., from a door-to-door salesman) or at a location that’s not the seller’s permanent place of business (e.g., at a fairground or hotel room) you may be protected by the FTC’s Three-Day Cooling-Off Rule. Under this rule, the salesperson must reveal your cancellation rights at the time of sale and give you two copies of a cancellation form (one to keep and one to send) and a dated copy of your contract or receipt. Note that numerous exceptions apply. If your purchase is eligible under the rule, however, you have three business days in which to ask for a full refund.

A few additional reminders about contracts:

  • Ensure that everything you were promised verbally appears in writing, especially such terms and conditions as interest rates, down payments, discounts, and penalties.
  • Make sure all blank spaces are filled in or crossed out before signing any documents –including the tip line on restaurant and hotel bills.
  • Don’t be afraid to ask to take a contract home for more careful analysis or to get a second opinion. A lawyer or financial advisor can help.
  • Don’t be pressured into signing anything. If salespeople try that tactic, walk away. (Be particularly wary at timeshare sales meetings.)
  • Keep copies of every document you sign. This will be especially important for contested rental deposits, damaged merchandise, insurance claims, extended warranties, etc.
  • Take along a “wingman” if you’re making an important decision like renting an apartment or buying a car to help ask questions and protect your interests.
  • Be wary of “free trial” offers. Read all terms and conditions and pay particular attention to pre-checked boxes in online offers. Failure to uncheck them may bind you to unwanted terms and conditions.

Bottom line: Contracts protect both parties. Just make sure you fully understand all details before signing on the dotted line.

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

Jason Alderman is Senior Director, Global Financial Education, with Visa, Inc.            

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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 Financial Essentials Checklist
for the College-Bound

GailCunninghamBy Gail Cunningham

Many young adults are leaving home for the first time, yet remain ill-prepared to independently manage their personal finances. This is predictable considering that less than one-half of the states mandate a course in personal finance as a requirement for high school graduation.

Further, the 2014 NFCC Financial Literacy Survey revealed that the majority of adults say they learned the most about personal finance from their parents, which is true whether mom and dad possess good or bad financial habits. Proving that parents may not be the best teachers of personal finance, more than four in 10 survey respondents, 41 percent, gave themselves a C, D or F on their grasp of personal finance. Therefore it should be no surprise that many young adults smart enough to get into college remain ignorant of even the most basic financial skills.

Whether it’s off to work or off to college, parents put a lot of time and money into preparing their child to leave home, but often neglect the basic life skills associated with personal finance. With just a few weeks until the young adult children will head out the door, the time is now for a crash course in personal finance.

The NFCC provides the following Personal Finance 101 checklist of basic knowledge everyone living on their own for the first time needs to possess in order to start off on the right financial foot.

  • Start with budgeting - Learned early, the discipline to live within a budget is a skill that will pay benefits for a lifetime. Parents should be transparent with their child about how much money is available for expenses and jointly create a workable monthly budget. Once on their own, students should track their spending to know where their money goes and stay in control of spending. This can be accomplished by tracking on paper, using a budgeting computer program, or a smartphone app. The method isn’t important, but knowing how the money is being spent is.
  • Understand basic banking. Even those who do not write many checks each month need to understand the importance of recording transactions in their check register and promptly balancing the bank statement. Along with checks, ATM withdrawals and debit card purchases should be recorded in the checkbook after each use, with a running balance tallied daily. Attempts to withdraw funds beyond the account balance could result in being declined at the point of sale unless other arrangements such as overdraft protection have been put in place. Since overdraft fees can quickly add up, it is best to keep track of the account balance and not exceed it.
  • Respect credit. Credit matters now and it matters later. Young adults under the age of 21 cannot obtain a credit card unless they can prove ability to pay or have a co-signer. Nonetheless, many will have plastic in their wallets when they leave home. Studies show that a disturbing number of college graduates have both student loan debt and credit card debt which can prevent them from moving forward with their professional lives. However, young adults also have the opportunity to graduate with a positive credit file which could help them buy a car, rent an apartment, obtain insurance, or land the job of their dreams. To have an unblemished credit report and a solid credit score, commit to paying each credit card bill in full and on time each month.
  • Be financially organized – Keep all financial records, bills, and bank statements in one location. A file or accordion folder in a locked file cabinet is ideal. Since spare time may be hard to come by, this system allows quick access to what is needed when it’s needed. Being financially organized ensures that bills are paid on time, late fees are avoided, and the credit report and score are not damaged.
  • Recognize the dangers of Identity theft – Identity theft is common on college campuses. The identity thief may not be a stranger, but someone in the room next door. Computers and phones contain a wealth of personal and financial information, and should be password protected. Social Security numbers are like gold to a criminal, and should be stored in a safe and locked location. Memorize the number and do not carry the card unless it is needed for one-time verification purposes, then promptly store it again. Be cautious when posting information on social media, as sites are frequented by thieves trolling for seemingly innocent postings that can be pieced together to equal enough data to steal a person’s identity.

Everyone makes money mistakes, particularly those who are still learning how to responsibly manage their finances. Knowing that blunders are likely, parents should decide if they’re going to bail their child out or put tough financial love in place. This is a family decision that is best made in advance, not in the midst of the emergency. However, it is critical that parents not allow the child’s financial mistakes to ruin their own personal finances.

The NFCC recommends that parents and their young adult leaving the nest make an appointment with a certified financial counselor at an NFCC member agency location. Hearing financial advice from a professional may have a stronger impact than hearing it from mom and dad. To be automatically connected to the NFCC agency closest to you, dial (800) 388-2227, or go online to www.DebtAdvice.org.

Gail Cunningham manages Media Relations for 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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 Look at the Big Picture

MarkFoster_CCOABy Mark Foster

Impulse spending can land us in hot water. Buying a TV or digital camera because it’s on sale and we want it now can create problems for us if we don’t first look to see if we can afford it. Many people do stop and think before making a big purchase. However, many people overlook small purchases like a gourmet coffee because, hey, it’s only five bucks, right?

Ben Franklin said, “Beware of little expenses. A small leak will sink a great ship.” Regular, small purchases can and do add up. The big picture for that $5 coffee or pack or cigarettes each day is around $150 a month or $1825 a year! Think about how some of that money could be better used – to knock out a debt, take a vacation, add to your emergency fund, etc.

Track your spending for one month by writing down your spending on a small notebook or large envelope – whatever’s easy for you. Then add up how much you spent on dining out, entertainment, groceries, etc. Dining out and entertainment are two categories people can easily overspend on. Did you find any overspending? If so, it’s time to make some changes! It doesn’t have to be all or nothing. You don’t have to cut out your coffee completely, but perhaps cut it down to once or twice a week and drink home brewed coffee the rest of the time, for example.

So if you regularly buy some small purchases like gourmet coffee, be sure to ask yourself “What is the big picture on this spending in a year’s time?” If it’s fairly large, you might decide to better use some of that money elsewhere.

Mark Foster is Director of Education with Credit Counseling of Arkansas (CCOA). CCOA is a member of the National Foundation for Credit Counseling. To schedule an appointment with a Certified Consumer Credit Counselor contact CCOA at 800.889.4916, or visit CCOA online at www.CCOAcares.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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