It's not until a crisis strikes that we realise our lives are so fragile. One minute you're paying the bills and enjoying the moment, the next you're only a moment away from being consumed by them. And it only takes a moment...

As teenagers, we thought we were invincible and that the world would be tamed in our lifetime. But, as we mature and accept more responsibilities time takes on another dimension. We begin to have families, borrow for our house or business and take far less risks.

When we consider that a crisis could happen at any time we're faced with two choices - save for an emergency fund or take out some insurance in case of emergencies. They are no longer the only two options as emergency loans seem to sprout up everywhere offering us the cash when we need it most.

But are they are as helpful as what the advertisers would like us to believe?

Prior to emergency loans, crisis insurance was the ugly duckling that puritan money handlers would steer away from. They would espouse the virtues of storing an emergency fund that might be as big as 3-6 months worth of your salary that should only be used in extreme emergencies.

Nowadays more and more are turning to cover themselves with the insurance and emergency loans are the proverbial 'ugly duckling'. Is it a tag that is rightfully deserved or does it have its benefits?

If you consider that most crisis insurance policies charge a premium of between 1-3% of your salary annually and 95% of people will never use it, it might be worth running the sums. If you took out an insurance policy when you began working and continued to support it during the course of your working life how much money do you think you would have spent?

While saving an emergency fund that can carry over a bad period is the preferred option it is interesting to consider that emergency loans may be the best alternative. The money spent forking out for premiums year after year for crisis cover (which can only be claimed when you become ill and not for just losing your job) may be a complete waste of money.

At least utilizing an emergency loan would only occur when, and if, you needed it. The chance is you may never need it. And, if you do, you still may save thousands from purchasing emergency insurance.

Posted by Stuart at 6:15 AM | Permalink | Comments (1)

We all have a 'bad car deal' story to tell and mine happened when I was 18.

I wanted to trade my first car - a Ford Escort - up to a larger sedan. With my pre-approved bank loan of $5k and hopefully trade-in price of $1500, I was sure I could pick up a decent set of wheels within my budget.

That was until the car salesman noticed me ogling off a more expensive sedan that wasn't within my price range. After a short discussion he promised me that he could get it down to within my budget (a drop of $5K) if I was interested. Of course I was so we started completing the paperwork.

One small hitch, he just had to get it approved by his manager but reassured me by saying this was a fait accomplice. So, I sat waiting until he re-emerged with his boss who wanted to have a word with me. His manager was less than polite and berated me for taking advantage of his fine establishment. How on earth could I expect to buy this car with the amount that I had? I'm pretty sure this was my original question!

Regardless, every other car I'd seen by this stage no longer appealed and with the finance deal they could secure for me I could be on my way in less than 24 hours.

Why I fell for this, I have no idea. Apart from the fact that I was a pimply-faced 18 year old who was too trusting of the world, I was also too hasty trying to prove myself.

But the rip-off didn't end there. The $5k loan I had already obtained from the bank was charging 11%pa while the showroom finance deal was closer to 30%. I couldn't understand back then why the bank was only prepared to lend me $5k yet this finance company was prepared to further extend my credit to almost the same amount.

Today, it makes sense albeit a little late. However, once bitten twice shy. Showroom finance deals are usually the highest interest loans you will ever see because they work on a customer's compulsiveness.

From now on, I get the finance deal sorted prior to choosing a car and I stick to it - like superglue.

Posted by Stuart at 6:20 AM | Permalink

Are there any first time home buyers left? There may be, according to this article but the once growing horde is slimming down somewhat.

It's getting harder and harder for first time home buyers to get into the market as interest rates increase and property values continue to soar. Salaries haven't kept up and the only home buyers left in the market are second or third generation purchasers.

So what options are left for the little people?

It wasn't that long ago that we began scoping the financial landscape for our first home - and that was before the big property boom. Today, most of our friends shake their heads wondering how first time home buyers will ever get into the market. Will their mortgages exceed their lifetimes? Will their children inherit their debt?

Hopefully these won't be the outcome as there may be a few options available for first home buyers. Here's a few loan options;

• Zero Down Payment Loans - Before you even contemplate this as an option you need to understand that buying a home with this type of loan, at the end of a property boom, is the worse thing you could do. Prices will invariably drop and if you default on your loan payments you could end up owing the bank more than the home is worth.

  Having stated that, these loans are a great option for first home buyers. They don't require a deposit so you can get into one just as quickly as getting into a rental contract. The downside is you don't have the deposit to offset any of the interest payments.

  But still, with property prices increasing, you won't be able to save enough deposit to get into a home as you will continue to get further and further behind.



• Allow boarders and proposition your bank manager - There is one thing working to your advantage here - rent is also increasing. Not only is it hard enough to buy a house, it's becoming too expensive to rent.

  Draft a plan that allows you to accommodate a few boarders in the spare room, thereby increasing the amount you can use to service a first home loan. Banks are always looking for good options to loan money and a well thought-out plan should give them enough confidence to lend you enough for a mortgage.



• Shack up with your best friend's wife (and him, of course) - Try splitting the loan between two couples. There is a little more paperwork and bureaucracy that will need to be attended to in this situation but it can be done.

  Both couples split the home and amenities while only paying half of the mortgage. When it comes time to sell, the other couple buy your half out or you split the price that the house sells for. Easy.



• Get the parents to pay half - As most parents are into their second or third home they easily have enough equity in their home to use as capital on a new mortgage. If you play your cards right you could even get them to pay half of the mortgage so that it becomes an investment for them as well.


• Source a first time home buyers grant - Many governments are now offering grants to first time home buyers to help get them into their own home. Finding viable sources can be as easy as searching Google or visiting a home display centre.



It is getting harder for first time home buyers to get into the market, but it's not impossible. Take some initiative and find alternatives to get the result you're after.

Posted by Stuart at 6:12 AM | Permalink | Comments (1)

The last thing you want to do if you plan on refinancing your loans is end up in a worse situation than when you started. And unfortunately this is how most people end up.

To refinance your loans successfully you need to work out some plan of attack. So, to show you the best way to refinance your debt let me introduce you to our fictitious case study couple, Ira and Jean.

Ira and Jean recently got married and decided to pool all their assets, bank accounts and debts. Alas, poor Ira and Jean's debts far outweighed their assets and cash.

Here's the breakdown of their current debts;

• Ira had bought his $23,000 car through the car dealerships recommended credit company paying 24.5%pa


• Jean had paid a $3000 deposit and owed her brother another $15k.


• The wedding had cost nearly $25,000 and all of had gone onto their combined credit cards. Ira's low interest card had $15,000 at 8.99%pa while Jean's 16.5% credit card contained the balance of $10k.


• Two years ago, Ira and Jean took out a mortgage for their first home and after paying a 20% deposit they now owed $300,000 over the next 23 years.


• To complicate the situation even further, Ira's business owed the Tax Department more than $20,000 in unpaid tax.

So, after some heated discussions, Ira and Jean decided to refinance their debt as soon as they could. Here's how they did it...


Continue reading "How to refinance successfully" »

Posted by Stuart at 7:50 AM | Permalink

You've thought long and hard about buying that house or starting that business and now it's time to get some finance organised to pay for it. But what loan options do you have? And, is one option better than another?

Unless you have a rich uncle that's just passed away leaving you the enviable task of paying cash for your venture, chances are that you will require a loan of some description. And banks and credit lenders offer a plethora of debt instruments that can seem like a minefield of options.

The opportunity cost of selecting one loan option is leaving the others. Which one costs the most? Which one has hidden charges? Which loan can I refinance later?

Well, here are seven loan options you may want to investigate further...

Continue reading "Seven loan options to get you started" »

Posted by Stuart at 5:43 AM | Permalink

My last post was on the resident evil payday loan but it seems my focus should have been a little broader after reading Boing Boing's post on Exotic debt-trap mortgages.

This post was in relation to ARM's (Adjustable Rate Mortgages) that allow mortgagees to select a repayment scheme that suits them. The problem occurs when customers opt for the minimum repayment scheme that pays 0% of the principal and less than 100% of the interest component. The unpaid interest is then added on to the mortgage and compounds increasingly over time.

Do the math and you'll soon figure that these become reverse mortgages and rely solely on a booming property market to be of any benefit (to the home-owner, that is!). Banks will undoubtedly make a killing but if property prices bust and present negative returns in an economy where interest rates increase one would assume that this could also be the screw on banks as well.

Is this not the worst case of banks going berserk in their lending frenzy? In a world where debt continues to spiral can there be any good that can come from these options? And, why are authorities allowing this practice to continue?

Posted by Stuart at 8:14 AM | Permalink

I hope you read the fine print.

In many of today's credit card application contracts there is reference to a set of terms should you default on a payment. You may start out on a low interest rate but find, by missing a payment, you will end up converting to the default interest rate - usually 20-30% higher than you were initially paying. There's nothing new about this practice yet there are still many credit card users who are unaware of this policy because they don't read the fine print carefully.

However, this little nuance is minor compared to what is being defined as the Universal Default clause. This clause states that if you miss making a payment to ANYONE that reports on your credit history your interest rate will immediately convert to the default rate.

Take this in for a moment.

You could have faithfully used your credit card, making payments as and when they fall due yet you miss a payment on your telephone bill that is reported to the credit reporting agencies and immediately your credit card institution hikes the interest rate. And they're well within their rights to do so.

For anyone who is looking to accept a really low interest rate for a new credit card make sure you read through the contract and understand all the fine print.

Source: Bill Burt "'Universal default': Lenders gang up on late payment"

Posted by Stuart at 7:25 AM | Permalink

Your personal financial plan is your road map to financial freedom and independence. I probably should have underlined the word YOUR because we so often hand the reins of our financial plans over to others. We may do it consciously by accepting the latest morsel of advice hoping that this new piece of knowledge may be the key we've always been looking for. Or worse, we accept the "voices" in our head that tell us to deviate from our premeditated plan.

An analogy that may encapsulate my point is the many times I would head off 4 wheel driving in the bush. If I had unlimited time and an ongoing source of fuel I would explore every track that I came across. But I usually had a destination in mind before I set off. As an undiscovered track appeared I would stop and weigh the virtue of adventure against the map. If it took me in an opposite direction or would obviously increase the time taken to get to my destination then I could easily discern that it was a wrong way.

The same applies to your own personal financial plan. Sorry...did you just say you don't have one? Well that's like hopping into you car with a blindfold covering your eyes. You drive off aimlessly hoping to arrive somewhere but readily realising your chances of success are extremely limited.

Continue reading "Stick to your personal financial plan like superglue" »

Posted by Stuart at 6:50 AM | Permalink | Comments (1)

Is personal finance an issue that can be taught or do you just pick it up along the journey of life? The 'school-of-hard-knocks" is where many seem to sharpen their teeth on fiscal matters but is that the right playground for our society to be maintaining?

I've just read another article Back to personal-finance basics on a school system hoping to influence young students in money matters. I'm bouyed by the optimism but I struggle with the pressures that you can't teach kids that will inevitably inch their way into their lives.

For instance, here's a big one: Will they teach them that staying together in a relationship and working hard at it to make it successful makes better financial sense that separating years down the track? What about those ridiculous purchasing terms of "Pay nothing now - 4 years interest free" - how do you teach kids when they're mates all have the latest Plasma that delayed gratification is a better deal?

I'm all for education, but education taught as theory only seems to me to be the biggest waste of time. You would never train a doctor purely from manuals and tutorials. They need experience with the tools of their trade - bodies and scalpels. The same needs to happen with teaching kids about personal financial skills. They need to somehow deal with the pressures of this world in a simulated environment that's as close to real as possible.

Where can this happen? Where it should happen - in the home.

Posted by Stuart at 6:24 AM | Permalink

Apparently, yes! That is if you have a steady job and income. If you're a bum who has seasonal employment and changes residences more than you change your pasty Target underwear, you're probably okay. It may become harder to get another credit card once they've revoked your allowance on the one you've just sky-highed, but at least you won't be sued.

It seems then that credit cards are only for the poor and destitute, or at least those who are willing to run when the bailiff knocks on the door.

Read this article from CreditorWeb.

Posted by Stuart at 7:20 AM | Permalink

Have plastic - will shop! Tired of seeing those credit card statements roll in each month and find that you're kicking yourself for some of the purchases you made on that list. Then there's the usual discussion with your spouse concerning the relevance of such transactions like "I don't remember ordering anything from Danoz this month?", "A Mars bar, you put a Mars bar on the card?"

They say hindsight is the greatest teacher you just don't want to have to use it at the end of every month. So, rub some ointment into those bruises, lift your head up from the ground and let's apply some strategy to next month's purchases.

Continue reading "9 tips to curb you credit card spending" »

Posted by Stuart at 6:50 AM | Permalink

Could it actually be healthy for you to own your own home? Apparently so according to this US News article.

It makes sense though doesn't it? If you were able to make all the decisions yourself what a difference it would make on your well being. You would be able to take more pride in the home in which you live, adding to and changing the landscape, removing walls that no longer worked in your home and even painting the kids bedrooms the colours they wanted rather than what you're landlord wanted.

Continue reading "Homeownership! Renting vs buying a home" »

Posted by Stuart at 6:59 AM | Permalink

If you've ever thought about taking out a mortgage then naturally you will want to do the sums to make sure it's worth your effort. And unless you have a degree in finance or you're unccanily gifted in the mathematics department you'll find that calculating the costs can be quite overwhelming.

Today many banks or financial institutions offer their own versions of online mortgage or loan calculators but there are also an increasing amount of websites designed specifically for this purpose. Mortgage-Calc.com has not only mortgage calculators but debt consolidation calculators, refinancing calculators and even a "How long until you're a millionaire?" calculator.

Check these ones out as well;

• Global - Karl's Mortgage Calculator, Bankrate.com and Homepath
  


• Australia - BRW Magazine and Your Mortgage
  


• Canada - TD Canada Trust
  


• UK - UK Mortgage Advice
  

Posted by Stuart at 6:49 AM | Permalink

With so many institutions vying for a share of our incomes, both current and future, it's no surprise that debt consolidation loans are becoming an attention getter in the finance world. Consumers may start a mortgage, take out a personal loan for a car, boat, holiday , max out the credit card and even run up huge debt on store cards. And each of them is charging a different rate of interest and varying fees.

Is it worth consolidating all that debt into 1 loan? The answer: Possibly. The real truth to answering this question lies in how will you handle your money if you do consolidate all your loans? Will it free the credit card up for more purchases or do you plan to reduce the limit or even get rid of the card altogether? Will you set yourself a budget and work at sticking to it?

While the answer to having all your debt consolidated into the one loan is an emphatic yes, unless you change your finance habits you will find that this may become a bigger burden to carry. Think it through carefully and make more changes to your habits than just consolidating your debt.

Posted by Stuart at 7:02 AM | Permalink