Pierre Money Mart Blog

Everyone I have ever spoken with claims to have the desire to be in control of their money. Most of these people will admit that they don’t feel like they have very much control over where their money is spent and a surprisingly large number tell that their money is in control of them. The people who feel like their money is out of control are not the same people who don’t know how to stop spending when they are out of cash, or when their checking account is perpetually overdrawn

If your money is controlling your life, you may have the feeling that you get up in the morning and go to work for the sole purpose of bringing home a paycheck and signing it over to the mortgage holder, the auto finance company, the utility providers, your eldest child’s college tuition office, your youngest child’s youth activity director and every door-to-door child pitchman selling school fund raising items.

How can you tell when your money is out of control? You fell as though it is simply getting up and leaving your wallet whenever it darn well feels like it. So what are you to do about your money and controlling where it goes?

Know Where You Stand

Anytime you are going to go change anything in your life, you have to know what it is that needs changing. This is the same whether you are talking about your finances or your weight.

What you need is a snapshot of where your finances are right now. The only way to do this is to create a Net Worth Index.

There is only one way you can create a Net Worth Index – and that is honestly. Drop the kids off with your in-laws, sit down with your spouse and start writing everything down on paper. You can use a computer spreadsheet if you want to.

Start by listing everything you have that can be sold, and how much you could reasonably expect to get for it. Do not claim your 19th Century rocking chair from Grandma Hopscotch is worth $500 if someone who isn’t sentimentally attached would only pay $100.

While you and your spouse are taking inventory, remember to include watches, diamond earrings, boats, vacation time-shares, stocks inherited from Uncle John and your retirement accounts. List everything and its’ sale value. When you do things like Certificates of Deposit and IRA’s where there is substantial penalty for early withdrawal use the face value. For our purposes we’ll figure you won’t be taking the money out until it has matured.

Now that you have inventoried everything of value and totaled up what it is worth, do the same for your debts. Add in loans from family, friends, banks, businesses, and mortgage companies, past due accounts with the Gas Company and all credit card balances. This is not the time to “forget” someone you owe.

Subtract how much you owe from how much you own. This number is your Net Worth and should be a positive one, though it could be kind of tiny. You won’t need to use this number again until next year when you calculate your Net Worth Index again.

If your Net Worth Index reveals a negative number you are definitely doing something right by working to bring your money under control. What you’ll have to do is follow these four steps, and if necessary taking drastic measures such as a second job, selling valuables, or even selling your current house and moving into a smaller, less expensive dwelling.

Develop Your Goals

After you know where you stand financially, you need to decide where you want to go. This involves setting some reachable targets or goals.

Goal setting is not very complicated and in this instance, we are referring to the overall target of gaining control of your money. To do this requires a few measurable small goals, sort of like baby steps.

Your first baby step is to create a plan to pay off your debts. Look at your list of debts again and find which one is the smallest. This is the one you want to pay off first. Pay your minimums on all the others, and then pay everything you can extra a month on the smallest debt.

When it is paid off, take all the money you had paid on the smallest and add it to what you are paying on the second smallest. Keep doing this until you are out of debts to pay off. It doesn’t matter if your debt is for a house or for your soda pop at the corner gas station Following this plan you have created to pay them off is your first baby step.

The second baby step will be the creation of an Emergency Savings Account. This account needs some money added each month until you have accumulated enough money to equal six months of your income. The money you set aside here will help you avoid debt when you have to make a surprise car repair or meet the deductible for your child’s appendix operation.

Your third baby step will be found in the next paragraph, under the heading of Spend with a Plan.

Spend With A Plan

Now that you know you are serious about controlling where your money goes, and you are seriously doing something about your debt it is time to make a plan. A spending plan is comparable to a budget in the same way an imported pickup compares to an F-150. When you use a spending plan to guide your finances, you know critical work is getting done.

You need to know what your take home, or net, pay is. Start with your gross monthly salary and deduct all taxes and Social Security contributions. Next you should subtract how much you tithe or contribute in charitable giving each month.

The amount you have left is your Spendable Income. The next thing to pay for is your house expenses and your grocery bill – include only the food you buy in a grocery store to prepare yourself, no eating out or fast food here.

The very next thing to subtract is your debt payment. Once this is taken out, you are left with the money you can spend on everything else you require to live on for the month – also known as your Disposable Income. Write down everything what all you spend money on and see just how much it costs you.

Since it wouldn’t do any good to be working at paying off your debts if you are adding to them every month, you had better find a way to cut your spending down below your Disposable Income or else you will never have control of your money.

Working with your spouse you can decide how to buy store brand things for a fraction of the cost, do without the monthly beauty saloon treatments, cancel club memberships and eat at home instead of dining out 3 nights a week. Perhaps you could even take your lunch to work instead of eating in the cafeteria every day.

The key is to find fun ways to decrease your spending amounts. Involve the children and find small ways to reward them for their practical money saving ideas, after all, they are part of the family and can help too.

Once your spending is under control and kept below the level of Disposable Income available, start to enjoy life. While you are probably not quite as materialistic as the Jones’, you can enjoy a great quality of life than they do as they run controlled by their money.

Clean Up Your Clutter

I’ve found that after setting debt repayment as a goal, wrangling the spending into line and in general improving my life by gaining control of my money there is too much stuff in my life. Not activities, but material things.

This is a good time for you to have a garage sale and clean out your closets, the attic and wherever you have hidden all that stuff over the years. The money you raise could be applied towards your smallest debt to speed along its repayment.

Another thing you can do is look for larger things in your life you can dispose of that will help you reach your goal sooner. Do you have a vacation home you haven’t taken a vacation to for several years? What about that second or third car – can you sell it, pay off the loan against it and use cash to outright buy a good used car?

You might think it will hurt to make large changes like this, and it might. Once you have taken the step though, you will feel an easing of the burden on your shoulders.

These four things are just the tip of the iceberg when it comes to controlling money. This short over view is enough for you to get started thinking about ways to begin taking control of your money, but it doesn’t begin to be a step by step guide. Those kinds of guides are out there, but they are too thick to include here.

Using this as a quick start guide to controlling your money will get you pointed in the proper direction. As you progress you’ll find dozens of ways to write your Spending Plan, a hundred more goals to set, and plenty of ideas on how to cut costs. When you are debt-free and telling your money what to do, instead of following it around, you’ll be a happier person.

Eighteen is a liberating age. You’re legally an adult. You can vote. And, you can get a credit card. As eager as you may be to get your first credit card, many credit card companies aren’t so eager to give you one. Rather than putting in several credit card applications, target just a few companies that are known for giving credit cards to first-timers.

1. Credit cards for students

The sad truth is, credit card companies are more than willing to dole out credit cards to college students. If you’re enrolled in college, you have a very good chance of getting approved for a student credit card. Be wary, credit card companies are notorious for preying on college students. Start with only one credit card, no matter how many other offers you get.

2. The bank of your checking or savings account

If you’ve been responsible with a checking or savings account, you can try applying for a credit card at your bank. Talk to a bank representative about opening up your first credit card. Having an existing relationship will improve your chances at getting a credit card application approved.

3. A department store or gas credit card

Department stores and gas companies typically have easy credit card approval. This can make getting your first credit card less complicated. On the downside, they have high interest rates that make it expensive to carry a balance from one month to the next.

4. A secured credit card

When your (lack of) credit history keeps you from getting a standard credit card, you can apply for a secured credit card. With a secured credit card, you make a deposit against the credit limit of the account. The bank holds the deposit just in case you don’t make your payments as agreed.

All consumers but especially those with bad credit probably wonder just how FICO determines their credit score.

We know what you’re going through

At Pierre Money Mart, we’ve been helping bad credit car buyers reestablish their car credit by financing a new or recent pre-owned vehicle with a bad credit car loan. During that time, we’ve tried to educate consumers on high to take advantage of the process – since these very same people begin with a distinct disadvantage due to the high interest rates charged by these loans.

Your FICO score

There are 5 factors that FICO (formerly known as Fair Isaac) uses to determine your credit score. Where you fall in this ranking will determine whether you can finance your next car with a traditional lender or whether you will need to apply for a bad credit car loan (there will be more, later, on where and how you should do this). The 5 factors and how they affect auto financing include:

Payment History - Payment history affects approximately 35 % of your score. Making all of your monthly payments on time goes a long way towards being able to secure vehicle financing through traditional lending channels. If you have been a bit remiss in making your payments on time, bad credit car loans could be an alternative.

Balances - How much do you currently owe to creditors? Your current debt load will affect about 30 % of your FICO score. If your credit cards are at their limits and your revolving credit is maxed out, this will have a negative affect on your score. Bad credit car loan buyers, especially, should try and lower their debt load before applying for a loan. The lower your balances (a rule of thumb is to keep your current balances at 30% of your credit limit or lower), the higher your score and the lower the interest rate that you will be charged on a bad credit car loan.

Credit Utilization - The types of credit you are currently using impact your credit score by approximately 15 %. Banks, finance lenders, credit cards, mortgages, and all other financing is included in this category.

Depth of Credit – How long have you been using credit? Your time “in the bureau” accounts for approximately 10% of your credit score. The longer you’ve been using credit, the higher your score will be.

Recent Credit Opened - Recent credit applications impact your score by about 10%. If you are constantly applying for new credit (loans, credit card application, etc.) this will be reflected in a comparatively lower credit score.

Easy Availability of Auto Loans
Manufacturers and car dealers are offering great deals in order to encourage people to buy cars. Economic recession, coupled with a number of other problems that have been plaguing the auto industry, has resulted in a decline in the demand for automobiles. It’s only natural that people are reluctant to buy a car since they are no longer sure of their financial position. To increase demand, many manufacturers are offering payment protection deals that offer to make the necessary payments on car loans, in case the buyers are unable to pay off the interest on the loan due to layoffs. Banks and credit unions also seem eager to offer loans for as low as 6.85%. It seems as though a person can easily obtain cheap auto financing regardless of his credit score. However, the amortization of auto loans should be kept in mind while applying for the same.

How Does Auto Loan Amortization Work?

A loan is said to have an amortizing repayment structure, if regular repayments consist of both principal and interest payments. Auto loans have an amortizing schedule since the loan, which is usually granted for a period of 48 to 60 months, is repaid in monthly installments that consist of both principal and interest payments. In other words the amount of money that is repaid, consists of a principal and an interest component. The interest is calculated on the balance remaining at the beginning of each month. The balance at the beginning of each month is obtained, by subtracting the amount paid from the amount due. Hence in the beginning, the interest component of the loan payment will be more than the principal component. As interest payments increase, the balance at the beginning of the month reduces. This in turn results in the principal repayments exceeding the interest payments. Pre-payments are also allowed thus making the entire process very complicated. Thankfully, there are amortization schedules and calculators available to help the borrower determine the structure of the payments. The schedule also helps a person assess the wisdom of seeking a loan. In case the cost of the interest and principal payments are more than the worth of the car, the person may be better off making an outright purchase assuming, he has the money.

Factors Affecting Auto Loan Amortization

Number of Installments: Despite the availability of cheap credit, a person with a bad credit score will not find the amortization schedule in his favor. The reason is, the amount of money to be repaid will depend on the period during which a loan is amortized. A person with a good credit score is typically given a loan for a period of 60 months. In other words, he can repay the principal and interest in 60 payments. A person with a poor credit score is generally expected to repay the same amount in 24 to 48 installments. Fewer installments would mean larger payments per installment. Hence, a poor credit score would require the auto loan to be amortized over a short period of time thus increasing the monthly payment.

The Rate of Interest: The amortization schedule is directly affected by the rate of interest. A higher rate of interest would result in increasing the amount of repayments. In fact, a very high rate of interest may result in the worth of the car being less than the amount of principal and interest payments to be made on the car loan. A good credit score would help a person avail a car loan at a low rate of interest while a bad credit car loan would mean, a higher APR (Annual Percentage Rate).

Ironically, a relatively high down payment on a car loan is expected from a person having a poor credit score. This reduces the auto financing requirement. Since the principal balance in the beginning of the year is less, the amortization schedule becomes favorable! Of course, higher APR and shorter repayment period negate any benefit that could have accrued as a result of higher down payment.

Here’s how to stack the odds a bit more in your favor:

Shop money first — Many people make the mistake of shopping for a car, then worrying about how to pay for it. Instead, check into your financing options before you get near a dealership. You have many options — from credit unions to banks to the captive financing arms (GMAC, Ford Credit, etc.) of the automakers themselves. Offers can vary considerably; as with a real estate loan, even a seemingly small difference in the interest rate being offered can cost (or save) you a lot of money over the life of a new car loan. And just as you’d haggle with the salesman over the price of the car itself, you can and should try to negotiate the best deal possible on your financing. Make them earn your business; don’t just give it to them on a silver platter. If GMAC is offering 1.9 percent financing, you may have to forego an additional rebate to get it. Get the specifics and ask your bank/credit union if they can do better.

Know the true cost of what you’re buying (and what you can afford) — There is more to the cost of a new car than the price you pay for the car itself. Things like insurance, property taxes (where applicable), annual fuel costs and so on should always be factored into your purchasing decision — before you commit to buying anything. Insurance payments on a high-performance sports car may be more than you expected. People sometimes get into trouble by focusing on the car payment alone — forgetting about the peripheral costs that come with the purchase of any new car or truck. If you buy “on the edge” — with little cushion left for these unanticipated expenses — you might end up getting a visit from the repo man.

Know your quarry — Before you get near a dealer’s lot, you should have spent some time online getting to know as much about the vehicle you’re thinking of buying as possible. What are the standard and optional engines? Available equipment? The trim levels? What’s the dealer invoice price for the vehicle — and the various options? (Many people forget there’s a big difference between the MSRP “sticker price” and actual dealer cost for individual options as well as for the car itself.)

The more informed you are, the less likely it is you’ll end up with buyer’s remorse — or a bad deal. AOL Autos is one of several excellent resources for this research. Trade publications such as Automotive News and Consumer Reports are also a great resource for in-depth info about any new car on the road. It’s a good idea to read as many new car evaluations of the model you’re considering as possible. These expert reviews may enlighten you about good (and bad) points you might otherwise be unaware of until after you’ve already bought the car.

Check into the available deals — Year-end closeouts, cash back, special financing, etc. Each automaker publishes their current offers on their official web page (for example, General Motors’ web site is www.gm.com). AOL Autos brings all these offers to you alongside other vehicle details to assist you in your shopping. These offers are constantly changing, vary from region to region — and model to model — so it’s important to get the latest, most up-to-date info. Compare what’s being offered by one automaker against the deals (or lack thereof) being offered by a competitor. A little digging could save you thousands before you even get to the dealer’s lot. Also pay attention to the market. Slow-selling models (or final year models of vehicles about to be replaced or updated) are typically the ones dealers are most anxious to get rid of — which means you can usually negotiate a great deal for yourself. On the flip side, avoid shopping for the latest, most trendy and popular models until the buzz has died down a little — unless you don’t mind paying every penny of full MSRP sticker, plus a little extra.

Never focus on the monthly payment — “How much can you afford per month?” is a deceptive shuck and jive used by some car salesmen to get you to stop thinking about the total price of the car by focusing your attention on what appear to be “low” monthly payments. But ultimately, the only figure that matters is the bottom line cost of the car itself. Haggle over that figure — and the monthly payments will take care of themselves.

Worry about your trade-in later — You’re buying a new car; haggling over your trade can be distracting. With the focus on how much you’ll be getting for your old car, it’s easy to lose sight of how much you’re paying for the new one. Haggling over one car is confusing enough; adding another to the mix is never a good idea. Estimate the value of your trade-in online using a service such as KBB brought to you by AOL Autos. This will give you a ballpark number to free your mind while you shop for a new car. The best thing to do is negotiate your best deal on the new car — and once that’s done, bring up the matter of your trade-in.

Always take an extended test drive — Buying a new car or truck without spending at least a few hours behind the wheel is a lot like getting married after that first date. Things you didn’t notice at first may soon come back to haunt you — for example, seats that give you a back ache; or an under-powered engine. Or terrible blind spots. These are things you’ll notice during an extended test drive — and it’s why you should never buy any new car without having spent a t least a couple of hours behind the wheel in a variety of driving environments, such as stop-and-go traffic and highway driving. If the car will be used by family members, they should come along for the ride, too. If everyone’s not happy with the car, odds are you won’t be happy with the car. Most dealers will be happy to let a serious buyer take a test drive. If the dealer won’t allow it, you should think hard and long before buying the car — from that dealer, anyhow.

When the question of getting luxuries for you and the family arises, all our thoughts take a back seat as we are afraid of facing adverse consequences. But this happens when the decision is taken without much thought. Buying a car is one such example. But by taking up a secured car loan and buying a car, you will never repent for the decision.

With a secured car loan, the borrower can buy a new car or even a used car of his choice. The money is obtained by him very easily to buy the car. The borrower can make a decision as to what car he wants to buy, and if it is a used car then it should not be more than 5-7 years old. The car may be useful for any purpose, personal or commercial.

For taking up the loan amount, the borrower is required to pledge the car that is being bought as collateral with the lender. At the time of purchase, the title of the car is made in the name of the lender. When the borrower repays the full amount to the lender, then the title of the car is transferred to the borrower’s name.

Before taking up this loan, the borrower needs to decide the car and his next step should be to look for a suitable car dealer. After deciding on one who is giving the borrower a good deal, the borrower should then apply for the loan. This application can be made through the online mode if the borrower does not want to take any hassle and wants to speed up the process of approval. The money is transferred to his account and he can easily pay the price of the car to the dealer. This loan is also available to the borrowers with a bad credit history.

Borrowers can now easily borrow money for their car purchase through a secured car loan. Possessing a car has not remained very difficult now.