Tuesday, November 25, 2008

A little help for those in financial trouble

Thought I'd give a little help for those that are starting over and don't want to make the same mistakes. I'm not exactly sure how it is now with the banking collapse but in the past if you filed bankruptcy you would immediately get offers for credit cards in the mail. Why you might ask would they do something like that? Simple, once you file bankruptcy you can not file again for at least seven years. It seems like a stupid thing on the part of the banks but they know they'll have you on the hook for a lot of money including interest and fees if they can get you back on the debt treadmill.
First things first - Pay yourself first. The bills will always be there no matter what you do. So when you get paid put 10% of your take home pay in savings. In a just a few years you'll be amazed at how much you've saved.
Credit cards - I only use credit cards when absolutely necessary when it's the only means of payment accepted or as a temporary means of payment when I know I can find a better loan through a bank or credit union. Have only one credit card. It's through a credit union but even there you need to do your homework. Not all cards are the same even with credit unions so read the fine print.
Autos - Never buy a new car. Once you drive that new car off the lot it's value drops from between 10 and 20%. Even if the terms of the car loan are outstanding you'll never get out of that car with the shirt on your back. With the internet it's so much easier to narrow down the search for a decent used car and check prices against the Kelly blue book. If you finance do so for no more than three years. You want to get the car paid off before it will need major repairs. Never have your car repaired at a dealer unless it needs a part that the local repair shop can't get. Never take those extended warrantees. They add a lot to the price of the car and they always seem to have an escape clause when it comes time for pay out. If the salesman says the bank won't finance unless you get the extended warrantee then it's time to stand up and walk out. When you buy a used car buy a copy of the repair manual. You may never do a repair on the car but it will tell of the problems that will come up later and you will soon know when the repair guy is feeding you a line. Yeah lady your exhaust bushings need replaced and I'll need a left handed monkey wrench to do the job.
Housing - Rule of thumb is never buy a place that's more than two and a half times your gross yearly income. Try to find the least expensive place in the best part of a city that fits your needs. I live in the cheapest place in a very upscale area. The advantage is better schools and services as well as cheaper property taxes. I like a fixed rate mortgage over an adjustable because there's a consistency in payments that are easier to deal with and the only fluctuations are from property taxes. It's always a good idea to add $50 to $100 to the monthly payment thereby shortening the term and saving thousands in interest over the life of the mortgage. Never borrow against the equity of a home unless you're putting that in upgrades to the home. In short always put money into things that increase in value not depreciate. I realize that housing is going down but eventually it will stabilize. You'd be amazed at the amount of loans taken on equity to buy boats cars and vacations. Keep those loans separate.

More info from an older post

I hope this helps Lisa.


MRMacrum said...

All good advice. Advice heard for many years. Yet we seem to continue to make the same mistakes. Other than the trouble I have gotten in with my business, everythingin your post is what we have done for years. Business problems add some complexity and the difficulties of dealing with a tighter personal economy. But that will work itself out. It always does. Never be afraid to fail. That's my motto.

Distributorcap said...

some good advice there!

if you add 1/12 of your mortgage payment to your monthly mortgage - which is equivalent to one extra payment per year

(example - if you mortgage is $1200/month - but give an extra $100)

you will knock about 7 years off the mortgage - saving tens to hundreds of thousands in interest.

always state - extra $xx is for PRINCIPAL (sometimes they put it into escrow) - also do not pay extra to have bi-monthly payments of some other fancy payment sked. - just pay the extra

sadly --- in NYC it is awfully hard to find a place 2.5x your annual gross income. my father used to say your mortgage should be no more than 2x your annual gross income - dont know why, but that was his rule of thumb.

best rule - use cash. not a credit card - or use a debit card

Anonymous said...

This is all great info. Thank you, Demeur. Now the trick for us must be to move out of the "yeah, but" method of operations. It's really sad when you know what the right steps are and still you make the wrong decisions.

Seriously - thank you. This will help many people!

And Happy Thanksgiving.

BBC said...

I put away just a bit over ten percent away each month. That doesn't mean that I've saved up many thousands of dollars though, it just means that I have a buffer when a big purchase or something comes along.

Mostly I just use my debit card but I do also use a few credit cards. If you don't use credit some you can't get any at good rates if you need some.

I have a Home Depot credit card but if I spend over $299.00 I get six months no interest if I pay it off in six months.

You can bet that I do that, I'm not paying their interest rate that is over twenty percent.

If it's going to take me a while to pay something off I will use my card that is just over eight percent.

My transportation was paid for the day I got it and I can fix most things on it myself so no problem there.

My property is free and clear and the property taxes is just a few hundred a year so no problem there.

My auto insurance is very reasonable as I've been with the same company for many years with no claims and because my driving record is squeaky clean.

But what saves me the most money is no needy mate that wants more than we need. I'm often reminded of that fact also.

Nothing can get you into trouble faster than a woman that can't take no for an answer so you have to get her more shit in hopes of making her happy.

She can make herself as happy as she can afford to, but not with my help if it involves monthly payments.

Interest paid is just pissed away money.

BBC said...

I learned all that crap in school. I guess a lot of these fools napped through school, or have very short memories.

And I've gotten wise enough not to have relationships with women like Dcup. :-)

Anonymous said...

Wow, BBC. I hope that made you feel superior. Nice.

BBC said...

No, it just means that you didn't pay attention in school.

BBC said...

Actually, it does make me feel superior because I did pay attention to those things.

I tested at an IQ of 114 in the fifth grade, how did you do then?

I stopped taking IQ tests when I passed 135.

BBC said...

Big tits doesn't mean anything other than the fact that you have big tits. It's clear that you are not storing your extra brain cells in them. :-)

Demeur said...

I hate to tell you Billy but they don't teach that stuff in school. This is stuff I learned from some rich guys like J. Paul Getty. I've seen people with far less than what I have loose it as well as people with a lot more.

DCup don't be afraid because you don't have anything left to loose. I hope you can pass what you learn on to your kids so they don't make the same mistakes.

BBC said...

I have no idea where you went to school, but they taught that in the schools I went to.

I don't know what all they teach these days but I think that a lot of it isn't the important things.

BAC said...

BBC - have you always been an asshole?


Sue J said...

BBC: Superiority Fail.