Ways to Find Money and Offset Social Security Tax Hike

Paychecks are getting smaller. While many Americans are breathing a sigh of relief that their income tax did not increase, there is nonetheless a tax increase that will impact all paychecks.

The Social Security payroll tax rate was reduced for 2011 and 2012, with the employee contribution cut from 6.2 percent to 4.2 percent. The intent was to put more money in people’s pockets, thus stimulate spending. The rate will now increase to the former level, resulting in smaller paychecks for American workers.

“If a person was fortunate enough to have received a pay raise, it’s likely that this Social Security tax increase will wipe out most of it,” said Gail Cunningham, spokesperson for the National Foundation for Credit Counseling (NFCC). “Americans, particularly those already living on the financial edge, need to act fast to adjust their budgets accordingly.”

To help consumers find extra money to offset the tax hike, the NFCC suggests exploring the following areas:

Adjust withholding – Millions of Americans receive large income tax refunds each year when they could have extra money each month. Calculate the proper number of withholding allowances by utilizing the worksheet at www.IRS.gov.

Pay with cash – People who pay for purchases with cash typically save 20 percent compared to previous credit spending, and never feel deprived.

Refinance the mortgage – Take advantage of historically low rates to reap a lower monthly mortgage payment.

Ten dollars from 10 categories – Carving $10 off of 10 spending categories is a painless way to find extra money.

Do it yourself – Small savings add up. Stop paying for things you can do yourself such as washing the car, cleaning the house, or mowing the lawn.

Stop bad habits – Make good on those New Year’s Resolutions to stop smoking, drinking, and playing the lottery.

Clean out the storeroom – It’s a double-play to sell the contents of the storeroom, thus eliminating the need for extra storage. Money in the pocket from the sale, and no more rent payments.

Save on insurance premiums – Examine all policies and compare rates. Inquire about ways to lower premiums, and ask about any discounts for loyalty, good driving and the bundling of multiple polices.

Examine bank statements – Don’t continue to pay for things no longer needed just because they’re set up as auto-pay. Avoid unnecessary charges by not using out-of-network ATMs. Negotiate with the financial institution for lower fees or change banks.

Earn extra income – Getting paid to do something fun won’t feel like work, and honing a skill can pay dividends beyond financial.

Are You Profiled as a High Achiever by FICO?

I received this information the other day from and thought it was interesting and worth sharing. The original study was published by myFICO.com, the consumer division of FICO, the company that invented the FICO Credit Score

What’s the Profile of High Achiever’s Credit Scorers?

FICO recently released a study on the habits of US consumers with scores greater than 785. The FICO Score “high achievers” account for roughly 25% of scorable consumers, or more than 50 million individuals. The research highlights a common thread within their credit behavior. Overall, high credit score achievers consistently make their payments on time, keep low revolving balances relative to their available credit and only apply for credit that they need.

It may come as a surprise that FICO® Score high achievers are not debt-free. They have multiple credit cards with balances. However, they typically manage their accounts responsibly even if they have had mishaps along the way.

Here are other key facts about this group:

• High achievers have an average of seven credit cards, including both open and closed accounts.

• They have an average of four credit cards or loans with balances.

• One-third of high achievers have total balances of more than $8,500 on non-mortgage accounts; the remaining two-thirds have total balances of less than $8,500.

• 96% show no missed payments on their credit report; of those who do, it happened four years prior, on average.

• Many people have high scores without using credit cards at all. Those that do use credit cards often keep balances low, only using an average of 7% of their available revolving credit.

• Even some of those with a sterling FICO® Score may have had some bumps along the way. Approximately one in 100 high achievers has a collection listed on their credit report and approximately one in 9,000 has experienced tax liens or bankruptcies.3

• FICO high achievers have a well-established credit history and seldom open new accounts. Their oldest credit account was opened an average of 25 years ago and their most recent credit account averages 28 months old. Overall, their average credit account is 11 years old.

The path to a high FICO® Score is not a mystery. Here are some recommendations – pay your bills on time, keeping balances low and only applying for credit when needed.

“While people with a high FICO Score are not perfect, their consistently responsible financial behavior usually pays off over time,” said Anthony Sprauve, credit score advisor for myFICO.. “In a challenging economic period, the fact that we all have a chance to be high achievers is very good news. The lesson from these high achievers is that it’s never too late to rebuild and score high.”

 

Consequences of Overspending on the Holidays

 Editor’s note: This article was originally posted November 2012.

Millions of consumers have begun their holiday shopping, snagging sale items either in-person or online, and therefore considering themselves savvy shoppers. At the same time, many lost sight of the fact that regardless of the price, a bargain isn’t a smart purchase if it compromises a person’s overall financial health.

“If there’s one time of the year when people shop with their heart, not their head, it’s the holiday season,” said Gail Cunningham, spokesperson for the National Foundation for Credit Counseling (NFCC). “Emotional spending during the holidays is often the tipping point that pushes people over the edge financially, as common sense can take a backseat during this time of the year.”

To help consumers remain financially responsible during the holidays, the NFCC offers the following five reminders of the long-term consequences of over-spending, some of which can last far after the lights are taken down and the tinsel is packed away.

Paying additional interest – Adding new debt to an existing debt load, one which cannot be paid in full when the bill arrives, equals paying a larger dollar amount of interest due to the higher outstanding balance. Even worse, when a balance is carried over from month-to-month on an account, interest is paid on the previous months’ interest. People often boast of buying an item on sale, then pay for it over time, thus wiping out any savings.

Diminished future borrowing power – An increased level of debt could cause lenders to decline applications for new lines of credit or loans. Since no one knows what the future holds, not being in a position to tap into new credit is something to guard against.

Diminished future buying power – Buying on credit is a contractual agreement to pay the debt later, often with money that has yet to be earned. Using tomorrow’s money for today’s expenses compromises future spending.

Lower credit score – Excessive debt often leads to paying late, skipping payments, and utilizing too high a percentage of open credit, all of which could lower the all-important credit score. Further, applying for new lines of credit simply to save money on today’s purchase will not only increase the temptation to spend, but will show as an inquiry on the credit report, potentially lowering the score.

Debt interferes with life – Debt is a 24/7 problem, distracts people from their job and home-life, interrupts sleep and potentially causes marital strife.

“With the economy still on shaky ground and job security not something to be counted on, it makes no sense to self-inflict financial damage this holiday season,” continued Cunningham.

 

More than One in Five Americans Consider Credit Essential

According to the September poll hosted on the National Foundation for Credit Counseling (NFCC) website, 22 percent of more than 1,900 respondents indicated they could not make ends meet without access to credit.

“There are hundreds of millions of credit cards in circulation, making the plastic temptation very real,” said Gail Cunningham, spokesperson for the NFCC. “Nonetheless, credit was intended to be a convenience, not a piggy bank to supplement income.”

An additional 24 percent of poll respondents said they would have to make significant lifestyle changes if they did not have access to credit. Taken together, 46 percent of Americans would experience major interruptions to their financial lives if denied the use of credit.

The inability to responsibly manage credit is one of the first financial danger signals. Consider the following data from the NFCC’s 2012 Financial Literacy Survey:

• Thirty-three percent of consumers do not pay all of their bills on time, the highest percentage since the question was first posed in 2008, up five percent over 2011;

• Thirty-nine percent of respondents indicated they carry debt over from month-to-month, a sure sign that a person is living beyond what his or her income can support; and

• Sixteen percent have experienced an overdraft related to a checking account.

No one ever intends to dig a deep financial hole. Life’s unexpected events often throw a curve to even the most stable financial plans, making credit the choice of last resort to meet monthly obligations. Many well-meaning people think living off of credit will be a short-term solution; the new job is just around the corner; the medical event won’t be serious; the divorce decree will read differently. Others have not experienced a financially back-breaking life event, but have built a lifestyle that their income simply will not support.

The solution for either group is a three-step process: stop charging, increase income, decrease expenses. Facing the financial facts can be hard. Changing ingrained habits is never easy, but it is not only worth the effort, it is essential to a person’s current and future financial stability.

“Although the 22 percent of people indicating they could not make ends meet without credit is a minority among those polled, it is a significant minority,” continued Cunningham. “People are masters at deceiving themselves and justifying spending. Don’t be one of them.”

To determine if your finances are on the brink of disaster, try living without credit for one month. If successful, it is likely that credit is being managed responsibly.  If you are not successful, consider getting some advice from the experts at The Village Financial Resource Center at 800-450-4019.

Village Financial Counselors Help Consumers Understand Importance of Credit Report

The Consumer Financial Protection Bureau (CFPB) recently announced that it would soon begin examining credit reporting agencies to confirm, among other things, that they are producing accurate credit reports and that consumers have ample ability to dispute errors on their reports.

 “An accurate credit report is critical to a person’s financial future, and consumers need to be aware that the responsibility for reviewing their report lies with them,” said Gail Cunningham, spokesperson for the National Foundation for Credit Counseling (NFCC). “Even though consumers can obtain their credit report free of charge, the recent NFCC Financial Literacy Survey revealed that 62 percent of respondents had not ordered their report in the past 12 months.”

 Financial counselors at The Village Family Service Center, a member of the NFCC, stress the importance of understanding what a credit report is and what it isn’t. At its core, the purpose of a credit report is to provide those with a valid need a track record of a person’s credit history. Having a way to evaluate the risk of extending new credit is just as important to the consumer as it is to the business.

 Among other things, the report contains information such as where a person lives, how many lines of credit have been applied for or opened, and how he or she manages credit. Credit reporting bureaus are a repository of information that has been provided to them. They sell the information to lenders, insurers, employers, and other businesses that use it as a tool when evaluating a person’s application for credit, insurance or employment.

 There is often misunderstanding regarding credit reports. Many erroneously think that the credit report includes a credit score, a person’s race, income or medical history. One of the most common misconceptions is that the credit bureaus are involved in the approval or denial of credit, which is not true.

 The reasons for obtaining a credit report are many, but include confirming accuracy before applying for credit, checking for identity theft, or verifying that outdated information has rotated off. Perhaps the most important reason is that the all-important credit scores are based on the information contained in the credit report.

 If, upon review, consumers question the accuracy of the information contained in the report, the Fair Credit Reporting Act provides them with the opportunity to dispute the entry. Consumers should dispute the information directly with the credit reporting bureau through which the report was obtained. The bureau must then investigate the concern and correct or delete inaccurate or unverifiable information, usually within 30 days.

 Anxious to find a quick-fix for a blemished credit file, consumers often fall prey to unscrupulous businesses which charge high fees but offer no legitimate help beyond what consumers can do for themselves at little or no cost. Warning signs are if a company offers to create a new identity and credit file, or guarantees to remove late payments or other negative information from a report. The smart consumer will check with the Better Business Bureau before becoming involved with a credit repair firm.

 “Since the credit report is meant to be an accurate snapshot of a person’s credit history, consumers need to remember that if the report contains negative information that is true, it needs to remain a part of the report,” continued Cunningham. “Filing a frivolous dispute benefits no one.”

 The CFPB’s announcement serves as a reminder of the importance of credit reports, and hopefully will inspire consumers to take the first step by ordering their report, examining it for accuracy, and disputing any errors. Consumers can obtain their credit report free of charge once every 12 months from each of the three credit reporting bureaus by going to www.AnnualCreditReport.com.

 For help understanding the contents of your credit report, contact The Village Family Service Center, an NFCC Member Agency, at 1-800-450-4019 or www.helpwithmoney.org.

Check Your Credit Report!

The Consumer Financial Protection Bureau (CFPB) recently announced that it would soon begin examining credit reporting agencies to confirm, among other things, that they are producing accurate credit reports and that consumers have ample ability to dispute errors on their reports.

“An accurate credit report is critical to a person’s financial future, and consumers need to be aware that the responsibility for reviewing their report lies with them,” said Gail Cunningham, spokesperson for the National Foundation for Credit Counseling (NFCC). “Even though consumers can obtain their credit report free of charge, the recent NFCC Financial Literacy Survey revealed that 62 percent of respondents had not ordered their report in the past 12 months.”

It is important to understand what a credit report is and what it isn’t. At its core, the purpose of a credit report is to provide those with a valid need a track record of a person’s credit history. Having a way to evaluate the risk of extending new credit is just as important to the consumer as it is to the business.

Among other things, the report contains information such as where a person lives, how many lines of credit have been applied for or opened, and how he or she manages credit. Credit reporting bureaus are a repository of information that has been provided to them. They sell the information to lenders, insurers, employers, and other businesses that use it as a tool when evaluating a person’s application for credit, insurance or employment.

There is often misunderstanding regarding credit reports. Many erroneously think that the credit report includes a credit score, a person’s race, income or medical history. One of the most common misconceptions is that the credit bureaus are involved in the approval or denial of credit, which is not true.

The reasons for obtaining a credit report are many, but include confirming accuracy before applying for credit, checking for identity theft, or verifying that outdated information has rotated off. Perhaps the most important reason is that the all-important credit scores are based on the information contained in the credit report.

If, upon review, consumers question the accuracy of the information contained in the report, the Fair Credit Reporting Act provides them with the opportunity to dispute the entry. Consumers should dispute the information directly with the credit reporting bureau through which the report was obtained. The bureau must then investigate the concern and correct or delete inaccurate or unverifiable information, usually within 30 days.

Anxious to find a quick-fix for a blemished credit file, consumers often fall prey to unscrupulous businesses which charge high fees but offer no legitimate help beyond what consumers can do for themselves at little or no cost. Warning signs are if a company offers to create a new identity and credit file, or guarantees to remove late payments or other negative information from a report. The smart consumer will check with the Better Business Bureau before becoming involved with a credit repair firm.

“Since the credit report is meant to be an accurate snapshot of a person’s credit history, consumers need to remember that if the report contains negative information that is true, it needs to remain a part of the report,” continued Cunningham. “Filing a frivolous dispute benefits no one.”

The CFPB’s announcement serves as a reminder of the importance of credit reports, and hopefully will inspire consumers to take the first step by ordering their report, examining it for accuracy, and disputing any errors. Consumers can obtain their credit report free of charge once every 12 months from each of the three credit reporting bureaus by going to www.AnnualCreditReport.com.

Financial Regrets

The recent National Foundation for Credit Counseling (NFCC) online poll allowed consumers to select their greatest financial regret. Of more than 2,200 respondents, 53 percent indicated that habitually overspending was what they regretted most.

Overspending far outweighed other financial concerns such as inadequately saving (18 percent), insufficiently preparing for retirement (14 percent), not having bought a house (10 percent), or having bought a house (five percent).

“Although most people have financial regrets, it is important to not dwell on past mistakes,” said Gail Cunningham, spokesperson for the NFCC. “Instead, look forward and take action by constructing a plan that recognizes the realities of the situation, repairs financial damage, and moves in a positive direction toward financial security.”

The NFCC offers the following 10 tips for turning financial regrets into financial wins:

Set financial goals – Both short and long-term goals provide a financial framework and create a vision that keeps spending on track. Put the goals in writing and display in a prominent place. Have sound reasons for establishing each goal, and when necessary, sound reasons for abandoning them.

Create a budget – A budget is the cornerstone that a sound financial future is built upon. Without it, danger signals are missed and spending can easily spiral out of control. Get started by utilizing the financial worksheets on The Village’s website (www.helpwithmoney.org)

Become a track star – At least once every six months, track your spending by writing down every cent spent for 30 days. This exercise will reveal any leaks and provide an opportunity to adjust spending to best meet objectives.

Be financially organized – Create a cash-flow calendar, writing down all sources of income on the anticipated pay date. Next, record which bills are to be paid out of each check. If there is not enough money to satisfy all obligations during one period, call the creditor and request a due date change.

Don’t wait to automate – Setting up automatic bill-paying provides protection against skipping a payment or paying late, both of which can result in a dinged credit report, a potentially lower credit score, and a late fee.

Review your credit report – A credit report is a reflection of a person’s financial track record, and is the basis of the credit score, making it a must-read, particularly for those rebuilding credit. Consumers are allowed one free credit report every 12 months from each of the three bureaus. To access this free report, go to www.AnnualCreditReport.com.

Build a high credit score – A high credit score equals a lower interest rate on loans and credit cards. For a higher score, put an emphasis on paying bills on time, not utilizing more than 30 percent of available credit, creating a mix of credit lines, not applying for more credit than is necessary, and responsibly managing credit over time.

Realize that life happens – Life is filled with the unexpected, with the unplanned expense always occurring at the worst time, wrecking the best of budgets. Guard against this by creating a financial safety net. Even small amounts of money consistently deposited into a rainy day savings account can create enough of a cushion to make it through most short-term emergencies.

Know that tomorrow will come – Even if retirement is a long way off, that’s no reason to ignore planning for it. Knowing that time is money’s best friend, provides the smart young investor a very long window of opportunity to turn a small sum of money into a fortune.

Become a financial adult – This may involve making hard choices, changing attitudes, behaviors, and lifestyle, but it is unlikely that financial decisions made on auto-pilot will result in a smooth landing. Be financially mature by understanding the nuts and bolts of personal finance, and acting on that knowledge.

The actual May poll question and responses are as follows:

My biggest financial regret is that I…

A. Habitually overspent = 53%

B. Inadequately saved = 18%

C. Haven’t bought a house = 10%

D. Bought a house = 5%

E. Haven’t sufficiently prepared for retirement = 14%

Free Homebuyer Education Class

The Village Homebuyer Education program is one of several services we provide as part of The Village Family Service Center’s Financial Resource Center, or FRC.

The Homebuyer Education Seminar includes an eight-hour class and an individual financial assessment. Homebuyer Education classes are free, and financial counselors are made available to you on a one-on-one basis as well as in a group setting. Local lenders, realtors and housing assistance programs will also give you ideas on making wise housing choices.

When you attend homebuyer education classes, not only will you fare better in managing your assets and overall money situation, but you may also qualify for downpayment closing cost assistance.

The next class is this Saturday, June 16th from 8-5. Call 701-235-3328 to get registered today.

For Better or Worse, Children Learn Financial Skills from Parents

According to the National Foundation for Credit Counseling (NFCC) 2012 Financial Literacy Survey, 44 percent of Americans indicated they learned the most about personal finance from their parents or at home. By contrast, consider that only 10 percent said they learned their financial skills at school.

In spite of the home being the primary teaching ground, many have never stopped to connect the dots between their financial habits and their parent’s. Confirming this concept is the NFCC’s May online poll in which 44 percent of respondents admitted that as an adult they have never compared their financial habits to their parent’s, suggesting that they are unaware of the potential impact their parent’s actions might have had on their current financial behavior.

Of those who had contrasted their adult financial behavior against their parent’s, 12 percent chose to embrace financial habits that were exactly opposite of their parent’s, while nine percent admitted their habits were very similar. Not surprisingly, 35 percent indicated their financial style was a blend of how their parents handled money and their own attitudes.

“Whether parents are astute money managers or woefully lacking in financial skills, their behavior influences what the children are learning, and likely impacting how they will handle their own finances as adults,” said Gail Cunningham, spokesperson for the NFCC. “Understanding this dynamic should serve as an incentive for adults to improve their own grasp of personal finance, because like it or not, their actions in this area will speak loudly.”

In addition to demonstrating responsible money choices through their behavior, parents should make a conscious effort to impart age-appropriate financial skills to their children. Summer provides an ideal time to focus on the finances with the children and increase awareness around different aspects of financial management.

Although conversations about money can begin with children of pre-school age, the NFCC provides the following 10 questions as ways to start a discussion with teenagers about money and create a teachable moment:

• Do you think children should be paid to do household chores?

• Could you live on the current federal minimum wage in America of $7.25 per hour?

• If not, how could you convince your boss that your skill set is worth more than the minimum?

• How many hours are you willing to work to pay for that new pair of tennis shoes you want?

• How is a checking account different from a debit card?

• Why do credit card issuers charge customers different interest rates?

• If not compact disc, what do the initials CD stand for?

• Could you save a dollar each day from now until Christmas?

• If you received $100 for your birthday, what would you do with the money?

• What’s the difference between collision and liability car insurance?

“By improving their own financial skills, parents can make a positive impact on their children’s financial futures, truly a gift that can last a lifetime,” continued Cunningham.

Eager to Improve Your Credit Score?

According to the March Financial Literacy Opinion Index hosted on the homepage of the National Foundation for Credit Counseling (NFCC) website, www.NFCC.org, a strong majority of consumers, 56 percent, selected “improving my credit score” as the personal finance area in which they needed the most help.

“What consumers continually fail to understand is that the credit score is based on information contained in the credit report,” said Gail Cunningham, spokesperson for the NFCC. “The process of improving the credit score starts with obtaining the credit report, fully understanding the contents, and acting upon that information. Nonetheless, only five percent of respondents indicated they needed help understanding their credit report.”

Supporting the findings of the monthly survey is the data from the NFCC’s recent annual Financial Literacy Survey which found that the majority of adults have neither ordered their credit report or score in the past 12 months. “In spite of it being free and critical to a person’s financial well-being, Americans remain resistant to ordering their report,” continued Cunningham.

Looking at other areas of the poll, twenty-three percent admitted they need help “controlling their spending,” but only 11 percent of those weighing in selected “knowing how to save money” as their main concern. Uncontrolled spending coupled with inadequate savings is a recipe for financial disaster, while striking a balance between the two leads to a healthy financial future.

Only five percent indicated they needed assistance planning for retirement. This result could suggest that consumers feel adequately prepared to make sound decisions related to retirement. However, retirement planning often takes a back seat to other seemingly more pressing financial concerns, putting many into a position of having to play catch-up as they approach retirement age.

Below are tips for consumers related to each personal finance need listed in the poll:

• Improving a credit score – Understand that there is not just one score. In addition to the widely-known scores, lenders may have scoring models specific to their needs. Fair Isaac, inventor of the popular credit scoring model known as FICO, offers a score on their website, www.MyFICO.com. Scores can also be obtained from each of the three major credit reporting bureaus, www.Experian.com, www.Equifax.com, and www.TransUnion.com. Each score will likely come with features such as an explanation of the score, how your score compares to others, and concrete tips on how to improve the score.

• Taking control of spending – Symptoms of a serious spending problem are hiding purchases, going on a spending spree only to return what was bought, or buying items that are kept, but never worn or used. Once people become aware of their over-spending and its detrimental impact on their life, the next step is to determine the root cause of the habit. Consider enlisting a trusted friend or family member to act as an accountability partner. Changing behavior is never easy, but having someone keeping you on track could provide the discipline necessary to embrace the new lifestyle.

• Knowing how to save money – A person cannot know where he or she is going until they know where they are. Plug the leaks by having everyone in the family who spends money track their spending for 30 days. At the end of that time, hold a family council and review the findings. The goal is to identify areas that can be reasonably trimmed back. Try to carve $10 out of each spending category. With a little effort, this could net an extra $100 per month, enough to begin a rainy day savings account. Try to maintain one month’s salary in the emergency fund, as this amount should sustain you through most unplanned events.

• Planning for retirement – The Human Resource department at work is a good place to learn more about your company’s retirement plan and how to maximize it to your advantage. Money’s best friend is time, so the sooner contributions begin, the longer you’ll have to grow your money. The Social Security Administration offers a helpful Retirement Estimator at www.ssa.gov that projects the benefits a person can expect upon retirement.

• Understanding a credit report – Consumers can obtain their credit report free of charge once every 12 months from www.annualcreditreport.com, or from one of the three credit reporting agencies, although there may be a small fee associated with purchasing from a bureau. Consumers should review their credit report at least once each year, checking it for accuracy and for signs of identity theft. Since the credit report is the basis for many lending decisions, it is critical that consumers not only obtain their report, but understand the contents. NFCC Member Agency counselors are trained to help consumers understand their credit report.

If you need help polishing your personal finance skills, reach out to a trained and certified counselor at The Village Financial Resource Center at 800-450-4018.

The actual survey question and responses were as follows:

Regarding personal finance, I could use the most help in the area of

A. Knowing how to save money = 11%

B. Improving my credit score = 56%

C. Taking control of my spending = 23%

D. Planning for retirement = 5%

E. Understanding my credit report = 5%