Financial Recovery

Financial Literacy at the Library concluded its presentation of the FDIC Money Smart series on Wednesday June 20.   Julie Soforenko from American Consumer Credit Counseling led a discussion on Financial Recovery after a Setback.

Participants who braved the hot temperatures to learn how to develop and implement a financial recovery plan were rewarded with snacks and sweets courtesy of Whole Foods Market.

Julie introduced us to the 4 basic steps in financial recovery:

1. Evaluate Your Current Financial Situation
2. Develop a Financial Recovery Plan
3. Implement Your Plan
4. Evaluate and Adjust Your Plan

To evaluate your current situation, keep count of all your incoming and outgoing items.  To achieve an accurate picture, Julie recommends you track your spending for at least one week and include everything, no matter how small.  Morning cups of coffee, donuts and loans to friends add up over the course of a month.

When developing your recovery plan, first prioritize your bills.  Student loans, rent, utilities and food should be paid before credit card debt.

Cut back on expenses where you can: double up on errands, rent a DVD rather than going out to the movies, enjoy pot luck dinners with friends rather than going to a restaurant. Never go food shopping while hungry or without a list. Review your insurance policies and cable/telephone service plans  annually and shop around for better rates.  If you have been on time with your credit card payments, ask the card issuer for a lower rate. Find cheaper substitutes on entertainment, but do not cut out fun things altogether. Recognize the benefit you experience from an expense, then find a less expensive substitute.

Establish SMART Financial Goals (Specific, Measurable, Attainable/Achievable, Realistic, Timely).

To start rebuilding credit, first order a free copy of your credit report at www.annualcreditreport.com. You may request one copy from each of the three credit bureaus (Equifax, TransUnion and Experian) once a year. Mark your calendar to order one every 4 months.  Check the report for errors and if you find one immediately contact the reporting bureau.  Contact the creditor in writing to dispute the item. Errors on a credit report can be removed but accurate negative histories will remain on the report for seven years.  Bankruptcy will remain on the report for 10 years.  For more information on correcting errors in credit reports including a sample dispute form visit the Federal Trade Commission at  ftc.gov.

Consumers may apply for debt settlement (reduction in total amount due) directly with a creditor.  Julie warned against using a debt settlement company as they are often a cover for scams. For bills that are 3 months overdue or more, call the company yourself and speak with the billing department.  If a debt settlement plan  is negotiated, remember that the amount forgiven will be considered income by the IRS and will be subject to income tax.  Further, it will appear on your credit report as a debt not paid.

Your budget should be dynamic and adjust to changes in circumstance such as:

•   a change in income or expense
•   after accomplishing a financial goal
•   when transitioning to a new life stage

Financial Literacy at the Library would like to acknowledge the contribution of Julie Soforenko whose clear voice and thoughtful explanations over the past two years brought the  FDIC Money Smart curriculum to life for our auditorium and online audience.  Thank you, Julie!

Secured Borrowing Basics

Financial Literacy at the Library welcomed back Julie Soforenko, Community Outreach Coordinator, American Consumer Credit Counseling for a presentation on Financing Fundamentals: Car loans, Home loans and Equity Lines of Credit.

Cars and homes represent the most expensive purchases most people make.  It is important that one’s money matters be in tip-top shape before seeking financing for them.

Julie covered the pros and cons of buying vs. leasing cars.  Monthly payments are generally lower on leases than car loans, but insurance payments can be higher.  Leases often come with restrictions on mileage and on the degree of wear and tear that is acceptable. At the end of the lease term, the vehicle must be returned to the dealer unless a separate purchase option is negotiated.

When borrowing to purchase a car, it is wise to ask the financing company how your personal information such as your social security number will be protected.  Make sure you know all associated costs before signing any documents and avoid loans with a balloon payment or prepayment penalty.

When considering whether to purchase versus rent your next home, Julie advised looking at the following factors:

• Is this a short-term or long term housing need?
• Are you looking at a home as an investment or inheritance for your children?
• Are your savings substantial enough to cover a 20% down payment plus closing costs?
• Is your income enough to cover property maintenance/repairs, taxes, insurance and association fees?

Julie recommended Renter’s Insurance for those renting a home and suggested that favorable rates may be obtained by combining the policy with your car insurance.

In addition to commercial institutions, home loans are available through several government agencies such as the VA, FHA, HARP (refinancing only) USDA and First Time Home Buyers  programs.

When shopping for a mortgage, it is best to complete your research within 30 days.  Multiple inquires on your credit history for this purpose will not affect your credit report if concluded in a short time frame.  If however, several inquiries are spread out over many months, it will have a negative impact on your credit report.  Remember for a free credit report, visit annualcreditreport.com.

First Time Home Buyers should educate themselves by enrolling in a home buying fundamentals class.

Homeowners aged 62 and older experiencing cash flow problems may want to consider a Reverse Mortgage.  Rather than making monthly payments to a financial institution, under reverse mortgages the bank pays you.  Due to its unique terms and risks, it is required that borrowers consult with a HUD Certified Housing Counselor to become eligible. Read more about reverse mortgages here.

Do not miss the final installment of the FDIC Money Smart Series, Financial Recovery: How to recover financially and rebuild your credit after a financial setback, to be presented by Julie Soforenko on Wednesday, June 20.

April is Financial Literacy Month

In recognition of the 12th annual Financial Literacy Month, the Newton Free Library will hold a series of events for adults and children to “educate patrons about finances and help them make better decisions about their money.”

• Wednesday, April 18, 7:00 p.m. – Financial Literacy at the Library FDIC Money Smart series with Julie Soforenko. The program titled Financing Fundamentals: Car Loans, Home Loans and Equity Lines of Credit will include lease vs. buy options for cars and homes;  fixed, variable, reverse and second mortgages.

• Monday, April 23, 7:00 pm, Dr. Kate Levinson will speak about her book Emotional Currency: a Woman’s Guide to Building a Healthy Relationship with Money; an insightful and empowering book that relishes a female viewpoint and a healthy, proactive approach to finances with specific steps for changing attitudes that impede financial success.

• Wednesday, April 25, 4:00 pm. In a program titled Mixing in Math: Pocket Change, children ages 6 and up will explore math concepts through stories and activities with a focus on learning about different types of coins. (Space is limited. Tickets will be available the morning of the program.)

For more information call the Newton Free Library at 617-796-1360.

Keeping it Safe

Newton Free Library‘s Financial Literacy at the Library FDIC Money Smart program continued last night with a presentation on consumer protection.

Keep it Safe: your rights as a consumer, the sixth module in the series was presented by Julie Soforenko, Community Outreach Coordinator, American Consumer Credit Counseling.

We can all be victims of credit fraud and identity theft. Protection is all about risk management by learning ways to protect ourselves and lower our vulnerability.

Here is a sampling of the many tips Julie offered:

• Keep your Social Security number private.  If required to disclose it (when applying for telephone or cable service), ask how the number will be stored and for how long and make certain the requesting party is legitimate.  If disclosing only the last 4 digits is an option, use it.
• When shredding documents, use a confetti shredder, not one that creates ribbons which can be reassembled.
• Review in detail statements from your health insurer to confirm claims are genuine to uncover possible medical identity theft.
• Likewise routinely review all bank statements and credit card statements.  Notify bank or credit card issuer immediately of any unauthorized transaction.
• Inform credit card companies in advance of travel or unusual (large) purchases.
• Guard against unauthorized scanning of passports and credit cards embedded with RFID chips by storing them in RFID Blocking wallets.

Protect yourself against online scams and fraud by:

• Installing and maintaining an active anti-virus and malware protection subscription on your computer. Get in the habit of conducting routine scans.
• Do not click on pop-up ads.  Close them or “X” them out.
• Beware of “phishing” scams in the form of emails (even from companies you do business with) requesting account information or personal information verification. Do not click on the links. Delete the emails or send to the junk/spam box.
• When updating to a new computer, remove and destroy the hard drive from your old one.
• For Smartphones and GPS devices, check with the manufacturer/provider on how to delete your personal info.
• Avoid using public computers to conduct online banking or other financial transactions.
• Secure your wireless connection with a WPA (wifi protected access) password.
• Look for “htpps” in the address line and the secure symbol when doing online transactions.

Julie reminded us to request a free credit report at least annually from annualcreditreport.com and to check it for errors.  Notify the reporting agency immediately if something is not right.  They are obligated to resolve it within 30 days.

If you suspect you have been a victim of identity theft, do the following in this order:

1. Call financial companies with which you do business.
2. File a police report.
3. Complete the Identity Theft Affadavit at http://www.FTC.gov/idtheft.
4. Contact all three (Experian, Equifax, TransUnion) credit reporting agencies to place an identity theft alert for 90 days.  If you know you have been a victim,  request a free security freeze.

For a detailed list of instructions on what to do if you suspect you have been an identity theft victim,  read this advisory produced by FDIC Money Smart.

Why You Should Save

Our dedicated Community Outreach Coordinator from American Consumer Credit Counseling, Julie Soforenko,  led us through the basics of savings at our July 20 Financial Literacy at the Library event.

We were advised to consider our short and long term goals when establishing and adding to savings accounts. Use direct deposit to split your paycheck into a savings portion and checking portion.  Establish three separate savings accounts:

1. Set aside a fund for emergency use to cover up to six months expenses.
2. Set up an account specifically for long term savings.
3. Combine short term and miscellaneous needs for a third account.

For retirement planning, think about how you see your life after work.  Write down a list of what you want to do.  The earlier you begin saving for retirement the less painful it will be.  Smaller amounts can be invested over a longer period of time. Retirement savings options include:

• 401k – employee contributions are matched by employer contributions.  Individual plans vary, but many allow workers to choose some or all of the investment options.
• IRAs – Roth and traditional accounts are both available.  Contributions to traditional plans are tax-deferred which may make sense if you expect your income tax rate to be lower when funds are withdrawn.   You must be 59 1/2 years of age in order to withdraw funds without penalty.
• Certificates of Deposit – FDIC member bank issued CDs are a low risk, but low return investment.
• Stocks – can offer a higher rate of return but also carry a higher risk of loss.

Looking for a simple way to calculate how long it would take to double your money?  Use the “Rule of 72“.  Assuming interest earned is compounded annually, divide 72 by the anticipated interest rate and the answer will be the number of years it will take for your investment to double.  For example, at 3%, it would take 24 years.

Options for college savings include the 529 plans: 529 pre-paid tuition plans specify a particular school, whereas the 529 savings plan can be used for any college.

For a thorough review of college financing options, come to the Financial Literacy at the Library Guest Speaker event on September 21 at 7 p.m. to hear Martha Savery from the Massachusetts Educational Financing Authority.

Low income families can benefit from an Individual Development Account (IDA) to save for college or big ticket items. Offered through a network of non-profits, contributions are matched dollar for dollar.  There are currently 26 organizations in Massachusettsthat participate in the program.

Low-Stress Budgeting

Does the thought of following a budget stress you out?  Do you liken it to a crash diet?

Julie Soforenko, American Consumer Credit Counseling (ACCC), offered several tips at our last Financial Literacy at the Library event on how to track your money without pain.  If you missed Julie’s presentation, see the video here.

Treat your budget like a companion; it should feel comfortable and grow with you.  Julie recommends getting started by tracking your spending for a week.  It is important to include the weekend and to write everything down.  If you aren’t able to complete a whole week of tracking, do not give up.  Congratulate yourself for what you did accomplish and try, try again.

Track your spending by using the tool that works best for you:

• notebook and pen
• budgeting worksheet
• Excel spreadsheet
• Quicken
• Mint.com

Be accurate and include everything.  Write down all your expenses and look for the “holes”.  Holes may be small items such as pocket money for the kids,  cups of coffee or impulse purchases at the register.  Add up those items and you may be surprised.  Now do the same for your income.  Include everything:  salary, alimony, food stamps, rent money from relatives living with you.  For guidance, download the Budgeting Basics Survival Pack from the ACCC website.

How to save money by lowering your spending?  Some suggestions from Julie and audience members:

• Couponing – use websites such as couponmom.com or  couponcabin.com.  Remember to use coupons only on items you normally buy, otherwise it is not saving.
• Pharmacy Drug Plans – may be a good alternative to supplemental insurance company plans and should be checked out.
• Insurance Brokers – can do the research on the lowest premium/best coverage insurance at no cost to you.  Review your insurance plan annually.
• Cable Plans – should be reviewed annually.  Call your provider and ask about deals and sales.  Chat with them  on the phone as they look up offers, and they may find you a better deal.  If you don’t feel helped by the first person you reach, call Customer Service again and you will probably be routed to a different agent.

Remember that overspending, and the fear of overspending causes stress.  The best way to reduce the stress is by taking control.

Choose Your Checking

At our March Financial Literacy at the Library event, Julie Soforenko from American Consumer Credit Counseling advised us that not all checking accounts are the same and to do our homework before establishing a new bank account.  See the filmed event here.

For a guide to choosing the right bank for you, see the list of factors prepared by the Massachusetts Division of Banks.

Julie covered the four basic benefits of checking accounts:

• Convenience – paying bills (with paper checks or online), easy access to cash through ATMs, direct deposit of  your paycheck.
• Cost – less expensive than using services like Western Union or a check cashers. See the 2010 Report on Check Casher and Basic Banking Fees from the Mass Department of Consumer Affairs.
• Budgeting– great money management tool.  Establish separate accounts at the same bank for different purposes (one for necessities such as rent or utilities, one for entertainment, one for savings). Use your monthly statement to review your spending habits.
• Safety– FDIC insures your bank deposits. Use EDIE the Estimator to calculate your insurance coverage. No worries about your money being stolen or lost to a natural disaster.

Make sure  to ask your  bank representative about the following:

Check Fees:

• Does this account include free checking? If yes, is there a limit on the number of checks per month that are free?
• Will the balance on all my accounts be combined to determine minimum balance requirements for check writing fees?

ATMs:

If you rely on  ATMs, then ask:

• Where and how many ATM locations does your bank have in the area?
• Is there a transaction fee on the use of ATMs?
• Is your bank part of a regional network that offers customers free ATM usage? Use this site to search for Surcharge Free ATMs in your area.

Overdraft Fees:

• Ask yourself if you really need overdraft protection.  The new law requires that customers opt-in for coverage.
• If you do opt-in, what is the fee per overdrawn item and what is the interest rate charged on overdraft lines of credit?
• Is there a cancellation fee if I decide later to opt-out?
• Will the bank offer to automatically transfer funds from my savings account to my checking account to cover any potential overdraft?

A summary of Bank Fees to know:

• Monthly service fee
• Per check fee
• Maximum number of checks per month
• ATM Fee
• Return deposit item fee
• Stop payment fee
• Monthly paper statement fee (may apply to check image page only)

Read those letters you receive in the mail as they may contain important information on increased fees.  It is worth speaking to your bank representative if you have a question regarding any fee.  Ask the bank how you can avoid paying a particular fee.

To compare checking account services in your area, refer to this survey for the Mass Department of Consumer Affairs or enter your zip code in the comparison tool available on  Bankrate.com.  For information on the Massachusetts Basic Banking program for persons with modest incomes, click here.

Borrowing Basics

Julie Soforenko from American Consumer Credit Counseling helped us with the basics of borrowing on Wednesday night at our monthly Financial Literacy at the Library Event.  If you would like to see the video of the event, click here.

Do you know the the 3 types of loans?
1) Revolving Credit (credit cards)
2) Installment (car loans, student loans)
3) Mortgage (home loans)

Credit reporting agencies look for a successful history with all three types.  Having experience with all categories  is a plus!

How else can you improve your credit report? Keep your credit card usage to 20% or below the total limit of all credit cards combined.  The evaluating agencies like to see a high percentage of available revolving credit, so think carefully about closing accounts on seldom used cards.  It may result in a lowering of your score.

Thinking about using a home equity line of credit to consolidate and pay down your credit card debt? It may not be a great idea, especially if you suspect you may soon lose your main source of income due to a job loss or investment setback.  Credit card debt is unsecured and while nonpayment may put you into bankruptcy, it does not lead to the loss of your home.  Alternatively, that home equity loan is secured by your primary residence and several unmet monthly payments may result in foreclosure.  As a general rule, Julie advises against using secured debt to replace unsecured debt.

Confused by the Free Application for Federal Student Aid (FAFSA)? Teri College Planning with several centers in Boston, and one in Brockton, offers free help with finding scholarship assistance and completing application forms including the FAFSA.  Their counselors speak many languages!

Need tax help? Volunteers are available to assist individuals with incomes no greater than $49,000 in completing their federal tax returns.  Visit one of the VITA locations listed on the www.irs.gov website or call the VITA (Volunteer Income Tax Assistance Program) Site Locator number at 1-800-906-9887 to find a site near you.

Banking Basics

On Wednesday, November 17,  Julie Soforenko, our Financial Literacy at the Library partner from American Consumer Credit Counseling led a highly informative discussion on Banking Basics, the first in our series of FDIC Money Smart Adult Education programs.  Thank you, Julie!

The three major types of financial institutions are banks (including community banks), credit unions and thrifts. They offer customers safety, security and the ability to earn interest.

Services banks offer include savings accounts, checking accounts, direct deposit of your paycheck, wire transfers and the convenience of ATMs.  Telephone banking, text-based banking, and online banking are alternative ways to manage your accounts.

FDIC now insures deposits up to $250,000.

Remember that debit cards are not considered credit for the purposes of building a favorable credit history and that stored-value cards are not insured and often carry high fees.

Tired of receiving those promotions for pre-approved credit cards?  Call 1-888-567-8688 or 1-888-5OPTOUT or go to optoutprescreen.com to put yourself on the opt out list.

If you missed hearing Julie’s presentation or you would like a refresher on the topic, please visit our website or click here.  To subscribe to the entire video series, click here.

November 17th Event

Don’t forget to come to the Newton Free Library at 7 p.m. on Wednesday, November 17th for the first in our FDIC  Money Smart series!  Money Smart is an adult education program designed to build financial knowledge and establish positive banking relationships.

Meet Julie Soforenko, Community Outreach Coordinator for American Consumer Credit Counseling, who will be presenting an Introduction to Banking Services.  Julie will teach us which bank and which account may be the best fit for each of us.  She will take us through the benefits and security issues of Online Banking.  The usefulness and cost of other banking services will be covered.

This event takes place in Druker Auditorium.  Participation is welcome, so please bring your questions and comments.