Find right credit card for you

This was originally published on Monday, August 7, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: I have never had a credit card and have always used cash. I am considering getting one to use in case of emergencies and for the trip I am planning next summer. I have considered several types but honestly, I find it all a bit confusing. Do you have any tips that could help me decide which credit card is a fit for a first-time owner?

Answer: There are many types of credit cards and looking for the right one can be perplexing and overwhelming. Taking the time to find one that fits your lifestyle and budget is essential.

When used responsibly, a credit card can help you build a good credit history. Good credit history can help you get loans with reasonable interest rates, insurance, cell phone plans and, in some cases, secure a good job.

Some cards reward you for using their cards and others can help you protect your purchases in case of theft or damage. In your case, you may need a credit card to secure your travel plans such as rental cars and hotels.

Before you decide, ask yourself three questions: Do you really need a credit card? How much of my budget can you commit to paying the credit card loan (because that is what a credit card is, a loan)? Can you save to purchase the item instead of using a credit card?

Answer these questions honestly. Knowing the answers to these questions will help you determine which card meets your needs. There are other aspects that you should understand before making a decision.

Short-term loan

A credit card is basically a short-term loan. Depending on the amount you pay monthly, you may or may not accrue interest. If you pay your entire credit card balance at the end of the billing cycle, you will not accrue interest. However, if you pay a partial amount of your balance, you will accrue interest on your average daily balance. The interest is a charge for borrowing the money.

 If you pay just the minimum balance each month, you could find yourself in a long-term cycle of debt. By law your credit card statement must show you the difference of paying off the minimum balance versus making a larger payment.

A normal billing cycle is usually 30 days. Most billing cycles will have a few days grace to pay on your loan. If you miss the cutoff date, a late fee will be assessed.

Credit cards use revolving credit that is automatically renewed as the balance is paid off and can be kept open indefinitely. Your credit limit, or line of credit, is the maximum amount you can borrow. If you have reached that limit, you must pay down the balance before you can borrow more. Some credit cards will assess charges that are beyond your limit and will charge you “over the limit” fees which can be a monthly or daily fee.

Why get a credit card?

There may be many personal reasons why you may need one, but from a financial point of view, a credit card is a method of building good credit. Your credit score is factored by your payment history, the amount you owe on your accounts, how long you have had the credit and the type of credit you use.

Another reason for owning a credit card may be the perks. Some cards offer cash, points or other bonuses. For example, if you travel a lot, consider getting a card that rewards you with airline miles or points for hotel stays. Some cards offer discounts at certain partnering stores or gas stations.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

 

Learn from financial mistakes

This was originally published on Monday, December 25 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Maybe you remember your parents saying that you should learn from their mistakes. It’s not any different when it comes to finances.

Perhaps you have witnessed others make financial mistakes that have led to financial hardships. It’s much easier to avoid financial mistakes if you know what others have gone through. By recognizing your financial behavior in others, you may be able to steer clear of these pitfalls and avoid the hardship that comes with them.

  • Too much house. Are you in the market to buy a home? Be sure to know how much you can spend on the mortgage and insurance before looking at homes. It’d be nice to move into a brand new home with several bathrooms and enough rooms for all. But on the logical side, you may not be financially ready. Instead, a nice fixer-upper may be the solution. Look at homes in your price range. You don’t want to be stuck with a mortgage that restricts you to a slim budget. Purchase a house that you can comfortably afford. Also, remind yourself that the kids will eventually start lives of their own and move out of your house. If you are in a huge home, you’ll have to maintain that empty nest.
  • Upgrading your house. One of our biggest expenses is housing, whether for rent or for a mortgage. When upgrading your house, decide on a budget and stay within that budget. Decide what exactly needs to be urgently upgraded and what can be put off for later. Try setting up a savings account just for the upgrades and avoid taking out a loan.
  • Emergency fund. Job loss, cars breaking down and medical emergencies are just a few things that are never planned. Having money put aside just for the emergencies provides a crucial crutch when things don’t go as planned. Most experts say you should have at least three months of living expenses saved if you are a two-income home. If you are a single-income family, consider five to six months of living expenses. Saving that much money can be difficult, but any money stored away will help.
  • Co-signing a loan. There may be a time when a family member or friend will ask you to help them get a loan by co-signing. Although your intentions are from the heart, know that the debt is now yours. The loan will appear on your credit report. If they don’t make a payment it will directly affect your credit score. If an asset secures the loan and the loan defaults, the asset will be seized and used toward the loan balance. If the sale of the asset isn’t enough to cover the amount of the outstanding balance, the lender can come to you for the remaining balance.
  • Lending money. We want to help those who are close to us when they are in a time of need. If you loan money to a friend or family member, there is a good chance that you may not get your money back. If it becomes habitual, you may have to learn how to say no. There are other ways of helping. Buying a week’s worth of groceries, offering them a job around the house or even helping them find an additional source of income may help more than just lending them money.
  • Not paying your debt. According to NerdWallet, the average American carries about a $15,355 balance on his or her credit card. If the credit card carries 15-percent interest, that can easily be more than $2,000 a year. Reducing the amount of debt will increase your financial security and the amount you have in your bank account. Paying off debt should be one of your top priorities of 2017.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

Preparing a financial disaster kit

This was originally published on Monday, August 22 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Life’s emergency situations can happen at any moment. Advanced preparation and planning can ease the stress that comes with a disaster. A financial disaster kit can make the process of recovering less stressful. A well-crafted kit contains information necessary to assist in the recovery process and is based solely on your household’s situation.

  • Income. In case your income is disrupted by the disaster, having proof of your income will be needed if you apply for assistance. Include pay stubs or Leave Earning Statements that reflect your current pay as well as anyone else in your household that is employed. If you receive Social Security, veterans benefits, housing or food assistance, or any other government benefits, include information on how much you receive. Include paperwork showing income received from alimony and child support received as well.
  • Financial assets. Many people today do their banking online or on their smartphones. Although this can make life easier under normal life conditions, once disaster strikes we will lose many of our modern conveniences. Keep a current copy of your bank or credit union statements as well as your credit card statements. Having these documents on hand can prove that you have an account at that financial institution. Do the same for your retirement and investment accounts. Include a copy of your vehicle registration and ownership papers.
  • Financial obligations. Make copies of your monthly bills. Your utility bills such as power and water can be extra proof of where you reside. Include statements from all your financial obligations such as your credit cards and loans. The documents should have the name of the financial institution, the account number, and contact information. Make copies of your credit cards front and back. Include copies of your car, student and other loans in your kit. If you pay alimony or child support include a copy of your payment agreement.
  • Insurance policies. After a disaster this is probably one of the most important documents you should have ready and on hand. Before a disaster, be sure to review your documents and that you have adequate coverage. If you are unsure of your coverage, visit your insurance company. Keep copies of your current homeowners or renters, auto, and life insurance policies. You may want to include recent photos of your home, high valued items within your home, and your vehicles(s). These pictures can be on a CD, thumb drive, or some other portable device that will not take up much room in your kit.
  • Tax information. Some financial loans request that you have tax information for the past three years. Keep copies of your federal and/or state taxes for at least the past three years in your financial disaster kit. Include the most recent property tax information as well.
  • Estate. A finance disaster kit should cover even the worst case scenario. Keep a copy of your will or trust in your kit. Your spouse should as well. Having a trust will keep your assets from going through probate, and having a trust or a will may reduce family conflict, and reduce some the stress of dealing with a disaster and the loss of a loved one. If you become injured or incapacitated, your power of attorneys will give someone you trust the ability to work on your behalf.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Debt from the deceased can be complex

This was originally published on Monday, May 9 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: My father is terminally ill and I am in the process of getting his affairs in order. He has an updated will and I have confirmed that my mother is named as his beneficiary for his life insurance and retirement plan. My main concern is his debt. He took out a large loan several years to help with his medical treatments. He is not behind on his payments but I am curious to what happens to the debt once he passes. Could you help me understand how debt is paid off once the lean holder is deceased?

A: I am so sorry to hear about your father’s illness. As a child it is hard having to switch roles and become the caretaker for our parents. Unfortunately, when someone dies, their debt does not disappear. The rules to creditors recouping their money is complex and often vary from state to state. Of course, it also depends on the type of loan and if there are others who share the responsibility.

Family members typically are not obligated to pay off the debt of a deceased family member directly from their assets. The Fair Debt Collection Practices Act (FDCPA) protects family members from unfair, deceptive, or abusive practices used to collect a debt.

Who is responsible? Take a look at who signed for the debt. If it is a joint debt, then two or more people are responsible for the full debt. The names of those responsible will appear on the promissory note, loan or credit agreement.

Usually there is a clause in the contract that if something should happen to one of the responsible parties and they are unable to pay their portion then the surviving debtor(s) are responsible to pay off the full amount.

If only one person owns the debt, then that person is responsible for that debt. If the estate, the total net worth of an individual that includes land, possessions, cash, and other assets, of the deceased doesn’t have enough money to cover the debt, the debt may go unpaid. If the estate has money, then the assets from the estate will be used to pay off the debt.

Type of debt

Depending on what type of debt the deceased leaves behind will also determine if the debt will be repaid.

  • Credit card. If the credit card is joint with someone else or has a cosigner(s) then the cosigner(s) are responsible for paying off the debt. Otherwise depending on the amount left the credit card company may pursue collecting what is due.
  • Mortgage. If you are inheriting a house with a mortgage you will inherit the debt as well. If you cannot make the payments, you may have to sell the home. If you are having trouble paying the mortgage, it could affect your credit score if your name is on the note secured by the mortgage.
  • Medical. Medical expenses are usually on top of the priority list to of debts to pay.
  • Taxes. If your loved one passed and left unpaid property or income taxes, the estate will be responsible to pay them. They too can put a lien on assets till the debt is paid off. The deceased will be responsible to pay any income tax on income earned during the year of their death.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo .com and read past columns at the Money Matters blog at www.moneymattersguam .wordpress.com.

Helping your teen buy their first car

Throughout National Financial Literacy Month, we’ve been going over financial advice that parents and teens can discuss, as those teens prepare for financial independence.

A car is a major expense, and often, a necessary one. Even if a car purchase will take place a few years into the future, early savings and positive credit behavior established beforehand can make things easier for your teen.

Knowledge about budgeting, financing and repayment can help your son or daughter avoid credit rating damage and save money over the life of the loan.

If you plan to purchase a car for the family soon, take your teen with you through the process. Here is some basic conversation points:

Save for a down payment. With a down payment, you will pay less in overall interest on your car, because you’ve lowered the principal amount that you need to borrow. A down payment can shorten the amount of time that you repay the loan or lower your monthly payments, so that you don’t over strain your budget.

A sustainable monthly payment is important, because it can help you avoid late payments and a potential default.

Start saving as soon as you anticipate your need for a car. It doesn’t have to be a very large amount, because those savings will add up over time.

Build a positive credit history. If you are thinking about buying your first car, you also should be thinking about your credit history.

Financial institutions are more likely to approve a loan if they can see that you have a history of consistently paying your credit obligations on time.

Once you have a credit card, always pay before the due date, and keep your balance as low as possible. If you want to build your credit history but are having trouble obtaining a credit card, you can look into a secured card.

With a secured credit card, you deposit savings to the credit card issuer, and that amount of savings becomes your “credit limit.” Just check to be sure that the issuer will report your credit card activity to the credit bureaus, so that your positive behavior will be recorded on your credit report.

Choose according to your needs. When you’re young, and you have many goals to fulfill, it’s crucial to consider your financial needs first. Before you shop for a car, create a budget and see what you can afford. Think about your most basic needs and do your research before you step into a dealership.

Compare loans from different financial institutions. You can find the best values by comparing products, and loans are no different. Compare financing available from different institutions, and choose the loan with the best rates and terms. Just try to keep your inquiries to a limited period of two weeks, to protect your credit score.

Get help if you run into trouble. If you experience financial hardship, talk to your financial institution. They may be able to lower your monthly payments temporarily, which can help you avoid late fees, damage to your credit rating, and repossession of the vehicle. It’s always best to discuss financial hardship early, so that you can immediately start working on a solution with the financial institution.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 19 years experience in retail banking and with financial institutions in Guam and Hawaii.  You can email him at  moneymattersguam@yahoo.com.

Break larger goals into more manageable pieces

There are many strategies that you can use to pay down your debt. What matters most is that you keep yourself motivated to make consistent payments on your way to a zero balance.

Start with small goals. Try breaking up your larger goals into smaller, sequential goals. A single large goal can be overwhelming on its own, and if you start to feel like you’re not making progress, you may be less motivated to make payments.

Focus on a single category of debt, or a single credit card or loan. Then, break this debt down further: choose a 10- percent goal or something like it. You’re more likely to meet a goal that’s both significant and achievable to you. Once you accomplish your goal, create another one, and after that, create another. Make it into its own game, and you won’t even notice that you’re doing something you might not have considered before: consistently monitoring your personal finances.

Set your targets where they’ll do the most good. You can have different aims when you’re paying down debt. Maybe you want to get the most out of your money; maybe you want to bring your balance down on a maxed-out card; maybe you want fewer accounts to deal with. It’s your debt, so choose an aim that is satisfying for you, and stick to it.

If you’re having trouble choosing an account to pay down, review your debt spreadsheet, and compare your loans. In particular, look at your interest rates. The higher your interest rates, the more you’re paying per dollar to borrow money. The most strategic move for your wallet is to you pay down your highest interest- rate account first. Paying such accounts down first will ensure that more of what you pay over the long haul will be principal debt, rather than interest that has accrued over time.

Remember that some of your loans come with tax advantages. Interest on your mortgage, your home equity loans, and your student loans are deductible if you meet certain requirements. Your consumer debt doesn’t have that advantage. It’s another thing to consider when you’re choosing debts to pay down.

Make it a rule to spend less than you earn.

Now that you’re paying down debt and setting your goals, it’s very important to keep your spending at a level beneath your income. As soon as you start spending more than that, you accumulate more debt. That will undo the hard work you’ve done up to this point.

It can be tough to keep in control as the months go by. But just remember — you’ve set bigger goals, which are more important to you than your other discretionary expenses. And by the time you get to zero, you’ll have greater confidence in managing your financial affairs.

You’ll have an easier time if you track your spending: write it all down, or use financial software. If you can see what you’re spending, you can also pay attention to your limits, and you can cut yourself off before you enter bad territory.

Reward yourself for progress. Positive reinforcement will help along the way, so try to find low-cost ways to mark off your accomplishments. Go to the beach, go on a hike, or rent your favorite movie. And keep looking forward: you’ll get there in no time.

Michael Camacho is the president and chief executive officer of Personal Finance Center. He has more than 18 years experience in retail banking and with financial institutions in Guam and Hawaii.