How To Save Money on Clothes and Fashion

The following article is by MPFJ staff writer, Miss T from Prairie Eco-Thrifter. If you want to learn how to live your dream life in a sustainable, healthy, and money savvy way, check out her site here.

Whether you keep a basic wardrobe of clothes or are an avid follower of fashion, your clothing budget probably takes a fair chunk out of your income.

Clothes and shoes wear out, you need a special outfit for a one-off event or you just love to have the latest fashions; all these factors mean that you frequently need to go shopping. Here are some clever strategies that you can employ to help you save money on clothes and fashion.

 

Shop With Cash – Avoid Store Credit Cards

I used to do all my fashion shopping using my credit card; I mean, it’s the easy way to get exactly what you want, right? I ended up with multiple store and credit cards that I struggled to make the minimum payment on each month. This meant that my must-have shoes ended up costing me several times more than they were worth, along with nearly everything else I purchased. Now I only ever go clothes shopping with cash; the few cards I still have stay at home. This way, I can only buy what I have the cash for; I stay within my budget and still manage to have enough clothes to wear!

 

Take Note of What You Do and Do Not Already Have

The biggest way to save money is to be aware of what you already have in the closet. This might seem a strange tip, but how many times have you bought an item that you already had or was very similar? You also need to know what is in your closet so that you purchase items that can mix and match with what you already have. In fact, some fashion experts recommend that you only buy an item if you already have at least three things it will go with! This gives you several choices on how to wear each piece.

So, before you hit the shops, check out your closet and take note of any gaps in your wardrobe. Notice that you really don’t need any more tops to go with those gorgeous red jeans you bought last summer but that you have nothing that goes with the bright blue ones, for example. Even a sale item is not a bargain if you are not going to get any wear out of it, no matter how beautiful or funky it is.

 

Take Advantage of In-Store Sales

Contrary to popular belief, sale opportunities are far more likely in a store than online. Stores have limited space and so can only stock a few of each garment. Online stores have huge warehouses to carry large quantities and so are unlikely to need to mark-down small ends of lines. When a store sells most of a particular line, they generally put the remainder out on a sale rack to make room for the next range. This is why it pays to check out your favorite bricks and mortar stores often, to catch the bargains and save money.

 

Using Coupons and Promotions

Using coupons and store promotions to save money is a tried and true method and is as applicable today as it ever was. Take the time to check what coupons you have and keep an eye on promotions in your favorite stores. Signing up for store email newsletters is a great way of learning about sales before the general public and many stores have specials just for their email customers. Also check out the coupon websites regularly so you don’t miss a great deal. Don’t be too shy to ask in-store about any current promos that could be running; you might score yourself a good deal that you were unaware of.

 

Know the Retail Cycle and Spot Opportunities

Follow the fashion retail cycle to know when are the best and cheapest times to shop. Fashion has two main seasons but there are several smaller seasonal changes as well. Watch for new merchandise coming in and you can be sure that current stock will be marked down to make space. The main changeovers are after New Years and at the end of June and these are the times when the biggest markdowns occur. Also, the longer an item remains on sale, the lower the price can go, if you are game to risk waiting! Many savvy clothes shoppers save up their fashion budget to do most, if not all, of their buying at these times. While it is true that you are buying at the end of the season, if you are careful with what you select, you will get plenty of wear next year.

 

Compare Prices Between Different Stores

If you find something you love, check out the price of the same item at other stores. There is often a variation in price between different retailers so it pays to shop around to get the best deal. Don’t be afraid to ask for a discount in any store; you might get the manager in a generous mood or having a slow day and needing the sale. Remember the discount chains and the outlet stores; many of these have clothes and shoes at greatly reduced prices and brands that are barely discernible from the expensive labels.

A fashion consultant in one of my favorite stores once told me to keep to just two or three color palettes to save money. I have basic black and cream which I can then team with different colors. I can add fashion highlights and splashes of color with scarves, bags, shoes and jewelry.

 

Take Care of the Clothes You Already Have

As well as using these tips for saving money when buying clothes and fashion, remember to care for the clothes, shoes and bags that you have. Launder carefully, dry clean as appropriate, keep shoes clean and dry and hang clothes in your closet when they are not being worn. Learn to do minor repairs like replacing buttons and doing hems instead of just replacing the garment and enjoy the savings.

How about you all? What strategies do you employ to keep from spending too much on clothes and other fashion accessories?

Share your experiences by commenting below! 

 ***Photo courtesy of http://prairieecothrifter.com/wp-content/uploads/2013/08/iStock_000019937676XSmall-300×199.jpg

Is AAA Emergency Roadside Assistance Worth It?

The following post is by MPFJ staff writer, Shondell of Call Me What You Want, Even Cheap. She blogs about her recent car loan and mortgage pay off and a whole bunch more. Check out her blog right here.

What happens if your car suddenly breaks down or you accidentally lock yourself out of your car on a deserted road in the middle of nowhere? Well if you have AAA, you can call them immediately!

Established in 1902, the American Automobile Association, popularly known by its acronym AAA (pronounced ‘triple A’) is a federation of motor clubs throughout the USA and Canada. It is a not-for-profit organization that works for the benefit of its members and provides services like roadside assistance and auto insurance.

In order to access the services offered by AAA, you have to become a paid member. The association has three levels of membership: Classic, Plus and Premier. As of January 2013, annual membership fees are $69 for Classic, $114 for Plus and $137 for Premier.

 

AAA membership benefits:

A Classic membership gives you access to basic services that include the following:

• 24/7 Roadside Assistance (RSA) that includes towing, battery jump start, AAA battery replacement, flat tire change, emergency fuel delivery, minor mechanical first aid, extricating/winching services and vehicle lockout assistance.
• Free AAA maps, TripTik^® routing maps and TourBook^® guides.
• Discounts on auto and homeowners insurance.
• Access to discounts at over 150,000 retail locations around the world.
• Travel planning services from AAA Travel with exclusive savings and member benefits, which include airline tickets, tours and cruises, hotel and motel reservations, passport photo service, international driving permits, group travel and escorted and independent tours.

In addition to the basic services, the services provided by a Plus membership include the following:

• Towing of up to 100 driving miles
• Free emergency fuel (Classic members have to pay for the fuel)
• Increased vehicle locksmith coverage

In addition to Classic and Plus services, the services provided by a Premier membership include the following:

• Towing of up to 200 driving miles
• A complementary rental car for one day
• Home lockout services
• Trip Interruption Coverage (when you are travelling more than 100 miles from home). If your trip is delayed by an accident, car theft, mechanical breakdown, inclement weather or illness, you can be reimbursed up to $1,500 to cover out-of-pocket expenses, including meals and accommodations.
• Vehicle Return Coverage (when you are travelling more than 100 miles from home). If an injury or illness prevents you from completing your trip, then you can be reimbursed up to $500 to help you get your car back home.
• 24/7 global emergency assistance and personalized concierge services when travelling more than 100 miles from home.
• Travel accident insurance of up to $300,000 when purchasing airline, bus, train or cruise tickets through AAA Travel.
• Vehicle Inspection Program Rebate. You will receive a rebate of $45 off the current price of your next vehicle inspection program service.

The advantages of a AAA membership cannot be exaggerated, especially if you find yourself stranded with a broken down or locked car on a lonely stretch of a road. You will also appreciate the discounts on auto insurance, hotels, restaurants and thousands of retail outlets that AAA memberships give you access to.

 

AAA membership drawbacks:

Despite all the services that you will get access to as a paid member, AAA membership does not come without its drawbacks. Here are some of the disadvantages of joining AAA:

• Not cost-effective for homebodies: If you rarely travel far from home, then a AAA membership may not be cost-effective for you as the membership fees are too high for services that you will probably never use. A majority of members sign up only for roadside assistance (RSA) which they hardly ever need to use.
• Services provided by third party contractors: Many of the services offered by AAA are provided by third party contractors, which can cause logistic problems and may even compromise quality. For example, concierge services are administered by Allianz Global Assistance Services Company and Travel Interruption Coverage are underwritten by BCS Insurance Company.
• Complicity in questionable acts: On several occasions in the past, AAA has been known to work against the interest of its general members. For example, AAA has supported measures to curtail the freedom of motorists, such as the imposition of the federal 55 mph speed limit, installation of red light cameras and increase in federal gas tax. Thus, by becoming a member, you will be supporting these acts.

 

AAA vs. auto insurance

AAA membership is not an auto insurance policy and shouldn’t be viewed as such. One of the main reasons to become an AAA member is the emergency roadside assistance, called AAA Accident Assistance. Once you call for assistance, your car will be towed to the nearest repair shop listed in the company’s preferred provider list. The service staff will also call one of your family members, complete a vehicle claim and arrange a rental car for you while your vehicle is being repaired.

In the event that your car is totaled in an accident, AAA does not provide towing and repair as your auto insurance policy is expected to provide those services. However, AAA has an auto insurance (discounted for members) that pays you the cash value of the vehicle based upon its year, make, mileage and condition. The insurance also pays off your car loan if you have purchased the GAP insurance with the policy.

Many auto insurances also provide emergency roadside assistance, but they may require you to pay a higher premium for their service. They may also not have the network to provide assistance throughout North America and in other parts of the world. But perhaps the biggest advantage of AAA membership is that you can claim roadside assistance even if you are travelling in someone else’s car and not in your own car.

Considering all the advantages of AAA membership vastly outweigh the disadvantages. No wonder the association has over 51 million active members who regularly use its services. If you are a frequent long distance driver, then you should definitely consider becoming a member. Even if you never use any of the services, the ‘peace of mind’ you will get from knowing that help is just a phone call away makes it worth every penny you will pay.

How about you all? Do you have AAA or another form of roadside assistance? If so, how often do you find yourself using the service?

Share your experiences by commenting below! 

***Photo by Jeremy Stockwell

Could You Live on Half Your Income? You May be Surprised

 The following post is by MPFJ staff writer, Kelly Gurnett. Kelly runs the blog Cordelia Calls It Quits, where she documents her attempts to rid her life of the things that don’t matter and focus more on the things that do. You can also follow her on Twitter and Facebook.

I always used to read those posts by crazy PF bloggers about how they lived on one spouse’s income while paying down debt, or how stay-at-home moms made their husband’s single salary feed a family of seven. And I always admired them, in a “we could never do that” way.

Until we had to do it.

 

Cutting Our Budget in Half in One Week

In April of this year, my husband stopped working due to his Fibromyalgia. (We’re currently in the process of applying for disability benefits, but that could take anywhere from 2-3 years to go through.) He didn’t realize how quickly he would hit his wall and not be able to work anymore, so for us, it was pretty much dual income one day, single income the next.

The normal reaction in a situation like this is to panic—which I did, quite thoroughly. But after a while, I begin to realize that this was our reality now, and it was either sink or swim. We’d find a way to make it work because, well, what was the alternative?

So, over the course of one surreal week, we sat down with our budget and began to triage—a bit here, a bit there. I’m a freelance writer, and we got our health insurance through my husband’s employer, so his job loss meant we’d be relying solely on my unsteady income stream and paying out-of-pocket for the insurance we previously hadn’t figured into the budget at all.

That week of budget-slashing—and the lifestyle we’ve been living as a result of it—was an eye opener. If you think you know what your minimum requirements are budget-wise, imagine what you’d pitch if you had to slash your budget in half. Then live that way for a while. You’ll never look at money the same way again.

 

How We Nixed Half our Stuff

Of course, the first things to go were all the little luxuries we’d come to take for granted. We weren’t living the high life by any means, but we’d definitely given into lifestyle inflation over the years. So away went my husband’s Sirius radio subscription, our weekly date nights, my salon haircuts (I trim my own hair now—yes, even my bangs!).

Then it was time for the stuff that seemed a little less luxurious. Here are some of the biggies:

We sold my car. Even though it had been paid off for a while, there was no sense keeping it when I work from home and my husband wasn’t working at all anymore. So we sold it and used the money to pay off my credit card debt and my husband’s remaining car payments. No more car payments, zero credit card payments—and no more second-car expenses like extra gas, insurance, repairs, etc.

We took a machete to our grocery budget. We’re not quite as disciplined as the school teachers who embarked on a mission to eat for $1 a day, but we did thoroughly slash our usual food budget. No more frozen convenience lunches for me; it’s fresh salads with a week’s worth of veggies that cost cents per serving (better for my health, anyway). No more steak dinners from the local butcher—it’s diner staples like grilled cheese and hot dogs. And no more massive monthly grocery trips where we always wound up buying way more than was on our list because goodies just looked too good on the shelves.

Now, we shop a lot more like Europeans—every few days, my husband runs up to the corner grocery store to get whatever we need to hold us over for the next couple days. We’ll stock up on sales on as they come and buy some items from a wholesale club because they’re fantastic deals (and our membership hasn’t run out yet). But it’s a lot easier to stick to the bare necessities when you’re just making a quick run for the immediate future.

I started to become my parents. My father used to drive me crazy by turning off my bedroom light every time I went to the kitchen for a drink of water. I’d be gone for two minutes and come back to find my room dark. Well, I have now become that person.

Any room we won’t be in for more than a couple minutes means the TV and lights get turned off. Laptop inactive for a bit? Off it goes. Over the summer, I ran my fan until I literally could not stand it anymore and had to give into the A/C. Laundry is run only when I have a full (plus) load, on the coldest water setting with the minimum amount of detergent needed. I use toothpaste tubes and shampoo bottles and bars of soap until they physically cannot be used up any further.

Yes, they’re all little things, but the little things do add up—and, more importantly, by getting into this new thrifty-as-can-be mentality, it’s easier for me to let go of the bigger things we used to enjoy because I’m fully aware of how much our situation has changed. So much of living above your means (or from paycheck to paycheck) stems from simply not having an urgent reason not to. When we could afford massages and weekly trips to Target, we did them, even though we could have been putting that money towards an emergency fund that would have seriously helped us out right about now. When you’re constricted by the sudden loss of an income, you begin to realize just how little you really “need” (more on that in a moment).

We’ve gone bare bones on entertainment. We do allow ourselves tiny indulges, largely because I work 50-60 hour weeks and my husband gets stir crazy, so it helps us keep our sanity. We go to the movies occasionally at the local $2 cheap theater, and we sneak in bottled drinks and snacks to avoid concessions. We signed up for Redbox promo code text alerts and regularly get free movie rentals. Our “meals out” don’t go above the price of a buy-one-get-one Subway deal or a Burger King value menu spree. But let me tell you, those $2 movies and value menu meals are fantastic! I never thought I would be so grateful for a fast food cheeseburger, but your perspective changes in situations like this.

 

The Surprising Thing I Learned

In addition to being amazed that we managed to cut our budget in half in a week, I’ve also been amazed by what that means: We didn’t need nearly as much stuff as we thought we did.

There are still plenty of times when I’d love, at the end of a long week, to have one of our old date nights out, complete with cocktails, dinner, and a movie in a theater with seats that recline. But for the most part? I really don’t notice a huge difference in our day-to-day lifestyle.

Yes, the threat of sudden big expenses like one of our dogs getting sick could put us into a tailspin now, and that’s never far from my mind. But in terms of how much we enjoy our life together on a daily basis, nothing has shifted all that much. If anything, we enjoy things more now because we don’t take them for granted the way we did before.

Would I be thrilled to have our second income back? Absolutely. But do I feel like we’re deprived without it? Amazingly, no. I wish me of several years ago could have learned that lesson.

How about you all? Could you live on half your income? What would you slash?

Share your experiences by commenting below!

image:  http://www.flickr.com/photos/76657755@N04/7408472762/

Turbocharge Your Savings (Or Debt Payoff) With Just $5-10 Per Day – Lessons From My Personal Experiences

If you’re like me, you’ve probably heard the idea MANY times before – “If you want to get started saving and/or paying off your debt, the best way to begin is by setting aside $5-$10 each day.”

Indeed, this mantra makes a lot of sense, both financially, numerically, and psychologically. While $300 per month SOUNDS like a lot of money, $10 per day (which equates to the same amount at the end of the month), sounds almost easy since it’s only the price of a morning cappuccino and a trip the vending machine in the afternoon. It’s no wonder that one of the financial authors I respect most of all, David Bach, is an advocate of this type of strategy in his Automatic Millionaire or Automatic Homeowner plans.

In past years, whenever I encountered this type of advice, I figured that it didn’t really apply to me since I was 1) debt free and 2) saving quite a bit of money (~50% of my income) right after I receive my paycheck through zero-based budgeting. However, with me getting married next September and potentially purchasing a house in the Fall of 2014, I have been thinking more and more of ways I can “squeak” out even more savings from my current operations, particularly liquid cash assets.

One month ago, while reading Jean Chatzky’s Pay It Down book, which carries the central message of a person getting started paying off their debt on $10 per day, I figured I would give this whole “saving $x per day” gig a try – finally, to see if I liked it.

Below are the considerations and lessons learned I have gleamed from the 1 month experience thus far:

 

Deciding How Much to Transfer Each Day

As is the case with a lot of things in life, getting started is often the most important part. In this instance, it doesn’t really matter what amount you specify to transfer each business day from your checking account to a savings account. Just start with an amount you’re comfortable with.

For me, this value was $5 per day. Since online banks cannot process transfers on weekends, you’ll need to do a double transfer 2x per week on Thursday and Friday to make up for the weekend “off days.”

 

Of Course, It Needs to Be Automatic (Or It Won’t Work)!

The same as David Bach, I am a true believer that if we leave it up to ourselves to initiate a savings transfer, it won’t work. Or at least, it won’t work as efficiently.

Luckily, online banks these days all offer recurring, automatic savings transfers to ferry money from your checking account to your specified savings account. In my eyes, this is absolutely crucial for this exercise.

 

It Needs to be “Sneaky” For It To Work – Incorporating This EXTRA Savings/Debt Payoff Method In To Your Monthly Budget

In my case, I was/am already saving a good amount of money each month through my zero-based budgeting approach. The goal with this $x per day scheme is to try to squeeze even more savings out of my operations to see if it was possible.

Because of this consideration, I knew I would need to not account for the $x per day savings at the beginning of each pay period, but rather have it taken out of my normal allotted monthly “spending money.”

By setting it up this “sneaky” way, I knew I would have a better chance of not missing the money I was saving.

 

Choosing the Right Bank / Savings Account or Considerations For Paying Off Credit Card Debt

For me, the choice of what online bank to use was pretty simple. Since ING Direct (now Capital One 360) offers a competitive interest rate and a good user interface, I am using them for my daily savings transfers.

In my case, ING Direct did not technically have daily recurring transfers, so instead, I had to set up 5 different “weekly” transfers, which when combined, function exactly the same way. You may encounter this as well, so don’t be too surprised!

If your goal is to pay off your credit card debt more aggressively, the same sort of automatic bill payment could be set up as well with your credit card’s online platform.

 

Conclusions

Since starting this automatic daily savings process 1 month ago at $5 per day, I pretty much knew immediately that it would work nicely for me. After I became comfortable with $5 per day, I moved up to $10 per day.

I can honestly say that since the money is transferred each day in small amounts, I have not missed/noticed the money being gone at all. It simply falls in the monthly mix of spending money, and I don’t really think about it.

So far, I have saved about $250 this way. Not exactly a “get rich quick” scheme, but it’s a cool and easy way to try to squeak out some more $$$. I’d definitely recommend everyone give this a try, even if you can only do $1 per day.

How about you all? Have you ever tried an automated daily savings or debt payoff scheme like this involving small, but very consistent amounts?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/76657755@N04/8125974243/sizes/m/in/

Why Automatic Bill Payments Aren’t Always in Your Best Interest

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

Automatic bill payments…fast, convenient, you save money on postage, easy…even – effortless! What’s not to like about it?

A few things actually. Despite the popular fascination with it, automatic bill payments aren’t always in your best interest. Consider the following…

 

Matching automatic bill payments with cash flow

Matching automatic bill payments with your cash flow is pretty easy – that is, if you’re on a salary. But if you are self-employed or heavily reliant upon commission income, it may be difficult getting them to the lineup properly.

Automatic bill payments take place faithfully on the same day each month. If your paychecks are equally reliable, no problem. But if your income is sporadic – meaning that it arrives in bunches, rather than as a consistent and steady flow – there could be times when you don’t have enough money going into your account to cover the automatic payments that are going out.
That can lead to some costly and embarrassing moments. Some companies will even terminate the automatic bill pay arrangement if this happens, or happens more than once.

 

Forgetting that a payment is coming due

Even if you have a consistent cash flow into your bank account, it is still possible that you could forget that a payment is coming due. The paychecks are going into your account at the regular times, and the payments are scheduled in advance, but you forget that one or more payments are coming due.

This kind of situation usually comes about because you need extra money out of your account, but it can happen for any one of a number of reasons:

• You just forget that a payment is coming due – hey, we’re all human, right?
• You go through a time when you simply need more money than usual.
• An emergency can arise, not only causing your spending to increase, but also making you forget the payments are due.
• One or more automatic bill payments are withdrawn in higher amounts than expected – this can easily happen with utility bills.

Whatever causes the situation to occur, you could end up with insufficient funds to cover a scheduled payment. That will cause bank charges – often a succession of them – and they can make the cash shortage even more severe.

Even if you have been using automatic bill payments for years without incident, sometimes all it takes is a crisis, and the whole happy arrangement comes unglued in a flurry of bank charges and angry vendors.

 

Terminating a service

One of the most unexpected problems with automatic bill payments is when you try to terminate an arrangement. You may expect – and you may have been informed – that payments will no longer be deducted from your account as “Date X”. But one month later, out comes another payment – one that you never expected.

It happens in the real world all the time. The problem is, most companies – and often those who make widespread use of automatic bill payments from their customers – are a little bit heavy on the bureaucratic side. They are trying to run their business models based on heavy use of computers, rather than employees. You may have expected the payments to end – because that is what a human being at the company told you what happened – but if no one told the computer to stop withdrawing payments, it will just keep doing what is always done.

As a rule, automatic bill payments are an arrangement that is far easier to get into than they are to get out of. In the end, you may not lose any money as a result, but you can spend a lot of time and aggravation trying to straighten the situation out.

 

Rising credit card balances

So far we have primarily been discussing problems that come up when you have automatic bill payment arrangements through your bank account. But many people set up the arrangements through their credit cards, and that can lead to a unique problem.

As covered above, sometimes you simply forget a payment is coming due, often because you have a higher than usual need for cash. This can happen with credit cards too. But the problem here isn’t draining your account, but letting your balance roll forward into the next month to cover the greater need for cash. If you do this several months in a single year, you could end year owing a lot more on your credit card than you did at the beginning.

Like automatic bill payments, credit cards are very easy to use. And when you combine the two it can have a multiplier effect in a negative way. The automatic bill payments are quietly running up your credit card balance each month, and unless you are religious about paying the balance off in full each month, you can gradually watch your credit card balance takeoff. It can even grow to become unmanageable.

At that point, the problem won’t just be a matter of an excessive credit card balance. It will also be that the balance will be packed with current living expenses, slowly morphing into a long-term debt.

How about you all? What do you think about automatic bill payments? Have you ever run into a problem like any of the above? Or have you come across problems that we haven’t covered?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/briandperskin/5804072106/sizes/n/in/photolist-9QToqJ-dj5

The Low Down on Credit Scores

The following post is by Skip Lahti. Enjoy! 

Credit scores are terribly misunderstood! When I was in my late thirties, I applied for a mortgage and was told that my credit score was 640 and I may not qualify for the best rate – if at all! I was shocked! After all, I had been using credit for many years and I thought it was good. The representative at my credit union politely pointed out that it wasn’t so good. So I went online and pulled my report credit report and score. Lo and behold, my credit score was 690! I went back to the credit union to tell them how wrong they were. That was the beginning of my education on credit reports and scores.

Before the internet credit information and scores were just a big mystery. Probably the biggest misunderstanding is that there is only one score or standard. That is far from the truth. Another is that the FICO is the standard and all the rest are “FAKO” scores. Also far from the truth! I hope to unravel the “mystery” around credit scores, what they really mean and what to do about them.

 

FICO vs. FAKO – The truth about credit scoring systems

The FICO score was created by Fair Isaacs Corporation and, according to their website launched the first publicly available credit scoring system called, obviously, FICO. Shortly thereafter, Fair Isaacs developed a similar score for Equifax and Equifax named it their Beacon score. Fair Isaacs remains in the credit scoring industry today and have become a public company trading under the symbol FICO.

The first thing to note is that the three major credit bureaus don’t use the FICO score. They each have their own proprietary scoring system – which is similar to the FICO score – but each one uses their own algorithm and range. Experian has many scoring systems but the one they currently sell to consumers through resellers is the ScoreX Plus system. TransUnion also has many scoring systems and their consumer scoring system is called TransRisk. Equifax is similar and their consumer oriented scoring system is now called the Equifax Credit Score although their Beacon score is still commonly used by auto dealers.

And to make things more confusing

Each of these scoring systems have gone through many changes and versions over the years. For example, the same data run through last year’s TransRisk score may not give the same result as this year’s TransRisk score. So, your score could change (slightly) just because the algorithm got updated, but your data remained the same.

And even more confusing

As a result of FACTA the three credit bureaus got together and created the Vantage Score, which is also similar to the FICO score but was developed independently from Fair Isaacs, the creator of the FICO score. Equifax, does, however, have an agreement with Fair Isaacs to sell the FICO score but they make it clear on their website that the two are not the same.

And then there are many third-party scores such as CreditExpert’s score and CE Analytic’s CE score.

Fair Isaacs also develops proprietary scores for other companies such as lending institutions and they update their consumer score on a periodic basis. In fact, there are many versions of the FICO score used by various organizations that are tailored for their purposes.

FAKO scores

The scoring systems created and sold by the credit bureaus and third parties have been unfairly dubbed “FAKO scores” implying that the only real score is the FICO score. That is far from the truth. These other scores are every bit as good as the FICO score when used for the same purpose, that is, consumer credit scores. You can’t really compare the special scoring systems built for specific purposes or clients by Fair Isaacs or the credit bureaus.

Consumers are often confused by all this and ask, “Why is the score I pulled different from the score my lender pulled?” Consumers need to understand that the actual number derived from each system isn’t as important as where it falls within the range of the system being used. That is, an excellent FICO score will (usually) also be in the excellent range for the VantageScore as well as the TransRisk score – even though the numbers generated are different. Said another way, consumers should compare the range they fall in when comparing scores and not the actual number.

 

Facts and fiction about credit Scores – Juicy tidbits you should know!

My score alone determines whether or not I get credit

Mostly fiction. Your credit score represents how “willing” you were (in the past) to meet your financial obligations. It does NOT represent how capable you will be of paying your financial obligations in the future. Although your credit score is certainly taken into consideration, potential lenders also look at additional information such as the amount of debt you can reasonably handle given your income (your debt to income ratio), as well as your employment history, and public records. Lenders will based their decision on all this information – your demonstrated willingness to pay as well as your capability to pay – along with their specific underwriting policies. It is possible that a lender will extend credit to you even though you have a low score or decline your application even though your score is high.

A poor score will haunt me forever

Fiction. Your credit score is based on your credit history at a certain point in time. One month later, it could change and there is no historical tracking of your score (unless you choose to do so yourself through a credit monitoring service). It changes as new information is added to your credit bureau files. Credit scores tend to change slowly as you increase your credit history, make your payments on time, add new credit or cancel existing credit lines. If you have had problems paying your bills in the past and have one or more “delinquencies” on your credit report, they will have less and less affect on your score the older they get (assuming that you don’t cause new delinquencies to be reported). Lenders request a current score when you submit a credit application and never request a “historical” score. So, by continuing to pay your bills on time and being responsible with your credit, over time, you can qualify for more favorable interest rates.

Checking my own credit lowers my score

Fiction. There are, basically, two types of credit checks or “inquiries”. One that is used for the purpose of determining if you qualify for a loan you have applied for and the other that is used to simply check on your credit history. The former is called a “hard-pull” and the latter a “soft-pull”, Hard pulls must be done with your consent (for instance, you are applying for a loan) and these, especially if there are three or more in a short amount of time will have a temporary lowering affect on your score. An exception to this is if you are applying to several different banks for the same automobile loan, then all are treated as one pull. On the other hand, if you request your own report or a lender pulls your file to determine if you they want to make an offer to you, then these soft-pulls will have no affect on your score at all. Advice: if you are about to apply for an important loan such as a mortgage or are waiting on approval of such a loan, it best not to apply for other lines of credit until after you have been approved.

Applying for new credit will negatively affect my score

Fact. Yes, it is likely to lower score – but only temporarily. You might get dinged for the credit inquiry and you are likely to get dinged for adding a new line of credit with no history. I emphasized “with no history” because that is what credit scoring is all about – how much history you have of paying your loans on time. Having ten credit cards for one year is not the same (to scoring systems) as one credit card for ten years. So, if you do need to open a new line of credit, don’t fret. You will soon be developing more credit history the longer you make timely payments.

 

Is credit scoring Unfair to minorities?

The simple answer is emphatically, no.

All public, consumer oriented scoring systems only consider consumer credit related data. This includes loan information -even for closed or paid off accounts in the last seven years, employment history, last known addresses and (sometimes) public records. Personal information regarding nationality, marital status, gender, race are not recorded at all in your credit file.

By law, the Equal Credit Opportunity Act (ECOA) passed by Congress in 1974 specifically prohibits lending institutions from using this type of information when considering a credit application. In fact, there have been many studies done by independent research firms that confirm these credit scoring systems are completely fair to minorities and people with little credit history. Credit scoring has been shown to be an accurate and consistent measure of a person’s “willingness” to repay their loans for all people who have some credit history.

Free scores and free credit reports and how to get them

In 2003, the federal government passed the Fair and Accurate Credit Transaction Act. In it, the government mandated that the three major credit reporting agencies, Experian, TransUnion and Equifax create a non-commercial website where consumers can get their credit report for free. This site is AnnualCreditReport.com.

At AnnualCreditReport.com a consumer is allowed to pull their credit report from each of the three major credit reporting agencies once per year. For many people this is sufficient – especially if they stagger their reports from each of the bureaus by 3-4 months. In this manner, consumers can check their credit report three times per year without spending a dime.

But AnnualCreditRpeort.com may not be sufficient for everyone and it does come with some caveats consumers should be aware of. One, the FACT Act did not mandate free credit scores. If you want a score, you must still purchase it from one or more of the three credit reporting agencies or from one of many credit reporting sites.” Two, you can’t credit monitoring services from Annualcreditreport.,com. For many people, having their credit file monitored 24/7 365 days a year is important to them since they can be alerted of a potential identity theft in progress as soon as it is reported. Some people just like the comfort of knowing that everything that is reported to their credit file is legitimate as it happens. Finding an error on your credit report three, six, or twelve months later can be a stressful experience.

A few years after the FACT Act was passed, Federal regulators mandated stringent requirements for any credit reporting agency offering “free credit reports”. The most stringent of these was the requirement to disclose the AnnualCreditRepot.com site prominently on their website before offering a free credit report themselves. For this reason, most credit reporting agencies and their re-sellers do not advertise a free credit report. Instead, many offer a free credit score. Some are completely free and some are attached to a free trial of their credit monitoring services and other product offerings.

So, consumers can get a free credit report without obligation, once per year, from each of the credit bureaus at Annualcreditreport.com. And they can get a free score from one of many credit reporting agencies and re-sellers, but there may be conditions attached.

 

Credit scoring and your privacy

All consumer oriented credit scoring systems consider the exact same information banks and other lending institutions look at; namely, the data in your credit file that is kept by one or more of the three major credit reporting agencies. It does not look at information in your credit application or other information stored only by your bank. A score is simply a numeric summary of your credit file information. So, consumer credit scores don’t reveal anything that lending institutions don’t already have access to.

Privacy advocates, however, aren’t as concerned with credit scores and credit applications as they are with who has access to this information. Some companies, for example, as part of a background check for hiring purposes, will pull your report and/or score – but only with your permission. Same with insurance companies and other institutions. Many believe that legislation should be put in place to limit the access to this information only to lending institutions and only when considering your application for a loan. They feel that it is your financial data and only you should decide who has access to it.

 

Security freeze

Is your data “safe”? Yes, for the most part. If you are concerned about this, you can place what is called a “Security Freeze” on your credit file. Security freezes prevent, in most cases, Lenders from accessing your credit file without your specific approval. However, this comes with certain drawbacks. A security freeze may delay or prohibit timely approval of an application you make for a new loan (or credit at point of sale), a rental, or even employment. It could also hinder applications for licenses, investment accounts, telephone service or utilities.

Each credit reporting agency has its own process for initiating the freeze as well as releasing the data when needed. You should contact each of them if you do decide this is right for you.

And, remember, lenders with whom you have an existing relationship are generally exempt from security freezes for account reviews, debt collection, fraud prevention or other similar reasons. If you are about to apply for credit, you should try and remove the freeze a few days before actually applying.

 

So, where do you go from here?

If you haven’t done so already, you should start by getting your Experian ScoreX Plus score along with your credit report. Review your report for accuracy and if you see anything that you don’t recognize or appears to be in error, contact the credit bureau that is reporting it and ask for the issues to be corrected.  While you are at it, you should definitely consider signing up for credit monitoring services that keep you informed of any changes to your credit file – which could be an early warning sign of identity theft.

How about you all? What do you find is/are the most common misconceptions about credit scores? How often do you check your credit score?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/matchfinancial/8738094449/sizes/m/in/photostream/

My Biggest Productivity Secret

The following post is by MPFJ staff writer, Catherine Alford. Cat is a freelance personal finance writer who blogs at www.BudgetBlonde.com. 

Lately, I’ve been writing a lot about productivity. Because I’m working full time and trying to blog my way into a successful freelance writing business, I’ve become more and more pressed for time.

My big goal is to become a full time blogger/writer by January 1, 2014, and as I’ve gotten closer to achieving that goal, my free time has dwindled dramatically.

However, there is one big secret that I have for getting so much done in a day, one tiny thing missing from my life that I haven’t missed: a TV!

A little over two years ago, I started this process by cutting out the cable. Then, when I moved to the Caribbean, we were so strapped for cash that I asked my landlord to take the TV out of my apartment since it was $30 USD per month.

Here’s what I’ve noticed about life without a TV:

1.    I Am Not Nearly As Distracted

When I had a TV in my house, I always had it on as background noise. I’d fold clothes in front of it and get sucked into a 6 hour long HGTV marathon. Even worse, my husband and I started sitting in front of it to eat dinner. So, there went some good quality time! I think all of these bad habits came gradually, and I didn’t even notice how much they affected my life. Now that I don’t have the TV, I’m not nearly as distracted. Sure I can get caught in a black hole of YouTube videos from time to time, but it’s not as bad as not getting out of bed because I can’t tear myself away from an entire season of LOST!

 

2.    Transitions Work

When I first got rid of my TV, I watched Hulu like crazy. I didn’t want to miss one of the shows that I followed. How would I ever know who the Bachelor picked?! However, as I got busier, I started to care less and less what was on TV. Soon, people were talking about shows I’ve never even heard of let alone read about or seen. I did feel left out from time to time, but no proclamations of something being the “best show ever!” has really swayed me to get back into TV watching. Occasionally, I will seek out a YouTube clip of the Big Bang Theory or Modern Family just to watch something funny, but it has been months since I watched a full episode of any show. In my opinion, there’s nothing inherently wrong with others watching TV; it has just completely ceased to be a part of my daily routine.

 

3.    We Don’t Miss It

I wasn’t too worried about the transition from TV to no TV, knowing that Hulu existed, but I was concerned about my husband and his dear LSU football team! Although there have been a few times that he wishes he had a TV so he could see a game, it’s not enough to make him want to go out and buy one. Right now, he just goes to our friend’s house down the street, and they enjoy a guys night and cheering on the Tigers together. It seems to be a really good compromise, and even though it would be more convenient to watch football in our house, it works for us for now.

 

4.    The Second Time’s The Charm

What I didn’t really mention is that this is the second time we’ve tried a no TV lifestyle. While I was in grad school and while the hubs was a bachelor, neither one of us had a TV. In fact, people would go into his trendy downtown studio and look around bewildered wondering where it was! So, when we got married and joined households, we decided to “reward” ourselves with a big fancy 50” TV. We had Kentucky Derby parties and people over to watch football, and we really got a lot of use out of it. Then again, we also slipped into credit card debt, weren’t as productive, and wasted a lot of time in front of it. It’s a huge regret of mine, so when we moved to the Caribbean, we sold that big TV to a friend of ours and went back to the no TV lifestyle.

In just a few short months, we’re moving back to the U.S. I’m planning on continuing our no TV lifestyle, and I hope it sticks! There’s so much I want to learn and so much work I’d like to do to grow my business that I really have to prioritize. Plus, I think going on a walk or reading an interesting new book is a little bit more worthwhile.

I hope this post doesn’t come across as me being a “no TV snob” because the truth is that I really, really love TV shows, especially completely ridiculous ones like The Bachelor and the Real Housewives of Wherever! I just have learned that I have absolutely no self-control when it comes to watching it, and it’s best for my business and my day-to-day happiness to keep the TV out of the house!

How about you all? How much TV do you watch every day? Have you ever gone without one?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/tomsaint/4936520119/sizes

How To Save Money When Buying A House

The following article is by MPFJ staff writer, Miss T, from Prairie Eco-Thrifter. If you want to learn how to live your dream life in a sustainable, healthy, and money savvy way, check out her site here.

Buying a house is possibly the biggest expenditure that a person will make in their lifetime; I know is has been for me.

The purchase price is just the beginning; there are numerous other fees, taxes, insurances and costs that have to be paid as well. However, there are some ways to save money when buying a house and leave money in your pocket for other things:

 

Do Your Homework!

Remember homework at school? How I hated homework! The first question my mother asked me every afternoon when I got home from school was “Have you any homework today?” and then she continued to ask “Have you done your homework” until it was time for bed. So you can imagine my lack of enthusiasm when the first piece of advice I was given when I started looking at buying property was “do your homework!” However, it turned out to be the best piece of advice I have ever been given on the subject

There are several areas in which you need to do some homework before you start looking at properties, but the most important one concerns money. You need to know how much you can spend on a property, and this is determined by how much you can afford to repay each month. Go to the bank and ask how much they will lend you and find out the repayments and what other charges they are going to hit you with. Then go to another bank as well as some non-bank lenders to find the best deal; this could be the lowest interest rate, the best discharge policy, the lowest fees and charges etc. If this seems too hard or time-consuming, find a reliable mortgage broker or financial expert who will do the homework for you

Keep in mind that some lending institutions will encourage you to borrow the maximum available to someone with your income and credit rating; this is not always in your best interests. When you’ve found a deal that suits you, sit down with your household budget (you do have one of these, don’t you?) and re-work it to include the proposed mortgage repayments. If you can’t afford it, work out what you can afford or find areas where you can cut back. This can be dangerous though; beware of cutting back too drastically and telling yourself that it’ll be OK and you will just manage. You need to factor in changes to your circumstances in the future (like starting a family or early retirement plans), possible future interest rate raises or the increased rate after any introductory low-rate period has expired, if you have been offered one of these deals. Only borrow what you have determined you can comfortably afford to repay or it will end up costing you much more. Getting pre-approval speeds up the buying process once you have found the property you want

 

Location Is Everything

The next step in saving money when buying a house is to research where you want to live. Take into account such factors as proximity to work, schools, shops etc. Commuting can be time-consuming and costly and buying something that will need a long commute could be expensive and counter-productive over time. Once you have an ideal area picked out, drive around and find the best street in that area. I remember my old grandpa telling me when I was younger “buy the worst house in the best street”. His rationale was that you can always change the house but you can’t change the location; this is good advice as you could find a cheaper house to buy but you need to have the funds to renovate if necessary

Having found where you want to live, do some more homework to find out how much it will cost to live there. Investigate garbage, sewer, water and local ordnance costs, any home owner association fees, heating and cooling costs in the local micro-climate etc. Some places are simply more expensive to live in than others and this needs to be taken into account when calculating what you can afford

 

List Out What You Want in a Home

You’re nearly ready to start inspecting potential homes but not quite! Take the time to make a list of the things you want in a home; if you have a partner, this should be done separately first and then your lists can be compared. Divide your lists into three sections – things you MUST have, things that would be nice to have and things that you know you could really do without or that can be added later on. When you go to look at properties, take this list with you and tick the items off. Do not be tempted by any property that doesn’t meet your ‘must-have’ criteria; it’s going to cost you in heartache and cash

During an inspection, be very thorough; it’s too late after you have signed a contract to decide that you really can’t live with those bright pink tiles in the bathroom! Home maintenance represents one of the biggest expenses of home ownership so you need to know what you are going to be up for in advance. Hiring qualified tradesmen or inspectors to do thorough checks is usually worth the expense and it could save you heaps in the long term. Knowing the short-falls of a property is also useful when it comes to negotiating the price

Look at several properties, even if you think the first one you inspect is “the one”. You need to see more houses for comparison and you never know what else there is out there until you go and look. Keep an open mind; it’s the best way to find the right house at the best price.

 

The Power of Negotiating

OK, you’ve found the house you want to buy, you have finance pre-approved and you are all set to sign on the dotted line. Stop! Don’t forget the best way to save considerable dollars is to negotiate the price. Because of all the homework you’ve done, you will have a good idea of what similar properties have been selling for; you will also have formed a good idea of how much your vendor could be prepared to drop his price. Offer a reasonable but low price and be prepared to enter into negotiation; most negotiated prices fall between the buyers’ first offer and the list price. You can potentially save thousands of dollars through negotiation

So if you are looking for a new home, consider these factors and save money when buying a house. You will be able to save some cash but many buyers have been able to save big amounts by using these strategies. Good luck!

How about you all? What strategies did you find most effective in saving money the last time you bought a house? 

Share your experiences by commenting below! 

How Much Should Children Know About The Family Finances?

The following post is by MPFJ staff writer Travis.  Travis is a customer blogger for Care One Debt Relief Services, and also appears weekly at Enemy of Debt.  Travis candidly shares his personal journey to pay off $109,000 of credit card debt and the tips he’s learned along the way. As a father and husband he provides a unique perspective on balancing debt, finances, and family.

“Daddy, did I mess up your budget?”

It wasn’t a question I had expected from my eleven year old daughter, and it took me by surprise.

I was on furlough from my job the first week in September, and would only be paid a portion of my salary.  When I was informed of the furlough a few weeks ago,  my wife and I immediately reworked the budget to prepare for the reduction of income which would affect us the second half of the month.  We then held a family meeting telling our two children what was about to happen, but assured them that through careful planing, and watching our spending we would be OK.

The weekend before school started we took the kids shopping for some new clothes.  We told them because of the furlough we wouldn’t be able to buy them all the new clothes that day that we had originally planned.  We had an amount we could spend on each of them now, and we’d stage in additional items over the next few weeks.

We visited several stores in the mall, and played several games of “which one do you like the best?” in order to stay within the allotted amount.  We felt really good about what we had been able to get for each of our kids until we remembered on the car ride home that we were supposed to get new shoes for our daughter.  I took an exit off the highway, and soon after we walked out of a nearby Target with a new pair of shoes.

Suddenly her question made a lot of sense.

I had noticed that my daughter had acted a little strange as she was trying on shoes.  We had made a big deal at the mall that we had spent exactly the amount we had allocated for school shopping, so she knew that purchasing the new shoes would result in us overspending.  She has seen my wife and I discuss and even argue about money in the past and can see the stress it puts on her parents’ relationship.  She was aware of the financial challenge of my furlough and was worried the impact her new shoes would have on her family.

That’s quite a burden for an eleven year old.

My wife and I are using our journey out of debt as a tool to teach our children about finances every chance we get.  I suspect that we share more about our finances with our children than most parents.  We try to balance telling them as much as we can, without crossing the line and giving them specific numbers.  We also try to balance exposing them to the challenges we have in life (like my furlough) with ensuring they see us performing our bi-weekly budget discussions and concluding them with a smile on our face.  We want them to see that handling the family finances can be hard, but necessary and can be done successfully without arguing.

What I don’t want is for our increased exposure of our finances to cause them to worry, so it was important for me assure her that everything was OK.  I told her we had some extra money set aside in case unforeseen things popped up.  We had wanted her to have some new shoes for school as her current ones were looking pretty shabby and her feet had likely grown.  She hadn’t seen it, but her mother and I had a quick discussion while she was trying on shoes that we would use some of those funds for her new kicks.

Readers, what do you think?  Are we exposing too much of our finances to our kids causing them to worry unnecessarily?  How much of the family finances would you expose to your kids?

Share your experiences by commenting below! 

Why Having Multiple Income Streams is More Important than Ever

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

Having multiple income streams has always been desirable, but it does seem as if it’s more important now than ever? Not only are jobs less secure than they’ve ever been, but the cost of living is rising faster than increases in pay.

What are multiple income streams? Actually, they can be any source of income over and above your primary occupation. That can include a part-time job, a side business, passive portfolio investment income, or even active investment income, such as rental real estate.

There are at least five advantages to having multiple income streams…

 

Extra income

This is the most obvious reason for having multiple income streams. Sooner or later, everyone needs an extra source of income, or at least wants one. Some of the reasons extra income could help include:

• Paying off debt
• Helping to put your kids through college
• Building up savings, especially an emergency fund
• Saving for a vacation or other special event
• Saving to buy a new car, especially if you can buy it for cash

Sometimes, it is hard to save money out of your regular paycheck, and if you have multiple income streams, you don’t need to. You can continue to use your regular paycheck to pay for living expenses, while allocating an extra income source or two to any purpose you choose.

But not all, or even the most, of the reasons for having multiple income streams are purely financial…

 

Income diversification = greater financial freedom

Apart from making and having more money, multiple income streams represent a form of investment diversification. If we know that diversification is important when it comes to investing, so we should be able to appreciate that it is equally valuable when it comes to earning a living.

Simply put, the more sources of income that you have, the greater the amount of financial freedom that you’ll enjoy. That freedom comes from never being completely dependent upon a single source of income. Your “income eggs” are stored in several baskets. By itself, it can take away the fear of losing your job, and that’s a whole lot of freedom right there.

 

Learning new career or business skills

You may be working in a career that you are not particularly happy with. But because it is your full-time occupation, it might be extremely difficult to retool yourself for a different line of work. Developing multiple income streams could be a way of transitioning yourself into an entirely new career, but on a part-time basis.

You could even consider dabbling in two or more different directions at the same time. This will enable you to experience various businesses and careers without ever having to make a full-time transition. And sometimes the skills you learn in side ventures can help you do your primary job even better.

 

Preparing for retirement

From nearly every point in the financial universe, we’re being told to increase retirement savings. This is especially true in light of the fact that defined benefit pensions are now a rarity, and the future of Social Security seems to be in perpetual doubt. Having multiple income streams can help prepare you for retirement in two very significant ways.

1. Providing extra income to fund your retirement plan. As a source of extra income, you can direct the extra cash flow into your retirement plan, or even create a new plan based on your extra income source. For example, if you have a side business, you can create a SEP IRA that will enable you to save up to 20% of your business income each year. If you are already covered by a 401(k) plan on your job, this arrangement will enable you to fast-forward your retirement savings, and even make early retirement possibility.

2. Extra income when you retire. In addition to enabling you to save more money for retirement, multiple income streams can also represent valuable additional income when you actually retire. Many people reach retirement age and realize that don’t actually want to retire, at least not on a full-time, permanent basis. If you have already set up multiple income streams, you can simply shift over to managing them a more active basis when you retire from your primary occupation.

 

Creating what could be your next career following a job loss

In today’s job market, no one can know for sure how long they will keep their current job. And over and above job concerns, some careers are quickly becoming outdated. But many people continue to hold on to jobs until they come to a sudden and unceremonious end. Wouldn’t it be better to face a job loss already having income sources in place?

If you did, not only would you have income, but you may also have the start on your next career. Nearly any source of additional income might be converted into your next full-time job or business. If you already have it up and running, once you do lose your job, you will have all the time you’ll need to ramp it up and make it something more substantial.

How about you all? Do you have any income sources other than your primary occupation? Are there any that you could suggest to others that you’ve had success with?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/95499138@N03/9487302917/sizes/m/in/photolist-fsmUCe-fzDy