New SEC Guidance for Financial Advisors

handshakeJust recently the Securities and Exchange Commission (SEC) granted money managers and advisors the right to feature third-party reviews on their marketing materials. Meaning: Your advisor can now use your dazzling Facebook review (of him) to boost his business. I asked WalletHub CEO Odysseas Papadimitriou for the run down – why you should care and what this means for the advisory industry? Here’s what he had to say:

JC: What finally sparked the SEC to allow this?

OP: Not sure, but we hope that sites like Yelp & WalletHub that have allowed reviews on financial advisors irrespective of financial gain had something to do with this. 

JC: What does this mean for consumers/investors?

OP: This represents a major breakthrough for consumers and investors. In a world where everyone relies heavily on the internet for fast-paced information, this will allow investors to react faster. Additionally, consumers/investors are now free to compare the professionals who manage our money with the same level of discernment and transparency that has long been available in other segments of the market – from hotels to restaurants and consumer electronics. In other words, the SEC is making ground breaking strides to level the playing field.

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Mailbag Monday: Using a Personal Loan to Pay off Credit Card Debt

debitcardI was able to get a personal loan from my bank (with a low interest rate) to pay off $40,000 worth of credit card debt.  I have a total of nine cards. Is it advisable to cancel the cards that I have paid off?  Should I cancel the ones with a higher or lower credit limit? I don’t see myself using these cards in the future so is it wise to even keep them?

– Kris

Hi Kris. I’m going to give you the answer you asked for – and some advice you didn’t.  And then I want you to print this out and tape it to your fridge so you look at it every day. Although I’m sure you’ve read that cancelling credit cards hurts your credit score because it’s a knock on your credit utilization (the percentage of credit you have available to you, compared to the amount that you’re actually using), in your case closing some is the right thing to do for two reasons.  First, you simply have too many.  And second, it seems as if they’ve been too tempting for you in the past.  Start by closing the ones with the lowest limits, the highest annual fees and the highest interest rates.  In other words, hang on to the ones that – once you get your act together – you might want to use as a tool to make purchases you pay off every single month.

Getting your act together is the thing that you didn’t ask about – but that I’m going to address anyway.

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Mailbag Monday: Paying Off a Balance Transfer

debitcardHi Jean. I recently transferred a portion of the balance on my higher interest credit card to a Slate 0% card. Is it better to focus on paying down the higher interest card or getting the balance on the 0% card paid off within the introductory offer period?

– Trish

Oh Trish! I have to tell you, I have thought of this question so many times and never, ever been asked it.  In the best of all possible worlds, you’d transfer all your high interest rate debt to the Slate card, then wail on it at that 0% interest rate to make as big a dent in the teaser period as possible. (You did choose well when it comes to balance transfer cards, by the way — the 15 month 0% interest rate is just about as good as it gets.)

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Mailbag Monday: Rebuilding Your Credit

debitcardI’m a recent widow and was left with no insurance.  My house is being sold via short sale and I have moved to a small apartment, where I’ve paid the rent on time for the full year I’ve been here.  I would like to open a credit card, but would like a suggestion on where to go.  I know my credit rating is very poor, but I would like to get it back on track.  Do you have any suggestions?

– Jill

Hi Jill.  I’m so sorry for your loss and for the tough time that has followed.  The answer is that there are credit cards available for you.  Most of them are secured cards, so called because you deposit a sum of money (usually a couple to a few hundred dollars) to secure your credit.  The best of these report to all three credit bureaus on a regular basis, which enables you to build the sort of credit you need to eventually get a regular old credit card.

Among these, the folks at CardHub.com recommend the Capital One Secured Mastercard, which you can get with a deposit of as little as $49. If you’d prefer a card for which you don’t have to make a deposit, look at the Credit One Bank Credit Card with Gas Rewards (it gets around the deposit by charging an annual fee of $35 to $75.) Note: Your credit limits on both of these will be low, but your interest rate high.  So whatever you get, use it as a credit-building tool.  Note what your credit limit is.  Never rack up purchases that account for more than 30% of it at any time. And pay it off every single month.

Wednesday Welcome: Protecting Yourself From Predatory Lenders

This week’s post comes from Bill Bartmann, the CEO of debt collection agency CFS2. He reached out to us to offer a post on predatory lending, something he sees all too often in his industry. Read on to learn your rights when it comes to these lenders, who take advantage of vulnerable consumers by lending them the money they desperately need in exchange for exorbitantly high interest rates and fees. 

Bill Bartmann HeadshotPredatory lending is by definition deceptive.  The terms of a predatory loan are presented in such a way that disguises the “gotcha.” If you are strapped for cash, you might be tempted to respond to lenders who market “$1000 approved overnight” or “Bad credit OK!”

But what if the advertisement read: “500% interest” or “Pay too much in fees?” You probably would not be so excited.

Both sets of statements describe the same thing – a predatory loan.

Predatory loans come with different names; payday loans, title loans, tax refund loans.  Even some auto loans and mortgage loans are predatory.  What they usually have in common is rapid approval, short repayment cycles, and high amounts of interest and fees.  Even worse, they sometimes trap a borrower into a cycle that they can’t get out of.

Let’s take a payday loan example for illustration.  John has a big problem because his car needs repairs and he depends on that car every day to get to work.  Fortunately, the repairs only cost $500 and a payday lender is willing to put the cash in John’s hands today.

Two weeks go by and John can’t pay off the loan.  The lender says, “Hey, no problem.  Tell you what:  just give me $100 in interest and we will give you another two weeks.”  John has the cash to make that work.  Another two weeks pass and John still can’t scrape up the $500.  “No problem,” says the lender.  “Pay just the interest and we can roll over the note again.”

Next thing you know, a year has gone by.  John has paid $2400 in interest – almost 5 times what he borrowed — and still owes the original $500.  John may die still owing that $500.

You may think that John’s story was made up to illustrate a point.  Not so.  There are millions of people just like John who are living that experience right now.

The best defense against any type of predatory loan is educating yourself about the dangers and what to look for.  Here are some tips:

  1. Shop around for a loan.  Talk to multiple lenders. Ask friends and neighbors for references.
  2. Negotiate for the best deal.  Try to avoid high rates and fees.  If you must accept a high rate loan, insist on a regular payment schedule that amortizes the loan rather paying interest only.
  3. Refuse to accept a loan that you know you can’t pay back.  Otherwise, your problems only get worse.
  4. The lender is required to disclose to you the “annual percentage rate” of the loan.  Use the APR to understand and to compare deals between different lenders.
  5. Read carefully everything you are being asked to sign.  Don’t let yourself be rushed.  Don’t sign paperwork that you don’t understand or that has blanks not filled in.
  6. Be cautious of bait-and-switch tactics.  Don’t sign anything that has conditions different than what you were promised.
  7. Be cautious about offers that sound too good to be true.  They usually are.

About Bill: Consumer advocate Bill Bartmann is the CEO of debt collection agency CFS2. His first collection business, CFS, helped 4.5 million consumers get out of debt and was a published case study by The Harvard Business School. Bartmann has been called the “No. 1 Collection Industry Consumer Advocate” in the world and was named national “Entrepreneur of the Year” by NASDAQ and the Kauffman Foundation. He is a best-selling author of multiple books who recently published an autobiography, Bouncing Back. All proceeds are donated to charity.

Wednesday Welcome: Five Credit Card Mistakes You Never Want to Make

This week we welcome Beverly Harzog, a frequent source of mine when it comes to credit card issues and author of the new book, Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made. She was nice enough to welcome me to her blog last week and I am happy to return the favor. Here she is with five credit card mistakes to avoid: 

harzog-about-meCredit cards can be a really useful money management tool. If you take time to understand how to use credit wisely, you can even make a profit from your credit cards.

But if you don’t know the rules of the game, you can end up in trouble in no time at all. Here are five credit card blunders that you want to avoid at all costs.

Mistake #1: You open several credit cards at one time. This mistake is often common among those who are new to credit cards. How do I know this? Because I made this exact mistake when I got out of college.

You open the envelope and pull out your first shiny card and see your name on it. It’s a rush! More offers start rolling in and you don’t see why you shouldn’t apply for all of them.

Well, there are plenty of reasons to stop yourself. Each time you apply for a card, the credit card issuer does what’s called a “hard inquiry.” This can knock two to five points off of your FICO score.

Another good reason to say no to multiple cards?  When you’re new to credit, you need to gain experience when it comes to managing a credit line. So take your time and build a good credit history slowly.

Mistake #2: You don’t have a budget. One of the biggest contributors to credit card debt is the lack of a budget. Without a spending limit, you could easily charge more with your credit cards that you can cover with your monthly cash flow.

Remember, a good budget isn’t a constraint that ruins your fun. A budget actually puts you in the driver’s seat because you’ll be able to see a clear view of your expenses and cash flow. And most importantly, you’ll have control over how much you spend.

Mistake #3: You don’t track your spending. This is a detail that often falls between the cracks. You might think this will be a pain, but these days, there are so many options and many of them are even fun to use. You can choose from oodles of smart phone apps, free money management software on the Internet, or create your own spreadsheet if you’re tech savvy.

Be sure that you have a limit for the amount you plan to put on each credit card and then stick to the plan. Check your credit card accounts online every week just to make sure you’re on top of everything.

Mistake #4: You don’t pay your bills on time. Make sure you pay not just your credit card bill on time, but all of your bills on time. If you don’t, your credit score will suffer.

A lot of folks don’t know that a bad credit score can increase the rates they pay for health insurance, car insurance, car loans, and more. An excellent credit score actually helps you save money in many areas of you life.

There are a variety of ways to set up reminders, such as text or email alerts. So do what it takes to pay all of your bills on time and protect your score.

Mistake #5: You carry a balance. Sometimes this starts innocently and you think you’ll carry a balance just this once. But then, before you know it, it’s six months later and your balance is getting bigger due to compound interest.

Look, life can get awful messy at times and emergencies happen. But unless you’re in dire straits, make a vow that you won’t carry a balance.

So pay your bill in full during the grace period. For those who don’t know, when you use your card to make a purchase, the grace period is the amount of time you have to pay the bill before interest charges kick in.

About Beverly: Beverly Harzog is the author of Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made. She is a nationally recognized credit card expert, author, and consumer advocate. She’s appeared on Fox News, CNN Newsource, ABC News Now, and top media markets across the country. She is a frequent guest on syndicated radio shows, and her advice appears regularly in print and on major websites, including the Wall Street Journal, The New York Times, USA Today, SmartMoney, Money Magazine, U.S. News & World Report, New York Daily News, Washington Post, MSNMoney.com, CNNMoney.com and more. Beverly runs a popular credit card blog on her website and has coauthored two books, The Complete Idiot’s Guide to Person-to-Person Lending and Simple Numbers, Straight Talk, Big Profits! She lives in Johns Creek, GA.

Money Sense on Fortune

mortgageIn this week’s column I confront the hard reality that “good debt” isn’t free.

FORTUNE — In the last two days, I have read two newspaper stories that have me worried.

The first, from Washington Post syndicated columnist Kenneth Harney, pointed to a huge rise in the amount of debt being taken out in the form of home equity lines of credit. “New home equity credit line borrowings soared by 42% in the final three months of 2013 and were up sharply for the entire year, to $111 billion,” he wrote. As for the reasons behind the increase, Harney singled out the comeback in home prices in the last couple of years that sent equity soaring, combined with the fact that teaser rates on HELOCs make them more attractive than a cash-out refi (and that’s before you consider a refi’s closing costs).

The second story, in Monday’s Wall Street Journal, focused on the rise in people taking out student loans not because they want to earn a degree, but because they need the money — and student debt is cheaper and easier (i.e. no credit check) than getting a loan from a bank or leaning hard on your credit card. “College officials and federal watchdogs can’t say exactly how much of the U.S.’s swelling $1.1 trillion in student-loan debt has gone to living expenses,” wrote reporter Josh Mitchell. “[A report from the Education Department's inspector general] also found the schools disbursed an average of $5,285 in loans each to more than 42,000 students who didn’t log any credits at the time.

For more head over to Fortune.com

Mailbag Monday: Controlling the Things You Can Control

receiptsHi Jean. We bought our home in 1982 for $67,000 and refinanced in 2001 for $85,000. This company sold our mortgage without our knowledge in 2013 for $72,000 @ 8.5% interest.  Unfortunately things happened that were beyond our control. For the past ten years I took care of my parents. They both passed away last year. Our whole life we’ve taken one step forward, three backwards. It seems when we get caught up something else happens that takes us back. Our credit is poor. We have never asked anyone for help; that’s why we are in this mess. We don’t know where to turn. Can you please point us in the right direction. Thank you.

– Toni

Hi Toni.  I have to admit, I can’t tell from your letter exactly where you are right now – but I can sense that it’s somewhere very difficult.  And having lost one of my parents, I cannot imagine losing both – let alone in the same year. I’m so sorry for all you’re going through.  In situations like these, fixing everything quickly is just not an option.  The world of money just doesn’t yield results that dramatic that fast (if it did, I’d have a television show like The Biggest Loser). Rather, it’s the smaller, habitual changes that add up to something meaningful over time.  Focus on controlling the things that you can control.  The top three things I’d do?  1. Look at your spending and see where you can cut back.  2. Take that money and pay down high interest rate debt if you have it, or save it if you don’t.   And 3. Pay your bills on time. Even if you’re just playing a little more than the minimum (a number you should try to nudge up) paying on time will help move your credit in the right direction.

Money Sense on Fortune

debitcard

This week’s column is the second part to my two-part series on credit scores. If you missed last week’s on the murky waters of credit scores (i.e. FICO vs. Vantage), you can catch up here. As for this week’s piece, I tackle the misconceptions surrounding millennials and credit, and how both parents and twentysomethings can get started on building (and maintaining) solid scores.

You can see the full column on Fortune.

America Saves Week Starts Monday

piggybankchangeAimee Shaffer had to make it work. After years of working as a public service news director at a radio station, her employer downsized, leaving Schaffer jobless, and unable to seek radio jobs at competing local stations (the fine lines of her contract). Left without a steady paycheck for the first time, Shaffer started saving.

By paying her bills with unemployment money, and cutting back on spending altogether, she made it work. For example, for her entertainment, Shaffer purchased a $10 pass to her local parks, and took to hiking and biking. She also steered her way onto a different career path and started her own business as a professional pet sitter. Shaffer even saved for retirement along the way. As she shared with America Saves, “I didn’t think I had enough money to save but I started by putting $25-$50 away with each paycheck and now I have a nice little fund.”

Shaffer’s story on saving, along with others’, can be found on the America Saves Week website.

As it just so happens, next week is America Saves Week (February 24th  – March 1st). I know, it certainly doesn’t sound as fun as World Bartender Day, which is also next Monday, but it’s a week worth observing…and an action to start taking if you aren’t already. Since 2007, the week has been an opportunity for organizations to promote fruitful saving practices, and for individuals to confront their own savings habits (or lack there of).

Maybe your story is similar to Shaffer’s, or perhaps “saving” to you means scoring a great deal on a fabulous pair of shoes. Chances are you could be saving more. Don’t by it? The organization’s website also has a test you can take to assess your savings IQ. For instance, how much do you think the average American spent on the unexpected (i.e. emergencies) last year? Hint: It’s a lot.

For more on America Saves Week – what it’s all about, how to pledge, and above all, how to save more – head over to the organization’s site.

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