Why Do Employers Check your Credit Report?
February 1st, 2008An increasing number of employers are now checking credit reports prior to hiring someone. Many people do not agree with this, and feel that it is unfair. Afterall, not all people have bad credit because of mishandling their finances.
So, why do employers check your credit?
Employers believe that your credit report explains a lot about your behavior. They believe that if you manage your money right, that you’ll also perform well within your career. Although I understand where they are coming from, I don’t think a credit report can show the entire picture. There are often times when credit can be ruined under circumstances beyond someone’s control.
Perhaps employers should discuss with the potential candidates about why their credit is not up to par. What do you think?
Universal Default Rates and Credit Cards
January 22nd, 2008As you may have already known, credit card issuers have been hitting card-holders with a universal default rate when the consumer’s credit score drops. All the major banks and card issuers have been doing this for quite some time now. However in recent times, big banks like Citibank and Chase have distanced themselves from this practice.
This is due to congressional hearings which are putting pressure on the credit card companies to stop the use of universal default rates. While some card issuers are listening, some are still continuing business as usual. Institutions such as Bank of America and Discover still increase interest rates on card-holders who experience a dip in their credit scores.
Taxes and Where You Live
November 20th, 2007I was recently surfing the web and came across some tax information that I thought would be good to pass on to others. Within the articles I read, I was able to find the states and cities that tax their residents the most and the least, the states that do not require residents to pay income tax, as well as which states have the highest and lowest property taxes.
Did you know that there are nine states that do not require residents to pay personal income tax? That’s right. According to CCH Inc., these states include Wyoming, Washington, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, and Texas.
According to the Bureau of Economic Analysis, Alaska requires their residents to pay the least amount of taxes, 6.6%, which is the percentage of residents’ total income. Vermont requires their residents to pay the most at 14.1%. Take a look at the best and worst for 2006.
Best 5:
1. Alaska: 6.6%
2. New Hampshire: 8.0%
3. Tennessee: 8.5%
4. Delaware: 8.8%
5. Alabama: 8.8%
Worst 5:
1. Vermont: 14.1%
2. Maine: 14.0%
3. New York: 13.8%
4. Rhode Island: 12.7%
5. Ohio: 12.4%
According to the government of the District of Colombia, Anchorage, Alaska is the most tax friendly city in the United States at 3.5% (total city taxes for a family of three as a percentage of annual income). On the other hand, Bridgeport, Connecticut is the most “unfriendly” at 18.6%. Here are the best and worst based on 2005 data.
Best 5:
1. Anchorage, Alaska: 3.50%
2. Cheyenne, Wyoming: 3.7%
3. Jacksonville, Florida: 4.20%
4. Las Vega, Nevada: 4.80%
5. Memphis, Tennessee: 5.20%
Worst 5:
1. Bridgeport, Connecticut: 18.60%
2. Philadelphia, Pennsylvania: 11.80%
3. Providence, Rhode Island: 11.10%
4. New York City, New York: 11.10%
5. Des Moines, Iowa: 10.50%
According to the Tax Foundation, New Jersey homeowners paid the highest property taxes in 2005, averaging $5,352. Louisiana homeowners paid the lowest property taxes, averaging only $175! Other expensive locations included New Hampshire, New York, and Connecticut. The less expensive areas included Alabama, West Virginia, and Mississippi.
Big Day on Wall Street!
November 14th, 2007By: Stephen Bishop Jr.
Yesterday was a tremendous day on Wall Street! The Dow Jones industrial average bounced back Tuesday with a 319 point gain. The gain was the second-best of the year, and served as a huge momentum builder considering last week’s troubles. The Standard & Poor’s index jumped almost 42 points and the NASDAQ composite index rose 89 points.
Twenty-six of the Dow’s thirty components showed signs of momentum today. Surprisingly, Wal-Mart, the world’s largest retailer, reported great earnings from the third-quarter. This could have been the main factor contributing to the today’s comeback.
Also, oil prices fell $3.45. In return, the industries that depend upon fuel costs, such as commercial airlines and railroad companies, saw an increase today. This comes as a major relief. Lately, oil prices have been settling at record-highs discouraging travel both on the road and in the air.
Banks are attempting to settle as well. Goldman Sachs announced that they are not expecting to suffer due to the conditions of the sub-prime market. Goldman Sachs’ stock rose nearly 8% today. Bank of America and CitiGroup joined Goldman Sachs as those with increasing shares. This comes as outstanding news considering both have recently made billions of dollars in write-downs due to loan losses.
Although the market may have been overdue for a good day, it is good to see a bounce back nonetheless.
Debt Snowball Methodology – Pros and Cons
November 12th, 2007By: Stephen Bishop Jr.
It is safe to say that not everyone has heard of the debt snowball method. In short, it is a debt repayment method for credit cards and other various forms of debt. I hope to explain it in the simplest way possible, and also point out both its advantages and disadvantages.
Okay. Make a simple list of your debts including the minimum payment. Here’s my sample list.
1. Auto Loan - $4000 Balance, $250 Minimum Payment/Month
2. Credit Card B - $200 Balance, $25 Minimum Payment/Month
3. Credit Card A - $500 Balance, $35 Minimum Payment/Month
4. Loan - $5000 Balance, $300 Minimum Payment/Month
Now that you have made your list it is time to put it in order from smallest balance to the highest balance, without considering interest. Here’s my NEW ascending sample list of debts.
1. Credit Card B - $200 Balance, $25 Minimum Payment/Month
2. Credit Card A - $500 Balance, $35 Minimum Payment/Month
3. Auto Loan - $4000 Balance, $250 Minimum Payment/Month
4. Loan - $5000 Balance, $300 Minimum Payment/Month
It is now time to figure out how much extra money you have at the end of the month to add to your minimum payments. For my example, I will have $75 extra per month to add. So, here is how the snowball method works. Start with the smallest balance you have. This will be number 1 on the list which is Credit Card B. Add your extra $75 to the minimum payment of Credit Card B. So, $75 plus $25 is $100. $100 is the amount that you will pay. Continue to make this $100 payment each month on Credit Card B until it is totally paid off. Do not forget! Your minimum payments continue on your other debts during the debt snowball method.
Now that Credit Card B is totally paid off, let’s move on to the next debt on the list which is Credit Card A. Add your $75 to the minimum payment of Credit Card A. This should total $110 ($75 plus $35). Now add the minimum payment that you were paying on your “Number 1” debt to this as well. So, $110 plus $25. This totals $135. This will be the amount that you pay each month towards Credit Card A until it is paid off completely. The process continues. After each debt becomes paid off you move on to next. Continue to add the minimum payments from the paid debts as well as the extra money ($75) to your new targeted debt.
Disadvantages:
The debt snowball repayment system is obviously one way out of many to become debt free. Many argue that it is far from the best idea.
The debt snowball method does not focus on your interest rates. A person targeting their debt s with higher interest rates has the chance of getting out of debt much quicker. Also, the debt snowball method will not work as well with people that have numerous debts and those with much higher debts. In the example I only listed four debts to be repaid, and the debts were not too high. What if you had nine debts to list with a couple of them in the $10,000 range? Yes you could do the debt snowball method in this situation. However, the long amount of time it would take for you to get to the large debts would allow it to grow substantially. Not to mention, before you get to it, you are only making the minimum payments on these large debts.
The debt snowball method requires that you do not contribute to retirement during the process. I see this as a disadvantage. Contributing to retirement continually and at a rate you can afford can take advantage of compounding interest and pay off down the road.
Advantages:
Many supporters of the debt snowball method believe it to be the best way to become debt-free. As each single debt becomes paid off, the debtor sees less bills coming to the house. The feeling of having fewer bills to pay eases their mind. In the end, the debt snowball method focuses more on psychological momentum than anything else.
Bad Week for the Stock Market
November 9th, 2007By: Stephen Bishop Jr.
To say this week has been shaky for the stock market would be a total understatement. On Wednesday the Dow Jones industrial average fell 360 points. Today was no better as the Dow fell another 223 points. The Standard & Poor’s index fell more than 21 points while the NASDAQ composite index saw a 68 point loss.
What’s going on?
As you know, the US is currently in a major credit crisis. The subprime mortgage market can be blamed for the majority. Falling house prices are leaving homeowners with mortgages that they cannot pay. In return, banks have continually seen drops in their subprime mortgage securities. Big banks are being forced to make tremendous write-downs due to their increasing loan losses. Wachovia, our nation’s fourth largest bank, is estimating a possible $600 million loan loss in this quarter alone. Unfortunately, Wachovia is not alone. Just to name a few, CitiGroup Inc. and Morgan Stanley made billion dollar write-downs this week as well.
Investors remain concerned that the credit crisis will not heal over night. To add to this, the price of oil is at a record high sending consumers’ energy bill through the roof. That’s not all that can happen due to the increase. Commercial airlines will raise ticket prices and your wallet will get hit hard at the gas station.
Overall, it is safe to say that the stock market is being hit from all angles. Stingy lenders are making credit very tough to come by, the housing market shows no sign of improvement for the fourth quarter, and oil prices are at an all-time high. Let’s hope we see improvement soon!
Students in Debt
November 8th, 2007By: Stephen Bishop Jr.
Today, employers are making it more difficult to get a job without having a college degree. Some do not even consider a person without one. With this said, a college degree is in demand more than ever. In order to pay for college, many take out student loans. To add to this, college is the time when many get their first credit card. Needless to say, first time credit card users mixed with student loans is not the best combination.
Student Loans:
For a little background information, there are many different student loan offers out there. A student deciding to receive a student loan must decide whether to go with a federal student loan or a personal student loan. While many different factors can determine which student loan a person chooses, the approval percentage is very high for personal student loans. Also, personal student loans have much higher loan limits than that of their federal counterparts.
The cost of tuition continues to increase much faster than the rate of inflation, and so does the number of students with student loan debt problems. Also, the average amount of student debt is increasing today more than ever! After graduation, some have almost an impossible amount of debt to repay. To say the least, debt causes stress. This is no different for those just getting out of college. Stress at a new job, or at any job for that matter, is not a good thing. Unfortunately, many have to take on second and third jobs just to repay student loans. Not to mention it is often very hard to find a good job that pays well when you are just out of college and entering the work force for the first time.
Credit Cards:
It’s important to point out that establishing good credit early in life can be very helpful later on down the road. Many students just entering college apply for their first credit card. However, many students become very careless and do not get the good start that they need. So why does this happen?
As a recent graduate, I know that credit card offers were just around the corner while in school. No, really, I literally mean just around the corner. In one instance, I remember the pizza place that was up the street offering a free large pizza when you apply with the credit card company that had a booth set up inside the store. And we all know hungry college students cannot resist a free pizza! Also, income levels for students are typically very low. Many students do not have jobs while in college and those that do usually work part-time. The small amount that they make goes towards; well, let’s just say it does not always serve as a means of payment on their credit card.
Unfortunately, many students believe that they have the rest of their lives to pay off their credit card. This can be the worst scenario. For a student, the importance of paying off your credit card in full each month should go without saying. Good credit will result and the benefits will be amazing in the near and far future. However, students continue to make the minimum payments, if any at all, and rack up more credit card debt than they can handle.
Traditional IRA vs. Roth IRA
November 3rd, 2007By: Stephen Bishop Jr.
I am sure most of you have either heard about or contribute to a Traditional IRA. However, there are some people that are not aware of the Roth IRA and its advantages. Some simple comparisons can help you decide which is right for you.
Traditional IRA:
The major advantage of the Traditional IRA is that your contributions are tax-deductible. Whether or not your contributions are tax-deductible depends on income level. The biggest downside to contributing to a Traditional IRA is the mandatory withdrawals at age 70.5. While contributions may be tax-deductible, distributions for a Traditional IRA are considered to be a part of your income and therefore taxed. In 2007, a person of the age of 50 can contribute up to $5000. A person of the age of 49 or younger can contribute up to $4000.
Roth IRA:
The Roth IRA is unlike most of the other IRAs. Roth IRA contributions are made with after-tax dollars. Therefore, Roth IRA contributions are not tax-deductible like the Traditional IRA. The major advantage of the Roth IRA is that your earnings are completely tax-free after the age of 59.5. Also, the contributions made can be withdrawn at any time without incurring any early withdrawal fees. It is extremely important to not withdrawal your earnings too soon. Remember that earnings are only tax-free after the age of 59.5. Certain situations are under exception, such as first time home buyers. First time home buyers can make early withdrawals from their Roth IRA without penalty to help finance their home. The Roth IRA has the same contribution limits as the Traditional IRA for 2007.
If you assume that you will be in a higher tax bracket after you retire, right now would be a great time to begin contributing to a Roth IRA. Of course, all of the earnings from it will be totally tax-free! Also, you always have the option of converting your Traditional IRA to a Roth IRA. To do this you must pay taxes on the converted amount. Choosing one or the other can be difficult. Take your time. Speak to someone that knows about your options and go from there.
Dollar Cost Averaging and the Investor
November 3rd, 2007By: Stephen Bishop Jr.
What is Dollar Cost Averaging? A few have heard of it, however most have not. When investing your hard earned money, dollar cost averaging is something you might want to consider. So listen up! To explain dollar cost averaging to the every day consumer I will give a brief example:
Rather than investing your $1000 all at one time, in a stock for example, consider two things:
- The length of time that you will be investing in this particular stock
- How frequent you will be investing in this stock
Let’s say you decide to invest your $1000 in equal amounts over the course of one year. So you decide to invest $250 quarterly, for one year. That is; $250 every three months for 12 months. By doing this, you are more likely to purchase more shares at low prices rather than high prices. Simply put, you are trying to protect yourself from a downturn in the market that may occur shortly after your investment.
It is important to point out that the market does have a positive average rate of return. So by reducing your risk of a quick loss you may also be sacrificing return. While there are many people both for and against this technique, it is always something to consider when investing your money.
Should We Give to Beggers?
November 2nd, 2007This was an interesting question that was brought up to my attention recently. It would seem pretty common sense to believe that giving to the less fortunate would be the right thing to do.
But have you thought whether or not your good intentions were actually doing more harm than good? Do you ever think about how a certain person becomes homeless? Was it a financial disaster? Was it due to mental or physical illness? Was it because they lost everything to gambling, drugs, or alcohol?
Now, having thought of these questions in your head, do you still think it would be good to give to a begger? I think this is a tough question to answer without knowing the history of a person’s life. Most of us have good intentions, but sometimes our intentions may not lead to good results. For example, would you feel good about giving money to a begger who says he needs money for food, but in actuality, he/she is raising money to get a quick fix (drugs, alcohol)? Obviously not, but how are we to know without knowing about their situation?
There are also those beggers who became homeless due to circumstances beyond their control. These are the people that really need assistance, but our society has become so skeptical that we’re not sure who to help. This has been my main hurdle as well, but my skepticism goes beyond that. I once worked at a place where a homeless guy used to come in with a thick wad of cash. He had dirty clothes, and smelled, and always walked around the neighborhood pushing a basket cart.
On another occasion, I gave $10 to someone who I thought was a homeless begger, but he ended up being a con-artist who owned a brand new Mercedes-Benz. I saw the guy getting into his car the following day.
Despite it all, I do occasionally give to a begger. I usually follow my instincts. It’s the best anyone can do.
