Business and Finance

Archive for April, 2010

Two important financial tools that millions of consumers use each day are Credit cards and Debit cards. While they both are strikingly similar in appearance and work in similar ways, they are very different financial products. One way to steer clear of debt and make good financial decisions is to be educated about both of these financial products. Here are some tips on how to use each of these tools effectively.

What is a Credit Card and When Should I Use It?

A credit card allows you to loan money from a bank. The money you lend is unsecured, meaning that there is no collateral needed. However, using a credit card is not free and quite costly for the convenience. Practically all credit cards charge interest on purchases made. Over time, the amount of an item bought with a credit card will cost you more due to the interest. In fact, a CD that cost you $20 at the point of purchase can cost twice as much by the time you completely repay it. Credit cards should not be used for impulse purchases, they should not be thought of as extra cash in your wallet. You should only use a credit card when you have the money to immediately pay off the loan or in a case of an emergency.

It should also be noted that you should never just pay the minimum amount due each month. If you just paid the minimum amount due each month, a $2,000 debt would take a decade or more to pay off sometimes costing you double or triple the amount of the original debt due to interest.

What is a Debit Card and When Should I Use It?

A debit card is a card distributed by your bank. Debit cards are usually tied to your checking account, so any purchases that you pay using your debit card, are debited from this account. A debit card looks like a credit card and in most cases acts like a credit card. They are extremely convenient and do not charge you interest to use them. However, your bank may charge a small fee for the use of them, but these fees are extremely small compared to credit card interest rates.

Debit cards are a great alternative to credit cards, because there is no interest involved and since you are using your own money that you have in your checking account, you don’t have to worry that you owe any debt. It should be noted that even though there is no debt or interest involved, debit cards are extremely convenient and you can easily spend too much, especially on impulse items that are not needed- depleting your checking account or savings.

There is a vast difference in between your long term needs and emergency needs. While the former provides you to plan accordingly, the same cannot be held true for the emergency needs, which are small and cannot be avoided. Arranging the required finances within a short span of time is not at all going to be an easy task. Moreover, your bad credit is further creating problems. Keeping in mind your position, it would be beneficial to avail bad credit payday loans. With these loans, you can easily take care of the financial crisis, despite having credit problems.

These loans are configured mainly to provide financial assistance to bad credit borrowers, so that they can cope up with the inescapable demands. To make the proceeding easy, these loans are further advanced without involving any collateral. Instead, to obtain the loans, you have to meet some of the prerequisites laid down by the lender. The eligibility criteria are as follows:

* You must be employed f or the past 6 months.

* The monthly income drawn should be fixed and equivalent to

As the water began to drain from New Orleans in 2005, we learned that most of the homeowners in New Orleans did not have flood insurance, since they were supposedly in “low risk” areas. The over 60% of homeowners will need to depend upon their own savings, and limited federal assistance, to rebuild New Orleans – at an uncalculated cost for homeowners and taxpayers.

Could that level of disaster, especially that level of uninsured disaster, happen in California? Less than 15% of California homeowners currently carry earthquake insurance, due to its high cost, the “can’t happen to me or my house” factor, and mortgage providers not requiring coverage. The next big quake will result in billions of uninsured damage – but is earthquake insurance really worth the high cost?

How Did We Get Here?

The state of California requires that all homeowner’s insurance providers to at least offer earthquake insurance (albeit, at a high cost). Until 1994, it was widely available – but the high damage costs of the Northridge earthquake resulted in 97% of homeowner’s insurance providers pulling out of the state the California. In response, the California Earthquake Authority was formed by the California legislator to provide earthquake insurance.

What Is the California Earthquake Authority, and How Does It Work?

The California Earthquake Authority provides two-thirds of the earthquake policies in California, sold through their member providers, like Allstate and State Farm. A homeowner purchases the policy through their regular insurance agent, but the policy is actually a CEA policy.

The CEA currently has about $7.2 billion to pay claims, which it states is enough to pay foreseeable damages (Loma Prieta in 1989 had $6 billion in total damages). If the damage claims are more than $7.2 billion, then each claim would be paid a prorated portion of their losses – unlike a regular insurance company, which promises to pay the actual damages under the insurance policy. The state of California cannot help pay the claims out of general funds.

The policies also have a high deductible – usually 15% of the value of the dwelling. In other words, your home must be damaged more than 15% of its value before the insurance starts paying. So, this insurance is not for cracks in the driveway – it is for significant structural damage to your home. The policy also pays for limited contents (starting at $5K) and loss of use (starting at $1500).

Why Is Earthquake Insurance So Expensive?

Insurance policy premiums are calculated based on probabilities – the probability that a house like yours in a neighborhood like yours will catch fire, or a driver like you will have an accident. With data from millions of homes, these probabilities can be calculated with reasonable accuracy. But, no one can reliably predict the probability that there will be an earthquake strong enough to damage your home.

And, as you can imagine, damages from an earthquake, flood, or hurricane, are widespread, over potentially thousands of square miles – instead of one or a few dozen homes, as in a fire. As such, the insurer would have to pay either zero claims, or billions of dollars of claims – too much variance to reasonably plan for or price accurately.

Are We Really At Risk Here in San Jose?

According to the USGS, there is a 62% probability that there will be an earthquake of 6.7 or greater (like the Northridge quake) in the Bay Area in the next 30 years. In my zip code (San Jose 95126), USGS calculates a 80% chance of a 6.0 earthquake and a 20% chance of a 7.0, in the next 30 years. Whether you consider that to be a high risk depends on your risk tolerance for earthquakes – I consider that a high risk of a moderate earthquake and a somewhat low risk of a terrible earthquake, over the next 30 years.

But like any issue involving real estate – it is all local. Where your home is actually located significantly affects your risk – bedrock, reclaimed land from the bay, soil type, nearby streams, actual distance from the epicenter – all can affect potential damage.

But of course, many earthquakes occur where the USGS was not even aware of a fault line – and we never know when or where it will happen, until it happens.

Should I Obtain Earthquake Insurance?

Factors to Consider:

Could you afford to pay for the rebuilding your home from your own savings & investments? Can you afford to pay the high cost of insurance, indefinitely? Could make payments on your current mortgage and on a new loan to rebuild? Can you mitigate your potential losses by bolting your roof to the walls and the walls to the foundation, for example? What is your tolerance for the risk of an earthquake? What is the risks of your current home construction (type, age, foundation)? What are the risks of your specific location (soil type, distance to known faults)?
Are the Costs Worth It?

Let’s assume that you have a home that would cost $250K to rebuild, you will own the home for the next 30 years, and your earthquake premiums are $1200 per year. Over the next 30 years, that would be a total of $36,000 in premiums (assuming your premiums do not increase, to simplify calculations).

Instead of purchasing insurance, you invest the premiums in a diversified mutual fund. With an 8% annual return, you would have $135,000 (pre-tax) in year 30.* But of course, you only have that total in year 30, not in year one – meaning that if the earthquake happens tomorrow, you don’t have the money.

The deductible is another big turn off for many homeowners. The insurance pays only for large structural damage, not broken dishes or cracked driveways – meaning that it is less likely you will use it. However, be aware that you will not need to come up with the cash for the deductible – you may either opt to not undertake those repair or rebuilding costs, or you can apply for an SBA loan to pay for the deductible (assuming a federal disaster area is declared).

Why Not Just Get Federal Aid, or “Walk Away” and Let the Bank Have the Property?

The federal government would probably provide access to SBA loans, if the area is declared a federal disaster area (no small business required). However, the $200K maximum SBA loan may not be enough to rebuild your home – and, it is a loan that you need to pay back (in addition to your current mortgage).

If you have refinanced your mortgage, you have a recourse mortgage – which means that not only can the bank foreclose on the property in case of non-payment, the bank can also come after your personal assets and future income in case of non-payment. So you cannot just walk away, especially if you have a good income and some personal assets. The bank may help out by deferring payments for a few months, but you still must pay back the loan.

Last Thoughts

We have earthquake insurance on our home. Our home was not yet built in the 1906 earthquake (so who knows if it would stand), it is 75+ years old and is not bolted to the foundation, and we have a refinanced mortgage. For my family, the insurance premiums are worth peace of mind in case of a major earthquake disaster. That’s exactly what insurance is for – the “you never know.”

*calculations ignore inflation

You probably aren’t used to seeing the words business loan and bad credit in the same sentence, unless of course they are followed by the word DENIED.

But for small business owners whose credit scores have constantly gotten in the way of securing funds for their businesses, there is good news and there is bad news. The bad news is, getting a loan from a bank with a less-than-outstanding credit score is pretty much out of the question for the time being. The good news; the funds are out there, you’ve just got to find them.

Fortunately, for the small business owner who’s been struggling to find business funds and is reading this article, I have done half of the work for you, and am now presenting you with a method of business financing that typically only requires borrowers to have credit scores of at least 550. This method is known as the business cash advance.

“Lenders look at the risk involved in making your loan and that is going to be determined according to your credit history. Unfortunately individuals with a history of bad credit are more likely to have late payment and/or to default entirely,” as stated on a website focused on business financing. But the business cash advance works differently. Business cash advance lenders don’t focus merely on the business owner’s ability to repay a loan. They look at the business itself and consider the amount of credit card sales that the business processes in a month. This number is important because it helps the lender determine how much money they can actually lend to a particular borrower in order not to hurt the borrower’s business.

Borrowers can receive between $5,000 and $500,000 dollars for their businesses with the business cash advance. The business cash advance keeps business owners from having to rule out business financing just because they don’t have excellent credit.

Secured credit cards are great for those without credit or those with bad credit because they help build back credit ratings. A secured credit card is a card where a deposited is made to secure the card. This deposit can be made to a bank account or certificate of deposit.

Since you will have money holding, some institutions apply interest to your deposit thereby allowing you to earn while you spend. This interest is normally small, but is a good tool to use when comparing secured credit cards.

Outstanding balances on secured credit cards are still subject to interest, so in comparing cards it is necessary to know what the APR is. If the APR is high, carrying a balance or making just minimum payment will cost more in the long run.

Like other credit cards, the fees charged to the secured credit cards play a role when deciding on the best card for you. Look out for cards with high charges as this will reduce the amount of your deposit significantly. Additionally there are some cards with hidden charges, so be sure to read agreements carefully and ask questions. Remember when looking around that not all secured credit cards charge an application fee; if re-establishing credit is your aim this should be important as it will leave you with more money to deposit.

Do you need to buy insurance to use the card? If yes, look around for a secured card that does not have this option if increasing your spending limit is your aim.

Generally the credit limit of secured credit cards is dictated by the amount of your deposit, however, some banks only give a percentage of the deposit as the available credit. Therefore the way in which your credit limit is arrived will factor significantly in any decision on the best card for you.

If using a secure card to re-establish credit or to build credit, ensure that the issuing company report to the credit agencies.

What Is A Cash Advance Payday Loan?

Payday loans are short-term loans of money intended to cover the recipient’s expenses until his next payday-hence the term “payday loan”. They are also called cash advances, or cash loans to differentiate them from credit card cash advances.

Types Of Payday Loans

There are also several forms of cash advance payday loan:

–Online cash loans. These are the fastest means of them all, typically taking only a few hours from application to being transferred to the bank account.

–bad credit. These loans are aimed at people who generally can’t get other loans on account of bad credit.

–No fax loans. This is almost the same as a normal loan option, albeit without the paperwork and faxing of information to and from people.

–No credit check quick cash advance. This is very similar to the bad credit loan, except that it involves slightly more of a background check on you. The lender does not run a credit check, but will confirm your income and the like.

–Military cash advance. Fairly self-explanatory, military cash loans are available only to military members. However, they have some advantages-they usually have lower fees and rates of interest than the fast cash advance payday loan.

–Low fee. These are normal cash loans, but with lower fees than normal.

–paperless cash advance. Technically, this is not a separate type of loan itself, but rather a euphemism for online-only loans.

–No teletrack. In these loans, the lender specifically does not research you or your financial position.

Advantages

This service have some significant advantages. First, they allow you get money quickly in an emergency or if you have pending bills, preventing late fees and helping to maintain your credit rating. Second, they are very easy to get. Very few people are ever turned down these hassle free service.

When getting it, make sure that you are dealing with a reputable company. A cash advance loan from a bad company will likely push you deeper into debt. They should be in good standing with the Better Business Bureau, and be registered in your state.

Shop around as much as you can. In the short time frame that most people require for quick cash advance, the shopping ability is limited, but the Internet can help balance out the lack of time. Make sure that you read the entire contract, and know the interest rates, fees, and late charges, to avoid any problems later.

With a bit of research, the borrowed amount can be your saving grace in the time of need!