How Your Neighbor’s Lack of an Emergency Fund Affects You

Where to Keep Your Emergency Fund

It’s hard to overstate the value of emergency funds. They’re what savers tap into when life gives them lemons, and having one can often mean the difference between reaching financial goals and racking up debt.

Now a new study from the Urban Institute, a Washington, D.C.-based think tank focused on economic and social policy, suggests emergency funds are more than just a powerful cash cushion and may serve as a key indicator of cities and communities’ economic health.

As the study explains, cities and communities are only as stable as their residents’ finances. Secure families are better able to weather setbacks such as the loss of a job and are less likely to turn to local services for government subsidies. They’re also a boon to the local economy, bolstering property, sales and income taxes, and their kids are more likely to succeed, thanks to stable housing conditions, the Urban Institute said.

Low Savings Are Better Than None

In studying how savings help families survive inevitable setbacks and contribute consistently to the local economy, the Urban Institute turned up some eye-popping stats, particularly in terms of the link between family financial health and city outcomes, such as eviction, reliance on public benefits and ability to pay utility bills. These findings include:

  • Low-income families with savings are more financially resilient than middle-class families without savings. Low-income families with $2,000 to $4,999 stashed away are less likely to experience hardship after an income disruption than middle-income families with no savings.
  • Even low savings help. Socking away $250 to $749 has helped families avoid being evicted, missing a housing or utility payment or applying for public benefits when an income disruption occurred.

That said, higher savings are associated with lower levels of hardship, and the more a family has tucked away, the less likely it is to miss a utility payment, be evicted or turn to government assistance.

savingscushionfamilies

Why Families’ Financial Health Matters to Cities

About 25% of families suffer some kind of income setback over the course of 12 months, the Urban Institute found. And “almost 1 in 4 families have no nonretirement savings, roughly 4 in 10 have less than $750 and about 6 in 10 have less than $5,000,” the study said — frightening numbers given how much families’ financial health matters to cities.

Consider the impact a family’s lack of savings can have on its city over time. According to the Urban Institute:

  • Evictions can lead to homelessness, which puts pressure on city budgets.
  • Homelessness among children can disrupt their education, hampering their ability to succeed.
  • City revenues suffer when residents have trouble paying for utilities such as water and gas.
  • Crime-related correctional spending and local public welfare spending stem from family financial insecurity.

Remember, savings matter for families at all income levels. It takes at least $5,000 to protect higher-income families from income disruptions, the report found, perhaps because their standard of living is higher and they have higher fixed costs for things such as their mortgage and car payments. Low-income families, meanwhile, are more financially resilient than middle-income families without savings, the report said.

savingsmatterforallfamilies

As we’ve written before, missing major payments, like a mortgage, can hinder your credit score, making it harder to secure financing for a loan, a car, future housing and much more. You can see how late payments can affect your credit score here. You can also see how any missed payments may be affecting your credit by viewing your two free credit scores, updated monthly, on Credit.com.

More Money-Saving Reads:

Image: iStock; Inset Charts Courtesy of The Urban Institute 

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Can I Get Credit for Paying a Loan That’s Not Mine?

get a mortgage after a loan modification

When it comes to building a good credit score, the most important thing to do is make your loan payments on time. Creditors report your payment history on your accounts to the major credit reporting agencies, and a single late or missed payment can knock dozens of points — even as much as 100— off your credit scores. By making payments on time month after month, you’re making huge progress toward a strong credit history.

But what if you’re making payments on a loan that technically isn’t yours? Say your paycheck goes toward paying the mortgage, auto loan or credit card bills, but those accounts are in your spouse’s name — can you get that payment history to show up on your credit reports?

If you’re not the account holder, the answer is no, according to David Blumberg, public relations director for credit bureau TransUnion.

“In order for it to appear on a credit report and help build credit history, the person paying needs to be a co-signer on [the loan],” Blumberg wrote in an email.

While you’re not getting to the “good credit” for making the payments on a loan in someone else’s name, you also won’t see your credit score suffer if you fall behind — the account holder will.

In some cases, the loan in question may be assumable, meaning it can be transferred to a new account holder. You’ll need to check with your lender to determine if that’s possible, and keep in mind the new borrower will need to undergo a credit check. The lender will want to make sure the new borrower is just as (if not more) likely to repay the loan as the original borrower was when the lender approved them. Showing your proof of payment history on the loan may be helpful in this process.

Unless you go through the steps of transferring the loan, all you’re doing is giving that good payment history to someone else. You may have the gratitude of the person you’re helping, but that won’t translate into a good credit score, said Rod Griffin, director of public education for credit bureau Experian.

“The loan can only be included on the report of the person specified in the contract as the responsible party,” Griffin said in an email.

Making sure your payment history on any loans, lines of credit and credit cards that you are legally responsible for is being reported correctly is one the biggest reasons to check your free annual credit reports. You have the right to dispute any errors, and if you have a question about how your creditor reports your account information, you may want to reach out to them directly to get answers. You can stay on top of your credit information by getting a free credit report summary every 30 days on Credit.com.

More on Credit & Credit Cards:

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How Your Credit Card Can Keep You From Buying a Home

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New changes coming to Fannie Mae’s automated underwriting system next month could have prospective homebuyers rethinking how they pay their credit card bills. Here’s why.

Lenders generally use Fannie Mae’s automated underwriting system for every single mortgage loan sold in the secondary mortgage market. This system has always reviewed the mortgage applicant’s credit history, credit score, debt-to-income ratio, reserves (a fancy term for savings) and occupancy in order to determine whether they should be approved for the loan.

But, starting June 25, Fannie Mae will use trended credit data to evaluate how applicants paid off their loans over the past two years. And the new data will show not just the loan balance and whether you’ve made all your payments on time (as traditionally is the case on credit reports), but also the actual payment amount that you made on the account.

This change is designed to reward “transactors,” borrowers who pays off their credit card balances in full each month. “Revolvers,” conversely, carry a balance, pay the minimum each month or regularly do balance transfers in an effort pay less interest on their debt. They’re generally considered riskier applicants as the more revolving, unpaid monthly obligations you carry, the greater the odds you’ll have trouble paying your bills down the line.

For instance, let’s say your credit card bill generally ends up around $300 each month. For the transactor, this bill would not be considered a problem as the new data demonstrate they paid their credit card off each month. The revolver, however, would be unable to show the obligation is paid and, therefore, it would be seen by the lender as a strain on borrowing power to income.

What Does This Mean for Me?

If you are transactor, you’re in good shape for buying or refinancing a home so long as you continue to pay off your credit card while supporting a high credit score as a result. (You can see where your credit currently stands by viewing your two free scores, updated each month, on Credit.com.)

If you are a revolver, you’re going to have some choices to make. These choices may include the following.

  • Can you buy less house?
  • Can you cash-out refinance and pay off the obligations through closing?
  • Can you write a check to pay off the consumer obligations, even if the interest rate on them is 0%? (Revolving 0% credit obligations could still limit your ability to qualify for a mortgage.)
  • Can you consolidate your credit card debt so you can save on the mortgage and take the monthly savings and prepay the consumer obligations? (Note: You would have to do the math ahead of time to determine if swapping your revolving credit card payments for an installment loan payment would help your debt-to-income ratio and your wallet.)

If you have monthly ongoing credit accounts, you could still be able to get a mortgage, but it’s going to add another layer of credit scrutiny that will play a role in your ability to buy a home or refinance one you already own. Simply put, more emphasis will be placed on the full credit, debt, income and assets. These changes are designed to promote fairness in the area of credit while helping to promote Grade A securities being delivered to Fannie Mae.

If you need guidance as to which debts would have the most impact on your ability to qualify, talk to an experienced mortgage lender who can clearly articulate how your liabilities may affect your ability to borrow.

[Offer: If you want to fix your credit before you buy a home, and you don’t want to go it alone, you can hire companies – like our partner Lexington Law – to manage the credit repair process for you. Learn more about them here or call them at (844) 346-3296 for a free consultation.]

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Do Americans Really Like the Big Banks?

happycreditscore

The financial crisis may have given big banks a bad name, but a new study suggests that, well, people may be really starting to like them again.

According to an annual J.D. Power retail banking study, big banks significantly improved in overall customer satisfaction in 2016, while midsize banks declined for the first time since 2010 and regional banks plateaued.

The study is based on responses from more than 75,000 retail banking customers of more than 130 of the largest banks in the U.S. It measures satisfaction in six factors: account information, channel activities, facility, fees, problem resolution and product offerings. Satisfaction is measured on a 1,000-point scale.

The big banks (defined as the six largest financial institutions based on total deposits as reported by the Federal Deposit Insurance Corp., averaging $180 billion and above) scored a total of 793 points, a six-point uptick from 2015. Midsize banks (defined as those with between $33 billion and $2 billion in deposits) scored a 797, but were down five points from last year. And regional banks (defined as those with between $180 billion and $33 billion in deposits) held steady with a score of 790.

The big six gained ground largely due to their technological offerings, scoring the highest in mobile (851), ATM (837) and online satisfaction (838). They’re also apparently been very successful with millennials — which is notable, given this group is the fastest growing customer segment.

This marks the sixth year in a row that large financial institutions have seen a rise in customer satisfaction — and there’s reason to believe the big-bank comeback will continue.

“Based on their current trajectory, the country’s largest retail banking institutions are expected to achieve a substantial lead in overall customer satisfaction vs. Midsize and Regional banks by 2020,” Jim Miller, senior director of banking at J.D. Power, said in a press release. “This trend puts Midsize banks most at risk. Regulatory costs have made it difficult for them to invest in strategies to compete with larger rivals, and unless they take proactive steps to change course, we expect this to result in consolidation in the Midsize bank marketplace.”

J.D. Power’s study measures customer satisfaction with banks in 11 regions. You can find the highest-ranked bank in your region below.

  • California Region: U.S. Bank (808)
  • Florida Region: TD Bank (837)
  • Mid-Atlantic Region: Northwest Savings Bank (819)
  • Midwest Region: UMB Bank (821)
  • New England Region: Bangor Savings Bank (842)
  • North Central Region: Huntington National Bank (830)
  • Northwest Region: U.S. Bank (798)
  • South Central Region: Trustmark National Bank (855)
  • Southeast Region: United Community Bank (841)
  • Southwest Region: Arvest Bank (843)
  • Texas Region: Frost Bank (862)

Remember, if you’re considering switching banks, you may want to give your credit a perusal. Some financial institutions use consumer bureaus like ChexSystems or Telecheck and will not allow you to open a new bank account if you have any bounced checks or unresolved bills reported to one of them, while others will not open an account if you have any negative history listed. You can check whether you have a file with these companies for free (once each year) by going to Chexhelp.com and Telecheck’s website. You can also check your credit generally for unresolved accounts or unpaid collection bills each year by pulling your credit reports on AnnualCreditReport.com or by viewing your free credit report summary, updated each month, on Credit.com.

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Image: BartekSzewczyk 

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5 Romantic Dates That Won’t Break Your Budget

cheap_date

Let’s face it, going out to the same restaurant every weekend with your significant other can get a little bit tedious. Traditional dates can often be expensive and dull. The good news is, with a little creativity, you can not only enjoy fun and unique adventures, but you could also keep the spark alive in your relationship.

So consider taking control of your relationship without losing control of your credit card with these five cost-effective date ideas.

1. Go on a Hike

This type of date can be rewarding, challenging and help you get into good shape. The only cost you are typically paying for is any necessary travel and parking, which usually is around $10. You may want to consider bringing a sandwich with you and enjoying it at the highest point of your hike. You can choose to go solely with the object of your affection or with another couple.

Going on a hike can also be a killer first date. Some trails can be long, so it’s a great time to get to know each other. If you are struggling to find a hike that best fits you, you can download a free app, like All Trails, to help you get started.

2. Chase a Sunset

Instead of paying for a costly dinner date, why not take your dinner to the beach or a nearby lake? Take a drive down an hour before sunset. You may want to consider bringing a meal to eat while you watch the light fade, or purchase a bite on the way. If you are feeling romantic, spice up your date with a little champagne to top off the night. Pro Tip: The prettiest sunsets happen after scattered showers. You will see more contrast with a little cloud cover in the sky. ‘Grey days’ can result in great sunsets.

3. Have a Picnic

As the weather gets nicer, instead of going out on a lunch date, you may want to consider enjoying lunch in the park. Take a fun bike ride over to your local park and bring a “picnic backpack” along. You may want to pack your bag with a blanket, fresh lemonade, fruit and mini sandwiches to enjoy together. You two can take in the beautiful weather while enjoying refreshing beverages and scenic views.

4. Attend an Exhibit

This type of date is not for everyone, but can be a great experience. It can be very romantic and enlightening to learn something new together, so why not start at an exhibit? Check out your local listings to find something you might both be interested in.

5. Movie Under the Stars

Instead of paying for a costly movie at your local theater, why not watch your movie with a view? Take your date to a scenic spot and consider bringing your laptop or tablet with you. You can bring a blanket and watch a movie under the stars. During the summer, many cities offer free summer movies in local parks. Be sure to check the schedule and consider planning your date in advance.

[Editor’s note: If you’re looking for other everyday ways to save money, check out these painless penny-pinching tips. And remember, while making loan and credit card payments on time can help you save money on interest rates and penalties, nearly everyone has room to improve their credit scores (which also can save you money). You can see what areas of your credit profile need work by getting a free credit report summary on Credit.com, updated every month.]

More on Credit Reports & Credit Scores:

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The 16-Cent Breakfast That Will Satisfy You for Hours

oatmeal

If you like oatmeal, you’re going to love this: You can eat breakfast for less than 16 cents every day. Yes, 16 cents. So, if you’re stopping for oatmeal at, say, McDonald’s a few times a week and paying $1.99 a pop (national average) — or at Starbucks, where you’re shelling out $3.45 for your oats (suggested retail price, and you know you’re also buying coffee) that’s an annual savings of somewhere between $285.48 and $513.24 on oatmeal alone.

You can find the full recipe for 16-cent oatmeal here. Below is the breakdown for the cost of oats three times a week (156 days a year):

$24.96: Oatmeal at home (oats at 12 cents, milk at 3 cents, sugar at less than 1 cent)

oatmeal_bowl

Oatmeal might be the cheapest healthy breakfast option around.
Photo: Diane Labombarbe

$310.44: Oatmeal at McDonald’s

$538.20: Oatmeal at Starbucks

Increase those oats to five days a week (260 days), and the savings start looking like an extra car payment (or two), a sweet new barbecue grill or a weekend getaway — between $475.80 and $855.40.

$41.60: Oatmeal at home

$517.40: Oatmeal at McDonald’s

$897.00: Oatmeal at Starbucks

Beyond the financial factor, oatmeal at home is just healthier for you. McDonald’s fruit and maple oatmeal has 290 calories, 4.5 grams of fat, and 32 grams of sugar, while Starbucks blueberry oatmeal has 220 calories, 2.5 grams of fat and 13 grams of sugar.

If you make your oatmeal at home, you can closely control how much fat and sugar are in it, but you can expect that a single serving of oatmeal with blueberries will have roughly 161 calories, 1.6 grams of fat and 14 grams of sugar. (The blueberries are going to tack on additional cost per serving, but you’re still looking at HUGE savings.)

You Have Time to Make Breakfast. Here’s How

Don’t think you have time to make oatmeal every morning? Make it ahead. Get bored eating the same thing every day? Mix it up a bit with different fruits and nuts. Try some bircher muesli. It’s delicious, and you can store it in the refrigerator for a quick grab-and-go breakfast that’s especially good in warmer months.

There are plenty of ways to save tons of money on food, especially if you’re willing to cook a little. You’ll find that planning ahead is key, as is using some smart shopping techniques.

Your credit score is also a huge deal when it comes to saving money over your lifetime. If you’d like to see how, check out Credit.com’s lifetime cost of debt calculator. You can also check your free credit scores, updated monthly, to see where you can make improvements on your credit report.

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Why We Decided Not to Have Kids

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With the legalization of same-sex marriage, queer couples have been solidifying relationships as fast as they can say “I do.” However, queer couples have familial considerations that, until June 2015, were like AstroTurf to grass.

Having children is not easy, financially or emotionally, and for older couples, the financial and emotional burden may be hard to overcome. That’s why we decided not to have children. We made this choice not because we don’t like kids but because of the time and place in which we were born.

In part, because our relationship experiences were five to 10 years behind our straight peers, we settled down about 10 years later. When our relationship evolved to a point where we could think about supporting kids, we felt it was too late.

At the time, we already had $51,000 in credit card debt. We knew we needed to pay that off as quickly as possible and then focus on saving for retirement. We couldn’t do that to the degree we felt necessary while giving our kids the life we felt they deserved.

The Financial Costs of Kids

According to the U.S. Department of Agriculture, the average cost to raise a kid until 18 as of 2013, the most recent year for which data was available, was $245,340. When we considered these costs in addition to our credit card debt and retirement needs, we were overwhelmed.

And when we considered the Human Rights Campaign’s estimate that the cost for a gay couple to have a domestic adoption ranges between $5,000 and $40,000, the prospects of having kids seemed downright impossible — and even selfish. We didn’t feel we could give our kids the life they deserved without sacrificing our retirement. If we did the latter, we feared we’d be a burden if we got to a point where we could no longer care for ourselves.

The Emotional Costs of Kids

Had we been more emotionally and financially mature when we were younger, having kids may have been more viable. Having suffered our financial insecurity, we didn’t want to put ourselves in a precarious position again.

We’ve shared many times that one of our best financial decisions was figuring out what we most want in life. This gave us the focus to pay off our credit card debt and helped us stay out of it. One of those two wants is being prepared for retirement.

Knowing what we do now, we would be on an emotional roller coaster, stressed about our retirement, while raising our kids. The expectations (read: costs) for children are high in dwindling middle-class America. Our relatives once told us they spent $2,000 each on their two kids for six weeks of soccer camp. That doesn’t even factor in costs for the rest of that season or the fact that neither of those kids will ever become professional soccer players. Still very young, those kids will be lucky if they’re able to stay interested in soccer, much less good enough to receive a college scholarship.

Cynics will say we shouldn’t get caught up in the superficiality of raising kids today, but we know that’s easier said than done. It’s not socially acceptable to advise people to not have kids, and there’s often a stigma for couples who don’t. Some even make the decision not to have kids out to be selfish and self-serving.

For us, our concern was exacerbating the financial mistakes we made in our younger years and being a burden on our kids. When deciding whether or not to have kids, it’s important to remember your kids’ whole life — not just the day the stork brings them home.

[Editor’s Note: You can monitor your financial goals, like building a good credit score, each month on Credit.com.]

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

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The Difference Between Home Equity and Personal Loans

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If you’re a homeowner in need of some cash, two relatively common types of loans might come to mind — a home equity loan and a personal loan. In order to determine which will be right for your particular situation, it’s important to understand the main differences between the two.

Here are how each of these two types of loans work:

For a Home Equity Loan

The home you live in is valued at a certain amount, and depending on how long you’ve been living in it and making mortgage payments, you’ll still owe a certain amount on your mortgage. A home equity loan would allow you to recoup the difference between those two numbers (your house value and what you owe) in the form of a loan.

Typically these types of loans are repaid in equal monthly payments over a fixed period of time (otherwise known as fixed-rate installment loans), and borrowers are free to use their loan for whatever expenses they want. While you can usually apply for and receive a home equity loan from the same lender where you received your original mortgage, it’s a smart idea to shop around for the best interest rates you can find.

For Personal Loans

Personal loans have become a common way for people to gain access to money to pay off debts or pay for other big-ticket items. Like home equity loans, personal loans will usually be fixed-rate and generally involve borrowing a lump sum of money that you’ll pay back in equal installments over a specific period of time. While you can certainly find a personal loan option available through your bank or credit union, it’s also worth looking into some of the other non-traditional personal loan providers popping up (find some examples here), which may offer competitive interest rates and other advantages to your more traditional options.

There are both advantages and disadvantages to each of these options, and a number of factors will go into your decision for which is right for you. To understand more about the differences and trade-offs of each and which might be better for you based on your own needs, check out this piece.

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Top 4 Personal Loans for an Engagement Ring

Engagement ring_lg

Getting engaged is an exciting yet nerve-wracking milestone. You’re eager for your partner to say “yes” and hoping she’s impressed by what she sees when you open the box.

The best way to afford the ring of her dreams is planning early and saving up. Financing an engagement ring should be your absolute last resort. After all, there are other larger expenses that come after marriage including moving, buying a home or starting a family that you could spend that money on instead.

Still, if you decide financing is right for you, here are a few personal loans that provide funds for engagement rings:

Earnest

Rates from 5.25% APR

Earnest has the lowest interest rate of the loans on our list and no origination fee. Loan terms are 1, 2 and 3 years. Earnest will lend you $2,000 to $50,000. Other than your credit score, Earnest will look at your income, education, earning potential and other factors to decide if you’re eligible for the loan. There’s no origination fee and no prepayment penalty. There is, however, a hard pull of your credit report.

Earnest could be a good option if you have limited credit history, but an offer letter or current position that pays you more than enough money to cover loan payments. After submitting an application, you’ll get a response within 2 business days.

earnest

Apply Now

LendingClub

Rates from 5.32% APR

LendingClub is a peer-to-peer loan marketplace where people who need to borrow money are matched up with investors. Loan terms range from 2 to 5 years. You can borrow up to $40,000. The origination fee is 1% to 6%. Your origination fee is assigned based on your credit profile. The higher your credit score the less you’ll pay for origination. You can check to see if you’re approved and your rate without harming your credit score.

After applying for LendingClub, peer investors will see your profile in the marketplace and hopefully fund your loan. Once your loan is funded by investors and your application documents check out, you’ll get the money wired to your account.

To get the very best rates through LendingClub you’ll need an excellent credit history, low debt-to-income ratio and a high credit score among other factors.

LendingClub

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Karrot

Rates from 5.73% APR

Karrot gives out personal loans from $5,000 to $35,000. Loan terms range from 3 to 5 years. The loan has an origination fee of 1.05% to 4.75% that’s non-refundable and deducted from the loan upfront. Karrot doesn’t charge prepayment penalties. Other than origination, fees will only come into play if you skip out on a payment, have a check returned or request copies of your loan documents.

Shopping for loan rates on the site won’t ding your credit score. Karrot doesn’t go into specifics about the credit score you need to qualify, but you do need to at least have a credit history and a bank account to verify your income.

Karrot

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Prosper

Rates from 5.99% APR

You can borrow as little as $2,000 and up to $35,000 from Prosper, another peer-to-peer lending marketplace. Loan terms are 3 and 5 years. Prosper loans have a 1% to 5% origination fee, but no prepayment penalties.

At a minimum, you must have a 640 FICO score to qualify for Prosper. You also need to have a debt-to-income ratio less than 50%. Shopping for rates with Prosper won’t impact your credit score either.

PROSPER_LOGO_3_COLOR_RGB

 

Apply Now

Honorable Mention – LendingKarma

LendingKarma isn’t a lender. Instead, it’s a site that manages loans between people who know each other. As a rule of thumb, you should avoid borrowing or lending money to friends and family since involving money in relationships tends to cause drama.

But, if someone you know agrees to help out and you’re both on the same page, LendingKarma can make your life easier. LendingKarma takes care of the logistics of borrowing including the contract, payment schedule and friendly reminders. The fee for contract administration is paid one time and $50 to $100 per loan.

Final Thought

Financing an engagement ring is not something we recommend. It’s just not worth going into debt over. Explore all of your options instead. Here are a few:

  • Get what you can afford in cash now and upgrade when you have more money.
  • Try unclaimed diamond and discount jewelry stores to get a deal.
  • Skip the diamond altogether for gems that are a little more affordable like amethyst or sapphire. These gems are popular now anyway.
  • Buy a stone similar to a diamond like moissanite or a replica until you can get a real one. If you choose a “fake” starter ring, make the decision as a couple. You don’t want her to find out from another source that her ring isn’t a true diamond.

At the end of the day, an engagement ring is supposed to symbolize commitment. Sadly in some ways it’s morphed into a symbol of status. That doesn’t mean you should feel pressured to get a ring (or ask for a ring) you can’t afford. Do what’s best for you.

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