Category Archives: Finances

Finances

3 Dangers Of Home Equity Loans

The idea of a home equity loan or line of credit seems like a great idea. After all, you get to tie the payments into your mortgage and since you’re already used to making monthly payments anyway, you feel that adding a little bit more to it wouldn’t be such a bad thing. Now you can take care of that roof or buy new windows and rugs for the house, getting more value out of your house than you presently have. Sounds great, right?

Unfortunately, for most people life isn’t quite that simple. Many find within a few years that the burden isn’t what they were expecting and it can be hard to get out of. Here are 3 things to worry about.

1. You could be approved for way too much money. Remember the first time you got a credit card that approved you for more than $5,000? Remember promising yourself that you would never max that out? How long did it take you to max it out?

The average home equity loan allows you to shoot for anywhere between 50% to 80% of the combined total of what your home is currently appraised for and how much you have left to pay on your home. So, if you owe $50,000 on your home but it’s appraised for $150,000, you could be approved for anywhere between $50,000 to $80,000.

That sounds good until you realize that you now have to pay whatever your normal mortgage is and a separate payment on the home equity as well. Even at a rate of 7% are you ready for large payments like that, especially if you didn’t refinance your home at the same time?

2. In many states, home equity loans are set up with variable interest rates. What this means is that you might start off with a low rate, but it’s always changing based on how the economy is. If you kept up with what caused the housing crisis and saw how many people lost their homes because they couldn’t afford to make payments on suddenly high interest rates then you know what this danger could be.

Suddenly making your regular mortgage payment seems like a great deal. If you’ve spent little on your home equity you’re probably fine, but what if you got one of those large loan amounts and spent a big chunk of it on home improvements, thinking you’d have more time to get the balance down?

3. You could get turned down. I know, you’re thinking so what, at least you don’t have big bills to worry about. Well, it seems credit agencies rank failure to be approved for a home equity loan very high, and it pretty much makes your credit rating and score take a hit. If you were hoping to get a store credit card it’s not happening for awhile, and you’ll have problems even getting a gas credit card.

Lenders have tightened up standards after the financial crises of the previous 4 years so you’d better ask a lot of questions before even considering it if you hope to be approved. However, you also need to know your spending patterns, your limits, and your tolerance for big liabilities.
 

Finances

Increasing Income

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In our previous post we talked about the importance of decreasing debt. Now we’re going to talk about the importance of increasing income.

Most of the time when you hear about businesses trying to get control of their finances, you only read about them laying off workers, cutting back on benefits, or raising prices. In our post on debt, we talked about ways you could save money.

Nothing works if all you try to do is cut and slash expenses. Even the federal government realizes that at some point you have to raise revenue; that’s what taxes do. For individuals or small businesses, it’s not as simple as raising prices, or even going in and asking for a raise. If you think about a raise, how much does a 3% raise help you when food costs have gone up 5%, insurance has gone up 10%, etc?

This means that you have to think about ways to increase your income. There’s not a single person in the world that needs money who wouldn’t want this to happen, and yet very few people take a shot at it. I’m going to help you out by offering some ideas on how you might be able to not only increase your income, but maybe even find a new career at the same time:

* Set up a website and sell stuff. This can seem scary but most of the time you can find low cost ways to get started. There are also known systems where, if you follow them to the letter, you can find ways to generate an income. It’s not easy, and it does take work, but it can be done. Think about it this way; once you get it set up properly, you might be able to make anywhere from $100 to $500 a month in the right field, and you make money at all times of the day. Just don’t be scammed by anyone who tells you that you’ll be making thousands in a few months; that almost never, NEVER, happens.

* Figure out what your knowledge base is and then figure out how and whom to market it to. In The Millionaire Messenger by Brendan Burchard, he talks about how everyone has a skill and has something to share with others who are willing to pay for it if you can figure out how to reach them.

* If you have a hobby you’re good at, you can make money at it. Have you been to a craft show and seen creations made by other people? Have you gone to a seminar of any kind where the person is talking about something they did or figured out how to do better than others, such as grow the biggest roses, train dogs to get the mail, or fly robotic helicopters? There are always people interested in the same thing you are and if you’ve mastered even one small piece of it, someone will be willing to pay you for it.

* Get a part time job. When all else fails or you can’t think of anything, this is always a viable option. Even a minimum wage job at 20 hours a week would give you an extra $145 a week, or almost $600 a month in extra cash. That’s a car payment, more food, the movies, or just paying off debt quicker, either for a short or long period of time. If you make more, even better. Yeah, there will be taxes to deal with, but less with a part time job.

These are just some ideas to think about, but it’s important that you do think about these ideas if you want to pay off bills or have more money for other things.