home equity

Choosing An Equity Loan In A Rising Rates Environment

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Interest rates are expected to climb soon. What are the differences between a home5b368-house2bmoney equity line of credit (HELOC) and a typical home equity loan? How does an environment of rising interest rates impact each choice?

It’s true that most financial experts are predicting an interest rate hike (or multiple hikes) this year. With rising rates, borrowing against the equity of one’s home will likely become a more popular choice. That’s because people will choose to fund home renovations and other high-priced needs with their equity instead of moving to a new home with a mortgage that has higher interest rates. Refinancing their existing mortgage for a lower payment will no longer be a viable option either, since they probably already have a great rate they won’t want to give up.

With that said, here are some basics you’ll want to know about each kind of loan:

HELOCs

1.) How they work

A home equity line of credit is a revolving credit line that allows you to borrow money as needed to a limit, with your home serving as collateral for the loan. Lenders approve applicants for a specific amount of credit by taking a percentage of their home’s appraised value and subtracting the balance owed on the mortgage. They may also consider any outstanding debt you have, your income and your credit history.

If you’re approved for a HELOC, you can spend the funds however you choose. Some plans do have restrictions, though, and may require you to borrow a minimum amount each time, keep a specific amount outstanding or withdraw an initial advance when the line of credit is first established.

2.) Pros

HELOCs allow for more freedom than fixed home equity loans. Since you’re opening a line of credit and not borrowing a set amount, you can withdraw money as needed from the HELOC over the course of a set amount of time known as the “draw period.” This is especially beneficial if you’re renovating your home or using the money to start a new business and don’t know exactly how much money you’ll need to fund your venture.

Repayment options on HELOCs vary, but are usually very flexible. When the draw period ends, some lenders will allow you to renew the credit line and continue withdrawing money. Other lenders will require borrowers to pay back the entire loan amount at the end of the draw period. Others allow you to make payments over another time period known as the “repayment period.”

Monthly payments also vary. Some require a monthly payment of both principal and interest, while others only require an interest payment each month with the entire loan amount due at the end of the draw period. This can be beneficial when borrowing for an investment or business, as you may not have the funds for repayment on a monthly basis but anticipate earning enough to pay back the entire loan.

3.) Cons

HELOCs have variable interest rates. This means the interest you’re paying on the loan can fluctuate over the life of the loan, sometimes dramatically. This variable is based on a publicly available index, such as the Wall Street Journal Prime Rate, and will rise or fall along with this index. Lenders may also add or subtract (Destinations Credit Union’s rate is Prime Minus 1%*) a few percentage points, called margin, of their own.

Obviously, taking out a HELOC in an environment of rising interest rates means your rates are likely to increase over the life of the loan. In addition, HELOCs that only require repayment of principal at the end of the term can also prove to be difficult for some borrowers. If you have trouble managing your monthly budget, you may not be able to pay back the full amount on time. In that case, you will be forced to refinance with another lender, possibly at an unfavorable interest rate.

Home Equity Loans

1.) How they work

A home equity loan, also secured by your home’s equity, allows you to borrow a fixed amount that you receive in one lump sum. The amount you will qualify for is calculated based on your home’s loan-to-value ratio, payment term, your income and your credit history. Most home equity loans have a fixed interest rate, a fixed term and a fixed monthly payment.

2.) Pros

The primary benefit a fixed home equity loan has over a HELOC is its fixed interest rate. This means the borrower knows exactly how much their monthly payment will be for the entire life of the loan. In an environment of rising rates, this is especially beneficial for the borrower, as their loan will not be subject to the increasing rates of other loans. Also, the interest paid on a home equity loan is often 100% tax deductible (consult your tax advisor for details).

Unlike the repayment policy of HELOCs, every payment on a home equity loan includes both principal and interest. Some loans allow borrowers to pay back larger sums if they choose, but many will charge a penalty for early payments. Regardless of policy, at the end of the loan term, the entire amount is paid up and you can forget about the loan.

3.) Cons

Generally, fixed rate Home Equity Loans start out at a higher rate than HELOCs, so rates must rise a lot to make this the better deal for interest rates.  Taking out a fixed home equity loan means paying several fees. Receiving all the funds in one shot can also be problematic if you find that you need more than the amount you borrowed. Also, the set amount is due every month, regardless of your financial standing at the time. And, of course, if you default on the loan, you may lose your house.

Carefully weigh the pros and cons of each kind of loan before tapping into your home equity. Shop around for the best rates and terms, and be sure to calculate whether you can really afford the monthly payments of your chosen loan.

Don’t forget to call, click, or stop by Destinations Credit Union to find out about the loans we have available for you.

Your Turn: Have you ever borrowed against your home’s equity? Share your experience with us in the comments!

SOURCES:
https://www.franklintempleton.com/investor/campaigns/templeton-global-bond-rising-rates?gclid=CjwKEAjw5_vHBRCBtt2NqqCDjiESJABD5rCJP3FZKzsQc7EeIo3T0s4DMxIgvNCsL4At-X8K8nzR7BoC5-fw_wcB
https://www.google.com/amp/www.csmonitor.com/layout/set/amphtml/Business/Saving-Money/2017/0219/Why-a-home-equity-loan-is-a-smart-choice-as-rates-rise
http://www.schwab.com/public/schwab/active_trader/trading_insights/trading_strategies/6_strategies_for_dealing_with_rising_interest_rates.html
http://homeguides.sfgate.com/choose-home-equity-loan-2651.html
http://online.wsj.com/news/
http://files.consumerfinance.gov/f/brochure.pdf
http://www.realtor.com/home-finance/homebuyer-information/what-are-liens-on-a-home.aspx

Your Real Net Worth

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For accountants, your personal net worth is one of the simplest calculations they might be asked to perform. Add up your assets in column A, add your debt in column B, then subtract B from A to find your net worth. It’s a number you should know, or at least be able to estimate, and it’s good to check it every year.  Since it’s March, which is the sweet spot between New Year’s resolutions, January credit check-ups and tax time, there might not be a better time to figure out your net worth than right now.  When you do, don’t forget all of the value that might not translate into worth. We’ve got a short breakdown for you, along with a way to maximize the value in your life while minimizing how much it costs you: 

Your education increases your net worth, even though it may not look like it. Very few investments offer the rate of return that continuing education does. Those who finish their college degree earn, on average, about twice as much as those with a high school diploma over the course of their lifetimes, and the gap has been widening for at least 35 years. Still, your future earning potential doesn’t show up on your net worth, even though your student debt does. If you’re trying to decide whether to go back to school, take a few extra classes or get a new certification, the cost may seem intimidating since there’s no immediate benefit. Don’t let that fool you. 

An education can also increase the value you get out of your life, helping you find a job that makes you happier or getting that promotion you’ve been wanting at your current employer.  Outside of work, going back to school can help you learn a new language or skill you’ve always wanted to learn, get you up-to-date on current technology and trends in your field, and model good life choices for your children.  Just wait until they see you doing homework on a Friday night!

It also doesn’t have to cost an arm and a leg, and you don’t have to try for federal financial aid.  We have a variety of products designed to put some money in your pocket now, whether it’s a home equity loan, a personal loan, or any of our other financial plans.  If you’re thinking to yourself, “But I’ll be 40 (or 50, or 60) by the time I finish,” remember, you’ll be 40 (or 50, or 60) anyway.  


Find out information about our loans that could make it happen.

Your kids are a drain on your net worth, but a blessing in your life.  Let’s face it, kids are expensive. The Department of Agriculture estimates that raising a child born this year to the age of 18 will cost about $250,000.  While a quarter of a million dollars is a lot of money, that only gets them to age 18, but with tuition prices skyrocketing and kids staying at home longer than they have historically, the actual figure of raising children today gets much higher much faster.  Financial analysts predict the average four-year tuition for a public university in 2030 will be $250,000, or about the same as it cost to raise that child from birth to dropping them off at the dorm.  If you have two children, you could easily spend one million dollars on them before they leave college.  In your net worth, this is only reflected as a constant drain on your savings, a net negative.

The value of children is probably pretty obvious to you, but there has to be a way to lower the cost of raising them, right?  First, let’s cut down those college costs, because that’s half the battle.  We’ve got a Coverdell IRA college savings programs that offer good returns while also being tax-deductible.  Getting to $250,000 might seem like a pipe dream, but saving even a little every month can add up quickly, thanks to compound interest.

Next, let’s find a way to save money on school while helping your child now. There are a lot of ways to encourage a gifted child, from tennis camp to musical instruments.  If your child wants to stare at the Internet all day, maybe you should talk to them about a new laptop and some software engineering classes for kids.  If they like the outdoors (or you’d like them to go outside occasionally), try a digital camera.  All of these ideas cost money now, but could result in scholarships down the road, all while giving them a head start on a career or passion they can follow their whole life.  If you’re wondering how you can pay for all of that, check out our savings accounts.  You can contribute a little money every month, and you’ll have enough for those classes or that camera before you know it.

Your home is your biggest investment.  When was the last time you checked up on it?  When you bought your house, it might have been the best available house in the neighborhood for the price. After all, if it weren’t, you would have bought some other house, right?  Is it still the best in the neighborhood for the price?  Is the neighborhood still regarded the same way by home buyers?  How do you know? This weekend, it’s time for window shopping. Take the value of your home from your last appraisal and check the Internet for houses in your area in the same price range.  How does your house stack up? Make a list so you can compare between houses.  Next, check your decor. When you moved in, did the house feel a little dated?  Did you do anything about it? How many of the houses you saw online seemed newer or more fashionable? 

After you finish your house hunting, you’ve got three options:  If you saw a house that you like as much as the one you’re in now, but it’s going for less money, you could think about moving there.  After all, mortgage rates are incredibly low for the time being, and if you could be just as happy in a less expensive house, then that’s money you could use on something else.  If your house is as good or better as the others in the neighborhood, but could use a facelift, you might want to think about remodeling.  Remodeling your home can increase its value and make it easier to find a buyer, so part of what you spend now may come back to you when you sell, with the added benefit of living in a nicer house in the meantime. Finally, if your house is still the best around, think about refinancing while rates are low.  You’re probably not going to find fixed rates this low for a long time (if ever), so locking in that lower rate now can save you tons of money going forward, while cashing out some equity can help knock down any pesky credit card debt you need to take care of, so you only need to write one check every month, while paying far less in interest.

Brought to you by Destinations Credit Union

New Year’s Resolutions

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By the end of January, many of us will have forgotten all about our New Year’s resolutions. It can be difficult to change our lives, even when it’s for the better. Knowing this, we want you to know that, in your financial life, there are changes you can make today that will last the entire year. Here are three resolutions you can set today and some follow-up goals for the rest of the year. 

Today:  Save money automatically.  If you want to improve your net worth, build financial security or make a big purchase at this time next year, the easiest way to do so is simply to automate your savings. You can set up an automatic transfer to savings so you won’t be tempted to spend it. With many of our savings products, you can even access the money if an emergency arises. 

Later:  Set up an emergency fund.  How much do you have set aside for a rainy day or to cover the unexpected?  If an emergency came up, would you have to sell investments, cash in your retirement or borrow from family?  Make this the year for setting up your emergency fund.  You’ll eventually want to have at least six months of income put aside where you can get to it. for now, start with $1,000, a month’s income, or whatever feels realistic.  It might be difficult to get in the habit of saving money, but this is the resolution you’ll be really happy you kept if something unexpected happens. 

Today:  Pay down your debt.  If you’re struggling with debt, there are three basic solutions for paying it down, getting your payments under control and getting ahead of debt.  You can make more frequent payments, pay more each month or lower your interest rates. 

Paying more frequently makes sense if you get paid every two weeks: You might already know about the advantage of bi-weekly payments, which let you make the equivalent of an extra monthly payment every year.  If you’re already doing that or you don’t get paid on a weekly schedule, you can also increase the amount you pay every month. Even an extra $25 per month is $300 per year, and you can set up those payments automatically. Make sure you increase your payments the most on the bills with the highest interest rates first, even if they don’t have the largest balances. 

Finally, you can get ahead of your debt by lowering your interest rates. You can call the creditors who are charging you the highest interest rates and pay the bill, transfer the balanceto a credit card or loan with a lower interest rate, or see if they’ll offer you a lower rate due to improved credit. One way to make this work is to arrange a home equity loan at a lower fixed rate, then move your balances with the highest interest rates to the loan. 

Later:  Get control of your spending. It’s time to make a budget and stick to it. Build rewards into the budget so you’ll actually be happy to follow it. Take a look at what you use your credit cards to buy, then budget at least some money for those items or activities. You’ll never keep a resolution like “stop eating out,” but you have a good chance of keeping a resolution like “don’t go over the eating out budget.” This also gives you 12 chances to succeed: Every month you can do better than the month before. 

Today:  Make a drawer.  Many of us who have had the misfortune to act as the executor on a loved one’s estate have had the terrible task of finding all the savings, debts, insurance policies and other financial parts of their lives.  Don’t do this to whomever is taking over your life. Empty a drawer in your kitchen or study and put as many relevant documents in it as you can find.  Make a list of everything in the drawer and everything that’s missing. Put a copy in the drawer and another with your will so it’s as easy as possible for the grieving individual in charge. As with any sensitive, personal data, keep this information in a safe place that only you and the likely executor(s) of your estate will have knowledge. 

Later:  Fill the drawer. What’s missing from the drawer? Do you have a will? How much life insurance do you have?  Do you have enough savings to take care of your children? What about a plan for how they will receive that money? 
Talk to a financial planner and insurance specialist to make sure you’re set. With any luck, 2016 won’t be the year you need it, but if it is, it’ll be better for everyone involved if there’s a plan.
And that’s it … three things to do today and three projects to complete during the year.  None of them are out of reach, so you’re setting yourself up for success by making resolutions you can keep.

My Parents Are Showing Signs Of Dementia. How Can I Protect Them Financially?

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As the country gets older, the mounting problem of dementia will only get more prominent. Already the sixth leading cause of death in the country, and the only killer among the top 10 that is completely unpreventable, the Alzheimer’s Association predicts that, by the year 2050, Americans will spend over one trillion dollars on treatment for dementia, five times the current price tag.  For those of us whose loved ones suffer from the disease, it’s a trial every day.  We can’t do anything about the emotional or physical toll the disease takes on loved ones and caregivers, but the devastating financial costs can be mitigated with a combination of planning, transparency and teamwork. 

Q:  I think one of my parents is showing signs of dementia. What can I do now, before the symptoms get worse? 

A:  Because dementia is a group of symptoms, rather than a specific disease, early identification is important, but a full diagnosis may be far off.  Those early days of uncertainty, in which the good days outnumber the bad, can be very tough.  Even if it’s difficult, though, taking decisive action early on is very important. 

The first step is to assemble a team of loved ones and caregivers. Unfortunately, this can be tougher than it sounds.  The sufferers of many diseases can readily identify their own symptoms, but one of the warning signs of dementia is forgetting things and also not realizing that they’re being forgotten. What that means is that the sufferer of dementia is an unreliable advocate on their own behalf.  It also means that, if they deny their problems, other family members may take their side in a misguided effort to show affection and solidarity.  Among the most likely culprits is the sufferer’s spouse, who has likely been shouldering an increasing load to compensate for the sufferer’s worsening mental condition.  Still, anyone who might be able to help should be made part of the early planning.  Also consider bringing in those who won’t help, but who have the ability to derail your plans, either through gossip and complaints or legal challenges. 

If you are your parents’ primary caregiver, you will be spending their money.  Someone in the family will resent that.  Be prepared. 

Q:  Okay, so what do I do once I’ve assembled my team of loved ones? 

A:  You need to sort out several aspects of caregiving.  If they have a will or living will, see if you can read it.  Find as many answers as possible before you have the meeting.  Talk to a lawyer.  Talk to your parents’ financial institutions and then come talk to us.  You’re going to need to find all of their money.  Maybe you’re very lucky and your loved one has left a detailed accounting of their finances. Most likely, though, you’ll need to get legal recognition as the primary caregiver or receive power of attorney before you can access the accounts.  You may not be able to do so before the family meeting. Do your best. 

Use the family meeting to make plans.  Who’s going to pay for what? What happens if the sufferer needs home care?  Will your parent go to a nursing home?  Will you bring in a nurse?  Will he or she move in with you or one of your siblings?  Bear in mind that planning at this stage is more about transparency, openness, and validating everyone’s feelings.  Few of the best laid plans made today will actually be followed.  That’s fine.  Flexibility is important and so is teamwork. Listening to others’ needs at this meeting will go a long way toward building trust when you need to make a financial decision with your parents’ money down the road. 

Q:  Is there anything I can do to help?

A:  Buy a big box of disposable pens and a bulk container of note pads and sticky notes.  Put them all over the house; at every phone, next to a favorite chair, next to the stove, even in the bathroom.  Your plan is to remove every barrier to writing so that the sufferer will be more likely to write things down. Not only does the writing help ease the symptoms of dementia, but having pads and stickies everywhere can be a coping mechanism to make the passage from the early stages to full onset dementia last as long as possible. 
Q:  What can Destinations Credit Union do to help?

A:  We’re not medical experts, but we are financial experts. Come see us and we’ll talk you through some of your options.  We can help turn your parents’ long-term savings into cash if it is needed now. We can help combine various accounts of theirs into consolidated accounts that you can access.  We can set up a home equity loan to bring in the medical equipment or any other changes you need to make to the house should you bring a parent into your home to live with you.
Most importantly, we can help make sure you haven’t forgotten anything. This is a tough time and we’re here to support you.
Sources:

http://www.alz.org/facts/ 

http://www.alz.org/ 

http://www.stuffyoushouldknow.com/podcasts/how-dementia-works    

The Financial Lessons Of James Bond

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Everybody’s favorite spy is back in theaters with the release of “Spectre.” To mark the occasion, we decided to take a look at his 50-plus year history to see what lessons we could learn about life and money from the greatest secret agent in film history. 

Develop your revenue streams. The Bond movies regularly earn more than $100 million in product placement, ensuring the profitability of his missions long before you or I pony up $7.50 for a ticket. For instance, in the Ian Fleming novels, James Bond wears a Rolex Oyster Perpetual. It’s a signature accessory, and in one scene early in the series, he drops the watch onto his fist to use it as a knuckle duster when punching a bad guy in the face.  The scene is beloved by many fans of the novel, which is why it was recreated during a scene during the Daniel Craig era. But it’s surprising when Craig’s Bond makes the move and he’s wearing an Omega watch.  Of course, the most famous Bond-worn watch is Sean Connery’s Rolex Submariner, but he’s also worn a digital Seiko and a Tag Heuer.

Bond has also forsaken his Aston Martin in favor of BMWs and Jaguars, while appearing in commercials for Heineken – a beer that should not be shaken or stirred. He’s indulged in Red Stripe and Coke Zero, flown Pan Am, used L’Oreal, and if you want to dress the part, you need look no further than Tom Ford, the luxury menswear designer responsible for providing the suits and evening wear for the Daniel Craig era. 

Do you have enough revenue streams?  Could you find other ways to make money?  There’s never been a better time to develop additional income.  With the prime interest rate so low, you can lock in an amazing fixed rate on a home equity loan to pursue your business idea or side project for building your fortune during the weekends. You can distribute your product, cultivate a customer base and conduct all of your transactions online, leaving a much larger chunk of your capital to produce a high-quality product or service. 

Keep cool.  In “Goldfinger,” or any of the Connery-era Bond films, the climax tended to revolve around an impending countdown to doomsday, stopped at the last moment by Bond.  He’s fought enough odd-looking henchmen to fill a small stadium, dispatching each with a quip that mixed fantastic timing with unflappable calm.  He’s flown airplanes sideways through hangars and driven tanks through Moscow’s rush hour.  Through it all, James Bond stays cool.  The man can scuba dive up to the bad guy’s island hideout, unzip his wet suit and immediately have on a perfectly pressed tuxedo.  Cool.

Are you cool?  Not in terms of driving the carpool and earning the grudging respect of the tweens in the back seat, but in terms of the ability to drop a one-liner in the face of worldwide annihilation. To put it another way, how rattled are you by the rough year the stock market has had? Don’t let a hiccup on Wall Street ruin your retirement. Instead, buoy your investments with our fantastic savings products. You can reduce your exposure to risk, making it easier to take a deep breath, while having easier access to your money in times of stress. 

Keep your house in good order.  The film plot of “Skyfall” was two hours of “The Dark Knight” followed by half an hour of “Home Alone.” The climax of the film involves a return to Bond’s childhood home, which he manages to turn into a fortress with an afternoon’s work. 

If your house isn’t ready to repel invaders, don’t worry.  Home improvement is easy with a home equity lineof credit.  You get all of the spending flexibility of a credit card, so you can use the money you need when you need to on a revolving line of credit, paying it back in chunks when you can afford to do so, but you can do it at a much lower rate than a credit card because you secure the loan with the equity you already have in your house.  And the interest you pay may be tax deductible (consult your tax advisor on this one). 

Don’t be fooled by the luxuries James Bond enjoys.  It might not seem like a path to financial security, but what if you bought all of the luxuries that James Bond buys? In the films, we’ve seen him drive incredibly expensive vehicles in wonderfully exotic locations while wearing fabulously expensive clothes. We’ve also never seen him buy any of them. He’s received them from MI6, which is why it’s so easy for him to blow them all up.

Are you trying to live the James Bond lifestyle?  James Bond doesn’t even live the James Bond lifestyle. He lets the taxpayers foot the bill while he gets by on a public servant’s wage. You’ll be much happier living within your means and finding the luxuries when you can.

Sources:
http://www.businessinsider.com/heres-how-james-bonds-relationship-with-product-placement-has-changed-2012-10#the-bond-girls-get-in-on-corporate-tie-in-action-too-halle-berry-wore-exclusively-revlon-makeup-and-drove-a-thunderbird-throughout-die-another-day-when-she-played-jinx-the-sexy-american-spy-6 
http://www.dailymail.co.uk/tvshowbiz/article-3285408/Making-killing-17-different-brands-linger-screen-new-Bond-film-Spectre-007-profits-endorsement.html 
http://www.007james.com/ 

Three Questions, Then Three Questions

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As 2015 draws to a close, it’s time to figure out if you’re in your best possible financial shape.  While performing a self-audit can seem a daunting task, we’ve created a simple way to get started. Below, we ask three questions about where you are now compared to where you were a year ago. Your answers should help you understand if you made the right choices in 2015.  After that, we’ve got three more questions to help guide your 2016. 

2015:  Do you have less debt than a year ago?

2016:  Could you pay off your credit cards this year if you had to do so? 

December can be a rough month for our credit card statements, so you might already be dreading the daily arrival of the mail just as much as your kids eagerly anticipate it.  But debt is part of life, and the kids can’t unwrap a copy of the family credit score, so you grit your teeth and swipe.  Don’t let the fact that you have credit card debt be a source of guilt or shame, and definitely don’t assume that burden even if you are carrying some credit card debt into 2016. Instead, take a look at where you are now, then compare it to where you were a year ago.  Have you reduced your debt in 2015?  If not, why not?  Maybe you had an emergency you needed to cover.  Maybe this was the year you installed the home theater you’ve been wanting.  The important thing to ask yourself is whether you’ve reduced your credit card debt, and if not, is what you bought with that debt worth it to you now?

With other forms of debt, the questions can be more complicated. While you’d like to have a smaller outstanding balance on your mortgage or car note, reducing the amount you owe might not be the best idea.  After all, mortgage rates are incredibly low right now, so turning your credit card debt into a home equity loan is a smart move (provided you don’t rack up new credit card debt!). You might have a new debt balance that you didn’t have at this time last year if you bought a new car, upgraded the kitchen, or went back to school. 

If it’s time to clear up your debt, try one of our home equity or personal loans. Or, if you have higher rate credit cards, transfer the balances to a lower rate Destinations Credit Union MasterCard Credit Card.  If you reduce your rate and make the same payments, your debt will dwindle more quickly. 

2015:  Do you have more money saved than you did a year ago?

2016:  What would happen if you didn’t get paid next month? 

Again, the best way to determine your financial position today is to compare it to where you were a year ago, and savings is important.  If you have more saved this year than you did last year, it means your budget is working and you’re headed in the right direction.  If you have less saved than you did a year ago, try to determine why that is.  Did you have to dip into savings to pay the down payment on a long-term purchase?  Did you have to cover a gap in employment?  Just like with debt, figure out how much less you saved, compare it to what you bought, and determine whether or not the purchase was worth it.

Just like with debt, however, simply looking at the bottom line probably isn’t enough to tell you if you’re making the right moves.  Having an emergency fund that represents six months of your income is incredibly important for easing your family’s mind and protecting them if something unfortunate happens. But having an emergency fund much larger than that isn’t necessarily better.  You don’t want to be a dragon, sleeping on a hoard of gold simply because it’s pretty. Instead, put that savings to work for you in the form of a retirement fund, college savings or even the down payment on a second home to use as a rental property.

If you’re looking to add to your savings, check out our savings plans (hint: if you want to earn a really high rate, attach a Kasasa Saver to a Kasasa Rewards Checking and earn more every month you qualify!). To save for a child’s education, take a look at our Coverdell IRA Plan. 

2015:  Is your credit score higher than it was a year ago?

2016:  What will you do this year to improve your life? 

These questions might not look like they go together, but they do.  This is the section where you take a big-picture look at your financial world. If your credit score is improving, then you’re probably making the right choices overall.  If not, it would be good to find out why that is the case.  Make sure all of the charges on your credit report are accurate, work to tackle your debt, and try to bring in more income.  If you work to improve your credit score, you’ll almost certainly have to improve your overall financial standing. Destinations Credit Union Members can get unlimited free financial counseling to help you with this through our partnership with Accel.

But your credit score isn’t your life.  What are you going to do this year?  Are you going to take a trip to Europe?  Get started in a new career?  Buy a vacation home on the lake?  Learn a new language? What is it you’d like to actually do?

Once you know what you want to do this year, figure out what it’ll take to make it happen.  Can you save for it?  Will you need a loan?  Is your credit score too low for a second mortgage?  Whatever is in your way, make that your next financial goal.  Get your savings and debt into good positions, and then try to live your life.  After all, that’s what the money is for.  

This Guy Paid Off His Mortgage In Three Years. So, Why Does He Regret It And Why Is Everyone Angry At Him?

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There’s not much in life that is more freeing than finally paying off a large bill. Suddenly, our checking accounts are flush, the future feels more open, and even our favorite jeans seem to fit better. When it comes to a mortgage, of course, that seems so far down the road it’s difficult to imagine, particularly for those just starting out.  If you’ve always paid rent or a mortgage, it just kind of feels like that bill is always there, the background noise of your life. 
So, when 30-year-old Canadian resident Sean Cooper paid off his mortgage in three years, he celebrated by burning his mortgage papers and found a news crew to film it.  But, here’s the twist: He isn’t happy about it, and judging from social media posts and comments on the news coverage, no one else is, either.  In fact, Cooper seems full of regret and everyone else is full of scorn or pity.  What’s going on?
Cooper sacrificed a lot to pay off his mortgage, and even he admits he focused too much on his financial goals.  He worked three jobs, including as a full-time CAD technician $75,000 (about USD $56,000) white-collar job, a customer service job at a local grocer, and writing freelance articles.  In addition, he supplemented his income by living in the basement of his home while he rented the house to others.  As many commenters note, that’s not a healthy way to live and it’s unsustainable.
Often, we lose sight of what’s around us when we focus on our financial goals.  That moment when the bill is paid seems so sweet that we don’t really think about everything it’ll take to get us there.  If you’d like to make financial headway on your mortgage without making yourself crazy, we’ve collected some tips below.  The key idea among them is finding a balance, so you’ll need to adjust them for your own personal situation.  If you’d like a more personal meeting to discuss your financial goals and finding balance, let us know.  Also, follow us on Facebook and Twitter. 
Take gigs, not jobs.  It’s easy to see why renting out one’s home and securing extra employment are so appealing.  Regular income feels safe and makes it easy to plan ahead.  But extra employment can also be confining; It’s difficult to work full-time and still find time for your hobbies, your family, or the occasional afternoon spent binge-watching Netflix (something everyone needs occasionally).  If you don’t find time for your hobbies, you’ll find that your job has become your hobby.  If you don’t spend time with your family, you just won’t have the bonds that families need.
Instead, look at gig-based jobs like Uber and Air-BNB.  While they might not offer the steady income of a regular-hours job, you can scale your work up or down depending on need and availability. Plus, if you don’t feel like working on a given day, you don’t have to.  With Air-BNB, the owners of a rental property can cancel for any reason with as little as 24 hours notice.  That’s the kind of fantastic option that’s not available if you have renters who are playing their music a little too loud above you. 
Turn your hobby into a gig.  If you want another way to generate income, one that doesn’t require you to do mindless tasks, and you want to keep enjoying your hobby, then it might be time to turn that hobby into a gig.  Do you scrapbook or make crafts?  Open a store on Etsy.  Are you an avid collector? Start investing and re-selling collectibles on eBay.  Do you build or tinker? Time for a workshop. Have a design? Put together a working prototype and take to Kickstarter.  Want to write a novel?  Fifty Shades of Grey and The Martian both started life as fan-made, self-published ebooks. It’s never been easier to find an audience or customer base.
If you’re looking to make the move from weekend warrior to someone who can make money with your passion, get some start-up capital. You’ll need workshop space, supplies or a new laptop.  We’ve got a lot of ways for you to invest in yourself.  Who knows, that investment could be the start of a new path to leaving the rat race behind. 
The goal is financial security, not paying off a single bill. There’s no prize in paying off your mortgage. It’s just one less bill to pay.  Your goal is overall financial security.  That could mean refinancing your mortgage to have cash in hand when interest rates are low, or investing significantly when interest rates are high.  So, don’t pay off your mortgage while racking up credit card debt or neglecting your student loans.  Instead, take a look at all of your debt.  Work from the highest interest rate to the lowest, paying off each in turn, so you can pay as little interest as possible every month.
One of the easiest ways to do this is with a home equity loan.  Using the equity you have built in your home will get you a lower rate than your credit cards or medical bills are charging, and it can even be a fixed rate, so you can benefit if the Federal Reserve raises interest rates.  All you need to do is secure a home equity loan then transfer your credit card balances onto the loan.  Sometimes, simply calling the credit card companies with a check from your home equity loan in hand will get them to drop the rate you’re being charged.  Fantastic! Now you can use your loan on a different card.
Whatever you do, you’ve got to be happy.  It’s difficult to find balance, particularly with debt and obligations hanging over our heads. The solution isn’t to take on more obligations and retreat from humanity. The solution needs to be understanding that money exists as a means to an end, not an end itself. 
Sources: 
http://nypost.com/2015/12/03/no-one-is-happy-for-the-man-who-paid-off-his-mortgage-in-3-years/ 

http://www.dailymail.co.uk/news/article-3345476/Frugal-man-30-pays-255-000-mortgage-THREE-years-thanks-Kraft-dinners-bike-riding-100-hour-work-weeks-no-one-admires-it.html 

http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/meet-the-mortgage-free-30-year-old-whose-frugality-riled-the-internet/article27539357/    

Holiday Spending Is Getting Smarter, But You Can Be Smarter Still

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The average American will spend nearly $900 on holiday presents this year. If you have two adults in your household, that’s almost $1,800. The odds are good that you’ve already spent a good chunk of that on Black Friday, Small Business Saturday, and Cyber Monday specials.  In looking at the sales numbers from the weekend, Americans are getting smarter about how they spend that money.  Brick and mortar stores suffered about a billion-dollar decrease in sales from 2014, largely avoiding many of the big-ticket items that lure customers into waiting overnight in cold parking lot lines.  Instead, consumers pushed online purchases to a record high of $4.45 billion, roughly 20 percent more than last year. At the time of this writing, Cyber Monday sales had not yet been released, so we can’t compare those. 
In addition to this, sales numbers indicate earlier spending, more diversified spending and shopping carts that were more full at fewer locations.  All of this points to people purchasing items they had selected before the big weekend sales, then spending less time browsing and far less time in the harsh winter conditions and occasional inhuman violence that only cheap electronics and toys can provoke.
Even with the transition to warmer, quicker and more pajama-clad shopping, the money being spent is astounding.  The odds are also good that you don’t remember everything you bought for the holidays last year, and even if you do remember what you were given, it probably doesn’t add up to hundreds of dollars worth of things you still use.  If you don’t remember or use what you were given, the people who received gifts from you probably don’t either.  So why do we insist on spending so much of our hard-earned money on cheap plastic junk? Is there a better way to spend that money?
Yes, we’re getting smarter about how we spend on the holidays. But let’s set up a plan today to be in an even better position at this time next year. 
Step One:  How much did you spend or will you spend this year? 
Consider how much you’re going to spend this year.  If you’ve finished your shopping, then you can use your receipts.  Otherwise, you can estimate what else you plan to buy or just use the $900 per person national average.
Next, add to that how much you’ll spend in interest on credit cards while you pay off the balances.  If you’d like to avoid the math, you can estimate that the total cost is $1,000, because that’s a nice round number for this exercise. 
Step Two:  Putting away that money for next year. 
To use this money as intelligently as possible, it’s a good idea to save as much as possible ahead of time.  That way, compound interest is in your favor instead of working against you.  Start with one of our savings plans. A great option is our Holiday Club, which offers easy automatic deposits and doesn’t let you withdraw prior to the due date without a penalty. If you are more disciplined and not worried about using the money prior to the holidays, another option is our High Yield Account, which will pay a higher dividend if you’re ready to put the money into savings today.  
Step Three:  Paying off this Christmas. 
It’s time to get those credit card payments down so we can move into the new year with a clean ledger.  If you’ve got the extra income, pay them down with that, but we also know times are a little tighter for many of us.  Luckily, your credit union has a variety of solutions for paying down credit card debt: 
  • Home equity loans are great for high balances, because they turn high interest credit card debt into low interest home equity debt.  Also, if the Federal Reserve raises the prime interest rate early next year, you’ll be protected by a fixed-rate loan.  If you don’t want all the math, a home equity loan reduces the interest you pay, so you can pay off your loan more quickly.
  • If you don’t want a home equity loan, your credit card debt isn’t that high, or you don’t own a home, you could also consider transferring your higher rate balances to a Destinations MasterCard Credit Card.  We offer incredibly low rates, so you can transfer your higher interest balances onto a lower interest card, which will let you pay off the debt more quickly. Plus, there is no fee for balance transfers and no annual fee for the card.

Step Four:  Cutting costs. 

Make a list of everyone for whom you’ve bought gifts and how much you spent or will spend.  Then, go through and imagine what would happen if you got them nothing.  Would life be worse?  Would it be embarrassing?  Do you really need to give everyone something?  For those you feel an obligation to gift, keep them on the list for next year. For those you don’t, send them a card.  For anyone about whom you’re unsure, how about a gift of home baked cookies? Simply cutting out a few people can save you several hundred dollars every year.  Ask yourself:  would I rather avoid a potentially awkward situation or have a new … well, you probably know what you’d rather buy with several hundred dollars.
If you’re worried about last minute awkwardness in case someone gets you something, there’s a really simple solution:  Buy a few cards, write a general inscription inside, sign them, and add a gift card to a big store you’d shop at anyway.  Would anyone be upset at an Amazon gift card?  Then, if you need it, you can write the name of the person in question on the envelope and hand it to them.  If you happen to have any of these standby gifts left at the end of the holiday, the gift cards are yours to keep:  call it profit. 
Step Five:  What will you do with your money? 
At this point, you’ve paid off holiday 2015, and by the time holiday 2016 rolls around, you’ll have saved more money than you need since you saved enough for this year but cut costs for next year. Interest has worked in your favor, and suddenly your next December is one in which your pockets will be full.  That gives you 12 months to decide what to do with your money.  Reinvest it in a savings plan? Buy supplies to open that web store you’ve always wanted? Take a class or learn a language? Maybe your dog needs a little brother or sister.
Whatever you do, it’s probably going to be better than that necktie you got for Bob in accounting this year, and it’s all for you. 
Sources: 
http://www.zacks.com/stock/news/199560/why-did-black-friday-sales-fall-by-1-billion?cid=CS-GOOGLE-FT-199560&google_editors_picks=true   
http://www.statista.com/statistics/319562/us-consumer-spending-by-seasonal-event/ 
http://fortune.com/2015/02/12/nrf-retail-forecast-2015/  

Keep Yourself Safe During The Holiday Season

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Every year, we hear about the same holiday safety tips – don’t drive tired, don’t drive drunk, assume every other driver is drunk and/or tired, etc. Those are all good ideas to keep in mind year-round. Occasionally, we’ll hear one that’s specific to the season, like how frying turkey in the driveway is as dangerous as it is delicious, and it’s also not something to try while drinking or overly tired. Unfortunately, this time of year is also one of financial dangers, many of which you won’t hear about on the morning news or read about in the paper.  Take some time, read our tips, and hopefully you won’t be a holiday victim. 

Keep an eye on your surroundings – Crowded malls and shopping centers are a savory opportunity for pickpockets.  You’re expecting to get bumped and won’t notice one more jostle in a day full of them.  If you do recognize you’ve been robbed, the thief can probably get away into the crowd, disappearing like a needle in a haystack.  Purses should be worn across the body, wallets kept in the front pocket or inside a closed jacket.  Consider leaving the house with the bare minimum, such as your driver’s license or ID, health insurance card and our debit card – which offers fraud protection and security features not available with cash. 

RFID, RFID, RFID – Today’s pickpockets don’t need to take your wallet to cause you problems, because many modern debit and credit cards emit RFID signals with personally identifying information.  If any of your cards have a chip, then you need to account for them. Check our RFID wallet guide for some tips. In a pinch, you can wrap chipped cards in two layers of aluminum foil, which will offer you protection from high-tech pickpockets, but you may get some bewildered stares or questions from folks at the register.

 

Don’t leave checks in the mailbox – At some point, we all learned not to use those colorful envelopes that tell thieves which cards might have checks in them, but we never learned the next step: Don’t put checks in the mailbox at all.  It’s not hard for thieves to grab stuff out of the outgoing mail, whether it has the power company’s name on it or is shaped like a holiday card.  Drop all checks into a big blue mailbox, bring them into your post office branch, or hand them to your postal carrier in person.  By the way, this tip should be followed year-round, and you might want to consider setting up our online bill pay feature to minimize the number of checks you write, as well. 

Understand the dangers of every form of payment – Every form of payment has its dangers.  Cash is portable and untraceable, so it’s a target for thieves.  Cards without EMV chips are in danger from skimmers built into the card reader at registers (like what happened at Target).  EMV cards can be skimmed by people with specialized equipment who bump up next to you.  All cards, cash and mobile phones are in danger of being stolen.  Some experts are even saying that check fraud will be the most dangerous type of identity theft over the next five years.  Even if you attempt to return to agrarian-era bartering, an enterprising thief could run off with the cow you were going to trade for an Old Navy gift card.

Take a breath, recognize the dangers and take reasonable precautions. Do you know what kind of fraud protection you have on each of your credit cards?  Any card about which you’re unsure needs to stay home until you find out.  Unsure about a small boutique’s cyber security? Bring cash. 
Bring your own bag – Shopping bags are a great way for stores to advertise, but they also advertise to thieves.  “This overburdened, overtired, potentially unwary individual is carrying goods from all of these stores,” the bags say “some may even have receipts in them and might have been paid for with cash.” Don’t make it easier for thieves. Instead, bring a tote bag that zips up if you have one, or your canvas grocery bags if you don’t. 
Take a trip to the car – Carrying too much is asking for trouble.  It makes you less mobile, you’re less likely to feel someone remove an item from your bags, and even if no one hassles you, it’s a good way to end up with back pain.  If you’re enduring a marathon trip to the mall, take time every few stores to take your purchases out to the car. Keep receipts in your wallet and take pictures of the bags you put in your trunk (where thieves can’t see), so even in the worst possible scenario, your car insurance can cover the loss of your shopping from a car thief.
Plus, you’ll have less to carry, you’ll get some exercise, and the cold air can help you clear your head to decide if you need to purchase anything else.  Not a bad way to keep from overspending! 
Buy yourself a holiday drink from the coffee shop – You’re probably safer if you’re alert, but that’s just an excuse.  Holiday coffee drinks are delicious, you want one, and we just gave you an awesome excuse to justify the everyday luxury of a peppermint mocha to yourself.  You’re welcome. 
January is coming, be ready – If you’re going to binge on holiday shopping in December, you’ll need to purge in January.  Keep all of your receipts and do an extra-careful reconciliation of your accounts in January.  Be ready to spend a few afternoons making phone calls to make sure every charge is correct and accounted for.  Make sure to check your credit report in January as well.  While you’re checking your credit and your accounts, take the opportunity to start the new year off right:  you have your financial info gathered already, you have your credit report in front of you and your W-2s are starting to show up, so it’s time to do three things:
  1. File your taxes.  Don’t get mad at us, it’s not our fault.  We’re only reminding you to do it early because you’ll already have most of what you’ll need, so getting your homework done on Friday will give you the rest of the weekend off. And don’t forget to have any refund directly deposited to your Destinations account.
  2. Rework your debt.  You have every one of your credit card and other account statements in front of you, so it’s time to make some calls.  For your higher interest cards, it’s time to pay them down, transfer the balances to a MasterCard at Destinations Credit Union or negotiate a lower rate.  This is easier if you’ve got some cash in hand, possibly from the tax refund you now know you’re getting.  You can also take this time to explore using your home equity to eliminate some of the high-interest cards. 
  3. Set up a Holiday Club for 2016.  Alright, you just saw how much money you spent this holiday season.  Next year, resolve to do it all without taking on unnecessary debt.  You’ll save a ton of money and a ton of stress.  The best way to do that is with one of our Holiday Club accounts.  Use this year’s budget as a guide. Next year will be a breeze.

And that’s it.  It sounds like a lot, but it’s really taking the same level of vigilance you would use for normal shopping and increasing it to correspond with the increased spending of the season.  For a good rule of thumb, maybe we should just establish the “3-Mariah” rule:  Once you hear Mariah Carey’s “All I Want for Christmas is You” for the third time on any day, you have to go home – you’ve either spent too long at the mall, or your brain has been turned into holiday slurry and you can no longer be trusted to remain vigilant.  Three Mariahs and you’re out.

Passive Income And Rental Properties

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Investing can feel pretty distant.  It’s hard to imagine the tiny fraction of Disney or Google that you own, your savings accounts can look a lot like a bunch of numbers with no meaning and mutual funds are about as easy to conceptualize as advanced trigonometry that’s taught in the original Greek. That’s why a big part of building a savings plan you can stick to begins with finding one you understand.  Passive income is one such simple concept. It is a valuable addition to your wealth-building strategy because it can put cash in your hand every month while also being tied to something tangible, like real estate.

Through passive income, you can develop a variety of ways to get paid every month with little or no day-to-day effort on your part.  One of the most traditional ways to generate this kind of income is to own a rental property, because you then receive a rent check every month while only needing to occasionally call a maintenance professional or list the house for rent every couple of years.  The benefit is obvious – if the rent you charge is greater than the cost of the mortgage, insurance and incidentals, you’ll earn a profit every month.  It might not be a large amount of money, but you’ll build equity along the way, and you can always sell the house at some point down the road.  

If you’re young and trying to figure out a retirement plan, owning a rental property can be fantastic because you’ll earn a few bucks every month, which will eventually turn into a larger payday on a regular basis when you pay off the mortgage. If you plan it right, this can be right around when you retire so you have retirement income without having to sell any stocks or liquidate any accounts. Also, if you ever hit a rough patch or need to raise cash for another investment opportunity, you can sell the house.  If you’re looking to get a great rate for a rental property, you can even use the equity you’ve got in your current house with a home equity loan, locking in a fixed rate while mortgage prices are at historic lows.


Sources:

http://www.kbb.com/ford/f150-regular-cab/2010/xl-pickup-2d-6-1-2-ft/?vehicleid=349410&intent=trade-in-sell&mileage=71631&condition=good&pricetype=private-party 

http://www.usatoday.com/story/money/cars/2015/01/06/pickups-best-selling-vehicles-2014/21334373/  

http://www.bankrate.com/calculators/auto/car-finance-payment-calculator.aspx?ec_id=m1116180&s_kwcid=AL!1325!3!68171004368!e!!g!!auto%20payment%20calculator&ef_id=VZinGAAABSKGYTa4:20151105171243:s