The Best Reasons NOT to Buy a House Monday, May 21 2007

“Common sense” these days tells you it’s always better to buy than rent. But is buying always better than renting? Not necessarily. Here’s a few reasons why:

1. Renting = Freedom; Owning = Commitment. Sure, it is a drag to hand a check over to the landlord every month and have nothing to show for it in the end. But you aren’t “throwing money away” – you’re exchanging it for a place to live. Not only that, your paying for the freedom from maintenance costs and headaches. Plumbing repairs can be pricey, especially when they’re unexpected. Renting also affords you the freedom to leave at the end of the lease if you’d like to upgrade, downgrade, or if you need a change of scenery. Once you decide to buy, you should be ready to commit to the place for a least five years to avoid losing money on the transactions.
2. The tax deduction is not always worth it. The amount of interest you will likely pay on the house far outweighs the benefit of the tax deduction. Not only that, buying a home for a tax break is like buying something for $100, only to get $3o back. It’s a good deal if it is something you were going to buy anyway, but it makes no sense to buy only to get some money back.
3. Buying isn’t necessarily the best investment. The market is rather unpredictable. In certain markets, housing prices have doubled in the last five years, but the past performance doesn’t guarantee future results. During the 90s, housing prices in the Los Angeles area dropped nearly 20%. Many analysts believe that certain markets are way overvalued and likely to collapse at some point.
4. There are many hidden costs to buying. Mortgage lenders want you to buy the absolute most house you can afford. Many times they overestimate how much you can afford. You need to consider not only your mortgage payment, but also a down payment, closing costs, mortgage insurance, repairs, and maintenance costs. These can add up quick.
5. Buying requires significant time and education. Potential buyers will likely spend countless hours searching for a reputable real estate agent and mortgage lender, looking at properties, making offers, reading A LOT of fineprint….This is the biggest purchase most people will make, and I, personally, would not want to enter into this transaction casually.

Bottom line: Only buy a home if you are fully prepared to be a homeowner and if it something you really want. Don’t buy just to buy.

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What is a Credit Card Charge-Off? Monday, May 7 2007

Essentially, this is an accounting term used by creditors for a debt that is considered uncollectable because they debtor has not made any payments within a certain period of time (usually 6 months). Although the creditor no longer considers the debt one of their assets, the debtor is not relieved of responsibility for paying the amount.

That would be too easy (and not fair to those of us who do pay off our credit cards on time). A charge-off does not equal a write-off. The creditor will often still try to collect on the debt. Because they have basically eaten your debt, they punish you by placing a serious negative mark on your credit report and often will still try to collect on the debt, or sell it to a debt collection agency.

Debt collection has become a big business in recent years. Collection agencies can often buy old debt for pennies on the dollar or less. Once the debt is in the hands of a collection agency, they get to keep any money collected, and will often use coercive and intimidating tactics to collect the debt. If you are being harassed by a collection agency, make sure you refer to the FTC’s Fair Debt Collection Practices Act to make sure the agency is not violating your rights.

Obviously, a charge-off is serious business and will have a negative effect your credit for many years. Obviously you should make every attempt to repay the debt. Check your state’s statue of limitations to find out how long the debt is considered collectible. Do what you can to work with creditors to come up with a payment plan that will work for you. But don’t be intimidated or bullied by collection agencies into thinking a charge-off is a insurmountable catastrophe.

Related articles: Resetting myths about resetting debt from Birds and Bills

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Where’s My Tax Refund? Wednesday, May 2 2007

Still waiting for your check? Try tracking it online directly through the IRS. Make sure you have your Social Security number, filing status, and exact refund amount handy.

Tempting as it may be to blow the whole thing, consider:

• Contributing it to a Roth IRA
• Paying off credit card debt
• Contributing to an emergency fund (or starting one in the first place)
• Making a charitable contribution (most are tax deductible)

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Stop Using Your Credit Card So Often! Tuesday, May 1 2007

Ahhh, credit cards. They have really made it so, so easy for us to spend, without us even realizing just how much we’re spending. Many of us pull out our Amexs many times over the month without even thinking twice, then look at the bill at the end of the month and sigh as if it’s just another necessary bill. Here’s some quick and relatively painless ways to curb your credit card spending:

• Give your self a cash allowance for the week. Use this for small things you may use your credit card for – lattes, gas, lunch, even happy hour…Using a cash allowance will you allow you to see just how much you are spending weekly on these small creature comforts. Making your allowance stretch all week will also put you on a budget. (Kinda takes you back to being 13 again.)
• Stop shopping so often. Easier said than done, yes; but there are small steps you can take to do this. Many women in particular visit the mall when they have a bit of free time. This usually leads to spending on things you don’t need. Instead, use your free time to start a new hobby, call a friend or relative, or exercise. Say your hobby is interior design, or you have a passion for fashion, and this is your excuse for shopping – subscribe to a design or fashion magazine to get your fix. $15/yr is much cheaper than a weekly shopping trip.
• Look at your bank statement every day. This will give you a constant reminder of just how much money you have (or don’t have) and how much you have recently spent. Get out of the habit of just glancing at your credit card statements when the bills arrive, and coughing it up as another necessity, like your electric bill or phone bill.
• Stop driving so often. I would guess many of us use credit cards to fill up the tank, and I know credit cards are the most common payment for pricey automobile maintenance cost. Riding your bike or using public transportation is not only better for your pocketbook, but also for the environment.
• Freeze your credit cards. Literally. This is kind of extreme, but a cool idea (no pun intended). Place your credit card in a mixing bowl full of water and put in it the freezer. Next time you are tempted to spend, you will be forced to go home and thaw out your card. This will give you some time to really evaluate your potential purchase. Sounds silly, and I have never actually tried it, but I bet it works.

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