Big Picture: Is Compounding Growth Working For or Against You?

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I’m a finance geek and like to dig around in the details like asset allocation or tax strategies. However, sometimes I read some news that reminds me to step back and look at the big picture. Half of all Americans don’t own any stocks at all. Before the 2008 financial crisis, about 2/3rds of US adults had some skin in the stock market, but that number dropped significantly and hasn’t rebounded. From a Gallup poll:

Even out of the half of Americans with some amount of stock ownership, most of them have no idea about stock market performance. Betterment conducted a survey [pdf] asking people to estimate the US stock market performance since December 2008, and Axios made it into a nice chart. Note that all of the respondents in the Betterment survey stated they had at least $1 invested in the stock market.

About half of respondents either thought the stock market dropped or stayed the same over the last 10 years. The correct answer is that the stock market is up over 200%. Only 8% of people who own stock got this right.

I worry that this means that only a small percentage of people are aware of the potential power of investing in productive assets like businesses. Sure, 200% is a lot, but over 10 years it’s not an insane number. At 12% annual growth, your money doubles in 6 years and thus quadruples in 12 years. At 8% annual growth, your money doubles in 9 years and thus quadruples in 18 years. Even at 6% annual growth, your money will double in 12 years and thus quadruples in 24 years.

Owning productive assets like public companies, real estate, or private business ownership gets you on the train powered by compounding exponential growth. Debt like student loans, credit card balances, even a home-equity loan for a new kitchen remodel, that’s like putting the compound interest engine in reverse. I know that it is easier said than done, but one of my favorite quotes from Mr. Money Mustache is that you should treat “debt as an emergency”. The difference between even putting a $50 into stocks a week, versus paying $50 week in interest to carry your debt each month can become the difference between having choices and the treadmill lifestyle forever.

If someone realizes the power of compounding, then they are more likely to covet that rental property or share of Apple stock as much as a new BMW lease or Viking stove. I love buying new shares of VTI. It gives me a dividend gift every quarter. This appreciation is the key to the constant accumulation of productive assets and not stuff.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Never Worth It? Overdraft Protection, Student Loan Assistance, and Payment Accelerators

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

piggybank_feesA lot of financial articles are all about optimizing or finding the “best”. The best bank account, best credit card, best mutual fund, etc. However, this CurrentAffairs.org article Nothing For Money takes a different perspective. They outline three “Bullsh– Financial Products” (BFPs) that are never, ever worth the money. There is no “best” to recommend. The best advice is to simply avoid them completely.

Overdraft Protection. The banks say they only want to offer “help” with this “protection”, but then why did it require governmental intervention make it opt-in only? You may be opted-in today due to old rules or by accident (you can still call them and opt-out). The fact is that most people would probably save money overall if it didn’t exist and banks simply rejected the transactions instantly.

I would really love to hear from anyone who has had a positive experience with overdraft protection. If you exist, write in and let us know about an instance when you were glad to pay your overdraft fee in order to have your transaction processed on the spot. What was the transaction? Why was it worth the extra $35 or whatever the fee amount was? Why was that better than using a credit card if you had access to one?

Student Loan Assistance. Student loans are big business and unfortunately the long list of options can be confusing. Don’t let one of these outfits take advantage of you.

So the student loan assistance companies will literally charge you many thousands of dollars to do something that: a) is not even necessarily the right thing for you; and b) is extremely easy and fast to do yourself if it is the right thing for you.

Payment Accelerators. I am also a big proponent of DIY payment acceleration. I have never found a payment accelerator program that I would recommend to a family member.

First, they generally charge you a lot. The companies that do this for your mortgage will sometimes charge you a full mortgage payment up to $1,000 to start the program, and then a fee of $5 or so every time they withdraw a payment from you, which is usually every two weeks. If you used a payment accelerator for your whole 30-year mortgage, you’d pay almost $5,000. There are also companies that do this mainly with auto loans. They charge a little less, but it’s still a lot. Most of them will charge you $399 at the beginning and then $2-3 per withdrawal, again usually every two weeks. So for a five-year loan, even if you pay it off six months early, you’re still looking at almost $700 in fees.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Don’t Trust Your Student Loan Servicer, Especially Navient

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

gradcapIf you don’t understand why having a fiduciary requirement matters in terms of financial advice, read this Bloomberg article about student-loan servicer Navient. Learn about the sad behavior of a company that services the student loans of over 12 million people.

Here’s what Navient CEO Jack Remondi says in public:

At Navient, our priority is to help each of our 12 million customers successfully manage their loans in a way that works for their individual circumstances.

Helping our customers navigate the path to financial success is everything we stand for.

Here’s what Navient supposedly did:

In January, the CFPB sued Navient in a Pennsylvania federal court, alleging the company “systematically” cheated student debtors by taking shortcuts to minimize its own costs. Navient illegally steered struggling borrowers facing long-term hardship into payment plans that temporarily postponed bills, the government alleged, rather than helping them enroll in plans that cap payments relative to their earnings.

Why? Because Navient makes more money when you apply for temporary forberance as opposed to income-based repayment.

In July 2013, when Navient was the servicing arm of Sallie Mae, Remondi said in an earnings call that “it’s very expensive work, for example, to enroll a borrower into something like an income-based repayment program … which we are doing. But we don’t actually get paid for outperformance in that side of the equation.”

How much more did borrowers pay? From the CFPB press release:

From January 2010 to March 2015, the company added up to $4 billion in interest charges to the principal balances of borrowers who were enrolled in multiple, consecutive forbearances. The Bureau believes that a large portion of these charges could have been avoided had Navient followed the law.

Here’s Navient’s quiet response in court:

Instead of “No, we didn’t do that horrible thing!”, it was “So? Why would you expect otherwise?”

Borrowers can’t reasonably rely on America’s largest student loan servicer to counsel them about their many options, Navient said on March 24 in a motion to dismiss the case, because its primary role is, after all, to collect their payments.

There is no expectation that the servicer will act in the interest of the consumer,” Navient said in response to the litigation filed Jan. 18 by the U.S. Consumer Financial Protection Bureau.

Navient does not have a fiduciary duty to the borrower. As a result, even if Navient says they will act in your interest, they don’t have to actually act in your interest. This is an important lesson.

If you have student loan debt, don’t trust your servicer. Apparently, their advice is (allowed to be?) heavily biased. Do your own research on student loan repayment options. There are many options that cap your payments based on income and some even include debt forgiveness options.

In terms of the bigger picture, don’t blindly trust anything in the financial industry. If they want your money and they aren’t a fiduciary then they have no legal requirement to act in your best interest. They can sell you horrible things and it is perfectly legal. If I was ever to let anyone else manage my hard-earned money, it would have to be in a fiduciary relationship. That’s just a minimum to even be considered.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


New Year’s Checklists: What Is Your Financial Priority List?

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Updated for 2017. You’ve worked hard and you have some money to put away for your future self. What should you do with your money? There is no definitive list, but each person can create their own with common components. You may also want to revisit it again every year.

You can find some examples in this Vanguard blog and see what I had down in this 2006 blog post. Here’s my current list:

  1. Invest in your 401(k) or similar plan up until any match. Company matches typically offer you 50 cents to a dollar for each dollar that you contribute yourself, up to a certain amount. Add in the tax deferral benefits, and it adds up to a great deal. Estimated annual return: 25% to 100%. Even if you are unable to anything else in this list, try to do this one as it can also serve as an “emergency” emergency fund.
  2. Pay down your high-interest debt (credit cards, personal loans, car loans). If you pay down a loan at 12% interest, that’s the same as earning a 12% return on your money and higher than the average historical stock market return. Estimated annual return: 10-20%.
  3. Create an emergency fund with at least 3 months of expenses. It can be difficult, but I’ve tried to describe the high potential value of an emergency fund. For example, a bank overdraft or late payment penalty can be much higher than 10% of the original bill. Estimated return: Varies.
  4. Fund your Traditional or Roth IRA up to the maximum allowed. You can invest in stocks or bonds at any brokerage firm, and the tax advantages let you keep more of your money. Estimated annual return: 8%. Even if you think you are ineligible due to income limits, you can contribute to a non-deductible Traditional IRA and then roll it over to a Roth (aka Backdoor Roth IRA).
  5. Continue funding your 401(k) or similar to the maximum allowed. There are both Traditional and Roth 401(k) options now, although your investment options may be limited as long as you are with that employer. Estimated annual return: 8%.
  6. Save towards a house down payment. This is another harder one to quantify. Buying a house is partially a lifestyle choice, but if you don’t move too often and pay off that mortgage, you’ll have lower expenses afterward. Estimated return: Qualify of life + imputed rent.
  7. Fully fund a Health Savings Account. If you have an eligible health insurance plan, you can use an HSA effectively as a “Healthcare Roth IRA
    where your contributions can be invested in mutual funds and grow tax-deferred for decades with tax-free withdrawals when used towards eligible health expenses.
  8. Invest money in taxable accounts. Sure you’ll have to pay taxes, but if you invest efficiently then long-term capital gains rates aren’t too bad. Estimated annual return: 6%.
  9. Pay down any other lower-interest debt (2% car loans, educational loans, mortgage debt). There are some forms of lower-interest and/or tax-deductible debt that can be lower priority, but must still be addressed. Estimated annual return: 2-6%.
  10. Save for your children’s education. You should take care of your own retirement before paying off your children’s tuition. There are many ways to fund an education, but it’s harder to get your kids to fund your retirement. 529 plans are one option if you are lucky enough to have reached this step. Estimated return: Depends.

I wasn’t sure where to put this, but you should also make sure you have adequate insurance (health, disability, and term life insurance if you have dependents). The goal of most optional insurance is to cover catastrophic events, so ideally you’ll pay a small amount and hope to never make a claim.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Secret Shame: Will We Ever Talk Openly About Money?

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

atlantic_moneyshame

We may not like to talk about our own money, but we sure like to read about other people’s money. The May 2016 cover story for The Atlantic magazine is The Secret Shame of Middle-Class Americans by Neal Gabler:

The Fed asked respondents how they would pay for a $400 emergency. The answer: 47 percent of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all. Four hundred dollars! Who knew?

Well, I knew. I knew because I am in that 47 percent.

The essay has definitely hit a nerve, with over 3,000 comments, a handful of formal reader letters, and several financial experts all weighing in with their responses.

As someone who used to openly share his net worth, I have to give Mr. Gabler credit for candidly sharing about his financial “impotence”. Most people would rather undergo a root canal than share intimate details about their financial insecurities.

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I also recommending reading this Esquire piece: 4 Men with 4 Very Different Incomes Open Up About the Lives They Can Afford – From a father on the poverty line to a CEO millionaire. It is interesting to note that despite the disparity in both their current and desired future incomes, all four men are both mostly happy and plan on working into their 60s or longer.

You can see why people choose silence, as it is an exquisite sort of pain to have strangers publicly break down all of your mistakes and diagnose your underlying personal failings. But I think more discussion is exactly what we need, not less. Hopefully despite the judgment, Mr. Gabler will eventually be better off for it. We need to talk it out, share both our struggles and solutions, and face up to the problems instead of just hiding it and hoping it magically goes away.

Let’s put away the snarky internet comments and try a civil discussion with empathy and detail. I’d like that a lot more than reading another article about disappearing pensions or debt statistics.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Charts: Average New Car Price vs. Average Student Loan Debt 1990-2014

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

When I was a senior in high school, I still remember my parents offering me a new luxury car instead of tuition assistance. Although I’m pretty sure it was only a test, it did serve to remind me of the cost of tuition and not to waste it. Seeing the average student debt of graduates is now over $30k, I wanted to see how the price of a new car and student debt tracked. These are the best charts that I could fine.

The green line in the first chart tracks the average cost of a new vehicle as rising from ~$15,000 to ~$27,000, within the time period of 1990 to present. I don’t believe the green line is inflation-adjusted. You can see it runs from roughly $15,000 to roughly $27,000. (Source: Atlantic)

newcarprice

The second chart below tracks the average student debt upon graduation over basically the same timeframe, 1990 to present. The non-inflation-adjusted value has risen gone from ~$9,000 to ~$33,000. (Source: WSJ)

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It is hard to equate the two values because student debt is just the amount left over after the parent (usually) pays as much as they can while the student is in school. However, this USA Today article suggests that since 2010 parents on average have been paying less.

Five years ago, only half of families reported using grants and scholarships to pay for college. This year, two-thirds of families did, the study shows. […] Meanwhile, parents are contributing less of their income and savings toward college costs, covering 27% of college costs compared with 37% in 2010, the study shows.

At the same time, other reports show that for parents with top 20% incomes, education spending has nearly doubled as a share of their total budget.

Average student debt is definitely growing faster than new car price. But in terms of total size, it is still comparable to the cost of a new car. People finance new cars all the time. Does that make student loans less scary? I don’t know, because financing a new car has always scared me a lot too.

Even after taking the tuition assistance from my parents, I still came out of college with roughly $30,000 in student debt myself, above-average at the time. I like to think that I got better value of my degree than a new car. 🙂

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Quizzle Review: Free Equifax Credit Score and Credit Report

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Quizzle logoQuizzle.com is a website that offers a free credit score and your official Equifax credit report every six months. You can now monitor your credit scores from all three credit bureaus for free. It has been six months for me, so I just grabbed my 2nd credit report of 2014 and took the opportunity to provide a brief review of this service.

(Fun fact: Quizzle part of the Quicken Loans family and owned by Dan Gilbert, owner of the Cleveland Cavaliers and soon-to-be employer of Lebron James.)

Here are some website screenshots:

quizzle1

quizzle2

Your free Equifax report lists all your credit lines including credit cards and other loans, recent credit inquiries, public records, and other personal information. This is the same report that you would get if you bought one from Equifax directly or got your free government-mandated one from AnnualCreditReport.com. Get your timing right and that is three free Equifax credit reports a year.

Your free Equifax credit score is specifically the newest VantageScore 3.0 which was unveiled in 2013 and has the same scale as FICO 300-850. A little background – VantageScore was actually created directly by the three major bureaus (Equifax, Experian, and TransUnion) to compete with the best-known FICO score from Fair Isaac Corporation. I don’t think they’ve overcome FICO, but it appears they are the 2nd-most widely used score out there and supported by some big bucks. Unlike some FAKO scores, it is actually used by lenders in their loan decisions. However, the numerical value will probably not map directly to your FICO score. From the Quizzle site:

Quizzle features the VantageScore credit score. The VantageScore credit score is used by thousands of lenders, including the nation’s largest banks, in their credit card, auto lending and mortgage businesses.

Some additional details:

  • Yes, it is really free. No purchase or credit card required. No trial subscriptions either.
  • There is no effect on your credit score because you are checking your own credit. It is a soft pull, not a hard pull.
  • You will see advertising of various financing offers based on your information (mortgage, auto loans, credit cards, personal loans). As part of Quicken Loans, so they will likely pitch you for a mortgage. However, they state that they don’t sell your information to others.
  • Free 24/7 credit monitoring of my Experian account was also offered to me. I am not sure if this was targeted only to select users as I had to opt in, but it was clearly marked as free. I just signed up for this so I haven’t gotten a chance to see how it works.
  • Paid upgrade options. Quizzle Pro gets you monthly Equifax credit reports and scores for $8-$11 a month. The pricing appears to be customized for each user. Quizzle Pro+ gets you all that plus $1,000,000 in Identity Theft Protection and 24/7 Victim Assistance for around $18 a month. I did not purchase either option.
  • The site states you can get a free report and score every 6 months (180 days), but I was able to get mine after just 168 days (I didn’t try every day, I just remembered today and it worked… shrug). I checked on January 27, 2014 and again on July 13, 2014. It would be more competitive with other sites if they could start offering score updates every month and keep the reports every 6 months.
  • Prior to early 2014, Quizzle used to give out Experian-based credit scores twice a year, but Credit Sesame already gave Experian-based scores for free every month so it wasn’t very appealing. The change to Equifax was a welcome one.

In summary, I am glad this service exists and I don’t mind being pitched a mortgage loan consultation every six months in exchange for a free official Equifax credit report and credit score. It is another step closer to gaining better access to what I consider our personal information. Credit Sesame and Credit Karma are similar services that use the other two major consumer credit databases:

  • Quizzle = Equifax (updated every 6 months)
  • Credit Sesame = Experian (updated monthly)
  • Credit Karma = TransUnion (updated every 7 days)
My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Charts: Credit Card Debt and Household Debt Trends

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Here is an interesting Quartz article by Matt Phillips outlining “the most important change in the US economy since the Great Recession that nobody is talking about”. I don’t know about that, I’ve seen a lot of these charts before. But many include more recent data, and below are a few of the notable ones. (Note the truncated scales on several of the vertical axes.)

The overall theme is that household debt levels appear to be settling at a more sustainable level. Household debt service payments as a percentage of disposable income are at their lowest levels in over 20 years:


(click to enlarge)

Breaking this down a bit, we see that total US credit card debt has been dropping pretty consistently since 2009 and remains lower than 2003 levels:

[Read more…]

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Prosper Borrower Promotion: 2nd Payment Waived Up To $300

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Offer is back! Person-to-person loan site Prosper.com is having a another one-day promotion for borrowers who submit their loan listing on Friday, February 17th where they will actually make your entire 2nd loan payment (principal and interest) for you, up to $300.

* To be eligible for the offer, you (i) must post a loan listing on Prosper.com between 12:00 am PT and 11:59 pm PT on February 17, 2012; (ii) have to reach Verification Stage 3 within 1 week of posting the loan listing; (iii) cannot have posted a loan listing on Prosper.com within the past 30 days; and (iv) may not withdraw your loan listing. If you meet these criteria, Prosper will credit your second required loan payment up to $300. The credit will be posted to your account within 30 days of Prosper receiving your first payment. This promotion cannot be combined with any other promotional offer from Prosper.

Getting a rate quote is free, as their “soft pull” will not affect your credit score. If your loan does not find enough lenders to fund, then you can walk away with no obligation. If you do end up taking out a loan, then it will show up on your credit report. There are several ways you can use this offer.

The quick loan for profit. If you have an excellent credit score, you can get the AA loan rate of 5.65% for 1 year. Even if you don’t need it, take out a loan for about $3,500, and you would end up with a monthly payment of around $300. Your closing fee would be 0.5%, or $17.50. Your interest for a month at 5.65% would be less than $20. There is no pre-payment penalty, and your second payment is covered at $300. Just pay back the money they lent you after two months, and you’d be looking at over $250 in profit. You don’t need to risk any capital, just pay back the money they lend you and keep the profit. Decide quickly! Get your own rate quote at Prosper here.

Investor opportunity. As a result of the math above, there will be a mysterious surge in listings from AA borrowers for $3,500 loans today. If you like, you can invest in these notes today and tomorrow and earn some decent 4-5% interest for at least a couple months. Yes, there is still risk involved but my view is that people with AA credit scores are unlikely to default over only $3,500. I did this last time around, but didn’t have much money in my Prosper account. Sadly, still true this time. Just don’t be surprised if all your loans end up being paid off early!

Lowering your effective interest rate. If you don’t have an AA loan rating, you can use the free payment to lower your effective interest rate, especially if you pay off the loan early. For a $3,500 loan I got an A rating which meant either a 1-year loan at 6.08% or a 3-year loan at 9.99%. Your closing fee is 3.95% for A & B loans, which for a $3,500 loan that’s $138.25. So the free 2nd payment of up to $300 can knock that out completely and you can use the rest of the money to cover most of the first year’s interest.

(I went ahead and also got a free rate quote from LendingClub – their main competitor – but there all loans from $1,000 to $11,975 are only available with a 3-year term. With the loan rebate, I think Prosper would have had been the best 1-year rate anyway. However, my rate for the 3-year loan was only 6.78% APR (their highest A1 grade), which is much less than the Prosper APR. So it can pay to shop around.)

Bonus credit score. After getting the free rate quote, I was actually sent my credit score of 776 based on my Experian credit report. Prosper uses the Experian ScoreX Plus credit score, which has a range of 300 to 900. FICO range is 300 to 850. I assume this is due to new consumer laws that require them to send me my score if I’m not given the absolute best rate available. Not a bad side perk.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Credit Sesame: Free Credit Score Based on Experian

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Another new website, Credit Sesame, now offers you free credit scores and updates based on your Experian credit report. No credit card required, no trial required. This is not a real FICO score, but an estimate of the FICO formula that uses the same range of 300-850. To avoid repeating myself too much, you can learn more about FICO vs. FAKO credit scores here.

Sign-up Process
The sign-up process was quick and relatively painless. They ask you for your home address and household income, but this is primarily to see if they can save you money on a mortgage refinance. (This is one way they make money.) You’ll also need to answer three questions based on your Experian credit report data to verify your identity.

Online Security
To get your credit score, you will need to give them your Social Security number. You’ll have to decide for yourself if you feel comfortable doing this. They do claim all of the usual security measures, including 128-bit SSL encryption, password encoding, and working with Experian to test their systems. They also do not sell personal information, but will use it to target potential offers to you.

The information that you provide – including name, date of birth, email, real estate ownership, home address, social security, and any information about your finances (income, assets, debt, credit) – is not sold to third parties.

My Credit Scores
Here’s a screenshot of my current credit score according to CreditSesame:

My score of 696 is actually kind of low for me. Compare this with my score from CreditKarma, which is a similar company but uses the TransUnion bureau credit report:

Why the big difference? After some research, I finally remembered why my Experian score may be lower. Over 2 years ago, I found out my old library sent me to collections over a $40 overdue book that I returned. This annoying ding only shows up on my Experian report. To be honest, I haven’t bothered to dispute it because now live in another state and I’ve been approved for every single credit card since finding out. Another reason is that when you apply for a credit card, they usually only check one out of the three bureaus (Experian, Equifax, TransUnion).

This brings up the primary benefit of these free FAKO scores. Having three independent credit bureaus means we all have three different credit scores. These regular updates can show you the effects if different bureaus have different data. They are also handy for checking if there is a big change in your credit score, including someone using your identity or simply an erroneous debt assigned to your name.

You can use CreditSesame for Experian, CreditKarma for TransUnion, and Equifax Score Card for Equifax. All free.

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Debt, Debt, and More Debt

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

After seeing this household debt bubble chart, I’ve been especially sensitive to news about consumer debt. Here are some recent stats from across the spectrum:

Mortgages
According to real estate data firm CoreLogic, 22.7% of US homes with a mortgage had negative equity in the first quarter of 2011, meaning the outstanding mortgage amount was greater than the value of the property. That’s 10.9 million of them, and another 2.4 million had equity of 5% or less, which means with any further drops they’ll be in danger as well.

Nevada was the state with the biggest share of homes underwater, at 63% of all mortgaged properties, followed by Arizona (50%), Florida (46%), Michigan (36%), and California (31%). Goodness.

Home Equity Loans
The same report also found that a hefty 38% of borrowers who took cash out of their residences using home-equity loans are underwater. By contrast, only 18% of borrowers who don’t have these loans were underwater. Check out all the home equity extracted up until 2008, which is slowly being paid back now.

Is there some good data about what all this money bought?

401(k) Loans
Human-resources consulting group AON Hewitt reports that nearly 30% of 401(k) participants currently have a loan outstanding, the highest in recent history. On a purely interest-rate level, these loans can actually be a pretty good deal. (Don’t listen to the double-taxation myth perpetuated by Suze Orman and others.) However, you have the potential penalty of losing the preciouis tax-deferred benefit plus a 10% penalty if you don’t pay it back in time (and if you lose your job, it’s due even sooner). Still, having nearly a third of all people dipping into their retirement money can’t be a good thing.

Sources: ConsumerAffairs, LA Times, WSJ, SmartMoney

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Chart: The Household Debt Bubble?

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Economist Paul Krugman says that fragile banks are no longer what’s holding back economic recovery, it’s housing and household debt. We already saw that housing prices are dropping again, and yesterday he pointed out another chart of household debt as a percentage of disposable personal income over time:

CMDEBT stands for household credit market debt outstanding, and from what I can tell includes mortgages. DPI is disposable personal income.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.