Author Archives: Literati Mortgage

What is Installment and Revolving Credit?

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In the realm of personal finance, it’s important to understand your options when it comes the type of credit you can have. While there is a plethora of information available to demystify credit and its various elements, two of the most important forms of credit you must understand are installment and revolving credit.

What is Installment Credit?

In a basic sense, installment credit is credit that has a specific number of monthly payments. Examples of such forms of installment credit is home mortgages, auto loans, student loans, personal loans and any other type of loan that features a specific amount and payoff date.

In terms of your credit report, installment credit debt affects your score in very specific ways. One of the biggest questions consumers have regarding installment credit is the affect it has on your credit score after it’s been satisfied. These loans are most likely reported to all three major credit bureaus, therefore all account activity is reflected on your credit report.

Installment debt affects your credit report in a different way than other forms of debt because outstanding balances are often secured via some form of asset. For example, with a home mortgage your home is your asset. Since this form of credit is often more stable, it’s influence on your credit score is minimal. This is why paying off an installment loan early rarely boosts your credit score. Therefore, it’s far more important to focus on making on-time payments rather than paying off the balance early. Even with hundreds of thousands of dollars of installment debt, you can achieve a credit score over 700, according to VantageScore.

What is Revolving Credit?

Revolving credit is far more common than installment credit. In a nutshell, revolving credit is any credit line that doesn’t have a fixed number of payments, which is the opposite of installment credit. The clearest example of this type of debt is credit cards. While you have a monthly payment as long as there is a balance, as soon as it’s paid off the credit line is not closed. Basically, this form of credit can be withdrawn, repaid and then withdrawn again. As long as you keep your balance under you credit limit, you can repeat this cycle over and over again.

In terms of your credit score, revolving credit is among the most powerful elements. Because of this, it’s essential that you not only pay your payments on time, but also keep your balance below your credit limit. Doing so can cause a substantial boost to your credit score. If you are curious about what credit score is needed to buy a house please contact us.

Unique Ways to Save Money for a Down Payment

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Looking for ways to save money for a down payment on a house? Perhaps you have the right credit score to buy a house but not the savings. This may seem like a far off dream for some, but there are some really interesting and unique ways that can save you money. In the quest for becoming a more financially secure individual, it’s essential to look for creative ways to curb spending and expand your bank account.

Ways to Save Money for a Down Payment

1.) Choose a Great Bank – pick a bank that offers zero ATM fees and no overdraft fees. Oftentimes, smaller banks or credit unions offer the highest savings interest rates and the lowest fees.

2.) Use Exclusive Deal Sites – Websites such as Living Social or Groupon offer extreme deals for restaurants and other social activities. If you have a hankering to get a manicure or go out for sushi, these sites can offer up to 70% off standard prices.

3.) Live Healthy – Medical bills and expenses related to health issues are among the biggest reasons people are in debt. Try to eliminate this from your life by living healthy and taking care of your body.

4.) Homemade Shaving Cream – Men and women alike use shaving cream throughout their lives. Over time, these creams can add up. Therefore, create a homemade shaving cream by combining ingredients such as olive oil, Shea butter and coconut oil. If this is too expensive, you can even use peanut butter as shaving cream – just don’t be surprised if animals at the dog park are instantly attracted to you.

5.) Efficiently Wash Dishes – Instead of using the dishwasher, hand wash dishes; however, make sure you turn off water while scrubbing. Doing so can save you up to 500 gallons of water per month, which will not only save on water bills, but also help the environment. Here’s a tip: use the dishwasher as the greatest drying rack instead as an actual dishwasher.

6.) Read a Book, Not TV – Did you know that with every four hours of TV watching you’re exposed to an estimated 100 advertisements? Avoid the annoyance of being yelled at while saving energy costs. Reduce TV watching to a maximum of one hour per day.

7.) Use LED Light Bulbs – Did you know that over a 10-year period, you can save up to $10,000 if you use LED light bulbs instead of traditional bulbs. While more expensive upfront, their lifespan and efficiency will save you thousands of dollars. Imagine what you could do with $10,000 in a decade? Bali, anyone?

Traditional Banks vs. Credit Unions

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During a time when the majority of consumers have less trust in major banking institutions, there seems to be an exodus from traditional banking to more localized credit unions. This form of banking offers numerous financial benefits to help consumers enhance not only their savings, but also increase how they store and spend their money. While both financial institutions offer specific advantages and disadvantages, it’s essential to learn about these features in order to make a well-rounded banking decision.

Traditional Banks vs. Credit Unions

Perhaps one of the primary differences between credit unions and traditional banks is how they operate. Credit unions are classified as nonprofit organizations. Therefore, they have more control over interest rates for CDs and savings accounts, which yield higher payments to you. Also, because of this, they can offer substantially lower interest rates on personal loans, auto loans, mortgages and even credit cards.

Another significant distinction one should understand is how credit unions are focused. That is to say, credit unions are member-centric banking systems, also referred to as cooperatives (see Your650Score). Therefore, the entire institution is operated and owned by its members. This offers distinctive advantages over traditional banks, which are often owned and operated by stockholders. Therefore, when you bank with a credit union, you’re actually a part owner of that institution.

In terms of customer service and stability, cooperatives such as these offer far greater benefits and security than larger banking institutions. Instead of trying to appease a select group of stockholders, major decisions made by credit unions are for the genuine benefit of all its members.

Although there are countless benefits when choosing to bank with a credit union, such as: higher savings account fees, greater flexibility with personal loan qualifications as well as offering personalized service as its member base is always much smaller than traditional banks, there are some disadvantages you should be aware of.

The most notable disadvantage of a credit union versus a traditional banking institution boils down to convenience. Typically, credit unions only offer a handful of physical locations within a small service area. While this is great for those who rarely travel, if you find yourself away from home this can be an issue. Because larger, traditional banking institutions are found throughout the United States, they offer a myriad of locations and other services such as online banking and bill pay. While it’s possible to find a credit union with the aforementioned, expect fewer service options with credit unions. On the other hand, expect greater customer service and member-driven benefits than with traditional banking institutions.

Should I Declare Bankruptcy?

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The thought of filing Chapter 13 bankruptcy is an unattractive option for millions of consumers, especially if own a home or are planning on purchasing a home in the future. While this should be a last resort, filing for bankruptcy can provide much needed financial relief for those in dire circumstances. Determining whether or not you should file for bankruptcy is a highly individualized process; however, there are some general tips to follow, which clarify whether or not you should go through this process.

When Should I Declare Bankruptcy?

The answer to this questions depends on your current financial standing. In order to clarify where you are currently in terms of debts and financial ailments, answer the following questions:

I. Are you only able to make minimum payments on revolving debts, such as credit cards?

II. Is your phone constantly ringing from bill collectors?

III. Are you having to use credit cards to pay for life necessities, such as food and gas?

IV. Are you unaware how much money you actually owe creditors?

If you answered yes to three or more of these questions, then you may want to consider filing for bankruptcy. Obviously, you should only file if debt consolidation is not an answer. For example, those who cannot afford their monthly bills sometimes aren’t able to afford the monthly payments from a debt management program offered by credit counseling agencies. If this is your current standing, then you should deeply consider filing for Chapter 13 or Chapter 7 bankruptcy.

Bankruptcy Types:

For consumers, there are two primary forms of bankruptcy, which include:

I. Chapter 7 Bankruptcy – This form of bankruptcy liquidates all non-exempt assets with the primary goal of satisfying creditors. Generally speaking, this is the ideal option for those who have a large sum of unsecured debt, such as credit cards and medical bills. If you have limited income, then this is your best option.

II. Chapter 13 Bankruptcy – This form of bankruptcy is slightly less serious as it doesn’t eliminate debts, but rather restructures your debts by providing a low monthly payment plan. This is the ideal option if you have a decent income and wish to avoid loosing your home while simultaneously paying off owed money.

While the advantages and disadvantages of filing for either Chapter 7 or Chapter 13 bankruptcy vary from person-to-person, the true benefit is based upon your financial desires. Perhaps the most important reason why individuals file for bankruptcy is to prevent lawsuits, wage garnishment or asset seizure. If you’re interested in possibly filing for bankruptcy, speak to a bankruptcy lawyer to determine what your best options actually are.