Don't let worries about Credit, Debt, Money, and Security get you down
Free Yourself, like a Gazelle from the Hand of the Hunter, like a Bird from the Snare of the Fowler! Prov. 6:5
Welcome to Credit to the Wise
This website is intended to be a resource to help you get out of debt, improve your credit, grow your wealth, and build your legacy. Poke around and enjoy articles about how to deal with credit problems, control your spending, earn more money, secure your future, and stories of success.
My business is mortgage lending and I love the whole business of money. I hope you’ll feel my passion for people, my hate for the shackles of excess debt, my anguish for those who are struggling, and my love for history – especially the history of success and triumph!
As you read the articles, my hope is you’ll be entertained, educated, and enlightened. There are suggested resources you can use to help you along the way. I’m constantly posting new articles and new information, so please check back often. Thanks for reading!
Should You Pay Off Your Mortgage Early?
I often find myself in long conversations with my borrowers over the best way to pay off mortgages early. Do I recommend the “Bi-Weekly Payment” plan, the “Extra Payment Each Year” plan, or the “Pay A Little Extra Each Month” plan? Since it is assumed that paying off a mortgage early is a smart financial strategy, people are often surprised when I don’t have a favorite strategy to recommend.
When I get this question, I try to shift the conversation away from “Which strategy is best?” and towards “Are you sure you want to pay off your mortgage early at all?” While I think it’s admirable to get out of debt and stay out of debt, I don’t believe “paying off your mortgage early” should be your number one financial priority.
“Paying off your mortgage early may NOT be
the smartest financial strategy for you.”
Instead, I believe you should use your financial resources to prepare for the future and all those mean, nasty twists and turns that life can throw at you. I’m not suggesting a gloom-n-doom approach to the future, but we just don’t know what will happen, and paying off your mortgage early may NOT be the smartest financial strategy for you.
Focus FIRST on Building Liquid Assets
My advice is to focus first on building liquid assets (resources you could access with little difficulty to pay for stuff) vs. paper wealth (resources that cannot be accessed easily). Equity in your home falls under the “paper wealth” category because it is difficult to access in an emergency and you may not be able to access it at all when you really need it.
An example of what I’m talking about came across my desk recently. The applicant wanted to refinance his home to access some of his paper wealth. For several years, he had been paying extra on his mortgage and only owed about $70,000 on a home worth around $400,000. On paper, things looked good, but…
…he was facing total financial collapse
I’ll leave the gory details of his set-backs out of my story, but when he came to me, his wife had left him and the divorce had drained his bank accounts, he had lost his ability to work due to an injury and lost his business, he was 6 months behind on his mortgage payments, and he was facing total financial collapse. He needed me to help him access some of his $330,000 in equity (paper wealth) to live on.
All that “paper wealth” made his home an enticing target.
But because his credit scores were bad and his income was gone, he didn’t qualify for a new loan. The bank who owned his mortgage – that same bank he had been paying extra to all those years – wouldn’t help him. I’m sure they saw his home as a great foreclosure opportunity – all that “paper wealth” made his home an enticing target.
His only solution was to try to sell the home before it was foreclosed on in order to keep some of his “paper wealth”, but since he had been so determined to keep his home – not wanting to uproot his children who’s mother had just abandoned them – he failed to act quickly enough and now it was too late.
I wish I could tell you his story had a happy ending, but it didn’t.
What I can tell you is that if this man had had $330,000 of “liquid assets” instead of $330,000 of “paper wealth” – his story would have turned out much differently.
So if you are prepaying your mortgage now, but don’t have enough liquid assets available to handle life’s emergencies, please remember:
You cannot go grocery shopping and tell the cashier, “I don’t have any money, but my
mortgage is paid off”. Even on double coupon day, that won’t buy you any fruits and veggies.
Variable Rate vs. Fixed Rate
Choosing a Variable Rate is like Ordering a Pizza
“Should I pick an adjustable rate mortgage, like a 3/1 or 5/1 ARM, or go with a 30 year Fixed Rate?” How many times has a buyer or borrower asked you that question? How do you help them choose in a way that makes sense to them?
I’ve found that “Pizza” is the best illustration to use to help them understand this question. If I give this illustration, it all of the sudden makes sense to a borrower and allows them to make an informed and confident decision. Here’s what I’m talking about:
When you go in to a pizza parlor to order a pizza, you’ll be faced with the decision of “What Size” to choose. Some places have only a couple of sizes to choose from, other places have as many as 6 sizes to pick from. How do you choose?
Get Maximum Value for your Money
Well, if you’re looking to get maximum value for your money, you can start calculating the cost per square inch of each size. Since pizzas are round, you’ll have to pull out your handy geometry cheat sheets (I can still see mine faintly etched on my forearm – where I wrote down the formulas to help me get through those high school math tests) to get through the diameter, radius, pi-r-squared issues.
You’ll soon discover that in most pizza places, the larger sizes cost you less per square inch than the smaller sizes. (This is why, when buying for large groups, you avoid buying individual personal-sized pizzas for each person and instead go for the largest sizes for everyone to share.)
Why would you EVER buy a smaller size?
After you’ve figured out that you get more value per square inch out of the largest sizes, why would you EVER buy a smaller size? The answer, when buying pizza, is obvious to you. If you’re by yourself, for example, and buy an extra large pizza because it’s the best per-square-inch value, but eat only a few slices and throw the rest away – you’ve wasted your money. Yes, you bought the best “total” pizza value, but by NOT USING the entire pizza – you wasted your money.
The answer to your pizza buying size question, therefore, comes down to “How much pizza will I use?” To get the most for your money, you should always buy the largest size you will actually use. And so it is with choosing a mortgage ARM or Fixed Rate product. Huh?
Is a 30 Year Fixed Rate ALWAYS the Best Value?
The assumption I will ALWAYS use when comparing an ARM with a Fixed Rate mortgage is that over the entire 30 year term, the 30 year Fixed Rate loan will cost you less than an ARM – which tends to start out with a lower interest rate for a few years and then will eventually adjust higher. So if you’re going to keep the loan for the entire 30 year period, a 30 year Fixed Rate loan is – just like the extra large pizza – the best value per year (per square inch).
BUT, if you take out a 30 year Fixed Rate loan and only keep it for a few years, it is just like buying that extra large pizza, eating a few slices, and throwing the rest away. If you ABSOLUTELY KNOW that you are only going to keep that mortgage for a few years, then you need to give serious consideration to choosing an ARM if the rate you can get is less than the 30 year Fixed Rate.
Be sure to buy ENOUGH!
A final word of caution: Be sure to buy ENOUGH pizza to start with. It is not good to find out you don’t have enough to feed everyone because it is a hassle and expensive to go back and order some more after people have already started eating. Likewise, be sure to get ENOUGH term on your ARM to start out with. If you think you’ll stay in the home for 3 years, but aren’t 100% sure, you may want to get a 5/1 ARM to start with – just to be sure you’ll have enough.
Don’t get caught short – almost EVERYONE expects rates to rise significantly in the future, so don’t get stuck with a house payment you can’t afford.
Washington Women Veterans Summit 2009
“Top 10 Ways to Get Out of Debt and Build Wealth” is the title of my workshop at the Women Veterans Summit this year. I’m so excited about being asked to speak at the 2009 Washington Women Veterans Summit, being held Sept 12, 2009 at the Greater Tacoma Convention & Trade Center. This is a huge FREE all-day event offering workshops, networking, and hundreds of exhibitors offering services and information for Women Veterans.
When I first entered the mortgage business after a successful stint as a sales training manager under Sunny Kobe Cook of Sleep Country USA fame, I was very nervous about working in such a volatile industry and scared about whether or not I could attract enough clients on my own. Sunny had a way of making sure we always had a steady stream of customers to serve. Like her ads or hate her ads, people came in to buy her products.
Turns out I was right to be nervous about the mortgage biz
I would have months where I had too many customers to serve properly, followed by months where I couldn’t find a customer to save my life. I would embark on month’s long campaigns focusing on a certain type of borrower or lending program, start reaping the rewards from the effort, only to wake up one morning to news that guidelines had changed, programs or products had been eliminated, and I no longer had anything to offer these potential clients I had spent so much time and effort attracting.
I’ve learned so much about myself
This roller coaster ride was exciting and challenging, filled with extremes of exhilaration and frustration. I’d start each day believing I could do it and then face and almost constant bombardment of roadblocks and doubt. Yet I continued on because each client that I successfully helped brought joy and satisfaction and hope for tomorrow. Through it all, I’ve learned so much about myself, about risk vs. reward, about money, success, perseverance, and security.
As I’ve dealt with clients who are struggling – hit hard by the economy, being affected negatively by the changes in lending, living under the assumption that home values always go up, that jobs last forever, that disaster cannot happen to them, and that credit will always be available to those who need it – I’ve been working on solutions and strategies to help people succeed, regardless of outside forces. I’m driven by the desire to help my folks get from “Here” to “There”, regardless of where their “Here” is right now.
Help for those struggling with credit, debt, spending, earning…
That is why I am so excited about being asked to present at this Summit. It has given me a deadline to gather and organize and compile these ideas I have. I’ve spent a lot of time recently updated and revamping this website to accommodate these ideas and I will add to it as I expand these areas. The plan is to continue to offer help to those struggling with credit, debt, spending, earning – with specific ideas and strategies.
We’ll expand on the creative ideas about home buying and selling strategies, how to manage your home’s equity wisely and safely, and how to grow wealth. The “There” I’m shooting for, for all my clients and readers, is the “Peace of Mind” that can only come through “Financial Security”. I’ll create my Legacy by helping others create their own Legacies.
If you’re a Women Veteran who wants to register for the Summit, here’s the link: http://www.dva.wa.gov/women_vets.html. Deadline for registration is Sept 7th. Again, it’s free! There should be well over 1,000 other attendees there too so don’t be surprised to see old friends! And you’ll come out of the day with loads of information and resources you didn’t know before, better prepared to face an uncertain future.
Contact info for Glenn Leach can be found at http://legacyg.com/gleach.htm
Know your Statutes of Limitations
“Can you just make a small payment as a show of good faith?” Have you been called by a collection agency trying to collect on an old debt? This is big business right now, so if you’ve EVER had a debt in collections that was never paid (or never reported as paid after you paid it), expect a phone call.
Collection companies are buying up old debts – often called “Zombie Debts” – in huge volumes right now and turning them over to their collection agents. But before you enter into any sort of agreement to repay that old debt, be aware you just might not legally owe it anymore.
The Federal Trade Commission and the State Regulators have agreements in place called “Statutes of Limitations” that set specific time frames for how long you are legally obligated to repay your old debts. The confusing part of all this is that different types of debts are treated differently, and each State has set their own rules for time frames.
States have different time frames
So an old credit card debt in Nebraska, for example, will be treated differently than that same debt in the state of Washington. Making it even more confusing is that if you have moved from one state to another since you opened that account, the creditor gets to choose which State’s law to use.
Still, it is worth checking out the Statutes of Limitations for your State before you repay something you don’t have to. A real good sign that your old debt is beyond the time limit is the way your collector is handling your account. Of course they’ll try to get the whole amount out of you first. And then they’ll start offering you discounted settlement amounts. But the final step is where they get very aggressive: “Could you just make a small payment as a show of good faith? Even $5.00 will do it.”
Why do they want you to make such a small payment so badly?
Don’t they have better things to do with their time than try to collect $5.00 from you? The answer is that ANY payment that you make towards these old debts will reset the time limit.
If you make even a $5.00 payment towards an old account – your Statute of Limitations starts over again. Why? Because the time limit starts from the date of your last activity on that account. If you make a small payment, you are acknowledging that the debt is yours and are agreeing to repay it.
When dealing with phone collectors, I have two rules for you to follow:
- Never admit over the phone that the debt is actually yours – even if it is. Just ask them to send you proof that the account is yours and a summary of what you owe. Once you get that, you can decide to deal with them or not. But (and remember that all these phone calls are being recorded) once you admit that account is yours, you are making it that much easier for them to get a court judgment against you.
- Never pay a collection over the phone. ALWAYS ask for a settlement letter by mail before you send any money in. And while they are sending you the settlement letter, make sure the debt is yours and that the Statutes of Limitations haven’t expired.
In my State (Washington), the Statute of Limitations on a credit card debt is a surprisingly low 3 ½ years. No payment in the past 3 ½ years? No more legal obligation to repay the debt.
Want to find out more or find out your State’s limits? Just search “Statutes of Limitations __Your State__” and you’ll find charts a-plenty.
When financial times are tough, you can find solutions to your credit or debt issues. Credit to the Wise provides you with the information you need to fix your finances, buy a house, get out of debt and get on with your life!
GLENN LEACH is a proud member of the ActiveRain Real Estate Network, a free online community to help real estate professionals grow their business.
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