Beating Broke

Personal Finance from the Broke Perspective

Reducing Your Debt: Much Better than a Snowballs Chance

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Credit card debt, mortgage loan, car payments, tuition…all of these add up to your debt and debt means stress in any economic environment. Like a lot of folks, you probably haven’t defaulted on your debt but it’s hard to keep up on and while there are a lot of plans to pay down cards by paying a little extra each month, it doesn’t move quickly. Paying the minimum payment on those debts doesn’t get you anywhere.  It’s time to stop sending the minimum payment to your debts… sort of.

Get the Debt Snowball Rolling

Snowball
credit: ff137 on flickr

I’ve written before about using a snowball plan for pay-down. You can read one of my favorites here: Debt Avalanche, Correct?  If you aren’t familiar with how the debt snowball works, here’s a run-down. Add up all the extra you pay on your debt and apply it to your smallest credit card. Keep paying that extra to the card and your payments are going to start making a big difference faster than you would believe. Once that card is paid off, apply that extra and the payment you regularly made and apply it to the next largest loan or card. Here comes the hard part; as you pay off credit cards, cut them up. You don’t have to cancel immediately, and possibly shouldn’t for credit score reasons, but once your debt to income ratio is more manageable you may want to consider it. The goal is to quit being eaten by small payments and start making big payments.

Stop Paying So Much Interest

Step number two is adding an extra payment per year to your mortgage loans. This shaves 10 years from your mortgage through the elimination of interest. There are two ways to do this. Your mortgage lender probably has some type of offer available that lets you pay every two weeks instead of a monthly mortgage. Because of the various five week months, this effectively creates a 13th payment for the year, but once you commit you might struggle to get back to a monthly payment.

To stay in control of the extra payment you could simply mail an extra payment at some point in the year with bonus money, but a more comfortable way is to take your payment, divide by 12 and add that amount to your monthly payment. It’s a much more painless proposition that still adds up to an extra payment and ultimately gets more money paying toward your principal. Caution: This is only appropriate if you plan to stay in your home or if you have an equity goal in mind. If you are trying to sell your home, this may not be the wisest option.

The same is true of car payments. If after the credit card and personal loan debt is paid, you may be tempted to pay off your car. If you do not plan to buy another and are hoping to be payment free, this will absolutely work as rapidly for a car payment as for credit cards, loans and your mortgage; however, if you are considering a trade-in, keep the extra money you would spend on your car payment and start putting it to work for you in an IRA!

Weemba: Loans 2.0

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The following post is sponsored, and I am being compensated to write it. That doesn’t change the fact that I’m doing a review, and it will be honest.

When I was first asked to do a review of Weemba, I’d never heard of it.  (See? Honesty!)  As any good reviewer will do, the first thing I did was try and figure out just what it was that I was to be reviewing.  I’ll extrapolate later on, but here’s how they put it in a recent press release.

Weemba revolutionizes the way borrowers and professional lenders connect via an online financial platform. Weemba provides, by means of unique proprietary methods and state-of-the-art safeguards, a virtual way for borrowers to post their needs and for lenders to then find those borrowers.  Protected by a nickname, borrowers post project profiles for lenders to review; interested lenders ask borrowers to access their private information, and if granted access, can contact borrowers directly. Weemba facilitates the borrower-lender interaction without interfering in the negotiation process.

It sounded a bit like a peer-to-peer solution, which, as I’m sure you’ve read, I’m a fan of, so I figured I’d give it a review.  (Doesn’t hurt that I was paid to do it too.)

Sign-Up

Signing up for Weemba was pretty easy.  In fact, if you so choose (I did.), you can sign up using your Facebook account.  You create a Community ID which will be used for their forums and support, and give them the necessary personal details.  If you’ve ever filled out a loan application, you know what I mean.  Name, address, SSN, etc.  There’s also the multiple-choice questions that they pull from your credit info (from Equifax) to verify you are who you say you are.  That’s it.  Fill in the info, verify, and you’re off.

Adding a Loan Project

Once you’ve completed the sign-up process, you’re taken directly to the loan project creation page.  You’re asked to choose between a personal and business loan type.  I chose personal, but they do have the system in place for both.  I advance through, and then get down to the nitty-gritty of the loan project.  Give it a name, tell the lenders what type of loan it is, how much you want, what amortization method you’d like (Installments, Balloon, or Lump Sum), the desired length of the loan, funding type (Full funding only or partial funding accepted), and then are given the option of adding your Equifax Credit Score.

I balked a bit here.  If you know how the credit score programs from any of the credit bureaus normally work, you’re usually signing up for a free trial to their credit score monitoring service that is followed by a paid service.  There wasn’t any mention of whether it really cost me anything or not, so I read the Terms and Conditions.  There, it does mention that some of their services do cost a monthly fee, but doesn’t mention any of the services by name, so I still couldn’t be sure.  Later, I looked in the FAQs and it does mention there that it’s “no cost”, but with no further details.  I don’t see any way around adding your credit score to a legit loan project, so if you’re adding one to seriously pursue a loan, you’ll need to do so.  I wasn’t going to publish the loan project, so I didn’t add the credit score.

Once you’ve gotten the credit score added, you get a chance to add details of the loan, some secure info (contact and some advanced qualifiers for their search engine), create a forum for your project, and then add an Avatar or videos to the loan project.  The avatar will be displayed in their search results, and on the rotator on their home page.  There’s also a “W-SEO” score added to the end.  From what I could tell, it looks to be a ranking of sorts based on how much info you filled out, and is dynamically updated after the loan is published with info on conversation, ratings, etc.

What I Think

For a company that claims to revolutionize the way “borrowers and professional lenders connect”, I saw a lack of any major revolutionary ideas.  Essentially, they act as a loan broker.  They do it online, so maybe that’s the revolutionary part?  I kind of thought that Lending Tree did that ages ago, no?  Or, maybe it’s the search combined with some decidedly social aspects?  I’ll give them that.  Sites like Lending Tree basically pull your info and then spit it out to some local lender that you’ve matched with, so giving the lenders the ability to search for some quality borrowers while giving the borrowers some social tools is a good step up.  I’m just not sure that it deserves the revolutionary PR jargon. They broker the loan, by facilitating the connection.  Once the connection is made, it’s handled privately between the borrower and the lender.

Overall, Weemba looks like a good service that will fill a need both on the borrower and lender side.  I’m a big fan of peer-to-peer because it gives the borrowers to make a case for themselves.  Something that Weemba does too.  I couldn’t find any information on who the lenders are, or if there’s a process for becoming a lender, so I’m assuming that it’s mostly institutions.  Still, a good service, that will allow borrowers to find some competitive offers for their lending business.

If you decide to give Weemba a try, here’s a few things I’d make sure to do to better your odds of finding a lender.

  • Be honest.  If there’s a story behind your debt, or the reason for the loan, share it.
  • Add a credit score.  I don’t know a lender that isn’t going to hesitate if the loan project doesn’t have a credit score.
  • Add a good avatar.  Even if it’s a picture of the car you want to buy.  A picture is going to help you. Same for video if it applies.
  • Answer Questions.  If a lender asks a question, or needs clarification, answer it promptly.

What do you think?  Would you give Weemba a try?  Why? Why not?

Suze Orman Releases Prepaid Card. Wait, What?

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Suze Orman, one of the most well known personal finance gurus in the media, announced a few days ago that she had created, and was releasing, a new prepaid debit card.  Prepaid debit cards, if you’re not familiar with them, are cards, like credit cards, where you prepay and then can only use the card for amounts up to what you’ve prepaid.  In most cases, they are marketed towards people who are unable to get credit cards because of bad credit.

Phil, from PT Money, blasted Suze for the card, on his site and on twitter.  I can’t say that I entirely disagree with him.  His problem with the card, and mine, is that prepaid cards should be a last resort for people who are unable to get a bank or Credit Union account that has a debit card attached to it.  What Suze is doing with this card, however, is pushing it to the general public who really have no use for it, and, by using it instead of a debit card from their bank or CU, are going to be lining the pockets of Bancorp (the bank behind the card) and Suze.  That’s shady, when you are claiming to be “America’s Most Trusted Personal Finance Expert”.  If she is an expert, she should know better. And, I think she does.  Which is why, instead of responding to PT (and others) on Twitter with a factual defense of the card, she had this to say:

Suze Orman Calls PT Money an Idiot
Suze Orman Calls PT Money an Idiot

Terrible way to take criticism, Suze.  To some degree, I discount her response because of the “sassy” way that she responds to questions and such on her shows, but I think she crossed the line here.  It’s one thing to tell the guy who calls in and asks if he should buy a new car when he’s 500k in debt an idiot, but another thing altogether when you’re calling a guy an idiot simply because he thinks your new prepaid card is a bad product.

Is the card a bad product? To Suze’s credit, unlike some prepaid cards that have had celebrity endorsers, this one has plenty of good things going for it.  It includes a credit watch program, and a free credit report with credit score.  It’s got a program to allow you to put money into a separate account for an emergency fund, free bill pay, and the ability to transfer money from one cardholder to another.

But, my Credit Union has all those things.  A $3/month fee on the card isn’t the worst of the cards, but it’s still a fee.  $36 a year to have access to your own money via a debit card?  Come on.  Again, my Credit Union does that, and they do it for free.  Yes, there are some who are unable to get a bank account.  And for those people, if you absolutely need to have access to a Visa/Mastercard card, then go for it.  But, despite what Suze is claiming, don’t expect it to improve your credit score.

There is no way that any of the credit agencies are going to take your activity on a prepaid card into account.  They’ve never taken your cash spending habits into account, and a prepaid card is no different than spending cash.  Would it be nice?  Absolutely.  Many of us who make most of our transactions on debit cards or with cash would agree.  But, it isn’t going to happen.  Your cash spending has nothing to do with your credit, so why would a credit score take that into account?

I just don’t see enough difference between this, and other similar cards to say that Suze went out on a limb here and created a product that is going to change the industry.  As a prepaid card, it’s decent.  There are better.  In the end, it’s still just a prepaid card that should be used as a last option when you can’t/won’t get a bank or credit union account with a debit card.

Read what some other Personal Finance Bloggers are saying:

Suze Orman’s “Approved Card” gets Denied; Thinks PF Bloggers are Idiots

Suze Orman’s new prepaid debit card: The Approved Card

My two cents on Suze Orman and her prepaid card

Young, Gullible, and Broke: Suze Orman’s debit card FAIL

Suze Orman’s prepaid debit card scam

Suze Orman’s Card is Not Approved by Me

Suze Orman’s Approved Prepaid Debit card is Bad for Consumers

Suze Orman Shows True Colors with Her Approved Prepaid Debit Card

And that’s just a smattering of the posts on the subject.  I have yet to come across one that is entirely positive about the card. What do you think? Do you think that Suze did a good thing here, or is it just another way to milk some money out of her followers?