Extension Educator, Consumer Economics
Extension Specialist, Consumer Economics
Extension Educator, Consumer Economics
July 30, 2009
Everyone is talking about energy use and saving money with home energy improvements. People are buzzing about white roofs in the New York Times, By Degrees: White Roofs Catch On as Energy Cost Cutters, to tax credits in the The American Recovery and Reinvestment Act (ARRA).
I like the tax credit because it helps save money in two ways: first, you can save money for home energy improvements by receiving the tax credit and second, you will save money in energy costs once you've made these home improvements.
Remember, a tax credit helps you on your tax bill more than a tax deduction. When you receive a tax credit, the amount is subtracted from the amount of tax you owe. (In contrast, a tax deduction is deducted from your income before you calculate the tax you owe.)
The new law increases the energy tax credit for homeowners who make energy efficient improvements to their existing homes. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements, and raises the maximum credit limit to $1,500 for improvements made to your home between January 1, 2009 and December 31, 2010.
Be sure to consult a tax professional and read the IRS fact sheet 2009-10 about the Residential Energy Property Credit to be sure your improvements qualify before planning to use this tax credit.
Which home improvements will qualify for this tax credit? Home improvements such as the cost of insulation, energy-efficient exterior windows, and energy-efficient heating and air conditioning systems qualify. Installation doesn't qualify. For a list of qualified improvements, visit the Energy Star website.
How can you benefit from this tax credit? For example, new ENERGY STAR qualified windows can help reduce your energy bill up to 15 percent. Now, with the tax credit you can reduce the cost of installing new windows. If you have noticed drafts in the winter, or one of your rooms with many windows feels especially warm in the summer, then these are good clues that your home might benefit from new Energy Star qualified windows.
For other ways to save on home improvement costs, also at the energystar.gov website is a "rebate finder" webpage. You can enter your zip code and find out about other rebates and credits for making home energy improvements.
Now may be a good time for making home energy improvements. I know I'm planning to investigate some home energy improvements that we need to do while I can take advantage of this tax credit. What about you?
July 26, 2009
With the changing economy, people are asking me about credit scores but the questions are different than they were a year ago. Maybe you've been wondering about your credit score -- and what affects it -- too.
Generally when people talk about credit scores they are actually referring to FICO credit scores -- the main provider of credit scores. Consumer Reports Money Advisor Newsletter recently provided information about FICO credit scores that reflect the type of questions I'm hearing. Lets take a look at some of these questions:
What happens to my credit score if a lender lowers my credit limit on a credit card?
Probably not much. As reported by Consumer Reports, a study done in 2008 found very little change in credit scores for people whose credit limits had been cut.
Will paying down or off my credit balance hurt my credit score?
Actually, paying down balances is one of the best ways to improve your credit rating. However, you may not want to completely zero the account and then not use the credit at all – a little bit of activity on the credit card may be beneficial.
Karen Chan's recent blog post, Should I cancel this credit card? Will it hurt my credit score? talks about this more.
Does having a sub-prime or adjustable rate mortgage hurt my credit score?
Not at all. The type of mortgage loan is not in the FICO score calculation. What is important is that you keep up with payments.
Most people have heard the commercials for debt-relief where someone promises to reduce the amount of debt you need to pay. Will entering into a "partial payment agreement" with a debt-relief firm affect my credit score?
Most likely, yes. Even though this may be a much better solution than not paying your bills at all, it will still count as a negative on your credit score. However, even though your score may initially dip, working with a credit counselor may help you get your finances in order. As your payment history improves, so will your credit score.
If you do decide to work with an agency to restructure your debt, I would suggest you work with a nonprofit agencies with counselors who are members of the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling. Also check with your local Better Business Bureau. Be sure you understand the fees and costs to you before signing any agreements.
Absolutely yes. The FICO scores gives equal weight to late payments no matter the type of loan.
While it's important to think about how your credit use will affect your credit score, remember to keep your financial goals in mind when strategizing about credit use. Using wise financial behaviors will ultimately help your credit score.
July 17, 2009
This is probably the most common question I get about credit. A person has a credit card she's no longer using, and she's thinking about canceling it. But because we're all so concerned about our credit scores today, she wants to make sure that cancelling it won't hurt her score.
Years ago, the recommendation was clear: cancel any credit card you aren't using. But today, the issue is more complex. Whether canceling a credit card will hurt your credit score depends on several things.
Part of your credit score (about 30%) is based on "Amounts Owed." One of the factors considered here is, What proportion of your available credit lines are you using?
If you have any individual credit card charged up close to the limit, you'll lose points because your "usage ratio" is too high. And you'll lose points if, looking across all your credit cards, you're using too much of the combined credit limits. What's too much? Transunion, one of the three major credit reporting agencies, says that the average proportion of balances to credit limits is 34%, so you want to be substantially below that. I've heard that less than 10% should be your goal.
Canceling the card could hurt you, because your utilization ratio may go up when you lose that credit line. This is especially true if your card has a high credit limit and you charged little or nothing on it, .
Lots of people don't realize that the credit scoring algorithm can't distinguish between a balance that you're carrying from month to month, and one that you'll pay off when you get the bill. If you're applying for a mortgage or a new car loan, don't put a big charge on your credit card even if you plan to pay it off before the due date. The credit card might report to the credit bureau on a day when that huge balance is on your card, making it look like you're carrying a large balance in relation to your credit limit.
How much this will affect your credit score will depend on the other information in your credit history.
You know that having too many credit cards is not a good thing; so does your credit score. This is another factor in the "Amounts Owed" part of calculating your credit score.
The average credit report shows 4 or 5 bank credit cards (as opposed to store credit cards). A good goal is to be no higher than that.
Length of credit history determines about 15% of your credit score. You gain points for having a long credit history. Although negative info can only stay on your credit history for seven years, good stuff can stay on forever. So my credit history shows that I've had one particular credit card since 1990. Only seven year's worth of payment history is reported, but the date I opened the account will stay there as long as I have the account. That earns me a some points on my credit score. Canceling that account could take away those points, especially if my other credit cards were opened much more recently.
Your credit score is simply a reflection of all the information that's in your credit history. Rather than paying to get your credit score, or paying for a service that lets you access it, start by getting a free copy of your credit history from each of the three major credit reporting agencies. Use the REAL authorized website to get them, at www.annualcreditreport.com. Make sure all the information is correct, and follow the instructions on the report to dispute incorrect entries. Paying your bills on time is the single most important thing you can do to have a good credit history. And keeping your balances low could be the 2nd most important thing. Take care of your credit history, and your credit score will take care of itself.
Thanks to Jeff Rose, this week's host of the Carnival of Personal Finance for selecting this post for inclusion in the Carnival. Check it out, and see what other financial bloggers are talking about on his Good Financial ¢ents blog.
July 9, 2009
The past couple of weeks have been filled with discussions on wills and trusts, guardians and executors. Unless you have a legal background or some knowledge of how these things work, some or all of what has been said may have gone right over your head. I will attempt to shed some light on the discussion of Michael Jackson's estate. I just viewed the Will of Michael Joseph Jackson. At first I was taken aback by the simplicity of it. Surely someone as wealthy as Michael Jackson would have a more elaborate will. However, after noticing that the will placed all of his assets into the Michael Jackson Family Trust, I understood why it was simplistic. It was actually a pour over will. A pour over will literally pours over your assets into a living (inter vivos) trust that you would have established during your lifetime, i.e. the Michael Jackson Family Trust.
I've said a mouthful already. Let me begin by telling you what a will is. A will, according to the American Bar Association, provides for the disposition of property owned by you at the time of your death. A will can also answer questions as to your last wishes concerning your minor children. Michael Jackson's will clearly names his mother, Katherine Jackson as the guardian of his minor children and Diana Ross as the successor guardian. A guardian is a person legally responsible for the care of another person and/or her assets. His assets, however, will be placed in trust. A trust is an estate planning arrangement where a trustee (which can be one or more individuals and/or banks) takes title to the assets of the original owner for the benefit of one or more persons known as beneficiaries. Michael Jackson's will named three co-executors of his estate. An executor is in essence a manager of the estate. This person makes sure that all debts and taxes are paid and that proceeds are passed on to the proper beneficiaries. By now, we all know the beneficiaries of Michael Jackson's estate are his three children, his mother, and the charities named in his family trust.
So, is Michael Jackson's will the final word? Not necessarily. Deborah Rowe, the biological mother of the children is still living. Unlike property, children cannot simply be passed along if a living parent still has rights to them. There is speculation that Debbie might contest the will and fight for custody. When someone contests a will, he challenges the validity of it or its terms. The competency of the maker of the will at the time of signing can also be challenged. It will be interesting to watch how this all unfolds in the coming weeks and months.
Although Michael Jackson was a wealthy man, you do not have to be wealthy to establish a will and/or trust. If you have minor children, you can use a will to provide instructions on who will care for your children and their assets in the event of your death. I started my will years ago when my children were small. I did not complete my will because I did not know who I would feel comfortable with caring for my children and their assets. My mother and mother-in-law are both older women with health challenges. Although I knew what I needed to do, I did not do it. Had my husband and I died, the courts would have been forced to make a decision for us because we would have died intestate, without a will. Our children could have ended up with someone that we did not approve of. However, as of the typing of this blog, I have contacted an attorney and am in the process of establishing my will and family trust. Just in case all of this isn't enough to convince you that planning is important, I have include a list below of the benefits of having a will/ trust.
Benefits of a trust (State Bar of Arizona)
For more information on will, trusts, and estate planning, visit the following websites:
July 2, 2009
The amount of money in your bank or credit union account that is insured will stay at $250,000 through Dec. 31, 2013 as a result of the Helping Families Save Their Homes Act of 2009. Even if you have nowhere near that amount of money, this reminds us that money in US banks and credit unions is safe. Just check that your financial institution is insured by FDIC or NCUA.
Before last October, most account were insured up to $100,000. Congress raised the limit to $250,000 to help reassure account holders as the stock market and real estate markets fell, and some banks failed. Thanks to insurance through the FDIC and NCUA, accountholders at insured institutions lost no money, as long as their account balances did not exceed the limits.
You may not normally have that much money in your bank or credit union. But you could easily have more than $100,000 in an account if you:
Only deposit accounts - CDs, saving, checking, money market accounts - are insured. Investments purchased through a broker who has a desk at your bank are not insured.
The insured amount would have reverted to $100,000 at the end of this 2009. But the new law extends the higher coverage until December 31, 2013. This is good news, especially for people who may have large amounts that they would like to put into longer term CDs. With the extension, you could put up to $250,000 into a 4 year CD before the end of 2009 and know that it would be insured until its maturity date.
Retirement accounts were already covered up to $250,000 before these two temporary pieces of legislation, and insurance on those accounts will remain at $250,000 even after the legislation expires.
You may have even more insurance, depending on how your account(s) are titled. Joint accounts and accounts with POD (Payable on Death) designations are two situations where you have 2 or more times the base amount of $250,000. You can use the FDIC insurance calculator to figure out how much coverage you have.
This is one of the benefits of having money in a bank or credit union, compared to holding cash or keeping it in investment accounts that are not insured. is that most are covered by insurance. If the bank or credit union should fail, account holders are insured up to certain amounts. The general limit has been $100,000 for quite a long time.
To find out if your bank is insured by the FDIC, call 1-877-275-3342, use "Bank Find" at www.fdic.gov/deposit, or look for the official FDIC sign where deposits are received. As of 2007, the FDIC says that insured banks should be displaying the new official FDIC sign:
For credit unions, find out if your credit union is insured and how much insurance you have onthe NCUA website.
July 1, 2009
The personal savings rate is inching up. Bob Murray, from WTAX Radio in Springfield Illinois, and I chatted this morning about saving money -- how quickly a little bit can add up and some ideas on how to get started. Listen to the radio interview to jump start your savings!
For more money saving tips, visit the Plan Well, Retire Well website.