Thursday, December 21, 2006

New credit card after bankruptcy

Before filing bankruptcy, I wondered how long it would take to qualify for a credit card with decent terms.
Well, here's the answer. Most credit offers were crap for a few months after bankruptcy discharge (and a lot of them still are). Last month, my wife was approved for a $3000(!) limit with a well known bank, no annual fee, and a decent interest rate.
We haven't used it and don't plan on using it except for catastrophic expense (i.e. blown transmission), but it's amazing to know how quickly we were able to get credit.

Luckily, we've learned from our mistakes, but I wonder how many people get right back into credit card debt. We're paying cash for our Christmas gifts, but it'd be easy to put it on credit.

82 month car loan

Just when I thought I heard it all, my local Hyundai dealer is pushing an 82 month car loan (at 8.99%). Unreal! That's almost 7 years.
Why not just put a 30 year mortgage on it while we are at it. If you need 7 years to pay it off, you shouldn't be buying a new car. Go buy yourself a nice used toyota or honda.

Friday, August 18, 2006

Why more of a GOOD thing is BAD

Sometimes, more of a good thing can be bad. Let's take for example home ownership rates. Last quarter, they were at 68.7%. According to the Census bureau, between 1980 and 1997 home ownership rates were fairly steady in a range between 63% and 65%. After 1997, home ownership rates started climbing to where they are now. How can more people owning homes be a bad thing? For one, many economists believe we are now in a housing bubble. So what caused this bubble? Well, among other things, historically low interest rates and very loose lending standards. Yes, home ownership rates went up, but these people should have never been buying in the first place! I also have a feeling many of them will be back to being renters soon through foreclosure.

Another example of too much of a good thing: low unemployment rates. Does everybody deserve a job? Hardly. A certain percentage of the population is just unemployable due to addictions/crime/bad attitudes etc... Lest I be accused of being an insensitive jerk who's never fallen on hard times, I was unemployed for over a year and underemployed for twice as long. Most people who are unemployed deserve a job, but there are some who don't. Therefore, a zero percent unemployment rate would be a bad thing (don't ask me what the magic number is, I think the official unemployment rate grossly underestimates real unemployment anyway)

Wednesday, August 16, 2006

Payday loans

Hey everybody,
Short post today, but wanted to point you to this blog post doing the math on payday loans. The quick summary is that the interest rate on those two weeks loan is well over 300%.

Wednesday, August 09, 2006

Tivo and your buying habits

Ever since I got Tivo (ok, it's a DVR by my cable company, not actually Tivo), I find that I'm totally unaware of new products or movies since I skip all commercials. In theory, since I'm seeing less advertising, that should curb my urges to buy things, right? On the other hand, I watch more shows now, including shows on HGTV like "House Hunters" and others. I now feel an uncontrollable urge to buy a house (ok not really) or some new furnishings for my house. That and rumors an IKEA is coming to my neighborhood soon have got my buying urge all worked up.

So, here's the QUESTION OF THE WEEK:

Since you got Tivo, do you:
A) Want to less stuff since you aren't bombarded with commercials
B) Want to buy more stuff because of the shows you can now watch
C) No change
D) Other?

For me, I think overall the answer is A)want less stuff

Waiting for your comments! (if you answer the question on your own blog, include the link in your comments!)

Credit Card Offers

Just realized 3 of my first 4 posts are automotive related. Here's a different topic to add some balance: Credit card offers after bankruptcy.

I'm getting credit card offers daily. I started getting them BEFORE my bankruptcy was discharged, though the volume went up considerably after the discharge (about 6 months ago).

I'm seeing a pattern in the quality of the offers. The first offers I received were from banks I'd never heard of (not necessarily a bad thing, per se) and were full of sneaky fees. Lately the offers have been getting better. Let's look at one example of each:

Offer #1: Non-household name bank
Minimum credit limit: $250 (and probably likely the most you'll get approved for)
Account set up fee: $29
Program Fee: $95
Annual Fee: $48
Participation Fee (also annual) $72
Additional Card fee: $20
Let's assume you only need one card. Fees your first year are $224!

Offer #2: Big bank of "what's in your wallet" fame
Minimum credit limit: $500
One time fees: $0
Annual fees: $0

Which one would you pick? #2 of course. Who in their right mind would pick the first offer? Well, obviously some people do or else they wouldn't be mailing these out. Here's my guess: the desperate who jump at the first offer, and those who don't read the disclosure. Fyi, the disclosure for the second offer was on the back of the offer, the disclosure for the first offer was in a separate booklet in fine print. If they were really upfront, they would require you to pay all the fees when you sign up by sending them a check. Instead, they include them on your first bill. If you didn't read the disclosure, sorry about your luck. I doubt they'll refund the fees, even if you haven't used the card.

Lessons of the day:
Read all the disclosures, especially looking for fees. It's not that hard!
Refuse to pay any fee other than a small annual fee (less than $30), you'll get better offers soon.

Just for fun, I've created my own disclosure form for a fictitious card, modeled after the famous Mastercard "priceless" ads:

Screw U Bank:
Application fee: $50
Too lazy to read the disclosure fee: $39
Desperate for credit fee: $40 annually
Bending you over fee: $40
Making huge profits so the banking lobby can buy off your politicians: priceless

75 month car loan - BAD IDEA!

75 month car loan
Heard an ad the other day for a 75 month car loan.. that's 6 years 3 months folks! I did a quick analysis using loan amortization calculators and data from edmunds. The graph on the left shows the loan balance vs. the worth of the car. The lowest line is the difference between the two. As you can imagine, if you used this loan, you would be in the hole right off the bat, partially because a car depreciates the moment you drive it off the lot and partially because you'll have to pay sales tax, depending on where you live.
So, in this example, here's the gap between how much you owe and how much the car is worth:
Day 1: a little under $10,000
Year 1: a little over $10,000 (yes, it went up)
Year 2: about $9,000
Year 3: $7,500 and by now your bumper-to-bumper warranty has run out
Year 4: $4,400 (finally starting to come down)
Year 5: $1,100 Note that with most "normal loans", your car would be paid off by now (your loan balance with this loan: $6,700)
Year 6: By now your car is worth more than the loan. You still don't have it paid off though, you owe $1400 at the end of year 6. After 6 years, your car probably has 90,000 to 120,000 miles on it.

In conclusion: 75 month loans are for suckers. Don't do it! For that matter, buying a brand new car isn't very smart either, but that's for another post.

Details on the analysis: All values from edmunds for Ford Explorer XLS (base). Used average retail value for 2006 + taxes for initial loan amount. Used average trade-in values for years 2006-2000 to determine residual value.
Check out this blog post about being upside down on a car loan. Scary Statistics.

Tuesday, August 08, 2006

What exactly is the Kelley Blue Book?

A quick post today about the Kelley Blue Book (KBB) car values spouted off by used car salesmen: don't believe them!
Here's the little known fact: KBB values represent the average asking price that other dealers have set, not the actual sale price. If you actually pick up a Blue Book it says so in the fine print (also on their website if you look hard enough): "The Kelley Blue Book Suggested Retail Value is representative of dealers' asking prices..." So basically the KBB values have little meaning to you the customer. The only people they are useful for is the used car dealers, it gives them a "number" they can put on the car as a starting point.
The bottom line: if you think you got a deal because you got a car for a couple hundred under Blue Book, you've been had.
There are other better sources of data you can use based on actual sales prices, not asking prices. My favorite is Edmunds.

Saturday, August 05, 2006

Shopping for a car loan

My wife and I had decided we wouldn't replace my car until we absolutely had to. Well, a couple weeks ago that time came. One of the oil seals popped out and the engine was spewing oil out all over the driveway. It would have been $600 to fix it. Since the clutch was also going bad, the windshield was cracked, and the muffler needed replaced, we probably needed to put $2000 or more into it. Considering it was a 13 year old car with 240,000 miles on it, I didn't think that was the best decision.
So, we had to get a car, and quick. Based on information I found on the internet, we could probably get a loan for a car at 15 to 20% interest. No thanks. We'd also previously tried and failed to get a loan through our own bank, so that wasn't an option. We do however have a little used credit union account. We figured we'd give it a shot.
I called the credit union on a Saturday and applied for a loan
On Monday, we got approved for a $10,000 loan with zero down at.. get this... 7.25% interest!
That's as good as if we had perfect credit. The loan rep. explained that every loan gets the same interest rate there, unless they borrow much more than what the car is worth. Also, the decision isn't made based on a credit score alone, they have a committee that approves every loan.
I don't know if every credit union operates this way, but my experience is that banks are much more likely to rip you off. For example, our bank charges $35 for each overdraft (even if it's a penny). Our credit union doesn't charge at all. (ok, they charge you interest like if it was a loan. Which in most cases will be practically nothing) So, if you don't belong to a credit union, join one! Even if they aren't as generous as mine, I bet they treat you much better than a regular bank.

First Post

So why did I decide to start a blog? A year ago, something happened to me that I never thought could happen. I filed bankruptcy. I thought I'd done everything right, went to college, got a master's degree, worked hard, managed my money well (I thought), etc...
I've learned a lot through the process. I'm also learning quite a bit about how to get back on my feet, so this will be the main focus of this blog: making financially sound decisions after a bankruptcy.
My bankruptcy was primarily caused because I was laid off (although I had made my share of financial mistakes, like getting credit card debt), so one of the things I've learned is to diversify my income. I don't want to be dependent on one company giving me one salary. To that end, I've done some consulting on the side, and I'm also starting my own business. One of the things I learned is that finding someone willing to rent to you after you've filed bankruptcy is not easy. Based on my experiences, I figured there's got to be an easier way. There are a lot of landlord's willing to hear you out and consider you for a lease, it's just hard to find them. Well, the solution I've created is RentAfterBankruptcy.com. The site gives advice on how to convince someone to rent to you. There is also a brand new listing service to bring landlords and the recently bankrupt together. Finally, I share other bankruptcy related wisdom I've learned, such as the truth about credit counseling . Anyway, this blog isn't about that site, I'll be posting about more general topics here.