Finance – Baisieux http://baisieux.net/ Sun, 15 May 2022 11:16:00 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://baisieux.net/wp-content/uploads/2021/04/cropped-icon-32x32.png Finance – Baisieux http://baisieux.net/ 32 32 What happened to Upstart’s $400 million stock buyback program? https://baisieux.net/what-happened-to-upstarts-400-million-stock-buyback-program/ Sun, 15 May 2022 11:16:00 +0000 https://baisieux.net/what-happened-to-upstarts-400-million-stock-buyback-program/

Earlier this year, the artificial intelligence lender Reached (UPST 16.32%) announced a $400 million share buyback program. But in the first quarter of the year, which ended March 31, Upstart did not buy back any shares. Additionally, management made no mention of the program in its recent first-quarter earnings call. So what happened to this stock buyback program? Is Upstart still planning to buy back shares? We’ll take a look.

So what’s the problem ?

Upstart officially announced the share buyback program along with its fourth quarter and full year earnings report for 2021 on February 18 this year. It’s a bit unusual for a fast-growing company like Upstart to conduct a share buyback program so soon, but CFO Sanjay Datta attributed the situation to two things: the company’s profitability and “opportunism economic” in the sense that management thought the stock was undervalued.

At that time, Upstart was trading around $130 per share. Towards the end of March, there were times when the stock traded below $100, and very briefly below $90, so there were opportunities to buy back shares.

Image source: Getty Images.

But we do know that during the quarter, Upstart also faced several other issues that kept it busy. Upstart wants to be a technology company that helps investors, banks and credit unions better assess the credit quality of borrowers so they can initiate loans and see lower loss rates. However, Upstart doesn’t really want to be a bank. He wants to see as many loans as possible created with his software because he collects a fee for each set-up.

Upstart does not intend to keep loans on its long-term balance sheet as it is not capital efficient and would slow growth. But in the first quarter, loans on its balance sheet fell from about $252 million to about $598 million. Some of this is intentional, as Upstart recently started offering auto loans, which the company previously said they were keeping on their balance sheet until further testing.

But a small portion of the personal loans that would normally have been sold to investors have also been taken to the balance sheet. As interest rates rose in the first quarter and the economic environment became more uncertain, some investors who normally purchase and fund loans had to take a step back to consider how they should assess risk, which resulted in a funding hiatus. Upstart decided to book these loans to “fill in” the gap. This was one of the main reasons why the shares sold off intensely after the earnings.

Not only does this indicate that capital markets could dry up for Upstart loans, but Upstart is also now responsible for that credit risk should something go wrong. In addition, interest rates have steadily increased since the end of the first quarter, so the situation on the financial markets may have deteriorated. Upstart can retain capital at this time in case there are loan losses or the situation escalates and Upstart has to step in again. Given the market reaction, I imagine Upstart will want to get these loans off its balance sheet as soon as possible.

Will Upstart repurchase shares in the future?

Upstart’s share buyback program is still active, so the company could, in theory, repurchase shares at any time. He could have bought back shares since the beginning of April. From a value perspective, there would be no better time to buy back shares than now, with stocks trading about as low as they have ever been.

But I would be surprised to see Upstart buy back stocks with so much market turbulence. I also never thought it was a good idea, to begin with. On the one hand, Upstart may want to invest more in its product. Although management has invested, she said part of the reason for the pause in capital markets funding is that the process of adjusting loan yield thresholds by institutional investors is still mostly manual, while that Upstart’s banking and credit union partners can adjust their performance. thresholds in a much more autonomous way. Management said it plans to further automate this and make the capital markets system similar to that of partner banks.

But the thing is, it looks like there’s a lot to invest in, so I’m not sure the company would send the right message to the market by buying back shares. I think they should focus on getting the business back on track.

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Should you buy prepaid maintenance? https://baisieux.net/should-you-buy-prepaid-maintenance/ Fri, 13 May 2022 21:53:49 +0000 https://baisieux.net/should-you-buy-prepaid-maintenance/

Prepaid maintenance plans can be big savings if your regular maintenance is expensive. This may be especially true in today’s automotive market, where larger vehicles that rely on synthetic oil can command higher prices. But should you opt for prepaid maintenance, or is it an additional service worth skipping?

How does prepaid maintenance work?

Prepaid maintenance plans are a dealer added service that includes the cost of regular trips to the service center. Programs like this and other services like GAP insurance and extended warranties are usually offered to you by the finance and insurance manager, towards the end of your loan process, before you sign the documents. final.

These programs offer regular maintenance, such as oil changes and tire rotations, on a prepaid basis. Your maintenance will then be included in the cost of your loan, and you won’t have to worry about paying for services out of pocket when you do them at the dealership you purchased from.

When prepaid maintenance services are built into the cost of your loan and you have them on a pay-as-you-go basis. For example, if your service includes an oil change every six months and you don’t go, you’re paying for a service you didn’t get. Or, if you’re not in the area of ​​your authorized service center when you need an oil change, you might have to pay someone else to do it anyway.

Of course, plans and coverage differ depending on who supports them. Plans offered by your dealer tend to be more rigid, only allowing service at a specific dealer or group of dealers. Plans offered by the manufacturer can be more versatile, allowing you to get serviced at any franchised dealership across the country.

A disadvantage of prepaid maintenance is that the cost is built into your loan, which means it increases your monthly payment amount and increases your overall loan amount. That could add up to a lot more than you bargained for in interest charges, especially if you’re a bad credit borrower who qualifies for higher interest rates.

Is prepaid maintenance a good idea?

Prepaid servicing may be a good idea for some borrowers. If you’re not one to remember what to do with your car or you’re not one to keep a good schedule, having scheduled service built into your loan could help. to remind you to have your car serviced regularly.

On the other hand, the price of prepaid plans can get steep when you factor in the extra interest charges you pay. In this case, paying out-of-pocket for your maintenance as needed makes more sense, especially if you have a high interest rate.

If you’re looking for extra peace of mind, know that a prepaid maintenance plan is not the same as an extended warranty that might fix unexpected issues. Prepaid maintenance is only for basic services such as oil changes, fluid fills and tire rotations. All things that are normally done at the same time, and don’t cover anything extra you might need.

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The Fed just gave bad news to people in debt https://baisieux.net/the-fed-just-gave-bad-news-to-people-in-debt/ Wed, 04 May 2022 20:34:50 +0000 https://baisieux.net/the-fed-just-gave-bad-news-to-people-in-debt/

Image source: Getty Images

Rising rates could affect your current debt costs and your ability to refinance.


Key points

  • The Federal Reserve announced a rate hike of half a percentage point on Wednesday, May 4, 2022.
  • The benchmark rate went from nearly 0% during the pandemic to between 0.75% and 1.00%.
  • If you owe money, that’s bad news since you can expect borrowing costs to increase.

On Wednesday, May 4, 2022, the Federal Reserve announced the second increase in its benchmark interest rate since 2018.

The Fed first raised rates in mid-March 2022, in an effort to address soaring inflation, but rates only rose 25 basis points. Now a much larger rate increase has been announced – the largest since 2000. Rates have risen by 50 basis points, leading to a half-percentage increase and bringing the benchmark rate down to between 0.75% and 1.00%.

Since rates were close to 0% during the pandemic, this is a huge rate increase. And if you’re currently in debt, that could be really bad news for several key reasons.

Credit card interest rates will increase

If you have a balance on your credit cards, you must pay interest on the amount you owe. Interest rates are usually variable on credit cards. This means that you are not guaranteed to be able to continue paying the same rate over time. Instead, your rate is linked to a financial index which is affected by the federal funds rate.

A large increase in this rate, such as the one that occurred today, causes your card issuer to increase the rate they charge you. You’ll see a higher rate go into effect within a billing cycle or two, which will drive up your borrowing costs.

If you can pay off your card balance in full, you can avoid being hit with additional interest charges once your rates go up. If this is not within your financial reach, a balance transfer could help if you qualify.

Balance transfer cards charge you a small fee – usually around 3% – to move an existing balance from one or more credit cards. The transferred balance is subject to a 0% interest rate for a fixed period of 12 to 15 months. Therefore, paying an affordable upfront fee could keep your interest rate down to 0% for a long time, so you won’t have to worry about your rate going up in the short term.

Adjustable-rate mortgages could become more expensive

If you have a fixed rate mortgage, the Fed rate hike will not affect you. But if you have an adjustable rate loan, that’s another story.

You see, ARMs allow you to lock in your starting rate for a period of time – usually three, five or seven years depending on whether you have a 3/1 ARM, 5/1 ARM or 7/1 ARM. After the expiry of this initial period, your rate evolves with a financial index. And therefore, rising interest rates will likely drive up your mortgage costs.

When your rate increases, your monthly payment may also increase in order to repay your loan on time. And your total borrowing costs over the life of a loan will be higher since you send more money to your lender.

Unfortunately, there’s not much you can do if you have an ARM. Your rate will almost certainly go up if it is already in the adjusting phase or if it will be soon. You may want to consider refinancing a fixed rate mortgage so that you have more certainty in the future about how much you will pay.

The big downside is that refinance rates have already risen significantly from last year and are expected to rise further with the Fed announcement. Still, it may be worth refinancing as soon as possible to lock in today’s current rates, as the central bank has signaled that more rate hikes are coming.

Refinancing Debt May Not Be Worth It Anymore

As mentioned above, refinancing a mortgage has already become significantly more expensive compared to last year, and refinancing rates are likely to rise further thanks to the Federal Reserve’s efforts to fight inflation.

It’s not just mortgage refinances that could be affected either. If you were hoping to get a personal loan to refinance an existing debt, the rates will likely be higher as well. You’ll need to shop around carefully and compare what you’re currently paying to the rate you’re being offered to decide if refinancing still makes sense for you.

As you can see, this rate increase is not good news if you owe money. But if you’re aware that your rates may go up, you can be proactive in coming up with a plan to try to pay off the debt or minimize the damage in other ways, such as transferring your credit card balance. It’s worth it, especially since interest rates are expected to continue to rise throughout this year.

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Down 85% from peak, 4 reasons to bet Carvana stock will fall https://baisieux.net/down-85-from-peak-4-reasons-to-bet-carvana-stock-will-fall/ Mon, 02 May 2022 14:27:29 +0000 https://baisieux.net/down-85-from-peak-4-reasons-to-bet-carvana-stock-will-fall/

Shares of Tempe, Arizona-based online used car retailer Carvana are heavily shorted. In mid-April, 20% of its shares were sold short, meaning traders borrowed shares from a broker, sold them on the open market and hoped to profit by buying back the shares at a lower price. to repay the loan.

But that short-term interest is down from the last time I reported on it here – November 2019 – when a whopping 51% of stocks were sold short. As I wrote at the time, I thought these shorts were in trouble for a simple reason – despite burning cash and a terrible credit score on its debt, Carvana had one thing investors loved – growth three digits.

After that, Carvana shares soared 365% to peak in August 2021 at around $377 per share.

Unfortunately for the bulls, Carvana’s stock quickly tumbled and it is now trading 85% below its peak.

Is it too late to take advantage of Carvana’s decline? Here are four reasons I think his stocks are sub-short:

  • Decrease of sales
  • Bespoke accounting for securitized auto loans
  • Negative cash flow
  • Lower debt rating

Decrease of sales

Although its revenue increased from the previous year, Carvana sold fewer used vehicles in the first quarter of 2022 than in the last quarter of 2021. Carvana reported a 7% drop in the number of cars sold to customers of detail in the first quarter. – 105,185 – about 7,800 less than it sold in the previous quarter, according to the the wall street journal.

To be fair, compared to the first quarter of 2021, revenue was up nearly 56% to $3.5 billion.

This represents a considerable slowdown for Carvana. As the Journal noted, since the spring of 2020, Carvana has “roughly doubled its quarterly sales volume as more consumers shopped online.” However, the Journal wrote that Carvana has “struggled backlogs in its logistics network and reconditioning centers” due to labor shortages resulting from the pandemic.

Unfortunately, its first-quarter slowdown was accompanied by a 622% increase in its net loss to $260 million and a nearly 23% drop in its gross profit per unit to $2,833. External factors — including rising interest rates, falling used-car prices, inflation-conscious consumers and a dwindling appetite for debt — are contributing to slowing growth, the Journal noted.

With shares down 85% from their peak, Carvana’s biggest challenge is convincing investors that it can meet its growth targets – which had driven its death-defying stock price.

Analysts doubt Carvana can meet its 2022 retail sales target – announced in February – of more than 550,000 cars – about 29% more than the 425,237 units sold in 2021, according to its letter to shareholders for the fourth quarter of 2021 .

It is not known if the company will achieve this goal. Carvana said, “Over the next few quarters, we expect to better align sales with expense levels through a combination of higher sales and expense efficiencies.”

It also doesn’t help investors that Carvana has stopped providing financial advice due to “rising interest rates, rising fuel prices and macroeconomic uncertainty, all of which are affecting the market for used cars,” according to the Journal.

Perhaps to seek new avenues for growth, Carvana is in the process of acquiring ADESA – America’s second-largest physical vehicle auction network – for $2.2 billion. Carvana expects the deal — funded by $3.275 billion in committed debt financing and “$1 billion in improvements at all 56 sites” — to add about two million new production units, according to the letter. to shareholders in the fourth quarter of 2021.

Something important for Carvana changed between February and April. On April 20, Carvana said it planned to sell $2 billion of common and preferred stock, in part to fund the ADESA deal – which “came as a surprise to investors because Carvana said it had received a funding committed,” the Journal noted.

Bespoke Accounting for Securitized Auto Loans

Securitization, that is, bundling loans and selling them as securities to investors, can work very well in good times. But when the tide goes out, securitization can cause problems.

A case in point is the 2008 financial crisis. Back then, lenders created subprime mortgages, bundled them together and sold them to investors – with sterling credit ratings that masked the risk. Investors – including Bear Stearns and Lehman Brothers – borrowed heavily to buy the subprime mortgage-backed securities – then crashed.

I’m not saying Carvana is going to cause a financial crisis on the order of 2008. However, Carvana is no stranger to securitization – wrapping up the car loans it makes to consumers who buy its used cars online. Dubbed other sales and revenue, Carvana generated about $1 billion from the sale of auto loans in 2021 – nearly 8% of total revenue, according to its 10K 2021

In my opinion, if a company chooses a different method of accounting than its peers, that alerts investors. This is exactly what Carvana does when it comes to accounting for car loan sales. As the Journal reported, “Carvana is making immediate gains, unlike competitors who are making gains over time.”

It would be useful for investors to know how much Carvana’s income would be reduced if he recorded his gains over time. How? The Journal suggests that Carvana’s accounting method “boosted its revenue when consumer credit — and investor demand for auto loan-backed securities — was particularly strong.”

Carvana’s accounting approach contributed significantly to its earnings and caught the attention of its auditor. In 2021, 54% of its $4,537 gross profit per vehicle came from “other profits,” compared to 36% in the second quarter.

Carvana’s method of accounting – which relies on “relatively delicate accounting to remove loans from its books” is an audit problem. According to an August 2021 report in CFO Dive, the company’s auditor, Grant Thornton, “identified initial sales as a critical audit matter, a reference to the complexity of the transaction.”

To be fair, Carvana’s accounting method is not a potential misapplication of the rules; however, it requires “a lot of moving parts to make it work”. And Carvana must buy a small portion of each bond in which the loans are sold to comply with a federal 5% “skin-in-the-game” requirement that was enacted after the 2008 financial crisis to ensure that companies do not pledge bad debts. to investors”, according to the Chief Financial Officer

CFO
Dive.

CFO Dive noted that this approach works in good times and backfires when times get tough. This is because when money is flowing, investors are willing to buy the auto loans at a premium and when the market pulls back, Carvana “could be forced to sell the loans at par or at a discount, leading to a sharp drop in revenue. “.

It seems to be happening now. As the Journal notes, “Investors are demanding higher yields for securities backed by riskier consumer loans. They are beginning to fear that rising rates and inflation will affect borrowers’ ability to make payments.

In March, Carvana issued two securitizations — one backed by prime auto loans, the other backed by subprime loans — with a combined value of about $1.49 billion. Financial data provider Finsight noted that investor demand for higher yields reduced Carvana’s profit on trades compared to the fourth quarter of 2021.

Falling profits are a broader challenge for Carvana’s management. JPMorgan Chase

JPM
analyst Rajat Gupta “estimated in March that the company’s gain-on-sale margin from loan securitizations – a measure that compares proceeds received to the total value of loans sold – declined to 4.4% in the first quarter, compared to 9.1% in the previous quarter,” the Journal noted.

Negative cash flow

FLOW2

As measured by free cash flow (FCF), Carvana is a cash incinerator. How? between 2017 and 2021, Carvana’s negative FCF grew at an average annual rate of nearly 87%, from -$278 million to -$3,374 million.

This rate of cash burn contributed to a 23% drop in Carvana shares last week. Automotive News attributed the stock decline to “increasing cash burn, resulting from soaring used vehicle prices, capital spending” as well as a drop in the value of its junk bond offering. of $3.3 billion” even after Apollo Global Management

APO
bought about half the debt.

Debt rating downgrade

Rating agencies are not fans of Carvana. On April 25, Moody’s downgraded Carvana’s corporate family rating to Caa1. Moody’s has a litany of reasons for the downgrade. These include “very weak credit metrics, a persistent lack of profitability and negative free cash flow generation.

Additionally, Moody’s cites “governance considerations” – such as Carvana’s decision to update its “external floor plan facilities” despite the expectation of significant negative free cash flow, as well as its decision to finance the acquisition of ADESA partly through debt despite its very high leverage. .”

Moody’s could downgrade its ratings “if the business is unable to generate positive operating income on a sustainable basis or if liquidity were to weaken for any reason.”

One of the possible reasons for this weakening is the outlook for the automotive e-commerce industry. Namely, William Blair analyst Sharon Zackfia expects rivals such as “Vroom, Shift and CarLotz to be largely disappointed with the number of units sold in the first quarter,” according to Automotive News.

Carvana does not give up. As CEO Ernie Garcia told investors on April 20, “While this quarter may be a little harder to see than most, we remain on the path of building the biggest and most profitable automotive retailers and changing the way people buy and sell cars. . The march continues.”

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Dave Ramsey has no credit score. Here’s why it might not work for you https://baisieux.net/dave-ramsey-has-no-credit-score-heres-why-it-might-not-work-for-you/ Sat, 30 Apr 2022 10:00:41 +0000 https://baisieux.net/dave-ramsey-has-no-credit-score-heres-why-it-might-not-work-for-you/

Image source: Getty Images

There is a danger in having no credit score at all.


Key points

  • Financial expert Dave Ramsey prides himself on having no credit score.
  • While he might get away with not having one, it may not work for the average consumer.

Your credit score is not just a random number. Rather, it is an indication of your level of confidence as a borrower. A higher credit score sends the message that you can be counted on to repay a loan on time and in full, while a lower score sends a warning that a lender may want to think twice about you. lend money.

But what if you don’t have bad credit, but rather no credit? It’s not such a rare scenario. If you are a recent college graduate, for example, who has never paid your bills directly, there may not be enough financial data on you to establish a credit score.

But it’s not just young adults who don’t have credit. Some people actively choose not to build a credit history.

Financial expert Dave Ramsey is one of them. As a strong advocate of debt avoidance, Ramsey insists that going through life without credit is more than possible. But while having no credit score may work for Ramsey, it may be more difficult for you.

Why You Might Need a Credit Score

There are ways to get by in life without borrowing money. You could save a huge amount of money to buy a house instead of having to take out a mortgage. You could save to buy a car outright and avoid having to take out a car loan. And you could forgo credit cards and just pay for all your purchases in cash.

But whether you can do these things – and want to do them – is another story. It’s easy for someone like Dave Ramsey to get by without a credit score. The reason? Its borrowing needs are probably limited to non-existent.

Investopedia reports that as of 2021, Ramsey had a net worth of around $200 million. Most of us have a net worth that is nowhere near that.

Now, if you had $200 million in assets and wanted to buy a $500,000 house, you probably wouldn’t need a mortgage either. And so in this case, having no credit score would not be a problem.

But what if your net worth is closer to $20,000 than $200 million? If so, you are in good company. And that means you may need to borrow money to finance major purchases, like a house or a car. There’s nothing to feel bad about. And it also justifies establishing enough credit history to get your own score.

Good advice, but only up to a point

Ramsey thinks debt is generally bad news and he doesn’t like to see consumers get sucked into it. In that regard, he’s onto something.

If you charge a major credit card tab, you could find yourself stuck losing hundreds or thousands of dollars in interest charges. It is not a good thing.

But not all debt is created equal. Mortgage debt, for example, is a healthier type, even if it also means spending money on interest.

Should you do everything possible to minimize your debt – and your interest payments? Absolutely. But avoiding debt altogether isn’t feasible for the typical consumer, and it’s something Ramsey tends to overlook. While you may want to follow his advice and minimize your debt, you don’t necessarily want to find yourself in a position where you have no credit rating. This could limit your options and make your life more difficult than necessary.

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Is debt settlement hurting your credit? – Forbes Advisor https://baisieux.net/is-debt-settlement-hurting-your-credit-forbes-advisor/ Thu, 28 Apr 2022 20:51:58 +0000 https://baisieux.net/is-debt-settlement-hurting-your-credit-forbes-advisor/ Editorial Note: We earn a commission on partner links on Forbes Advisor. Commissions do not affect the opinions or ratings of our editors.

Debt settlement allows an overburdened borrower to repay a loan in a lump sum that may be significantly less than what is owed to them. It’s a tactic that can dispel a dark cloud hanging over your finances. But beware that a new source of gloom might begin to loom, as debt settlement can be bad for your credit score.

Credit reports used to calculate your credit score will show a black mark for any debt settled for less than the full amount. So while settling a debt can provide tremendous relief, it can also create big problems when you need to borrow again, as lenders typically use credit scores to decide whether or not to extend loans.

But don’t assume that debt settlement is always a bad idea. It all depends on the circumstances. Here’s an overview of how debt settlement works and its potential impact on your access to credit, along with tips for choosing a financially sounder alternative.

What is Debt Settlement?

In debt settlement, you agree to repay part of the debt and your creditor agrees to wipe the rest of the slate clean. This can happen in several ways.

A debt settlement company might offer to negotiate with your lender to get you a good deal. But the Consumer Financial Protection Bureau warns that working with debt settlement companies can be ‘risky’, as the federal watchdog says they often charge high fees and encourage consumers to stop paying their bills in the first place. hope to have a leverage effect on lenders.

You could end up with less money and worse credit than before, and little or no debt relief.

Home debt settlement is another option. Consumers can contact their creditors themselves and ask if a partial payment would settle a debt. This works best for debts that have already been charged by creditors as uncollectible.

Sometimes creditors will take the initiative in settling the debt. They may reach out to a customer and offer to take a reduced gain as a last attempt at collection on a long overdue account.

Whether done with the help of a settlement company, through a do-it-yourself campaign, or in response to a creditor’s offer, debt settlement can yield huge savings of 25% , 50% or even more on balances due. It may be worth considering. But you also need to consider the potential impact on your credit score.

How Debt Settlement Can Hurt Your Credit

The problem with debt settlement is that when a creditor accepts less than the amount owed, the account isn’t quite marked as paid in full on the borrower’s credit report. Verbiage varies by credit bureau. TransUnion may label the payment status as “paid after being applied”, while Experian will say: “Account legally paid in full for less than full balance”.

Different credit scoring models also handle debt settlement differently.

But the effect of settling a debt with partial payment is usually negative, often significantly. Indeed, payment history is the most important factor in calculating a credit score, accounting for 35% of the result.

Debt settlement practices can lower your credit score by 100 points or more, according to the National Foundation for Credit Counseling. And this black mark can persist for up to seven years.

It all depends on the circumstances. For example, a consumer with an already poor credit score due to a heavy history of late payments and collection actions will not be harmed by debt settlement as much as someone with a FICO score of 800 almost perfect. And sometimes debt settlement can actually help a score, at least in the medium term.

How Debt Settlement Can Help Your Credit

One of the benefits of settling an account is that it prevents the creditor from reporting updates on it to major credit bureaus. This starts the countdown to up to seven years that “derogatory information” can remain on your credit reports.

Another advantage of settling a debt is that the balance will not burden your credit utilization, which is the amount of your available credit that you use. High credit utilization lowers credit scores. Debt settlement alleviates this pressure.

The legal settlement of a debt also prevents the creditor from taking action for recovery, an undeniable advantage. When a creditor contacts a borrower with an offer of settlement, it may be a signal that the lender is moving towards seeking legal recourse. This alone is a reason to seriously consider a creditor’s settlement offer.

When you settle a debt that a creditor has assigned to a collection agency, you can negotiate to have the collection agent report the account as “paid in full” to the credit bureaus and remove derogatory information about the settled debt from your credit records.

The collector can say no to both requests, but it’s worth asking because you could score a double win: you’d avoid paying off the full amount of a debt and protect your credit score from major long-term damage.

Or, the collector could refer you to the original creditor to justify removing the black marks from your credit reports. You would need to show that you are making a serious effort to be more responsible with credit.

Debt Settlement Alternatives

If you don’t want to pursue debt settlement, you have other debt relief options that may be less detrimental to your credit score.

You could negotiate what is called a structured debt settlement with a creditor. This type of arrangement can give you more time to pay off the debt and even reduce the interest rate. The outcome can be as positive as debt settlement, but without credit history being affected.

A debt consolidation loan offers a way to restructure debt without creditor approval. Consolidation replaces your existing debt with an unsecured personal loan or home equity loan borrowed against your home.

These loans can lower the interest rate on your debt and extend your payment term, saving you money and reducing short-term cash flow pressures. But beware, if you can’t repay a home equity loan, you could lose your home.

A similar approach is to get a new credit card with an introductory rate of 0% and transfer the debts to the card. This can save you a lot of money on interest and won’t hurt your payment history.

Perhaps the smartest decision is to take your debt problem to a nonprofit consumer credit counseling agency. These experts can provide assistance with budgeting and also negotiate new terms with creditors while holding lenders accountable and managing your payments to keep accounts current and improve your credit score.

Bankruptcy is the most drastic approach to overwhelming debt. A Chapter 7 bankruptcy can erase most unsecured debt completely and permanently, usually in exchange for no payment. However, a black mark from a Chapter 7 bankruptcy stays on a credit report for 10 years.

Find out if you qualify for debt relief

Free and non-binding estimate

Conclusion

Debt settlement can help borrowers settle old debts, often for much less than the total amount owed. While it can save money and reduce your stress levels, debt settlement can be costly to your credit score and prevent you from getting new credit for years.

If you’re burdened with unsustainable debt, settlement is one potential solution worth considering, but others may be less detrimental to your credit rating.

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What Dave Ramsey is wrong about credit cards https://baisieux.net/what-dave-ramsey-is-wrong-about-credit-cards/ Wed, 27 Apr 2022 12:32:28 +0000 https://baisieux.net/what-dave-ramsey-is-wrong-about-credit-cards/

Image source: Getty Images

Dave Ramsey thinks credit cards are bad news. Is he wrong?


Key points

  • Dave Ramsey is a financial guru who promotes debt-free living.
  • He thinks credit cards should be avoided because of the potential for accumulating debt.
  • Find out why credit cards can help you reach your financial goals.

Many people turn to financial gurus like Dave Ramsey to help them solve their financial difficulties. Ramsey is a big proponent of living a debt-free life. As you can imagine, he’s not a big proponent of using credit cards. Find out what Ramsey is wrong about this type of debt.

There’s no reason to have a credit card

A Facebook post from Ramsey says, “There’s no good reason to have a credit card,” and links to an article on credit card debt. This statement is not accurate.

Yes, credit card debt is a problem for some people, but not for everyone. There are many good reasons to use a credit card responsibly to improve your financial situation.

Here are some reasons to use a credit card:

  • You can pay for larger purchases without carrying cash.
  • You can use your credit card to build up your credit.
  • You can easily track your expenses.
  • You can earn credit card rewards on your spending.

Of course, there are potential downsides to using credit cards (like credit card debt), but if you’re careful, you can use credit cards to your advantage.

Credit card rewards aren’t worth it

Ramsey doesn’t like credit cards. He’s also not a fan of credit card rewards.

In one of his The Dave Ramsey Show segments, he discusses a scenario where credit card users can earn 2% cash back. He says, “Let me understand; if you spend $10,000, you get $200. It will make you rich.”

But he doesn’t consider that many people use credit cards that offer a higher rewards rate. Many rewards credit cards offer more than 2% rewards.

It also does not consider the value of credit card sign-up bonuses. Many rewards cards offer a sign-up bonus worth $500 or more.

Another point worth mentioning is that $200 is a lot of money for a lot of people. What one person may not consider valuable may be valuable to someone else. We are not all in the same financial situation.

If you were to use a 2% cash back card to buy everyday products you usually buy and you have no balance or interest payments, $200 in rewards is $200 you didn’t have before.

Ramsey is wrong about credit card rewards. They can provide value and be worth it. Just make sure you choose the right card for your needs, understand how the rewards program works, pay it off in full each month, and have a plan for using your rewards.

What Ramsey is Right About Credit Cards

What is Ramsey right? Credit card debt can be a big deal, and it can be easy to get into debt if you’re not careful.

Many people struggle with expensive credit card debt, but not everyone does. Credit cards can be a powerful personal finance tool when used carefully.

Don’t be afraid of credit cards

Are credit cards bad? No. You should make sure you know the pros and cons of credit cards before using them. But don’t let a financial guru’s beliefs make you dread credit cards and avoid them forever. Credit card debt is not a given, and you can take steps to avoid it.

We suggest you follow these steps when using credit cards:

  1. Follow a budget to avoid overspending.
  2. Choose a card with no annual fee if you want to avoid additional fees.
  3. Only charge what you can afford to pay.
  4. Pay your bills on time each month.
  5. Pay the balance in full each month to avoid costly interest charges.

If you’re considering getting a credit card, check out our list of the best credit cards to learn more.

The best credit card wipes interest until the end of 2023

If you have credit card debt, transfer it to this top balance transfer card guarantees you an introductory APR of 0% until the end of 2023! Plus, you won’t pay any annual fees. These are just a few of the reasons why our experts consider this card a top choice to help you control your debt. Read the full The Ascent review for free and apply in just 2 minutes.

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5 signs you can increase your house hunting budget https://baisieux.net/5-signs-you-can-increase-your-house-hunting-budget/ Sat, 23 Apr 2022 10:00:32 +0000 https://baisieux.net/5-signs-you-can-increase-your-house-hunting-budget/

Image source: Getty Images

The main goal is to leave you enough to live a good life.


Key points

  • A competitive housing market can encourage people to spend more than they should.
  • The housing market will go up and down, but you still want to have enough money after your housing payment to save for bad weather.

We would be lying if we said that it is now easy to be a house hunter. If there are a dozen other parties lined up to bid on every home you like, you may feel like you can’t compete.

If so, you may be considering increasing the amount you are willing to pay. Before doing so, however, make sure each of these five signs applies to you and your financial situation. If you can answer “yes” to each of these questions, you may be able to increase your budget.

1. Will my debt to income ratio still be in line if I increase my budget?

The debt-to-income ratio (DTI) refers to the amount of money you spend each month on living compared to what you earn. For example, if you earn $80,000 per year, that’s $6,666 per month (before taxes). Let’s say the bills you’re obligated to pay each month (including mortgage, car, credit cards, personal loans, child support, and other debts) total $2,500 per month. You divide your total bills by your income to get your DTI. Here’s what it would look like:

$2,500 ÷ $6,666 = 0.375. Your DTI in this scenario would be 37.5%. Ideally, most lenders like to see a total DTI of 36% or less, and statistics indicate that people with a DTI above 36% tend to experience more financial problems.

Now, this is where it gets tricky. Some mortgage lenders give loans to people with higher DTIs. While it’s good for their business, you need to consider whether it’s good for your financial life. Do the math and if increasing your home budget is cutting you off, you know it’s not the right time.

2. Can I still afford to do the things I love?

If you’ve ever been housing poor, you know the misery of spending so much money on a mortgage that you don’t have the funds left to simply enjoy life. If you have a hobby that means something to you, you want enough left over to go out for nice dinners or dream of traveling, pouring everything you earn into a house is likely to get old once the moving day excitement will have dissipated.

3. Will I still have enough to store for a rainy day?

One of the most surprising things about being a homeowner is how much you’ll pay in hidden fees. You are not only responsible for a mortgage. There is also home insurance, utilities, HOA fees, maintenance fees, etc. Some of these expenses can be planned for, but when your furnace breaks down on Christmas Day and you have to dig deep to pay someone to come and fix it, you’ll need a solid emergency fund on hand.

Before increasing your housing budget, calculate the numbers. Make sure you have enough money aside to deal with emergencies.

4. Can I still prioritize saving for my future?

No matter your current age, part of treating yourself well is planning for your financial future. For some, that means early retirement. For others, it means an annual vacation somewhere far away. And for many of us, that means a comfortable retirement. Unless you can still invest money in your future self, you may not be ready to increase your house hunting budget.

5. Can I pay the mortgage without depending on someone else?

Even if you’re buying the house with a partner, think about what would happen if that person died or left. Would you still be able to make the mortgage payments until you could make other arrangements (like selling the house or bringing in a roommate)?

If you answered a resounding “yes” to each of these questions, congratulations. You are ready to increase your housing budget. Just make sure it’s your decision and you don’t have to make the wrong decision.

A Historic Opportunity to Save Potentially Thousands of Dollars on Your Mortgage

Chances are, interest rates won’t stay at multi-decade lows much longer. That’s why it’s crucial to act today, whether you want to refinance and lower your mortgage payments or are ready to pull the trigger on buying a new home.

Ascent’s in-house mortgage expert recommends this company find a low rate – and in fact, he’s used them himself to refi (twice!). Click here to learn more and see your rate. While this does not influence our product opinions, we do receive compensation from partners whose offers appear here. We are by your side, always. See The Ascent’s full announcer disclosure here.

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Can dealerships mark up interest rates? https://baisieux.net/can-dealerships-mark-up-interest-rates/ Tue, 19 Apr 2022 21:08:51 +0000 https://baisieux.net/can-dealerships-mark-up-interest-rates/

Dealership profit margins can impact the cost of purchasing your vehicle and your auto loan in a number of ways. One thing your broker may have some control over in your loan is your interest rate. Let’s see how dealers can mark up your interest rate and what you can do about it.

Why do dealers mark up interest rates? When you are approved for an auto loan, your lender sets the interest rate for your loan. However, in exchange for arranging financing, these finance companies and captive lenders give the dealership some leeway when it comes to your interest rate. A small markup on your interest rate usually gives the dealership a small profit for their services.

How does an interest rate hike affect you? This mark-up may be a few percentage points or only 1% higher than the rate indicated by the lender. Many automakers cap the amount a dealer is allowed to mark up your rates, but the amount varies. The rate given by the lender is called the purchase rate and the rate given to you is called a contract rate. Most borrowers never know that there is a markup or difference between these rates. Here is an example of the difference you would pay on a $15,000 loan for 60 months.

If your buy rate is 3% and the dealer gives you a contract rate of 4%, you pay $403 more. This small profit would go to the dealer. The higher your interest rate, or the greater the difference, the more you pay. This same loan with a purchase rate of 9% and a contract rate of 11% would cost $885 more.

It’s important to be your own advocate when shopping for a car loan, always ask if the rates you’re offered are the lowest, and don’t forget to rate the shop.

Rate shopping can be more difficult for some buyers, especially if they have bad credit. With poor credit, you’re probably already seeing higher interest rates, so a markup may be harder to swallow.

Know what you can negotiate. Since mark-ups can impact already high interest rates for borrowers with bad credit, it’s important to know what you have leeway on. Generally, you can negotiate the following:

  • Vehicle sale price – The price at which you can buy the car.
  • Your contract rate – The interest rate and APR are given to you by the dealer.
  • The term of your loan – How long you have to repay the loan.
  • Your deposit amount – How much you need to pay upfront.
  • Your trade-in amount – How much money you get for your old vehicle, if any.
  • Dealer fees – Fees for setting up the loan and paperwork, such as dealer doc fees.
  • Dealer Add-ons – Additional services such as GAP coverage and extended warranties.
  • Optional Services – Extras such as tire sets, fabric protection and VIN engraving.

There’s no guarantee on how much you’ll save, but you never know until you try.

Car margins and prices. Dealership profit margins may be hard to accept right now, especially since vehicle prices are already high. Markups are also common on the sale price of the vehicle, so be sure to pay attention to the MSRP on the window and ask for a lower price, if necessary. Remember that vehicle pricing and markups are happening across the board due to current industry conditions such as supply chain issues, so you may need to act quickly to get the car that you want.

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Are credit cards acceptable? Here’s what Mark Cuban says https://baisieux.net/are-credit-cards-acceptable-heres-what-mark-cuban-says/ Sun, 17 Apr 2022 15:00:30 +0000 https://baisieux.net/are-credit-cards-acceptable-heres-what-mark-cuban-says/

Image source: Getty Images

Credit cards may be popular, but are they a wise choice?


Key points

  • Credit cards can be a useful financial tool.
  • As someone who struggled with credit card debt earlier in life, Mark Cuban has some great advice on using them.

You would think that someone as rich as shark tank Personality Mark Cuban reportedly has little to no experience with credit card debt. But in fact, there was a period in Cuban’s life when he dug himself into a hole.

Granted, that was when Cuba was younger and clearly didn’t have the wealth it enjoys today. But the experience has prompted Cubans to warn consumers about the dangers of credit cards.

But does that mean you have to cut up your credit cards and commit to never using them again? Not necessarily.

The right way to use your credit cards

Some financial experts, like Dave Ramsey, believe that credit cards should simply be avoided at all costs. Mark Cuban doesn’t think consumers should go to that extreme. Instead, he thinks consumers should just pay off their credit cards each month and avoid carrying a balance — or quickly pay off balances they’ve already accrued.

The problem with credit cards is that they charge very high interest rates. So even a small balance can turn into a large debt over time.

Also, even if you make your minimum credit card payments after building up a balance, you could still end up damaging your credit score by increasing your credit utilization rate. This, in turn, could make it harder to qualify for a sound type of loan, like a mortgage. It could also make it difficult to get approved to rent a house, even if you’re not asking to borrow money in this case.

Good credit card rules to follow

Credit cards, when handled well, can improve your financial situation. Specifically, they can help you build credit and increase your savings by rewarding you with cash back on your purchases.

If you’re going to use credit cards, however, it pays to follow these key rules:

  • Do your best to only charge expenses that you can pay by the time your bills come due
  • Don’t use credit cards as emergency funds
  • Always read the fine print on your credit card agreements
  • Don’t overcharge just to rack up rewards
  • Pay cash when there’s a big discount to be had (like at the gas station, where you might pay a lot less per gallon for a cash fill-up)

Ultimately, Mark Cuban doesn’t think consumers should ditch their credit cards and swear never to use them again. But if you’ve ever struggled with credit card debt and really don’t trust yourself to spend within your limits, you might want to adopt a policy of not using a credit card.

Likewise, if, despite your best efforts, you’re really bad at avoiding impulse purchases, then buying with credit cards might not be your best decision. If you only bring enough cash with you to cover your planned purchases, you’ll take impulse buys off the table.

Credit cards can be a useful financial tool. But if you’re going to charge them expenses, follow these rules so they help your finances instead of hurting them.

The best credit card wipes interest until the end of 2023

If you have credit card debt, transfer it to this top balance transfer card guarantees you an introductory APR of 0% until the end of 2023! Plus, you won’t pay any annual fees. These are just a few of the reasons why our experts consider this card a top choice to help you control your debt. Read the full The Ascent review for free and apply in just 2 minutes.

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