frugal underground

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The central focus of the FreebieCreditReport.com site is, not surprisingly, credit reports. When I first visited the site, the thing that caught my eye was “Herbie,” a nerdy-looking guy that makes me think of that guy that’s always yelling obnoxiously about free grants (I can’t remember his name for the life of me!). Not necessarily the best first impression, but at least there’s no obnoxious yelling.

Next to Herbie is a central offer of the site: answer 10 simple questions and get an estimate of your credit score. I couldn’t remember all of the exact information requested, but I’m pretty sure my guesses were close, and sure enough, Herbie gave me an estimate of my credit score. Handy!

The only thing is, I have no idea how accurate it is, because the last time I knew my actual credit score was in 2002 when we bought our house (that’s the last time it’s actually mattered to me for financing purposes). Herbie’s numbers were about 75 points lower than my 2002 number, but that’s likely the result of my credit card games (signing up for the joining incentives, then closing the account, etc.).

One thing that seemed oddly missing from the results page was any indication of how good or bad my credit score is. There is a link in the sidebar to an informative article about credit scores, but it’s not linked from the results themselves and is kind of hard to spot. It would probably be more useful if the link was prominently displayed with the results, or better yet, the results included some kind of relative assessment like “above average” or “excellent” or “needs work”.

The revenue model for the site seems to be passing visitors on to sites that will (eventually) charge them money, and pay a commission to FreebieCreditReport.com. This is a very popular business model for financial sites, and FreebieCreditReport.com does a good job by providing useful information on their site, particularly the articles on the sidebar. If you’re looking for clear explanations of credit-related concepts, their articles are very helpful.

If you follow the links through to MyFICO or the other partners, read the fine print carefully. Many of these services will give you a free report but automatically enroll you in a subscription to their services. Make sure you know what you’re signing up for. If you just want a general idea of your likely credit score, FreebieCreditReport.com is a good resource.

This is a sponsored review, but the editorial content has not been altered in any way for payment.

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Drowning in credit card debt is a burden for many people. Sometimes you don’t know where to begin, or it seems like your debt is so large you’ll never escape. The following are ten simple ways to help you move towards debt-freedom.

1. Pay your highest interest rate cards off first.
This is considered common knowledge these days, but it’s easy to confuse paying off your highest interest credit cards with paying down your highest balance. Even if you owe only $150 on a 28% department store card and $5,000 on an 18.5% credit card, pay your minimum monthly payment on your higher balance, and use as much as is left over to get that monster-rate balance clear. (Then forget about using that card again until your other debts are down!)

Photo by wackocatho

2. Double up on payments
Paying your minimum payments twice a month (every 2 weeks or every paycheck) will get your debt down to zero in less than half the time of paying once! If you can manage, doubling up at the beginning of the month will save you even more. Lenders make more interest the longer you wait to pay.

3. Don’t wait to pay
The day your bill arrives, it’s a good time to make your payment. Don’t let the grace period trick you into thinking you’re saving interest charges on anything but your most recent purchases.

4. Pay online
Using online banking cuts out a few days worth of snail mail travel time (and thus, interest charges), and saves you the cost of the check. Plus you’re less likely to risk late payment penalties due to a problem with the mail. Remember, however, that online payments may take a couple days to clear depending on your bank, so plan your payment a few days before it’s due.

5. No more notes
If you do send in checks each month, avoid writing notes as your credit card company is allowed to route your note with the bills and checks attached to them to different departments for up to five days which could cause you to miss your payment due date. The same goes for memos.

6. Write clearly
Your check may also be passed around for five days if your handwriting is difficult to decipher. So print nicely to avoid late fees.

7. Don’t be charmed by pre-approved credit cards
If you’re already approved (and you have poor credit) there are a couple reasons why you should run from such offers. Credit card companies are banking that you will rack up more debt (this is how you got in your situation to begin with), and to match your risk comes a high interest rate.

8. Read the fine print on 0% balance transfers
Balance transfers sound like they are buying you time, but remember that there is often a fee (2% or so of your balance to be transferred) just to make the transfer. And your low APR won’t last forever and will rebound to a much higher rate after as little as three months. Your interest rate on purchases or cash advances is also something to watch for. These can be even higher and usually there is no grace period. Unless you’re confident you can pay off your debt and not make any new purchases while your 0% period lasts, you may end up worse off than when you transferred.

9. If you’re really in trouble…
When your debt is so large that you’re considering bankruptcy, here’s a little known tip. Credit card lenders would rather get something out of you than nothing. So call your credit card companies and explain truthfully your situation. Ask for at least a two month stay on your debt with no payments required so you can work on resolving your bad credit. Request that they note this in your file and make note of the supervisor or agent you spoke with. Your credit card company may be willing to either forgive part of your outstanding debt, rework your monthly payment schedule/requirements or eliminate your interest payments over the long-term. It may seem tempting just to declare bankruptcy and forget about the debt completely, but remember that bankruptcy carries its own consequences that greatly affect your future credit options.

10. Flee annual fees
You probably didn’t know that you could ask your credit card company to waive your annual fee. Call your credit card company and mention that you are considering switching to a different company’s offer but you would consider staying with your current card should your annual fee be waived. You’ll probably get it.

If you’re disciplined enough to never carry a credit card balance, don’t even bother getting any card with an annual fee. The main reason for annual fees is for the credit card company to be able to offer rewards or lower interest rates and charge a bit extra for the privilege. If you essentially don’t pay any interest anyway, you don’t care whether your card is 9.99% interest or 19.5%.

About the guest blogger: Linda Bustos is the Marketing Director for Creditorweb.com, where you can learn about credit cards and compare credit card ratings and reviews. And check out how close you are to debt freedom with the credit card payoff calculator.

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Have credit card debt?  Almost everyone does.  The Credit Card Blog has a great list of 33 Tips to Dig Yourself Out of Credit Card Debt (some of them are obvious, but honestly, this would be ideal as a checklist—seriously, print it out and cross off items).

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This evening, we had a friend over and he and I were chatting about design and whatnot. He went home, and then my husband and I were talking about Prosper and how we’d really like to start investing in it. I said that maybe we could once we paid off the student loans (knowing there was a few thousand left).

He leaned over and whispered, “I paid those off while you were talking to Camden.”

Oh!

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I just read a very sobering article that is documenting the woes of some families who have interest-only mortgages or adjustable rate mortgages (ARMs). I highly recommend reading the whole article (especially if you’re in this situation or know people who are, because there are resources mentioned at the bottom that might help) but here are some compelling quotes.

Now, the real estate market is cooling, interest rates are rising and tens of thousands more Americans are starting to have trouble paying their mortgages. Nearly 25% of mortgages - 10 million - carry adjustable interest rates. And most of them went to people with subpar credit ratings who accepted higher interest rates, according to the Mortgage Bankers Association.

Did you get that? 25% of mortgages nationwide. It’s even worse in some areas:

What worries experts such as Christopher Cagan at First American Real Estate Solutions are the adjustable-rate loans made in 2004 and 2005, at the end of the housing boom. These loans were concentrated in the hottest markets, such as California, where about 60% of all loans last year were interest-only or payment-option ARMs. That’s the highest such rate in the country.

And it’s already starting to bite the homeowners:

Already, in West Virginia, Alabama, Michigan, Missouri and Tennessee, about one in five homeowners with a high-interest (subprime) ARM was at least 30 days late at the end of last year, according to the Mortgage Bankers Association. After 90 days, the foreclosure clock starts ticking.

Here’s the unfortunate conclusion:

Of the 7.7 million households who took out ARMs over the past two years to buy or refinance, up to 1 million could lose their homes through foreclosure over the next five years because they won’t be able to afford their mortgage payments, and their homes will be worth less than they owe, according to Cagan’s research.

Serious stuff. As someone who has been expecting this, my goal is still to pay off my own (fixed-rate!) mortgage as soon as possible and hopefully be in a situation to invest wisely and help people avoid foreclosure.

How will this affect you?

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Some of you may be familiar with private mortgage insurance (PMI). With most types of mortgages, if you finance more than 80% of your home purchase, you are required to purchase PMI, which is not for your benefit but for the benefit of the lender. If you default on your loan, the lender is protected by the insurance. It makes sense since people who aren’t heavily invested in their home are more likely to default than those who have a lot of money in their house.

Just because it makes sense doesn’t make it fun to be paying for insurance that doesn’t really benefit me, though. We bought our house with 3% down, so we’ve been paying for PMI for a couple of years now. We have an Excel spreadsheet that we use to play with the numbers, you know, to see what an extra lump sum payment now will do to our final payoff date, or see how increasing the monthly payment by a few dollars impacts the long term picture. One of the things in our worksheet is our “no more PMI” date, and it was exciting to see it getting closer and closer. Home values have been going up here (just like everywhere else) so we thought about getting the house reappraised to get us over the 20% mark, but we were close enough that it wasn’t worth the appraisal cost.

As it turned out, we sold some stock and paid a big chunk on the mortgage in November, and that took us right past 80% equity to 77.5% in December. So my responsible husband called up ABN AMRO, our mortgage holder, and requested that PMI be cancelled (he also discussed another, unrelated issue). The nice representative confirmed that we were eligible to have it dropped and told him she would submit a request for an official evaluation. We were happy. No more paying for someone else’s insurance!

And then. January came, and our autodraft mortgage payment was transferred, and the chunk for PMI was taken right with it. We thought it was just a fluke and gave them the benefit of the doubt. Only they took the PMI payment in February, too. Grrrr.

My husband called them up again, cited the December phone call (we’ve learned through hard experience to keep detailed notes of all such calls). They looked it up, and informed us that there was no mention of our request in the call notes. Great! Daniel thought he had seen something on their site in the past about PMI being automatically cancelled at 22% equity, so he mentioned it. The rep didn’t know anything about this. Okay, fine. Daniel was pretty annoyed by this time, and became more so when the rep said we had to send in a letter requesting cancellation. We got the mailing address and the fax number.

In the meantime, while Daniel was on the phone making friendly remarks like “that’s quite the scam you’re running”, I started doing some research online. Unfortunately, he’d just hung up when I found really good, detailed information about the Homeowners Protection Act. Imagine my surprise to find out that, as best I can tell according to federal law, ABN AMRO was legally required to have cancelled our PMI—and didn’t. Here’s a summary of the applicable part:

Your private mortgage insurance, if paid by you directly, will be automatically cancelled when:

* Your mortgage balance is scheduled to reach 78% of your home’s original value (as determined by your loan’s initial amortization schedule), and
* You are current on your payments.

Interesting, huh? So we reported ABN AMRO to the FDIC and the FTC, and feel much better. We’ve also requested a refund for the amount taken for PMI in January and February. Will we get it? Who knows. But if ABN AMRO holds your mortgage, I’d highly recommend keeping a close eye on them.

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