What the Federal Reserve Rate Hike Might Mean for You

Last month, the Federal Reserve raised the prime interest rate.  This is the first time it has done so in nearly a decade, which means many of you have not experienced a rate hike in your adult lives. Even if you have, given the time between, you may want a reminder about what such an increase means.

First, if your payment amount goes up on any of your loans because of this interest rate hike, it is not because we chose to raise your bill.  Adjustable rate loans are usually tied to the prime rate, so when the Fed raises rates, the bill for adjustable rate loans goes up regardless of which lender provided the loan.  The government manages this process and uses it to control a variety of economic factors, including inflation and unemployment.

The fact that the prime interest rate has gone up is a good sign for the economy as a whole, although it might not be as good for your individual family.

For instance, as we just mentioned, if you have an adjustable rate loan, including many credit cards and student loans, your interest rate will go up.  You will pay more in interest for each billing cycle, which will be reflected on your next statement.  The rate hike is only a 0.25% increase, which amounts to one dollar in interest for every $400 in principal, so the effects should not be substantial on small loans. Larger loans, however, may have you feeling the pinch.

If you have a fixed-rate loan, your bill will not be affected.  Many of our mortgages and home equity loans are fixed-rate loans, so if you have a high balance on your credit cards, student loans, adjustable-rate mortgage, or any other adjustable-rate loan, it may be time to turn that debt into a fixed-rate alternative in case the Fed raises the prime interest rate again.

On the positive side, the interest paid on your savings account, money market account and new share-savings certificates will go up.  A higher prime rate makes savings products more valuable, so with the volatility in the stock market, you might prefer the relatively low-risk proposition our savings products offer.

If you have more questions about what is happening or how you can best protect your finances, please let us know.  We have quite a few articles coming in the next few weeks to help guide you, but we can also help you find an investment and savings plan that is perfect for your family!

5 Low-Cost Holiday Family Activities

What can you do this Holiday season to keep the family at peace without family time feeling like a chore or running up a huge credit card bill? Try one of these fun, festive activities that shouldn’t cost you a thing!

1.) Caroling

It’s a tradition that spans generations. Family and friends get together to spread joy and good will with cheery music. Caroling is an iconic part of the holiday season. If you live in an area where you know your neighbors and the streets are safe, you can carol in your neighborhood. If you don’t, consider making an appointment with an area nursing home or assisted care facility. These homes are often in need of some cheer during the holidays.

You can find sheet music for most holiday classics for free online. You can also find “karaoke” mixes to download onto a smartphone or tablet to help keep your merry ensemble on key. Spending some of your time together practicing is also a good idea. What’s important isn’t how good you sound, though. It’s the fun you have and the joy you spread.

2.) Volunteering

Many churches, food kitchens, and other outreach centers offer Christmas dinners for the less fortunate. Spending some of your holiday caring for those who have little-to-nothing can also help keep your family focused on what’s really important. After your kids have unwrapped their presents on Christmas morning, consider taking them to help out at a community pantry. It’ll help them treasure their gifts all the more.

There are plenty of other causes that could use your help, too. In the days after Christmas, many animal shelters are overwhelmed with “presents” that didn’t quite work out. The overworked volunteers at these shelters need help cleaning up and exercising scared, confused animals. Consider doing some good for the animals this Christmas!

3.) Spit-paper game

If you’d rather have some light-hearted fun with your family at Christmas, consider this easy game. Each person gets a sticky note or a small piece of scrap paper. On that piece of paper, they write a person’s name – a celebrity, a political figure, even a fictional character. Put all entries in a basket or hat, then have each person take a turn drawing.

Without looking at it, every player sticks the piece of paper on their forehead. Here’s where the fun begins! While you’re mingling, ask each other “yes-or-no” questions about your person, with the objective of guessing your “new” identity. Questions like “Have I ever existed?” or “Have I been alive in the last 100 years?” are good ways to narrow the range of options. It’s a fun way to interact, do something a little different, and have a conversation about current events in a general, light-hearted way.

4.) Re-watch old family movies

Someone in your family may have a huge cache of old tapes in a closet or basement somewhere. These tapes don’t do much besides gather dust for most of the year, but they contain a treasure trove of family memories for the Holidays! If you’re like most families, someone recorded treasured times to document them for posterity, but either never watched them or hasn’t blown the dust off them in years.

Make this Christmas a time to break that tradition. Pick a year and watch the Christmas or birthday parties. Think back to what life was like then and how much things have changed since. Embarrass the kids a little bit in front of their spouses or significant others. You might find it’s a great way to start a new family tradition!

5.) Check out community or school theatre events and concerts

There are a great many works of theatre that everyone recognizes as “classics”, despite the fact that very few people have seen them. Though many know of “The Nutcracker”, most people have never seen it. Often, performing arts schools and amateur dance troupes will put on productions of “The Nutcracker” around Christmas-time. Check it out!

“A Christmas Carol” is another classic you can usually find somewhere around town. Local colleges and churches may also host choirs or bands that perform Christmas concerts throughout the month of December. The ticket price is usually low on these types of events and some organizations even offer free admission with a donation of canned goods. Look for posters in your local grocery store or other community establishments!

No matter what you do this holiday season, it’ll be made special because you do it together. Are you going to try one of these fun, festive things? Share with us!

Have a safe and Happy Holiday!

 

Six Things to Keep in Mind While Shopping for a New Automobile

Navigating automobile financing can be one of the biggest financial headaches you’ll encounter. But, unless you plan on walking everywhere, it’s something you’ll have to deal with! Read the below Q & A for help making a smart decision and getting yourself behind the wheel of a fairly priced vehicle.

1) How do dealerships secure financing?

Car dealers usually have a department that is responsible for setting up financing and insurance (commonly referred to as “F&I”). These people take the estimated price of the car, the actual value of the car, and your credit history to a number of different credit providers. These include major national lenders, auto manufacturer financial departments, and depending on the dealership, some local lending institutions. These vendors each quote an interest rate and other fees.

Car dealers usually have longstanding business relationships with their lenders, which often include incentives for the dealer as a “reward” for financing a loan through that lender. Because the lenders are competing for the dealer’s business, not necessarily for yours, those incentives are for dealers and not consumers. While the dealer knows that lower interest rates make you more likely to buy a car, in this transaction, you’re not the customer. You’re the product. The dealer is trying to sell your business to a lending organization and usually makes a profit on the transaction.

2) When should I tell the dealership I already have financing?

Let’s be clear: Financing is profitable for dealerships in many ways. If they know they can’t turn a profit from financing, they’re more likely to push harder to find profit elsewhere. You’re almost always better off keeping the auto loan for the last part of your transaction with the dealership, particularly if you plan on securing outside financing. This doesn’t mean, though, that you don’t want to think about financing until that point in time.

Discuss your plans with a representative at the Credit Union before you shop, including the type of vehicle you are planning to purchase. Figure out what kind of rates they can offer. By doing your research ahead of time and knowing what financing options are available to you, you can let the dealer think there’s still money to be made in the financing, which may strengthen your negotiating position on other parts of the transaction, such as the price of the car or the value of the trade-in.

3) How do dealerships make money offering 0% financing?

If you’re shopping for a car because you’ve seen an advertisement for 0% financing, you’re not alone. Campaigns, like Toyota’s “Toyotathon,” offer manufacturer’s deals like 0% financing for 60 months and are incredibly popular for car buyers and dealers alike. If it were honestly a losing proposition for the manufacturer, they wouldn’t keep doing it. This might invite you to ask how they could possibly make money on the financing. The answer is two-fold: volume and selectivity.

The volume part of the money-making strategy is simple. 0% financing gets people on the lot and encourages them to think about buying a specific brand of car. The manufacturer and the dealer both make money on each car sold, so the 0% financing trades some profit per car in the hopes that they’ll make up for it in number of cars sold.

Selectivity is the other side of volume. Not everyone who comes to a 0% financing event will qualify for that rate. Because most people who get to the point of discussing financing have decided to purchase a car, they’ll settle for a non-zero rate when it’s presented to them. Between these two strategies, advertising 0% financing does pretty well for a car dealer.

4) Does my salesperson benefit from financing my car purchase?

This really depends on the dealership. Most of the time, your salesperson only benefits from the price of the car, the warranty, and some high-markup items, like undercarriage treatment, upgraded tires, and other products. The financing people – responsible for getting quotes and delivering them to the salesperson – are likely to be the folks who receive any kind of commission on the financing. In these instances, it’s also very likely that the salesperson with whom you’re dealing has little to no control over your financing. He or she might be able to go back to the financing department and ask them to attempt to negotiate a better rate, but this negotiation may not have much success. In any case, someone at the dealership profits from getting you a loan.

5) What is GAP insurance, and is it right for me?

“GAP” or guaranteed asset protection insurance is automobile insurance that covers the difference between the total amount of the loan and the value of the car. It provides protection against the worst-case scenario, that you total a car (or the vehicle is stolen) and you owe more than it is worth. Your comprehensive insurance coverage will only pay out the value of the car, leaving you on the hook for the remaining interest and finance charges. A dealer may require you to purchase GAP insurance as a condition of financing your purchase. The cost of the insurance is almost always paid up front as part of the financing charges.

GAP insurance is designed for long-term, high-interest, or low down-payment financing. If you are buying a car without putting a lot of money down, or if your credit history is not stellar, you should consider getting GAP insurance. But, like any other purchase, you should shop around. Because most financing arrangements require you to purchase GAP insurance, dealerships maintain institutional arrangements with insurance agencies, expecting you to purchase it without much thought. It’s one last effort to make money off your purchase, and they rely on you to not notice. You may be able to find better rates on GAP insurance from a broker or from another lending institution.

6) What steps can I take to avoid being railroaded by last-minute financing changes?

Financing is among the easiest places for dealers to make money, because it’s almost always the last stop in the car-buying process, and they expect you to be both committed to purchasing a car and exhausted from making a series of decisions. High-pressure salespeople use this fact to their advantage. When it comes time to talk financing, frequently, the license plates are off your old car, and you’re sitting down with a sales manager. While it may seem counter-intuitive, this is the best time to walk away and get a second opinion on financing. If you have not already sought pre-approval from them, see if your Credit Union can offer you a better rate, lower fees, or a more flexible term. Ask them to commit as much as possible to a price on an offer sheet. Then, tell them you’d like to take some time to think about it. If you come back with a cashier’s check in hand, the sales manager may hem and haw a bit. But, at the end of the day, they’d rather make the sale than make a little extra on financing.

This is an especially important step if your history with credit is complicated. A giant lending corporation won’t see the steps you’ve taken to solidify your financial position. They don’t have the same relationship with you that your Credit Union does. They see you as a risk number and an interest rate they can justify, not as a Member of a community institution. Always give your Credit Union the first chance to beat the dealer’s offer – your Credit Union works for you, not for a commission.

10 Facts about Credit Unions and Why Being a Member is Awesome

Being a member of a Credit Union is a coup for your finances for many reasons. Here are just a few facts that make Credit Unions a great option…

Fact #1: Credit Unions are not-for-profit institutions and are owned by the people they serve, not by a few shareholders.

Fact #2: Credit Unions can offer better rates on savings accounts, lower interest rates on loans, and little to no fees on accounts because they are exempt from federal taxes. (Credit Unions still pay state taxes.)

Fact #3: Eligibility is fairly flexible at most Credit Unions. Most require residency in a certain community, city or state, or that you are employed by the Credit Union’s sponsor company, also known as a Select Employee Group (SEG). But requirements are pretty broad on most, making eligibility at a Credit Union a possibility for almost anyone.

Fact #4: Once you are a member of a Credit Union, you stay a Member for as long as you maintain your deposit account (also called a share or share account), regardless of whether or not you continue to meet the original eligibility requirements!

Fact #5: Nonmembers benefit from Credit Unions too! Competition for low rates keeps Banks’ fees in check, thereby benefiting nonmembers.

Fact #6: President Roosevelt signed the Federal Credit Union Act in 1934 to promote thriftiness and prevent usury during the Great Depression.

Fact #7: Credit Union members have democratic control of the Credit Union and can attend and participate in regular and special membership meetings.

Fact #8: The Credit Union’s board of directors, which is elected by Members, can set loan limits in an effort to help the Credit Union grow.

Fact #9: Credit Unions are insured. Most are insured by the National Credit Union Administration (NCUA), which provides essentially the same coverage on funds as does the FDIC. If the word “Federal” is in the name, they are insured.

Fact #10: With more than 5,000 Credit Unions across the globe, and access to tens of thousands of ATM’s, Credit Unions are increasingly convenient on a national scale!

So, tell us… Why do you think being a Member of a Credit Union is AWESOME?!

Ten Things You Can Do To Improve Your Credit Score

Did you know that only 10 percent of Americans actually know their credit score?

Those are the findings of a survey commissioned by TrueCredit.com, a web subsidiary of the credit bureau, TransUnion. “It is shocking how little Americans know about their credit,” said John Danaher, president of TrueCredit.com. “Good credit is the cornerstone of your financial profile, enabling you to finance major purchases, such as a home, education, or car.” When you apply for credit, your credit scores help lenders determine whether or not you are able to repay the loan based on your past financial performance. With a higher score, you qualify for better interest rates, higher credit limits, and more types of credit than you would with a lower score. Your score reflects the way you use credit, and there are no tricks or quick fixes to getting a good score. However, you can raise your score over time by demonstrating that you consistently manage your credit responsibly.

Here are 10 things you can do to improve your credit scores.

1. Pay your bills on time. If you have a history of paying your bills on time, you’ll have an easier time getting a mortgage loan, car loan, or credit cards. Even if you’ve had serious delinquencies in the past, a recent history (24 months) of on-time payments carries weight in credit decisions.

2. Keep credit card balances low. High outstanding debt can pull your score down. A good rule of thumb is to keep your balances below 30% of your credit limit.

3. Check your credit report for accuracy. Inaccurate information on your credit report can be cleared up easily. Always contact the original creditor and the credit bureaus whenever you clear up an error so that the inaccurate information won’t reappear later.

4. Pay down debt. Consolidating your credit card debt or spreading it over multiple cards will not improve your score in the long run. The most effective way to improve your credit is by slowly paying down the amount you owe.

5. Use credit cards—but manage them responsibly. In general, having credit cards and installment loans that you pay on time will raise your score. Someone who has no credit cards tends to have a lower score than someone who has already proven that he can manage credit cards responsibly.

6. Don’t open multiple accounts too quickly, especially if you have a short credit history. This can look risky because you are taking on a lot of possible debt. New accounts will also lower the average age of your existing accounts which is something that your credit score also considers.

7. Don’t close an account to remove it from your record. A closed account will still show up on your credit report. In fact, closing accounts can sometimes hurt your score unless you also pay down your debt at the same time.

8. Shop for a loan within a focused period of time. Credit scores distinguish between a search for a single loan and a search for many new credit lines, based in part on the length of time over which recent requests for credit occur.

9. Don’t open new credit card accounts you don’t need. This approach could backfire and actually lower your score.

10. Contact your creditors or see a legitimate credit counselor if you’re having financial difficulties. This won’t improve your score immediately, but the sooner you begin managing your credit well and making timely payments, the sooner your score will get better.

These ideas won’t create a dramatic improvement in your credit score overnight, but over time, they will. Remember, it takes time to develop a strong profile. Once you’ve done it, you’ll find it easier to apply for credit and earn favorable interest rates.