James Hendrickson, Author at Dinks Finance

About James Hendrickson

James Hendrickson is an internet entrepreneur, blogging junky, hunter and personal finance geek. When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College. He loves individual stocks, bonds and precious metals.

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Beating the Tedious Process of Car Buying

Posted on June 29, 2017 - 8:26 pm by James Hendrickson 1

purchasing a car, buying a car tips, car shopping

Car buying: a tedious, detail-oriented, and at times frustrating process that can’t be avoided due to the absolute indispensability of antecedent research that must occur before a prospective option can be considered during the search for your next vehicle. Without prior expertise of the automotive world and an up-to-date briefing of the newest makes and models of various car manufacturers, car buying can become a nearly impossible task to accomplish without the assistance of some resource that can fill in where a buyer lacks any relevant knowledge needed to find a car that meets his or her every need. This reads true particularly while on the hunt for a vehicle that fits the description of various high-priority features needed by the buyer–but must also fit inside the budgeting of a specified price point. In this case, the buyer has in front of him two options to choose between to refer to should it be deemed necessary that he requires an accurate, reliable source that can give him an unbiased review and opinion on potential vehicles. The options are as follows:

SHOWCASE/ CAR DEALERSHIP: in-person outlets to seek out vehicle information come with astounding perks that make your search significantly less stressful–but also come with drawbacks that parallel the benefits. For one thing, having a car dealer to refer to for relevant information about a specific make or model of a car eliminates the necessity of a buyer needing to research the stats of a car completely on his own. Upon walking into a dealership or showcase, you are immediately given the option to seek advice from readily available on-call assistance should the buyer have any questions or concerns. Working with a dealer also allows for negotiation– but be aware of the fact that this works both ways. Another downside to this, however, is the bias that comes from the dealer. To put it simply, the dealer cares less about his customer finding his or her dream car than he cares about making money off of you. The dealer’s primary agenda revolves around capital gain rather than a buyer’s long-term investment of hard-earned money; oftentimes dealers will even conceal information regarding a vehicle’s defects to be able to place it at a higher selling value. When this occurs, customers leave the dealership oblivious to the fact that their future that will consist of frequent and expensive car repairs.
ONLINE AUTOMOTIVE DATABASE: Online car sales allow a buyer to review the makes and models of cars from all over the world, granting a buyer an immense bank of vehicles to choose from. Online dealerships also work around the clock; doors never close online, so a review of your proponents can be done any time of day, any time of the week, month, or year, 24/7. You also have easier access to auto comparisons since all relevant information on a car is presented to you right before your eyes on a screen, so side-by-side comparisons become possible with the simple click of a button. Online car dealerships also ensure a buyer will not succumb to the pressure of sales tactics that often coerce customers into making a purchase that breaks the bank for a vehicle that does not meet their specific needs. On the other hand, there are also drawbacks to an online database– most obvious issue being the simple fact that you are online; there is no chance of you climbing into the driver’s seat, smelling the seat upholstery, or giving the tires a kick before deciphering whether or not you’re into the particular make and model of the car. This also means no test drive–which is a vital step many car buyers go through before making a final decision on the car they want to purchase. Pictures make up for some of the places online databases lack, but oftentimes pictures do not do a vehicle justice as seeing it in person would. They do, however, present more options than a local dealership due to the fact that you have the option of viewing cars from all over the world as opposed to only vehicles near you.

Although there are resources for prospective car buyers during their search for their next vehicle, it is unfortunate that the perks of each option are weighed down by so many cons. What if there existed a marriage of these options that optimized all the pros of your potential resources–while also eliminating the aforementioned downsides?

Cars.com is a dependable, in-depth and precisely accurate resource to refer to throughout the search for your next vehicle that comes with no coercion from sleazy car dealers to invest in a vehicle that is far from meeting your needs. It also gives you accurate information on the pros and cons of your potential options, allowing users the option to decide between detailed side-by-side comparisons, providing multiple outlets for car buying advice depending on your individual needs, and referring you to local dealerships that sell your dream car.

What to do if Your Account has Been Sent to Debt Collectors

Posted on June 1, 2017 - 11:21 am by James Hendrickson

Being notified that your account is in collection can be a stomach-churning moment. There’s not only the worry over how you’re going to pay the money back but also how it could affect your credit score long into the future.

To help you to understand the best steps to take in such a scenario, we’ve created a list of four points that should help you to get your house in order. While these won’t solve your debt problem, they should at least give you the confidence to tackle the problem head on.

Request a Statement

If you’re not 100% sure of the total that you owe, get in touch with the debt collector to request a statement. This document will outline your original debt and make clear any additional fees that have been added on as a charge for delayed payment.

Check They Have the Right Person

Debt collectors will search through directories to find a contact number or the address of the person that owes the debt. The problem is that they often don’t have any way of differentiating between people with the same name.

When you receive your debt statement through the post, check to make sure that your social security number is attached. If you still don’t recognize any of the charges listed, it could be a case of identity fraud. If you do find yourself in this scenario, file a police report as soon as possible. A copy of the report should then be sent to the collection agency to prevent them from hassling you any further.

Try to Negotiate a Payment Plan

Once you have received your statement and checked that the amount listed is correct, you need to decide upon how you’re going to settle the remaining balance. If you’re lucky enough to have the money lying around, we’d recommend paying it in full as soon as possible. Doing this will raise your credit score and will be listed on your report as a debt that has been paid in full. This change in your spending habits is likely to be seen in a positive light by lenders.

Many aren’t in a financial position where they can pay off any debt in one go, so a debt settlement plan may have to be reached. If you offer a large enough lump sum payment, the debt collector may be willing to reach a reduced settlement. While this will clear all of your debt, it will show on your credit report as a debt settlement rather than the debt being paid in full.

Know Your Rights

There are laws in place to stop collection agencies from being overly aggressive in their pursuit of collecting any money that is owed. They’re under no circumstances allowed to share details of your debt with any other parties or to threaten to seize your property/wages without an approved court order.

It’s also illegal for them to contact you in your workplace if you’ve specifically asked them, either verbally or in writing, not to.

Of course, if you do owe money and don’t make any effort to settle your debt, they’re well within their rights to issue you with a subpoena that will mean you will have to attend a court date.

Improve Your Credit Rating

After you’ve settled any outstanding debt, it’s important that you come up with a long-term plan to improve your credit rating.

There are a number of online services that provide practical advice, as well as blogs and websites that are aimed at educating its readership on such topics.

How Much Does A Minor Car Accident Really Cost?

Posted on May 16, 2017 - 4:00 am by James Hendrickson 1

costs of a minor car accident, minor car accident advice, minor car accident expenses

Today we have a guest post for you from Anum Yoon.

It’s a scenario that plays out on roads across the country every single day.

A couple of cars are involved in a minor fender bender, and no one is injured, so the drivers exchange insurance information and go about their days. According to the National Highway Traffic Administration, car accidents happen once every 60 seconds or so around the globe. With so many accidents happening every single day, how much do these minor accidents really cost?

Injuries

Injuries from minor car accidents aren’t always obvious. You might feel a bit shaken up, but perfectly fine otherwise. So you trade insurance information with the other driver and go about your day, only to find that as the day goes on, your neck starts to hurt. In other cases, you might not feel the impact of the injury for a few days or even a few weeks. Studies have found that low-speed impacts have the highest chance of causing whiplash and similar injuries.

If you report your injuries early, your insurance might pay for part of your medical costs. Otherwise, you’re looking at paying your health insurance deductible and other costs out of pocket.

Cost: Health Insurance Deductible + Out-of-Pocket Medical Costs.

Insurance

Even a minor car accident can send your monthly insurance costs soaring. One study found that you could see your rates climb by 41% or more after just one minor accident if the accident is determined to be your fault.

This jump in insurance rates varies considerably from state to state — if you live in Massachusetts, your rates might shoot up by more than 75%, while Maryland drivers might only see a 22% increase in their premiums after the same accident.

Although it may raise your insurance rates, it’s essential to report the accident to your insurance company, especially if there’s another driver involved. The only time you might not need to report an accident to your insurance company is if it’s a single-driver accident that doesn’t involve a lot of damage — i.e. you backed your car into a pole, but it didn’t do too much damage to the bumper.

Cost: Increased Insurance Premiums

Repairs

Other than medical bills, car repairs can be the most costly part of having a car accident, especially when you consider the lightweight materials that are being used to make modern vehicles. Gone are the days of solid steel beasts that could take a beating and keep on driving — plastic and aluminum cars are designed to react like an accordion when hit. It’s a good design strategy when it comes to keeping drivers and passengers safe, but it also means that repairs that used to cost a couple of hundred dollars now cost thousands.

If you’re lucky, your insurance company will cover the damages to your car. However, you’ll find that if the car is totaled (meaning that the cost of the repairs is more than the value of the car), insurance companies will usually only pay you the value of your car. As a result, you’re stuck with a hefty repair bill that you’ll have to pay for out of pocket.

Cost: If you’re lucky — Insurance Deductible. Otherwise — Out-of-Pocket Repair Costs.

Rentals

If your car is in the shop after a minor accident, you’ll need to rent a car to use for your daily commute. Depending on your policy, your insurance company might either pay for a rental car for a length of time during the repairs, or reimburse you for the cost of the rental. This depends entirely on your insurance plan and whether or not you paid for rental reimbursement as part of your premium.

If you’re not sure, check your policy to see what the company’s position is on post-accident rental cars.

Cost: Rental Car Fees + Fuel and Mileage.

Payments

So you’ve been in an accident, and the insurance company decides that your car is totaled — now what? If you leased your car, you still have payments to make even though you may no longer have the car.

If the car is totaled, your insurance company may pay part or all of the remainder of your loan. However, if the insurance payout isn’t enough to cover the full amount of your loan, you will still be responsible for your monthly payments until you’ve paid the loan in full.

Cost: Depends on your insurance company payout.

Minor accidents can end up costing a lot more than you think. Take the time to work with your insurance company to get the most out of your policy.

Anum Yoon is a personal finance blogger and freelance writer. She shares her insights on money management on her blog, Current on Currency. You can sign up for her weekly money newsletter here.

Five Common Financial Mistakes Made by Start-Ups

Posted on March 21, 2017 - 9:17 pm by James Hendrickson 1

Miscalculating your budget

Every budget involves the amount of money which flows through your accounts on a monthly, weekly, even daily basis. A cash burn is a phrase which refers to the amount of money which is required to maintain a business on a monthly basis, and this is usually the most obvious tripping point for new start-ups. A budget only functions correctly if the people involved in making it both understand it completely, and stick to it faithfully. Not understanding the cash burn of a company will only lead to it constantly being overshot – up to thirty percent of start-ups are on record as having underestimated their expenses when they first got going. Get in touch with a financial advisor, who can help you well in planning your start-up budget.

Misunderstanding the Market

This is another common problem among start-ups, particularly if they have not had much in the way of experience with work beforehand. Misunderstanding the market might lead to being too confident, or too lacking in confidence; this will therefore affect how valuable the start-up sees itself as, and lead directly to prices which do not fit with the market they are trying to sell to, either being too high or too low.

The best way to go about setting prices is to work backwards from the price itself, rather than attempting to combine all the various aspects of the work into one whole. Who is your customer, and what is their need? If you can fill that need, then work back – how can you fill that need, and what does it take to get to that point?

You should also take your competition into consideration, and also any trends which may be affecting the market.

Expanding too Quickly

The biggest expense beyond overheads is the salary for your employees. A danger in start-ups is that the might try and expand too quickly and hire more people on, and therefore end up spending more money than they absolutely have to spare.

Additionally, while salaries for employees is its own expense, it has the potential to increase other expenses as well. Unless you have a purely online business, you and your employees will likely be working a shared space. That space must be paid for. The utilities for that space will increase, and will also need to be paid.

Bad Hiring Policies

People always say that you should hire for experience, not for the potential that a person brings. If you are starting your own business, do not waste your money hiring someone with experience just to have that experience; it is much more useful to hire someone who you think has potential, and then increase their pay grade as they gain experience.

Doing Your Own Finances

While it might seem cheaper in the short-term to tally up your own finances, in the long run it can cost you a lot. Finances can quickly become very complicated, and it ends up being something which takes up a lot of time to fully understand and come to terms with. It is much easier to simply give the financial work over to someone who is trained in working with it and understands it.

A Million Dollars Won’t be Enough for Retirement

Posted on March 14, 2017 - 5:10 pm by James Hendrickson

retirement tips, retirement advice, retirement plans

This is a guest post from Pauline of InvestmentZen.com

Have you ever sat down and worked out how much you are going to need to live comfortably in retirement? Like, an exact figure, that would cover your current expenses, plus health bills, and long-term care should you need it? Many people I talk to have a figure in mind, generally a million dollars, but when I dig a bit deeper as to why a million is the number they need to keep their current lifestyle, the answer is often about becoming a millionaire, living the dream, and little more.

Well, I have bad news. A million today doesn’t buy you as much as it used to. And we better be talking about a million in cash invested in a brokerage account, and not a million dollar net worth, $700,000 of which are in house equity. Assuming a safe withdrawal rate of 4%, in order to keep your nest egg intact for as long as you may need it, $1,000,000 will allow you to withdraw $40,000 every year. Not exactly a millionaire’s allowance. At just over $3,300 per month, I really hope you stay healthy for a long time and find a ton of cheap hobbies.

So you will have to forgive me, but I am not done with ruining your millionaire dream. A million today and a million tomorrow are two very different things. $3,300 thirty years from now is equivalent in today’s dollars to… $1,820, after you take into account a 2% annual rate of inflation. Let’s hope your mortgage will be paid by the time you retire!

What can we learn from that example? That a million won’t cut it if you want to live a good life in retirement. Sure, there will be expenses you won’t have anymore, like your mortgage, and hopefully other loans and debt repayments. Depending on where you live, you might enjoy senior citizen discounts on an array of activities, and public services like a bus pass or library card. But all that is pretty small in comparison to your health insurance premiums going through the roof, and the cost of an assisted living facility if you need one. You will need more than you currently live on.

Since a million won’t cut it, let’s shoot for two. A more manageable $80,000 yearly income should leave room to enjoy life and sleep better at night.

Assuming an annual rate of return of 8% over the next 35 years, you will have to save and invest $900 each month to retire with $2,000,000.

If you are already in your mid-30s or early 40s, you will need to save $1,800 per month to retire in 27 years with $2,000,000.

A rate of 8% is achievable if you invest in index funds through a robo-advisor or a similar low fee broker. The S&P500 has returned a little more than that over the past 30 years. That is not a guarantee of future returns, but one thing is sure, reaching a $2 million net worth compounding on a 1% savings account will be much, much harder.

Finding $900 each and every month to save and invest is already hard enough. Let alone $1,800 if you didn’t start saving early. A few things to make it easier are:

Getting your company match on your investment contributions. That is an instant 100% return and shouldn’t be missed.
Taking advantage of tax-free and tax deferred retirement accounts. Investing pre-tax gives you another discount on your investments.
Looking into ways to make more money. If you make $1,000, saving $900 is impossible. Try to hustle on the side, pick up an extra shift at work, and use that money to invest.
Looking for sources of passive income. Investing in a rental property can be an interesting way of investing. Your tenants pay off your mortgage over the next 30 years, and you retire to a paid property and some rent money. It is not as easy or simple though, and you want to crunch the numbers carefully before you invest. If in doubt, stick to index funds.

Saving a million dollars for retirement will put you in a much better place than a vast majority of Americans. But, if you really want to be comfortable, you should aim for at least two million. Start as soon as possible, invest all the money you won’t need in the next few years, to allow for market swings and avoid exiting at a loss, and keep investing month after month. Once you get rolling, it gets much easier. In my $900 example, it takes 27 years to save the first million, and just 8 years to save the second. A small effort of just a few more years for a big difference on your nest egg.

How to File a PPI Claim Successfully

Posted on February 14, 2017 - 5:00 am by James Hendrickson

If you are one of the thousands of people in the UK who took out a loan, mortgage, car loan or a credit card, there was a chance you were mis-sold Payment Protection Insurance (PPI) along with it and you may be eligible to file for a PPI claim.

Initially, PPI is a good product, intended to cover debt repayments in case that you fell ill and you’re unable to work but a lot of policies were mis-sold along with those financial products.

You can file a claim if you were sold PPI without being fully informed, without you being told it was optional or you were not even qualified to benefit the policy due to existing medical conditions at the time you took out the policy that could also hinder you from working in the future.

There is also a good chance that your PPI claim can be successful, if these also apply to you:

You were unemployed, self-employed or retired when you took out the loan
You were older than the age limit of your policy
You were told that it was mandatory along with your loan
You weren’t told how to cancel your policy
You didn’t have consent when it was added or you didn’t realize it was there and it wasn’t made obvious to you

You can also check on your credit report, credit card statements or loan documents to see if you have any additional payments of PPI. Once you have determined that you were mis-sold, you can then file your PPI claims. Here are several steps you can take to ensure that your claim will be successful:

1. Check the paperwork whether you have PPI applied to your loan. Contact the companies back when you don’t have the statements and ask the paperwork directly from them. The company who sold you the PPI should be your first point of contact.

2. There is no limit on how far back you can go and have a PPI claim. This can be a little bit of a challenge if you don’t have paperwork and you request from the financial institution – they are not required to keep records that are over six years old but there are successful PPI claims that even go as far as the 90s.

3. You can still file for a claim even if your lender has gone out of business or it was merged with another company. If this is your case, then you would have to contact the Financial Service Compensation Scheme (FSCS) for more information on what steps you will need to do.

4. Complain to your lender and provide as much information as you can to prove that the policy was mis-sold to you. Most of the time, the provider will pay your claim without challenging it but if they disagree with your claim and they are adamant that the PPI was sold fairly to you, you are entitled to go back to them and request that they prove that to you.

5. Lenders are supposed to respond within eight weeks time. If they haven’t resolved your complaint or if you’re not happy with the company’s response, you can contact the Financial Ombudsman Service (FOS) and file a complaint there. Keep in mind though that with the volume of complaints, it may take some time for them to get back to you, even taking over a year for a decision to be made.

Do you feel that this is too much work for you? A lot of people also go through a claims management company that can take care of all these on their behalf. It is worth checking out if you do have a mis-sold PPI as you can get back several thousand pounds back on your PPI claim. Get started now – there is no deadline yet but with the way things are going, a deadline could soon be implemented.

Making Money Work For You So You Can Stop Working

Posted on January 26, 2017 - 4:00 am by James Hendrickson 2

Hey there DINKS! Today we have a guest post from fellow blogger, Jon Dulin. Enjoy!

Most of us work for our money. We have to go to a job to earn an income so that we have the money to pay our bills and live life. But the rich really do have things figured out. They don’t work for money, they have money work for them. The key to this concept is to know that you too can act like the rich and have your money work for you. Now, you might not end up with billions of dollars, but you will end up with a lot more money than if you just keep working for money. In fact, you could easily end up a millionaire if you follow my tips below.

Steps To Making Your Money Work For You

Step #1: Pay Off Debt

The first step to making money work for you is one that you’ve all heard before – you have to get out of and stay out of debt. It is so important to live within your means and pay off your debt. The more debt you have, the more you have to keep working for money. In fact, you aren’t even working for yourself at this point, you are working for the credit card company, the student loan company, etc. This is because you have to work in order to pay them their money back.

That is the mindset I took on when looking at my debt back in the day. I resented the fact that all my hard work was resulting in the credit card companies getting all of my money. Granted, I put myself in the situation because I spent more money than I had, but I vowed to never have to work to pay off debt again.

So your first step here is to get your spending under control and start paying off your debts.

Step #2: Save For A Rainy Day

You can easily start doing this step while paying off your debt. The idea that you need to have some money set aside is key to avoiding going back into debt or even going into debt in the first place. Make sure you have around six months worth of living expenses saved up in a savings account. It can mean the difference of you getting ahead financially and you falling behind or stuck spinning your wheels not making progress for a while.

One note here – resist the urge to chase returns. We are in a low interest rate environment and savings accounts aren’t paying much in terms of interest. Don’t risk your savings for emergencies by investing it and trying for a higher return. The point of this money is to be there for you. Find a good online bank that pays a decent rate and stick with it for the long-term.

Step #3: Invest For The Long Term

Once you have the first two steps taken care of, you need to start investing for your future. This includes retirement. In this case, you have to invest this money in the stock market in order to get the growth to allow you have enough money. If you keep your money under your mattress or in a bank account, odds are you are going to have to keep working for money.

Let the stock market do its job by growing your money and you do your job. What is your job in this situation? It’s to keep investing money every month and to not get rattled when the market drops. It will drop. It is the way the market works. Over the short term, the market moves up and down, sometimes by a lot. But over the long term, the trend is up. Keep your focus on the long term, not the short term.

Finally, make sure you are invested in a way that makes sense for you. This includes taking on the right amount of risk and understanding the power of passive investing. The more you understand how the markets work, the more successful you will be financially.

Final Thots

Overall, if you want to stop working for money and have your money start working for you, you need to take action. Get out of debt, have an emergency fund and then start putting as much as you can each month into the stock market.

As the market rises and your investments grow in value and throw off income in the form of dividends and interest, you will see your money working for you. And sooner rather than later, you can take joy in this fact.
Jon writes at Penny Thots, a personal finance blog that talks about all things personal finance. The goal of the site is to improve your finances one day at a time.

How to Become a Landlord

Posted on January 16, 2017 - 3:49 pm by James Hendrickson

So, you have decided you would like to be a landlord. Lucky for you, the amount of first-time homebuyers is currently on the decline. That means more people are stalling on buying a house in order to save money. The job market is only just getting better for millennials, the young settle down later, and this means that you are in a prime position to have potential tenants at your door. In many areas, this is true, especially in areas with a high population. Now is an opportune time to invest in a home or apartment to add to your income for years to come. However, before you jump into the landlord business, you need to first understand the preliminary steps. Here is a comprehensive guide on how to become a landlord.

Shop for a Mortgage. Just like buying any other property, you will need to shop for the mortgage that best suits your budget. Before you do so, of course, you will have to build good credit, and budget your current income, along with your projected income. It helps if you already have an idea in mind for which kind of property you would like. If you want a duplex or triplex, you have the opportunity to live in one unit and make money to pay off the mortgage from the other tenants, for example. Gauge what you can currently afford to make sure the investment is actually worth it.
Find Your Location. Ideally, living near your rental property brings many benefits. Living in close proximity can allow you to make repairs yourself, which saves on costs. You will also more easily be able to show the property when your renters decide to move. Research the demographics of the area—the income, level of education, and the culture (such as nightlife). This will give you an idea of the sorts of renters that are attracted to a location, which can afford you to drive the rent higher. Regardless of which area you pick, remember that you cannot discriminate against a potential tenant based on race, gender, etc. as outlined in state and local laws.
Know the Law. As a landlord, you must adhere to certain laws regarding the landlord-tenant relationship. Similarly to what was mentioned above, there are many habitability and anti-discrimination laws to protect tenants. You may have good intentions, but be sure to reflect and double check your motivations behind denying certain tenants. Regardless of who you are, you need to keep up on these laws to be sure you do not leave yourself open to potential lawsuits. Learn the laws of leasing conditions as well to be sure you are not breaking them unintentionally.
Properly Screen Tenants. It is essential to the integrity of your property and your business that you screen your tenants. They may be very nice in person, and may be able to pay the deposit immediately, but be advised to withhold until a background check is performed. SmartMove credit checks will run a background check to see if they have any late payments or closed accounts, as well as other financial information. Look for any felony convictions, job history, and evictions. Call their references to assess their character. Take all of these things into account before you take their deposit and sign the lease agreement.
Make Your Lease Agreement Seamless. To make your leasing contract effective, you must rid it of any loopholes and make it as airtight as possible. This includes clearly communicating the rules of the property. For example, if it is a non-smoking property, you must present that in the contract. Similarly, if you only allow certain dog breeds, you will have to specify which breeds are allowed. Also specify the lease term, the amount of rent to be paid per month, date rent must be paid, and any other fees and agreements allowed under the law.
Enforce Your Lease Contract. This is the toughest part for many landlords. In good faith, every landlord hopes that their tenants follow the rules, but sometimes they won’t. It is important to enforce the rules not only so that they respect you as their landlord, but also to maintain the safety of your property. Do not be afraid to enforce these rules and evict if necessary. If you’re uncomfortable with these types of interactions, it may be in your best interest to make use of a certified property management company.

4 Strategies for Tackling Your Debt

Posted on January 16, 2017 - 12:26 am by James Hendrickson

Tax season is fast approaching, and you may have just become acutely aware of the debt you have accrued over the past year or years. To recover from debt can seem like an insurmountable task. Debt can leave you lying awake at night, wondering how you can get your head above water financially; it’s a huge source of depression and anxiety nationwide, but it doesn’t mean you won’t be able to overcome it. If you want to take charge of your debt today so that you can gain financial freedom, there are many strategies that can help you. Here are four strategies you can use to tackle your debt.

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How the Fed Interest Rate Hike Affects You

Posted on December 15, 2016 - 3:32 pm by James Hendrickson

The Federal Open Market Committee (FOMC) of the Federal Reserve recently raised its benchmark short-term interest rate by 0.25 percentage points. The recent rate increase is the second time the Fed has raised federal funds rate in over ten years. The first was in 2015.

Speaking about the rate hike, Fed chairwoman, Janet Yellen, said that the US economy had shown considerable progress over the past year to warrant the increase. According to her, with the progress in the US economy, the Fed could raise rates three times in 2017.

Being an important economic decision, it will affect you in some way. But how will it? Here’s a brief on that.

Stocks

Theoretically, an increase in federal funds rate affects stock via a ripple effect, which is unlikely to occur in the near-term. Fundamentally, an interest rate increase should be positive for stocks because it indicates the economy is growing. However, it could have indirect side effect over the long haul. A rate increase means that the cost borrowing funds from the Fed is now higher. This will make lenders (banks) increase the interest rates at which they lend out money to consumers.

Again, theoretically, higher rates for consumers could mean that they’d have less disposable income. This would make them spend less money, thereby, affecting the revenues and incomes of companies and possibly, future cash flow. Moreover, since businesses are also going to get loans at higher cost, profitability goes under threat. This isn’t positive for stocks.

However, the truth about this is that this only happens after a long period, after which the rate increase has helped stabilize economy, but then becomes unsustainable. Therefore, in the near term, the rate hike is unlikely to affect the economy negatively. Moreover, if you’re a long-term investor, which you should be, Fed’s economic decisions should have minimal impact on your investing principles. If anything, you should only find the opportunities its decisions present.

Mortgages

The US 30-Year fixed mortgage rate has increased by roughly a half percentage point, to approximately 4.1% since the election. This can be partly traced down to statements by president-elect Trump about how the then-current federal funds rate was too low during his campaign trial.

So yes, the latest rate hike is likely to make the cost of buying a new home higher. Still, though, the latest rate hike still puts current rates around historical lows. It’s only in expensive locations that the rate increase could significantly affect mortgages.

However, if the Fed eventually raises federal funds rate thrice in 2017, the costs of buying a new home could be significantly higher across board. Folks with variable-rate mortgage should also watch closely, as the impact could start as soon as now.

Auto Loans

Obviously, the rate hike is going to increase rates on auto loan for new buyers as well. You don’t have to worry if what you have on your auto is a fixed-rate loan. A rate hike won’t affect it. One thing to note, though, is that a rate hike doesn’t affect auto loans as much as mortgages simply because mortgages are usually larger than auto loans. In addition, the terms on auto loans are usually significantly shorter than mortgages

The average price of a new car was $33,666 as of march 2016, according to Kelly Blue Book. On the other hand, the median sales price of new houses in the US was $304,500 as of October 2016, according to Federal Reserve Bank of St. Louis.

A 0.5% increase on a $300,000, 30-year fixed mortgage adds $45,000 over the lifetime of the mortgage. However, a 0.5% increase on a $33,000, 67-month auto loan adds only about $14 monthly. For reference, the monthly increase of the mortgage is $125.

Long story short, this rate hike is unlikely to cause huge upset for prospective car buyers. Again, as rates get higher in 2017, you need to be watchful. It might help to take action as soon as possible in order to lock in lower rates.

Credit Cards

Folks with variable-rate credit cards are likely to feel the rate hike more quickly. According to CreditCards.com, the national average credit card interest rate was 15.18%, as of December 15, 2016. Because of the structure of this class of debt, banks will effect the 0.25%-point increase in funds rate over the next few weeks. Since credit card rates are already high, any little increase in rate should be taken seriously.

Moreover, the rate hike could have bigger adverse effect on those with bad credit loans, considering that the average credit card interest rate for bad credit stands at around 23%. The best decision would be to pay off the debt as soon as possible or get in to a fix-rate arrangement.