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August 18, 2008

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Friends and Loaning Money

Everyone reaches a time in their lives where they need financial help. At least most do. One of the hardest things to do in life is to say no to a friend in need. Unfortunately, this is what you should say when it comes to friendships and how lending money can affect them, but you don’t. Instead, you act as the good friend you are, and say yes. There is so much more than dollar bills associated with lending money to friends. There are years of laughing, crying, and experiences that you wouldn’t trade for the world. So, know that all of these things are possibly at stake when lending money.

In deciding to lend money to a friend or family member, first make sure you can afford to do it. If you loan this money, will it put you in a financial bind? If so, then drop consideration immediately. Simply tell your friend that yes, while you may have the cash in hand now, if you lend it, then you will be placed in a burden as well, and that doesn’t help anyone’s situation. A good friend should understand this. If you at a place that you can loan some of your money, then make sure you do it the right way.

Come to an agreement on the terms of the loan. What is the total amount that you are loaning? What,if anything, will be used as collateral? Decide what the payback terms are, and what the payment dates are. All of the terms should be well discussed and agreed on by both parties. Introducing collateral will help you in the event that your friend isn’t able to pay back the loan on the time agreed. Agree that you will take the collateral either to keep for yourself, or to take to a pawnshop if the loan isn’t repaid as agreed.

Finally make sure everything is in writing. Although a piece of paper with a handwritten agreement can stand up if you ever need it to in court, a well thought out and organized, typed letter would be much more appropriate. You want this transaction to look, feel, and actually be a business transaction. Although it is still your friend, try and make this a separate transaction from your friendship. Make sure both of you sign the agreement, and you both have a copy to keep. Having a witness sign as well, or a notary, is an extra step that may come in handy at a later time.

August 12, 2008

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Understanding and Establishing Credit

One of the scariest words in finance is hands down Credit, especially when you don’t have any at all. Credit doesn’t have to be scary at all. In fact if you are starting with a clean slate you have an advantage over those who have negative credit. The key to credit is to remember this simple statement that so many people forget all to easily: you can work all your life to maintain good credit and in no time at all destroy it. Be very conscious of every financial decision you make and know how it will or won’t affect your credit. Always monitor your credit. You can join an online site for full 24 hour access to your credit reports usually for twenty dollars a month or less. These sites are not necessary because you are able to request your credit report at least once a year through all three bureaus, as well as every time you are declined for credit because of something on your credit report. These sites do however, usually offer user friendly ways to dispute inaccuracies, and other credit related informational topics for their users.

Start with a bank account. Although having a bank account doesn’t affect your credit score, it does assist creditors when you are applying for credit. Do not job hop. Creditors don’t want to take a chance that you are going to leave your job and be unemployed. Your credit does report your job history so manage it well. Just as employment matters, so does residence history. It helps put creditors mind at ease to see that you can hold down residency. Your report will show whether or not you rent or own. Owning your own home either solely or with a spouse is ideal. Having your name on utility bills doesn’t usually affect your score. If, however, the bills go unpaid and end up in collections, they will greatly affect your overall score.

Department store shopping cards will usually be the first suggestion out of a financial planner’s mouth. Although these cards are not usually suggested due to the ongoing interest rates, they can be fairly easy to obtain and once activated, will begin reporting to the credit agencies immediately.

If you are unable to obtain credit through department stores and the credit card companies directly, you still have an option. Visit your local bank and take a secured loan. Basically you can take out a loan for $500 once you have purchased a CD for $500. There are other options for doing this, but it can be a sure fire way to start reporting positively to the credit bureaus.

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