Latte Factor (LAT.ay fak.tur) n. Seemingly insignificant daily purchases that add up to a significant amount of money over time.
The Latte Factor® is perhaps a concept that isn't foreign to you. It was a concept coined by David Bach, author of The Automatic Millionaire. The Latte Factor® is based on the simple idea that all you need to do to finish rich is to look at the small things you spend your money on every day and see whether you could redirect that spending to yourself (as opposed to the more common approach of trying to cut 'big' items from your life OR SIMPLY DOING NOTHING) . Putting aside as little as a few dollars a day for your future rather than spending it on little purchases such as lattes, bottled water, fast food, cigarettes, [plug in whatever your "personal latte" is here] and so on, can really make a difference between accumulating wealth and living paycheck to paycheck.
If you take a closer look at your 'small spending,' you can quickly see the great cost of those small habits. Investing a small habit (such as $5/day, at historical rates of return, ~10%) would yield close to a million dollars in roughly 40 years!
What's your Latte Factor®? Take action!
To get started, identify what your Latte Factor® is. The most beneficial way to do this is to track your spending for a full day. I've provided some links below to assist in the process ... Once you know where your money is going and how much your Latte Factor® is costing you, use the calculator below to see just how much you could save in a few years. You'll be amazed at how much you could be saving.
Even if you make a lot of money, it doesn't necessarily mean you're building wealth. That's because the more we make, the more we tend to spend. I believe that an awareness of our personal Latte Factor® will only help down our paths to "Financial Success" ...
- 'Fix the Leak in your Wallet' (USA Today Article)
- Latte Factor® Calculator
- Latte Factor® Worksheet - What is your Latte Factor Worth?
- OFS Budgeting Resources
- Stop Buying Expensive Coffee and Save Calculator
Last Weeks Tip: Grad PLUS vs. Alternative Loans
August 31, 2006
Latte Factor (LAT.ay fak.tur) n. Seemingly insignificant daily purchases that add up to a significant amount of money over time.
August 24, 2006
A recent tip (see blog tip archive to read) outlined the substantive changes to student loan legislation that took place on July 1 (2006). One of the primary [good] changes for graduate and professional students was the introduction of the Grad PLUS Loan, allowing grad/professional students to borrow up to the total cost of education with this type of loan (ultimately eliminating the need to take out [typically] higher-cost private loans unless specifically chosen). PLUS loans had initially only been available to parents of undergraduate students. One of the benefits of the new Grad PLUS Loan is the fixed rate it offers (8.5% for most -- 7.9% for Direct Loan-provided Grad PLUS Loans). A fixed rate is a huge sigh of relief relative to the variable rate that private [credit-based] loans provide (with many currently topping 9% with interest rate caps (if they even have a cap) of 20% OR MORE!). Obviously, you should speak with someone that can inform you of your options relative to your individual circumstances before making loan decisions.
Several sites provide helpful charts/breakdowns of the primary differences between Grad PLUS and Private Loans. Some of these include:
- Ed America
- Texas Guaranteed Student Loan Corp
- University of Minnesota Financial Aid
- USA Today Article on 8/15
If you feel that a private loan is necessary, view this former tip on selecting the best possible loan for you. Click here.
August 11, 2006
August 10, 2006
The other day in my Financial Survival class, we discussed consumer protection legislation – one of the things discussed was the ability to opt out of unwanted solicitations. It was nearly three years ago that the Federal Government created the "Do Not Call Registry" to make it easier and more efficient for you to stop getting telemarketing sales calls you don’t want. This is informational only – not a personal "recommendation" – simply an FYI …
You can register [both land line and cell phones] online at (http://donotcall.gov/) if you have an active e-mail address (seems like a safe assumption by virtue of receiving this e-mail). You can also call toll free 1-888-382-1222 (be sure to call from the number that you want to register). Registration is free and is effective for a five year period.
Enforcement began on October 1, 2003. Solicitors affected by the legislation are now required to stop the calls within 31 days of registration. Unfortunately, it won't stop all telemarketer calls. Banks, phone companies, airlines, insurance companies, nonprofit charitable organizations, and politicians are not under the jurisdiction of the FTC, and won't be impacted by the list. In addition, the list only applies to calls across state lines. Sales calls within a State will still be permitted unless you also opt out of solicitations through your State ‘do not call’ registry (or if your State integrates their list with the national registry - read info regarding your state to find
out). State registration eliminates in-state solicitations the national registry won't.
- State registry info: http://www.the-dma.org/government/donotcalllists.shtml
- For Missouri Residents: http://www.ago.mo.gov/nocalllaw/nocalllaw.htm
- Additional info: http://www.natlconsumersleague.org/privacy/stopcalling2.htm
The above information will stop most phone solicitations. You can also request to get off mailing lists (http://www.dmaconsumers.org/consumerassistance.html). The Federal Trade Commission has also developed a form letter you can send to the credit bureaus that sell your information to other agencies. The opt-out form is located at http://www.ftc.gov/privacy/cred-ltr.htm as are the addresses of the bureaus to mail the form.
Payday lending (often called cash advance) is the practice of using a post-dated check or electronic checking account information as collateral for a short-term loan. Research indicates that the payday lending business model is designed to keep borrowers in debt, not to provide one-time assistance during a time of financial need [as they’re often thought of] …
Payday lending is often referred to as a "debt trap" – here’s a few reasons why:
- 91% of payday loans are made to borrowers who use 5+ payday loans/year.
- 99% of payday loans go to repeat borrowers.
- The average payday borrower pays $800 to borrow $325.
- It is estimated that payday lending costs US families $3.4 billion annually.
Payday lenders typically allow borrowers just two weeks to repay, and borrowers regularly find they cannot come up with the cash to pay back their loan so quickly. To avoid defaulting, borrowers often agree to renew the loan and pay the interest again. Interest fees are usually $15-$20 per $100 borrowed. A PIRG study found the average interest nationally was 680% APR. The Department of Defense lists payday lending as one of the top ten key issues impacting the quality of life of U.S. soldiers. A "New York Times" article in Dec. 2004 revealed that more than 1/4 of military households (26%) have been caught up in payday lending. In many university towns, students are a primary "user" of these products. Many states have seen the problems these types of lenders have created for consumers [and 14 states] have banned payday lenders. Unfortunately, lenders have found ways around these state laws. National chains use partnerships with out-of-state banks to ‘skirt’ the law. They also use this arrangement (known as the rent-a-bank model) to avoid limits on interest rates and other provisions in states that do authorize payday lending.
The Center for Responsible Lending provides "9 Signs of a Predatory Payday Loan" to help educate consumers on the pitfalls that entrap many …
1. Triple digit interest rate – fees equal to 400% APR and higher.
2. Short minimum loan term – 75% of payday customers are unable to repay their loan within the allotted two weeks and are forced to get a loan "rollover" at additional cost.
3. Single balloon payment – payday loans do not allow for partial payments to be made during the loan term. The entire loan must be repaid at the end of the two weeks.
4. Loan flipping – 90% of the payday industry’s revenue growth comes from making more and larger loans to the same customers.
5. Simultaneous borrowing from multiple lenders – many consumers on the "debt treadmill" get a loan from one payday lender to repay another.
6. No consideration of borrower’s ability to repay – consumers are usually encouraged to borrow the maximum, regardless of their credit history.
7. Deferred check mechanism – consumers who can’t make good on a deferred (post-dated) check covering a payday loan may be assessed multiple late fees and NSF check charges or fear prosecution for writing a "bad check."
8. Mandatory arbitration clause – by eliminating the borrower’s right to sue for abusive lending practices, these clauses work to the benefit of the lender, not the consumer.
9. No restrictions on out-of-state banks violating local state laws – federal banking laws were obviously not enacted to enable payday lenders to circumvent state laws, but that is what is happening in many instances.
In addition to payday lending information, the Center for Responsible Lending (http://www.responsiblelending.org) also provides education on other abusive financial practices such as: tax refund anticipation loans, rent-to-own, car title loans, and more.
With educational costs at an all-time high, it should come as no surprise that educational debt is also at an all-time high. Variables such as high education costs, high levels of discretionary spending, and more reliance on the student to pay for their educational costs [among other issues] have resulted in a tremendous increase in the usage of alternative/private loans for student [and parent] borrowing.
What you should not do [if looking at alternative loans] is assume that they are all created equal – believe me, they’re not! Also consider the name – ‘Alternative’ Loan – this avenue shouldn’t be pursued until all primary avenues have been explored: i.e., grants, scholarships, federal loans. If you’ve exhausted these options and have determined that an alternative loan is necessary, here’s what you should consider (always look at more than one loan option before making any decision):
FEES & INTEREST RATES.
Most of the common loan fees can be avoided if you shop around:
- Application fees (can be avoided)
- Loan origination fees (can be avoided)
Interest rates vary dramatically (as much as 2.5%+) – rates will particularly vary depending on the credit of the individual; fees charged, borrower benefits, repayment terms, and most other aspects of the loans will vary dramatically from program to program. Spending a few minutes researching the various loan products can save literally thousands of dollars over the repayment of the loan.
LOAN ELIGIBILITY ISSUES.
- Do I need a cosigner?
o If so, is there a cosigner release option (will the company release the cosigner from liability after 24 payments (or after some on-time period of time))?
o Will a cosigner reduce the loan costs to me (better rate, reduce/eliminate fees, etc.)?
- Do I need to be enrolled full-time in school to be eligible?
- What is the interest rate? (A good rate is typically Prime + 0%). What is the formula they utilize?
- What is the interest rate cap? As interest rates rise, most alternative loan rates will also raise because they are linked to the Prime Rate or LIBOR Rate –- many companies cap rates at 20%-25% - ouch!
- Are there fees? What are they? When are they assessed (rolled into loan?)?
- What are the minimum/maximum borrower limits?
- What is the aggregate (total) borrower limit?
- Will loan terms change if my debt-to-income ratio changes?
- When does repayment begin?
- What are my repayment options?
- Are payments required while I’m in school?
- Is interest capitalized? [probably] - If so, when?
- What will my monthly payments be?
- What will be the total costs of the loan (interest, principal, fees)?
- Are there any discounts for on-time and/or automatic payments?
- Is consolidation available? Benefits for doing so? (NOTE. YOU DO NOT WANT TO CONSOLIDATE ALTERNATIVE LOANS WITH FEDERAL LOANS EVEN IF THE PRIVATE LOAN COMPANY WILL ALLOW IT!)
- Are there deferment/forbearance options during repayment if needed?
- What benefits does this company offer that makes their loan better for me than another lender’s program (some programs are offered to specific audiences: MBA students, medical students, etc.)?
- Can I apply online?
- Is the money disbursed (paid out) electronically?
- How long before I can expect the money?
- Other elements that would simplify the process? Save me time/money?
- Loan Comparison Worksheet (www.nela.net/~content/~downloads/chart.pdf)
- Loan Analyzer – cost of loan (www.finaid.org/calculators/loananalyzer.phtml)
- Payment estimator (www.mapping-your-future.org/features/loancalc.htm)
- Your school may have a list of approved lenders as a starting point – MU does: (http://sfa.missouri.edu/altloanlender.php)
- You may want to speak with a financial aid representative and/or schedule an appointment with a financial counselor at the OFS before taking action.
CAN YOU AFFORD IT??
Remember – the fact that you find an alternative loan product that is better than another doesn’t mean you can afford it. Make sure you know what you’re getting into. Understand the obligation and the costs, so that you can weigh those issues versus the benefits to you of the loan (continuing school, etc.). Bottom line – will you be able to afford the pending monthly payments?
- Direct Loan repayment programs (i.e., standard, graduated, & extended repayment options) to be aligned with the FFEL program.
- Eliminates in-school consolidation option (effective 7/1/06).
- Increases the amount of wages that can be garnished from 10% to 15%.
- Reduces the number of payments needed to rehabilitate a defaulted loan.
- Eliminates spousal consolidation loans (effective 7/1/06).
- Allows students to earn more money without negatively impacting their eligibility for federal financial aid.
- New aid available for need-based, Pell Grant-eligible undergraduates with focus on math and science.
- Expanded loan forgiveness provisions for [qualified math, science, and special education] teachers. Qualified teachers can receive up to $17,500 in loan forgiveness (up from $5,000).
- Expansion of PLUS loans to graduate and professional students, allowing them to borrow up to the cost of attendance on their own behalf.
- Reduction of origination fees (fees students pay when taking out student loan).
- Interest rates on loans disbursed after 7/1/06 will be set at a fixed rate of 6.8% for Stafford loans and 8.5% for PLUS loans (8.5% PLUS loan provision not applied to Direct PLUS loans at this stage – obvious oversight).
- Increased loan limits on federal loans during first two years (does not, however, increase aggregate borrowing limits): Effective 7/1/07, first year undergrad borrowing increase to $3,500 from $2,625 and to $4,500 from $3,500 for second-year undergrads.
- Unsubsidized borrower loan limits will increase to $12,000 from $10,000 for graduate students.
- Cancel your credit cards immediately. That’s easy in theory, but in the event this were to occur, do you have filed handily away your creditors, their toll free numbers, and your card numbers so you know who to call?
- File a police report immediately in the jurisdiction where it was stolen. Ultimately, this will prove to creditors, insurance company, etc. that you were diligent. It is a first step toward an investigation if there is one.
- Call the three national credit reporting organizations immediately to place a fraud alert (contact info below) on your name and SSN. The alert is a ‘flag’ to companies that check your credit. They will know that your information was stolen and they will need to contact you by phone to authorize new credit. This can be quickly added and also removed when desired.
- Report the information to your bank. Cancel checking and savings accounts and open new ones.
- Report your missing drivers’ license number to the Department of Motor Vehicles. Get a new number assigned (preferably not your SSN).
- Prepare now! Take steps now so that in the unfortunate event that this does happen to you, you will be prepared. Gather necessary documentation and records and keep them in a safe, secure place.
CONTACT INFO FOR CREDIT REPORTING AGENCIES (FRAUD AREA):
FTC Identity Theft Hotline (877-ID-THEFT)
Other Identity Theft Government Resources:
(http://www.consumer.gov/idtheft) – Federal Trade Commission’s national identity theft resource. Information to help protect yourself, file a complaint, or read more on different identity theft topics.
(http://www.consumer.gov/idtheft/con_pubs.htm) – Federal Trade Commission publications on identity theft.
August 09, 2006
Signed into law by Pres. Bush in December of 2003, the Fact Act [as it’s often referred] was designed to ensure that all citizens are treated fairly when applying for credit. Specifically, the bill was designed to significantly increase consumer protections against the growing problem of identity theft. FACTA also extends the current provisions of the Fair Credit Reporting Act.
Some of the major provisions of FACTA ...
- Provide consumers with a free credit report every year.
- Give consumers the right to see their credit scores (for a fee).
- Provide consumers with the ability to opt-out of information sharing between affiliated companies for marketing purposes.
- Ensure that consumers are notified if merchants are going to report negative information to the credit bureaus about them.
- Allow consumers to place "fraud alerts" in their credit reports to prevent identity thieves from opening accounts in their names (includes special provisions to active duty military).
- Allow consumers to block information from being given to a credit bureau and from being reported by a credit bureau if such information results from identity theft.
- Restrict access to consumers' sensitive health information.
- Provide consumers with one-call-for-all protection by requiring credit bureaus to share consumer calls on identity theft, including requested fraud alert blocking.
- Require creditors to take certain precautions before extending credit to consumers who have placed "fraud alerts" in their files.
- Stop merchants from printing more than the last five digits of a payment card on an electronic receipt.
Consumer credit is such a vital thing for most consumers – the ability to have protections in place to help consumers protect the credit they work so hard to build and develop is critical.
FACTA Press Release:
Summary of FACTA changes to FCRA:
Fair Credit Reporting Act: