Identity Theft Monitoring and Insurance Plans

In my last post I discussed identity theft – what it is and how to prevent it.

What about identity theft monitoring or insurance? Does it make sense to purchase it?

An important note up front – no product or company can protect you from having your information stolen. The most common way your data is stolen is through data breaches. If you have a Yahoo account, for example, some of your data has already been stolen and, as we have learned recently, it has probably been sold several times over.

That doesn’t mean there aren’t steps you can take to secure your information better (see last post for ideas), but having identity theft “insurance” doesn’t prevent your data from being stolen any more than having auto insurance keeps you from being involved in an accident.

Let’s take a look at each of the various types of identity theft protection – monitoring, insurance and recovery.

MONITORING SERVICES

Monitoring services alert you when someone else might be using your information. Services generally include:

  • Tracking activity on your credit report
  • Sending you an alert when your personal information (bank account, Social Security number, driver’s license number, passport or medical ID) is being used
  • Access to credit reports and/or scores

No company or service can monitor all activity on all websites and merchants, but most of these companies do their best to monitor your personal information at as many places as possible.

IDENTITY THEFT INSURANCE

Identity theft insurance pays for out-of-pocket expenses incurred for recovery, which may include:

  • Postage, copying and notary fees
  • Less often, lost wages and legal fees

A few important notes about identity theft insurance:

  • This type of insurance almost never covers stolen money or other financial losses
  • There is generally a deductible
  • There is no payout if the loss is covered by any other types of insurance, such as homeowner’s or renter’s insurance
  • The majority of people who are involved in identity theft have almost no out-of-pocket losses. Most people pay little to nothing to copy or print things at home, postage is cheap and notary services are usually free at your bank. By the time your deductible kicks in you are unlikely to gain anything.

RECOVERY SERVICES

Recovery services help you deal with the effects of identity theft after it happens. Services generally include:

  • Assigning a case manager to help you work through the process
    • With some plans you actually grant authority for the case manager to act in your name, with others they guide you through the process
  • Placing a fraud alert on your credit file
  • Placing a security freeze on your credit file
  • Helping you prepare letters to send to collectors
  • Closing any tampered or fake accounts and opening new ones

Let’s take a look at two specific companies – LifeLock and Zander Insurance.

LifeLock[i]

Standard protection is $10 a month or $109 annually. Prices go up to $29.95 a month for premium services.

Basic services include:

  • Website surveillance
  • Cancel credit cards if stolen
  • Send alerts when your information is being used
  • Replace stolen funds up to $250,000 (only what the bank won’t replace)
  • Spend up to $1,000,000 on lawyers, accountants or others to restore your previous status

Zander Insurance

Zander is $75 year ($6.76 a month) for an individual or $145 a year ($13 a month) for family protection.

Zander operates their protection plan on the premise that financial identity theft is only one of more than 15 types of identity theft. There is also Social Security, criminal, employment, medical, tax refund and other types of fraud, many of which won’t be discovered by monitoring. In many cases you won’t know you have been a victim until you get a letter from the IRS or a doctor bill or even a warrant for your arrest.

Their focus is on identity theft recovery. Services provided include:

  • Up to $1,000,000 reimbursement for any stolen bank funds or unauthorized electronic funds transfer (only what the bank won’t replace)
  • Unlimited legal fees if needed
  • $0 deductible
  • Contact banks, bureaus, insurance companies and doctors for you

What I Recommend

No strategy is perfect, but this is my plan:

  • Use CreditKarma.com for monitoring (they send me an e-mail anytime something changes on my credit report)
  • Use YNAB (youneedabudget.com) to review my bank and credit card transactions daily
  • Shred any documents with financial or personal information
  • Use https://www.optoutprescreen.com/ to stop receiving most pre-screened credit card offers
  • Put a security freeze on my credit bureau reports
  • Check one credit report every 4 months on annualcreditreport.com
  • Copy the front and back of all cards in my wallet
  • Use a service such as LastPass.com to manage and use different, secure passwords on each website
  • If my wallet is stolen or I am a victim of a breach place a 90-day fraud alert on my credit bureau accounts
  • Sign up for Zander’s plan for recovery services (I believe it is worth the $145 a year for the services they will provide)

If you have taken all of these steps but choose not to sign up for recovery services, the FTC has created a new website that will help you recover. It generates pre-filled letters and walks you through exactly what you need to do to recover. You can find the website at http://www.identitytheft.gov.

 

 

Identity Theft Protection

[i] For both LifeLock and Zander be sure to review their services before signing up. Services may have changed since this article was written.

Identity Theft is Not a Joke Jim!

Watch this first:

Identity theft really is a problem that affects millions of people each year. It causes untold numbers of hours and dollars to fix the problems.

While it is impossible to stop all identity theft, there are some simple steps you can take to protect yourself better.

Shred Documents with Your Personal Information

You should shred any document from a financial institution, any pre-approved credit card offers, and any other documents with your personal information on it. Shredders that shred in long strips don’t work – thieves can tape together the strips (and will tape them together) and get your information or apply for credit. Some sites suggest simply tearing up and throwing away pre-approved credit card offers. Does that work? Check out this site for your answer:

http://www.cockeyed.com/citizen/creditcard/application.shtml

Use a cross-cut shredder to make sure it is fully destroyed.

Opt-out of Receiving Pre-Screened Credit Card Offers

On the website https://www.optoutprescreen.com/ you can opt-out of receiving pre-approved credit card offers. Eliminating these from your mailbox is one less thing for thieves to be able to steal.

Protect Your Social Security Number

Don’t carry anything with your Social Security number printed on it. Check your wallet or purse to see if you are carrying your social security card OR any other item with your Social Security number printed on it. Thieves really only need this one piece of information to steal your identity, so taking steps to keep it safe will help you keep your identity safe.

Don’t reply to “Phishing” E-mails

Never reply to e-mails for requests for any personal information, even if it looks like it is coming from your bank. Your bank will never request personal information via e-mail.

Put a Credit Freeze on Your Credit Report

One of the most effective things you can do to protect your identity is to freeze your credit. A credit freeze prevents the information in your credit file from being reported to anyone.

If a thief does steal your identity they can’t open new credit because your record is frozen. This will also prevent you from opening new credit unless you plan ahead and “unthaw” your credit report for a period of time.  Credit freezes and unthaws do cost money, but think of the money spent like an insurance policy. Here are the websites to freeze your credit report:

https://www.freeze.equifax.com/Freeze/jsp/SFF_PersonalIDInfo.jsp

https://freeze.transunion.com/sf/securityFreeze/landingPage.jsp

http://www.experian.com/consumer/security_freeze.html

Check Your Credit Report

It is important that you check your credit report on a regular basis. You can get one free copy of each of your credit reports annually by visiting www.annualcreditreport.com. A strategy I use is to check one of the reports every 4 months – that way I am checking it out on a regular basis. If there are any errors or accounts you don’t recognize you need to take steps right away to get it taken care of.

Pay with Cash

A while back I got a call at 7:30 in the morning on a Saturday from the Fraud Department at my bank. My credit card number had been used for an online purchase that seemed uncharacteristic (it was a Jewish dating site), and the Fraud Department was calling to find out if my wife or I had used our card there. We had not, so they immediately closed down the card and issued a new number. When we tried to figure out how it happened we realized that the most likely scenario was when we used our debit card the last time we ate out. When the waiter/waitress takes your card and disappears with it for 2-3 minutes it is easy for them to snap a photo of the front and back using their cell phone. We now pay with cash anytime we eat out.

To review, you can help prevent identity theft I recommend that you:

  • Shred documents with your personal information
  • Opt-out of receiving pre-screened credit card offers
  • Protect your Social Security number
  • Don’t reply to “Phishing” e-mails
  • Put a credit freeze on your credit report
  • Check your credit report
  • Pay with cash

What about identity theft insurance? Is it worth the cost? I’ll review what it is and my opinion about it in my next post.

 

How to Protect Yourself from Banking Fraud

wellsfargoBy now you’ve probably heard about Wells Fargo and the $190 million fine they are being issued because their employees created more than 2 million unwanted deposit accounts and credit cards for their customers. Because of the scandal 5,300 employees have lost their jobs. Wells Fargo customers have paid hundreds of thousands of dollars in fees for these unwanted accounts.

Why did the employees create fake accounts?

The employees are paid an incentive for every new account or credit card they opened. They might get $3 for signing someone up for online banking, or $5 to open a savings account, or $20 if they open a new credit card. Imagine the incentive there – if an employee making minimum wage could open 2-3 new cards a day, that makes a big difference in how much they take home.

How did so many accounts get opened without customer’s knowing about it?

Some customers did notice, and they would get the accounts closed. Others probably noticed, but didn’t take the time to get them closed. Others probably didn’t notice it. Far too many people don’t really pay attention to their accounts or even their balances.

Let’s put a few things in perspective

  • 5,300 employees are a tiny portion of Wells Fargo’s workforce. They have 265,000 employees, so 5,300 is only 2% of their work force. Also, the firings took place over several years, not just today as most news stories are indicating. The majority of Wells Fargo employees are honest and wouldn’t do something like this. Will they encourage you to open a credit card? Sure. They might take home $20 if they can convince you, but most of them would never dream of opening one up for you after you said you weren’t interested.
  • $190 million means nothing to Wells Fargo. They are worth $250 billion, so $190 million is only .076% of the bank’s net worth. If you have a net worth of $200,000 a fine of .076% would be $152. Annoying? Sure. But it isn’t going to cause any trouble to your budget or your net worth. Some people have asked if the fine is high enough. It probably isn’t.
  • Wells Fargo has agreed to change their sales practices and provide more oversight, and anyone who paid fines or fees will receive a full refund.
  • Many banks offer their employees these types of incentives. The more accounts a person has with a bank the more tied in they are, and the harder it is to leave. Employees are incentivized for helping tie you in with that bank for life.

What can you do to protect yourself?

There are a few simple steps you can take:

  • Watch your accounts. Be sure to check your accounts regularly to make sure nothing is being charged or added to your accounts.
  • Keep things simple. You don’t need 12 accounts at 9 different banks in the area. You should have one main bank. If you have little accounts open at other banks because you got a free toaster for opening an account, get them closed.
  • Switch to a local credit union. Credit unions are owned by their members, and they charge fewer and lower fees and will give you better rates on loans. You can also get to know the managers. Most of them are happy to meet with their members and will help you out if there is a problem.
  • There is no reason for you to pay any maintenance fees on your checking or savings accounts. There are plenty of credit unions and banks that have free checking and savings accounts with no minimum balance requirements and no limit on the number of transactions you can make per month.

I encourage you to be proactive about your banking by taking these simple steps to protect yourself.

And if you have a Wells Fargo account, pull up your online banking and make sure no accounts were opened for you that you didn’t want or ask for. Check for fines and fees you shouldn’t have paid. They will be contacting their customers to let them know how to get a refund.

 

Picture credit: http://therealdeal.com/issues_articles/wells-fargo-go-go/

How to Pay Yourself First

By Ryan H. Law

Jim Rohn

Business philosopher Jim Rohn taught that, “Poor people spend their money and save what’s left, while rich people save their money then spend what’s left.”

It’s familiar advice that we’ve all heard:

Pay yourself first.

Pay yourself first is one of the most repeated phrases about personal finances. One of my favorite financial books, “The Richest Man in Babylon”, which was originally published in 1926, repeats over and over the idea that, “a part of all I earn is mine to keep.”

But how do we actually do this? Today’s post will give you a few ideas to begin to implement this.

  1. Contribute to your 401(k)If you have a 401(k) (or similar plan) available at work, this is one of the easiest ways to pay yourself first. Not only that, but in most cases this contribution will be pre-tax and will lower your tax bill.

    If you have a “match” from your employer, you aren’t just paying yourself first, you are, in many cases, at least doubling your savings. If you contribute 3% and your employer matches that, you are actually saving 6%.

  2. Contribute to a Roth IRAIf you are eligible to contribute to a Roth IRA, it can be a great investment. Many mutual fund companies, such as Vanguard, T. Rowe Price and Fidelity, will allow you to set up an automatic transfer from your paycheck or bank account. You can often start with as little as $25 a month.
  3. Have a set amount (ideally 10%) transferred out of your checking account and deposited in a savings accountIf your bank doesn’t allow this option, check with your employer. In most cases your employer will allow you to allow a certain amount, or a certain percentage, to go to different accounts. You can direct 10% to go to savings and the remaining amount to go to your primary checking account.

    If 10% is too much, start smaller. Start with 1% or ½ of 1%. See https://ryanhlaw.com/one-small-step/ for more information about starting small.

Pay Yourself First

Automate Your Finances

A good part of financial success is setting up systems that will ensure success.

Something simple you can do is automate a few key things. Automating your finances is one of those systems that will help you be successful. Here are some examples:

  • Have your paycheck direct depositedDirect Deposit

    Many employers default to direct deposit – you have to put in a special request to get a paper check. Direct deposit is generally available in your account the same day the deposit is made and it costs less in time for both you and your employer. If your employer doesn’t offer this service, encourage them to set it up. With many accounting software packages, such as QuickBooks, direct deposit is included as a free add-on.

  • Set up as many of your bills as possible on automatic bill paybill pay

    There are two ways to do this – either set up the bill to get paid directly out of your account each month (generally charged to a credit or debit card) or you can pay through your bank’s online bill pay.We pay all of our regular monthly bills, such as the electric and gas bill, Netflix, our mortgage and others by having the payment charged to our debit card. It pulls out the same amount each month, and I can set it up once and forget it. It also ensures that we will never be late on these payments and get hit with a late fee.

    For other payments that don’t have this feature I pay them through our bank’s bill-pay system. Our children attend a local children’s choir, for example, and they don’t offer direct bill pay, so I log in to my bank when I get the bill and send the payment off. You don’t even have to pay for postage if you use this method!

  • Have a set amount (ideally 10%) transfer from checking to savings when your paycheck is deposited.Pay Yourself First

    You can either have your bank do this automatically or if your bank doesn’t offer this service, you can often have your paycheck split into several accounts. My employer, for example, will allow me to put different percentages of my paycheck into different accounts. By doing this you are “paying yourself first.” Jim Rohn once said that poor people spend their money and save what’s left, while rich people save their money then spend what’s left. Make the savings portion automatic, then spend what you have left.[1]

These three simple tips can help ensure your success with your finances. Choose one you aren’t currently doing and get it set up today.


 

[1] This does not count, of course, for cases of extreme poverty, but the vast majority of people reading my blog could adopt the idea of paying yourself first. If 10% is too much, start with just 1%, or even just ½ of 1%! Are you going to build up much money saving just 1%? No, but that’s not the point. The point is starting the habit, then building it up over time. See https://ryanhlaw.com/one-small-step/ for more ideas about starting small.

One Small Step

by Ryan H. Law

When we decide we want to achieve a goal we usually get excited and want to jump in the deep end. For some people, this might work, but the majority of people are going to sink. Research has shown that taking really small steps can be the best way to achieve a goal.

Robert Maurer, author of “One Small Step Can Change Your Life” tells a story about a girl named Julie who needed to lose weight and get her blood pressure down. He was tempted to tell her to exercise aerobically for 30 minutes every day, but he knew from experience that while the advice was good, she was unlikely to do it and would just feel misunderstood and guilty.

Maurer decided to try something different. “How about if you just march in place in front of the television, each day, for one minute?” Julie responded that of course she could do that. After all, there was no way she couldn’t succeed.

Was she going to get healthier exercising for a minute a day? Probably not. What happened the next week, though, was that Julie came back excited that she had achieved her goal. Together they built up the exercise habit, minute by minute, for a few months, until she started exercising for 30 minutes each day.

If you set really small steps towards your goal you will achieve success over time. The steps should be so small that you are guaranteed success.

You should be setting goals in seven areas of your life:

  • Work/career
  • Mind/intellect
  • Spiritual
  • Physical/health
  • Personal/social
  • Family
  • Financial

What is one small step (so small that you can’t fail) that will begin to move you forward? Here are a few ideas:

  • I will march in place during one commercial
  • At noon I will go on a five-minute walk
  • At 8:00 in the morning I will read one verse in the Bible
  • When I get home from work I will spend five minutes connecting with my spouse
  • After dinner I will play with my children for three minutes

This process works the same for financial goals. We all hear the advice that we should pay ourselves (save) 10% first, but few people do it. If you aren’t saving any money right now, can you save just 1%? If that is too much, how about .5% (one-half of one percent)? Can you add .5% more to your 401(k)? Can you pay an extra $5 this month towards your debt?

Again, these steps seem so small that it seems they won’t make any difference. Starting small, then moving up from there, works!

Here’s an example. About 2.5 months ago I decided to start jogging 3 days a week. I haven’t been jogging in at least 10 years. I started a program where the first week looked like this:

  • 60 seconds jogging
  • 90 seconds walking
  • Alternate for 20 minutes

Almost anyone can do that, right? If that sounds too hard you can decrease the jogging and increase the walking. The point is to increase, over time, the amount of time jogging and decrease the amount of time walking.

I’m on to a different program now where I run for four minutes then walk for one. My endurance and strength have built up and now I am running four miles in about 40 minutes, and that includes 10 minutes of warm-up and cool-down time.

Am I where I want to be, fitness-wise? Not quite, but I’m making progress. The name of the game is improvement, not perfection, and that applies to your money, your fitness, your family, and every other area.

Here’s my challenge to you:

  • Pick one area from the seven areas of your life.
  • Set a small goal – one you know you can’t fail at.
  • Let me know what your goal is in the comments below or on Facebook or Linkedin.

If you found this helpful, I would appreciate it if you would share it with others using the links below!

How We Almost Lost a Home

by Ryan H. Law

About 15 years ago my wife and I moved to Indiana, excited to start a new adventure far from where we both grew up. We rented a great apartment that fit our needs and expenses. It was close to the library and shopping, not too far from my work and it had a nice pool. It was perfect.

build a homeHowever, after a while, we got restless. We wanted to own a home. After all, that is the American Dream, right? So we started looking for homes. We found a brand new community that was being built, and they offered 100% financing. We picked out a home we liked and put down some earnest money, then they started building it. What an exciting time!

There were some red flags, though. The first one was that we couldn’t actually qualify for the loan on our own. We didn’t have enough income or credit history. The sellers used some “creative financing strategies” to get us qualified, which involved using a tax credit that would bring our income up. We also had to get a co-signer.

Red-FlagAnother red flag was that we had no money for a down payment or closing costs. Of course, to the seller, that was no problem. They could just roll it all in to the loan.

We really couldn’t afford the payment, either, but we were excited about the home and figured if we qualified, that things would work out. We drove out nearly every day to see the progress on our home.

At some point, though, reality set in. We really couldn’t afford this home. We panicked and contacted the seller, asking to be released from our contract. Of course, they said no. We were committed. We explained that we couldn’t really afford it, but that didn’t deter them. We had a real estate lawyer look over our contract. He said he couldn’t see a way out. We weren’t sure what to do.

We got lucky, though. They had committed to have it done by a certain date, but they got behind on construction. We were able to argue that they had broken the contract, and we were therefore no longer bound by it.  They let us get out of the contract and sent our earnest money back.

Perhaps they also realized that if they had forced us to follow through, we might have lost the home in a foreclosure or short sale, which would have looked bad in this brand new community.

We ended up moving shortly after that, and have been very cautious about home buying since that time. In fact, we waited more than 7 years before we actually purchased our first home.

Along the way we have learned some important lessons. Before you buy a home, I recommend you consider the following:

  1. Make sure your income is stable.
  2. Have 3-6 months’ worth of expenses in an emergency funds in the bank.
  3. Pay off ALL high interest debt (credit cards, vehicles, student loans, etc).
  4. Save up 20% for a down payment. If you put down at least 20%, you don’t have to pay Private Mortgage Insurance (PMI). PMI is generally 1% of the loan annually. On a $200,000 home that will be $2,000 per year, or $166 a month. That’s a lot to be adding to a mortgage payment each month.
  5. Make sure your TOTAL home cost (Principal, Interest, Taxes, Insurance, HOA fees) is no more than 25% of your take home pay. The lender will likely qualify you for much more than you can afford, but stick with your price range. Let your Real Estate agent know exactly the price range you are looking at, and stick with it. We were fortunate to find a great Realtor® in Missouri[1] who helped us find exactly what we were looking for in the price range we were comfortable with. Find someone you trust who will help you do what is best for you, not their commission.
  6. Remember that homes come with extra expenses. For example, if the water heater goes out in your home, you have to pay for a new one. Experts recommend that you save anywhere from 1-4% of your home’s value per year for maintenance and repairs. On a $200,000 home that is $2,000 – $8,000. While $8,000 is probably a bit high, the reality is that you will have to pay for repairs.
  7. I recommend that, on top of repair money, you have enough saved up to pay your insurance deductible. After all, if the roof gets destroyed in a hail storm, the insurance company will pay most of the repairs, but you have to pay your deductible first. That can be anywhere from $1,000 – $5,000.

Buying a home can be a great decision. In general, homes appreciate in value, meaning that you should be able to sell it in the future for more than you bought it for. Even that isn’t always true, though. Remember 2008? Some markets have yet to fully recover from that housing crash. Go slowly and buy what you can afford when you are ready.


 

[1] A shout-out to our friend and Realtor® Ted Webber: http://www.tedwebber.com/.

Buy Experiences, Not Stuff

by Ryan H. Law

For most of us Summer is about half-way over. My question for you is this: What have you done this Summer to build lifelong memories with your family?

I want you to think back to your childhood for a minute and think about some of the gifts you received. How many can you remember? You probably remember a few. I remember getting a stereo one year, and a skateboard a different year. I can remember a few other items as well.

Now think back instead to some fun experiences your family had. For me that brings up many memories of camping or hiking as a family, trips to Disneyland and Sea World, family reunions and others.

Which of the two memories triggers happier thoughts? For most of us, it is the experiences. In fact, research by Thomas Gilovich of Cornell University has shown that we get greater pleasure from experiences than we do from “stuff.”

I’ll share one recent example from our family. We were up at Bear Lake in northern Utah enjoying a day on the beach with some extended family. We decided to rent a boat for an hour, and we had a blast. It was definitely worth the money we spent on it. We could have bought cheap souvenirs for the kids instead that would have been lost or broken in a week or two, but instead they built wonderful memories on the boat.

Here is how my friend and colleague Carl Richards expressed it in a great image:

DD_MoneyHappiness

 

 

 

 

 

 

 

 

 

So with just over a month of Summer left, what are you going to do to build some memories with your family?

Financial Planning Tool: PowerPay

By Ryan H. Law

In response to the Credit Card Act of 2009 many credit card issuers have raised rates, raised minimum payments, lowered credit limits and added on extra fees.

Here are some statistics:

  • 53% of 2000 people surveyed reported an increase in their credit card interest rate in the past year.  One card increased its rate up to 79.9%.  That’s not a typo – 79.9%!
  • 26% reported reduced credit limits
  • 21% reported increased fees

Source: Credit Card Tricks and Traps http://www.rd.com/advice-and-know-how/credit-card-tricks-and-traps/article175291.html

So do you just have to put up with this from your credit card issuers?  Of course not!

If you are finished paying too much of your hard earned money to interest and fees, then it’s time for you to develop a debt elimination plan.  Here’s what you need to do:

  • Make a commitment to STOP charging things to your credit cards.  Cut the cards up, shred them or do whatever you need to do to stop using your cards.
  • Build up an emergency fund.  If you use your credit card for emergencies, you can avoid doing that in the future by building up an emergency fund.  Experts recommend you have 3-6 months of expenses saved up.  Make that your long-term goal.  For the time being, though, try to get one full paycheck in the bank as soon as possible.
  • Gather up all of your recent statements and make a list that has the creditor name, amount owed, minimum payment and interest rate.  For our example let’s use the following numbers:
Creditor Name Amount Owed Minimum Payment Interest Rate
Citicard $14,567 $230 18%
Discover $994 $60 12%
Visa $7729 $262 29%
Student Loans $19,334 $223 6.8%
Auto Loan $21,000 $406 6%
  • Pay the minimum on each card and any extra towards your highest interest loan.  A common mistake people make if they have an extra $50 is to put $20 on this card, $10 on another, etc.  If you concentrate any extra money on one debt, though, you will get it paid off much faster.
  • Make Power Payments.  When you have paid off your first debt, roll that amount over to start paying on your next highest interest rate debt.  It would look like this:
Visa Citicard Discover Student Loan Auto Loan
$262 $230 $60 $223 $406
$262 $230 $60 $223 $406
$492 $60 $223 $406
$492 $60 $223 $406
$552 $223 $406
$775 $406

Can you see how powerful this technique is?  Using this technique can save you thousands of dollars in interest and shave years off your repayment time.

There is software available that will help you set this up and give you detailed payment calendars.  It was developed by Utah State University Extension and is available online, for free.  The software is called Power Pay and you can access it at http://www.powerpay.org (note: if you have an iPad or iPhone you can access an app from the homepage of that website).

PowerPay

I plugged the numbers above into the software and here are the results:

Paying the debts off without power payments will take you 16 years, 10 months to pay off.  The total you will pay back is $112,104.09, with $48,480.09 being interest!

If you pay using power payments, though, it will take you 6 years, 5 months to pay off with a total payoff of $90,891.04 ($27,267.04 being interest).

Power payments save you 10 years and 5 months and $21,213.05 in interest!

There is also a feature on Power Pay where you can add extra payments, so if you are getting a tax refund you can plug that in there, or if you can devote an extra $100 to debt you can plug that in there.

I encourage you to take some time to plug your own information in the software to see how power payments will benefit you.

Financial Planning Tool: Credit Karma

Good Credit Score

Your credit score plays a larger factor in your life than you might realize. For example, your credit score is a factor in:

  • The rate you pay for loans
  • The deposit you pay for utilities and your cell phone
  • Your auto insurance
  • Getting the job you want
  • Getting into the apartment you want

In addition to all of these benefits of having a good score, monitoring your score regularly can also alert you to potential problems. If an account was opened in your name that you are not aware of, you could be a victim of identity theft.

There are several ways to monitor your score, but one method stands out due to its ease of use, how comprehensive it is, and the price (it’s free). That tool is Credit Karma.

Here is how Credit Karma describes their services:

Our goal is to help you understand your credit and get more out of it. Along with providing free credit scores, reports and monitoring, we offer insight into what it all means and show you product recommendations, like credit cards and loans, based on your credit profile.

Basically they pull a copy of your credit report and scores from TransUnion and Equifax, and you can check it as often as you want (the website recommends weekly). You can then go in to detail about the six factors that determine your score (credit card utilization, payment history, derogatory remarks, age of credit history, total accounts and credit inquiries), along with recommendations for how to improve in that area.

For example, if the website shows that you have a poor ranking in credit card utilization you can click on that area and it will show how utilization is calculated, how much of a balance you are carrying on each card and several tips for improving in that area.

You can also run simulations to see how different scenarios would affect your score. For example, you can simulate what will happen to your score if you close a particular card, or pay your balances down or make a late payment.

Questions about Credit Karma

Is it secure?

Yes, it is secure. You do have to enter your social security number for them to be able to pull your report, but they take your data security very seriously. You can read about their security practices here: https://www.creditkarma.com/about/security.

Doesn’t pulling my credit hurt my score?

Yes and no. A hard inquiry (such as applying for a loan) does affect your score (only to a small degree, though). However, a soft inquiry does not. A soft inquiry is when you pull your own report, or your employer does, or a company like Credit Karma does. Reviewing your report and score on Credit Karma will have no effect on your score.

Will Credit Karma sell my information?

No. Their privacy policy restricts them from selling your information.

How is it free?

Credit card and loan companies pay for targeted advertising on the site. You will see recommendations specific to your situation and score. For example, when I logged in today it showed my four recommendations for credit cards, based on my credit score. I find their advertising very unobtrusive.

Check out Credit Karma today at https://www.creditkarma.com/.

Credit Karma logo

If you are looking for a post about how your credit score is calculated you can find it here:

NOTE: This will be the first in a series of articles about financial planning tools. I will review the tools that I have researched and use for my personal finances. If you have other tools you use to manage your money, please share them in the comments or in an e-mail.