Debt Snowball - 2 Schools of Thought

The debt snowball is a debt reduction method and strategy used to pay off debt. It is widely preached by debt counselors all over the world and many consumer finance and debt help gurus such as Dave Ramsey absolutely swear by it.


How the Debt Snowball Works

It is really a rather simple concept. The one employing this method simply lists all their debt and budgets out the minimum payment owed monthly to each creditor. Then one creditor is selected and any remaining funds available after all minimum payments have been made is allotted the remaining balance. After that creditor is paid off that minimum payment as well as the remaining excess funds is targeted towards the next selected creditor. Thus the snowball grows. You pay of the next creditor at a faster rate then the previous. As creditors are eliminated the snowball grows bigger and bigger. Rinse and repeat.

There is an internal conflict in this method. Conflict arises in determining which creditor should be targeted first, second, and so on.

There are two schools of thought on this matter. The "motivational finance method" and the "logical finance method".

1. Motivational Finance Method - Here the creditor owed the least amount of money is always targeted first. In this way the one paying off debt is thought to be more motivated because they are awarded the satisfaction of seeing the fruits of their labour sooner. However this method pays no attention to interest rates. Thus in theory the consumer will most likely pay more then the one who utilizes the logical method.
2. Logical Finance Method - Here the highest interest bearing creditor is paid off first. In this way the consumer is paying off their debt the fastest and the cheapest. However experts tend to agree that the consumer will be more likely to quit than the same consumer who employs the motivational finance method.

So Which Debt Snowball Method is Best?

Technically it is kinda impossible to argue against the logical method. However, if the consumer in financial hardship is not motivated then perhaps the motivational method would work better. I would contend that if the consumer can't stay self motivated enough to see it through the logic method then neither would work anyway. But that is just my opinion. Personally I would rather get out of debt faster and cheaper.

David Sokol No Longer Replacing Buffett as Berkshire Hathaway CEO

David Sokol has been the primary guy in the running, and Warren Buffett's top pick, to replace the Oracle of Omaha as the CEO of Berkshire Hathaway. Well David is no longer available for the position.

Just ask him.

David Sokol recently withdrew himself and resigned from the expected job and responsibility of running what is perhaps the most successful holdings company ever to invest.

He has allegedly stepped down after information about some personal trades of a company he purchased stock in which has recently been bought by Berkshire Hathaway.

Buffett has said that the decision does not come as a derivative of that trade nor the surfacing of that news.

I my self have to wonder a bit as the media is hitting this thing pretty hard. But I have enough confidence in Buffett to take his word... for the most part.

So now the real question is this...

Who will hop in the driver seat now that David Sokol is out?


It is a big question that needs answering. Warren who is still in relatively good health is 80 years old. He is not senile yet and still seems to navigate his way around a prospectus and balance sheet pretty well but hey... he is old.

They say there are four internal potential candidates that are already being considered.


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Home Loan Approval - Your Best Financial Footing

This article describes some basic steps one can take to improve the chances of approval for a mortgage loan.




Have Stable Monthly Budgeting Habits

It is a good practice whether awaiting for a loan approval decision or not to always maintain a stable monthly budget that utilizes wise spending, saving,  and income earning habits.

Maintain Healthy Credit Scores

Your credit scores and your credit reports will have a big impact on the lenders decision to approve or deny you the funds you need to buy a home. You want to ensure that your credit score is as high as you possibly can get it. This means checking your reports and ensuring that all info and activity is accurate and that their are no mistakes that are hurting the appearance of your credit history.

Make sure you understand credit score basics so that you are able to do what you need to do if something is out of place. If you don't understand what your looking at than how will you know if it is OK?

Pay Off Unsecured Consumer and High Interest Debt

If you have credit card debt, owe money on store credit accounts, personal bank loans, or any sort of high interest debt than you really should pay it off.

Lenders are not going to want to lend money to folks that owe on a lot of rip off high interest credit cards or other sorts of unsecured debt.

At the very least you need to consider a debt consolidation loan with more favorable terms.


Be Upfront with The Bank or Lender - Tackle Obvious Approval Issues First

If there are some obvious weaknesses on your loan application it is a good idea to bring them up first. This allows you to offer an explanation instead of coming up with an excuse for when they find out about it anyways. Plus you will be able to avoid applying for the loan if the weakness is a automatic disapproval trigger for the lender.

If nothing else this will make you appear and feel more responsible as a borrower.


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California Hardest Hit Fund Foreclosure Assistance - Strategic Focus

The California State Housing Authority has taken targeted measures to provide assistance to homeowners in financial hardship through the Hardest Hit Fund.

Like all states receiving help from HHF they have worked hard at developing innovative mortgage assistance programs targeted to the specific needs of their homeowners foreclosure assistance needs.

In addition to developing new programs they have adopted the approach of improving and expanding existing efforts and foreclosure prevention programs already in place.

California has decided to hyper focus borrower assistance resources towards aiding low to moderate income homeowners.

A core theme in the development and design of their approach is to ensure that their programs and the operations of their assistance efforts remain flexible and agile. This is in response to the success that the Obama home affordable mortgage assistance programs have had with the same approach.

To get the most bang out of their buck California foreclosure assistance efforts has put significant measures in place to have lenders, loan servicers, and PMI insurers to match their efforts dollar to dollar.


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California Mortgage Help from Hardest Hit Fund Program

California Housing Finance Agency has taken measures to offset the consequences of elevated levels of foreclosure and mortgage default by developing government mortgage assistance programs through the Hardest Hit fund. The California Foreclosure Assistance Plan provides debt help and mortgage assistance for homeowners in financial hardship. 


The California mortgage assistance programs have been developed by working with lenders, loan servicers, borrowers, housing counselors, and private mortgage insurers to create, develop, and utilize targeted mortgage solutions that will reduce the growing amount of foreclosures and help financially troubled homeowners keep their home.

Four California Homeowner Assistance Programs

The California Foreclosure Assistance Plan is composed of four mortgage help programs. Three of the four programs focus on creating an opportunity for homeowners to keep their home. The fourth program provides homeowners with foreclosure relocation assistance in the form of financial aid.

• Monthly Mortgage Payment Assistance for Unemployed Homeowners - Provides homeowners with financial  aid to help pay the monthly mortgage payments.
• Home Loan Reinstatement - Helps homeowners bring their loan current by providing financial assistance to pay of part of the past due balance.
• Mortgage Balance and Principle Cuts - Gives borrowers with upside down home loans financial aid to pay off part of the principle balance on the mortgage loan.
• Moving Assistance and Financial Aid - Provides borrowers who are losing their home due to a short sale or deed in lieu up to 5,000 dollars in foreclosure relocation assistance. This cash for keys like program provide financial assistance to homeowners who will incur moving expenses due to foreclosure.

Though the foreclosure and home assistance programs will help a great deal of homeowners in financial hardship they will only put a dent in the entire California foreclosure crisis. These programs that are funded through the Making Home Affordable Plan's Hardest Hit Fund will act as an effective compliment to the Federal mortgage assistance programs such as the Home Affordable Modification Program and the Home Affordable Refinance Program.

Cash for Keys

Lenders give thousands of dollars to homeowners who lose their home because of foreclosure. This foreclosure relocation assistance help homeowners cover the cost of moving out of their home and into another residence.


The amount paid to the homeowner or renter may vary from the amount of a thousand dollars to five thousand dollars. The program is also offered to real estate agents who gain a commission. They do so by lowering the amount paid out and keep the difference for themselves. It is wise to talk to the lender yourself to get the best amount available.

This financial aid for homeowners who lose home in foreclosure through cash for keys like programs are supposed to create good will, but is that the real motivation for the lenders?

Perhaps the reasons behind cash for keys and foreclosure relocation assistance is actually two fold.

• One reason is to get the renter or homeowner to depart quickly. No one wants to sell a home that has old owners refusing to leave.
• Secondly to create an incentive to for the former occupants to resist damaging or destroying property out of spite against the lender. 

HAFA - Foreclosure Alternative Help

HAFA is the Home Affordable Foreclosure Alternative program created for homeowners who can not afford to keep their home.


President Barrack Obama helped establish the program through his Making Homes Affordable Plan and it is for the homeowners who are not capable of making a payment even if those payments are reduced through the Home Affordable Modification Program.

Obama Foreclosure Alternatives

In that case the homeowner is offered other mortgage solutions that do not let the homeowner keep the home but allow them to walk away with no mortgage debt. This is done with a short sale or perhaps a deed in lieu.

Obama Cash for Keys Program

Along with the foreclosure alternative the homeowner is able to receive a few thousand dollars of foreclosure relocation assistance through the Obama cash for keys program. Typically the cash for keys program available through HAFA allows homeowners to obtain 3,000 dollars of financial aid.

Foreclosure Relocation and Financial Assistance

Homeowners and renters alike are losing their homes at a rapid rate. These homeowners and renters must vacate their homes because of the home being sold due to a foreclosure sale. Many who lose their home in this manner are often left feeling vengeful and out of spite will cause damage to the home or property.


Lenders thought that angry complaints and phone calls from the former homeowner were the least of their problems and they were wrong. Former owners would get their revenge by trashing the home. A new risk management tactic was soon formed called Cash for Keys. Simply put, it is a program designed by lenders providing financial assistance to occupants who must depart and relocate elsewhere because of the foreclosure sale.

The agreement is usually fixed with conditions and requires the former homeowner or renter to agree then honor these terms and conditions including move out dates. If the former homeowners meet these terms and conditions, lenders will pay a lump sum of money to the evicted party.

Typical homeowners might be offered a monetary sum of twenty-five hundred dollars given if they vacate the foreclosed home within forty-five days and leave the residence in good condition. The program recognizes the financial hardship and relocation expense of those affected directly.

Typical Reverse Mortgage Borrower

Are you considering a reverse mortgage loan?




If you are you may be wondering if you are a right fit for this particular type of mortgage product. As an effort to help folks dig into this question and find the correct answer for their unique situation I have given a brief and accurate description of the typical reverse mortgage borrower.

The typical reverse mortgage borrower is an elderly homeowner whom is in need of some cash and or cash flows. The borrower will initially own the home out right or owe very little. The borrower will live in the property secured by the reverse mortgage loan. Usually the borrower is single, widowed or divorced and lives alone.

FHA Reverse Mortgage Equity Conversion Loan

FHA Reverse Mortgage

The FHA reverse mortgage loan is known as HECM – Home Equity Conversion Mortgage.

A FHA reverse mortgage is of course guaranteed by the FHA.


There are some general requirements that a borrower must meet in order to qualify for a FHA reverse mortgage loan. Below I have listed just the very basic FHA reverse mortgage qualifications for borrowers interested in utilizing this financial tool.

Qualifications for FHA Reverse Mortgage

• At least 62  years or older
• One - Four Unit dwellings
• Own the home, or the existing traditional forward mortgage is close to be paid off more specifically it can be paid with the proceeds obtained from the reverse mortgage loan.

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Thoughts on Sales and Sales People

A high performance sales person is one of the most valuable assets a company can have.


The purchase opportunity a consumer will pass up if left to their own isolated mind and will, the consumer will buy and pay twice the price if helped by a good sales person.

To better explore this notion let's take a look and explore some thoughts on home loan lending and the loan agent.

The loan agent for the modern day private lender is there for one reason. They are there to hold the borrowers hand, keep them happy, and most importantly to see them through the entire closing process. This is important because the borrower and home buyer has a lot to deal with. The never ending list of closing costs can be overwhelming and borrowers often want to back away as they become overwhelmed with all the financial obligations and contracts.

Because good sales people are hard to find and historically impossible to control, the typical employee to employer arrangement has proved a poor performance strategy.

Salary is a commitment and if the employer is wrong about the hired employee than they are out quite a bit of money. Sales people have a reputation of taking their own interest to the extreme. If they are guaranteed money this is gonna make managing them even worst. Why go the extra mile if there is no perceived self benefit?

Thus the commission has proven to be a great fit for the marketing and sales side of business operations.

Sales people are also good at extracting the highest price tolerable by any one given borrower. Thus loan origination points are a great match for originating loans. The sales guy is able to pull huge commissions and thus make a fruitful living and the lender carries zero risk.

By giving sales people a optional margin and commission take depending on the price obtained for any given product a company is able to give their sales reps greater opportunity for tremendously less risk. The price and risk is passed on to the consumer. If the consumer or borrower negotiates the price down to the bare minimum than they have avoided the extra cost of the reps allowable premium. The rep in this scenario still gets a commission. The commission is not as high as it could have been if they were able to get the consumer to purchase the product for a higher premium.

Sales people learn to live and cope with this uncertainty.

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Simple Thoughts On Mortgage Lending

When you take out a home loan you are literally buying a dollar for three dollars. By the time you are done paying the mortgage you will have paid the lender three times the money they lent you. This is how most businesses work.


Businesses purchase inputs, transform them into an output that is worth more. Business operations create value through this transformation process.

Lenders find people who need more money than they could possibly come up with themselves by the time they need it. This person is the borrower. They also find people who have more money than need during this same short term window. The lender than connects these two. They act as a broker.

Lending money is easy. Managing the risk of losing money in a way that consistently yields more return than loss is the trick.

Thus the real trick that lenders typically and historically do so well is to find opportunities to loan money to those who will do their best to pay back that money plus interest over a period time. One payment at a time. They do this by finding folks with steady consistent income that have a history of paying their bills and following through with their past financial obligations.

Middle class consumers who are the typical mortgage borrowers are by themselves to risky to be trusted with such a sizable loan over such a long period of time. A lot can happen in thirty years.

The asset being purchased with the loan is what creates the security for the lender and allows the American dream to be more than a dream. The fact that the lender is able to obtain the right to force a sale of the property secured by the mortgage loan is what allows the American dream to become an American reality.


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How to Refinance and Lower Your Monthly Payment

This article is a step by step guide on how to refinance and lower your mortgage payment. It is intended for homeowners who need to lower their monthly payments in order to stay current on their home loan.


I have another post in which I describe what borrowers are the best match for this particular mortgage payment solution. I suggest you make sure you are a good fit for refinance help to lower your payment before you move forward.

Below I have created a list of nine steps to take in order to refinance and lower your monthly mortgage payment.


Steps to Refinance and Lower Your Mortgage Payment

1. Create monthly budget.
2. Write hardship letter.
3. Income and tax documents.
4. Call your lender.
5. Ask about refinancing options for distressed borrowers.
6. Complete financial package that they request.
7. Submit financial package.
8. Follow up to make sure they received it and ask when to expect a reply.
9. Wait for approval.

Nothing is Hotter Than Potter

I saw the financial figures from the weekend box office results of the new Harry Potter flick. My goodness, does this brand not run out of steam? Apparently not.
Potter's latest flick took in a total of 330 million dollars world wide over the weekend and 125 million in the US. The figure you are most used to hearing is the latter 125 million.

The latest flick, known as "Harry Potter and the Deathly Hallows: Part I", has set a new standard for Potter movies in terms of debut revenue.

The movie grossed 20% - 25% more then the next best debut performance of a Harry Potter flick. The next best was "Harry Potter and the Goblet of Fire" which yielded just over a 100 million during it's debut weekend in the US.

Harry Potter is now closing in on the 6 billion dollar mark as a franchise.

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Three R's of Online Advertising

The three "R's" of online advertising are three important aspects that all advertisers need to consider when developing an advertising campaign.

This article will discuss the three "R's" of online advertising and why they are important.



3 R's of Online Advertising

Below is a list of the three R's of online advertising as well as a description and explanation of why they are important.


Reach

The reach of an advertisement refers to the portion and frequency the population of users are exposed to the ad. For example Google has a reach of approximately 150 million American Internet users which is approximately 80% of the US Internet user population.

The reach of an advertisement is important information for advertisers because it allows them to determine if the reach available is enough or not enough for their advertising needs.

Relevance

The relevance of an ad refers to the degree the ad is similar, useful, or "like" the content, needs, and interest of the user and what the user is currently doing. For instance, a advertisement for a divorce lawyer is relevant to Ralph a mechanic and a current search user who is researching divorce attorneys. That same advertisement is not going to be a relevant to Ralph three years from now when he is viewing the NYTimes.com story on Ford Motors.

The relevance of an advertisement is going to a big impact on the performance of the advertisement.

ROI - Return On Investment

The ROI or Return On Investment is the value or benefit that is received by the advertiser per dollar the advertiser spends or invest in the advertisement.

If the advertiser spends $200.00 on content network advertisements through Google and that advertising generated $10,000 dollars worth of revenue, then one can most likely say that given the cost of the product or service is not to outrageous that advertiser should probably turn up the dial on their content network advertising budget.

Personal Finance - Common Mistakes to Avoid

This post will take a look at some of the most common personal finance mistakes many people make. Learn and become aware of these mistakes so you can avoid them.

By giving this post some serious consideration and really analyzing your own financial behavior you may be able to save yourself a lifetime of mistakes and save yourself a lifetime of a headache.

Below is a quick list and summary of common personal finance mistakes.

Common Personal finance Mistakes

Not Creating a Working Financial Plan

You need goals and you need a plan. Hey, I am not saying that you have to set down for a month four hours a night developing some complicated blue print of a financial itinerary and master plan. All I am saying is that if you want to be able to meet your financial goals then you first need to set your financial goals as well as have, at the very least, a mental picture of how you are going to get there. 

Once you have these basics then the rest will build over time. The best thing to do if you can afford it is to hire some finance help. Once you have your goals and needs worked out it will not be hard for a by the hour financial adviser to steer you in the right direction or even plan the whole thing if it makes sense for your budget.

Living Outside Your Means and Buying too Much on Credit

Look it is a pretty simple concept. If you spend more then you take in then you are going to go broke. If you stop pulling out that credit card and start saving and budgeting then you are going to be a much happier camper years down the road. If you don't you will be a camper on a good day.


Putting Off Retirement Saving

The baby boomers of this country are the poster child for this unfortunate personal finance mistake.

Putting off your retirement savings is not a real option if you want to enjoy your retirement. As a rule of thumb, a person should save 5% of their income starting in their 20's. If you are past your 20's and in your 30's then start now and start saving 10% of your income. If you are in your 40's then 20%, if you are in your 50's then you need to be stashing away 40%.

If your past that then I apologize... but retirement may really suck for you.



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Hire Personal Finance Help - Analyzing How and Why to Buy Financial Advice

One of the most obvious personal finance mistakes that I have observed the every day consumer and average Joe make over and over is how they go about hiring the advice of a financial adviser.

When people think of financial advisers or why people need a financial adviser most people will typically think of investing needs and investment planning.

This is, in most cases, why people hire a financial adviser. But in my opinion this should only be one of many reasons to seek the guidance of someone who understands the world of finance and the many many financial products that the every day person come to depend on.

Think about it. Mortgage. Taxes. Real Estate. Mortgage Assistance. Banking. Investing. Large purchases. Loans. Loans, and more loans.

Most people will have someone assist them with the decisions that come with obtaining some of these products and services. However they don't always and they should. Even more importantly people hire the wrong people for the right reasons. The latter has always been and most likely always will be the aspect of financial services and how consumers go about purchasing these financial services.

There are three ways to hire advice in the world of finance. The first and most common is by paying a indirect commission. The second is by paying a direct commission or percentage of the assets being invested or rather managed. The third is by paying a direct fee per hour or unit of time.

Before I get into which one is best let us take a close look at all three ways to hire financial advice.

The 3 Ways to Hire Financial Advice

Indirect Commission

This is the most common. The way it works is a agent helps the consumer select financial products such as mutual funds, loan products, stocks, bonds, annuities, and the like.

The commission is technically not charged to the customer but rather to the company who pays the agent based on what product and what volume was purchased by the consumer. This may sound a lot like how a car salesperson gets paid.

This is an accurate observation.

Percentage of Assets Managed

The way this works is pretty simple and straight forward. A firm agrees to help you manage your money and investments in return for a set percentage of the total assets being managed. So for instance if the firm charges 2% of what ever they manage and you have 1,000,000.00 dollars being managed then that firm will charge 20,000.00 dollars.

This model is commonly used for high end account management and by mutual funds.

Fee per Hour or Unit of Time

This is the same concept as hiring a defense attorney. You pay a fee for every hour that the adviser spends on your account. So if for instance, you hire a firm that charges 200 dollars per hour and they spend a total of five hours on your account then you will get charged 1000.00 dollars.


Which is the Right Way to Buy Financial Advice?

So now that we have taken a look at how each way to buy advice works which one would you choose. Well most of you whether you know it or not hire via a indirect commission.

Is an indirect commission the right way to pay?

As long as you don't mind putting your advisers money and your advisers interests before yours, don't mind paying them to do it, and given that you don't want your decisions based on your needs; then yes this is a great way to purchase financial advice.

Hmmm...

Think about it... you are not talking to an adviser you are talking to a sales person. How can they have your interests in mind if they make money based on what you purchase and you have to purchase what ever they can sell.

When you buy financial advice this way you are not really buying advice.

Is Purchasing Financial Advice Based on a Percentage of Managed Assets a Good Idea?

Though this method has merit I am not sold on the notion. I will say that it can certainly simplify things in certain situations. For instance a manager of a mutual fund will often get paid this way. I believe that if used along with performance incentives it can work for the mutual fund model. However not for personal advice.

There are to many areas where personal interests from the adviser can get in the way. For instance there can be side deals, also there is a conflict of interest when it comes to looking at options such as paying off debt, or whether to use any leverage. This is because using leverage will make the adviser more and paying off debt will pay them less.

Is Paying a Flat Fee per Hour a Smart way to Buy Financial Advice?

Yes.

Paying an adviser a flat fee to advise you what to do with your money is overwhelmingly the best way to purchase financial advice.

Why?

Because it is the only way that does not involve a conflict of interest. The adviser is going to make the same amount of money whether you use all the money to buy this or that or pay off debt or whatever. they are not selling you anything but time and thought. They have an incentive to try and do the best they can so that you will be back next time you need some advice.

Pay someone 200 an hour if you want to know how to invest your money or whether or not to make some sort of large purchase. it just makes sense.

Ironically this is the least used method of purchasing financial advice.

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Four Highly Effective Habits of the Financially Healthy

Those few among us whom are both financially savvy as well as financially healthy have many habits and principles that have ultimately allowed them to prosper steadily. I don't think it is to far fetched to argue that most of us could learn a thing or two from their example.


I have prepared a list of four effective habits that the financially sound seem to live by.

The 4 Habits of the Financially Healthy and Wealthy

Live Within Your Means

You can not spend more then you earn and expect to save or even be ok for your long term financial well being. You must save thus, you must spend less then you make. This is not an option if you want to retire like you think of people retiring. If you want to be able to live off of 50,000 a year with out depleting your savings then you need over a million dollars to retire. Period.

Shop for Value

Value is the key to the smart consumer. Buying just for price will only yield low quality products that will frustrate you and break you. You want to be a value hunter. Does not matter what you are purchasing or shopping for. What you want to use as your measure is a simple value to dollar ratio.

Avoid Debt

Avoiding debt is a great way to stay financially a float. Avoiding debt is not something that many of us have done over the last few decades. I think it may be safe to say that for the first time US consumers will take the decision to borrow money seriously and they will do so like never before.

Exploit Your Talents

Hey if you got it; flaunt it. Now that does not mean you should become a stripper. What that means is that if you are able to do something of value or create value via one of your talents then by all means you need to do that and create that value as it makes sense to do so.

This may mean professionally or just as a hobby. Perhaps it is nothing more then growing tomatoes and saving the money that you would have had to spend.