Mortgage rates moved higher last week. Freddie Mac reported last Thursday that the 30-year fixed rate mortgage has moved up by 14 basis points to 2.79%. Whether due to the economic recovery, or the likely spending spike we’re going to see from a Democratic president, Congress and Senate, those rates are slowly trickling upwards and making headlines in the process.
Seeing those headlines, customers are calling their loan officers. Driven by a fear of missing out (FOMO) on historically low rates, homeowners who haven’t yet refinanced are trying to get in before the window of opportunity closes. For originators, this could be a serious chance to generate some big volumes early in the year. Originators have an added advantage, too, if they can stay ahead of the information curve.
“The data that that’s actually getting reported, a lot of time, is about a week off,” said Brian Grubbs (pictured), president MLO at the Raleigh Mortgage Group. “It works to our benefit when they’ve heard that rates jumped up when, often by the time they call, rates have leveled back out and we’re able to give a better rate than what the Freddie Mac average is.”
Grubbs explained that news of market-driven rate spikes, as well as moments of political or economic uncertainty, can spark some panic shopping on the part of consumers. While these forces might make rates rise temporarily, he emphasized that dovish policy from the Fed and an explicit commitment to keeping rates low will keep things stable for at least the medium-term. He added that shifts in a few basis points shouldn’t be the sole difference-maker for a customer.
Read more: Guaranteed rate originator takes the extra time to educate
When rising rates hit the headlines, Grubbs doesn’t try to pile on his marketing efforts. Thanks to consistently high volumes, he can let the headlines bring customers to him. His focus, instead, is on delivering a good experience and high-quality service.
Grubbs focuses on educating, explaining, and offering his customers the right deal for their needs. Grubbs said that often his prospects might come to him during rate-anxious times citing a neighbour’s mortgage, secured at a 1.99% rate. It’s up to him to explain that the neighbour secured that rate because they borrowed 50% of their home value on a 10-year fixed, rather than taking cash out on a 30-year term.
“Just let people know what you can do, not what you wish you could do,” Grubbs said when asked how he approaches these FOMO-driven conversations. If he can get a better rate than the Freddie Mac average, it’s a slam dunk. If he can’t, he’s forthright about getting the customer the best deal he can for them.
While customer FOMO is an opportunity for loan officers, Grubbs emphasized that ethics and prudence are needed in these situations. Matching the customer’s anxiety and getting them locked in to something ASAP isn’t the right move to build a sustainable partnership. Rather, it’s up to the loan officer to be the voice of reason, securing that customer exactly what they need, confident they can still get a low rate.
“I think a lot of people want to just lock somebody right up front… they’re so scared that pricing is going to change,” Grubbs said. “But I know that it’s going to be an amazing year, and the Feds are going to do what they need to do to make sure that rates remain low until 2022. Sure, on Wall Street somebody sneezes and the rates go up, but I know that, you know, soon enough, there’ll be some kind of news that pushes them right back down.”
A home loan or mortgage modification is a relief plan for homeowners who are having difficulty affording their mortgage payments. Borrowers who qualify for loan modifications often have missed monthly mortgage payments or are at risk of missing a payment.
Here’s what you need to know to get a mortgage loan modification and stay in your home.
What Is a Mortgage Modification?
Modifying your mortgage can help you avoid foreclosure by—either temporarily or permanently—adjusting the length of your loan, switching from an adjustable-rate to a fixed-rate mortgage, lowering the interest rate or all of the above. Unlike mortgage refinancing, loan modifications don’t replace your existing mortgage with a new one. Instead, they change the original loan.
Borrowers with Fannie Mae- or Freddie Mac-owned mortgages might be eligible for a Flex Modification, which allows lenders to reduce the interest rate or extend the length of your loan (which shrinks the monthly payment amount but doesn’t change the amount owed ).
For homeowners facing hardship due to the coronavirus pandemic, a loan modification can help you reduce your monthly payments so that they fit your current budget. Those who are already in mortgage forbearance can request a modification after the forbearance expires if they still need mortgage assistance.
Under the CARES Act, borrowers with federally-backed loans are entitled to up to one year of forbearance. Although most home loans are eligible for this type of forbearance, approximately 14.5 million home loans are not covered because they are privately owned.
However, not all lenders offer loan modifications, even those home loans covered under forbearance provisions in the CARES Act. So be sure to contact your lender to come up with a doable plan (whether it’s a forbearance, modification or something else) that will prevent you from defaulting on your loan.
Who Qualifies for a Loan Modification?
Borrowers facing financial hardship—for any number of reasons—might qualify for a loan modification; however, eligibility requirements are different for each lender.
Some lenders require a minimum of one late or missed mortgage payment or imminent risk of missing a payment in order to qualify. Lenders also will want to assess what caused the hardship and whether a modification is a viable path to affordability.
In other words, if you lose your job and no longer have any income, a modification might not be enough to get you back on track. However, if you start earning less (due to a job change or other factors), you might still be able to make regular payments, but only if you can reduce the monthly cost.
There are several reasons why people might no longer be able to afford their current mortgage payments, which might qualify them for a modification. Lenders will likely ask for proof of hardship. These reasons include:
Loss of income (due to a drop in wages or death of a family member)
Divorce or separation
An increase in housing costs
Illness or disability
If you’re suffering from financial hardship, be sure to talk to your lender right away. Find out whether you qualify for a loan modification, per their rules, and if that solution makes sense for you.
How to Modify Your Home Loan
There are several ways your mortgage lender can modify your home loan, from reducing your interest rate to making your mortgage longer in order to lower your monthly payments.
Reduce the Interest Rate
Shaving your interest rate can reduce your monthly mortgage payments by hundreds of dollars. A $200,000 mortgage payment with an interest rate of 4% on a 30-year fixed-rate loan is about $955 per month, compared to the same loan with an interest rate of 3%, which comes out to $843 per month.
This is similar to refinancing your loan, but the difference is that you don’t have to pay closing costs or fees.
Lengthen the Term
Extending the length of your loan is another strategy lenders use to make the monthly payments more affordable. For example, if you have a $100,000 mortgage at an interest rate of 4% with 15 years left, you would pay $740 per month. If you extend that loan by 10 years, you end up paying $528 per month. Keep in mind, you’ll pay more interest over the life of the loan if you extend it.
Switch from an Adjustable-Rate-Mortgage to a Fixed-Rate Mortgage
Switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage might not lower your existing payments, but it could help protect you from rising interest rates down the road.
Since ARMs are set up to have floating rates, they change with the market. For example, if your interest rate is 3.5% and the average rate rises to 4%, so will your rate. This can be a bad scenario if you’re in a rising-rate environment. By locking in your interest rate, you’re guaranteed to pay the same interest rate over the life of your loan, regardless of what the market does.
Roll Late Fees Into the Principal
If you have accrued past-due charges on things like interest, late fees or escrow, some lenders will add that to your principal balance and reamortize the loan. That means the amount you owe will be spread out over time with the new balance. If you extend the length of your loan, you might end up paying less in monthly payments even though you owe more toward your principal.
Reduce the Principal Balance
In rare circumstances, lenders will actually lower the amount you owe, also known as a principal modification. These were more common during the housing crisis when loose lending standards prevailed and home values tanked, leaving many borrowers underwater with their mortgage.
Whether a lender decides to reduce the principal likely depends on the current local housing market, how much you owe and what their loss would be if they went this route versus a foreclosure.
All or Some of the Above
Some borrowers might need a combination of actions in order to make the monthly mortgage bill manageable. Depending on your need, a lender might reduce the interest rate and extend your loan so that your monthly mortgage payment is reduced in two ways, without touching the principal balance.
The lender likely will go through a cost-benefit analysis when assessing the type of modification that makes sense for both parties.
How Can I Apply for a Loan Modification?
Homeowners who are facing financial hardship that makes it impossible to fulfill the mortgage contract should get in touch with their lender or servicer immediately, as they might be eligible for a loan modification.
Typically, lenders will ask you to complete a loss mitigation form. Because foreclosures are so costly for investors, a loss mitigation form helps them look at alternatives, such as loan modifications, to figure out what makes the most financial sense.
Be prepared to submit a hardship statement; mortgage and property information; recent bank statements and tax returns; profit and loss statements (for those who are self-employed) and a financial worksheet that demonstrates how much you’re earning versus spending.
If your loan modification application is denied, usually, you have the right to appeal it. Because rules vary by lender, find out when the appeal deadline is. Next, you’ll want to get precise information on why your loan was denied, as this will help you prepare a better case in your appeals.
There are many reasons why you might not qualify, from not providing sufficient proof of hardship to having a high debt-to-income ratio (DTI). A high DTI means that you have a lot of debt relative to your income, which might signal that you can’t afford your mortgage, even at a modified amount.
Working with a housing counselor or attorney who specializes in mortgage modifications can improve your chances of getting approved for a loan modification.
Will Modifying My Mortgage Hurt My Credit?
If the modification is federally backed (i.e. owned by Freddie Mac, Fannie Mae, VA, FHA or USDA) and is a result of the coronavirus, then it will not be reported to the credit bureaus per the CARES Act.
Otherwise, some loan modifications might be reported as settlements or judgments, which could result in a ding to your credit. Be sure to talk to your lender about if their policy is to report modifications. However, a loan modification is not as damaging as a foreclosure.
Tarek El Moussa and Christina Anstead are expert house flippers and real estate pros, but even these two ran into hard times in 2020.
Last year, fans who tuned in to their hit series “Flip or Flop” or El Moussa’s solo show, “Flipping 101 With Tarek El Moussa,” heard plenty about how COVID-19 had thrown a wrench into their plans. Some renovations were delayed, while others abruptly changed course to accommodate new realities like working from home. The pandemic also put the pressure on to flip homes faster and with more safety precautions than ever.
It was a steep learning curve, but these house flippers learned a lot last year—and have tons to teach the rest of us on how to buy, sell, or renovate a house during a pandemic and beyond. Here we highlight some of their hard-won lessons and the pearls of wisdom within these stories for your own abode, too.
Have extra space? A guest suite is a great idea
COVID-19 curveball: In the “Flip or Flop” episode “Stiff Competition,” El Moussa and Anstead bought a house with an oddly large second living area. So what did they do with all that extra space?
Since the pandemic had placed a premium on “close yet separate” living quarters where families could quarantine apart from one another if necessary (say, if someone got sick), they converted this bonus space into a guest suite with a bedroom, living space, full bathroom, and even a separate entrance.
Take-home lesson: Guesthouses, in-law suites, and other living arrangements that allow some separate-but-togetherness for extended family and friends have always been a smart idea. However, the pandemic has further prioritized this feature, since it’s not just about giving people privacy; it’s also about keeping people safe in a pandemic. This upgrade is sure to remain a hot commodity well into 2021, so if you’ve got the space, consider this a great investment in your property.
A home office is a must, and doesn’t need its own room
COVID-19 curveball: In an episode of “Flipping 101” titled “Bad Energy BoHo,” El Moussa helped a couple renovate a house. Yet once COVID-19 hit midrenovation, they were forced to finish up in record time.
And with people suddenly working from home, El Moussa knew a home office was a must—yet with no time or space to build a separate room, they did the next best thing: They plunked down a desk in a far corner of the living room. It wasn’t as private as a dedicated workspace, but buyers were nonetheless drawn to this feature, proving that any office is better than none.
Take-home lesson: Not all households have room for a dedicated office, but don’t give up! A workspace can be carved out in some surprising places, from living rooms to garages and beyond.
For a fast upgrade, never underestimate the power of paint
COVID-19 curveball: In the “Flip or Flop” episode “Busy Flip,” El Moussa and Anstead pondered how to upgrade a fireplace. While they typically loved covering this feature in bold, patterned tile, they also knew this upgrade would take a lot of time. Plus, since the pandemic had buyers flooding this suburban market, they’d have to flip fast to fetch a high offer.
That’s when El Moussa came up with a shortcut: They decided to simply paint the fireplace instead.
“This fireplace is actually in really good condition,” El Moussa told Anstead. “What if we just blasted the entire thing a bright white, see how it comes out?”
This solution not only saved time, but also $2,000 in tiling costs.
Take-home lesson: Sometimes it pays to take your sweet time renovating a house. But in a pandemic, if buyer demand is high, it may pay instead to just slap on a coat of paint and get your listing up, pronto!
While house flippers, owners, and sellers should never cut corners in terms of renovating safely, quick cosmetic shortcuts (like paint rather than intricate tilework) can save time and money and help you sell a house when the market is hot.
Fruit trees provide food and beauty in a backyard
COVID-19 curveball: In the “Flip or Flop” episode “Better Be Quick,” Anstead and El Moussa wanted to give their latest flip a great quarantine yard. With so many people stuck at home, flashy outdoor amenities had become all the rage. They knew that a pool, outdoor kitchen, or fire pit could make the next owner’s quarantine seem a little easier.
Still, Anstead also saw value in something that wouldn’t take them any time to renovate at all: the yard’s orange and avocado trees.
“We have a full, really awesome avocado tree out there. This is actually a big selling feature,” Anstead pointed out.
In the end, El Moussa and Anstead decided to keep the trees. After a simple pruning, the backyard looked like the perfect oasis, even without a pool or other posh features.
Take-home lesson: With so many people spending more time at home, backyards with pools and outdoor kitchens have become more popular than ever. But never forget that trees—particularly trees that bear fruit you can eat—have their own special allure for anyone who wants to grow their own food. (Victory garden, anyone?)
Building shade for outdoor seating is a worthy investment
COVID-19 curveball: While green space was a must-have in 2020, outdoor sitting areas were also in high demand. And so, in the “Flip or Flop” episode “Back House Flip,” El Moussa and Anstead tried to create a comfy back patio, and pondered adding a pergola to create some shade.
While they worked hard to make the yard and patio look beautiful, they decided that adding a pergola was too expensive. This was a big mistake. Without a pergola, the patio was too hot under the California sun.
“The tile looks really nice,” Anstead said when she walked out to the backyard, but “it would definitely be nicer if I was in the shade right now.”
Take-home lesson: Whether it be a front porch or a bench on the back deck, homeowners like having somewhere to hang out and enjoy some fresh air, in COVID-19 times or not. Still, sitting spaces need to be comfortable and well-designed if people are going to spend their time there. Spending a little extra money on a backyard covering can be a great investment—a lesson El Moussa and Anstead are sure to apply to future flips.
This holiday season, the saying ‘there’s no place like home’ is taking on a whole new meaning. With many of us stuck indoors, the best way to get in the spirit of the season is – you guessed it- some cheery holiday décor! That’s why interior stylist Kasia Waloszcyk revealed some merry decorating options from Walmart that will make your house feel like a winter wonderland. Not only are they easy to set up, they’re also affordable, which is always welcome at this time of the year!
Without further ado, check out some of Kasia’s tips below, and watch the video above for even more info!
CHOOSING A THEME
When you’re decorating your home, Kasia recommends picking a theme. It helps keep you on track when purchasing and compiling items, plus it makes your overall décor look cohesive. Everything coordinates – from wrapping paper to tree and mantel décor – so once you choose your theme, you know it’s going to look great!
The first thing is finding a tree that works for your space. The best way to do this is by figuring out where the tree is going. Move furniture pieces to allow for the tree opening to be clear. Then, grab some painters tape and tape off the floor in an X shape that mimics that actual diameter of the tree. Once you have that, measure it and it will determine the max width you can introduce for a tree.
Regarding height, measure your ceiling height, ideally you want to go 6” less (8ft ceiling, ideal tree height 7’-6”) – to allow for a tree topper.
Kasia recommends a gorgeous Kennedy tree from Walmart that’s already pre-lit, which saves on so much time. The lights can change from colourful to all white, which is great because it really allows you to customize it.
DECORATING YOUR TREE
Variety is key when decorating your tree. You want to be able to add a variety of different décor pieces like classic ball ornaments mixed with 3D ornaments, holiday picks etc. All of these introduce texture and depth to the tree and add a different feel, but at the same time coordinate and embrace the same theme.
The best way to hang ornaments is by creating groupings of the same ornaments on the floor. Create small groups of all deer statutes in silver, all deer statutes in wood, all gold ball ornaments etc. Once you have done that, start with one ornament grouping and begin to hang them on the tree.
When placing them, be sure to cover both the top, middle, bottom and sides – this way you’ll be sure to have that specific ornament hanging on all parts of the tree and you’ll avoid clustering them all together in one spot!
Height is key when decorating a mantel! You want to place tall items on the ends (especially if your mantel is below a TV). Once your taller items are placed on the ends, layer them with smaller items to add a variance in height.
Another great way to play around with height is by simply wrapping objects in coordinating holiday wrapping paper. You can use these to elevate different décor pieces and create different heights!
For demonstrations and more great tips from Kasia, be sure to watch the video above! Happy decorating!
Most of us spend decades working and dreaming of a day when we can retire. But when we finally arrive at our post-work destination, it’s not unusual to find ourselves in a world of surprises.
Knowing what to expect in advance can help you prepare for — and adjust to — life in your golden years. The following are some key things no one tells you about before you retire.
Housing will remain your biggest expense
Many retirees dream of paying off their mortgage so they will be free to spend money on travel and other activities. But the reality is that housing likely will remain the biggest expense in your budget for as long as you live.
U.S. households led by someone age 65 or older spent an average of $17,472 on housing in 2019, as we detail in “Here’s How Much Retiree Households Spend in a Year.” That is easily more than these households spent in any other expense category.
Work will not end — it will simply change
You will probably work in retirement — and not just because you have to. More than 70% of people say they want to work during retirement, according to the findings of “Work in Retirement: Myths and Motivations,” a joint study by Merrill Lynch and Age Wave.
As you age, chances are good that the nature of work will change, though. The study found that 3 in 5 retirees plan to launch a new line of work that differs from what they have done in the past. Working retirees also are three times more likely than pre-retirees to own their own business.
If you’ve never volunteered before, you won’t start in retirement
About 90% of Americans say they would like to do volunteer service for someone or some cause that needs their help, but just 25% actually do so, according to the Stanford Center on Longevity.
When asked why they don’t follow through on the wish to help, Americans most commonly cite a lack of free time. Yet, retirees — with plenty of time on their hands — do not volunteer at rates that are any higher than those of workers.
And among people who did not volunteer during their working years, just one-third finally begin volunteering during retirement.
Retirement can be especially lonely for single men
In some ways, retirement is more challenging for women. Because they live longer than men, they will have to stretch the funds from their nest eggs over a longer period. To make matters worse, women generally start with less in retirement savings than men do.
But women who are single have one big advantage over their male counterparts: They are less likely to be lonely.
Just 48% of retired men who live alone say they are very satisfied with the number of friends they have, according to an analysis of Pew Research Center survey findings.
However, a robust 71% of women who live alone are satisfied with the number of friends they have.
Health issues likely will catch you by surprise
Slightly more than one-third of retirees say health problems have put a damper on their retirement years, according to a survey from the Nationwide Retirement Institute. And 75% of those folks say their health problems emerged sooner in life than they expected.
To make matters worse, about one-quarter say health-related expenses keep them from living the retirement of their dreams. Such sobering numbers underscore why many people planning for retirement would benefit from opening a health savings account and stashing as much cash as possible into that HSA.
As you grow older, you will feel younger
Everyone has heard the cliche: “You’re only as old as you feel.”
If that is true, here is some good news for retirees: Paradoxically, the older people get, the younger they are likely to feel, according to “Growing Old in America: Expectations vs. Reality,” a paper from the Pew Research Center.
For example, among people ages 18-29, about half say they feel their age, one-quarter feel older than their age and another one-quarter feel younger.
However, among those 65 and older, 60% say they feel younger than their age and 32% say they feel exactly their age. Just a scant 3% say they feel older than their age.
Your early golden years might not gleam as you had hoped
Nearly one-third of recent retirees — 28% — say life is worse in retirement than it was during their working years, according to the Nationwide Retirement Institute survey.
What is the source of this gloom and doom? Money — or lack thereof.
Among those who lament post-work life, 78% cite a lack of income and 76% cite a high cost of living as the top factors in giving them the blues during their golden years.
The message to future retirees is obvious: Save early, save often and keep saving. For more tips, check out “9 Ways to Rescue Your Retirement in 2020.”
Initial disappointment will give way to later satisfaction
If you are among those disappointed with retirement, take heart: As with so many things, retirement is what you make it. You can take steps to boost your overall satisfaction with life during your golden years.
For example, researchers at the University of Exeter in the United Kingdom found that people who volunteer are less likely to be depressed and more likely to be satisfied with life. There is even evidence that volunteers live longer.
So, if retirement has got you down, stop gazing at your navel and start looking outward at ways to help others.
A lot of other research has found that a happy marriage and spending time with close family and friends can greatly boost retirement satisfaction.
Even if you don’t take steps to make yourself happy, you might just end up feeling joyous anyway. The Pew Research Center found that 45% of adults 75 and older believe life has turned out better than they expected.
Just 5% say it has turned out worse.
Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.
This story originally appeared on NewRetirement.com.
There are many guidelines around how to draw down your savings in retirement (the 4% rule, the multiply-by-25 rule), but what if you don’t have to spend your savings?
You can generate retirement income with dividend stocks, and in a world where savings accounts produce less than a 1% return, dividends can provide a steady stream of cash without having to dip into your principal.
Most retirement savings strategies tell you to invest in stocks when you’re young and bonds when you get close to retirement. For example, the “rule of 100” says you should subtract your age from 100 and the answer is how much you should invest in stocks. So if you’re 25, 75% of your money should go into stocks and 25% should go into bonds. And when you’re 55, 45% of your money should go to stocks and just over half should go to bonds.
But these rules make a lot of assumptions, most of them based on investing wisdom from the 1980s. One assumption is that stocks are a lot riskier than bonds and that bonds offer steady income rather than just gaining in value.
In reality, over the last 30 years, stocks have become a lot less risky for retail investors who are able to invest in funds that own stocks in a diversified portfolio. And because governments all over the world have been printing money to contain the 2008 Great Recession and the COVID-19 crisis in 2020, the yield on bonds — the cash income you get for holding them — has dropped to nearly nothing.
What is a dividend stock?
Dividend stocks are shares of companies that pay dividends. Not all companies pay dividends on their stock, so not all stocks are dividend stocks.
Dividend income definition: Owning a share of stock is like owning a piece of a company. Companies that make a profit sometimes pay their owners part of that profit — their income — which is a dividend.
Pro: Dividend stocks are usually also value stocks
Stocks that pay dividends are shares of companies that make money. That means they have a steady profit they share with shareholders and they’re probably not going out of business any time soon. This makes them a somewhat safer, less risky option for retirees.
Value stock definition: A value stock has a low price relative to the company’s income and the dividends it pays. (The opposite of a value stock is a growth stock — like Facebook, Amazon or Google — that pays no dividends but the company is growing fast — and the stock price is zooming.)
Benjamin Graham, the “father” of value investing, said way back in 1949 that investors should buy stocks of profitable companies that have at least 20 years of reliable dividends. These companies have been paying a steady dividend for at least 50 years, and most of them you’ve known since you were born:
The Coca-Cola Co. (dividends since 1920)
Colgate-Palmolive Co. (dividends since 1895)
Hormel Foods Corp. (dividends since 1928)
Johnson & Johnson (dividends since 1963)
Lowe’s Companies (dividends since 1961)
Stanley Black & Decker (dividends since 1876!)
Value stocks that pay dividends are sometimes called “dividend heroes” because they are reliable providers of value in markets that can sometimes be rollercoasters, riding high and sinking fast.
Con: Individual stocks can be risky, even if they’re value stocks
For decades General Electric was a “blue chip” stock, meaning it was reliable and paid a consistent dividend. If you bought $100 of General Electric stock in 1970 and sold it in 2016, it would have returned more than 21% per year, and your final net worth (assuming dividend reinvestment) would be $784,703.30.
Blue-chip stock definition: Blue-chip stocks are shares of industry leaders in mature industries that produce consistent profits and dividends.
On the other hand …
The Great Recession forced General Electric to sell its lucrative financial services division and exposed the company as an unnecessarily big, complicated organization with a lot of hidden debts.
Its CEO from 2001 to 2016 stepped down, and his replacement served less than two years before another replacement was brought on board to right the ship. Then the COVID-19 crisis hit, demolishing one of GE’s last profitable businesses: airline engines.
Today GE stock is worth only a fraction of what it was worth 10 years ago, and its dividend has been slashed.
Con: Dividend stocks are usually in utilities, banks and old-line industry
Many dividend stocks are in sectors that make a lot of money on products that people need, like energy, financial services and consumer goods. This can produce a lot of cash income, but it can also mean your companies are in some pretty narrow buckets.
When the oil industry crashed at the beginning of 2020, a formerly reliable dividend stock like Exxon-Mobile slashed its dividend in half. If all your dividend stocks were shares of oil companies, you’d have lost a significant chunk of your income.
Pro: You can get great dividend diversification with mutual funds and ETFs
There are many dividend and income-focused mutual funds and exchange-traded funds (ETFs). Vanguard, Charles Schwab and Blackrock all offer high-dividend ETFs and mutual funds that either have a broad focus, like the highest dividend stocks in the S&P 500 index, or a narrow focus, like real estate companies.
The dividend yields on these funds average 3% and can be as high as 9%. And the risk that an individual company falls on hard times is mitigated by the other companies in the fund.
You can also diversify sector risk by owning several sector ETFs or mutual funds, or by owning an index fund that focuses on dividends but owns hundreds of companies in every sector.
Con: Stocks are generally more risky than bonds and other fixed-income assets
The fates of individual companies depend on a lot of factors, and no one except a professional stock analyst can do enough research to pick the long-run winners from the losers. And maybe not even then!
On the other hand, the most reliable bonds — U.S. Treasuries — are considered “risk-free” because no one in the world expects the U.S. government to default on its debt obligations, which is exactly what a U.S. Treasury bond is.
Pro: Dividend stocks produce more cash flow than bonds (by a lot)
The yields on bonds around the world have been terrible since the Great Recession over 10 years ago. In the United States, the nominal yield on 10-year bonds is 0.77% as of October 2020, and the real yield as reported by the U.S. Treasury is -0.95%.
Bond yield definition: Bond yield is the income you get from a bond. The yield on bonds is higher the riskier they are and the higher interest rates are.
Nominal interest rate definition: The nominal rate of interest on a bond is the advertised rate, so if the bond issuer — in this case the U.S. government — says they will pay you 1% per year to borrow your money, that’s the nominal rate.
Real interest rate definition: The real interest rate of a bond is the nominal rate minus inflation. If the nominal interest rate is 3% and inflation is 2%, your real interest rate is 1%.
When the real interest rate is negative, you are paying the government to keep your money safe. Needless to say, this is not a great long-term strategy.
Though you can buy inflation-protected bonds (called TIPS for “treasury inflation-protected securities”), the yield on these bonds is negative. So even with TIPS you are paying the government a fee to keep your money safe.
Pro: Dividend stocks perform better during times of inflation
We are currently in a period of very low inflation, and you might wonder what will happen to dividend-producing stocks if inflation increases. Many companies that pay dividends — the old-line industrial and consumer goods companies, utilities and banks — also make bigger profits during inflationary periods.
Banks do better when money is changing hands often, and if the government raises interest rates to cool down inflation, banks make more money then too.
Inflation is also good for energy, materials and industrial companies because their pricing power — and the price of what they sell — goes up.
Con: Asset allocation can be tough to figure out
What’s the right mix of dividend producing investments and hedges against market volatility? Unfortunately, that depends on your risk tolerance.
The best way to model out the right amount of income you need versus the amount of money you want to invest to grow your nest egg is to use a bucket strategy. As part of the NewRetirement Planner, you can create a very detailed budget and set different levels of spending for needs and wants. This can be an incredibly useful planning exercise in helping you decide how much to invest when and where.
Pro: Dividends can have tax advantages
Dividends paid by companies can either be classified as income or capital gains. According to the IRS, “Whereas ordinary dividends are taxable as ordinary income, qualified dividends that meet certain requirements are taxed at lower capital gain rates.”
The difference between the two rates can be a lot. If your regular income puts you in the top U.S. tax bracket, you pay 37% — more than a third — to Uncle Sam. On the other hand, if you own companies that pay qualified dividends your top tax rate on that money is only 20%. Especially if you are reinvesting that money into buying more stock, the difference in returns over 10 years can be enormous.
You can do research to see what companies pay qualified dividends and which don’t. The rules according to the IRS are:
The dividend must have been paid by a U.S. company or a qualifying foreign company.
The dividends are not listed with the IRS as those that do not qualify.
The required dividend holding period has been met.
As with most stock investing, the easy way to guarantee your dividend stocks pay qualified dividends is to buy them in bulk in an ETF or mutual fund. (Vanguard has a list of its qualified dividend ETFs here.)
Even if you don’t own companies that pay qualified dividends, if you own those companies in a Roth IRA or Roth 401(k), the dividends income grows tax-free.
Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.
Getting out of debt is not easy, but it is possible. Thousands of people do it every year. They do it because of some things they each do. These are the habits of people who are debt free.
There is no greater feeling in the world than not having debt hanging over your head. Whether you’ve worked hard to pay off your debts, or never got yourself into a financial bind before, there are things you do to remain financially fit.
If you are struggling with paying off your debt, these folks may be able to help: Call 866-948-5666.
While we share the secrets to help you get out of debt, staying there can be tough. It is a change in lifestyle which requires you to give up some bad habits and pick up some new (and better) good ones! Here are ten habits of debt-free people!
THE 12 HABITS OF DEBT FREE PEOPLE
1. They are patient
People are debt free all of this in common. When you don’t have debt, you learn to be patient. You know that all good things come in time.
For instance, if you know you need a new car that you need to start saving now and build up the cash. It might take three years to get there, but you can do it.
Patience pays off as you can pay for your vehicle in cash rather than having to take out a loan and getting into debt once again.
2. Responsible for their actions
The debt free person is responsible with money. Whether they are 20 or 60, they know the value of a dollar. They understand and follow their budget and do not allow themselves to get into financial troubles.
When someone who is debt free makes a money mistake, they own it.
3. Material items do not matter
When it comes to “stuff” people who are out of debt know that this is not what matters. Sure, you could have the newest TV, the fastest car and the biggest house — but at what cost? They know the things that matter most in life and know that money can’t buy them.
In fact, for most debt free people, what matters more in life are experiences rather than things. They know items will not be around forever, but that creating memories can last a lifetime.
4. They live below their means
People who do not have debt do not spend more than they make. In fact, they often spend much less. They are saving for the future and increase their emergency fund for that “just in case moment.”
When you are content, you do not need to spend more than you make. You find contentment with what you have and don’t try to keep up with the Jones’s.
5. Think long-term
If you have debt, all you can see what is right in front of you. That is your debt
People have no debt can see further ahead and plan accordingly. They plan for the big purchase. The emergency fund is ready for the unexpected. They are prepared for anything that may come up in the future.
6. They set goals
Just like people in debt, they work hard for their money. However, what they often do is set financial goals. They might want to go on vacation or get that fancy new handbag. They set a goal on how to pay for it and then work to achieve it.
It might mean fewer dinners out to save the money to pay for it – but they do it. Once they’ve saved enough money, then – and only then – will they take the plunge and make the purchase
7. They use cash
This may not be the case for everyone, but most people who are debt free use cash.
Even if they use a credit card, they never charge MORE than they have available in the bank to pay off the statement every. single. month. They have learned that if they do not have the money, they can not spend. They don’t buy now and worry about how to pay it off later.
8. They can say no
When you have a limited budget, you know what you can spend money on and what you can not. Sure, it might be fun to go out to dinner with your friends on Friday night, but if it is not in the budget, they know and will pass.
9. They always save
The one habit that most debt free people have in common is savings. When they get paid, they first pay themselves. It might be a company funded 401(k) account or even regular savings. Whatever way they do it, they always save.
The same holds true for any windfalls. If they get a bonus or money from a family member, they will often set it aside and save it rather than run out and spend it right away.
They also watch to make sure that they are not ever paying more than they should for the items they need. It might mean using a coupon or merely waiting for the right deal to come along.
10. They ask questions
One thing we did when we needed a new television, was negotiated a discount by paying with cash. We knew it did not hurt to ask and for us it worked! We were able to save 5% off of our purchase – just by using cash.
Those who are not in debt are not afraid to ask for discounts. They are not afraid to ask for a lower interest rate (if they truly need a loan for any reason). They realize all that can happen is that they could be told no. However, they also know that they might get what they’ve asked for!
11. They pay attention to their bills
When the bill arrives, they not only look it over to ensure it is accurate, they also make sure it is paid timely. By doing this, they are never late paying bills, which results in late fees.
What they do when the bill comes is always look it over and then place it somewhere they know they will remember to pay it on time. They may make a notation on a calendar or spreadsheet to remind them of the due date — so it is always paid on time.
12. They know that money does not buy happiness
Many times, people in debt are in that situation because they’ve spent money trying to fill an emotion or other need. Instead of shopping out of necessity, they buy out of emotion.
Shopping to fulfill a need results in nothing more than debt. Take the time to figure out why you shop. What is it you are trying to replace? Work to make a change in that part of your life, and you will find that your desire to shop for fulfillment can fade.
Whether you are in debt $5,000 or $50,000, I know you are doing what you can to get out from under your financial burden. If you start to practice the habits of debt free people now, you can put those ideas to work for you — and get your debts paid down even more quickly!
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
To open your own credit card, you must be at least 18 years old. A common misconception is that the minimum age requirement varies by state, but this is not the case. Opening a credit card at a young age can seem overwhelming, but understanding the steps and benefits of doing so will help you through the process.
Can You Get a Credit Card Under the Age of 18?
While 18 is the minimum age to be the primary holder of a credit card, there is a way that those under 18 can still use one—a parent or guardian can make their child an authorized user on their credit card account. An authorized user is an individual who can use a credit card without being responsible for the bill, and you’ll need to submit a request to the credit card company to add your child as a user.
Also note that some credit card companies issue a minimum age requirement for authorized users, while others do not.
By doing so, you give your child a head start in building credit for themselves. This will become useful when your child is ready to qualify for a loan or apply for their own credit card. Becoming an authorized user will also help them establish healthy credit practices early on. Make sure your child knows how to properly use their card, because as the primary cardholder, you’re still responsible for the bills.
How to Apply for a Credit Card as a Teenager
Applying for a credit card as a teenager is a similar process to that of an adult, but with a few exceptions. To get a credit card, you must initially apply. Based on your credit history, credit score and personal financial information, you’ll be either approved or declined. As a parent, you can become a cosigner to help your child get approved for a card if they haven’t had much experience building credit yet.
Getting a Cosigner
A cosigner is someone that agrees to take responsibility if the primary cardholder can’t pay off their outstanding balance. Applying with a cosigner (presumably with good credit) can help you get approved and even a higher credit limit. Keep in mind that some credit companies don’t allow cosigners, so you may need to do a little research beforehand.
Best Credit Cards for Teenagers
With so many credit card options, it’s easy to feel lost when deciding which one to apply for. Consider applying for a card that is made for younger people and first-time credit applicants. These cards are designed for users that may not have a high stream of income or any preexisting credit. The following are a few cards that are popular for first-time credit applicants:
College credit card: These cards are designed for college students without experience in building credit. Since pursuing an education is often quite pricey, student debt makes it harder to get approved for a normal credit card. College credit cards typically offer users low fees, low interest rates and perks such as money back when using their card. Although it’s easier to get approved, you are still required to show proof of income and enrollment in school.
Secured card: This card requires an initial cash deposit in order to use the card. Think of it as a prepaid credit card. The amount of your cash deposit acts as your credit limit. As a result, secured cards typically also have higher interest rates than normal credit cards. Even with a cash deposit, all activity put on a secured credit card still impacts your credit score.
Store credit card: Some retailers also offer credit cards. While these cards are mainly for customers to shop at the specific store, the card can also be used for purchases elsewhere. These cards are easier to acquire since they often don’t require a specific credit score. Store credit cards intrigue customers by providing exclusive discounts and rewards, but beware as they often come with high interest rates.
Tips on Getting Approved
Getting approved for a credit card as a teenager can be difficult, since you likely don’t have significant preexisting credit or income. Both of these factors highly impact whether an applicant will get approved or denied for a card. The following are some tips on getting approved as a young user:
Take into consideration all forms of income. When your application asks for your income, you can include much more than just your income from a part-time job. You can also include student loans and parental allowance as income.
Consider getting a part-time job. Having a stable salary will show credit card companies that you have the ability to pay off your card.
Add a cosigner if your credit card allows you to. As mentioned above, this will help the company see that you have someone to rely on for your spending habits.
Apply for a card designed for young adults. College credit cards and secured cards are a few great ways to get started with building credit. Both cards are designed for those who may not have previous credit.
How to Build Credit at a Young Age
Building credit is always important since it takes time. Having good credit will open up more doors for you down the line. The time you dedicate to building your credit early will pay off when you’re applying for a loan, buying a car or making a big financial decision in the future.
When Is the Best Time to Build Credit?
The best time to build your credit is as early as possible. The length of your credit history impacts your credit score by 15 percent. By starting at an early age, your credit score will be positively impacted in this regard. As a general rule of thumb, seven years of credit history is ideal for building good credit. If you’re unsure about opening up a new line of credit, consider speaking to a financial advisor first.
Everyone’s financial situation is different, so it’s a good idea to know what will work best for you before getting started.
Best Practices When Building Credit
Building and keeping up good credit can be new for those who haven’t had much experience yet. The following are some best practices for doing so:
Apply for a credit card. You can’t build credit without a form of payment that affects your score. Do your research and find a card that you have a good chance of being approved for.
Be responsible with your spending habits. Having a credit card can positively impact your score if you use it responsibly. Be careful not to overspend—it can feel like you have unlimited funds if you’re new to using credit. Make sure you can pay off your balance in full to avoid a negative impact on your credit.
Keep utilization low. A general rule of thumb is to use no more than 30 percent of your card’s spending limit at a time. This will show lenders that you can be smart with your spending habits.
Make on-time payments. Late payments hurt your score immensely. Payment history actually affects 35 percent of your overall score. If you can’t make full payments at the card’s due date, at least pay off the minimum amount due on your balance.
Why You Should Build Credit Young
Building good credit doesn’t just happen overnight. It takes years of smart moves and healthy practices to build a solid foundation. If you wait too long to start building, you’ll have a harder time when applying for loans or engaging in other financial decisions later.
Starting young also helps establish good credit practices from the very beginning. By doing so, you’ll be less likely to engage in activities that hurt your credit down the line. It can be easy to damage your credit, but hard to repair it. By learning this now, you hopefully won’t need to do much damage control later.
Although 18 is the required age to be a primary account holder on a card, there are still ways to start building credit at a younger age. This can be very beneficial for the future, as long as it’s done right. We know the process of applying for a card and building credit can be stressful at times—visit our credit repair blog to learn more about credit best practices.
Reviewed by Kenton Arbon, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.
Kenton Arbon is an Associate Attorney in the Arizona office. Mr. Arbon was born in Bakersfield, California, and grew up in the Northwest. He earned his B.A. in Business Administration, Human Resources Management, while working as an Oregon State Trooper. His interest in the law lead him to relocate to Arizona, attend law school, and graduate from Arizona State College of Law in 2017. Since graduating from law school, Mr. Arbon has worked in multiple compliance domains including anti-money laundering, Medicare Part D, contracts, and debt negotiation. Mr. Arbon is licensed to practice law in Arizona. He is located in the Phoenix office.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
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