March 16, 2014, Your Money Matters

The past few years have been downright pitiful when it comes to earning interest on bank accounts.

With the average savings account paying close to zero, and some even charging fees, which puts your return in the negative, it can be discouraging to see your savings sit idle. But what options are there? With some work you might be able to find a way to squeeze out a little bit more.

 

Go online

For cash you won't need tomorrow, I'm a fan of online banks, which typically pay an interest rate approaching 1 percent. Check out Bankrate.com for the highest national rates, noting any minimum balances to open or to maintain to avoid fees. Also watch for introductory rates that expire, and take care to stay within the maximum number of transactions per month.

 

Kasasa

If you don't mind jumping through some hoops, a Kasasa account can pay nicely and support your local community at the same time.

Kasasa is not a bank, but a company that partners with local credit unions and community banks to offer a much higher than market interest rate. In exchange for earning that rate, you agree to meet certain terms each statement cycle. That might mean using your debit card a minimum number of times and having a direct deposit to the account.

Right here in Stroudsburg, First Keystone Community Bank is a Kasasa provider, and its Kasasa Cash account pays 2 percent on up to $10,000, assuming in that statement cycle you also have at least 12 debit card purchases per month, receive e-statements, and enroll and log into online banking at least once.

Didn't make the requirements? Not to worry, you'll still get .05 percent.

 

Shop around

From time to time, banks and credit unions offer promotions to attract deposits. They don't usually last long, so catch them while you can.

Go online from time to time to visit websites of our local banks; you may find one offering a promotion. Or check out the website moneycrashers.com, which has a list of promotions that includes an offer from PNC Bank of $150 for new Virtual Wallet customers.

These tend to be one-time cash bonuses, so check out any transfer fees or penalties that could eat up that bonus upon moving your money should you decide not to keep it there long term.

 

Privately insured credit unions

The rules of risk and reward say that to get more reward you must take on more risk. If you are in the position to take on risk, you may be rewarded by using a privately insured credit union.

While the vast majority of credit unions are federally insured, a small number of state chartered credit unions carry private deposit insurance.

One example is the Christian Community Credit Union, which offers a new member promotional rate CD with a 5 percent APY.

It is critical that you do your due diligence on these credit unions, look at their financial strength and be ready to accept the risk of possible loss of funds.

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February 23, 2014, Your Money Matters

Have you met myRA? MyRA was introduced at President Obama's State of the Union address last month. Concerned that Americans are not saving enough for retirement, President Barack Obama created by executive order a new form of retirement plan, designed to provide easier access.

First a quick rundown of the most common existing forms of retirement savings accounts: We have the traditional IRA, which can give you a current tax deduction (depending on income) and is fully taxable at distribution; the Roth IRA, which is not tax deductible but offers tax-free qualified withdrawals; and the workplace 401k account, which can come in both traditional and Roth forms and often with an employer match of some sort. The 403b accounts are like 401ks, but offered by public and nonprofit institutions. IRA accounts are opened and funded on your own, while the 401k and 403bs are funded through payroll deduction. Not everyone has access to a workplace retirement account, however, and IRA accounts are less convenient to open and generally require a minimum of $500 or more to start. MyRA seeks to remedy that.

Obama is calling the myRA a starter savings account because you may open an account with as little as $25, with subsequent contributions as small as $5. Your contribution is deducted from your paycheck, just like a 401k, but your employer will not have the option to provide a match. In fact, the employer has little to do with the account other than to send your payroll direct deposit to your myRA account. These accounts will be held with a financial manager chosen by the Treasury Department and invested in government securities at the same rate of return as the Thrift Savings Plan G fund, which was 1.89 percent in 2013. The principal will be protected, so there is no concern about losing money.

The government will even provide its own sort of match in some cases via the Retirement Savings Contribution Credit, which gives a nonrefundable tax credit of between 10 percent and 50 percent of your retirement contributions (covering contributions of up to $2,000). Income limits for getting the credit are $30,000 adjusted gross income for those filing single, and $60,000 for married filing jointly. The credit is for IRA and workplace retirement contributions, so the myRA would qualify. Savers must be over 18, not a full-time student, and not claimed as a dependent on another's return.

MyRA is a Roth account, so contributions will not be tax deductible, but withdrawals from the account after age 59.5 will be tax free. Also like a Roth IRA, your own contributions may be withdrawn at any time, without tax or penalty. The myRA is a portable plan; if you change jobs, your myRA stays put and you can contribute to it at your new job as well, as long as you have direct deposit. There is no need to do a rollover or have myRAs with various employers.

Since this is designed for low- to middle-income people, there are income limitations on who may participate. Taxpayers filing single must have income less than $129,000 and married filing jointly under $191,000 to be eligible to participate, same as the Roth IRA. The maximum annual contribution that applies to IRA accounts also applies here; the most you can contribute to all of your IRAs including your myRA in one year is $5,500 if you are under age 50 and $6,500 if you are age 50 or older.

Just as with the Roth IRA, as you approach the income ceiling, your maximum contribution amount is limited, so that's something to watch. Savers in these accounts pay no fees at all, and it is expected to cost employers little or nothing. Treasury (well, we taxpayers) picks up the tab on administrative costs.

MyRA is not forever, though. When your balance reaches $15,000 or 30 years has passed, whichever comes first, you must move your myRA to a conventional Roth IRA account with a bank or brokerage. You are then done with myRAs; you cannot start a new one.

The federal government will be looking for employers to join a pilot program later this year to begin offering myRA accounts to their employees. Once it is fully rolled out, any employee can participate as long as his employer offers direct deposit.

MyRA is not mandatory; however Obama has proposed that employees without workplace retirement accounts be auto-enrolled in an IRA of some sort. This is not the first time he has proposed auto-enrollment, so how it will play out remains to be seen.

In addition to passing legislation to allow for auto-enrollment, Obama's retirement savings wish list also includes limiting the tax deduction for contributions to a 401k for high-income households to 28 percent. For example, someone in the 35 percent tax bracket and contributing the maximum of $17,500, the tax savings on the contribution would go from $6,125 down to $4,900. Obama has also proposed limiting contributions to tax-advantaged accounts when account balances reach an amount "reasonable" for retirement, which has been deemed to be about $3.2 million.

In all, the myRA account can be a good starting place for those otherwise not inclined to save. But for someone only contributing the minimum, it can be a whole lot of years before the savings is meaningful for retirement.

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Your Money Matters, January 26, 2014

If I asked you what your mortgage payment or rent is, odds are you could tell me.

What if I asked how much you spent on heating oil or out of pocket medical costs last year?

You probably could not answer that off the top of your head, but with a good, up-to-date recordkeeping system, you could retrieve that information with a click of the mouse or flip of a page.

You might think you don't need to track your money, because online banking does that for you, and you can always see how much money you have. But online banking (or your good old check register) doesn't always organize your spending in a format that's easy to analyze, and that analysis is important to have.

When you are aware of what you are spending and where, you can spend more purposefully on the things that you value most, rather than letting loose change slip through your fingers.

An efficient tracking system also captures tax deductible expenses, so you can claim the maximum deductions you are legally entitled to. Looking at your spending data sometimes can be a reality check.

 

Paper, paperless systems

What's the best system for keeping track of where your money is going? The one that works for you. Paper, computer program, app; it doesn't matter as long as it is something you're going to use.

While paper-based systems require more math than an electronic system, they are pretty basic to implement. It can get tricky if you are spending out of several accounts, like credit cards and his and hers checking accounts, but if you only need to track an account or maybe two it can work.

For example, it can be as simple as a chart with categories across the top and the days of the month down the side, and recording each bill you pay or dollar you spend daily under the appropriate category, adding the columns at month's end. I did say simple, not easy, because it can be cumbersome to write everything down. Ledger books can give you a start, too, such as the Dome home budget book you can pick up at Staples.

 

Envelope system

Another low-tech way to keep track is to use the envelope system. With this system, set up an envelope for each category to track, like groceries, gas or eating out. Each pay period withdraw the amount of cash you assign to each category, and fill each envelope with that cash.

The original way of using the envelope system called for an envelope for every category, including things such as your mortgage and electric bill, but that's not really practical in this day and age, and it could be risky as well to have that kind of cash around.

So let's just stick with those categories that are more variable, or "slushy." When you spend any money from one of those categories, use the cash in the corresponding envelope. When you run out, you must either stop spending in that category, or, if it can't be avoided (like buying food), borrow from another one. No need to necessarily track each dollar — by the amount of money left, or not, you'll soon see if your spending estimates were realistic. Guaranteed you will also be very aware of what you are spending.

 

Electronic recordkeeping

If electronic recordkeeping is more to your liking, you can stay low-tech and record on a spreadsheet (like the paper system above). Spreadsheets allow for quicker addition and copying/pasting than paper, of course, and you can color code and customize.

If you like Dome books but prefer a paperless system with automatic calculations, there is a software version available. For those who like the envelope system but don't want to keep cash around, mvelopes.com is a free, online version.

I tried mvelopes a few years ago and had difficulty following it, but since then they have updated the tool. A nice feature of mvelopes is that when you purchase something with your credit card it subtracts that amount from your spendable cash, so it is available when it's time to pay the bill. Mvelopes also has a free app.

 

Quicken

Quicken is my program of choice. It resides on your hard drive, so all of your information is viewable without Internet access, and functions like a traditional check register (but without the whiteout).

You choose a category for each transaction, which flows to reports you create. You can also "tag" a transaction, so if you are tracking gasoline as a general category, you can tag purchases for different vehicles without having to create a subcategory.

Quicken's "Cash Flow" feature allows you to enter upcoming bills and paychecks, and project your balance to month's end. You can download transactions from your bank and credit card accounts right into the program and assigning categories, eliminating some data entry. You might have to train it to categorize properly, but once it knows that Sunoco is not "dining out" it remembers most of the time. Quicken also can pull in data from investment custodians like Vanguard, allowing you to see your portfolio allocation. Stock and mutual fund prices are updated automatically.

 

Online budgeting

Mint.com is the main player in online budgeting. It is free, and can be used on a computer browser or with an app. When you sign up for an account, you'll search for your financial institutions and provide your login information, as long as your financial institution is supported. Mint aggregates your information from banks and credit cards, so you can see all of your activity together, updated automatically. The information is real time, just like you would see on your bank's website.

Information is accessible from anywhere you have an Internet connection. You can enter a goal, like a trip, and it will not only create a savings plan for you, but help you calculate how much you need, with links to outside resources as well. You can create a budget and compare your spending to families in other locations you specify, as well as track your actual vs. budget.

You Need a Budget, or YNAB, is not only a software program, but an educational system. At $60, it costs about the same as Quicken and Dome's software, and accesses webinars and email courses.

Once you set up your regular bills and expenses, YNAB helps you by setting aside funds for non-monthly bills (like a quarterly insurance bill or car repairs) so the money is there when you need it. YNAB syncs across multiple computers and also has an app. You can try it for free for 34 days.

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Your Money Matters, January 5, 2014

Are you one of the 40 million people vulnerable to fraud from shopping at Target with a debit or credit card between Nov. 27 and Dec. 15?

With recent news that the compromised card information is now being sold on the black market, and that the information does in fact include PIN numbers (albeit encrypted), those Target shoppers should take precautions sooner rather than later. Even if you weren't one of those affected this time, there's a pretty good chance that you've either had a credit or debit card compromised in the past, or will in the future. What can you do about it? Here are a few tips may apply to us all.

RESOURCES TO KEEP HANDY

Credit bureaus

Experian

Phone: 888-397-3742

Online: experian.com/consumer/security_freeze.html

Equifax

Phone: 800-525-6285

Online: freeze.equifax.com/Freeze/jsp/SFF_PersonalIDInfo.jsp

TransUnion

Phone: 800-680-7289

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

Federal Trade Commission

Phone: 877-IDTHEFT

Online: idtheft.gov

IRS

800-908-4490

irs.gov/uac/Identity-Protection

Form 14039 Identity Theft Affidavit

Social Security Administration

800-772-1213

ssa.gov

Monitor your accounts

Especially if you have automated your finances through online bill paying and auto payments, it's easy to "set it and forget it." Easy, but not a good idea. Debit card users especially should check their accounts daily for signs of unauthorized use. Fraudulent ATM withdrawals and purchases can quickly wreak havoc in a bank account, draining it and causing other transactions to bounce, not to mention leaving you broke. Target REDcard holders can set an alert through their online account that will send a notification whenever the card is used. Other banks and credit card issuers offer that feature as well.

Change your PIN

Target assures us that although PIN information was stolen, it was encrypted and not easily read. However, it is possible for the code to be cracked and your PIN to be exposed. Should thieves use your information to create a new, fake debit card, your PIN number will come in handy at the ATM. Changing your PIN regularly is a smart move for all of us; if your debit card information was stolen, it's important to change it now. If you use that same PIN for other accounts, you might want to change those as well.

Replace your card

Even if your PIN number isn't revealed, it's easy to use a debit card without it; a thief could make online purchases, or use a new fake card to pay at the pump for gas or make store purchases as credit, for example. Replacing your credit card may not be necessary (but not a bad idea) since fraudulent activity probably won't affect your finances immediately and your liability for those charges is limited. Those whose debit card information was stolen, though, should consider contacting the bank and getting a replacement card.

Check your credit report

All consumers are entitled to one free copy of their credit report from each of the three credit bureaus — Experian, Trans­Union and Equifax — once a year through annualcreditreport.com, and that's something that we should utilize. Requesting a report from one bureau every four months can monitor your credit. Aside from fraudulent charges, hackers may put your stolen credit card information together with other pieces of data that are "out there" on you, and open new credit accounts in your name. Checking your credit report regularly will allow you to see if anything has popped up.

Place fraud alert or freeze credit

Checking your credit report every four months only provides information after the fact, though, and still leaves four months of possible activity undetected. As a preventive measure, you may want to notify one credit bureau to place a fraud alert on your account (that bureau will notify the other two). A fraud alert is free, and requires any creditor to verify your identity before issuing new credit in your name. This can slow down the opening of fraudulent accounts, but may not stop it completely if the thief has gathered enough information on you to falsely verify himself/herself as you or used your information to create additional identifying documents. The fraud alert is initially in place for 90 days, and you may renew for additional 90-day periods.

Freezing credit on the other hand stops anyone, including you, from obtaining new credit in your name. To freeze your credit, you must request a credit freeze from each of the three bureaus directly and pay a fee, usually under $10 each. If you are victim of fraud, the fee is waived. Should you wish to apply for credit in the future, you can temporarily thaw out your credit, or permanently lift the freeze. Each of those once again requires a fee. You can be sure with a credit freeze that no one will be opening new accounts and leaving you with the bill.

Credit monitoring or safeguarding services

Target will be offering free credit monitoring to all who were affected, although details are not available yet. There are, of course, several commercial credit monitoring services on the market, with various ranges of monitoring, protections and fees. Some offer assistance should your identity in fact be stolen, and others simply monitor your accounts for suspicious activity. Whether to use a service like this or not depends on your level of vulnerability as well as your own diligence in watching your credit yourself.

Is it still safe to use a debit card?

The list of places where you shouldn't use your debit card is growing. Gas pumps and ATMs for example, are particularly vulnerable to skimmers designed to steal your information when you swipe. Anywhere a credit card number can be stolen (which seems to be about anywhere these days) applies to a debit card as well, but you can lose money a whole lot faster if it's your debit card number that is stolen.

Going back to cash is one solution, but the convenience and recordkeeping features of using a debit card are certainly nice to have.

One alternative may be to use a credit card dedicated to your everyday spending. Doing so requires the discipline of holding on to what you would have otherwise spent with your debit card to have the money for the payment when the credit card bill comes due. If that is an issue for you, keeping a running tally of your spending might help, and so might making a payment on the card each week or each pay period if your account allows for multiple payments.

It's a shame that we need to take so many precautions, but today's reality is that our expectations of privacy are not what we enjoyed in the past, and we need to do what we can to protect ourselves from the inevitable security breach.

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Your Money Matters, December 15, 2013

Are you (or is someone you know) in trouble with student loans? A difficult job market colliding with a mountain of student debt means you're not alone.

My loan payments will be starting soon, but I can't afford them. What should I do?

First thing to do is make a list of all of your loans — the lender, interest rate, balance due, monthly payment and whether it's a private loan or a federal loan. If you don't remember, you can search for a list of your federal loans at nslds.ed.gov/nslds_SA/ (click Financial Aid Review). You can also check your credit report (free at annualcreditreport.com) to look for other lenders if you have private loans, too. Once you've identified all of your loans, you can evaluate your options.

With a federal loan you may find relief through various programs like the income-based repayment plan, the income contingent payment plan, or even deferment or forbearance if your financial circumstances are dire. Visit studentaid.ed.gov for information about the programs and contact your loan servicer to discuss your options.

Remember that if you are granted forbearance or deferment, it is not forever, and you will need to reapply after six to 12 months. By talking with your federal loan servicer, you are likely to find a plan that will work for you.

Private student loans are a different story. They are not required to offer alternative payment options, but may offer some relief, although not as helpful as the federal repayment programs.

Lesson here to new students: Handle private loans with care. Know what you are getting into, and take full advantage of federal loans available first.

Both federal and private loans may be forgiven with the death or disability of the student.

I've already missed a payment or two.

If your loan is not yet in default, contact your lender before it goes too far and your credit is damaged. Late fees and additional interest can add up quickly and balloon your balance due. Don't ignore the problem.

While it takes about 270 days for a federal loan to go into default, a private loan may only take 120 days. Once you are in default, managing your loans becomes much harder.

I have no idea how much I owe; I'm afraid to open my mail. All I know is it's more than I can pay, and now I'm in trouble.

If it's been a while since you've made a payment (or never), and the bill collectors are calling, it's likely you are in default. Breaking through the denial and facing the problem is paramount. Ignoring it won't make it go away; it will only get worse.

Have a trusted friend or family member help you open your mail and sort it out, and making the list of your loans we talked about earlier. It's likely to be painful, but it's necessary.

If you are in default and ignore it, your loans will go into collections and will be due in full immediately. For your outstanding federal loans, prepare to have any income tax refunds taken to apply toward your balance, and your wages may be garnished.

However, with federal loans, by contacting your lender, you can get out of default and back on track by working out payment arrangements. You may be able to consolidate your loans and enroll in a new payment plan (including the income based plans), or you may wish to rehabilitate your loan. Rehabilitation allows you to clear the default from your credit report by making nine on-time payments.

Private loans, again, are a different story. While a private lender cannot seize your tax refund or garnish your wages, it is also not required to offer you any sort of modification or payment plan. However you may be able to negotiate a plan on your own, or offer to pay your loan in full for less than you owe.

When talking with your lender, be sure to keep good notes of who you spoke with and what they said. Document everything and know your rights under the Fair Debt Collection Practices Act, which basically protects you from being harassed by creditors.

Can I just declare bankruptcy and wipe out my loans?

Unfortunately student loans are quite difficult to discharge in bankruptcy. There is one possible exception: If your attorney can prove undue hardship in a separate adversary trial within your bankruptcy proceedings, all or part of your federal loans may be discharged. This is possible, but not easy and not common. Private loans are also generally not dischargeable, but an attorney should confirm this for you. It may be worth asking.

There are a few ways to get out of your loans, one being the public service loan forgiveness program, in which you can have your outstanding federal balance forgiven after 10 years of qualifying full-time employment (and on-time payments) in the public or nonprofit sectors.

There are also creative solutions out there: Communities like Niagara Falls and some areas of Kansas are offering loan forgiveness for making their town your new home.

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