A few months ago, President Barack Obama announced a foreclosure prevention plan called Making Home Affordable. The plan included provisions for those who wanted to refinance, but couldn’t because of their loan to value ratio. Refinancing would be encouraged for those who had a loan to value ratio of between 80% and 105%. The idea was to help those whose home values have dropped in response to housing market troubles.

Unfortunately, the program has been seeing limited success. It relies on voluntary help from mortgage lenders, and it excludes those with even higher loan to value ratios. Yesterday Obama made a move to expand the Making Home Affordable program. Now, those with a loan to value ratio of up to 125% are eligible. There are also continuing incentives to encourage mortgage lenders to deal with homeowners.

As far as the housing market is concerned, this new move is unlikely to have a huge impact immediately. It probably won’t even arrest falling home values, or do much in terms of stabilizing the overall housing market. But it does have the potential to help prime borrowers who are looking to refinance to a lower rate. Mortgage interest rates are still relatively low, and refinancing could save folks who made good homebuying decisions a great deal of money.

It even benefits people like me. I bought my home two years ago with 5% down and a 30 year fixed rate. Obviously, I haven’t had time to make up a lot of ground in terms of home equity. My home has lost some value in the last two years, and I have a loan to value ratio of about 94%. (The new rules don’t change my eligibility.) We can easily afford our mortgage payment, but I wouldn’t mind if I got an interest rate that is 1 percentage point lower. Plus, there are places in town offering no-fee refinancing. We could refinance to a 15-year loan and only pay $200 more per month, saving us a great deal over the long haul.

Image source: woodleywonderworks via Flickr

In our society, there is an aversion to negotiating. For some reason, we feel as though it is rude to haggle and ask for a better price. However, it turns out that maybe we should be negotiating more. Two weeks ago, my husband and I got a 15% discount for an already-on-sale griddle for offering to take the display model. Of course, the item was out of stock. I doubt the display model trick would have worked as well if there were more griddles sitting on the shelf. And when we bought our dryer (and a couch later), we managed to successfully get free delivery and set-up (normally $50) on top of a discount of $75. Just for asking.

But it appears that I am in the minority. Consumer Reports has a graphic in the August 2009 issue that shows that only about a quarter of consumers try to negotiate. However, those who do negotiate tend to have a pretty good success rate:

Consumer Reports also offers these tips on how you can increase the chances that your haggling will prove successful:

1. Know store policy about discounts and matching deals, and research prices for similar items online and off.
2. Time your visit so that you arrive later in the month. Additionally, avoid times of the day that are busy. You want your salesperson to be thinking of his or her quota. And you want him or her to have the time to negotiate with you.
3. Show fixable flaws to the salesperson (or take the display model).
4. Avoid asking for a discount in front of others. Salespeople don’t want to have to give a discount to everyone who sees your successful negotiation.
5. Ask for a manager if the salesperson can’t deal.
6. Offer cash. In some cases, you can get a cash discount by asking. It means the business doesn’t have to pay a transaction fee for accepting your credit card.
7. Walk if you don’t get the deal. Part of negotiating is being able to walk away if you know you can get the same deal elsewhere. At the very least, when you walk you know you can get the same item for the same price someplace else.

For an interesting personal story about negotiating, Man Vs. Debt has a pretty cool story — and some good tips for beginning negotiators.

Do you haggle?

I remember the days of my undergraduate career. Every year, tuition went up. I had a scholarship, so it didn’t impact me that much, but student fees generally rose along with tuition. And every year that my husband has been in grad school, we’ve watched tuition increases and student fee hikes. But this year, things are different. Yes, tuition is going up. But it’s not going up by quite so much. BloggingStocks reports on the new tuition hikes:

Tuition is up only 4.3% for the coming school year, the lowest rate of growth in 37 years, according to a survey of 350 private schools by the National Association of Independent Colleges and Universities. This is down substantially from the 5.9% increase for the 2008-2009 school year. Of course, this is for tuition only and does not include room and board inflation.

To further help some folks, financial aid is seeing an increase of 9.2%. So that means that, for some, it may actually be manageable to keep up with tuition hikes this year. But, as the BloggingStocks article points out, room and board have likely gone up as well. This might offset some of slowed inflation in tuition and fees.

Money troubles and higher education

It is getting more and more difficult for the schools themselves, as well as the students. This is because new money is down as benefactors reduce their contributions. (After all, the number of billionaires is decreasing, and those who are still billionaires have, well, billions less.) Not only that, but many universities have trusts and other investments that are significantly reduced in value, thanks to a bear stock market. While these investments will eventually rebound, for now it means less money to go around — and in some cases staff cuts and project terminations. The project my husband is working on here at USU got cut. He is fortunate in that a graduate in the department moved on and vacated a spot on a different project. He was successfully shifted, and retained his position. But not everyone is so lucky.

Image source: Widosu via Wikimedia Commons

Numerous stories are popping up around the personal finance blogosphere with regard to the fact that Chase is raising the minimum payment on its credit cards. Last month, I wrote a post about things are about to get ugly for consumers in terms of their credit card accounts. So it was no surprise when that post (although a month old) saw this recent comment from a reader, Lisa:

Yesterday (6-25-2009) I got a notice saying my “minimum” monthly payment was going from 2% to 5%. That means my payment of $345.00 will start to be $810.00 in August. I will not be able to afford that. Mind you, I always pay my bills, don’t get late payment charges and the last time I checked, my credit score was like 797. Yes! I’m having financial troubles and am just barely holding on. This will send me over the edge - especially if my other credit cards follow this one. … HELP!

This is probably a common refrain across the nation right now. And, sadly, this new rule is aimed exactly at folks like Lisa. Chase will keep your minimum payment at 2%, if you agree to allow the company to raise your interest rate. The most common recipients of this change to credit card terms are those with low introductory rates of between 2.9% and 5.9%. You can see where this is going. The higher interest rate means Chase gets more money, and allowing you to keep the lower minimum means that you make payments for longer — meaning Chase gets more money. The way I see it (and every situation is different), there are three options here:

Option #1: Suck it up and make the new minimum payment

If you don’t agree to the higher interest rate (and keeping the current minimum payment), you will have to make the new payment. Since you have about a month, now is the time to do some serious surgery on your personal finances. Look over your budget and see where you can make cuts. This may include cuts to entertainment, cell phones, eating out and other negotiable expenses. (Note: Your housing payment, especially if you have a mortgage, is not negotiable. Always make sure this is paid.) Figure out which expenses you can cut and get it so you can make the new minimum payment. It’s not pleasant, but in the long run, you will save money in interest and pay off your debt faster.

Unfortunately, many people do not have the option to cut back so dramatically. The current economic conditions mean that some folks, due to cutbacks or layoffs at work, do not have the ability absorb an increase of the magnitude proposed. In such cases, you might go with:

Option #2: New loan

In some cases, it might be wise to get a new loan to cover the amount of what you owe. Pay off the credit card, and move on. Of course, you still have a loan. You might try switching to a different credit card with an introductory rate of between 0% and 3.99%. You could also consider getting a debt consolidation loan from somewhere. If you have reasonably good credit, you might be able to get a personal loan with an interest rate of between 7% and 12% from your bank or credit union. (While this is higher than your intro rate, it is likely to be a lower rate than what the credit card will offer you in exchange for keeping the minimum low.)

Another possibility is to use P2P lending, such as Prosper or Lending Club to help you lower your payments. In any case, though, I would think twice (or thrice) about using a home equity loan to secure your credit card payment. Do that last.

Option #3: Debt settlement or bankruptcy

If nothing seems to be working at all, you can reach for the final tool of desperation in these cases: Debt settlement or bankruptcy. You can usually reach settlement for unsecured debt, allowing you to pay less than you currently owe on your credit card. As an extreme last resort, bankruptcy can help lower your payments to something affordable (even though in recent years bankruptcy laws rarely allow you to walk away). In both cases, your credit will be shot, so it is not a decision to be taken lightly.

What will you do if your credit card minimum is raised?

image source: daylife

Disclaimer: I am not a financial professional. Any information you get from this site is not intended as advice. It is likely to be incomplete, and it may not apply to your individual circumstance. Do your own research, consider your situation and/or consult a professional before making money decisions.

There is a wealth of good personal finance reading out there in the blogosphere. Some of it is good common sense, and some of it is thought-provoking. Here are some of the things that caught my eye this week:

• Ten Things You Should Do When You Get Laid Off from Consumerism Commentary.
• Why Everybody Needs A Side Hustle from Frugal Dad.
• Be Successful by Learning Delayed Gratification from Bargaineering.
• Should There Be Mandatory Personal Finance Classes in High Schools? from Bible Money Matters.
• Find a Bank That Works For You from Green Panda Treehouse.
• Poor Money Choices Ruined My Parents’ Life from Lazy Man and Money.
• Best Free Events to Enjoy Almost Anywhere from Gather Little by Little.
• Things You Own End Up Owning You from My Two Dollars.
• 12 Common IRA Mistakes To Avoid from Good Financial Cents.
• 8 Ways A Recession Can Benefit You In The Long Run from Saving Advice.
• CDs vs. Bond Funds from The Oblivious Investor.
• Do You Keep Money Secrets From Your Spouse? from Free From Broke.
• 7 Tips for Talking to your Fiancé About Money from Mrs. Micah.

Back in the day, when big banks had balance sheets that made them appear flush with cash and full of value, banks offered some of the best dividends. However, between the financial meltdown and TARP, financial institutions found it necessary to cut dividends. For many investors, though, the fact that some banks have made arrangements to repay TARP and move forward, hope has been rekindled for an increase in dividends. But it is probably not likely. Financial institutions probably won’t be able to offer the same kind of dividends for quite some time. Some of the factors that may make banks reluctant to raise their dividends include:

• Losses are still expected to mount for some financial institutions. Credit card charge-offs are increasing, and commercial real estate continues to fall in value. And foreclosures could still continue to cause problems.
• More regulation may be coming. Even with TARP and its requirements behind big banks, the President has proposed regulatory overhaul, and banks are wary of what it will entail, and concerned about how it might limit profitability.

However, it is possible — even likely — that, in the future, financial institutions will raise their dividends to some degree. But I doubt they will return to previous levels anytime that could be considered soon. It will take years before banks feel good enough about economic recovery to boost their dividends.

Image source: sxc.hu

The government aims to help those with a great deal of student loan debt. In addition to arranging plans with your lenders, or applying for forbearance, the government will begin — on July 1 — a new program that helps you refinance your student loans, depending on your income. It is called the Income Based Repayment Plan.

Who qualifies for the new student loan debt program?

Those with lower incomes qualify for this student loan debt program, which allows you to make payments that are around 10% of your monthly gross income. In order to qualify, you have to have student loan debt of at least 1.5 times your your gross income. (This means I don’t qualify.) The loans included in the plan can be undergrad or grad. Professional job training certifications are also included.Your Stafford, Grad PLUS or consolidation loan of these programs are eligible. A parent PLUS Loan is not eligible. You can include old loans in this program.

For those who are having a hard time finding a job, or for those with a lot of debt relative to their income, this might be an elegant solution, one that works better than forbearance or deferment. One of the bonuses is that if you go into public service, what is left after 10 years is forgiven. If you choose the Income Based Repayment Plan, and you still owe after 25 years, that remainder is forgiven as well.

Here is an example chart of what you might pay, depending on your income and the size of your family (source: studentaid.ed.gov):

Drawbacks to the Income Based Repayment Plan

As you might guess, there are some downsides to this plan. While it can make meeting your obligations a little bit easier, there is a price to pay — in the form of increased interest paid over the life of your student loan debt. With a reduced payment, you are spreading your obligation out over a longer period of time. This means that you will probably pay more interest over the long haul. Most student loans are repaid over a period of 10 years, so that means extending out 25 years could mean a great deal of difference, even if you get the remainder forgiven.

You should also realize that you will have to submit annual documentation. This means that you have to maintain a low income in order to renew at your low income payments. If you fail to provide documentation, your payments will return to a standard repayment amount. Most lenders will probably send you reminders about renewing your documentation.

For those having difficulties due to the economy, this might be just the thing. However, it is a good idea to pay more when you are able to. Extra payments toward the principal should begin as soon as you can manage. In the end, the student loan industry is making money off of you, and the interest is money you could be using for yourself.

What do you think of the Income Based Repayment Plan for student loan debt?

One of the biggest concerns facing many Americans right now is retirement.

Looking at the damage done to retirement investment accounts, thanks to the financial crisis and the current bear market, some are looking for ways to encourage new options for retirees. Even for those with longer time frames until retirement, there is still fear. Even if retirement investment accounts recover and grow between now and retirement in 15 - 20 years, some are concerned that the next crash could pull the rug out from under them just as they retire.

Another problem revolves around the longer life expectencies that retirees are expected to have. Few people now will have enough in their retirement funds to last the 20 to 30 years that people will soon be expected to live after retiring.

Enter an ambitious new bill aimed at shoring up retirement.

In the House, the Retirement Security Needs Lifetime Pay Act (H.R. 2748) is being proposed. This bill would allow a tax break for those who take their retirement investment accounts and used them to buy a lifetime annuity. CNN Money offers a look at two of the main tax breaks offered in the bill:

1. You will be allowed to exclude 50% of annual annuity payouts from a non-qualified plan (one you invested after-tax dollars in) from taxable income. The annual maximum exclusion would be $10,000.
2. You will be allowed to exclude 25% of annual annuity payouts from a qualified plan (401(k), IRA and other tax-deferred accounts) from taxable income.

Additionally, there will also be incentives to purchase what is known as longevity insurance. This is actually another kind of annuity. You wait until you are much older — usually in your eighties — to start taking payments. As a result, the payouts are normally higher. And they would start about the time your retirement investment accounts may be running somewhat lower.

Whether or not this is the answer to the problem of investment-based retirement accounts remains to be seen. But it is clear that there are some definite concerns about the ability of Americans to have enough money throughout retirement. An annuity might be helpful. However, the downside to an annuity is that you trust the management of it someone else. I think I will need to consider the matter further (and see whether this bill makes it through and the tax breaks materialize) before deciding an annuity is right for me. So far, though, I am fairly content with my Roth IRA, which is funded largely with index funds.

Image source: Darren Hester via Flickr

Keith over at Spend on Life sent me an email late last week to find out whether or not I had heard of a new service being offered by the site. It’s called Twinancial.

Twinancial pulls finance tweets off of Twitter, aggregating them in a way that makes it easy for you to read what is being said about a number of financial topics. It looks like a very interest service, although I haven’t delved too deeply into it. Twinancial offers RSS so that you can have the tweets delivered to your reader. Unfortunately, even though Twinancial uses Twitter, it does not offer a stream of tweets from those that Keith and the folks at Spend on Life are not subscribed to.

All in all, though, Twinancial is interesting for those who want to see what finance folks are tweeting about. Have you checked out this service? What do you think about Twinancial?

I’ve finally decided to joing the club: Weekly personal finance reading that I liked (in no particular order) especially this week. I hope it’s useful to you. Feel free to share your favorites in the comments.

• Tempted To Spend? Remove The Source of The Temptation at Bible Money Matters.
• On Spending Consciously at Cash Money Life.
• When Spending the Money is Worth the Cost at My Two Dollars.
• 10 Smart Student Credit Card Rules at Bargaineering.
• An Age-Based Plan For Teaching Kids About Money at Frugal Dad.
• Choosing a Withdrawal Rate for Your Retirement Assets at Good Financial Cents.
• How To Improve Your Productivity When Working From Home at Moolanomy.
• Confessions Of A Recovering Spendaholic at Free From Broke.
• How the Foot-In-The-Door Technique Costs You Money at The Simple Dollar.