There are two rules often cited by investors that sound similar but that in fact make very different claims. In this article, I’ll describe the differences between the two rules — the Multiply-by-25 Rule and the 4-Percent Rule.

The Multiply-by-25 Rule

The purpose of The Multiply-by-25 Rule is to tell an investor how much he needs to save to generate an income stream of a specified size. Say that you need an inflation-adjusted $50,000 to live on in retirement. The Multiply-by-25 Rule tells you that you need to save $1.25 million to meet your goal ($50,000 times 25 equals $1.25 million)

The rule assumes that you will be able to generate an annualized real return of at least 4 percent on your investments. A return of 4 percent real on a portfolio of $1.25 million yields $50,000. If you needed $40,000 to live on, you would need to save $1 million. If you needed $60,000, you would need to save $1.5 million. The amount you need to save to generate a specified annual income is always 25 times the annual income amount so long as you assume a 4 percent real return on your investments.

For those who think it better to assume a real return of only 3 percent, the Multiply-by-25 Rule should be changed to the Multiply-by-33 Rule. For those who think it safe to assume a 5 percent return, the Multiply-by-25 Rule should be changed to the Multiply-by-20 Rule. Whatever Multiply-By Rule is used will work so long as the underlying assumption employed with it works. So you obviously increase your chances of having the rule work by using conservative return assumptions.

The 4-Percent Rule

The 4-Percent Rule is often confused with the Multiply-by-25 Rule because the Multiply-by-25 Rule assumes a 4 percent return. However, the reality is that the 4-Percent Rule addresses a far more sophisticated question and is rooted in far more questionable assumptions.

How much do you need to save to finance a safe retirement plan?

The 4 Percent Rule was developed during the huge bull market, when most investors were heavily invested in stocks. Aspiring retirees came to see that the Multiply-by-25 Rule (or any of the possible variations of it) does not answer their most important question — how much does an investor heavily invested in stocks need to save to finance a safe retirement plan?

The problem is that, when it comes to stock investment, the return obtained is not the only variable that matters in determining whether a retirement withdrawal amount will work out or not. Stocks have for a long time provided an average annual return of something close to 7 percent real. But there are many cases in the historical record in which retirees taking a 7 percent withdrawal would have experienced busted retirements.

If stocks provided a steady 7 percent return, the 4-Percent Rule would instead be the 7-Percent Rule. Retirees could withdrawal 7 percent of their portfolios each year and be sure of their retirement plans working out. But it doesn’t work like that in the real world.

Stocks are a highly volatile asset class. While they provide an average return of close to 7 percent, there are years when they offer returns far greater than that and other years when they offer returns far less than that. What sort of returns sequence pops up in your particular retirement plays a big role in determining whether your retirement plan works out or not.

For retirees, timing is everything

The key to retirement survival is for the retiree to experience good results in the first 10 years of the retirement. If you knew in advance that the first 10 years were going to be better-than-average years, you could actually take more than 7 percent as your withdrawal. The converse is also true. If you knew in advance that the first 10 years were going to be worse-than-average years, you would need to take a withdrawal of a good bit less than 7 percent to be sure that your retirement plan was going to work out.

The Safe Withdrawal Rate

The studies responsible for the 4-Percent Rule tried to answer the question — How much less? The answer they came to is 3 percent less, or 4 percent. The studies look at all of the returns sequences in the historical record and identify a withdrawal of 4 percent as the highest withdrawal that works in every possible case. Hence, the claim that a 4 percent withdrawal is “safe.”

The claim that a 4 percent withdrawal is safe is not a claim that the investor will obtain a return of 4 percent. The studies that produced this rule look at what works in the event that the investor is willing to see his retirement account reduced to zero over the course of 30 years. With this assumption, a return of zero percent would generate a safe withdrawal rate of 3.3 percent. The fact that the studies show the safe withdrawal rate to be only 4 percent suggests that stocks provide a level of long-term safety not much better than that provided by an asset class providing an asset class offering a stable return of something only a little better than zero percent.

That’s shocking, isn’t it?

It is. It’s also revealing.

What the low withdrawal rate is telling us is that the volatility of stocks is a far more negative force than most of us imagine it to be. The assumed rate of return in the studies is neither zero percent nor 4 percent; it is actually something close to 7 percent, the normal return for stocks. The reason why the safe withdrawal rate is so much lower is that volatility creates the possibility of frighteningly poor returns in the early years of a retirement, and poor returns in the early years are devastating to the hopes of long-term retirement success.

Say that you knew two retirees, one who retired last July (just prior to the huge stock crash) and one who retired last week. Say that both had the same amount in savings on the day of retirement and both were planning on the same annual withdrawal. Which of the two enjoys the safer retirement today? It’s obviously the one who retired last week. The earlier retiree has a far smaller portfolio and needs it to last nearly as long. Big losses in the early years of a retirement are bone-crushers.

Conclusion

My personal belief is that both of these rules bring to light useful insights as to how investing works but that neither by itself tells the full story. I believe strongly that the 4-Percent Rule at some times overstates and at other times understates the amount needed for a safe retirement; at times of high valuations the true safe withdrawal can drop to as low as 2 percent and at times of low valuations it can rise to as high as 9 percent. The Multiply-by-25 Rule isn’t by itself perfect either. There are times when obtaining a 4 percent return is child’s play and there are times when you need to go hunting for a mix of asset classes that will provide that level of return.

Effective retirement planning requires the mining of insights from a variety of sources. Both the Multiply-by-25 Rule and the 4-Percent Rule offer valuable insights. But neither the Multiply-by-25 Rule nor the 4 Percent Rule tell you all that you need to know. Even combined, these two rules do not tell you all that you need to know.

Do you have a financial question? Ask it now at Moolanomy Answers!

Copyright © 2007 – 2009 Pinyo B. This feed is provided for the convenience of Moolanomy’s subscribers. You are not allowed to reproduce the content within this feed in any manner.

Please visit Moolanomy Personal Finance Blog, Moolanomy Finance Directory, and Moolanomy Answers for more great content.

Source: Moolanomy Personal Finance

I have been a Discover customer since 1996 — right out of college — and for good reason. I believe that Discover is one of the very few financial institutions that put their customers first and continue to innovate. As of today, Discover Bank announced their Penalty-Free 12 Month CD. Despite the added feature, the interest rate remains competitive at 2.20% APY (see top CD rates for comparison).

How Does The Bank Penalty-Free 12 Month CD Works?

If you involuntarily lose your job during the term of the CD, you will be allowed to make a partial withdrawal of the funds or close the account with a full return of your principal and any credited interest with no penalties. The program also applies if you are self-employed.

Who is eligible for the No Penalty CD?

To be eligible, you must meet the following conditions:

1. You must open or renew a 12-month CD with a minimum $2,500 balance between July 1 and Dec. 31, 2009.
2. The account must be open for at least 30 days — i.e., benefit does not apply within the first 30 days of account opening or renewal.
3. If you are employed by a business or organization, you must:
   • Be employed full time when the CD was opened or renewed, and for 30 days thereafter, and
   • Involuntarily lose your job
4. If you are self-employed when CD was opened or renewed, you must have suffered one of the following events after account opening or renewal:
   • Business property or inventory damage, or
   • Business closure for at least 5 business days due to fire or flood.

In addition to No Penalty CD, Discover has other excellent products such as Prepaid Credit Card for Teens With Parental Controls, 5% Cashback reward program, etc. Their account center also has numerous financial tools — one of my favorites is the Paydown Planner.

Do you have a financial question? Ask it now at Moolanomy Answers!

Copyright © 2007 – 2009 Pinyo B. This feed is provided for the convenience of Moolanomy’s subscribers. You are not allowed to reproduce the content within this feed in any manner.

Please visit Moolanomy Personal Finance Blog, Moolanomy Finance Directory, and Moolanomy Answers for more great content.

Source: Moolanomy Personal Finance

In challenging times, we are always looking for ways to reduce our expenses. But often, the last place we think about cutting costs is the best place to save some money. One example of this is your monthly cell phone plan — a great opportunity to reduce spending without significantly changing your lifestyle.

Adjusting Your Cell Phone Plan

Most people would never consider adjusting their cell phone plan. They figure in this day and age, cell phones are a necessity. However, adjusting your plan does not mean you are cutting out cell phones entirely. Instead, you are trying to optimize your plan for your current level of consumption. Many consumers pay for far more minutes than they actually use. By switching to a prepaid cell phone, many users could save up to several hundred dollars per year.

How Does A Prepaid Phone Work?

It’s actually very simple. Instead of paying a monthly fee, you simply buy a fixed number of minutes for the year. For example, TracFone, a major provider of prepaid minutes, offers a package of 400 minutes for $99. These minutes can be used anytime during the one-year period. Depending on which phone you purchase, you could receive bonus minutes as part of the plan.

Advantages Of A Prepaid Cell Phone Plan

Prepaid cell phone helps you cut monthly expenses

Using prepaid cell phone is a great way for infrequent cell phone users to cut out a monthly expense. Many mainstream plans cost between $50 and $100 per month, or between $600 and $1,200 per year. Why pay for all of these minutes if you are not going to use them? With a prepaid plan, you are only paying for what you consume, and if you run out of minutes, you are always free to buy more. Buying additional minutes is very easy and can be done online or from the cell phone itself

Prepaid cell phone has less hidden fees

Prepaid phones also reduce hassle. You don’t need to worry about excessive taxes, fees, or late charges. You don’t have to worry about the cell phone contract or early termination fee.

Prepaid cell phone are easy to purchase online

Most phones and plans can be purchased online in less than 20 minutes through reputable companies that safely and securely store your personal information. The quality of service is just as good, and most plans will allow you to keep your old cell phone number.

Although prepaid cell phones can save money, they are not for everyone. For those who use cell phones frequently (more than 400 minutes per month), a high-use or unlimited plan might be the way to go. But average American uses fewer than 300 minutes per month, and many use significantly less. If you are one of those consumers, the prepaid option might be an excellent choice to explore.

Do you have a financial question? Ask it now at Moolanomy Answers!

Copyright © 2007 – 2009 Pinyo B. This feed is provided for the convenience of Moolanomy’s subscribers. You are not allowed to reproduce the content within this feed in any manner.

Please visit Moolanomy Personal Finance Blog, Moolanomy Finance Directory, and Moolanomy Answers for more great content.

Source: Moolanomy Personal Finance

The following is a list of top 16 discount brokers from SmartMoney Magazine’s Top Discount Brokerages ranking. However, this list is focused on cheap online stock trading for active traders, and it is sorted from the lowest commission cost to the highest. In addition, special offers and features for these discount brokers are listed to help you decide.

Best Discount Brokers For Active Stock Traders

* For clients with a brokerage balance of $50,000 making up to 20 trades per year.

My top choice from the list is E*Trade, because it’s best all around and the price of $9.99 per trade is still inexpensive. Additionally, E*Trade gives you access to full banking services through its Complete Savings Account without added charges. This includes the ability to pay bills online, make instant cash transfers, and have fees for ATM withdrawals automatically rebated to your account.

Do you have a financial question? Ask it now at Moolanomy Answers!

Copyright © 2007 – 2009 Pinyo B. This feed is provided for the convenience of Moolanomy’s subscribers. You are not allowed to reproduce the content within this feed in any manner.

Please visit Moolanomy Personal Finance Blog, Moolanomy Finance Directory, and Moolanomy Answers for more great content.

Source: Moolanomy Personal Finance

Aside from all the celebrities deaths this week (R.I.P.), the biggest news relevant to personal finance this week was the Cash for Clunkers Bill. The Bill entitles you to a $3,500 or $4,500 credit for trading a drivable car made within the last 25 years, with a combined city/highway fuel economy rating of 18 mpg or less to a new higher fuel efficiency car. If the mileage improvement is 4 mpg or better, you’ll get $3,500. If your improvement is 10 mpg or better, you’ll get $4,500.

Photo by mzacha from stock.xchng

How the credit works?

You don’t have to do much to get the credit. Participating car dealers will apply a credit and reduce the price you pay at the time of your purchase or lease, assuming the vehicle you buy or lease and the vehicle you trade in meet the program requirements. The dealer will then obtain reimbursement from the government.

How will this help our economy?

There are two primary benefits of this bill. First, it helps stimulate the auto industry by helping them sell 1 million new cars. Second, it helps the environment by removing inefficient cars with more fuel efficient ones.

What the oppositions are saying?

Some people do not support this bill citing the following reasons:

1. It prematurely remove cars that are still functional from the road, and the pollution created during the process of manufacturing 1 million new cars may outweigh the benefit of removing 1 million inefficient cars.
2. Cash for clunkers will hurt car donations to charity because the amount of the voucher is so much greater than the tax deduction.

What to do next?

If you want to take advantage of the program, you have to act fast because there are only 1 million vouchers available. To learn more about the program, check out the official Car Allowance Rebate System site at CARS.gov (you got to love the acronym)! To check if your car meets the fuel mileage requirement, visit the FuelEconomy.gov site.

Learn More

If you’d like to learn more, here are a collection of articles about the Cash for Clunker program.

• 10 Things You Should Know About Cash for Clunkers at US News Fresh Greens by Maura Judkis (recommended)
• President Obama signs cash for clunkers bill from ConsumerReports.org
• Does your car qualify for Cash for Clunkers program? at WalletPop
• Cash for Clunkers Bill at Cash Money Life
• Cash for your clunker stimulus bill at Christian Personal Finance
• Cash for Clunkers Program at Frugal Dad
• Cash For Clunkers Rebate Program Might Save You Money On Your Next New Car Purchase. But Is It A Good Idea? at Bible Money Matters
• “Cash for clunkers” bill passed by Congress – what does it mean for consumers? at Wise Bread
• Cash for Clunkers: Is It Worth It? at MyLifeROI
• Cash for Clunkers Explained at Suburban Dollar
• Cash for Clunkers, A Clunker of a Law at Richer By The Day

Have a great weekend!

Do you have a financial question? Ask it now at Moolanomy Answers!

Copyright © 2007 – 2009 Pinyo B. This feed is provided for the convenience of Moolanomy’s subscribers. You are not allowed to reproduce the content within this feed in any manner.

Please visit Moolanomy Personal Finance Blog, Moolanomy Finance Directory, and Moolanomy Answers for more great content.

Source: Moolanomy Personal Finance

I came across “Chase Hiked My Minimum Payment To 5 Percent!” on The Consumerist today. This is bad news for Greg and his wife, because this hike increase their minimum payment $558 to $930 — which causes them significant financial stress. Although I sympathized with the dilemma that Greg and his wife are facing, I think Chase is doing their cardholders a big favor. Assuming their interest rate is 19.99%, it would take Greg and his wife 84 months to paying down a balance of $25,000. This would cost them $21,872 in interest! By increasing the minimum payment to $930, their credit card debt would be paid off in 36 months with only $8,480 in interest.

Note: Based on additional information (see comments). Chase is raising minimum payments on customers with low interest rates to force them to take a higher interest rate in exchange for a lower minimum payment. I fully agree with comments below this is just unethical and devious on Chase’s part. However, I still believe in the main point I am trying to make: in general, minimum payment should be higher because the current low minimum payment is designed to keep cardholders in debt as long as possible.

Personally, I think credit card companies should calculate the minimum payment based on 36 months pay off period. I think it’s more responsible. Also, this will force the consumers to see their increasing minimum payment amounts and hopefully sway them toward spending less.

How Can Cardholders Deal With This Hike If They Can’t Afford It?

How can cardholders that are in the same situation as Greg and his wife handle this minimum payment hike? I know it’s not easy, especially when a job loss is involved. Here are some ideas that will hopefully help folks that are facing this dilemma.

Cut your expenses until it hurts

Start a budget and track your expenses. Go over your budget carefully and reduce your expenses like a mad man. Do you need that cable TV? iPhone and the mega expensive plan? Playboy subscription? extra car? daily Starbucks coffee? Probably not. If you have any of these, you can afford to pay the higher minimum payment — you just choose not to do it.

More ways to ease the pain

But what if your expenses are already at the bare bone? Extra income would be nice, but earning extra money takes time and you can’t afford to wait too long. Building extra income will have to wait until you can fix the immediate problem. So here are a few ideas:

• Borrowing from Whole Life Insurance. If you have one, you may be able to borrow against the cash value of your whole life policy.  However, this option will lower you death benefit and significantly stunt your insurance policy value. You may even consider liquidating your policy to free up your cash flow and take care of your immediate financial problem.
• Transfer you credit card balance. You can transfer your balance to a different company that charges lower minimum payment. This is a short-term fix, but it’s still better than being delinquent, paying late fee, and having your interest rate hiked.
• Borrowing from Lending Club. Borrowers with good credit can access up to $25,000 for as little as 7.88% APR. Realistically, you probably won’t get the best advertised rate, but the rate you get might be better than what Chase is charging. The loan term is 36 months, but the minimum payment will be lower due to the lower interest rate.
• Home Equity Loan. If you own a home, you may be able to take out a loan to pay off your credit card debt. Of course, you’re trading unsecured loan for a secured one and risk losing your home if you can’t keep up with the payments. It’s an option, but think carefully before going down this road.

More extreme ways to deal with the problem

If the options above are not working for you, you may want to consider debt settlement or bankruptcy. However, many people choose not to take these options as a way out due to personal reasons.

If that’s you, you can try borrowing from your 401(k). If you choose to borrow, remember that you are giving up a lot of benefits — e.g., future financial security, bankruptcy protection, potential growth, etc. And if you lose your job, you’ll have to find a way to pay back the loan or risk paying the early withdrawal penalty and taxes.

It’s Good, but It Hurts

In the end, I think this is a great change that will help everyone in the long-term. Certainly, it is acting as a wake up call for a lot of people. So what do you think about this minimum payment hike?

Do you have a financial question? Ask it now at Moolanomy Answers!

Copyright © 2007 – 2009 Pinyo B. This feed is provided for the convenience of Moolanomy’s subscribers. You are not allowed to reproduce the content within this feed in any manner.

Please visit Moolanomy Personal Finance Blog, Moolanomy Finance Directory, and Moolanomy Answers for more great content.

Source: Moolanomy Personal Finance

Aside from all the celebrities deaths this week (R.I.P.), the biggest news relevant to personal finance this week was the Cash for Clunkers Bill. The Bill entitles you to a $3,500 or $4,500 credit for trading a drivable car made within the last 25 years, with a combined city/highway fuel economy rating of 18 mpg or less to a new higher fuel efficiency car. If the mileage improvement is 4 mpg or better, you’ll get $3,500. If your improvement is 10 mpg or better, you’ll get $4,500.

Photo by mzacha from stock.xchng

How the credit works?

You don’t have to do much to get the credit. Participating car dealers will apply a credit and reduce the price you pay at the time of your purchase or lease, assuming the vehicle you buy or lease and the vehicle you trade in meet the program requirements. The dealer will then obtain reimbursement from the government.

How will this help our economy?

There are two primary benefits of this bill. First, it helps stimulate the auto industry by helping them sell 1 million new cars. Second, it helps the environment by removing inefficient cars with more fuel efficient ones.

What the oppositions are saying?

Some people do not support this bill citing the following reasons:

1. It prematurely remove cars that are still functional from the road, and the pollution created during the process of manufacturing 1 million new cars may outweigh the benefit of removing 1 million inefficient cars.
2. Cash for clunkers will hurt car donations to charity because the amount of the voucher is so much greater than the tax deduction.

What to do next?

If you want to take advantage of the program, you have to act fast because there are only 1 million vouchers available. To learn more about the program, check out the official Car Allowance Rebate System site at CARS.gov (you got to love the acronym)! To check if your car meets the fuel mileage requirement, visit the FuelEconomy.gov site.

Learn More

If you’d like to learn more, here are a collection of articles about the Cash for Clunker program.

• 10 Things You Should Know About Cash for Clunkers at US News Fresh Greens by Maura Judkis (recommended)
• President Obama signs cash for clunkers bill from ConsumerReports.org
• Does your car qualify for Cash for Clunkers program? at WalletPop
• Cash for Clunkers Bill at Cash Money Life
• Cash for your clunker stimulus bill at Christian Personal Finance
• Cash for Clunkers Program at Frugal Dad
• Cash For Clunkers Rebate Program Might Save You Money On Your Next New Car Purchase. But Is It A Good Idea? at Bible Money Matters
• “Cash for clunkers” bill passed by Congress – what does it mean for consumers? at Wise Bread
• Cash for Clunkers: Is It Worth It? at MyLifeROI
• Cash for Clunkers Explained at Suburban Dollar
• Cash for Clunkers, A Clunker of a Law at Richer By The Day

Have a great weekend!

Do you have a financial question? Ask it now at Moolanomy Answers!

Copyright © 2007 – 2009 Pinyo B. This feed is provided for the convenience of Moolanomy’s subscribers. You are not allowed to reproduce the content within this feed in any manner.

Please visit Moolanomy Personal Finance Blog, Moolanomy Finance Directory, and Moolanomy Answers for more great content.

Source: Moolanomy Personal Finance

I came across “Chase Hiked My Minimum Payment To 5 Percent!” on The Consumerist today. This is bad news for Greg and his wife, because this hike increase their minimum payment $558 to $930 — which causes them significant financial stress. Although I sympathized with the dilemma that Greg and his wife are facing, I think Chase is doing their cardholders a big favor. Assuming their interest rate is 19.99%, it would take Greg and his wife 84 months to paying down a balance of $25,000. This would cost them $21,872 in interest! By increasing the minimum payment to $930, their credit card debt would be paid off in 36 months with only $8,480 in interest.

Note: Based on additional information (see comments). Chase is raising minimum payments on customer with low interest rates to force them to take higher rate in exchange for a lower minimum payment. I fully agree with comments below that this is just unethical and devious on Chase’s part. However, I still believe in the main point I am trying to make: in general, minimum payment should be higher because the current low minimum payment is designed to keep cardholders in debt as long as possible.

Personally, I think credit card companies should calculate the minimum payment based on 36 months pay off period. I think it’s more responsible. Also, this will force the consumers to see their increasing minimum payment amounts and hopefully sway them toward spending less.

How Can Cardholders Deal With This Hike If They Can’t Afford It?

How can cardholders that are in the same situation as Greg and his wife handle this minimum payment hike? I know it’s not easy, especially when a job loss is involved. Here are some ideas that will hopefully help folks that are facing this dilemma.

Cut your expenses until it hurts

Start a budget and track your expenses. Go over your budget carefully and reduce your expenses like a mad man. Do you need that cable TV? iPhone and the mega expensive plan? Playboy subscription? extra car? daily Starbucks coffee? Probably not. If you have any of these, you can afford to pay the higher minimum payment — you just choose not to do it.

More ways to ease the pain

But what if your expenses are already at the bare bone? Extra income would be nice, but earning extra money takes time and you can’t afford to wait too long. Building extra income will have to wait until you can fix the immediate problem. So here are a few ideas:

• Borrowing from Whole Life Insurance. If you have one, you may be able to borrow against the cash value of your whole life policy.  However, this option will lower you death benefit and significantly stunt your insurance policy value. You may even consider liquidating your policy to free up your cash flow and take care of your immediate financial problem.
• Transfer you credit card balance. You can transfer your balance to a different company that charges lower minimum payment. This is a short-term fix, but it’s still better than being delinquent, paying late fee, and having your interest rate hiked.
• Borrowing from Lending Club. Borrowers with good credit can access up to $25,000 for as little as 7.88% APR. Realistically, you probably won’t get the best advertised rate, but the rate you get might be better than what Chase is charging. The loan term is 36 months, but the minimum payment will be lower due to the lower interest rate.
• Home Equity Loan. If you own a home, you may be able to take out a loan to pay off your credit card debt. Of course, you’re trading unsecured loan for a secured one and risk losing your home if you can’t keep up with the payments. It’s an option, but think carefully before going down this road.

More extreme ways to deal with the problem

If the options above are not working for you, you may want to consider debt settlement or bankruptcy. However, many people choose not to take these options as a way out due to personal reasons.

If that’s you, you can try borrowing from your 401(k). If you choose to borrow, remember that you are giving up a lot of benefits — e.g., future financial security, bankruptcy protection, potential growth, etc. And if you lose your job, you’ll have to find a way to pay back the loan or risk paying the early withdrawal penalty and taxes.

It’s Good, but It Hurts

In the end, I think this is a great change that will help everyone in the long-term. Certainly, it is acting as a wake up call for a lot of people. So what do you think about this minimum payment hike?

Do you have a financial question? Ask it now at Moolanomy Answers!

Copyright © 2007 – 2009 Pinyo B. This feed is provided for the convenience of Moolanomy’s subscribers. You are not allowed to reproduce the content within this feed in any manner.

Please visit Moolanomy Personal Finance Blog, Moolanomy Finance Directory, and Moolanomy Answers for more great content.

Source: Moolanomy Personal Finance

I came across “Chase Hiked My Minimum Payment To 5 Percent!” on The Consumerist today. This is bad news for Greg and his wife, because this hike increase their minimum payment $558 to $930 — which causes them significant financial stress. Although I sympathized with the dilemma that Greg and his wife are facing, I think Chase is doing their cardholders a big favor. Assuming their interest rate is 19.99%, it would take Greg and his wife 84 months to paying down a balance of $25,000. This would cost them $21,872 in interest! By increasing the minimum payment to $930, their credit card debt would be paid off in 36 months with only $8,480 in interest.

Personally, I think credit card companies should calculate the minimum payment based on 36 months pay off period. I think it’s more responsible. Also, this will force the consumers to see their increasing minimum payment amounts and hopefully sway them toward spending less.

How Can Cardholders Deal With This Hike If They Can’t Afford It?

How can cardholders that are in the same situation as Greg and his wife handle this minimum payment hike? I know it’s not easy, especially when a job loss is involved. Here are some ideas that will hopefully help folks that are facing this dilemma.

Cut your expenses until it hurts

Start a budget and track your expenses. Go over your budget carefully and reduce your expenses like a mad man. Do you need that cable TV? iPhone and the mega expensive plan? Playboy subscription? extra car? daily Starbucks coffee? Probably not. If you have any of these, you can afford to pay the higher minimum payment — you just choose not to do it.

More ways to ease the pain

But what if your expenses are already at the bare bone? Extra income would be nice, but earning extra money takes time and you can’t afford to wait too long. Building extra income will have to wait until you can fix the immediate problem. So here are a few ideas:

• Borrowing from Whole Life Insurance. If you have one, you may be able to borrow against the cash value of your whole life policy.  However, this option will lower you death benefit and significantly stunt your insurance policy value. You may even consider liquidating your policy to free up your cash flow and take care of your immediate financial problem.
• Transfer you credit card balance. You can transfer your balance to a different company that charges lower minimum payment. This is a short-term fix, but it’s still better than being delinquent, paying late fee, and having your interest rate hiked.
• Borrowing from Lending Club. Borrowers with good credit can access up to $25,000 for as little as 7.88% APR. Realistically, you probably won’t get the best advertised rate, but the rate you get might be better than what Chase is charging. The loan term is 36 months, but the minimum payment will be lower due to the lower interest rate.
• Home Equity Loan. If you own a home, you may be able to take out a loan to pay off your credit card debt. Of course, you’re trading unsecured loan for a secured one and risk losing your home if you can’t keep up with the payments. It’s an option, but think carefully before going down this road.

More extreme ways to deal with the problem

If the options above are not working for you, you may want to consider debt settlement or bankruptcy. However, many people choose not to take these options as a way out due to personal reasons.

If that’s you, you can try borrowing from your 401(k). If you choose to borrow, remember that you are giving up a lot of benefits — e.g., future financial security, bankruptcy protection, potential growth, etc. And if you lose your job, you’ll have to find a way to pay back the loan or risk paying the early withdrawal penalty and taxes.

It’s Good, but It Hurts

In the end, I think this is a great change that will help everyone in the long-term. Certainly, it is acting as a wake up call for a lot of people. So what do you think about this minimum payment hike?

Do you have a financial question? Ask it now at Moolanomy Answers!

Copyright © 2007 – 2009 Pinyo B. This feed is provided for the convenience of Moolanomy’s subscribers. You are not allowed to reproduce the content within this feed in any manner.

Please visit Moolanomy Personal Finance Blog, Moolanomy Finance Directory, and Moolanomy Answers for more great content.

Source: Moolanomy Personal Finance

No need to borrow money for vacation. Because I will tell you the discount all inclusive package for his summer. Its last time to travel this summer, just take a break from your work and induce your lover or your family go to beach. If you buy one of all inclusive travel deals which offer from many luxury resorts on the wonderful beach around the Caribbean. During the summer is the safe time for traveling, it with out the Hurricane as well.

The packages will be included the services that you can stay and relax in their resort with in the time. You can enjoy with clear sea, beautiful beach, water sport activities and more beach activities that you want. Just take a look for your trip from discount vacation packages.

By the way, there are also services for couple who want to marry. It is an amazing time for wedding couple will have chance for special day by wedding on beach, just choose from caribbean weddings destination.

Source: Personal loan Information : Auto loan, Home loan, Internet bank, Mortgage