Finance 101

This is the first guest post that I have approved for this site. Today's post is by Jack Reed. Jack is a financial writer associated with Oak View Law Group. He offers advice on debt related issues.

Your credit score is a number that acts as a yardstick to measure your financial trustworthiness. Your financial ability depends upon your credit score which can easily be determined by your credit report. A large number of Americans today are greatly disturbed by their dwindling credit scores as banks and credit card companies use credit scores to evaluate the potential risk posed by lending money to consumers.

A lot of factors can cause you to have a bad credit score. Resorting to debt settlement can hurt your credit score almost as much as bankruptcy would. Therefore, it is your responsibility to take constructive steps so that your credit history is not hampered by anything. Given below are some points that you should keep in mind in order to maintain a good credit score:

1. Know how it is calculated: The more informed you are about your credit score, the better it is. You must know what goes into a good credit score. Five key pieces of
   information that are used to calculate your credit score are your payment history, level of debt, credit age, mix of credit and recent credit. Keeping these in mind will help you stay away from making mistakes which lead to a bad credit score.


2. Make your payments on time: Clearing your payments on time and in full is of utmost importance when it comes to keeping up a good credit score. And this goes for all your bills, not just your credit cards and loans.


3. Maintain your credit balance: You should keep your credit balance within 30% of your credit limit so that it does not have a negative impact on your credit report. The higher your credit balance is, the worse your credit score will be.


4. Handle your debts: If you think that only credit card balances affect your credit score then you are wrong. Having too much debt also can cause a dip in your credit score and make it difficult for you to afford your monthly payments. Try to keep your debts as minimal as possible to maintain a good credit score.


5. Keep old cards active: The older your credit history, the better is your credit score. Therefore, keep your old cards active by purchasing something small on it very often. And make sure to keep your credit history clean by making full payments.


6. Do not apply for new credit: Every time you apply for credit, an inquiry is added to your report which slightly drops your credit score Therefore, do not get any new credit unless absolutely necessary.


7. Review your credit report: Your credit report might sometimes contain erroneous information. Identity theft and credit card fraud can also lead to inaccurate information on your credit report. If it is wrong in anyway, you should ask the credit reporting bureaus to fix the error.

A good credit score is your ticket to the best interest rates. It’s a long term process and you should be patient enough to gradually see a positive change to reach that magic number!

Disclaimer: Please be aware that the appearance of this article on my website does not mean that I endorse the products of the company that the author represents. The thoughts and views of the author are their own and may not be the same as my own.

All of my life I've heard about diversifying your assets by having stocks and bonds. I kind of know what a stock is but the other day I wondered, just what's a bond, and why would I want one? If you have the same questions then stay tuned for the latest installment of my basic finance course: Finance 101.

I actually own some bonds. My last employer offered employees the ability to purchase bonds automatically through a direct payroll deduction on a monthly basis. I figured, hey, why not and allocated $100 each month for about 6 months towards bonds. They were mailed directly to my mom, and I promptly forgot about them until I bumped into an old pay stub last week. I began to wonder, just what the heck did I purchase anyway? Let's begin with definitions. According to About.com, a bond is "simply an 'IOU' in which an investor agrees to loan money to a company or government in exchange for a predetermined interest rate." Great! So who's the investor? Well, in this case that would be me or whoever purchased bonds. Sweet! I'm an investor. Now, how do I make money from this? This is where it gets interesting. It all depends on what types on bonds you've purchased.

The Federal government, state governments, cities, school districts, colleges, some nonprofits and corporations can all issue bonds, but you should know that not all bonds are created equal. Only bonds issued by the US Treasury can be called a US Savings Bond. No matter who issues your bond though, all bonds will pay you back your original investment plus interest (also called the yield or the coupon rate) on a set date in the future called the maturity date...that is unless the bond is "callable" which just means that the company can pay you back earlier than the maturity date. This will reduce the amount of interest that you earn, but I'm getting ahead of myself.

Now you're probably thinking, "when the hell do I get my interest"? Bonds can pay you interest monthly, quarterly, semi-annually, or annually. There also exists an extra special bond which does not pay you any interest until the maturity date. Those bonds are called "zero coupon" bonds. In order to entice you to purchase zero coupon bonds, they are often offered at significant discounts but have long maturity dates. It is possible to purchase a $10,000 bond for only $5,000. At 32 this one appeals to me. Man, there's so much to cover.

The government always wants its cut of your money. Any interest that is paid to you on bonds are subject to income taxes. That's one nasty little footnote, but wait, there is an asterisk here. Bonds issued by the US Treasury are not subject to state and local taxes. You might have to pay Federal taxes though. That's nice, but there's a bond that does one better. The Federal government can't charge you tax on municipal bonds which are usually issued by local governments, and since these local governments want to entice you to purchase their bonds and no one else's bonds, they often exempt their bonds from local taxes as well. This means that municipal bonds can accrue interest totally tax free.

Hey there! If you're following along this is part three in my Finance 101 series.


If you're still employed and your employer hasn't dropped your healthcare program then your open enrollment period is about to begin. There is where you get to change your healthcare options. If your company offers a flexible sending account or an FSA this is also the time for you to select how much money you would like to contribute to that account for the next year. Last year I realized that many people didn't understand how the whole flexible spending account thing worked and how it can benefit you. You won't be a part of that group after this post. If you want the short, short version then it's simple: money for healthcare expenses is deducted on a pre-tax basis thereby reducing your taxable income. Now you may go. For those who want to understand how it works, read on.

First, there are two major kinds of FSA's. The first and probably most popular is the medical FSA. The other is dependent care FSA. The names are pretty self-explanatory. The medical FSA allows you to pay for healthcare based fees that you incur over a calendar year that are not covered by your health insurance. That includes over-the-counter medications (bandages even), vision and dental care. Sorry, but the cosmetic surgery you've been saving up for won't count! The same goes for teeth whitening and insurance premiums too. Yeah that one annoys me too. I like to keep on the right side of the law so you should probably read IRS publication 502 which pretty much lists everything that's covered and not covered. Oh, and individual employers determine the maximum that you can set aside.

A dependent care FSA allows you to pay the cost of out-of-pocket child care expenses for dependents under the age 13. Dependent care FSA funds can also be used to pay for elder care expenses for older dependents incapable for self-care as long as they are your dependent. The annual maximum is set at $5,000 per household ($2,500 if married and not filing a joint tax return) and funds are available as they are contributed. You can use these funds for things like daycare, pre-school, babysitters and home health workers. Read IRS Publication 503 for more information on that.

This is part two in my Finance 101 series and it's a long one. This time we're learning about peer-to-peer, person-to-person, social, P2P or sometimes micro lending. The concept has many names but it's basically the same thing - you are getting a loan from a private individual instead of a bank. That's the short, short version for those without the time to stick around for the article. The rest of this post is directed to those who are completely clueless about the process. Read on.

Let's begin with the most basic. According to Wikipedia, this is a type of lending or borrowing "which occurs directly between individuals ('peers') without the intermediation/participation of a traditional financial institution." I like my definition better. You're thinking, well how does this work? Let's look at two scenarios.

I'm starting a new series here called Finance 101. When the mood stikes me I'll cover one basic consumer finance topic that I think will help us as we both get out of debt. Let's begin this series with the most basic thing...why banks need you to open accounts and deposit money in the banks.

Deposit accounts are your typical savings or checking accounts where you deposit money into an account at a bank. They're sometimes called demand accounts meaning that they have to give you your money when you ask for it. When you deposit money at a bank, the bank now physically has your cash and gives you some note that says they're holding that money for you. It might be your deposit receipt, your statement or a passbook. So, the bank now counts your money as their asset but also lists that same money as a liability that they owe to you. What's just happened is that you have effectively given the bank a loan and now they owe you the money whenever you come back and say that you want it or when you spend it by using debit cards or checks.

Now you're wondering, why the hell does the bank count this as their asset? Well, it gives then the ability to use the money that you have deposited in order to make money for the bank. So your money might be packaged together with other deposits and the bank will give out a loan. It can be a car note or a mortgage or a personal loan - basically whatever will make them money. The way that the bank makes money is in charging fees and interests for the loans that they issue. If you're lucky and you have a savings account the bank will pay you some form of interest in the hopes that you keep more money in the bank for a longer time. Whatever interest they pay you is a tiny fraction of what they are charging the person who took out the loan. Now you know why banks want you to open accounts and deposit money. Let's get to how you can use this to your advantage.

So far this year I've made $175 in interest from just opening two free checking accounts at different banks. You're thinking, wow! How did she manage to do that? Simple. Remember that whole banking crisis fiasco? The banks all want to pay back the money that they owe the government and return to profitability. In order to do that they need you to deposit money in the bank so that they can make loans again. They are so desperate that they are willing to pay you to open and fund accounts. Typically you need to open an account with $50-$100 and make 6 direct deposits or make a certain number of debit card purchases. After you have met whatever qualifications they have and had your account open for whatever period is in their offer, they will deposit the "interest" and you are free to do what you want with it.

I did that with Chase by funneling $25 each paycheck into a checking account. I closed the account as soon as had my "interest" payment. I earned $125 from that one. Now I'm on to Capital One and they are offering $200. That's not too shabby for very little work.

Currently Chase is offering $100 to open the account. Please use this link for the offer. Comerica Bank also has some offers as well. They have too many hoops to jump through for me though. I will add the Capital One offer next week once I verify it. Come back to this post for an update. I'll also list current offers on the left sidebar.

Do you know of any other offers? Let me know and I'll share it. Class dismissed!