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definite advantages

Paying Down Credit Cards versus Building Up Savings

June 14, 2009

in Personal Finance

If you’ve ever been hit with an unexpected expense, you know that you need some source of funding to fall back on at all times. A savings account makes the most sense, because it gains interest. But many consumers use their credit cards as a safety net, even though they know it will cost them more in the long run.

Those who are saddled with credit card debt, either because of using them for emergencies or simply overusing them, are painfully aware of how interest and fees accumulate. They swear that when they get out of debt, they will start saving money to avoid having their finances fall back into ruin. And if they’re serious about it, they might put every spare dollar toward paying down that balance.

Paying off high-interest debts has definite advantages. Most importantly, it can save you lots of money over paying just the minimum payment each month. It also frees up your credit line so that you can use it if you have to. But is paying down credit card debt more important than building up savings?

There is some disagreement among financial experts. All agree that your bottom line is positively affected by paying as little in interest as possible. And some find that to be reason enough to put money toward paying down your balance before you try to save up. But others feel that the importance of having an emergency fund trumps the money saved in interest charges.

One argument against paying off credit cards before starting to save is that it leaves no resources to use in case of emergency except for the credit card. If you’ve paid down your balance sufficiently, you may be able to use the card if something comes up. But you’ll also experience a setback in paying it off. That means you’ll pay more in interest, and it will be longer before you can start that savings account.

By the same token, using a credit card for emergencies is one of the habits that those with debt issues need to break. Putting yourself in a position in which you have no choice but to do so is a step in the wrong direction. By saving up an emergency fund, you can avoid using credit until you’ve eliminated the debt you already had.

Choosing between paying off credit card debt and building up a financial cushion can be difficult. But if unemployment or some other major financial problem is a possibility, building up your savings is usually the best option. Putting away at least a month’s salary before you start paying off your debt will allow you to breathe easier.

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Cheaper Car through Preapproved Bank Loan?

June 9, 2009

in Personal Finance

Buying a car can be a grueling process. It usually goes something like this: You go to a dealership and find an automobile that suits your tastes and/or needs. You discuss it with the salesperson, take it for a test drive, and decide whether to pursue it or keep looking. If you’re still interested, you discuss the price and apply for financing. Then the salesperson goes back and forth with the sales manager until a workable price and financing plan is reached.

But sometimes it’s not that simple. Buyers often choose a vehicle that is beyond their price range, and the dealer will not finance it. Or worse, the buyer may be turned down for credit completely. But much of this hassle can be avoided by getting a preapproved car loan through a bank.

Getting preapproved for a car loan is a fairly simple process. The buyer simply goes to the bank before setting foot on a car lot and requests preapproval. The loan officer takes an application and runs the buyer’s credit report, and informs him how much money he qualifies to borrow. The buyer may then start looking at cars, and when he finds one in his price range, the bank sets up the loan.

Benefits of Preapproved Car Loans

Getting a preapproved car loan has some definite advantages. These include:

* It shows dealers that you’re serious about buying. When they know you’re definitely planning on purchasing a vehicle, they’re more likely to try to offer you a good deal to keep you from going elsewhere.

* Having a preapproved loan from the bank eliminates the need to haggle over dealer financing. Rates for dealer financing are often much higher than those offered by a bank, and rebates or discounts may be tied to the interest rate. When you already have approval from the bank, you won’t have to make concessions in these areas.

* You know your price range before you start shopping. This can help you avoid pursuing cars you can’t afford. It may also give the dealer more incentive to offer you the best deal possible.

* It’s possible that the dealer might try to beat the rate on your preapproved bank loan. Dealers receive commissions and other incentives from the banks that do their in-house financing, so they prefer for buyers to finance through them. If they can offer you a lower interest rate than your preapproved bank loan, they will usually do so.

Getting preapproved for a car loan doesn’t put you under any obligation. It simply means that the bank has agreed to finance up to a certain amount for you. There are usually certain requirements regarding the age and condition of the car, but you can generally choose any car you want and know that financing will not be a problem.

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