Every time I received my credit card statement, I would look at the amount and promise myself, next month I will try to reduce it.

I thought of dealing in cash, yet whenever I pulled out a card from my wallet to make ends meet, I would stare somewhere between the sky and the mountains, and think, next month onwards I wouldn’t use these cards.

When I hear people talking about budget, I promise my self, next month I would definitely plan out a budget.

Once I was talking to Ms. Smith, my neighbor, we discussed various aspects of personal finance. I, however, realized she was younger than me, yet she had perfectly planned for her retirement. I instantly made a mental note to plan my retirement next month.

However, when next month arrives, nothing has probably changed except these things:

My income is drained before I realize it’s end of month. I am more worried about interest rates than my kids and my wife. I never notice a fall in my credit card balance; it always rises the other month. The stack of statements, bills, mostly unread, keeps piling every month; I hardly get any time to even have a quick glace at those papers. Probably next month, I think. Adjacent to the pile, an unopened box of personal finance books and DVD’s remains unnoticed. Lastly, there is a constant undefined fear. All these are symptoms of ‘Next Month’ disorder.

If any of these symptoms sounds familiar, you too have the ‘Next Month’ disorder. However, fret not, because there is a cure for this disease. First, you need to diagnose how serious is it. Get a pen, paper, and calculator, and jot down how much funds you have in your checking account, savings account, and in cash. Oh, and don’t forget to gauge the amount of your debts.

Set a budget for every type of expenses, and set aside some amount for savings every month. And there has to be a ‘debt repayment’ category as well. Hough this wouldn’t be a difficult task, the only thing you wouldn’t be able to find is time. But you have to spare some time every week to review your results and develop an action plan for the next week. You may not like to do this. But neither do you like medicines, yet you take it because you want to get rid of your disease.

I tried these things few times, and I failed. But I realized I would have to stay with ‘Next Month’ disorder unless I do something to cure it. And finally I managed to overcome it.

Remember, planning wouldn’t help. You have to take action now. Or are you still thinking to do it ‘Next Month?’

“Quite often, I feel frugality is detaching me from the society. And every night, started this since past couple of weeks, I ask my self “Is frugality depleting my social life?” With days, I find myself not being interested in the mainstream society. I have disconnected my TV cable, so I can’t really tell if who won the American Idol, or is it still on. Daily headlines, too, is just a glance on the internet. So, I don’t know much beyond the headline. I don’t eat out much, though I have perfected cooking, I haven’t had a look at the local menus since many months. I don’t remember what they offer.

On the positive side, I have learnt to fix up many things. Not going out much and not spending hours switching TV channels saves a lot of time that I utilize to learn new things. If I don’t know how to cook a dish, I search the recipe on the internet and cook it. After a couple of tries, it’s edible.

Every night, therefore, I content myself with a calm answer – I am not depended much on the society for my needs, though there are something’s that I will have to procure from the market forever.

I do go to malls and cinema theaters, when my budget permits that is. However, I don’t really enjoy out there – the fast pace, the glimmer, the commotion; it’s better at home. Having lived simply for so many years has transformed me into a quiet man, and there is nothing much outside that appeals me.

Hence, coming at a conclusion every night, I have come to believe, detaching from the society, though not completely, is a good thing. If I am not depended much on the outside people for pleasure, entertainment, and pastime activities, I am less affected with its changes. And I am saving money too. If the economy collapses, or there is a natural calamity, I can do most of my things. If my phone line, or internet is disconnected for a while, or for few days, I am not disappointed.

Though this is definitely reducing the number of friends and acquaintance I used to have, I am finding myself being drawn by a different category of people these days – the frugal ones like me. I have started respecting and befriending people who believe in budgeting, reusing, borrowing, bartering, etc. So, I can say, I am not really being cut off by the society, I have found a ‘niche’ to be with and with whom I can share similar thoughts and actions.

I hope you will be a part of my society.”

I read his email over and over again. In the society where we all are striving to learn a few frugal-living techniques, Chris has attained perfection. Yet, he is simple. Though I haven’t created such a ‘niche’ society yet, I definitely feel he is a good (frugal-est) friend to be with.

If you have, however, decided to refinance your mortgage, I would recommend you to pay attention to few factors mentioned below.

Interest Rates

Ask your self, what is the interest rate you are paying now? What would it change to, if you consider refinancing it? Is the difference quite considerable? Is the interest rate expected to rise in near future? However, it should be noted that even 1% of change in rate can affect your payment quite radically.

Type of Loan

One of the factors that have the power to influence your decision to refinance your mortgage is the type of your loan. Are you planning to switch from an adjustable rate mortgage (ARM) to a fixed one? Are you planning to switch from a short-term loan to a long-term, or a long-term to a short-term?

Closing cost

It’s important to consider the amount you will need to refinance your loan. In short, before refinancing, learn how much cost would be incurred and arrange for this amount. Also, many financial institutions are open to negotiations; check if you can reduce this cost. Many times, you can pay this cost by opting for higher interest rate or by including this amount in the new credit balance.

Credit Rating

If you have a good credit score, or recently it has improved, chances are you might be offered a good deal, lower interest rate that is.

Your Budget

Refinancing can help you to save a bit every month, if you opt for a long-term plan. However, a short-term loan means paying more amounts every month (obviously lower interest rate). So, saving is quite difficult. Hence, it is important to consider or redesign your budget before you go for refinancing.

Calculation

It is also important to calculate the new loan payment. You can find several calculators on the web. But, my suggestion is go for the one provided by Bankrate.com. You will need to feed in the following things:

• Existing Loan Amount:
  This is the total amount that your borrowed to purchase your home.
• Existing Interest rate:
  The interest rate that you’re paying now.
• Tenure:
  The total number of years your mortgage is for.
• Existing balance:
  How much you still owe on the mortgage?
• New Interest rate:
  This is the interest rate you are planning to switch to, that is refinance rate.
• New Tenure:
  What would be your refinance tenure?
• Pre-Payment Penalty:
  Many creditors charge you a pre-payment penalty. This means, they charge you a fee if you repay the loan amount a bit early. Quite strange but it’s implemented. Hence, it’s better to check with your lender.
• Closing costs:
  This includes appraisal fee, taxes, survey, credit report charges, loan origination fees, insurance, title search, and other charges. These tiny costs usually sum up to 2-6% of the total new mortgage amount.
• Points:
  This is the extra amount you pay, if any, to avail better rates.

Do not take your decision just because your relative or your neighbor suggested you. Find out more about refinancing.

I have spent all the years of my life to keep up this magical figure. According to me, there are five major factors that influence the volatility of the score. Understanding these factors will definitely help any individual to focus on important issues rather than inconsequential ones.

Your Payment History: 35%

I am not very sure about the exact figure but it may vary from 32% to 36% depending on the respective scoring bureau. However, one thing I am quite certain about is the ranking of this factor. It has to top the list because if you pay all the loans and bills on time, you are reliable person to lend.

To have a good score make sure that you never miss a payment irrespective of the importance of payment. This is the only way to reach the peak. However, if you miss a payment do not prolong it because it may affect the score even further.

Ok. It’s quite confusing. Let me put it this way. The extent of negative effect on your credit score depends on these 3 factors:

1. Last non-payment

   If you don’t pay a bill for a longer time, it may adversely affect your score. However, if you had missed payment years ago and you have been regularly paying all the bills since then, it may not affect your score much. So it’s wise to focus on recent payment that severely influences the score.

2. How many missed payments?

   If you an excellent score and you missed paying a bill once, it would negligibly influence the score. But if you keep neglecting payments on time, you are sure to have a low score.

3. The size of botch

   Missing a payment on one credit card once in a while is okay. But if it reaches the collection agency to get money recovered from you, it’s big. However, even bigger is the mistake of filing a bankruptcy.

The Unpaid Amount: 30%

In the upper section, when I informed you that missing a payment once in a while is okay, it doesn’t mean that the amount of missed payment is hundred thousand dollars. Size does matters when it comes to non payment.

Your credit score depends on the amount of money you owe to all the possible sources of credit which includes credit cards, mortgage, vehicle loans, and any such credit. An average American uses lees than 30% of the credit available to him. And it’s good to be an average American rather and keep the unpaid amount low.

Keep a check on all your credit account and do not let the credit exceed 30% of your credit limit. Remember, the importance of this factor for your score is 30%. If you neglect this point, forget good scores.

If you use the entire credit limit, it is obvious to the lender that you are unable to manage the repayments and hence, they avoid lending you further.

The duration of credit: 15%

The time of credit is used as an influencing factor because it shows how concerned you are about the repayment. Hence, it carries 15% importance of your credit score.

This is factor which you can use to improve your score. Don’t miss any payment even if you have lost your job or are very ill and hospitalized. Manage some money to pay the minimum amount every month. It’s not impossible. The people who have been maintaining a high credit score have gone through worse conditions, but they manage to keep a good payment record.

When did you last apply for credit? : 10%

On an average, the period before which an American Citizen applied for credit is 20 months ago. Why does this affect your score? It is because if you recently apply for a new credit (say mortgage), it shows you are in need for money. And wanting money means you are not in a good financial condition. So they deduct your score.

When you apply for any kind of loan, many out of these lenders check your score before they lend you some credit. Credit lenders checking your score impacts your score harshly. When you keep applying for loans the frequency of score checks by lender increases and your score keeps getting low. A better way is to pull up your credit score from the bureau and hand it over to the lenders before they do it. No, checking one’s own credit score doesn’t affect the score.

The nature of credit: 10%

Credit can be further divided into 2 broad categories. A revolving credit and an installment credit. Installment credits are the ones that you borrow once and keep paying part of it every month like mortgages, car loans, personal loans, etc. Whereas, the payment that you make every month in order to get credit again is called a revolving credit. An example of revolving credit is a credit card. This kind of credit affects your score. However, the installment credit is worst. They use a simple formula. The effect on your score depends on the level of difficulty to acquire the loan.

Generally, people with higher credit score have a good blend of both types of credit and from many sources. So there is lesser risk exposure.

Conclusion:

FICO score is a good source for lenders to gauge the credit worthiness of any consumer. However, for consumers, it is a drawback. It is purely based on numbers and is inhuman. They don’t care if you are severely ill and on the verge of dying. They want numbers.

Now that you know the factors that can severely damage your score, try to avoid the above mentioned sins. In short, have a good payment record; borrow less and for lesser time.

One of the first improvements that you can see coming with the Consumer Financial Protection Act is that the statements of your transactions are more clear and written in manner in which you can easily understand. Also the statements will be honest and completely revealing in nature. So after you sign a transaction you need not fear of encountering new charges or terms and conditions which have not been mentioned in your deal document.

The CFPA appears to be truly effective. It is not like other consumer protection Acts which consumers can hardly connect to. Maybe till now you had an issue, but you could really not tap legal help for that because though harassing, the issue did not qualify for legal action. But CFPA has taken care of all situations that you might come across. It vows to ensure maximum fair treatment to the consumer. The CFPA scanner is focused especially on those financial companies that take advantage of their good rapport with the regulation authorities and mete our unfairness to the consumers.

As far as the government is concerned, the move to protect consumers is a very noble initiative but industry lobbyists are not very happy about it. According to media reports, they are not very appreciative of the establishment of an independent agency for the regulation  of predatory and abusive lending practices by credit card companies and other financially aiding companies. They feel that the new rules are restrictive because of which credit card companies cannot come up with any innovative schemes in future. This will pose a hindrance in their selling any attractive products to their customers. The customers will be cautious and limit their choices only to a few products. All this will ultimately lead to an increase in the rate of credit and restrict its availability.

The Chamber of Commerce seconds the CFPA by emphasizing that it’s not only big credit card companies or lending agencies but also any small business that seems to be adopting predatory ways will be brought under the control of the regulatory act.

I think the reformatory CFPA is fair enough and is required. Maybe under normal circumstances, this might seem to be an unasked for hassle for the financial industry but now recession has taught the lesson in a harsh way. It has made reforming the entire financial system a necessity. After all, why should anyone have problems with the clean up process? It’s just asking businesses to be fair to their customers.