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The Advantage Advisor

Advantage Advisor

Volume 2, Issue 4, 2007

In the market for a new car?

Whether this is your first time buying or you’re an experienced car shopper, you have probably been asking yourself many questions, such as: should I buy or lease? Should I get a new car or a pre-owned car? How much can I afford to pay?

These are all important questions when it comes to buying a vehicle. And yes, it can be overwhelming. So, how can you sort through all of these things and get behind the wheel of your new car in the most “pain-free” way?

Naturally, the first step is to determine what you can afford. Take a look at your monthly budget (or start one if you haven’t already) and see how much you could safely put towards a monthly payment. Be conservative. If you have a car to trade in, get estimates on its trade-in value. (Kelly Blue Book or NADA are great tools: www.kbb.com or www.nada.com).

Next, determine how much money you have for a down payment. The more you are able to put towards the purchase price of the vehicle, the lower your monthly payments will be.

Another key step is to calculate the maximum amount you can finance based on the amount you have determined to be an affordable monthly payment. Web-based calculators such as the one available at www.dinkytown.net/java/autoloan.html make it simple to do this calculation. For example, if you can afford a $300 monthly payment and trade in a car valued at $2500, making no down payment, you will be able to finance a car that costs approximately $17,000. This example assumes that you are able to get a loan with an interest rate of 7.5%, finance the loan for 60 months and pay 7% sales tax.

Once you have determined your price range, start looking for vehicles in that range. A great tool is www.edmunds.com.

Don’t forget to consider gas mileage and maintenance costs. The make and model of the car will also affect insurance payments. Be sure to contact your insurance agent for a quote on any vehicle you consider purchasing.

Now it is time to get approved for a loan. As always, it is a good idea to take a look at your credit report and resolve any errors or problems that might disqualify you from the best interest rates. You are entitled to one free credit report from each nationwide reporting agency every 12 months. Then, talk to your lender to make sure you qualify for a loan and to determine the interest rates.

Before going to any dealers, decide whether you will lease or buy your car. For more information about buying versus leasing, check out: www.federalreserve.gov/pubs/leasing or search “leasing a car” on www.usasearch.gov.

Now it is time to car shop. Learn the Manufacturer’s Suggested Retail Price (MSRP) for the cars you are considering, as well as their invoice prices. Invoice prices can be 5-15% lower than the MSRP. Determine the maximum amount you are willing to pay and stick to it. Negotiate with the salesperson and make an offer based on the total cost of the vehicle. Avoid mentioning financing and monthly payments. Yes, it is a complicated process, but by following these guidelines you will find the car you want and the payment you can afford.

The most stress-free way to buy a car is to know how much you can afford, do your homework and use your good judgment.

Media spotlight

Pittsburgh—WTAE-TV— “Income Tax Refund Anticipation Loans” (April 13, 2007)
Washington—Washington Observer Reporter— “Importance of Financial Literacy” (April 19, 2007)
Pittsburgh—KDKA Radio— “Fair Debt Collection Act” (May 1, 2007)
Pittsburgh—Pittsburgh Post-Gazette— “Savings Tips” (May 6, 2007)
Erie—Erie Times News— “Effect of Rising Gas Prices on Personal Budgets” (May 24, 2007)
Pittsburgh—Pittsburgh Post-Gazette— “Tips for Reducing Debt” (June 3, 2007)

Dear Debt Monkey

Q: I often hear lenders refer to someone’s “debt to income ratio.” Can you explain what that means and how I can calculate my own ratio?

A: A “debt to income ratio” provides a picture of the total debt load of an individual. It is a comparison of the amount spent on your total annual debt payments (including mortgages) versus your gross annual income. For example: Your mortgage payment is $750 per month ($9000 annually) your car payment is $300 per month ($3600 annually) and your annual gross income is $38,000.

$9000 + $3600 = annual debt repayments of $12,600. This amount, divided by your gross annual income of $38,000 is your debt to income ratio, which in this case equals 33.1%.

A ratio of 36% or less suggests that your gross income is adequate to handle your debt repayment.

Fair Debt Collection Practices Act

The phone rings. You glance at the clock and then back at the phone.

Should you answer it or ignore it? Could it be another collection agency calling? Are they allowed to keep calling and calling, day after day, week after week? Will it ever end? Are there any protections for consumers?

The simple answer is yes.

There is something called the Fair Debt Collection Practices Act that was passed by Congress in 1977 and went into effect in March 1978. The FDCPA outlines consumers’ rights under the law. For example, a debt collector may contact you in person, by mail, telephone, telegram or fax.

“A debt collector may not contact you at inconvenient times or places, such as before 8:00 a.m. or after 9:00 p.m. unless you agree. A debt collector may not contact you at work if the collector knows that your employer disapproves of such contacts.” (FTC Facts For Consumers, March 1999).

It is possible to stop a debt collector from contacting you. All you need to do is to write a letter to the collection agency telling them to stop. Upon receipt of the letter, debt collectors may not contact you again, except to notify you that they plan to take some specific action. Keep in mind that writing a letter doesn’t wipe away the debt. If you actually do owe the debt, you still owe it.

You can also still be sued by the debt collector or your original creditor. Debt collectors can contact other people about your debt, but they are limited by who they can contact and what they can say. A debt collector may contact your attorney, if you have one, to discuss your debt. A debt collector can also contact other people but only to verify contact information, i.e. where you live, your phone number, or where you work.

Additionally, a debt collector may not:

Use threats of violence or harm
Publish a list of consumers who refuse to pay their debts
Use obscene or profane language; or repeatedly use the telephone to annoy someone

If you feel you have been mistreated by a debt collector, contact your state Attorney General’s office as well as the Federal Trade Commission. Most states have their own debt collection laws and your Attorney General’s office will be able to assist you in determining your rights.

For more information about the FDCPA, contact the Federal Trade Commission at 1-877-FTC-HELP or online at www.ftc.gov.

FACT:

In 2006, the Federal Trade Commission received 90,629 debt collection complaints.
In 2006, some 8,000 debt collectors were said to have used profane or abusive language.

Source: www.marketwatch.com/news/story/how-handle-debtcollector/story.aspx?guid=%7bD42EAD87-E3

Seven tips for back-to-school shopping

Back-to-school shopping can wreak havoc on both a parent’s nerves and wallet. You can prepare your kids for school without breaking the bank. In addition, your children can actually benefit from the shopping experience.

1) Set aside money. Start setting aside money now so you don’t have to foot the entire bill at one time.

2) Determine what you need. Go through each child’s closet; have them try on clothes to see what still fits. Where possible, repair current clothes; buttons, patches, zippers, etc. With each child, compile a list of clothing and accessories to be purchased. Include items such as backpacks, lunch boxes, shoes, etc. Create a list of school supplies for your children so they can be purchased at the same time.

3) Set budgets. Determine an affordable amount to spend on each child. Explain to your children the amount you have to spend. If there is an item they “have to have,” help them adjust their budget and set priorities on their purchases. Don’t feel guilty for saying “no.”

4) Plan for future purchases. Encourage your children to hold back some money for after the school year begins. That way, there will still be money for an overlooked “must-have” item.

5) Watch for sales. Take time to comparison shop. Watch for sales on school supplies, clothes and shoes. If your child wears a uniform to school, shop early. Some stores may run out of your child’s colors or sizes. Check if your school has a uniform exchange program.

6) Check out consignment stores. Depending on the age of your children, it may be worth checking out consignment or secondhand stores.

7) Sanity check. Take each child clothes shopping separately. Start your shopping early!

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