KEESLER AIR FORCE BASE, Miss. --
Editor’s note: Kristy Tubbs, AFC, FFC, provides financial briefings for Air Force Reserve Command Yellow Ribbon events. As the founder of Piece of Heart Financial Counseling, she has been providing wealth building budgeting and financial workshops to service members and their families for the past 31 years. Kristy is a member of the Association of Financial Counseling, Planning and Education, a Biblical counselor, and Professional Life Coach. The military spouse of 31 years is the mother of three children, one of which is in the U.S. Navy, and an advocate for military families around the world. Service members or spouses can reach out to Kristy Tubbs for free financial counseling at email@example.com
Christmas and all of the fun holidays to round out the year are on the way. Many of us have already started shopping for the fun surprises we choose to share with loved ones. After all, this year we have had plenty of time in front of our computers to search for items, watch ads come across our screen and buy, buy, buy.
This time of sheltering at home has also brought about plenty of financial opportunities if we are interested in growing our financial strength and sharing that wisdom with our loved ones.
While none of us should make our financial decisions based solely on words we read in an article or on the internet, there are money moments that, when researched for our personal financial goals, may be good opportunities for us to seize the moment to solidify our financial well-being. Let’s look at two that I believe we may want to implement in our lives in the coming months.
INTEREST RATES: Interest rates are at an all-time low. If you own a home at the moment, it is a perfect time to refinance your mortgage. In order to ensure you can refinance and take advantage of these historic low rates, it is imperative that your credit score is at its highest possible. However, the Veterans Administration only sets the dollar amount that they will guarantee to the lender in the event you default on the loan. Many lenders require you to have a 640 to 660 credit score in order to qualify for their lending requirements. You can meet with your local financial counselor who is located on your installation for advice on how to raise your credit score. There are also financial counselors available via Military OneSource. The point to remember is that you as a service member have opportunities for free credit repair resources, so do not go out and pay a vendor to help you restore your credit. Simply reach out to the resources available and work to build your credit with the resources provided. You can also view a credit repair basics workshop for free by emailing me at firstname.lastname@example.org.
Once you have your credit score in place, you will want to refinance your mortgage. If you get cash out at a low rate, it is like giving yourself a loan. Now, many people are calling and asking if they should refinance their home and take cash out to pay off debt. Financial counselors all vary on this concept. At my agency, we say an emphatic NO! The rule of thumb is to never loan on a secured asset to pay off unsecured debts. Here is why: In the event of mass chaos where you must file bankruptcy to get rid of the unsecured debt, you can discharge credit cards and still hold on to your home in many cases. However, if you cannot pay your house payment, you could be putting your family in danger of losing their place to live. If you want to get cash out, do so, but use that to build wealth and make your money work for you, not to pay off debt that a good debt snowball pay off plan will be able to help you accomplish in a few short years instead of 30 long years.
BE CAUTIOUS: When securing a refinance loan, ensure the lender is following the “sales pitch” they state. For instance, if they state free refinance, then it must be free. What we are finding is that many of these loans are refinancing your entire home and taking your equity from you and paying themselves with that money. So, free to you if you want to give up your equity in your home. Read your numbers. You can always make an appointment with a financial counselor to review any numbers you do not understand. They should help you. Also, all title companies are required to go over the numbers specifically with you so that you understand everything in full. Another very important note of caution to recognize during refinancing is the fraud factor. Many times we search for a loan and find a broker that then finds us a lender. While most brokers are honest people doing good work, there are many in the field at this time who are preying on military members in hopes to steal their title to their home. Be cautious when signing documents. Read every page and ensure that, if you are listed on your current mortgage as Joint owners of John Doe II and Jane Doe, then all pages of the document you transfer from and transfer to should be stated exactly the same (Joint Owners, John Doe II and Jane Doe). The fraud comes in when a lender gives you paperwork with incorrect names and then says they will “fix it at closing.” Be very clear—the closing agents will only fill out documents as they are received. What you sign on your loan documents is what is sent to closing. The fraud happens when the lender says it is a hassle to go back through and “you will have to re-sign all of the documents again, so it is not a big deal.” They do this so that you feel bad for making them work harder. Remember, they work for you. They are making thousands of dollars off of your loan. It will not kill them to push a few computer buttons and resend you a new document. Make them do it and stand your ground so that the documents that go to title have you listed the same as the documents of your current title that you own. This eliminates the loophole that could allow another person to come in and state they own your title to your home.
BENEFITS: The benefit of refinancing are many fold, but I want to point out an amazing opportunity. Most times when refinancing, your mortgage company skips one to two payments. This is a great opportunity to take that money and pay yourself. Take the entire amount you would have paid towards your house payment and pay it to your highest interest credit card to start the pay-off process. If you do not have any debts, then take that money and open up an emergency savings account. If you already have a sufficient amount in an emergency savings account, then open up an account that will be for your wealth building investment. The key here is to seize every opportunity from refinancing your home mortgage. In addition, since you were already accustomed to paying the higher mortgage, we encourage you to take 50% of what you were paying and increase your standard of living. Take the other 50% and pay down your highest interest credit card. Thus begins the process of building wealth while paying down debt.
NEGOTIATIONS: The pandemic lockdowns have brought many into situations where we are in need of financial assistance due to second incomes being eliminated or health concerns. The financial industry is working with people to help you through this difficult time. Now, I cannot speak for every financial counselor nor can I speak for every creditor that you have. However, most financial counselors are skilled at helping you to call your creditors and request a one-time good faith negotiated debt amount. Many creditors are also offering 0% interest rates to help you pay off your debts during the pandemic shut down. If you are a reservist deploying and in the military on orders, the Servicemembers Civil Relief Act requires your creditors to lower all interest rates to a maximum of 6% while deployed. You can find more information about this by contacting your local financial counselor at your base or by visiting the SCRA website at https://scra-w.dmdc.osd.mil/scra/
Right now is a perfect time to meet with a financial counselor and set up your plan of action to negotiate your debts. There are some items to note when you are negotiating debts. First, recognize that you will be taxed on the negotiated debt, so be prepared by saving for that. Second, you should never pay someone to negotiate for you—they usually guide you incorrectly and put you further into a lower credit score situation. And finally, if you can work with your financial counselor to help you get your debts negotiated. We will discuss this in more detail in future articles. To get started, your financial counselor will be able to help you create a solid debt pay down budget that will promote your financial well-being. For more information on debt negotiations, you can go to https://www.consumer.ftc.gov/articles/0145-settling-credit-card-debt
At the end of the day, we all want to grow our wealth. No one wants to be struggling with money and all of us want to see our future how we dream it can be. With a solid foundation of a wealth building budget and a step by step action plan, your 2021 can be the beginning of your wealthy future. Until we Chat Money again, here’s to living!