Make Your Money Matter

Wells Fargo has had a tough time in the news lately. From their failed STEM ad campaign to their recent fake accounts scandal, things are not looking good for the banking giant.

At first, their CEO released a statement saying it’s not a matter of culture, but when 5,000 employees are let go for fraudulent behavior, it’s certainly a matter of culture. Wells Fargo employees signed customers up for 2 million accounts without their knowledge.

This leads to a larger conversation about global banking. In the credit union world, we often tell people to “Make your money matter.” Sure, your money matters at a big bank, often because it’s used to line someone else’s pockets, and (often) the pocket-lining is at the expense of the financially vulnerable. At a big bank, money matters to someone, but it’s not on your behalf, or your family’s, or your community.

And it isn’t the fault of the teller or branch manager. It is a cultural problem. With high pressure sales goals to just get to the bottom line, people begin to do unethical things to keep their job and provide for their family.

There’s a serious problem when profits are placed over people—over customers and over the employees who actually earn money for the company. Employees deserve to be compensated fairly for the customers they serve and results they deliver, but you simply cannot succeed as a business if delivering results is not for the people you serve.

At a credit union, you know your money matters. The credit union business model is not-for-profit and is literally to serve members. You’re part owner, so your opinion matters. The seventh cooperative principle, concern for your community, is ingrained in each and every credit union. It’s about equality, equity and mutual self-help. When one person rises, so does everyone.

So, if you’re reading this, maybe you have an auto loan or credit card through your credit union but aren’t a regular checking account holder. Consider making a smarter choice, ditching your bank and doing business with a credit union.

Together, we can make a difference. For good.

How to Get out of Debt in the New Year

A brand new year often inspires positive life changes such as breaking free of debt. If collections calls have been interrupting your dinner or you’re just stressed out from heavy-duty debt, here’s how to eliminate the burden.

Determine where you stand

In order to solve a problem, you need to fully understand it. Assess your situation by listing all your debts, including balance owed, interest rate and minimum payment required for each. Next, order your free credit reports to make sure you haven’t forgotten any debt or overlooked errors. Finally, compare your income and expenses and calculate how much you can realistically use toward debt reduction each month.

Don’t make things worse

The last thing you need is anything that increases your debt. Commit to not taking out any new loans or credit lines and, if possible, avoid incurring and charging additional expenses on existing accounts.

Take time for triage

You’ll save more in the long run by paying off debts with the highest interest rates first. This category usually includes consumer debt such as credit cards, personal or payday loans, and medical bills. Other types of debt, such as mortgages, car loans and student loans, typically have lower rates, making it more affordable to pay them off over a longer period. Throw as much money as you can each month at your highest-interest debt while still making timely, smaller payments on everything else. Then focus on paying down the next higher-interest loan.

Consider consolidation

When multiple debts are out of control, debt consolidation can be a lifeline. This refinancing process streamlines debts into a single monthly bill, often with lower interest and a smaller overall monthly outlay. This may help eliminate debt faster and less expensively. Home equity financing, personal loans and zero-interest balance transfer credit cards may provide effective options.

Improve cash flow

Even the best debt-reduction plans are useless without having enough money. Do the following to improve your cash flow:

• Bring bag lunches to work and eat fewer restaurant meals.
• Try free and inexpensive entertainment including parks, beaches and hiking trails, as well as local theater, concerts and sporting events.
• Sell unwanted items online or at yard sales.
• Take on additional part-time employment, ask for extra hours at work or turn hobbies into income.
• Make sure you’re getting the lowest prices for phone, internet, insurance and other consumer goods/services.

Set the odds in your favor

Why work hard to pay off debt just to end up in the same boat next year? These approaches can help ensure lasting success in curbing expenses and avoid building up debt:

• Create a budget to keep future spending within your means.
• Continue to reduce unnecessary expenses.
• Commit to saving regularly, even if you can spare only a small amount each month, to protect against being thrown back into debt by unexpected events.
• Once credit cards are paid off, keep future balances low and try to pay them in full each month.
• Treat yourself to inexpensive rewards such as a new CD or ice cream to celebrate each important debt-reduction milestone.

Eliminating debt can bring dramatic changes over the coming year. In return, you’ll enjoy improved financial health, stress relief and the freedom to spend your paycheck on what really matters instead of having it siphoned away by past obligations.

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Debt-To-Income Ratio

If you have applied for any type of loan, especially a mortgage, then you probably heard the your loan officer use the term “debt-to-income ratio.”

Your debt-to-income ratio is the sum of all your monthly debt payments divided by your gross monthly income. This number gives lenders a way to measure your ability to repay your loan, based on your income.

Basically, imagine that your monthly mortgage is $1,000 per month. If you also have a car payment of $300, a student loan payment of $350, and a credit card payment of $150, your total monthly payments are ($1,000 + $300 + $350 + $150) = $1,800. If you have a gross monthly income of $4,800 (gross means before taxes and adjustments), your debt-to-income ratio is computed as follows: $1,800 / $4,800 = .375 or 37.5%.

This means that 37.5% of your gross monthly income is devoted to servicing your debt. Lenders know that beyond this, you still have to afford to eat, insure your belongings, and buy cat food. These “other than debt” costs are actually why lenders pay attention to this ratio. If the amount of income being devoted to paying off debt gets too high, it’s likely you will either default or starve. Generally, defaulting is what more people opt for.

Your debt-to-income ratio will likely be evaluated before any [reputable] lender makes any kind of loan to you, but this ratio is especially important for a home loan. In order for a new mortgage to be considered a “Qualified Mortgage,” the borrower must have a debt-to-income ratio of less than 43%, including the new payment.

Oh, and in case you were wondering, a Qualified Mortgage is one that meets certain standards, ensuring that the lender did their due diligence to make sure you can afford the loan, and which gives the lender access to certain legal protections.

There may be circumstances where you could get a mortgage while having a debt-to-income ratio of more than 43%, but that loan may not be in your best interest. Before taking out any new loan, carefully consider for yourself if you can really afford the payment, and afford a comfortable, financially-savvy lifestyle.

Make Your Money Matter

Wells Fargo has had a tough time in the news lately. From their failed STEM ad campaign to their recent fake accounts scandal, things are not looking good for the banking giant.

At first, their CEO released a statement saying it’s not a matter of culture, but when 5,000 employees are let go for fraudulent behavior, it’s certainly a matter of culture. Wells Fargo employees signed customers up for 2 million accounts without their knowledge.

This leads to a larger conversation about global banking. In the credit union world, we often tell people to “Make your money matter.” Sure, your money matters at a big bank, often because it’s used to line someone else’s pockets, and (often) the pocket-lining is at the expense of the financially vulnerable. At a big bank, money matters to someone, but it’s not on your behalf, or your family’s, or your community.

And it isn’t the fault of the teller or branch manager. It is a cultural problem. With high pressure sales goals to just get to the bottom line, people begin to do unethical things to keep their job and provide for their family.

There’s a serious problem when profits are placed over people—over customers and over the employees who actually earn money for the company. Employees deserve to be compensated fairly for the customers they serve and results they deliver, but you simply cannot succeed as a business if delivering results is not for the people you serve.

At a credit union, you know your money matters. The credit union business model is not-for-profit and is literally to serve members. You’re part owner, so your opinion matters. The seventh cooperative principle, concern for your community, is ingrained in each and every credit union. It’s about equality, equity and mutual self-help. When one person rises, so does everyone.

So, if you’re reading this, maybe you have an auto loan or credit card through your credit union but aren’t a regular checking account holder. Consider making a smarter choice, ditching your bank and doing business with a credit union.

Together, we can make a difference. For good.