November 23, 2016
The holidays are the peak time for shopping and gift-giving and scammers are already on the prowl for their next victim. Consumers face nightmare scenarios like expecting a package that never comes or seeing fraudulent charges on their credit card, putting their celebrations and savings accounts in jeopardy. But consumers can fight back to prevent con artists from ruining the festivities and save the holidays.
1. Counterfeit products
If you’ve seen a coveted gift like an iPad, makeup palette or purse for a rock-bottom discount online, beware as you’re probably not getting the real thing. Scammers often use inferior materials or shoddy electronics that could make these gifts unsafe for your intended recipients. For example, fake makeup or fragrances can contain toxic ingredients like arsenic or cadmium, according to the FBI.
How to avoid scammers: Buy directly from the manufacturer’s store or from authorized sellers of brand name products. If buying from a third-party, check ratings and reviews before your purchase to see if other people have been scammed.
2. Charity scams
The holidays put shoppers in a giving spirit, but some scammers take advantage of this goodwill with fake charities. They may cold call unsuspecting people or approach them in front of stores or on busy streets. Instead of going to great causes, donations go straight into the tricksters’ wallets and you don’t receive any tax deductions as a result.
How to avoid scammers: Check out Charity Navigator’s list of fake charities before donating. Look up the name of the charity on Guide Star’s website detailing information on nonprofit organizations to determine if it’s legitimate and the funds are going to where they should.
3. Gift card fraud
The National Retail Federation estimates 56 percent of consumers will purchase gift cards this holiday season, but this popularity makes them very vulnerable to scammers. Thieves can steal physical gift cards from the store, write the card numbers down or use a magnetic strip reader and then place the cards back on the display. They can also scratch off the PIN code associated with the card. Once a customer purchases and activates the card, thieves can check the gift card balance online and transfer it to a different card or drain the account.
How to avoid scammers: Inspect the card for signs that the card has been tampered with, such as a scratched off PIN, before leaving the store area. Purchase gift cards that are secure behind a glass case instead of an open display where thieves can grab cards. Keep the receipt in case you or your gift recipient notice strange activity to increase your chance of a refund.
4. Data breaches
Retailers are a big mark for cybercriminals, especially during the holidays, leading to data breaches. It’s hard to forget the data breach that hit Target in late-2013 that impacted millions of customers during the peak holiday shopping season. Breaches can expose financial data like debit and credit card numbers and personal information, such as names and home or email addresses.
How to avoid scammers: Use cash or a credit card instead of a debit card when shopping. Credit card companies typically provide fraud protection for consumers. In the event of an unauthorized purchase with a credit card, you are only liable for up $50, Federal Trade Commission states. If you used a debit card, you may be liable for all the money stolen from your account.
5. Email phishing
Phishing is not new, but con artists are always changing their approach to swindle victims and steal their identities. Emails can claim you’re the winner of a giveaway or you owe money to a debt collector or the government. These emails may appear like they’re from authentic people or organizations, but the websites they link to are designed to take your information or install malware.
How to avoid scammers: Whatever the phishing scam, do not respond to requests for money or your personal information and stop yourself from clicking on links or opening attachments. You can forward suspected scam emails to firstname.lastname@example.org or file a complaint with the FTC if you believe you’re a victim. In addition, you can report these fake messages to the real organizations they’re impersonating.
6. Card skimming
Card skimming is a simple yet financially devastating scam affecting ATM and debit cards. The New York Times reported 2015 had the highest number of ATM fraud incidents recorded by FICO Card Alert Service. Thieves will install a card skimmer inside ATMs to steal card numbers and a camera to take images of PIN codes. Increasing this threat, there is now new skimming technology that involves a probe that connects to the ATM’s internal circuit board to more easily steal card information.
How to avoid scammers: Use ATMs that are located inside banks, which make it harder for thieves to manipulate the machines. When entering your PIN, block the pad with your hand. Make it a habit to monitor your debit card and transaction activity to report losses immediately. You are liable for just $50 if you report ATM or debit card fraud within two business days of learning about the loss, the FTC notes. But if you report it after 60 calendar days, you can lose all money stolen from your ATM or debit account.
7. Fake social media giveaways
Giveaways hosted on social media sound too good to be true - and many times they are. Travel + Leisure recently warned readers about a fictitious giveaway on Facebook targeting Southwest Airlines. Scammers made a Facebook post designed to look like it came from Southwest Airlines and promised a free trip and gift card to the lucky recipient who shared, liked and commented on the post.
How to avoid scammers: Determine if a giveaway is posted by the actual brand and not a fake page. Facebook and Twitter both feature a blue checkmark next to brand names to verify their pages.
8. Ransomware/malware infections
A malware infection on your computer or phone can make it easy for hackers to take sensitive information or even take control of your device. Ransomware is a scary type of malware where cybercriminals can lock you out of your computer or threaten to release stolen information unless you pay a certain amount of money.
How to avoid scammers: Install security and firewall software on your device and only use secure browsers and websites.
9. Phony IRS phone calls
The IRS regularly warns consumers of a scam where con artists pretend to be from the organization and call victims claiming they have a refund or that they owe money. The scammers may demand payment in the form of prepaid cards or wire transfer.
How to avoid scammers: Remember the IRS will not call, email or text you about personal tax problems. Legitimate communication from the IRS will usually take place via mail. If you received a fake phone call, report the incident to the Treasury Inspector General for Tax Administration.
10. Package thieves
The increase in online shopping during the holidays keeps mail carriers - and thieves - busy. The USPS alone anticipates delivering 750 million packages during the 2016 holiday season, up 12 percent from last year. Thieves follow carriers’ trucks to snatch up packages as soon as they are delivered or drive around neighborhoods looking for unattended packages.
How to avoid scammers: Schedule a delivery when you know you’re home or pick it up from a carrier location. You can also have the package sent at your office if that’s more convenient. If you have a security system, set it to record so you can catch the thieves.
Not all Grinches come in the color green. As this list shows, fraud and scammers come in many forms. Look out for these scams to have a safer and more enjoyable holiday.
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November 21, 2016
Debt can seem overwhelming, but the key is to take control. Show your debt who's the boss by putting a plan in place to deal with it. The following are some examples of common debt problems and how to deal with them.
1. Too much credit card debt
There are many causes for this, but in many cases it just creeps up on people. A little bit of borrowing seems harmless, then an unexpected expense seems to justify a little more borrowing, and the next thing you know using credit just to make ends meet becomes a habit.
If your credit card debt keeps growing month after month, you have a problem. Don't wait until you reach your credit limits before you start to address that problem.
How to curb credit card debt
Establish a budget and use cash on shopping trips
The first thing you have to do is make rules about when you can and cannot use credit. Set up a budget, and leave your credit cards at home if you can't avoid using them compulsively.
Look into transferring balances to a low interest credit card
Next, prioritize your credit card debt, and try to shift the balances to the cards with the lowest interest rates. You might also consider transferring your balances to a card with a zero-interest promotional offer, but be wary of transfer fees that can undermine this money-saving move. Use a calculator to determine the amount of lower interest credit card savings you could benefit from before transferring over your balance.
Create a timetable for paying down balance
Finally, work out a timetable for paying down your debt. A big cause of financial mistakes is the feeling of not being in control of events. Setting out a timetable for repayment, however long it takes, is an important step towards seeing how you can take control of the situation.
2. Excess student loan debt
It used to be that credit card debt was the first major financial pitfall that young people fell into soon after leaving school, but now they often don't even make it that far before acquiring a serious debt problem. Student loan debt has mushroomed in recent years - the total amount outstanding has doubled in the past seven years.
Not surprisingly, a 2016 poll sponsored by the National Foundation for Credit Counseling (NFCC) found that almost 66 percent of adults said student loans impacted their finances in a negative way. Many of the NFCC survey participants (41 percent) did not feel confident in repaying a student loan worth $30,000.
Strategies to pay back student loans
Carefully consider taking on any more student loan debt
To get control, look to stop compounding the problem. A weak job market has driven many people back to college in recent years, but it can be an expensive refuge. Any degree you pursue should be researched as an investment, and based on an assessment of the job market, wage levels and what qualifications are necessary.
Take advantage of grace periods during loan repayment
The NFCC advises that to start coping with your debt, you should recognize the flexibility that is built into many student loan programs. These loans often have grace periods of six or nine months after graduation before you have to start repaying them. Use those grace periods to start saving up some money to make your monthly payments a little easier once they start.
Find a repayment plan that works for you
Also, while the standard repayment period for federal student loans is 10 years, you may qualify for a longer period or payments based on how much you earn. These alternatives can help payments fit into your budget, but be advised that they will result in you paying more interest over the life of the loan.
3. Overextended on a mortgage
This is a common problem because people have such high expectations for what they want from a house. Paying for your dream house may look manageable on paper, but unexpected expenses or other setbacks can quickly make a mess out of those plans.
Mortgage repayment tips
Consider mortgage refinancing
First, explore options for making your mortgage more manageable. This can include refinancing to lower your interest rate or restructuring the loan to spread payments out over a longer period. Talk to your current lender because they might be most receptive to finding a workable solution, but also shop around to see if better rates or terms are available elsewhere. Utilize a loan calculator to find out if you should refinance your home mortgage and compare your current and new mortgage rates.
Downsize to a less expensive home
The main thing about coping with this problem is to be decisive. Payments in the early years of a mortgage are mostly interest rather than principal. In essence, continuing to make payments on a mortgage you ultimately won't be able to afford is just throwing money away because you won't be building much equity. If you can't find a payment plan that works, sell out and find a cheaper home before you waste any more money.
The common denominator to all of the above is that the longer you take to confront these problems, the worse they will get. Solving these problems may take a long time, but the immediate need is getting a plan in place.
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November 18, 2016
Stock market cycles are something of an enigma - if investors generally know they exist, why don't they get out at the peaks, and buy back in when the market is down? The better you understand the dynamics of market cycles, the better you can take advantage of them rather than being victimized by them.
What makes up a stock market cycle?
Historically, U.S. stocks have averaged a return of about 10 percent a year, but they have not gotten there in a straight line, producing 10 percent year-in and year-out. Instead, there have been extreme market highs and lows cycling around that theoretical straight line. Often, the stock market will average better than 10 percent on its way to a peak, but then make up for that by experiencing a period of negative returns.
Of course, the market can go up and down a little from one day to the next. However, each of those fluctuations is not considered a market cycle.
How to define a bear market for stocks
It is better to look at a cycle as comprising both a meaningful rise and a meaningful fall - otherwise known as a bull and a bear market. Some people use a 10-percent loss to define a bear market, others 20 percent.
A useful way to consider whether the market has really gone through a cycle is if it suffers a fall from which it takes at least a year to recover. Knowing when to invest, such as through an online broker, is critical and being more knowledgeable of stock market cycles can help.
7 ways to identify a stock market cycle
Of course, if everyone knew a bear market was coming, they would get out of the market in advance and that bear market would occur earlier, or at least the bull market would lose some of its steam. Instead though, people tend to pile into markets just as they are nearing their peaks, and panic out of them only after prices have fallen.
Why do people find market cycles so hard to recognize? There are several factors that help disguise them:
1. Length varies
There is no standard length to a market cycle - they can be just a couple of years in duration, or can last over a decade.
2. Valuations differ
Valuations such as price-to-earnings (P/E) or price-to-sales (P/S) ratios help measure how cheap or expensive stocks are, but these valuations reach different extremes from one cycle to the next. For example, there is no set pattern that establishes a P/E of 30 as indicative of a peak, or a P/E of 10 as marking the market bottom.
3. There are cycles within cycles
Besides the stock market in aggregate going through peaks and valleys, there are smaller cycles affecting different types of stocks - value stocks may cycle in an out of favor relative to growth stocks, or smaller stocks relative to big ones. Individual industry sectors may also experience their own cycles.
4. Interest rate conditions are an x-factor
A key variable that helps make every cycle different is the interest rate environment. Low bank rates are good for stocks, so low or falling rates tend to support a bull market. On the other hand, high or rising rates tend to make stocks more vulnerable to a setback.
5. The relationship with the economic cycle is complicated
The market cycle should not be confused with the economic cycle. The market represents what investors are willing to pay for companies, while the economic cycle represents the underlying growth rate of the economy. Although market and economic cycles have an influence on each other, they do not always line up neatly.
6. The sidelines are lonely during a bull market
Getting out at a market peak is easier said than done psychologically. When it seems everyone is making big money in the market, people find it very hard to sell out and wait for the next bear market.
7. The bottom is a scary place
When the market crashes, the prevailing emotion swings from greed to fear. Stocks may be cheap, but people perceive that further disaster is just around the corner. Thus, few people are able to take advantage of market lows.
All of this should tell you that it is folly to try to time a market cycle perfectly. However, having an independent investment discipline that is not driven by the popular attitude towards the market can help you buy more when stocks are cheap, and sell more when stocks are expensive.
Remember, even though market cycles can be functions of fundamental economic conditions, their greatest extremes tend to be driven by psychology - either excessive fear or excessive greed. If you can avoid participating in those emotional extremes, you should be able to smooth out some of the rougher edges of market cycles.
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November 14, 2016
The Internal Revenue Service recently announced that it was not raising the deduction limit for 401(k) contributions in 2017. Given that the IRS isn't going to make retirement saving any easier, it is especially important that you make the most of the opportunities the tax code does allow.
Current 401(k) contribution limits
401(k) plan contributions are tax-deductible, but only up to certain limits. For most taxpayers, that limit was $18,000 in 2016, an amount that has been raised over time to account for the rising cost of living. However, the IRS just announced that there would be no boost in this limit for the coming year.
On the surface, the reasoning is easy to understand. With inflation having been dormant over the past 12 months, the normal cost-of-living adjustment to the 401(k) deferral limit would not come into play this year. On closer examination though, there are reasons to wonder whether a short-term snapshot of inflation is really a sufficient basis for adjusting retirement saving policy.
A more encouraging approach might help improve the somewhat woeful level of retirement saving in this country, but in the absence of more help from the IRS, it is vital for each taxpayer to make the most of the retirement savings chances that already exist.
Bad policy to limit tax benefits for retirement savings?
To understand where the IRS is coming from, you have to think about its mandate: its role is not to encourage retirement saving, but to collect tax revenue. More broadly though, the government is faced with a conflict between trying to collect as much as it can in tax revenues on the one hand and trying to improve retirement saving on the other. Given that impoverished retirees would just end up depending on government resources anyway, it might be short-sighted of the government to so tightly limit tax deductions on retirement savings.
It's also questionable whether adjusting 401(k) contribution limits to year-to-year changes in inflation is appropriate. Retirement funding is affected by the long-term rate of future inflation, not a single year of inflation in the recent past. Using a long-term inflation rate assumption would be a more forward-looking way of adjusting 401(k) contribution limits for the rising costs retirees are likely to face.
3 ways to maximize 401(k) contribution limits in 2017
Bad policy or not, the 401(k) contribution limits are set, and the only thing you can do about it is make the most of your opportunities to save for retirement.
Here are three ways to do that:
1. Max out your contributions during peak earnings years
The fact that 401(k) plan contributions are limited means that you can't afford to waste them. You get to deduct up to $18,000 a year, and for every year you don't max out that limit you are paying extra money in taxes, and leaving your retirement savings wanting.
You also are missing a shot at an extra year of compounded investment returns. When you are just starting your career, it might be hard to find room in your budget to come close to contributing $18,000 a year to your 401(k), but as you enter your peak earning years in your 30s and 40s, you should start working towards that goal. You only have so many years to save for retirement, so treat each one of them as something precious.
2. Use IRAs and HSAs to augment your 401(k)
If you find yourself bumping up against the 401(k) contribution limit, avail yourself of tax-advantaged savings opportunities in an individual retirement account (IRA) and a health savings account (HSA) to augment your 401(k) savings. People tend to look at health savings accounts as merely a way to fund short-term healthcare costs. However, they can also be used to build long-term savings to meet future medical expenses. You can also consider an IRA money market account to add to your retirement portfolio.
3. Take advantage of catch-up contributions
If you are aged 50 or over, you can contribute more to your 401(k) plan than the $18,000 limit. So-called catch-up contributions (the name reflects an assumption that most people have fallen behind on their retirement savings) are available to older workers. For 2017, the limit on catch-up contributions is $6,000, meaning that people aged 50 and over can actually deduct up to a total of $24,000 a year in 401(k) contributions.
People tend to resent paying taxes, so it's easy to grumble about the IRS not raising the deductible limit on 401(k) contributions. The truth is, though, that most people don't make the most of those contributions as it is.
Rather than looking for an extra break from the IRS, make 2017 the year that you make the most of the breaks that are already available.
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November 2, 2016
Auto loans are like the modern automobile, a complicated machine with lots of moving parts and hidden components. However, it's likely there are more people who understand the basics of car maintenance than auto finance.
Another thing cars and car loans have in common: Many people view them as indispensable to their lifestyle. According to the Consumer Finance Protection Bureau, nearly 90 percent of Americans commute to work in cars. In addition, Federal Reserve figures show that in 2015, the total amount of auto loan debt in the U.S. crossed the $1 trillion mark for the first time.
In other words, people are highly dependent on cars and car loans, and that type of dependency can lead to consumers being taken advantage of if they are not well informed. Just as there are some fundamental pointers you should know about shopping for a car, there are some basic issues it is important to understand when financing that vehicle.
Getting a car loan? 8 factors to consider
Here are some of the issues you have to consider when choosing a car loan:
1. How much to put down
"No money down" is a popular car dealer come-on, but is it in your best interest? Building a savings account and making a significant down payment will save you in the long run because you will be paying interest on a smaller loan. Also, since new cars depreciate rapidly as soon as you drive them off the lot, if you make no down payment you will probably owe more than the car is worth for a while. That means if your car is totaled in an accident or stolen, the insurance payment you get might not be enough to pay off the entire loan balance.
2. Length of term
Auto loan terms have been getting longer and longer. This means lower monthly payments, but also more interest expense. In particular, beware of long loans for used cars, which are likely to have a shorter useful life. You don't want the loan to outlive the car.
3. Interest rates
Car loan interest rates vary, so be sure to compare lenders before settling on a loan offer. Also, loan rates are typically higher on longer loans, so this is another argument for choosing a shorter one.
4. The cost of deferred payments
"No payments for six months!" You've probably heard that pitch before, but if you think that means you effectively have free use of your new car for six months, guess again. Chances are the loan terms are such that you will be accruing interest all the while. Since you won't be paying down principal at first, that means an extra six months of interest payments on the full loan balance in the long run.
5. Direct vs. indirect lenders
You can get your loan directly from a financial institution, or indirectly through the car dealer. As convenient as it may be to have the dealer arrange financing, be aware that sometimes they receive mark-ups on the interest rate or other financial incentives that can increase the cost of the loan. Don't settle for dealer financing terms unless you have independent loan offers to compare them with.
6. Price vs. loan terms
Using dealer-arranged financing may also affect the price of the car or what rebates apply. When negotiating on price, tell the dealer you have not decided yet on financing. You want the price quoted with and without financing. This will help you identify the true cost of financing through the dealer.
7. Captive vs. independent lenders
Captive lenders are financing companies owned by a dealer, while independent ones are outside companies the dealer may work through to arrange financing for you. Know the dealer's relationship with the lender because this will tell you whether the dealer can objectively try to find you the best deal, or is funneling business to an affiliate. However, even independent lenders may have a financial arrangement with dealers who steer them business.
8. Early payment fees
Before you sign up, pay attention to any fees that would apply if the loan is repaid early. This could affect you in a number of ways. For example, if you wanted to trade in the car for a newer or different model, you'd have to pay off the existing loan early. That would add to the cost of the trade-in.
To be sure, shopping for a car is more exciting than shopping for a loan. Even so, they are both decisions you may have to live with for years, so put some time and research into choosing your car loan the way you would into choosing a car.
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