What is the best place to lower your interest rates and consolidate credit card debt in order to pay it all off? The first thing to try is to call up your credit card company and negotiate your existing rate down. If that isn’t satisfactory, you could switch issuers and do a balance transfer to a new card with a low introductory rate. If you have qualifying credit, you can take advantage of no fee 0% APR balance transfer offers for up to 15 months.

I would say the next option to consider is P2P lending, which in my experience has lower rates than personal unsecured loans from banks. P2P is gradually becoming an accepted source of loans as shown by announcements of new institutional money coming in from hedge funds. Prosper has been around since 2006 and has done over $300 million in loan volume since inception, and LendingClub has been around since 2007 with over $500 million in loans. Both are now registered with the SEC.

Prosper vs. LendingClub Similarities

1. Unsecured loans. Such loans are backed only by the borrower’s promise. If there is a default, the lender can’t repossess any property or garnish wages. The primary deterrent to defaults is a poor credit score that will increase future borrowing costs and potentially other side effects including affecting employment.

   Alternatively, you may be considering paying off your credit card debt with a home equity loan. This would change your unsecured debt into a secured debt. The danger is now if you don’t pay off that loan, you could lose your house. If that added risk doesn’t make a difference to you, then a home equity loan or line of credit will probably offer you a lower rate.

2. Flexible amounts. You can borrow more or less than your actual outstanding credit card balance, and you’re usually given a choice of amounts for the same interest rate. But remember, the purpose of consolidation is to help speed up the process of getting rid of that debt.
3. Fixed rates over the entire term. The problem with credit cards is that the rates are often unpredictable. “Variable” rates are linked to a benchmark rate, but even “fixed” rates that aren’t guaranteed for X months can just mean they’re fixed until you get a notice that they are now “fixed” at a new, higher number. Given the current low interest rate environment, you should be wary of rising rates.
4. No prepayment penalties. You can pay off your loan early at any time, with no fees.
5. No application fee. There is no fee to apply for a loan. If your loan successfully funds and you get the cash, then you will be subject to an origination fee that is rolled into your monthly payments.

Prosper vs. LendingClub Differences

1. Minimum credit scores. Prosper minimum stated credit score is 640, LendingClub minimum FICO score is 660.
2. Maximum loan amounts. Prosper maximum loan amount is $25,000, LendingClub maximum loan amount is now $35,000. Both lower the limits depending on credit profile.
3. Slightly different fee structures. Both companies charge an origination (closing) fee once you successfully get your loan. If you don’t get the loan, no fees. They have slightly different fees schedule, but both have origination fees ranging from about 1% to 5% for the majority of loans. Both charge $15 fees for late payments or failed payments.
4. Different loan term lengths. Depending on your requested loan amount and other factors, each lender may offer different terms. For example, LendingClub told me that loan amounts from $1,000 to $15,975 are only available with a 36-month term, even though they do offer 1-year and 5-year loans in other cases. However, with a $10,000 loan at Prosper I was given the choice of 1, 3, or 5-year terms. In general, the longer the term, the higher the interest rate.
5. Check processing fees. LendingClub charges a $15 processing fee per payment made by check. Prosper does not. Both companies allow you to make payments via automatic ACH withdrawal from a checking account with no fees.

Prosper vs. LendingClub Interest Rates?

Their full criteria for determining what rate you’ll pay is not disclosed but is based on a number of factors. Really, the best way to see which one will give you the best deal is to ask each one for a free quote. In both cases, getting a rate quote will involve looking at your credit report, but it will not result in a credit inquiry and will not hurt your credit score. If you do decide to move forward and get the loan, only then it will show up on your credit report.

• Request a free rate quote from LendingClub.
• Request a free rate quote from Prosper.

My experience. I applied for a $10,000 debt consolidation loan at both places. I was offered a 1-year loan at 8.17%, a 3-year loan at 7.49%, or a 5-year loan at 10.85% annual interest rates at Prosper. I was offered a 3-year loan at LendingClub at 6.62% interest rate. For a $10,000 loan over 3-years and including all fees, my LendingClub payment was $307 per month and Prosper payment was $311 per month. So even though the interest rates seem rather different, the final monthly payments ended up closer than expected (though still a $150 difference in total payments over the whole 3 years).

Related posts:

1. LendingClub P2P Loan Investment Returns Update 2010 Q3
2. LendingClub: My P2P Loan Portfolio Update (+Bonus)
3. Prosper P2P: $50 For New Lenders + Up to 2% Rebate Bonus

Prosper vs. LendingClub: Credit Card Debt Consolidation Loan Comparison from My Money Blog.

© MyMoneyBlog.com, 2012.

View full post on My Money Blog

I’ve actually seen two sides to losing a job. I’ve seen friends bounce back stronger than ever by finding better work that paid more. Getting fired can be like getting out of a toxic relationship. You’re finally released from prison and now able to do anything that you want with your time. I’ve met at least 5 personal finance bloggers that lost their jobs and then went full-time blogging after. Pat Flynn of Smart Passive Income and Bob of Christian PF are two that come to mind.

I’ve also seen the flip side, the negative reaction to getting fired. This is a complete depression from losing a job. This is the feeling that you’re useless and not good enough to work. I saw a friend go through this in 2009 when he got fired from a job, not because of the economy, but because of his own foolishness. This person in question had been warned and progressively disciplined. He felt that he was untouchable because he had some friends in the company. He screwed up one time too many and ended up getting fired permanently. I saw him spiral into a year long period of depression after this. He lost his girlfriend and became unbearable to most of his old friends. He had no motivation to do anything. He slept on his brother’s couch and felt sorry for himself.

The point here is that losing a job can be inspirational for some and total doom for others. You can bounce back higher. You can also become very depressed for a long time.

How can losing your job be the best thing for you? Allow me to explain the positives of losing a job for those of you that are completely worried about getting fired tomorrow morning:

• You’re free to work on your own projects.
• Your health will improve because of the reduction in stress.
• You can finally move.
• There are better jobs out there.
• You’re no longer comfortable. You’re now working harder than ever.
• You’ll have more time for your friends and family.
• You’ll finally get that vacation you’ve been dying for.
• You’ll be humbled in a huge way.

Getting fired isn’t that bad, right? All I’m suggesting is that losing one job isn’t the end of the world. This is also why I often promote the idea of making money on your own.

What would you do if you got fired tomorrow? Would this be the best thing for you?

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You may know that John Bogle is the founder of Vanguard, now one of the largest fund organizations in the world and a pioneer in low-cost index funds. But what I really like about his books is his focus on common sense as the foundation for his advice. An example of this is his Gotrocks parable [pdf] adapted from Buffett. But back to this excerpt. He first points out how stock dividends have been a good way to create an income stream over the long run that grows faster than inflation.

Of course, by investing in common stocks you assume the risk that dividends will decline during periods of recession or depression [...] What is truly remarkable is that the record of dividend payments by U.S. corporations heavily favors rising dividends over declining dividends, almost irrespective of prevailing business conditions.

Here’s a chart of the historical S&P 500 annual dividend, inflation-adjusted. (Note this is absolute dividend, not dividend yield percentage.)

Image credit to Multpl.com, data from S&P and Shiller

Now, the problem is that you can also pay too much for dividends. He shares an example of how if you were comparing the dividend income from a diversified stock portfolio yielding 3% and growing at 6% annually or a long-term bond yielding 7% each year, it would take 26 years for the dividend income to total the bond income payments.

Unfortunately, defining what constitutes too high a price for dividends is a fallible exercise, one that must take into account not only the average historical valuations for stocks but the current valuations for other investment alternatives as well. History suggests that stocks are relatively expensive when the price paid for $1 of dividends is above $30 (i.e., a yield of 3.3%) and relatively cheap when the price paid is less than $20 (a yield of 5%). However, stocks may well be attractive at a yield of, say, 3.5% if there are compelling reasons to assume that their dividends will increase rapidly or if yields on other classes of financial assets are relatively unattractive.

In the example shown in Figure 2-5, buying a portfolio of stocks at a 3% yield rather than a bond at a 7% yield might not be a sensible investment, especially considering the incremental risk incurred in holding stocks. When stocks yield 4.5% and bonds yield 6%, that may be quite another story.

What would Bogle say right now, when the S&P 500 yield is ~2% and 30-year Treasury bonds are ~3%? The relative difference between the stock yield and the bond yield is less than 1%. I would argue that his last sentence would suggest stocks are actually preferred over other classes at this point.

Now, I’m not turning in a stock bull, and I still have about 70% stocks and 30% bonds in my portfolio, but this line of thinking makes me happier with my 70% in stocks. I’ve also been looking more at living off of dividend income in “early retirement”.

Related posts:

1. Creating Retirement Income Only From Dividends and Interest?
2. Jack Bogle Makes Market Prediction For Next Decade
3. Historical Bond Yields vs. S&P 500 Dividend Yield

Bogle on Earning Dividend Income From Stocks from My Money Blog.

© MyMoneyBlog.com, 2012.

View full post on My Money Blog

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SmartMoney 2012 Top 10 Overall

1. Fidelity
2. Scottrade
3. TD Ameritrade
4. E-Trade
5. Schwab
6. TradeKing
7. Zecco
8. Merrill Edge
9. ING Direct Sharebuilder
10. WellsTrade

Best in Commission & Fees Category (5 stars)

Scottrade doesn’t have a rock-bottem per-trade commission at $7 a trade, but it’s lower than average and they still win overall due to lower fees elsewhere – such as annual fees, inactivity fees, fees to use a phone, or close out an account.

1. Scottrade
2. ING Direct Sharebuilder

Best in Customer Service Category (4 stars+)

One important factor here was speed of reply in addition to accuracy, and per the article all of the brokers surveyed now offer Live Chat online except for WellsTrade. I think TradeKing was the first to offer this feature?

1. TradeKing ($50 opening bonus link)
2. Scottrade
3. E-Trade
4. Zecco

Trends

• Prices are still dropping, although more slowly. SmartMoney reports that in 1994 the average commission price surveyed was $28. Last year, $8.27. This year, only $7.96. Note that every single one of their top 10 brokers have per-trade stock commissions of under $10. I suppose anything higher would just seem greedy now.
• Banking. More firms are adding banking features like debit cards and billpay to make it more likely that you’ll keep all your money there, joining firms like Merrill Lynch (Bank of America) and WellsTrade (Wells Fargo) which are already closely aligned and owned by big banks.
• Smartphone and iPad apps. These are indeed cool, but the brokers really love them because they increase your trade activity.

Omissions

SmartMoney mentions the the Merrill Edge BofA deal, where you can get 30 free trades a month if you hold a combined $25,000 as cash in your *deposit* accounts only at Bank of America. However, they don’t mention the WellsTrade deal which offers 100 free trades a year if you hold a combined $25k across acounts including your brokerage balance, but instead requires a PMA checking account that you have to keep active with “in-person” activity like writing a physical check at least once a year.

WellsTrade and Zecco enter the top 10 this year, but Vanguard and OptionsXpress were bumped out. Vanguard was #7 in their 2011 rankings. There was no mention of what happened… I’d like to know if they were notably worse in some area or were simply excluded? OptionsXpress was bought by Schwab last year, but still runs an independent site.

Finally, there was no mention of the quantity and quality of the commission-free ETF lists offered by the majority of these brokers. If anything, I thought that was more important to mention than smartphone apps that scan product barcodes at the grocery store.

Finding The Best Broker For You

Don’t forget to compare these results with the Consumer Reports 2012 Rankings and the Barron’s 2012 Rankings. The key is to drill down to see which broker satisfies your personal set of needs the best, as there is a lot of fluff in there. This is why I’d rather look at specific sub-rankings more closely than the big headline “Top 10″ rankings.

Take the “Banking” category, which included as a criteria but some brokers just don’t offer banking services and I don’t think they should be penalized for it. Another area I don’t care about is “Research” tools. I’ve ever used a broker for research. Morningstar offers me everything that I need, otherwise I just look at Google/Yahoo quotes and look for related news and blog articles. I don’t see how a discount broker would have the time or resources for unique analysis. Just give me cheap trades with good fills, solid customer service when I need it, and track my capital gains and tax lots accurately.

Related posts:

1. Barron’s Top Online Broker Rankings 2012
2. TradeKing Review: $4.95 Online Stock Broker
3. Choosing a Discount Stock Broker

SmartMoney Magazine Top Online Broker Rankings 2012 from My Money Blog.

© MyMoneyBlog.com, 2012.

View full post on My Money Blog

I got an email from Blake last week (a fellow planner and loyal TFB reader). He’s a really good, honest planner and knows that he can add a lot of value for his clients. He is meticulous and is always looking to improve his clients’ situations. In other words, he’s part of us good guys . He told me that he was able to close almost everybody that he meets in a one-on-one conversation. The problem is that he would like to get more clients (who doesn’t want to make more money anyways, huh?). In our business, there are 2 ways to gain clients:

1-      Referrals (from existing and happy clients)

2-      Cold Calls

This is the same situation for most businesses in fact. You either get a reference from a buddy or client of yours or you pick up the phone and book a meeting by yourself. Life is easy when you get a referral since the potential client has been sold on you by someone he can trust. Therefore, he is willing to give you 2 super important things you need as an entrepreneur (advisor, salesmen, representative, etc):

1-      Time (he will allow you to meet him)

2-      An open mind (he will actually listen to what you have to say and might even ask questions to know more)

Ironically, this is exactly what you don’t have when you make a cold call. Most people don’t have enough time in a day to do what they enjoy doing the most (whatever it might be), so why the hell would they have time to listen to you? Chances are that you are distracting them from a very important task (according to them) when you call.

If you think you don’t have the time for someone who calls you, the first thing you think of is “how can I politely hang-up ASAP?”.  The word “politely” is probably your only chance of having more than 30 seconds with the prospect. Some people just don’t care and will hang-up on the spot. For this type of client, I don’t have many tricks… but when I have more than 30 seconds, I’ve developed a few techniques to make my way through. I’m not an expert in cold calling and still have a lot to learn about it. On the other hand, I’m able to get an appointment every 4 calls I make. In all honesty, you should expect 1 appointment per 20 calls at first, then it will rapidly drop to 1 appt /10 calls and then can become better at selecting your prospects to hit a 20-25% batting average after a few months. My techniques don’t apply to all types of cold calling as I’m in a profession that offers high value services. I guess that most of these techniques would not work if you are a telemarketer selling credit card insurance! Here’s how I do it:

Be Confident

If you are not convinced that you can truly and genuinely help the person you are calling, don’t even bother dialing the phone number. You need to know what you are doing and why you are doing it. What’s in it for the client? Don’t answer this crucial question by the characteristics of your products and services. Answer this question with benefits for the clients. Don’t think about you, think about the client. What would make YOU change your mind about someone calling you? The very first thing is the confidence of that person who thinks that he can truly make your life better.

If you are not confident in your services/products, I suggest you check with other colleagues, your boss, a mentor to enhance this part of your offer. Without confidence, you won’t get a single appointment.

Prepare a Script But Don’t Over Prepare

Anxiety starts when you are about to pick-up the phone. This is when you “don’t feel ready” and want to practice again. It’s important to have a short script with a few “pick-up lines”. But don’t over practice your script. It has to be natural to avoid going on for 4 minutes without breathing and without letting your prospect talk. He won’t listen anyways. Your script should be split in 3 parts:

a)      Who you are (Hello Mr. X, It Mike from XYZ situated at and I’m doing ABC)

This quick intro is just to tell your prospect that you are a real person working for a real company doing a real job. I personally ask my prospects how he is doing. This usually generates a small “fine” tainted by either a small interest but most of the time I know that the client is annoyed already. This is when I jump into the second part of my script:

b)      What you are doing / what you are offering

This part must be less than 1.5 minutes if you want to make sure the client doesn’t lose interest and that you can ask him a question that he will answer (because he is still listening). The point in that 90 second timeframe is to go directly to what you do best (what’s in it for the client). It doesn’t really matter which point you want to highlight as long as you sound very confident and that your 90 seconds ends with a question. This question should lead to interaction with the client so you become more “human” and less “that annoying telemarketer”. You want to engage in a conversation and “open doors” which is part 3:

c)       Asks questions to open doors

By asking questions of your prospect to know with whom he deals with, why he deals with them, if he has heard of “XYZ” strategy or products, if he knows how much it costs him, etc. The point is to get the prospect talking about his situation and note everything he says. With this information you should be able to open doors to an appointment. The door opening comes when the prospect gives a “weak” answer such as:

Why are you doing business with them?

-          Because I’ve always been (meaning he never considered another option)

Have you heard of XYZ strategy / product that can help you do ABC?

-          No, never heard of that (here’s your chance to explain what is it, make it sound interesting and to book an appointment to explain the whole strategy/product)

Do you know how much it costs you?

-          Not really / It’s been a long time I haven’t check that / Yeah, it’s $$$ (You can then offer something cheaper in most cases)

When is the last time you met with your advisor? Did he check everything, not just the investments?

-          I met him last week, 6 months ago, he just looked at my investments (now’s your chance to offer a global approach).

Are you convinced that your bank is offering you the most? Would you allow me to confirm that with you?

After you have opened at least one door, you can “close the call” by offering the following:

Here’s what I offer; you take 45 minutes to meet with me, I’ll even go to your office. Within 30 minutes, I’ll guarantee you 2 things:

-          I’ll offer you something you never heard of

-          You won’t be wasting your time with me

There is absolutely no obligation on your side. The worse that will happen is that you will have spent 45 minutes with a professional and will have a few questions for your own advisor to challenge him.

It won’t work all the time as many folks won’t answer your questions and you will be left with very little ammo to convince them to meet you. For those situations, I don’t have any tricks yet. But for those who give you a few more seconds to prove yourself, you will definitely hit a question that will open a door and will allow you to book your appointment. Then, the only thing that you need to do is to ask him a few more questions “in order to present the right thing for him and not waste his time”. You do that once the appointment is scheduled so the prospect will be willing to give you additional information.

All you need to do after that is to prepare a killer presentation!

How would you react if a professional (not a vacuum salesman) called you with that approach? Would you give him 90 seconds to prove his point?

image credit

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I’ve never had a security system until now, other than our dogs which are all bark and no bite. I suppose the main reason for that is that I didn’t own enough property to be worth protecting. Burglars could take everything and it would perhaps fetch $600 total on Craigslist, which is less than what a year of ADT monitoring fees might cost.

Combine the baby nesting instinct with a rash of recent break-ins in our quiet neighborhood, and my mindset has changed. I wanted a home security system, but I didn’t want to pay $60 or even $30 a month for monitoring. The monthly bill is where companies make most of their profit. $60 a month = $720 a year = $7,200 over a decade.

After some research, we settled on a company called Simplisafe. Here’s a list of reasons why we chose it:

• Wireless. Simplisafe uses GSM cellular technology, which means you don’t need a landline (which can also easily be cut by a criminal). Wireless monitoring was a requirement for me, and usually costs extra with other brands.
• Affordable up-front cost. The total cost of equipment was about $400 to completely cover my 2,000 sq. ft. house. You could probably cover an apartment or condo for $200-$300.
• DIY Installation. You order it, and install it yourself using the included 3M sticky tape. No drilling holes. Installation literally took less than half an hour. (Their YouTube video has it done in one minute.) If I moved, I just remove the sensors and buy some new sticky pads for $10.
• Affordable monitoring fee with no contract. Again, the monthly fee is where your cost over time adds up, and you’re usually stuck in a 2 or 3-year contract. Simplisafe 24/7 monitoring is only $15 a month with no contract. You can add instant text message alerts for an optional $5 a month. That’s is pretty much as cheap as UL-listed monitoring will cost. If you prefer, you don’t have to buy monitoring at all and you’ll just have a loud audible alarm (you can also buy extra sirens) which may be adequate for condos and apartments.
• Battery-powered. The base station has a rechargeable battery that will last up to 8 hours in a power outage. All the rest of the sensors use their own individual lithium battery. This means the entire system will work in a power outage or if the power is cut on purpose.
• Expandable. Everything is a la carte on the website, so you buy just as many sensors as you need. They recommend a contact sensor for each entry into the house, and motion sensors to cover important areas.
• UL-listed 24/7 Monitoring. On a cheap system, I imagined the monitoring system to be two minimum-wage employees taking turns in an apartment. But Simplisafe is certified by United Laboratories just like ADT and commercial fire alarm systems. Central station monitoring is provided by AMCEST Corporation (UL #S2299). This may also make you eligible for a discount on your homeowners or renters insurance.

Also see short write-ups in NY Times and CNN Money.

I’m happy with the system, and it’s been in use for over 30 days. I often forget to disarm the system before I get home, so when I get home I get warning beeps and have to enter the PIN into the keypad or use the key fob within 30 seconds. If I didn’t, they would call a listed phone number and ask for the secret passphrase, otherwise they would call the police. I don’t see how anyone could enter the house and take something valuable without setting off at least one sensor and having the police within a minute along with a loud alarm. Even if someone breaks in and immediately breaks the base station, the signal is already sent. When you’re at home, there is a “Home” setting where the contact sensors are armed but the motion sensors are not. We also purchased a “panic” button to place by your bedside for instant alarm activation.

I would say that one thing I’m worried about is that I am depending on the system to tell me if/when the individual lithium batteries run out of juice. But the base station makes a little beep whenever one of the sensors is set off, so you know it’s still working. The lithium batteries are supposed to last 5 years. I also do not get video monitoring. I could buy an additional DVR setup from Costco for a one-time cost, but I’m really not interested in that much surveillance. Finally, depending on your area you may need to file for a security system permit with a small fee.

For now, I’m paying the extra $5 a month since I like getting text messages whenever the system is armed and unarmed. You’ll also get an alert if there is a power outage or any sensor is set off. I might get rid of it once the cool factor wears off and I trust the system more.

You can get 5% off a Simplisafe system with code SAFENOW or $25 off with code LM25OFF (better unless your total is over $500).

Note: I bought the original Simplisafe. They just announced Simplisafe 2.0 for pre-order which has a few more features like a smartphone app and fancier sensors like glass breakage and carbon monoxide. The basic setup and technology is still the same, but you need the 2.0 base station to take advantage of the new features. However, the 2.0 costs $25 a month, so I’m sticking with the original for $15 a month.

If you already have a home security system, I would recommend looking into switching to a cheaper UL-listed monitoring service once you are out of contract like NextAlarm.

Related posts:

1. Cheap: The High Cost of Discount Culture [Book Review]
2. Treasury Direct Review: Electronic Savings Bond Security Concerns
3. False Alarm (most likely).

Simplisafe Alarm Review: Cheap, Effective DIY Home Security from My Money Blog.

© MyMoneyBlog.com, 2012.

View full post on My Money Blog