Less Than an NSF Fee: The ABCs of Financial Literacy

By LaToya D. Cheek

Embrace a brighter financial future, and get the knowledge you need to put more money in your pocket with a guidebook that costs Less than an NSF Fee.

• Language: English
• Publisher: Lulu Publishing Services
• Release date: Feb 2, 2015
• ISBN: 9781483423395

Book preview

CHAPTER 1

A

38_a_lulu.tif Tip: Always protect your personal information. This information is the key to your financial security and identity. It may include your name, Social Security number, date of birth, account numbers, and passwords to your online banking account or other financial account information.

Also, always know what you are signing before you sign any legal document. Adjustable-rate loans have created a lot of hardships for people who thought they were getting a great deal on mortgage loans, only to later find out their payments were so high that they were no longer able to afford them. You have to be careful and read the fine print. Understand what you are signing. If it sounds too good to be true, it may be. I have always recommended a fixed-rate mortgage loan unless you are 100 percent sure that you are able to refinance—and we know that nothing in life is guaranteed. Therefore, you must be willing and comfortable with taking the risk that comes with an adjustable-rate mortgage.

This section will introduce you to financial terms and/or topics that begin with the letter A.

Adjustable-Rate Mortgage (ARM)

This is a mortgage with an adjustable rate that has the potential to change based on an index rate. This loan generally begins with a lower rate, and as the index adjusts, the rate on your loan does as well. Lenders sell ARMs to transfer some of the risk to the borrower. The lender provides the index used and terms for the loan.

If you are planning to stay in your home for a significant period of time, a fixed rate may be a better option. If you know that you are going to move or refinance your home within five to seven years, a 5/1 ARM or 7/1 ARM may work best for you. The decision depends on your personal situation and ability to refinance if the rate becomes one that you cannot afford. A 5/1 ARM offers a lower fixed payment for the first five years of the loan. This is the same for a 7/1 for the first seven years, after which the rate can adjust every year.

There are other ARM products. You should research to determine which is best for you. After the fixed period stated, the interest rate could adjust according to the terms and conditions. I would strongly recommend that you understand this product before proceeding with an adjustable-rate mortgage, especially if you are planning to stay in your home long term.

Annual Percentage Rate (APR)

This is the annual cost or rate of a loan that includes interest, mortgage insurance, and other applicable fees expressed as a percentage. This is generally paid to the financial institution by the borrower. The fees also include (but are not limited to) points, origination, flood search, application, courier, document preparation, and attorney fees. They are based on the type of loan being closed.

Annual Percentage Yield (APY)

This is the compounding interest rate over a one-year period. This is generally paid to the deposit account holder by the financial institution.

Assets

An asset is a resource owned (tangible or intangible) that holds value, such as an account, automobile, or home. Stocks and bonds are intangible assets. If you own it, and it holds positive cash value, it is probably an asset. Banks or credit unions often look at your assets when requesting mortgage loans or large unsecured loans.

Automatic Draft (Debit)

This is an automatic debit that is usually set up by you for the company that you owe. You may have to sign a document and provide your routing and bank account numbers to the company receiving the payment. If the draft was not initiated by your credit union or bank, then your credit union or bank may not be able to cancel the draft. Depending on the company initiating the draft, it may take days or weeks to start or cancel the draft. It is important to keep in mind that starting or stopping a draft may take days. The company that initiated the draft is the same company that you would have to contact to cancel the automatic draft.

If you are not working with a reputable company, it is not recommended that you provide the company with your bank information since this could create overdraft issues, especially if you are just performing what you think is a one-time draft.

Quick Tips and Recommendations

• Be sure to deduct drafts from your check register monthly or as needed, based on the frequency of your draft.

• Set up a reminder or an alert to deposit the funds into your account for the draft. A lot of people accrue NSF fees due to automatic drafts that they forget to deduct from their accounts. Even though these drafts are continuous, people somehow forget them over and over again.

• Understand the terms of the draft. Some companies draft multiple times if the funds are not there at the time of the initial draft, creating multiple NSF fees on your bank account.

• If your account information changes, update the drafting company. Failure to do so may result in returned check fees with the drafting company.

Automated Teller Machines (ATM)

Automated teller machines (ATMs) are very convenient and provide great flexibility for accessing your funds, performing balance transfers, making payments, ordering checks, depositing cash and checks, etc. You will use your card (ATM or debit card) along with your four-digit personal identification number (PIN) to access your account.

If you attempt to dispute a transaction that was PIN-driven, meaning the PIN was used to conduct the transaction, there is a huge possibility that your dispute will be denied because this number was only assigned to you. The range of services provided using the ATM depends on the relationship you have with the financial institution. If you are not using your bank’s ATM, the number of services you can perform on that particular machine may be limited.

Quick Tips and Recommendations

• Do not share your PIN with anyone.

• Check the ATM’s surroundings before using the machine.

• Avoid using these machines after dark and in locations that do not appear to be safe.

• If you choose to use the ATM after dark, always have someone with you for your safety. It is strongly recommended that you use this service before dark or in well-lit areas.

• Check with your financial institution to see what types of services are provided at your ATM.

• Avoid using ATMs that do not belong to your financial institutions because fees may be applied to access your money.

CHAPTER 2

B

38_a_lulu.tif Tip: Be accountable for your actions. If you spend it, track it. Be responsible for your debt, and pay it back on time. Be diligent with your credit, and understand how it impacts your future! It can influence buying and hiring decisions.

This section will introduce you to financial terms and/or topics that begin with the letter B.

Balance Your Checkbook

Balancing a checkbook is a great practice to help you know the amount of money you have in your account, reduce errors, and eliminate fees, and it can help detect fraud on your account. By comparing your check register to your statement each month, you are taking a step toward protecting your account while monitoring any possible fraudulent activity.

People believe this is a time-consuming task, and they often talk about how tedious it is. But if you take a look at the big picture, you are saving yourself a lot of time and stress by preventing what could possibly take