Consumer Education/Financial Tips
There are two basic types of loans granted by financial institutions: secured and unsecured. With a secured loan, you pledge an asset (an auto, a house, money in a share account, etc.) against the loan. With an unsecured loan, your signature and good credit history provide security for the loan.
How do you borrow if you have no credit history?
People who find themselves in this predicament include young adults, people with low incomes and limited cash flow, people who have relied on their partners' creditworthiness and didn't establish credit on their own, and senior citizens who never used credit during their working years. To qualify for an unsecured loan with no credit history, a co-signer is often required. (A co-signer agrees to be liable for repayment of the loan in the event that the primary borrower becomes delinquent or defaults.) A secured loan, on the other hand, gives you the opportunity to qualify on your own. But before you apply for a loan:
- Begin a regular savings plan.
- Open and maintain a checking/share draft account. Demonstrate that you can manage money responsibly.
- Pay your rent and utility bills on time. Failing to make these payments when they're due can negatively affect your credit history.
Your first loan
- Use a portion of your savings to "secure" a small loan. By pledging your savings as collateral (security) and by making regular payments on the loan, you'll establish a good repayment record and credit history. With each payment you make, secured savings in the amount of the principal repaid are "released" and made available to you once again.
- Use your savings to "secure" a credit card. Apply for our Secured VISA Classic Credit Card. If you've never had unsecured credit before, of if you've had problems in the past and are trying to re-establish your credit, our secured card gives you the opportunity to build a positive credit history.
If you learn how to save, how to borrow, and how to repay you'll become an adept manager of money.
TEN SMART MONEY MOVES FOR MEMBERS IN THEIR 20s
Make the most of your working years and prepare early for your life's goals. If you're in your 20s, you have a financial asset money can't buy: TIME. And time makes your money grow. Making some smart money moves in your 20s pays off now and in the future.
- Set financial goals to take a vacation, go back to school, get married, buy a house or start saving for an early retirement. Put your goals in writing, then calculate how much you'll need to save each month to reach them.
- Make a spending plan, limit your debt and concentrate on paying off existing bills. If you use credit, limit debt to your ability to repay. Experts say that monthly credit payments, excluding a mortgage, shouldn't exceed 20% of your monthly take-home (after-tax) pay. If you have trouble meeting your financial obligations, seek help before you fall behind. For guidance, call our financial counselor at (202) 289-1950 or (800) 344-4497.
- Build an emergency fund equal to three to six months' living expenses, even if it takes years to build. Use this fund only for true emergencies, such as unexpected car repairs, illness or unemployment. Make regular deposits to your emergency fund account via payroll deduction or direct deposit.
- Save at least 10% of your gross income for the emergency fund, your future goals and retirement. If you can't manage 10%, start with 5% and increase it over time.
- Take advantage of the savings accounts and loans TDFCU offers. You'll earn more when you save and pay less when you borrow.
- Make it a priority to get adequate health, disability, auto, personal liability and tenant's or homeowner's insurance. If someone else depends on your income, you also need life insurance.
- Once you've implemented your spending plan, built your emergency fund and obtained appropriate insurance, make the most of your money by starting to invest. The key is to invest small amounts gradually and sensibly over time. Think in terms of at least five to ten years down the line. Investments need that much time to ride out the inescapable ups and downs of the market.
- To save money for your retirement, use tax-advantaged savings programs such as company 401(k) plans and Individual Retirement Accounts (IRAs).
- Keep job options open by keeping your job skills fresh. Get the necessary training and education so that your knowledge and skills stay up to date.
- Establish and maintain orderly financial files. Keep your tax returns, statements from financial institutions and copies of your insurance policies as organized and as accessible as possible.
NEED HELP WITH YOUR FINANCES?
Serious financial trouble has its warning signs: borrowing just to meet minimum monthly payments; paying bills late; using more and more of your income to pay debts; charging groceries and other necessities; worrying about money.
The Consumer Credit Counseling Service (CCCS) helps people resolve financial problems and get their finances in shape. CCCS is a non-profit organization dedicated to promoting the wise use of credit and sound money management; their services are free.
If you need financial help, call the CCCS at (800) 747-4222. Counseling is available at their offices and by mail, over the phone, and through their web site (click here).