Debt, Credit Card & Consolidation Current News Digest

Get Rich Slowly keeps humming along! Thanks to your participation, it was another great month around here, with a lot of interesting discussions. I’ve managed to collate most of the results from the recent reader survey, by the way, and will share them with you in a few days. Meanwhile, here are some of the best posts from the past month:

• June 1st: Where we’re starting from
• June 2nd: The lazy way to investment success
• June 7th: The loneliness of the long-distance debtor
• June 11th: 25 essential books about money
• June 16th: Online banking: 13 choices for high interest rates
• June 19th: How to handle a windfall
• June 22nd: Remnants of things past
• June 24th: My sister’s keeper: Sharing financial goals with an accountability partner (a guest post from Kinley Levack)
• June 25th: The first three steps to financial freedom

The blog isn’t the only part of this site. If you have burning questions about personal finance, one of the best places to get answers is the Get Rich Slowly discussion forum.

The forums are a great place to chat with your fellow readers. Have questions about emergency funds? Ask! Want to chat about cheap vacations? This is the place to do it. The forums have 3200 registered users and over 38,000 posts.

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This weblog is a success because of you and your support. As always, I welcome reader contributions, either as ideas for stories, or as guest entries. If you have any comments or requests to improve this site, please feel free to pass them on.

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Related Articles at Get Rich Slowly:

• The Best of GRS: June 2007 Edition
• The Best of Get Rich Slowly: June 2008
• The GRS Garden Project: June 2009 Update
• Daily Links: Gentle June Edition
• Press

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The decline in home prices slowed for the third straight month in April, according to a leading market surveys, suggesting that while the housing market has not turned around, it may finally be firming up.

Colleges are still becoming outrageously expensive — just less slowly for now. Private school tuition and fees will increase 4.3% in the 2009-2010 academic year, according to a survey released Monday by the National Association of Independent Colleges and Universities, a group of private, non-profit institutions. That’s lower than the 6% trend we’ve seen over the last few years, and the smallest increase since the 1972-1973 academic year, NAICU says.

But it’ll still top the Consumer Price Index increase of 3.8%.

Schools have made a concerted effort to keep costs in check this year as students and families cope with tough times. Many parents have lost jobs, 529 college savings accounts have lost value and states are cutting aid. Some universities have frozen tuition; others are hiking it, but by a (relatively) small amount.

The average increase in school-based aid budgets for the upcoming academic year is 9%, according to the survey of 350 schools, and many institutions are providing more generous terms, such as replacing loans with grants or raising the income cap for students deemed “needy.”

These moves are all well and good, but many schools derive crucial revenue from tuition, and they won’t cap costs indefinitely. When schools decide students can handle a price bump again, there’s a legitimate fear in higher ed circles that schools will enact tuition increases of 10% or more, as some public universities have threatened this year. Let’s just hope financial aid packages increase in kind.

Discover Bank announced today that it will allow new and existing customers who have lost their jobs to take penalty-free withdrawals from 12-month certificates of deposit.

Typically, consumers who want to pull money from a CD before its maturity date pay massive fees, which can total much or all of the total interest paid, according to Bankrate. In general, any time a customer yanks money from an investing account, be it a 401(k), individual retirement account or CD, customers pay fees because they’re breaking a contract.

Despite these penalties, not to mention the potential long-term damage to saving and investing goals, hardship withdrawals — much like the unemployment rate — are up.

“There’s a great deal of hesitation to lock up money and use some of our products that have higher rates,” Steve Olszewski, vice president of deposit products at Discover Bank says.

To be eligible for the penalty-free withdrawal, consumers must open a 12-month CD with a minimum balance of $2,500 between July 1 and Dec. 31 of this year. To withdraw money before maturity, customers must show proof of involuntary job loss, such as a termination notice or unemployment filing. Under special circumstances, self-employed people may also be eligible. Because of federal law, the CD must be open for at least six days. (More Discover fine print here.)

It will be interesting to see if other banks follow suit as they struggle with losing money while trying to attract deposits. We’re not aware of any major CD issuers with a similar offer. (If you know of any, please comment below or drop us a line.)

Discover, which is probably more familiar to customers as a credit-card issuer, is trying to grow its banking arm as the credit-card industry undergoes seismic change. Mr. Olszewski says that, as of May, Discover has attracted $8.1 billion in customer deposits.

Yanking money early from a 12-month CD is not ideal, but it’s less financially punishing than pulling money out of a 401(k) or IRA, where you have to pay taxes as well as fees. And withdrawing early from a 12-month CD doesn’t have as large an impact on your long-term savings and investing goals. In practice, the Discover CD offer functions more like a high-yield online savings account.

Products like CDs and high-yield savings accounts have become the darlings of the investing world of late as Americans with dilapidated portfolios continue to be wary of stocks. With guaranteed interest rates and FDIC insurance, CDs are a popular during turbulent times, even if the rates aren’t as juicy as they’ve been in the past. Read here for more information on how to find the best CD rate or high-yield savings account rate.

Also, a friendly reminder that the FDIC’s expanded insurance for deposits (currently $250,000 per depositor) expires on December 31, 2013. According to the FDIC, on January 1, 2014, sans certain retirement accounts, the standard insurance amount will return to $100,000 per depositor. This could impact the 5-year CDs you buy today, so plan accordingly.

Refinancing is an opportunity that, like most opportunities, has a cost attached to it. Closing costs due and payable from the refinance borrower on a $400,000 loan can run up to $7,000 including any “points” paid to a mortgage broker or lender. Such costs are typically then tacked onto the mortgage balance.

During the housing boom, the tacking on did not seem like a problem. After all, housing prices were rising much faster than $7,000 per year, and refinancing was as easy–and American–as apple pie.

Now, though, home refinance has reverted to being a real decision, complete with pro and con lists and cost and benefit analyses. Fortunately, a new report from the Mortgage Bankers Association provides some excellent information for borrowers trying to decide whether or not it’s worth it to refinance.

Reading the Full Report Is a Good Idea

For borrowers considering a refinance, it may be worth the time and effort to just go ahead and read the full report, titled “A Financial Analysis of Consumer Mortgage Decisions.” It’s available for free here.

It’s also 60 pages long, though, and written by “mortgage people.”

Cool Tool Alert: The Optimum Mortgage Refinancing Calculator

For refinance hopefuls that want to bypass the full report, there are some great tools available as a result of this important study. For instance, the “Optimum Mortgage Refinancing Calculator.”

This calculator gets right to the heart of the question so many borrowers are asking these days: is it really worth it to refinance? By taking into consideration closing costs, discount points, old loan repayment term, new loan repayment term, old interest rate, new interest rate–

Well, suffice it to say that the calculator is more complex than it seems. But extremely easy to use. And unlike many mortgage brokers, it actually gives you a straight answer!

There are a number of sites on the Internet that have good mortgage calculators, but this one, put out by the Mortgage Bankers Association itself, is particularly helpful for those looking to make an informed decision.

Now Read the Full Report. Please

Good tool, right? Now go ahead and read the full report. Seriously. It’s informative.

Refinancing is not as simple as it used to be. Borrowers need all the knowledge they can get.

After reading the report, go here to see your refinance options. Keep the Optimum Mortgage Refinancing Calculator handy to see which opportunities may be worth the cost.

Have you ever been curious what the average credit score is?

We know that the FICO credit score range goes from 300 to 850 with a good credit score being up above 750, but what is the average credit score? Fair Isaac shares a chart that indicates the average FICO credit score is around 700, but we don’t know when chart the was updated (see the chart here).

Average Credit Score

With the economy in a constant state of flux, I thought it would be better to get real data. I asked Kenneth Lin, CEO of Credit Karma, if they would be able to provide some data on the scores they were seeing. Credit Karma, for free, gives you an actual TransUnion credit score, as if you ordered it from TransUnion itself. It uses TransUnion credit history data and TransUnion’s proprietary equation. It’s not technically a FICO score but it’s exactly what you would get from TransUnion and for all intents and purposes, good enough for our purposes (plus it’s free). (Big thank you Kenneth and the Credit Karma team for provided this valuable data!)

What did their data show?

The national average credit score for over 75,000 users was 664.25 points. (based on April 2009 data) This is slightly lower than the generally accepted “average” provided by Fair Isaac, which is around 700 points.

Your credit score can vary from credit bureau to credit bureau because of their equations and the data they have for you. Some experts believe that range can vary as much as fifty points, which leaves a pretty sizable range of a hundred points. Ignoring that, seeing that the average TransUnion score was 664 lends credence to the idea that the average is closer to the higher end of the range, than the lower end. The midpoint between 300 and 850 is 575, but the average is much higher than that at 664.

Other Fun Statistics

Since I had this wonderful data, I thought I’d offer up some other fun statistics for your enjoyment (we excluded states with fewer than 300 records).

• State with the highest average score: Massachusetts had an average score of 686, with California and Oregon coming in second with 681.
• State with the lowest average score: Mississippi had an average score of 623.
• My home state of Maryland’s average score: 664
• There were two people in the military state, AA (Armed Forces Americas), with an average score of 785! Kudos!
• 18 people in Guam had an average score of 641.

Unfortunately, there’s not much you can do with this information other than impress your friends at cocktail parties. The problem with looking at average scores is that it’s not actionable information. Knowing the average score in your state or country is useful from a personal information standpoint but there’s nothing you can do with it because geographic location is irrelevant when calculating credit scores. It’s not like you could move to Lake Wobegone, where I’m sure the credit scores are above average, and get a credit score boost! (incidentally, Minnesota’s average credit score is 678, which is higher than the national average)

I asked Bargaineering readers a few weeks ago what their credit scores were and the results were (on 361 votes):

• 800+: 18%
• 750-799: 45%
• 700-749: 23%
• 650-699: 8%
• 600-649: 4%
• 550-599: 1%
• 500-549: 1%
• < 500: 0%

What is the Average Credit Score?

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