Upside Down - Avoid Owing More on your Loan than

Upside Down - Avoid Owing More on your Loan than the Value of your Car
What happens when you realize that your car is beginning to break down and you still have more than two years of car payments left before it's completely paid off? This scenario signals one of the most common mistakes people make when buying a car: owing more on a loan than the actual value of the car.

Learning the true costs of your car is one of the greatest things you can do for your financial health. Many people who find themselves in debt don't realize that their car loan is often one of the primary reasons why they find themselves sinking deeper into debt. High car payments mean more and more people are shelling out a lot of money each month on their car loans alone. Because so much cash is being directed to the car loan, more people need to rely on credit cards to make everyday purchases. And this, in turn, makes people sink deeper into debt.

So what can you do to avoid owing more on your loan than the actual value of your car? Simply put, do the math. Before you make your next car purchase, calculate what kind of car and loan would most benefit you in the long run. While 36 months was once the standard loan period, now dealers have extended car installment loans to 60, or even 72 months. By spreading out payments over a long period of time, you are also much more likely to purchase a car you really cannot afford.

While an extended loan term may create the illusion that a car is affordable, in reality you'll end up paying a lot more. The longer it takes you to pay off your car loan, the more interest rates you'll pay. Also, if you still owe $2,000 on your old car, and then buy a new car, the $2,000 will be 'rolled' into your new car loan, resulting in even higher interest rates.

Another unfortunate result of taking on a long-term car loan is that your car will depreciate much faster than you can pay it off. This is the 'upside down' scenario. Cars, especially new cars, are notorious for losing value fast-you've probably heard jokes about how they begin to drop in resale value as soon as they're driven off the lot. If you choose a 60 month loan period, you'll quickly end up owing more on your loan than your car is technically worth.

So, besides making sure you choose a short-term loan period, what else can you do to make sure you don't become upside down about your car loan? Be pragmatic about what you can really afford. It is easy to succumb to impulse when purchasing a car. Next time you go to the dealership to browse, be armed with cold hard figures. Financial experts have a formula to determine how much you should be spending on your car purchase. Simply multiply your monthly take-home pay by 0.15. This is roughly 15% of your monthly income. Your car payment should not be much more than this figure. For example, if your monthly take-home pay is $3000, your monthly car payment should not exceed $450.

While this is a good start, you must also look beyond the sticker price. Research your top picks carefully. What are insurance costs like for specific makes and models? What type of repair costs might a certain car demand? What kind of fuel economy does it get? Make sure to calculate these figures into the final cost.

Another easy way to avoid becoming upside down about your car loan is to avoid buying a new car. The value of a new car depreciates rapidly in the first two years, often by as much as 30 to 40 percent. Why not let someone else pay for this fast depreciation? If you must absolutely buy a new car, hold on to it for a few years. This will allow you to absorb those extra costs.

When it comes to buying a new car, be smart. Do the math-don't get caught in the upside down dilemma. Buy a car (preferably used) that you can afford to pay off in a relatively short (32 month) period.

Various APR Features For Credit CardsSince we all know that

Various APR Features For Credit Cards
Since we all know that there are virtually as many different credit card companies as there are stars in the sky, finding the one that works best for you and your needs can be a bit tricky. All credit card offers will come complete with a list of features that are supposedly exclusive to that card. In actuality, most of the cards offer about the same set of features with a slight variation. All will mention the APR and knowing what and how that works is vital.

APR stands for "Annual Percentage Rate". It is the amount of money that you will pay, expressed as a percentage, for the privilege of charging purchases and carrying a balance.

The All Important APR

This is a biggie. The APR can drastically change your ability to pay off your card, particularly if you carry a balance. The APR attached to the credit card can vary not just from card to card but also from how and what you purchase.

If you are looking to obtain a cash advance on your card, be aware that the APR here will usually be the highest. The APR for purchases is usually right on it's tail, though. For example, for a cash advance of $200.00 the APR may be as high as 23%. This is a whopping amount of interest to pay on a relatively small amount of money. For purchases, however, the APR may be more like 19%. Still pretty high for the convenience of not using cash. That's why it's usually best to use credit cards for emergencies or for purchases that you intend to pay for in full at the end of the month.

APR's can also vary according to how much of a balance you carry on your card. These are called tired APR's because the APR depends upon which balance tier you are at on any given month. For example, a balance of $0-$2,000 may be subject to an APR of 14% while a balance of more than $2,000 has an interest rate of 18%. Again, it pays to keep your balance lower on these types of cards.

Then there's the penalty APR. This happens when you make late payments regularly (meaning more than once in credit card lingo). Your APR can be raised and will affect your entire balance. Moral: Make your payments on time.

The most popular marketing tool used today by the card companies is the introductory APR. This is a significantly lower interest rate on transferred balances and purchases made during the said introductory period. This is beneficial if you carry a high balance on another card at a high APR and can transfer your balance, giving you the opportunity to put more of a dent in that balance during the intro period.

One thing to look out for, though, is the future APR (or delayed APR) that kicks in when the lower rate expires. This rate can be significantly higher than the intro rate they are offering.

So remember, pay attention to the APR and know what rate will come into play for the card you are looking at. Make your choice wisely and be cautious!