Why Credit Still Matters: Part II

In today's installment of "Why Credit Still Matters," we will illustrate the effect that interest rates have on auto loan payments. As discussed in the first installment of this series, the interest rate is typically determined by your credit score.

Sample auto loan payments based upon a loan amount of $25,000 and a term of 48 months.

A.)

Interest Rate

3.88%

Monthly Payment

$563.13

Total Interest

$2,030.48

Total Payment

$27,030.48

B.)

Interest Rate

7%

Monthly Payment

$598.66

Total Interest

$3735.49

Total Payment

$28,735.49

C.)

Interest Rate

15%

Monthly Payment

$695.77

Total Interest

$8396.90

Total Payment

$33,396.90

D.)

Interest Rate

20%

Monthly Payment

$760.76

Total Interest

$11,516.43

Total Payment

$36,516.43

Some of the options available to lower your interest rate and reduce your total costs:

1. 10-20% down payment.
2. Buy down the interest rate.
3. Manufacturer cash rebates.
4. Apply at your bank or credit union despite your credit history.

In the next installment of "Why Credit Still Matters," we will be discussing bankruptcy.

Why Credit Still Matters: Part I

This is the first installment in our "Why Credit Still Matters" series. We will begin with a breakdown of the credit scoring system and what credit score ranges generally mean when you desire to have more credit extended. Credit scores typically range from a low of 300 to a high of 900.

Credit Scores Description

800+- Excellent credit score. You should qualify for the best interest rate and loan terms.

730 – 799- Great credit score. There will not be any problem in getting a loan at a good interest rate.

680 – 729- Good credit score. You should qualify for a loan at a good interest rate.

580 – 679- Average credit score. You may qualify for the loan but not at a good interest rate.

500 – 579- Bad credit score. You will have a tough time getting a loan or a credit card.

Below 499- Very bad credit score. It is doubtful that you will qualify for a loan or a credit card.

Factors that may affect your credit score are the following:

1. Payment history
2. Amount currently owed
   
3. Credit balance to amount of available credit ratio
   
4. Foreclosure
5. Bankruptcy
6. Auto repossession
7. Child support order
   
8. Length of time remaining on current loan obligations
9. Credit history (i.e. how long have you been using credit)
   
10. No credit history
11. Late payments

In the second installment of the series, we will consider different monthly and loan lifetime payment scenarios based upon credit scores as well as options to lower payments when your credit is average and below.

Estate Planning Series: What are the "basic documents?"

The most basic estate planning consists of the following documents:

1. Will

2. Medical Power of Attorney

3. Directive to Physicians

4. Durable Power of Attorney

5. Legal Guardianship of Child after Death

6. Burial Insurance*

A very brief synopsis of these documents:

Will

The purpose of a will is to pass on property upon the death of the testator. In Texas, if the testator is married, he/she may not pass community property to any person other than the surviving spouse without the spouse's agreement. A testator may pass separate property to anyone he/she chooses. Separate vs. Community Property will be discussed later in the series.

If a married person dies without a will, his/her property passes under the state's intestacy laws. In Texas, the decedent's part of the community property automatically goes to the surviving spouse provided that the decedent does not have any surviving children who are not also the children of the surviving spouse. If the decedent has a child who is not the surviving spouse's child, however, the decedent's part of the community property passes to said child. If the decedent has separate property, any child, whether born to or outside the marriage, gets 2/3 of the property and the surviving spouse gets the remaining 1/3.

If a will is handwritten, it must be written wholly in the testator's handwriting or it will be invalid. If drafting a typewritten will, a self-proving affidavit will make the probate process flow more smoothly for your heirs. A self-proving affidavit is a document notarized by 2 or more persons, over the age of 14, who witnessed the signing of the will. It is not necessary that they read the will, it is only necessary that they witnessed the signing. The witnesses should not be an attorney who drafted the document or the person who notarized the document.

Medical Power of Attorney

A Medical POA gives the designated person the power to make medical decisions on behalf of the person giving the power. In Texas, if there is no Directive to Physicians, the MPOA may also serve as the one who makes the medical decisions regarding life sustaining treatments.

Directive to Physicians

This document relays the wishes of the signor regarding the course of medical treatment for terminal or incurable illnesses. In Texas, it is not necessary to have both a Directive to Physicians and a Medical Power of Attorney. You should have both documents, however, if there is any possibility that you will move to another state that requires a Directive. Furthermore, you will need both documents if the person serving as the Medical Power of Attorney does not want the responsibility of making a possible life-ending decision about your medical treatment. Directive to Physician and "Living Will" are often used interchangeably.

Durable Power of Attorney

This document gives the designated person the power to make business decisions on behalf of the person giving the power. The Durable Power of Attorney either takes effect immediately or upon the incapacitation of the designator. The powers in the Durable Power of Attorney may be as broad or as narrow as the designator desires.

Legal Guardianship Child after Death
This document appoints the person (persons) who will obtain physical custody of your child(ren) upon death. If you are married, it is important for you and your spouse to come to a consensus and consider having identical clauses in your wills in the event of your simultaneous death. Please be aware that whether married, separated, divorced, or never married, the surviving parent always has the first right to custody of the child if his (or her) parental rights have not been terminated.

Burial Insurance

In order to ease any financial burden that your family may face upon your death, you should obtain a burial policy or save for your burial expenses if they are not included in a life insurance policy.

The key is that it is vital to discuss your wishes with your loved ones and your attorney and put everything in writing. If you would like further information, you may contact me at miriamnicole@miriamnicolehuffman.com or leave a comment.