Tag Archives: term life insurance

Cash Collateral Loans

I’ve been using this trick with people for a lot of years, but I realized we’ve never talked about it. It’s an inexpensive way to start building credit, to re-establish your credit, or to save a ton of money for people who can’t seem to save on their own.

Would you lend me $100 if I gave you the $100 cash for collateral? Of course – because there is no risk or downside, and your profit is the interest you’ll make from me on the loan. Credit unions do these so-called cash collateral loans, and a few of the banks do, too.

If you’re starting to build credit, it’s most likely you’ll do it with a credit card. But good credit is two years or more with a higher limit. A new card with a $500 limit gets you started, but it’s a tiny risk, thus a very small start to building credit.

Anyone who has had a bankruptcy also isn’t going to be able to borrow for at least three years or so. If you’re discharged from bankruptcy or have no credit, go to a credit union for one of these loans. It’s also in the Money Tools book chapter of: How to rebuild credit. Get a $2,000 loan set up over 12 or 18 months and give them the loan money as collateral. You’ll make the payments at a low interest rate and, at the end of the term, get the $2,000 released back to you. At that time, you’ll have a great start to a rebuilt credit record, and for a good-size amount of money (called high credit). The larger the loan, the more it will boost your credit rating. But you have to be able to make the payments – each and every month!

It also works the same with an RRSP loan but you need good credit to get one. By tax law, the lender can’t use the RRSP for collateral if you don’t pay.

These cash-collateral loans also work for the wealthy. You’d be amazed how many of them have the cash flow to make their payments, but don’t save. I had one person last year that was going to get an $8,000 a month whole life policy. It’s meant to give an insurance policy and build in an investment component, but it’s one of the worst financial product ever invented!

A term policy for his family was about $500 a month, and the other $7,500 payments towards a loan would get him the same $2 million insurance, and $200,000 cash in his hands at the end of a two-year loan!

Some Not So Sexy Christmas Presents

THE best and so not sexy Christmas presents that most people should be getting or gifting will never happen. It’s sad but true. The good news is that they’re not just presents for Christmas – they’re the most critical presents to give to yourself for the New Year – or year round. Here are three of them:

Term life insurance for your family: Over a third of families and more than a million people with kids do not have life insurance. It’s the biggest gift you can give to your family. Conversely, it’s the biggest hell you can put your family through if you pass away. Make sure you only get a term life policy of six to 10 times your annual earnings.

Give your spouse or yourself a cut-up credit card: You can’t keep doing damage with a cut-up card. If it’s a surprise, it’ll be a great conversation on Boxing Day. If you decide together as a couple, you’re well on the way to a very different life down the road.

The gift of the truth and being honest: USA Today had a survey that asked: Have you ever over-spent on buying a Christmas present? 46% said never. Are you kidding? Half the world has NEVER overspend a single dollar on any present for anyone? The gift of honesty is telling yourself that you can’t afford something, teaching your kids that money is a finite resource, and that they’ll start to hear the word “no” a lot more. And the truth to your parents or grandparents: You can’t afford the money to see them at Christmas next year, but they can come visit you. If you have kids, nothing is greater than Christmas with family, but three or four airline tickets at the most expensive time of the year is insanity while you’re in debt. They don’t have kids and come visit you – they’ve now got a year’s notice.