Financial Armageddon is an event so devastating that it completely wipes out your savings, puts you deep in debt and ruins your credit. It's something you could be at risk for if you plan to buy or refinance a home without getting the proper protection.
A cheap and easy way to protect yourself involves buying owner's title insurance when you purchase your home.
Most people are familiar with lender's title insurance, which is mandatory for most mortgage loans. It protects the lender against issues with the property title (or deed). For example, if you purchase a home, and it later turns out that the title was clouded or improperly conveyed, causing the home to revert back to a former owner, lender's title insurance pays off the balance of the loan, insuring that the bank doesn't lose any money.
Your Money at Risk
But what if you purchased a home and then spent $25,000 of your own money on upgrades before the title issue was found out? You would lose that money.
Or even worse, imagine that you refinance your home -- which means you are paying off Lender A and taking out a loan with Lender B -- and when the money is wired from one bank to another, it is stolen by cyber-criminals or an unethical employee. In many states, you would be liable for both mortgages, leading to financial Armageddon.
%VIRTUAL-article-sponsoredlinks%With owner's title insurance, you would be compensated for all of your out-of-pocket expenses related to improving your property and would be protected in the scenario where funds were stolen in the course of a refinance.
Owner's title insurance varies by location and provider but generally costs about 0.05 percent of the price of your home, or roughly $200 for a $400,000 house. It is a one-time fee that can be incorporated into closing costs and also covers forgery, incorrect or unauthorized document signatures, fraud, judgments and encumbrances, defective records, restrictive covenants, undisclosed heirs and deed omissions.
Though the likelihood that you will experience any of the circumstances that owner's title insurance covers is very slim, it's nice to know that for literally pennies on the dollar you can protect yourself from a potential financial catastrophe.
Avoid Financial Armageddon with Mortgage, Refinancing
"Your daily habits and routines are the reason you got into this mess," writes Trent Hamm, founder of TheSimpleDollar.com. "Spend some time thinking about how you spend money each day, each week and each month." Do you really need your daily latte? Can you bring your lunch to work instead of buying it four times a week? Ask yourself: What can I change without sacrificing my lifestyle too much?
Remove all credit cards from your wallet and leave them at home when you go shopping, advises WiseBread contributor Sabah Karimi. “Even if you earn cash back or other rewards with credit card purchases, stop spending with your credit cards until you have your finances under control,” she writes.
If you do a lot of online shopping at one retailer, you may have stored your credit card information on the site to make the checkout process easier. But that also makes it easier to charge items you don't need. So clear that information. "If you’re paying for a recurring service, use a debit card issued from a major credit card service linked to your checking account," Hamm writes.
Reward yourself when you reach debt payoff goals. "The only way to completely pay off your credit card debt is to keep at it, and to do that, you must keep yourself motivated," Bakke writes. Just make sure to reward yourself within reason. For example, instead of a weeklong vacation, plan a weekend camping trip. "If you aim to reduce your credit card debt from $10,000 to $5,000 in two months," Bakke writes, "give yourself more than a pat on the back."
“Establish a budget,” writes Money Crashers contributor David Bakke. “If you don't scale back your spending, you'll dig yourself into a deeper hole." You can use personal finance tools like Mint.com, or make your own Excel spreadsheet that includes your monthly income and expenses. Then scrutinize those budget categories to see where you can cut costs.
Sort your credit card interest rates from highest to lowest, then tackle the card with the highest rate first. "By paying off the balance with the highest interest first, you increase your payment on the credit card with the highest annual percentage rate while continuing to make the minimum payment on the rest of your credit cards," writes Mint.com spokeswoman Hitha Prabhakar.
To make a dent in your debt, you need to pay more than the minimum balance on your credit card statements each month. "Paying the minimum -– usually 2 to 3 percent of the outstanding balance -– only prolongs a debt payoff strategy," Prabhakar writes. "Strengthen your commitment to pay everything off by making weekly, instead of monthly, payments." Or if your minimum payment is $100, try doubling it and paying off $200 or more.
If you have a high-interest card with a balance that you’re confident you can pay off in a few months, Hamm recommends moving the debt to a card that offers a zero-interest balance transfer. "You’ll need to pay off the debt before the balance transfer expires, or else you’re often hit with a much higher interest rate," he warns. "If you do it carefully, you can save hundreds on interest this way."
Have any birthday gifts or old wedding presents collecting dust in your closet? Look for items you can sell on eBay or Craigslist. "Do some research to make sure you list these items at a fair and reasonable price," Karimi writes. “Take quality photos, and write an attention-grabbing headline and description to sell the item as quickly as possible." Any profits from sales should go toward your debt.
If you receive a job bonus around the holidays or during the year, allocate that money toward your debt payoff plan. "Avoid the temptation to spend that bonus on a vacation or other luxury purchase," Karimi writes. It’s more important to fix your financial situation than own the latest designer bag.