Archive for November, 2008

At a time where there just isn’t enough money to go around, both individuals and small businesses are still having a very tough time getting loans.

With the country’s ability to generate revenue very constrained right now, there isn’t enough money flowing down from the government to big banks to regional banks to smaller local banks. And on the consumer side of things, there aren’t enough jobs paying wages high enough right now to allow every income level of the population to handle overall living expenses, make home and car payments, and keep up with a regular budget.

It’s simple math, of course, but when you combine the disasters we’ve seen (and are still seeing) in real estate, the auto markets, and the overall financial markets, one thing seems pretty clear: We’re moving away from being a borrowing society, and we’re becoming a cash one. If things don’t change soon, the only people who’ll be able to buy high-ticket items will be those who are liquid — those who have cash on hand. While some people will maintain that there’ll always be money available to borrow for things like homes, cars, and higher education, recent events make such predictions seem far from a sure thing.

But what about right now? What can you do currently to secure a personal or small business loan? We already know that the White House basically told banks to start loaning money again, but those were just large banks — ones that received federal money from a $700 billion bailout package. What about all those other banks, though — especially local, smaller ones that exist primarily to serve communities and local businesses like yours? Clearly, the money isn’t flowing down fast enough.

Have you seen any evidence that banks in your community are beginning to lend money again?

Even if you’ve lived under a rock for the last several weeks, chances are you know that the economy has taken a dive. Stocks have plunged, credit is tight, and economists are predicting some gloomy months ahead. Most people believe that either we’re already in a recession or we will be very soon.

Now that we have the bad news established, let’s focus on some positive things — like a few tips that you can use to improve your credit score. And just so I’m clear, the economy doesn’t have to tank for these tips to be of use to you. Your credit score is your credit score, and for the most part, how it’s calculated doesn’t changed based upon the rise, or fall, of the economy.

Your credit score is broken down with approximately 35% of your score being based upon your repayment history and 15% of your score based upon length of credit history. Another 30% of your score is based upon amounts owed (e.g., accounts with balances, amount owing on accounts, etc.), with another 10% based upon the types of credit used and the final 10% based upon any new credit you may have.

With that said, focus on the things that you can do to influence your credit score.

1. Pay your bills on time. Although it’s hard to do if you lose a job, paying on time is very important to keep your score in good shape.
2. Keep your credit card balances low. Don’t use those cards. It’s tempting, especially when money is tight. But keeping that debt-to-credit-limit ratio low will help keep your score in good shape. It will also prevent you from being burned if your creditor lowers the balances on your revolving accounts. For example, if you owe $1,000 with a $4,000 limit, you’re only at 25% of your available balance. However, if your creditor lowers the limit, as some are doing now, then it drives your ratio up and your credit score down. Keep paying down those balances.
3. Don’t open new accounts. Don’t be tempted to go get that new car because you think credit is going to be tight in a few months. If you don’t have to have it, don’t get it. Tighten your belt — in the long run, you’ll be glad you did.

Recessions, especially this one, can be scary. However, by planning ahead and cutting back, you can get through it. If things get sideways, call your creditors, and try to work something out with them. It might not save your credit score entirely, but it will help some and save you a lot of aggravation in the end.

Isn’t it amazing how millions of people willingly disclose sensitive personal information about themselves every day on social media websites? At other times, it’s just assumed that you’ll give up all sorts of personal details that are seemingly irrelevant to those who request it ⎯ our doctor’s office, our kids’ schools, a prospective employer or our local credit union.

Carelessly disclosing too much can get you in trouble. And unless you’re in the habit of regularly checking your credit report, you might not realize your identity has been hijacked and your credit impaired by an identity thief who’s used your personal details to open a line of credit in your name, thank you very much.

Thankfully, the government has begun trying to reel in the free flow of personal information, restricting or eliminating the use of Social Security numbers on Medicare cards and military ID cards, for example.

In Connecticut, where I live, a new law went into effect on October 1 that makes any individual or organization that collects your personal information responsible for safeguarding it. That means that if an employer collects your Social Security number or driver’s license number, they must create a privacy protection policy that is publicly displayed (like on a website or in an employee handbook). If any individual or entity collects your passport number, credit or debit card number or health ID number, they, too, must come up with a means of protecting your information and limiting access to it, whether that means safeguarding data and computer files or destroying them before disposing of unneeded information.

Those who fail to do so can be fined $500, up to a maximum of $500,000 per instance.

What’s your take on the new law? Sensible idea or overkill?
Does anything like it exist in your state?

We’ve all seen the news about all the foreclosures happening all over the country, and, worse, some of us have first-hand experience in our own neighborhood. Homes that were once occupied by our friends, neighbors, perhaps even family, now stand empty. The banks aren’t getting paid, and the properties aren’t getting taken care of. It not only affects those who once lived in these houses, but the neighborhood too, by driving down property values of those homes around foreclosed properties.

Certainly, given all these foreclosures, we’ve also heard about — or have first-hand experience with — the occasional squatters, perhaps a homeless person finding some solace in some nice temporary shelter, or even some kids getting a bit carried away and finding a new party house. But there’s a new kind of squatter in town. These squatters are likely to scare away not only looters and thieves looking for their next empty target but perhaps even those looking for that bargain home to buy.

Who might these squatters be? How about a pack of mountain lions that decided to park themselves in an empty home in Lake Elsinore, California? Perhaps they figured that no one else was using the home, so they would. Maybe their thinking was much more devious: They decided that it was about time that they do something about the ever-encroaching human population that keeps pushing them farther and farther away from their habitat. Whatever the reason, they’re there, and it looks like they’re staying a while. They’re not making payments or even getting nasty phone calls and letters from the creditors, but authorities hope that, once the litter grows up a bit, they might move on.

Don’t be so sure, though. In this economy, even a bunch of cats can figure out when they’re living the high-life — and free of charge to boot.

A mountain lion roams a foreclosed home in California.

No one knows for sure, but Dr. Seuss’s “The Grinch” might have had an easier time of stealing Christmas this year. With the economic downturn showing no signs of going away this holiday shopping season, we all may need to find a way around “Grinch-like” tendencies and come up with some alternative gift-giving ideas.

In what marks the earliest start to the holiday shopping season in many years, what’s now become known as “creeping Christmas” has started to occur at many large retailers. It may be a bargain hunter’s paradise, but the bottom line is that a lot of retailers are in trouble, and this year, big-screen TVs, other expensive electronics, and other high-ticket items will likely be replaced by more modest alternatives.

A lot of experts are saying that the art of making gifts will make a huge comeback this year, and not just among kids.

So to quote the Grinch, if “Christmas doesn’t really come from a store,” then this may be the year to prove that theory correct. Think about getting creative with both gift-making and gift-giving ideas this holiday season. And remember that it’s the thought that counts — perhaps more this year than in a very long time.

Yesterday, I hit you with the bad news ⎯ much higher oil and natural gas prices on the immediate horizon and for the foreseeable future, as anticipated by the International Energy Agency (IEA).

Today, I’ll balance that wallop of dreariness with a dose of optimism. Former U.S. Vice President and Nobel Peace Prize co-recipient Al Gore, in a Sunday New York Times op-ed piece, outlined his five-step plan to repower America.

According to Gore, “[T]he bold steps that are needed to solve the climate crisis are exactly the same steps that ought to be taken in order to solve the economic crisis and the energy security crisis.”

Gore advocates making a significant strategic investment that creates jobs by replacing 19th-century energy technologies that are dependent on finite, polluting, carbon-based fuels with 21st-century technologies that use forever-free fuels like the sun, wind and the natural heat of the earth. In a nutshell, here’s what he suggests to respond simultaneously to the energy and global climate crises:

1. Make massive investments in incentives to build geothermal plants, solar thermal plants in southwestern deserts, and wind farms in the Texas-to-Dakotas corridor, all of which could produce significant amounts of electricity.

2. Construct a unified, national smart grid to transport renewable electricity from the rural areas where it’s generated to the urban areas where it’s mostly used.

3. Help the nation’s automobile industry (all of it, not just the Big 3 automakers) convert quickly to plug-in hybrids that can run on renewable electricity.

4. Retrofit buildings with better insulation and energy-efficient windows and lighting.

5. Establish a price for carbon in the United States, and replace the Kyoto treaty next year with a better treaty that caps global carbon dioxide emissions.

Even if you’re more worried about your finances than the planet, it’s hard to argue with this country’s need to wean itself off oil and other finite natural resources. In the long term, high energy prices will continue to hamstring family finances, as gas for our vehicles and oil and natural gas to heat our homes consume a disproportionate share of household income, leaving less for housing, food and other necessities.

Energy sustains our economy, and the impact of high energy prices will continue to reverberate, not only in our personal households, but in our local communities, states and national government, too.

Is Al Gore’s five-step plan doable, in your opinion?

Finding loans you can afford during a recession can get complicated, if not downright impossible. Depending on how bad the recession becomes, you may not be able to obtain a loan at all. During a recession, creditors tighten their purse strings, and people who would have normally qualified for loans in the past suddenly become ineligible for lending. If you find you’re unable to secure a new loan due to the recession, take the time to maintain and improve your credit score to increase your chances of getting a low-interest loan a few months down the line.

The absolute best tip for finding an affordable loan in a recession is to take the time to shop around. Compare lenders and the interest rates they’re offering, and only apply to the lenders offering the best rates based on your situation. It takes more time than calling your local bank, but if you can get a lower interest rate somewhere else, the money you save over the term of that loan will be well worth the extra effort.

You’ll also want to know what your credit score is before applying. This can save you time and “hard pulls” of your credit report. If you get your score and view your credit history, you’ll have a good idea whether or not you are likely to get a loan. If you’re not likely to qualify, save the hit on your credit score — don’t apply for any new credit until you’ve raised your credit score to a more attractive number.

Even while Americans enjoy lower natural gas prices, more reasonable electricity rates in many states and a sweet respite from sweet crude oil prices, don’t let a false sense of complacency lull you back into your wasteful, bad energy habits.

The spigot of low energy prices is about to be turned off again.

Last week, the International Energy Agency (IEA), which advises 28 energy-consuming nations, predicted that oil import prices would rebound to the $100-a-barrel range between now and 2015. The biggest cause of the coming supply crunch, the IEA said, was under-investment in new and existing oil fields, which has been further doused by this fall’s relatively cheap oil prices and falling demand.

While the IEA’s full World Energy Outlook report will be released today, the group has already said that current sliding demand won’t be enough to offset rising demand in developing countries like China and India.

In addition, the IEA said, oil production has already peaked in non-OPEC countries. (Peak oil is the point of maximum global oil production, after which production rates begin a permanent descent. Some pessimistic analysts predict a global depression in the post-peak oil years or even the collapse of global industrial civilization.) Oil fields in Europe, Russia and North America will decline, the IEA said, making oil-consuming countries even more reliant on OPEC member countries.

Global energy demand, including oil, natural gas and coal, is predicted to grow by 1.6% a year through 2030, and half of this growth can be attributed to India and China.

Oil prices could surpass $200 a barrel in 2030, the agency said.

Meanwhile, Russia, Iran and Qatar ⎯ the three largest holders of natural gas reserves in the world ⎯ intend to form an OPEC-style natural gas committee that they say will ensure global gas supplies but which the U.S. and Europe warn could manipulate global natural gas prices and threaten global energy security. The three countries possess more than half of the world’s natural gas supplies.

Do you believe that a global energy shortage could threaten our way of life during our lifetime?

Ever since crude oil prices began falling from their record high in July, at $147 a barrel, consumers have been enjoying a sweet respite from crude oil prices, both at the pump and at home (for those who delayed filling up their oil tanks until the fall).

While the supply side of the equation hasn’t significantly changed since last summer, the demand side has. American consumers, faced with rising prices on every front and less credit to finance those costs, have cut back sharply on their driving and consumption habits. This, coupled with an increase in natural gas resources tied to more efficient production methods, has caused both oil and natural gas prices to plummet.

Because many electric utilities in the Northeast, Texas, Florida, the Mid-Atlantic and California depend greatly on natural gas-fired power plants to generate electricity, the drop in prices is translating into cheaper electric rates, at least for now.

Residents from New York City to New Hampshire and elsewhere are enjoying rates that are as much as 40% lower, although utility companies that are dependent on coal plants aren’t passing any cost savings on to customers. (WTU Retail Energy, which delivers electricity to about 1 million customers in Texas, is also keeping costs down with wind-driven turbines that generate electricity more cheaply than even cheap natural gas.)

Analysts say that, at least through year’s end, natural gas supplies will remain fairly stable. Prices could fall about 15% next year.

Still, the case for American energy independence remains compelling. On October 24, OPEC announced it would cut oil production by 1.5 billion barrels a day, effective November 1.

Justifying the move, OPEC’s Secretary General, H.E. Abdalla Salem El-Badri, explained, “[T]he oil market, like most businesses, cannot function well in an environment of huge uncertainty. … Our position at OPEC is that the right price is that which avoids the extremes of high and low. It must not be too high as to make it unaffordable or have a negative impact on global economic growth. Nor must it be too low as to threaten the social and economic development of oil producing countries, whose economies rely heavily on oil revenue.”

As I write, crude oil futures were trading at $61.47 a barrel, a far cry from the $80 to $100 per barrel range most OPEC member nations prefer.

As energy prices drop, are you slipping back into your previous usage patterns?

With the economy shifting down to second gear, you know you need to hunker down, pay down your debt and build a little nest egg for unexpected emergencies.

Are you having trouble getting started? Saving money doesn’t have to be painful. You can do it in a series of baby steps you’ll hardly even notice. For many working people, the weekdays are filled with long-established routines, so finding places to save means thinking outside the box and re-thinking the old ways of doing things.

The suggestions below focus on two areas where consumers have seen the biggest price increases: food and gas.

1. The Drive in to Work
Give the car a rest. Look into carpooling with people at work, catching the train, subway or bus, or even telecommuting for one day each week. Find out where your neighbors work, and share the ride with them if you’re traveling the same route. Typical savings: Up to $50, depending on your commute.

2. Your Lunch Hour
If you’re used to grabbing a deli sandwich at lunchtime, try packing your own lunch one or two days a week. It can be as simple as a can of soup you heat up in the microwave, a drink and a piece of fruit. Typical savings: $6 to $12.

3. On the Way Home
Instead of reserving the weekend for running errands and grocery shopping, try hitting one or two of your normal stops on the way home from work to consolidate trips with your drive-home commute and save on gas. Typical savings: $10, more or less, depending on how much running around you do on your weekends.

4. What’s for Dinner?
Start paying attention to the sales circulars of your local grocery stores, and plan your weekly menu according to what’s on sale. When you see something you normally buy on sale, buy in bulk. Don’t buy pricey produce when it’s out of season. Learn to love your slow cooker, which can turn inexpensive cuts of meat into a delicious meal. Typical savings: The sky’s the limit.

5. Weekend Rewards
Instead of your traditional Friday night pizza (or Saturday night takeout from the Chinese place), how about making your own pizza, using a readymade pizza crust and your favorite toppings? Stir-fry veggies and chicken over rice couldn’t be easier. You’ve probably got half the ingredients you need in your cupboards. Typical savings for a family of four: $40, depending on your appetite.

How have you worked in money-saving routines into your workweek?