Author Debbie Dragon Archive

This kind of news was inevitable: Consumers with poor credit ratings are on the rise. With the mortgage crisis, it was bound to happen. But the mortgage crisis alone doesn’t account for the rise in poor credit ratings. Consumers have been struggling with credit card debt and automobile loans as well. This growing trend includes about 110 million Americans. That’s almost one-third of the nation’s population. And it encompasses mostly middle-income consumers.

If you find yourself in this number, don’t be afraid to face it and make changes to your lifestyle in order to reverse the trend. Here are a few tips for digging yourself out:

• First, stop taking on new debt. Adopt the outlook that you’ll begin to work your way out instead of running from the crisis.

• Next, make real, long-term changes that will help you. Begin to pare your lifestyle back by eliminating unnecessary expenses. Bring your expenses under control, and under the level of your income. And, yes, you’ll have to begin to live by the “b” word — budget.

• Third, look for ways to increase your income. Take on a part-time job to bring in extra cash. Sell some things in your house that you no longer need, then use the money to pay off debt.

• Finally, don’t hide from or avoid your creditors. The mere fact that more and more consumers are having problems has forced these organizations to face the facts and begin to try to help them deal with the issues. For example, one consumer recently found himself falling behind on an automobile loan and unsecured personal loan, and contacted the creditor about his problems. He found more than just a listening ear. The company gave him a sixty-day payment-free period to get caught up on both loans. These companies realize that they had better begin to offer these types of programs rather than have the customer default on the loan. The latter will cost the company much more money than just helping them get through it.

Take these tips, and take control of your credit. Slowly but surely, it will begin to improve.

Much is made of making New Year’s resolutions, only to see them go by the wayside in just weeks into the year. Why make them, then? Because trying is better than not trying, and having a plan is better than not having one. If you aim for nothing, you’re sure to hit it, but you’re still left with nothing.

One key to remember is that even if you mess up and fall off the wagon, you can get back up and start again. Never allow failure to take you out of your plan. One way to do that is to make these resolutions yours. Print them out and hang them up on the fridge where you can see them — often. Print them in big letters so you can’t avoid them.

1. Live on a budget. DO NOT avoid this one. This is the most important thing you can do — live within your means, and avoid going deeper into debt.
2. Eliminate debt. Pay off your debts, smallest to largest, and get rid of them. Don’t take on any more debt unless absolutely necessary.
3. Get rid of all but essential credit cards. We all have too many credit cards anyway. Plus, with debit cards as easy to obtain as credit cards, it forces you to live more by what you have in your account rather than the amount of your credit limit.
4. Plan for the unexpected. Grow a small cash emergency fund of under $1,5000 for those unexpected emergencies. Begin to put part of your income into an account for longer-term emergency purposes, like medical bills, etc.
5. Save more money — and do it automatically. Make sure you save money by having part of your paycheck automatically deposited into a savings account or other financial account that’s more difficult to make withdrawals from.
6. Reduce expenses. Look for ways to live with less. Cut back on the amount of cable or satellite channels, drop unneeded cellphones from your plan, or eliminate your home phone if that makes sense for your family. Eat out less. Shop with coupons. Compare prices at least three sources before making larger purchases.
7. Make an effort to save for retirement. Increase your contribution to your 401(k) or IRA accounts.
8. Look for ways to increase your income. Take on a part-time job — even if it’s delivering pizzas or waiting tables. Money coming in is better than money going out, and it can add up quickly.
9. Review your insurance needs. Make sure you have what you need from an insurance standpoint. Look at term life insurance offerings, and make sure your family is covered in the event of a catastrophe.
10. Make a will. This is often ignored but critically important. Do not overlook this one. Remember, it’s not for you, it’s for those you love.

There’s always an upside to any crisis. It might not be real pretty, but it’s there, nonetheless. The old adage that every cloud has a silver lining is proven in this listing of the Ten Best Consumer Finance Events of 2008:

1. The outcome of the 2008 presidential election. No one can doubt that the outcome of this election, while heralded for its historical importance, has also helped change the ill feelings toward the direction of the nation that will ultimately affect how much money consumers will spend.
2. The Fed lowering the prime rate. The mortgage meltdown brings lower financing costs for loans.
3. Falling oil prices after the financial crisis. Consumers severely curbed their driving activities, which caused demand and prices to plummet.
4. Falling automobile prices. As a result of the credit crunch, vehicles became more affordable, even if loans aren’t quite so readily available.
5. Lower prices at the supermarket. This was felt mainly after the election in November and at the beginning of the holiday buying season. Retailers’ reaction to what was going to be a dismal buying season brought lower prices across the board.
6. Saved marriages. Divorce rates fell as financial realities overrode the need for change in many situations.
7. Selling and buying used instead of new. It’s always been great to buy used, but now it’s the “in” thing to do. Long live eBay!
8. A slow trend towards debt retirement and financial solvency. Even with the bad news about the mortgage and consumer credit crises, there’s a trend towards getting out of debt and living financially independent. With several national personal finance experts pushing this topic, it’s beginning to take hold, especially in the middle class, where it’s needed most.
9. An increase in credit card competition. Yes, this is good news for the consumer. It means lower rates and fees on the best credit cards available to those with good to excellent credit scores.
10. Industry sectors that prove to be advantageous as career choices. Think healthcare-related fields. As the Baby Boomer generation continues to march towards retirement, long-term care of the elderly is on solid ground as a job option.

The Treasury Department is poised to try to lower mortgage rates to new lows, and on the surface, this appears to be a good omen for both this industry and the overall economy as well.  But does it leave existing homeowners out in the cold?  We’ve already witnessed the lowest mortgage rates in decades, and even though applications for refinancing existing mortgages are up, the question still remains as to the long-term positive effects.  Significant numbers of homeowners might not have the money to begin the refinancing process if they’ve already done so recently.  As for buying another home, there’s always that pesky task of selling the existing one first.  It contributes its own share of complications to an already difficult process.

Add to this the climate of uncertainty in the employment market.  Many workers are in fear over their jobs, and that doesn’t bode well for taking on new debt of any kind.  Not only that, the creditworthiness of many consumers is in the doldrums.  That means that the amount of benefit from a drop in rates might be minor, if there’s any at all.

Any move to lower interest rates is a good thing.  But the intended result is to open up credit products to those who were previously unable to take advantage of them due to their financial status.  With the current economic woes, those suffering the most in the lower and middle class may not be in a position to benefit.

Express Scripts, one of the country’s largest medical benefits management companies, has reached out to the F.B.I. for assistance investigating a threat to expose millions of patient records if money wasn’t provided to the writer of the threat. The threatening letter arrived at Express Scripts offices in St. Louis in early October, containing personal data about 75 members. The information revealed their names, birth dates, Social Security numbers and, for some, the types of prescriptions they were taking. The company notified the F.B.I. and data security experts, who have been thoroughly investigating the threat.

Express Scripts currently handles the prescription benefits for about 50 million people and health insurers, as well as employer-sponsored medical plans.

In an effort to assist consumers, Express Scripts has set up a website to keep you informed. To find out more about this investigation, you can visit esisupports.com.

Should you be the victim of identity theft due to this data breach, Express Scripts has also announced that they will offer their members free identity restoration services. George Paz, CEO of Express Scripts, said, “Express Scripts recognizes that this situation is concerning to our clients and members, and we want to assure them that they will have our constant support until their issues are resolved.

Banks and credit cards have been unable to extend credit to consumers throughout the credit crisis. Previously, they were able to offer credit by selling off the loans they’d already made. When investors stopped buying the consumer debt due to the increased risks of doing so, consumer credit lending basically came to a standstill.

The Federal Reserve and Treasury Department announced a plan on December 2 that’s designed to inject $800 billion into the US economy. The addition of this new “bailout” is not a sign that the first $700 billion bailout of banks and Wall Street has failed, according to Treasury Secretary Henry Paulson, but an additional measure to more directly help the owners of securities that are backed by credit card debt, auto loans, student loans and small business loans. The Federal Reserve Bank of New York will lend $200 billion from the $800 billion TALF (Term Asset-Backed Securities Loan Facility) initiative, and the Treasury Department will put in another $20 billion from the original $700 billion bailout.

The TALF does differ in one major way from the other initiatives from the Treasury Department and Federal Reserve: It might finally help consumers. The goal of it is to free up more money to flow to consumers as banks begin lending money again. If this plan works, investors who are interested in buying loans bundled together into securities will have money available to do so; the banks will then have money available to lend profitably again, which gives consumers access to credit sources. So while the new initiative won’t put money directly into your bank account, it should make it possible for you to get approved for credit once again.

Over one-third of American’s who purchased homes in the last five years are discovering that their home’s value is less than the mortgage. Real estate used to be considered a no-brainer investment. You’d purchase a house, and it would continue to increase in value over time — but right now, for many homeowners it just isn’t the case. People are finding themselves with homes that have decreased in value or a mortgage higher than what the home is worth. In other words, even if you could find a buyer for your home, you’re not going to get what you owe for it.

What can you do if you’ve got an underwater mortgage? If you’re able to keep up with your payments, you should probably do nothing at all except sit tight and make your payments! Looking to sell your home when you not only cannot turn a profit, but can’t even get what you owe, is not the best move.

On the other hand, if you’re struggling to keep up with your mortgage payments and other financial obligations, what are your options to avoid foreclosure? Selling the home for less than you owe results in more financial distress, but there are a few options you may not be aware of.

Contact your lender

Most people who fall into financial problems avoid mail and phone calls from their mortgage lenders. This is probably the worst thing you can do. If the lender believes you can make the payment and you’re just not paying it, they have no choice but to send you a foreclosure notice after a few months of skipping the payment. On the other hand, if you talk to them about the situation they may be able to offer you alternative options that allow you to keep your home.

In fact, lenders would prefer to help borrowers keep their homes rather than foreclose on them. An estimated $60,000 or more is spent by banks on every home that enters foreclosure, not to mention over a year and a half of time to resolve the situation. Talk to your lender — 90% of homeowners in financial distress who work out a new payment arrangement with their mortgage lenders are able to turn their situation around within 18 months and keep their home.

Avoiding foreclosure

The options your lender may offer you when your home’s value is less than the mortgage and you’re having trouble keeping up with your mortgage payments include:

• Partial reinstatement. The back balance owed is divided over a period of 12 months or so, then added into your regular payment until it’s caught up.

• Short-term forbearance. You may go without having to make a payment for about three months, which should give you a chance to get caught up financially. In some cases, the lender might reduce your payment for six months, with the difference in what was owed then added into monthly payments for a year following the short-term forbearance to get caught up.

• Long-term forbearance. In some situations, you might qualify to skip payments for four to 12 months, with a new payment arrangement created at the end of the specified period of time.

• Loan modification/refinance. Sometimes the lender will create a permanent change in one or more of your loan’s original terms. You may receive a lower interest rate or longer repayment terms in order to make your monthly payment more affordable for your new financial situation.

Remember: It pays to discuss your mortgage problems with your lender. After all, the home you save may be your own.

If the big three automakers fail, a chain reaction will tear through the economy. More than $150 billion in tax revenue will be lost over a period of three years, and over 3 million jobs wiped out, according to a study by the Center for Automotive Research in Ann Arbor on the economic impact of an auto industry bailout. From school districts relying on federal funding to small businesses located near auto plants, parts manufacturers and dealers — the collapse of the auto industry will affect everyone.

Parts suppliers are already cutting back, since there are more available cars than there are willing buyers right now. Dealerships are offering discounts and incentives to try to get vehicles out the door — only to wind up with little to no profits on the sales.

In areas like Lordstown, Ohio, a village about 50 miles each of Cleveland that has been the home to a GM factory for more than 42 years, their $4.2 million budget would take a $3 million hit if GM went under. Layoffs of police officers and park programs would be inevitable.

Senator Sherrod Brown (D-Ohio) argues that the collapse of the auto industry goes even further than lost jobs and small businesses that go under as a result. He insists that letting the auto industry collapse also causes a national security risk. In the two world wars, the auto industry was essential. “If we ever need that national security production for serious defense, for any kind of significant war, it’s gone,” he said.

• Having the ability to reserve hotel rooms, travel accommodations, or restaurants by phone or Internet
• Having the ability to make a purchase by phone or Internet to take advantage of special online deals or to avoid having to run out to the store unnecessarily
• To benefit from rewards programs for frequent travelers, get cash back on purchases, or receive merchandise in exchange for responsible credit card use
• To pay for unexpected, necessary expenses that would drain our financial resources over a few months, rather than having to borrow from a friend or take out a loan

When a credit card is used responsibly, the cardholder only charges what he or she can afford to pay off in the same month the transactions occur (with the exception of those occasional, necessary larger purchases that you pay off in a few months).

In the 2008 Credit Card Satisfaction Study conducted by J.D. Power and Associates, the responses from 7,600 credit card users were analyzed to determine the best customer service credit card across five different service categories: interaction, billing and payment process, rewards programs, benefits and services, and fees and rates. The study compared results between “Transactors” (people who pay their transactions off in full at the end of each month rather than carry a balance) and “Revolvers” (people who carry balances from month to month). Results from the study show that American Express scored highest among all credit card companies, receiving best credit card satisfaction ratings in most of the five categories for customer service analyzed.

In the study, AmEx took best credit card for the Rewards, Fees and Rates, and Customer Service Call Center categories. Interestingly, American Express is most often used by cardholders who pay their balance off in full each month rather than carry a balance from one month to the next, which explains why the card would probably receive top scores in the fees and rates category. It also makes sense that cardholders who are paying their credit card balances in full each month would generally receive higher rewards from rewards programs and have higher overall satisfaction with their credit card in general. If you aren’t carrying a balance on a credit card, you aren’t paying interest or fees on that balance, you’re getting more rewards for less money, and you’re not watching your credit card payments get eaten by the interest and fees applied to many cardholders who carry balances.

For individuals who tend to carry a balance on their credit cards, Discover Card was considered the best credit card, thanks to cards with no annual fees and interest rates that were considered low among this group of credit card users.

Regardless of whether the cardholders in the study were considered transactors or revolvers, one aspect stood out as being extremely important to them: credit cards with good customer service. Having a twenty-four hour call center available to take cardholder calls and answer questions or solve problems was important to all cardholders, regardless of how they pay their balances. American Express took best customer service credit card, followed again by Discover Card; Chase was ranked third.