Posts Tagged ‘credit cards’

Frugal Living: Survival Mode

Most personal finance blogs are filled with wonderful advice, provided that you’ve got a stable source of income that is adequate to support yourself and your family and enable you to save money at the same time.  While this advice is great for those in stable financial shape, it doesn’t work quite so well for those who are struggling to survive day by day. To that end, I would like to write a post aimed at those of you who are barely getting by.

Let me start off by saying that the advice herein comes from the school of hard knocks. I was there as recently as a few months ago and I can readily empathize with how you feel and your day to day struggles. I know what it is like to spend a day on the phone making payment arrangements with the utility companies for this month’s payment because I had just made last month’s payment a few days ago. I know what it is like to receive call after call from collection agencies hounding me for money I just don’t have. I know what it is like to be at the brink of foreclosure and that sick, sinking feeling you get when you know you’ve given all you can and there is nothing left inside you to give. And yet, you must go on. You must spend your hours figuring out how best to parcel out what little bit of money you have to keep a roof over your family and keep the lights on.

The first step is to figure out how much income you currently have coming in. Once you have that, then you can prioritize your expenses and debts.

Obviously, the most important expense is your rent or mortgage. If you can keep paying it, even if it takes a huge chunk out of your available money, then that is payment number 1. If you can’t make your rent, be sure to let your landlord know. How understanding your landlord is depends on him or her. If you’re only renting, you can also always find cheaper accommodations. If you have a mortgage that you can no longer afford, then that is a stickier issue. If you intend on keeping the house, then contact your lender right away and ask for a loan modification. The earlier you get started on this, the better, because, let me tell you, it can take a year or more to get into a successful loan modification!

Next are the utilities. Most utility companies are very good at working with you on payment arrangements. Just explain that you are having financial difficulties and they will be willing to work with you. Sometimes you get a representative on the line who won’t cooperate. If this happens to you, ask for a supervisor and more often than not, that does the trick. As a shout out, the Verizon folks were always pretty good with me, barring a few individuals, as was Southern California Edison.

Following that is food. There are some tricks here to help you get by with less, and many of you probably already know them, but I am going to share them here anyway:

1: Check the mail for your weekly circulars. These will have the sales that are happening that week. The basic idea here is to look for items that you use that may be on sale. Many times you can get decent cuts of meat like london broil (top round in Canada) for as little as $1.77 a pound. Similar sales will be on for ground beef and chicken. You can shave off a good $20-50 off your weekly grocery bill by hitting up all the grocery stores with the best sale prices.

2: Chicken is your friend because it  is pretty cheap. It is also healthy, and eating healthy will be quite challenging on a limited budget. You will probably find yourself eating a lot of it. To help with the boredom of eating the same foods week in and week out, search for recipes on line or try different marinades. (These will often be on sale for cheap as well.)

Next, this is a no brainer, but cut out any unnecessary expenses such as cable or satellite tv. You don’t have to cut it out all together, but you can drop down to the basic package to cut costs.

Finally, consider moving away from your current location. Even in the States, there are regions that have not been as hard hit as some other areas have. The northern central region of the country is doing ok, and so are some southern states. Both coasts have been buried by the economy as well as the sunbelt region. You may have better luck finding work in areas where the ratio of workers looking for work and available jobs is a better percentage.

How Many Credit Cards Are Too Many?

There is no hard and fast answer for this question. It is true that lenders look at open credit lines as a temptation to get into more debt, but it is far more important to look at your debt-to-income ratio than just your total number of credit cards. In fact, your debt- to- income ratio can tell you if you, as an individual, are carrying too many credit cards.

Your debt-to-income ratio is your total amount of debt divided by your income. To be safe, this number should never be greater than 25%. When you apply for a loan, the lender may look at your credit file and take all of your available credit, even if you haven’t used it, and do this calculation to see what your debt-to-income ratio could become should you max out all of your credit cards. If the number is greater than 30%, then the lender will likely consider you a higher risk.

You can do this calculation yourself and if your debt-to-income ratio, with all of your credit lines maxed out is greater than 30%, then you probably are carrying too much plastic. You should consider closing some of your open accounts. Be careful, though, not to close your oldest credit accounts. Doing this will negatively affect your FICO score since account age is one of the influencing factors.

Avoiding The Debt Trap

Not all debt is bad and most people can’t avoid accumulating some debt, unless they’re heir to some massive fortune. Having said that, some debt is just plain toxic and should be avoided like the plague.

Payday Loans/Cash Advances

Payday loans let you borrow money from your next paycheck. They’re meant to act as a stop-gap when you have an emergency expense that is outside your budget. However, payday loans are a deadly trap because of the way they’re structured and the expensive costs associated with them. For one thing, they’re extremely short term and must be paid back, in full in one to two weeks.  If you’re already living paycheck to paycheck,  you’re almost certain to be short after paying back the payday lender and need another advance from your next check, plus an additional fee to last you until your next pay day. This is how payday lenders make their money and how the payday debt trap closes.

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American Credit Scores: Another Casualty of the Great Recession

A full quarter of American consumers, 25.5%, now have credit scores of 599 or below, according to a recent sampling by FICO Inc.  People with scores this low are unlikely to qualify for any sort of consumer lending. They will be unable to get a credit card, buy a car, or a home.

As unemployment and foreclosures continue to plague the economy, more and more people will lose ground on this important metric for consumer lending. FICO expects the percentage of people with low credit scores will continue to rise in the near term, since credit reporting often lags behind late payments and the economy has gotten no better.

On the flip side, the percentage of consumers with scores of 800 and above has also increased over historic levels to 17.9%.  This means that anyone who has managed to hold on to his job and is still doing relatively well is being very cautious and paying down what he owes.

The effects of plummeting credit scores will be felt for years since banks have tightened lending standards recently. Even people with scores in the medium range of 650 to 699 will find it harder to obtain financing at a decent interest rate. Those with scores below that will be unable to find financing at any rate, and it will take years for them to recover what they’ve lost.

Related articles:

How To Rebuild Your Credit Rating

See Your FICO Score

3 Debt Relief Options For Credit Card Debt

The following is a guest post written by financial consultant Neil Williams.

 

With the state of the economy, consumer credit card debt is mounting. Debt is spreading like an epidemic in the United States. More and more people are getting trapped in the vicious cycle of credit card debt. Only debtors know the problems of being overburdened with credit card debt. So, if you are a financially troubled debtor seeking for debt help, then have a look at the various debt relief options that can help you bring yourself out of the credit card debt hole.

Thousands of people seek some sort of debt relief every year. Most commonly, debtors seek debt consolidation or refinancing which provides them with the benefit of lower monthly payments and interest rates. But there are some more options that can bring you out of debt. Read on to know about them.

  1. Consumer credit counseling
    Those debtors, who cannot manage their debts on their own, can seek professional help. Consumer credit counseling will provide you with professional credit counseling. The credit counselor will guide you to manage your finances and implement a personal budget for you. This budget will help you manage your finances well. They will identify the problems which have led to such poor financial condition. After detecting the problems, the credit counselor will advise you how to manage your finances well so that you again get a grip on your finances.
  2. Credit card debt settlement
    Debt settlement is a debt relief option which should be considered by debtors only if their last option is to file bankruptcy. Debt settlement is a good option for debtors who have a large amount of debt and they can’t find any way out to pay off their huge debts. Once you sign up with a debt settlement company, your debt consultant will negotiate with your creditors and attempt to reduce your total outstanding debt amount considerably. Creditors often forgive 40-50% of the outstanding balance amount. You have to pay some debt settlement fees to reap the benefits of these services.
  3. Credit card debt consolidation program
    Credit card debt consolidation is another way of paying off your debts in affordable monthly payments. If you enroll yourself in a debt consolidation program, then your debt consultant will negotiate with your creditors in order to lower the interest rates on all your credit card debts. The creditors often agree to lower the interest rates as they see that the debtor is paying through a debt consolidation program. This reduces the monthly payments of the debtor. Instead of making multiple payments to multiple creditors every month, you just have to make a single monthly payment to the debt consolidation company.

It is very important for consumers to know the truth about credit card debt. They should know that there are various debt relief options that help consumers to pay off debt easily and timely.

New Rule By Fed Limits Credit Card Late Fees & Penalty Fees

Yesterday, the Federal Reserve issued a new rule that addresses unreasonable late fees and other penalty charges and requires credit card companies to re-evaluate any interest rate increases they’ve made since January of 2009.

The new rule does the following:

1: Prohibits late fees greater than $25 for the first late payment unless the credit card company can demonstrate that such late payments cost them a greater amount.

2: No penalty fee may exceed the dollar amount of the violation. This means that if you go over your credit card limit by $10, the credit card company can’t charge you more than $10. Likewise, if you’re late on your minimum payment of $35, the penalty associated with missing this payment can’t exceed $35.

3: Prohibits charging inactivity fees on dormant accounts. No longer can credit card companies charge you just because you aren’t using the card. They still can close your account, however.

4: Credit card companies are required to reconsider any interest rate changes they’ve made since January 1, 2009 and reduce them if they can’t be justified.  While not an interest rate ceiling, which would be better, this part of the rule makes credit card companies reduce the rates they inflated to compensate for the CARD Act’s effect on their bottom line.

CARD Act of 2009 Makes Paying Down Your Credit Cards Easier

The Center For Responsible Lending released its analysis of the payment provisions of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (the CARD Act) earlier this month. It found that new provisions in the law  require credit card companies to apply any amount paid above the minimum payment to the balances bearing the highest rate of interest.   This translates to a savings of two dollars in interest for every one dollar paid above the minimum payment.

People who will benefit the most from this are those who carry balances at different interest rates. In the past, credit card companies would apply anything received above the minimum to the balance carrying the lowest interest rate, allowing them to generate more income.  This change won’t affect people with credit card balances at a single interest rate.

My First Stupid Financial Decision

Usually, I get on anyone who is overly sanctimonious when doling out personal finance advice because, well, they do sound sanctimonious and they ignore the larger issues that face most American families today.  Having said that, some folks do make boneheaded moves in the finance department, me included.

When I was in college, I thought it was a bright idea to get an American Express card. There were some folks on campus who signed me up…did they care that I didn’t have a job or any income really, apart from what student aid I was receiving at the time, combined with an allowance from my mother? No, they didn’t. They were happy to sign me up and I went right along with it, foolish girl that I was.

Now, had I had an ounce of financial sense, I would have used my card as it was intended to be used. I wouldn’t have gotten into any trouble at all and would have been on the road to having excellent credit. But, I didn’t. I didn’t realize that since my American Express card was a charge card, as opposed to a credit card, that I had to pay whatever balance I had run up during the month in full at the end of the month. I went a little crazy and before long I owed more than $1,000 and, of course, I couldn’t pay it. There went my fledgling credit file.

It is a good thing that there are now measures in place that prevent credit card companies from setting up shop on college campuses, and while I do believe that some of the blame for my early credit transgression does lie with the credit card company, the ultimate responsibility lies with me. In my case, I was a stupid kid who got into trouble with credit.

I did end up paying it off, but it took a long time and my credit was damaged. Starting off with damaged credit is not a good thing and I don’t recommend it to anyone.

Most Banks Lending Standards Remain Unchanged, Federal Reserve Report Shows

hand with credit card

 

The most recent Federal Reserve  quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices shows that most banks are maintaining the lending standards they have in place currently, while some banks have tightened these standards even further.

Banks tightened lending standards as a response to the economic downturn and the financial crisis that occurred in 2008. Banks appear to be maintaining these standards. Today, banks are requiring a higher minimum credit score  and are in general keeping credit limits lower than in the pre-crisis years.  The full report is available here.

The Over-Consumption Myth Is Keeping Us From Enacting Meaningful Financial Services Reform

Despite the persistent rhetoric that people in financial trouble deserve to be there because they made poor choices and now must face the consequences of those choices, the real story behind why so many American families are riding the edge of financial devastation is not as simple as that.

As Elizabeth Warren explains in her paper entitled the Over-Consumption Myth,  the average middle class family carries more debt than it did a generation ago. However, this debt is not due to overspending on frivolous items such as designer clothes, designer foods, or big screen televisions.

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