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Newspapers and magazines have been filled with images of the Great Depression for two weeks as the stock market has rocketed up and down. Many Americans are now wondering exactly what is a good credit score. Some are looking at 401k accounts that have dropped 45% or more seemingly overnight. In order to actually remember the Great Depression, however, a person would need to be 79 years or older. That stock market crash happened in 1929. The images of shanty towns and bread lines are terrifying even today, but are they realistic? What does the current situation mean for younger Americans, especially students, minimum wage workers, and small business owners? How will the credit crunch affect their lives and livelihoods? what is a good credit score

For students, many of whom have never been forced to make a difficult choice in their lives, some hard realities are in the wind including:

• Shrinking college funds at just the time the money is needed. This translates to a greater need for financial aid and grants, sharp curtailment of out-of-state educational choices, and the potential need to work during their university years.
• Tighter requirements for student loan and grant applications, especially those from private lenders. Additionally, with more students needing this money, there will be less of it to go around.
• Setting up a different time table. Completing a college degree could take longer for students who must work and who can therefore not take a full class load.
• More uncertainty in the future. Depending on the state of the economy at the time, graduating students may not be able to find a job, especially if they chose to major in a field that is overly saturated with workers.

There is also the real factor that if these students require more financial aid and grant money, they are going to enter their working lives already saddled with a heavy debt burden that may keep them from taking other major steps in their young adult lives like marrying or acquiring a first home.

These college students will be getting an early taste of what the minimum-wage American worker has been experiencing for years. At the end of July 2008, the minimum wage in the U.S. went from $5.85 to $6.55, an increase of 12 percent. That still means, however, that a full-time minimum wage earner makes only $13,624 a year. The poverty line for a family of three is $17,170 a year.

These are people who depend on credit for the major purchases in their lives. They are used to having to pay off cars and appliances, but they are also the first sector of the economy to be hardest hit by a factor like $4 a gallon gasoline. Do they feed their kids or buy gas to get to work?

For people already living paycheck to paycheck, an inability to get credit means deferring any major purchases, which in turn affects the broader economy as it depresses the state of retail sales. Those figures dropped 1.2 percent in September, the third declining retail month in a row, and the largest drop since August 2005. That’s a sure sign that the American consumer is feeling unprecedented financial pressure.

That pressure, in turn, affects the small businessman who will see a commensurate drop in profits that will change his ability to:

• buy and maintain inventory.
• improve and maintain equipment.
• hire workers and provide benefits to them.
• maintain his present workforce.

In a financial situation like the one currently being faced by Americans, discretionary spending is the first thing to go. Any business that can be defined as a luxury, for instance hiring someone to cut the lawn or clean the pool, will feel the crunch first. With limited lines of credit to weather the storm, many of these businesses will go under.

When the nightly news talks about the new scarcity of the auto lease agreement or warns of the rising number of home foreclosures, it’s easy to imagine those things being a problem for someone else. When you have to tell your child he can’t go to the school of his choice? When you find yourself walking to work because you can’t afford gas? When you have to let your workers go? That’s when the credit crunch gets personal and close to home. Will it happen? It is happening. Will it get worse? That is more difficult to answer, but most analysts agree there is no quick fix for the current situation and people should expect little improvement until some time in 2009 at the earliest.

Filed under: Credit Cards, Economy by David - 1 Comment →

Earlier today I was thinking about a post idea for this blog. It was going to be about the steps you should take to get out of debt. At first, I was thinking that you should establish an Emergency Fund then start paying off your credit cards. I feel like I have read this over and over so I figured that was probably right. Then I thought about it a little more and it didn’t make sense to me why you shouldn’t pay off the credit cards first and then establish the emergency fund.

Reasons for Paying off Cards first:

1) Why not? I guess that is not much of a reason but, really I don’t see much of a difference in putting your extra money in the bank or using it to pay down your credit cards first. Nowadays you can use your credit card to pay for just about anything so as long as you have the extra balance on your credit card to spend, it should be able to be used like money in the bank.

2) You get a much better return on your money. Once you have paid off part of your debt, you are essentially getting the APR you were paying on the credit card as your return. Often times that is upwards of 15-30% depending how bad your credit score is. That is much better than the 3% you would get if you put it in the bank. Actually, it is better than most people do in the stock market.

How it Could Backfire:

1) In a real, serious emergency credit might not be good enough. Sometimes cash is better. But the kind of emergencies I am thinking of probably would make money in the bank worthless too. If it were some sort of extreme disaster cash on hand might be the only thing you could use and maybe not even that. Those are pretty unlikely so we will just keep moving.

2) Some people don’t pay attention to how much they put on their cards. If you just keep on spending until they tell you your credit limit is up this strategy may not work. You would probably just spend any extra money you put to pay down the card. Maybe having this extra money in a bank account would help because it wouldn’t be as easy to spend as a credit card (assuming its not in a checking account).

Well, tell me what you think. Is it ok to pay off your credit cards before starting an emergency fund? Does it not really matter?

Filed under: Credit Cards, How to Save by David - 2 Comments →

Every year, US credit card holders shell out over $12 Billion in credit card penalties, and this is in addition to interest charges, balance transfer fees, annual fees and cash advance charges! With penalties ranging from $15-$40 or more, it’s a real pain in the butt when they happen to you.It’s illegal for credit card companies to hide credit card fees but they are experts at burying them in fine print or making them difficult for card holders to understand. So it’s important that you know how to reduce the chances you’ll get innocently dinged for late payments and that you know what to look for in the fine print when you are shopping around for credit cards.

Tricks Credit Card Companies Play to Make You Pay

*If you don’t carry a balance, you don’t pay interest, right? Guess what, some credit cards make sure you give them something by charging a fee when you don’t carry a balance.

*If you send your payment with a regular envelope instead of the pre-printed envelope that came with your bill, some credit card companies will wait up to 5 days to record your payment after receiving it. Others may hold up your check processing if you write something in the “memo” area while it gets passed between departments.

*A few years ago, as long as your envelope was postmarked by your due date you were all right. Now most credit card lenders require your payment to be in their hands to count as on-time.

*Many credit card companies have chosen to shorten your billing periods from 31 to 20 days. That means more payments per year and less time to get your payment in.

*Some credit lenders purposely send out your statement a bit late so you have less time to get your payment in.

*If you get dinged with a penalty and it pushes your balance above your credit limit, guess what – that’s right, another fee plus you’re likely to see your interest rate increase also.

*A universal default clause gives your creditor the right to raise your interest rates when you miss a payment on another bill. Not all credit cards have this clause, but an estimated 40% do according to the Institute for Consumer Financial Education.

What you can do:

1. Set up automatic withdrawal from your checking account through online banking. Just make sure you always have enough money when your payment typically goes out or you’ll get smacked with an overdraft charge.
2. Send in your payment by mail the day you receive your statement (and use the envelope they provide you).

Check your statements each month for late fees to make sure you’re not getting penalized for one of the above tricks unknowingly or as a convenient “error.”

If you dispute your credit card penalty, you may have some clout if you carry a balance, threatening to move your balance to a low APR credit card. Rather than lose your business, your credit card company may reverse the fee. Even if you really did get your payment in late, if you make a call, you’ll probably get your penalty credited to your account if it’s your first penalty.

About the guest blogger:

Linda Bustos writes about using credit cards wisely for CreditorWeb, where
you can learn about credit cards and compare credit card offers online.

Borrowing loans is a matter of responsibility. Especially if they are personal loans. The moneysupermarket has strict rules regarding this. Therefore abstain from al sorts, including payday loans.

Filed under: Credit Cards, Frugal, How to Save, Investing by David - 5 Comments →