I opened up my credit card statement and was shocked by what I saw. My credit card company just increased my credit limit a few thousand dollars. This was surprising because I almost never and I mean never use my credit card. I don’t even carry it with me the majority of the time. This offer did get me thinking as to how credit works in America.
Debt Problems
June 11, 2009 By Leave a Comment
Individuals and small business owners alike have both been hurt by rising unemployment, limited access to capital and a deteriorating economy. These factors have caused many people to lose their jobs and fall behind on their bills. Many people have plunged further and further into debt. How severe is this debt problem?
According to the Center for Responsible Lending, there have been over 1 million foreclosures in the United States in 2009 alone. About 12% of all home loans are currently delinquent. Economists expect this number to double over the next 6 months. States such as Oregon have seen foreclosures rise approximately 90% this year. This is just the beginning. The government placed a moratorium on foreclosures last fall that stopped many of the banks from evicting homeowners until the end of March. Now that the moratorium has ended expect to see a major surge in foreclosures. Increasing job losses and decreasing home prices will lead to more foreclosures.
While real estate may be the biggest debt culprit; credit cards are not far behind. I recently read a study that stated that the average American has over $8,000 in credit card debt. Credit card debt is a huge burden that affects most consumers. Credit card companies are in business to make themselves money and not to help out consumers. They typically provide easy access to money at astronomical interest rates. Credit cards make it way too easy to overspend leaving consumers with massive amounts of credit card debt. According to the US Public Interest Research Group, Between student loans and credit card debt, the average college student owes roughly $20,000 before they graduate and the average college freshmen has $1300 in credit card debt, The average college senior has more than $2,600 in credit card debt.
These debt issues are not only specific to North America. Debt problems have plagued European consumers as well especially in the UK. The average UK citizen has twice the debt of some of their European Union counterparts. 1 out of every 6 UK consumers don’t believe that they have enough money to cover their bills. The foreclosure problem is a global crisis and consumers worldwide are feeling the pinch from the economic contraction, G7 countries France, Italy, Germany and Japan are all dealing with similar issues.
So what can you do if you find yourself up to your neck in debt? The process of getting into debt is very simple but getting out of debt can be extremely difficult. The first step is to cut your spending. Next you must develop a plan to get out of debt. This involves contacting lenders and making payment arrangements. If you are behind on your debts or feel that you have no way out of your financial difficulties; a debt counseling agency may be able to help.
Financial Crisis Affects Borrowers Worldwide
May 29, 2009 By 1 Comment
The current economic recession has taken its toll on homeowners in the United States. Property values for the 1st quarter of 2009 in the US were down an average of 14% over the previous year. This is after a decline of almost 10% last year in median home prices. States such as California, Florida and Nevada have been hit even harder by rising foreclosures and the limited availability of credit. Housing prices have dropped over 25% in these states and continue to plummet with no end in sight. Economists estimate that US home prices will decline another 10 to 15% before bottoming out.
The global financial crisis has hit the UK as well. According to research by PricewaterhouseCoopers (PWC), the credit crisis has wiped £1.9 trillion off the average level of UK wealth since 2007. Whilst the amounts vary considerably, PWC believes that this equates to a reduction of £40,000 for every UK adult over 18. This figure doesn’t even take into account the millions of retired people, not to mention those residing abroad, who no longer receive the income they once did due to falling interest rates. Economists estimate that over 50 trillion dollars of wealth was lost in 2008 alone. That number is staggering! The loss in asset prices was led by the decline in property values.
This is especially troubling because the average person’s wealth is tied up in one major asset, their home. Millions of people rely upon the equity in their homes to maintain their standard of living. Home equity loans are used to finance college educations, automobile purchases, medical costs and etc. As housing prices have declined many people have found themselves unable to borrow money from their homes to purchase needed goods and services. As a matter of fact many individuals that have purchased a home over the past 5 years may be surprised to find themselves “upside down”. This is when you have negative equity in your home and you actually owe the bank more money then you can sell the house for.
As foreclosures are rising, banks are lending less and tightening credit standards which is making capital scarce. Therefore consumers have less disposable income and are shopping less thus resulting in massive layoffs at corporations. These unemployed workers are unable to make their mortgage payments leading to more foreclosures and the cycle continues. Even local governments are feeling the pain of declining home values. State governments are collecting less property tax revenue and are having to layoff employees and cut essential services.
Are Emergency Savings Accounts Really that Important?
January 24, 2009 By 2 Comments
Financial planners often champion the need for an emergency savings account. Emergency savings accounts are designed to keep you from having to rely on credit when unexpected expenses arise like unemployment, home repairs, auto repairs, hospital bills and etc. But are emergency savings accounts really needed? Definitely!
I am glad that I had an emergency savings accounts because I had two emergencies occur over the last two weeks. My hot water heater in my house broke two weeks ago and needed to be replaced. I called around for an estimate and a 40 gallon heater with installation cost from $800-$1300. I ended up paying $850 which I thought was pretty fair. A week later I had my sump pump break. This was something that I needed to fix immediately because the sump pump keeps excess water from seeping into the basement. Fortunately, I discovered the problem before any water could flood my basement. A new sump pump cost me $475 with installation.
An emergency savings account has continually proved to be a winner for me over the past few years. When something breaks down it is comforting to know that I don’t have to go into debt to pay for the repair. I am saving anywhere from 8-14% by not placing these charges on my credit card. An emergency savings account also keeps me from having to sell an asset(stock, mutual fund, bond) just to cover the emergency expense. Emergency savings are a lifesaver when a crisis occurs. After I have taken money out of my emergency savings and used it then it’s time to build my savings back up again.
