USAinDebt

The year of 2008 will be remembered and identified by the worldwide market crash that hit the economies of many countries, big and small. The global financial crisis ruined quite a few large financial firms which resulted in the collapse of thousands of smaller dependent companies and businesses. Combined with the sub prime mortgage crisis, bad debts, lack of liquidity, corruption and poor government control are pointed out as the main reasons for the market dip.
Although the crisis erupted with full power in 2008, its foundation has been started way earlier than that. To begin with, the American consumer has always lived beyond their means. Buying almost any type of commodities is very often associated with obtaining some type of a loan and paying it off within extended period of time. Credit became the foundation of nearly every purchase. Especially when it came to real estate, banks and other lending institutions were quick to provide credit to consumers, basing their decision on the muddy information, provided by mortgage brokers.

On the other side, consumers were happily taking on those mortgages, being under the false impression that prices of property will always rise and that they are making a good investment. They were also easily hooked by the Adjustable Rate Mortgage (ARM) which allowed them to take on a mortgage at a super low rate. The housing market was at its full glory: the USA home ownership rate grew to the record 69.2% (US Census Bureau Report, 2007). In the meantime, those mortgages were pooled and sold to domestic and foreign investment institutions as ‘AAA’ graded CDO’s. Since everyone was buying, demand has increased which naturally led to the increase in supply. Housing is built everywhere, 24/7. When the market reached its tipping point in the middle of 2007, supply became higher than the demand and prices began to decline. Prices quickly dropped by over 20% within less than a year (Standard & Poor’s Home Price Indices, 2008).

At one point, more people were finding themselves in a situation where they had zero or even negative equity in their homes. As a lot of those people took ARM mortgages, their payments were steadily increasing by that time. Many were unable to pay their mortgages. A wave of refinancing attempts and foreclosures made it harder and harder to obtain better financing rates and new loans. By the end of 2007, Nearly 1.3 million US housing properties were in the process of foreclosure (RealtyTrac. US Foreclosure Activity Report, 2008). This further deepened the issue – more and more consumers were unable to meet their repayment obligations, defaulting on their mortgages. People were resorting to withdrawals from their last savings accounts and even cash advances from credit cards. That led to a global bank run in which more than $550 billion dollars were withdrawn from US accounts. Banks were vastly losing their liquid assets. As a result of this, banks went low on cash, their assets disappeared and a liquidity problem developed. This pretty much is what brought down Washington Mutual – consumers feared that the bank is in trouble; they pulled their cash out and left the bank high and dry. The collapse of the Credit Default Swaps (CDS) market boosted the rapidly evolving subprime mortgage crisis even more. The weak regulation of the CDS market allowed for millions of junk swaps to be traded. The above mentioned investors, buying the ‘AAA’ graded pooled mortgages suddenly found themselves holding nearly worthless paper.

As a result of that, bankruptcies were quick to follow. This huge instability in the market had a snowball effect: AIG, the largest US insurer quickly started losing money merely because of the now worthless CDO’s they have insured. It became a vicious cycle: People were failing to pay off their mortgages, their homes were foreclosed; the owners of those failed loans were unable to recover their money so they turned to the insurers of those loans, who quickly run out of finances to pay the insurance on those junk mortgages. The result: consumers are low on cash, banks are low on cash, investors, insurers and banks are low on cash. The liquidity of the market almost doesn’t exist.

The fall of Lehman Brothers Holdings on September 14th, 2008 started a domino effect within the financial world. Many of their investments were foreign-funded, and as a result of that the US mortgage crisis quickly spilled beyond America’s borders. The German branch of Citigroup was heavily stressed by the bankruptcy of Lehman Brothers. The Indonesian stock market suspended trading after a 10% on October 8th of 2008. Thailand, Russian and Ukraine followed. Merrill Lynch was sold to Bank of America. Black Monday turned into the Black Week for the US markets: The Dow Jones fell 456.3 to 8122.2 leading to a 21pc dip, The S&P 500 fell 53.4 to 856.5, a weekly drop of more than 20pc (TMG. Financial crisis: US stock markets suffer worst week on record, 2008). This brings a whole new problem in the financial market: banks close their doors to loans, not just mortgages, credit cards and personal loans but loans to big companies, such as GM, IBM etc. These companies often rely on loans to support their productivity, but with this market seize it is hard for even them to obtain a good credit.

What started as a mortgage crisis in the middle of 2007 has quickly developed into a worldwide financial crisis. The failure of U.S. and European investment banks, insurance firms, mortgage banks and governments to contain and resolve the subprime mortgage crash has allowed for it to spread and grow into a huge, complex financial mess which is now known as the market crash of 2008.
References

Census Bureau Reports on Residential Vacancies and Homeownerships. US Census Bureau. 26 October 2007.
http://www.census.gov/hhes/www/housing/hvs/qtr307/q307press.pdf

Standard & Poor’s Home Price Indices. Standard & Poor’s S&P/Case-Shiller. New York, November 25, 2008.
http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_112555.pdf

US Foreclosure Activity Report. RealtyTrac. Irvine, January 29, 2008.
http://www.realtytrac.com/ContentManagement/pressrelease.aspx?ChannelID=9&ItemID=3988&accnt=64847

Financial crisis: US stock markets suffer worst week on record. Telegraph Media Group Limited. London, October 10, 2008.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3174151/Financial-crisis-US-stock-markets-suffer-worst-week-on-record.html

Tags: market crash 2008 | lehman brothers | foreclosure | census | financial crisis |   CDS | debt | credit

With the current economic crisis spreading worldwide, many individuals are forced to seek new ways to save businesses, homes and other property. Not that long ago, the word ‘bankruptcy’ was something feared more than death and it was avoided at all costs. Nowadays, however, many resort to bankruptcy lawyers in order to be able to get out of the hole and at least partially save what they have. In a matter of fact, as per CNN ‘consumer bankruptcy filing increased almost 50% over the previous year’ and we are talking million of filings here.

Bankruptcy brings a lot of consequences that might have a very negative impact on your financial ‘grade’. Here are several facts to consider:

1) You are still obligated to pay off some of your debts: Although you will probably get rid of a lot of your simple debts, you may still be responsible for repaying, for example your mortgage or your car loan. There are certain exemptions of that rule in some states, so make sure you check that before filing. You also won’t be able to get rid of your student loans or tax debts.

2)  Bankruptcy will leave a mark: Bankruptcy filing stays on your credit report for 7 to 10 years. It will be there, on top of the negative list when you apply for credit cards, auto insurance, mortgage, rental and even a job. It will be hard for you to obtain any normal loan repayment terms.

3) Bankruptcy costs a lot: Besides the high interest rates you will most likely be getting as a result of your bankruptcy filing, you will also have to pay lawyer and filing fees.

4)  Bankruptcy process takes time: In most cases you may be required to take financial planning and credit counseling session before you are even allowed to file.

5) Bankruptcy filing is restricted: You can file once every six years. So if it does not work the first time,  you will have no other options for the next 6 years. Re-filing has a waiting period of 180 days.

6) Bankruptcy screws up your co-signers: Bankruptcy doesn’t protect the co-signers of your debt. If the filing discharges your debt,  your creditors are free to go after the co-signer.

7)  Bankruptcy won’t save your from acquiring interest:  All of your nonchargeable debts are still acquiring interest and other fees.

8 ) You still may not be able to save your property: In some cases, when you property debts are higher than the discharge exceptions, the bankrupt’s trustee may have to liquidate (sell) your property in order to pay the creditors.

9) There are different types of bankruptcy: Chapter 7 bankruptcy obligates the debtor to turn over all all nonexempt property to the bankruptcy trustee who then liquidates it and repays the loans.  Chapter 13 allows the debtor to keep their property and enter into a repayment plan with 3-5 years term.

10) You can fail in bankruptcy: If you continue missing payments, for example on your mortgage, even though you are under a bankruptcy protection your mortgage lender can go ahead and proceed with foreclosure.

Please be advised that the above facts can have exemptions and vary by state.

Tags: bankruptcy | chapter 7 | chapter 13 | filing | debt | credit | taxes

Nowadays, when consumers are measured by the quality of their credit file, bad credit can be devastating. Bad credit can easily prevent you from getting a simple loan, a credit card, a cell phone or even a job. Good credit, on the other side can give you access to many great perks such as 0% or low APR loans, cash-back and point programs and other good stuff.

When you are filling out credit card applications,  several things happen:

1) All your personal information is collected and verified
2) The credit issuing company pulls up a copy of your credit report and scores
3) All of the above is analyzed, weighted and a decision is made

At first, all your personal information is collected -  your name, address, social security number, income and real estate property data. This is all verified against your mother’s maiden name and against your credit report.

In the second step, the credit issuer pulls a current copy of your credit report and your credit score. This usually happens instantly and most of the times the creditor will only use one credit reporting agency. If the loan is more complicated (bigger sum, lower interest or additional benefits) they may check with more than one agency at a time.

In the third step, the credit issuer goes over your info in order to determine your credibility. Several factors come into play when a decision is made: the age of your credit report; the ratio of available/used credit; the occurrence of any negative items such as charge-offs, bankruptcy, collections or late payments; if you own or rent and also your yearly income.

Most of the time the process of evaluation is completed automatically, by a computerized system. It would automatically deny credit when certain negative items exist on the report. If the computer is unable to make a decision, the request sometimes gets forwarded to a person who reviews the data and makes the decision. People with poor credit are most of the time unable to receive any type of credit. Consumers with average scores are usually able to receive what’s called credit cards fair credit, which have good APRs and credit limits. Consumers with higher scores usually get special offers, lower APRs and higher credit limits.

Tags: credit | credit card | debt | fair credit | credit application

When credit cards first came into existence there was only one type, the unsecured credit card. If you had good credit and passed all of the relevant criteria, such as a specific income level and working at the same job for a number of years, then you were approved for a credit limit set by the financial institution. Unfortunately many people run into financial difficulties and do not qualify for this type of credit card. Thus the door was opened to the secured credit card.

The secured credit card is basically a credit card for individuals with poor credit (such as those who have been discharged from bankruptcy); or those who have a lower income. This type of credit card is one in which you put down your own money as collateral. You may then use the card and borrow in this manner until a time at which the credit card company is willing to consider extending you credit by way of an unsecured credit card. This will happen once you have proven that you can use credit responsibly and can pay your bills on time every month.

In most cases, the limit on a secured credit card is low, in the range of $500 to $1000. This is a small enough amount that the person who is attempting to rebuild their credit should not run into any financial problems. Most companies are willing to consider a responsible credit card holder for an unsecured card after they have been with the company for anywhere from one to two years. The request will be considered on a case-by-case basis. Once you feel you have proven yourself with responsible credit card use, do not be afraid to approach the company about switching to an unsecured credit card.

There are a number of companies that issue secured credit cards but it is important that you look for one that does not charge an application fee. Most have an annual fee as this is a standard practice, but make sure you compare the fees from company to company before you make a final decision.

Another important point of note is that before you apply to any particular credit card company, find out if they make it a habit to report their credit information to all three credit reporting agencies. After all this is a primary benefit that you should take full advantage of.

Tags: credit card | secured credit card | debt | apr | loan

Decoding and properly understanding the fine print on credit card agreements is the foundation of your financial decisions. And if you want to make the right choice, make sure that you know what you are putting your signature under.

Fees. Annual Fee, Application Fee, Balance Transfer Fee, Late Payment Fee… Some credit cards are so overwhelmed with fees, that you credit limit can be entirely consumed by them before you even get a chance to use the plastic. Watch out for those charges! It’s a good idea to make a list of all the fees which your credit card carries in order to really understand how much exactly the credit will cost you.

APR. Most credit cards offer a low or 0% APR to their customers, but that’s just your initial APR, otherwise called Introductory APR. It is usually offered for 6 or 12 months, and after that period passes, you will be paying the regular APR. Then you also have a Default APR, which comes in effect when you miss payments, go over the limit or simply when your credit score goes down (“Universal Default”). You also may have up to three different APR’s: for cash, for balance transfer and for purchases.

Billing cycle. You can be billed bi-weekly, monthly, annually and in all kinds of other time incremental. Some banks even use double-billing cycle, where you have two due dates: one for your minimum payment and one for the entire balance.

Balance Transfer Terms. That 0% on Balance Transfers may come with its own Fine Print – for example 5% fee on the balance transferred or $2 per every $100 transferred.

Binding Arbitration. The credit card issuer is giving notice that if the cardholder has a disagreement with the creditor he or she can’t sue the card issuer in court. As a substitute, they must take the case to a private arbitrator or judge.

As per the latest reports, Americans are  ’above their ears’ in debt - $48 trillion - and soaring. 9 out of 10 households in the US owe money - in mortgages, car payments, credit cards, student loans, medical bills, various payday, credit union and personal loans. And unless you are one of those lucky exceptions, you probably owe green. If so, read-on: here are your first golden steps in becoming debt - free.

When dealing with your debt, the first thing to do is to summarize your responsibilities. In another words, understand how much you owe. And in order to do this, you will need a couple of simple things: Microsoft Excel, Internet, a phone and a couple of hours of free time.

For starters, create a new Excel file and password-protect it. Go to Excel, click on “Tools” then “Options”, click on the “Security” tab and look for the box “Password to open”. This is where you are going to put your password. After you have typed the password, click on “Ok”, re-enter the password (for security) and voila, your document is protected. Save it.

Your next task to do is to type in “Creditor” into the first box (A1). Write “Owed” in B2, “Available” in B3, “APR” in B4 and “Minimum Payment” in B5. Save. Next, list the names of your creditors in the first column, one name per row. Save again. The next step is to contact each creditor that you have listed in the first column and obtain as much information as you can. Against the name of each creditor you should fill out what’s owed, what’s available, what is the APR on the credit and what is the minimum monthly payment. Save frequently to avoid loss of information!

After you have everything listed, it’s time to summarize your debt. You will be using Excel’s Auto Sum function for that. Let’s do it with the numbers in column#2, “Owed”. Click on the first number in that column, hold the “Shift” key on your keyboard, and then click on the next empty box underneath the last number in that same column. This way you should have selected all the numbers below the “Owed” column, plus one more empty box. When that’s done, click on the Auto-sum Button which looks like the Greek letter Sigma - “Σ”. This will add all the numbers that you have selected and display the result on the bottom. The great thing about Auto Sum is that if you change any of the numbers in the column, Excel will automatically re-calculate the result! Do the same for the “Available” and “Minimum Payment” columns. Save.

Let’s summarize what’s been done. You have just made the first step towards your financial freedom. You now know exactly how much you owe, what are you minimum monthly payments, how much all those credit lines cost you per month and how much credit you have available. Good job!

Tags: credit | debt | debt-free | loans | apr | autosum | excel

Making the right financial decisions can really make your life easier. When it comes to choosing credit cards these days, however, the right decision is not easy. There are many plastics out there, and they all come with all kinds of fees, APR’s, rewards and pages of terms & conditions.

The best way to pick a card can be summarized in a 3-step plan:

1. Educate.

What is APR? How do they calculate my minimum payments? How much will I have to pay per month if I owe $1000? What is a Balance Transfer? What is an Identity Theft Program Fee? It is really important to know the basics and the terms of the credit  because a smart consumer is an educated consumer. Here are a couple of articles that are going to be helpful:

- Understanding APR (Explains what really APR is, how it works and how not to get fooled by APR offers)

- 17 Hidden Credit Card Fees Revealed (Every credit card fee explained)

- What is FICO and Why Should You Care About it (Explains what FICO is and gives some advice on how to keep those score numbers high)

- Balance Transfers: Benefits & Drawbacks (Explains the possible pitfalls of Balance Transfers)

- How to Choose a Credit Card (Explains the different types of plastics)

2. Research.

There are a million websites out there that will help you with your research. You best bet is to figure out what are you looking for in a plastic: are you out there to collect point or you want to transfer balances? Write down your requirements and then compare the offers side-by-side.

- CreditCards.com (Great credit card comparison website)

- Bankrate.com (Compare The Best Credit Card Rates)

3. Negotiate.

If you have found your card online, and if you have some spare time, you may want to go one step further and call the bank. Talk to a customer care specialist and see if you can get a better deal. Very often supervisors have the ability to lower APRs and waive fees. 10-15 minutes on the phone can really get you a nice deal and save you green!

  Tags: credit | credit card | money | loans | bills | apr | balance transfer

Companies spend a lot of money on advertising their products to the public and unfortunately that good advertising often works: people tend to buy products that they have seen on TV or read about in the magazines. Sometimes, however, those products are not the best buy. They are expensive because of the brand they are sold under at the same time they are no different that the rest of the products on the shelf. Generic, or otherwise called store brands can often save shoppers lots of green.

A good example is CVS. What does a regular CVS customer buy? Cosmetics, medicine, household supplies. So let’s get two separate carts and shop. Shampoo, toothpaste, face cleanser, pain reliever, cotton swabs.

Cart 1: contains Head & Shoudler’s Dandruff Shampoo, Classic Clean; Crest Vivid White Night Toothpaste; Clean & Clear Oil-Free Daily Pore Cleanser; Advil Ibuprofen Coated Gel Caplets; Q-tips. Total for this cart: $35.00.

Cart2: CVS Dandruff Shampoo 2 In 1, CVS Bright White Whitening Toothpaste, CVS Oil Free Acne Cleanser,Pain Relief Rapid Release Gel Caps Extra Strength, CVS Cotton Swabs Flexible Plastic. Total for this cart: $13.39.

Looking at the above, it is easy to see that the CVS store brands have saved us $21.61, which is a nice piece of change. Worried about the quality of what you are buying? Compare the ingredients and you’ll see that they are 100% identical in most products! Why pay for the brand name when you can have the same for less?

Tags: cvs | save money | store brands | generic

If you happen to be in debt then the likelihood is that you consider credit card to be a dirty word! Credit cards account for the majority of debt in this country at the moment, but did you know they can also help to get you out of debt?

The latest credit card trend is towards balance transfers. Transferring your credit card balances from a high interest card to one of the many interest free credit cards that have fixed nine, twelve or eighteen month offers can knock hundreds of dollars off your bills and give you a little breathing space to get your credit card balances cleared. But if you are not sure where to look for these offers then a website like About Your Money can help.

About your money is a comparison site that has access to plenty of the latest interest free credit cards and the related offers. The site is really comprehensive, complete with a comparison table and a guide to help you choose the interest free credit cards that will best suit you. If your debt is more extensive though, you might want to take a look at the personal loans section instead.

Now is the time though. With 2008 approaching and bringing a fresh start with it, now is the time to look to clear your debt.

Here’s 12 excellent articles, combined in our Carnival of Credit Report Stories. Have fun reading!

Karen Halls presents Bankruptcy Vs Bankruptcy Alternatives posted at
A Bankruptcy Lawyer’s Blog, saying, “When you’re beginning to find it difficult to pay off your debts you might consider filing for bankruptcy as your ultimate debt solution. But have you considered other options before you finally declare personal bankruptcy?”

Aaron Wakling presents Improving Your Credit Score - Fundamental Factors posted at The Credit & Credit Card Blog, saying, “To understand how to improve your overall credit rating, it is imperative you understand what factors influence your FICO score.”

Eric Hudin presents Estate Planning Tax Advice - Why You Need It and Where to Find It posted at My Estate Planning Career Blog, saying, “Taxes are something you have to pay all of your life, and if you do not plan ahead, they will be something your estates will be paying even after you are gone. So making sure that you get quality estate planning tax advice when you are arranging your final affairs is one way to ensure that your heirs, and not the IRS, receive the bulk of your estate.”

Allen Taylor presents Investing - Determining Your Goals posted at Investing World Today, saying, “Much like an exercise program, you will want to determine your
goals before you begin to invest. Your goal might be retiring in 20-30 years, kids college funding or, if you got started a bit late, retirement in the next 5 to 10 years.”

Tim Ramsey presents 7 Steps to Debt Freedom posted at My Debt Relief Blog,
saying, “For anyone out there who has ever forgotten a payment or found themselves with more debt than their income could pay, you know how aggressive some of these creditors can be.”

Eric Stanley presents How The Recent ?Credit Crunch? Could Affect You posted at
Personal Finance Blog Articles, saying, “With banks and financial intuitions unsure on the risks involved with lending to one another, a ripple effect is being sent out
into the rest of the lending world.”

Thomas Humes presents Guidelines for Building Wealth posted at Wealth Building World, saying, “Review my guidelines for building wealth.”

JASMBA presents Getting Ahead posted at Getting Ahead.

Matthew Paulson presents The First Thing’s First: Prioritize Your Debts posted at
Getting Green.

Larry Russell presents Diversify To Avoid Investment Fraud posted at THE SKILLED INVESTOR Blog, saying, “Stories about financial fraud often seem to include the phrase
“his or her life savings.” There should never be a moment during your lifetime when your life savings are not heavily diversified across many investment vehicles and firms.”

Colin Robertson presents How Long Do Negative Items Remain on a Credit Report posted at The Truth About Credit Cards.com.

James presents Notorious Practices of Payday Loan Companies posted at ZooLaw.

That concludes this edition. Submit your blog article to the next edition of credit report stories using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.