Tight Credit Market

The tight credit market and business losses are making card issuers reduce credit lines, much to the distress of those who got in over their heads.

I thought that going to law school would benefit me economically; turns out, not so much, but I'm not doing as bad as this guy! Who knew that a little thing like crazy student loans could keep you out of the bar? I wonder if part of it is the change in the economy and the fact that unless he got a highly-paid job, he would have real trouble repaying the loan. Then again, not allowing him in sortof makes that all too likely.

In a Federal case, a guy who made it into the bar in Minnesota attempted to discharge his $350k in student loans through bankruptcy; my understanding is that ship sailed in the early 80's, courtesy of people like a colleagues sister, who attempted to discharge a month or so after the rules changed, moved out of state and didn't pay for years. Until a friend was over, answered the phone and gave the caller her employment information. That's an awkward friendship moment!

It seems that many things seem like a good idea at the time, but turn out later not to have been. We're conditioned, in American society, for immediate gratification, unlike a few generations ago where cash was king and you just plain didn't get something if you didn't have money.

People did crazy things, too, like save.

Walking away from your Home Loan

People are starting to talk as though walking away from your home loan isn't a bad thing. I have mixed feelings about this; if you're overextended because you're greedy, it's totally different than if someone was a fraud victim or has lost their job.

At the same time, I can see that there will be a different result if you walked away or were foreclosed upon these last few years rather than at a better time for the economy. I don't know what the answer is, but am not certain that FICO scores taking into account the fact that the housing bubble burst and the banking system imploded is the right answer.

Again, people who are responsible are being screwed.

To Spend or Not to Spend, That is the Question

Since 9/11, we've been counseled that spending money is taking back our lifestyle from terrorism, but now things have changed. People are more mindful of spending money, both in how to spend it and if to spend.

Because I had started cutting back before 9/11, I wasn't sucked back into spending mode; not that I'd have had any money to spend, what with all the consumer debt and student loans I had at the time. Thrift hasn't been a consideration in this country in years. We can learn a lot from Japan, which, not too long ago, lost a decade due to financial implosion.

I doubt we'll have the same problem; people here just don't seem to learn. Right now, despite all the information out there on credit cards, people don't pay close attention to the terms of their account. Meaning that they're more likely to lose track of their interest rate, balance, due date, adherence to payment schedule and spending. Never good things to lose track of.

It's so easy to get sucked back in. Yesterday I received my credit card bill, and opened it, despite knowing I haven't used it since making my most recent payment; as a born-again transactor, I need to pay the bill in full, no matter how tempting it is to pay only a portion of it. I was happy to see a zero balance and find, under payment due, the word NONE.

While I still spend money, sometimes frivolously, I try to be more careful about how I spend and my method of payment; so far it has worked well for me. I'm also more aware of due dates for my bills than I have been at times in the past; late payments on credit cards do not bode well for interest rates. As we're so accustomed to spending, I believe that cutbacks in doing so will only last as long as the recession; once people are working again and the economy isn't as bad, spending will once again seem normal.

Every month during which I a) pay off my credit card balance, if any, in its entirety, and b) make payments on my student loans, is a month which reduces my debt.

Paying Attention

I was shocked when I learned that my friend had racked up a credit card balance; she's in a two-income situation and while I don't know whether she has incurred debt for school, she is both going to school part time and co-owner of a mortgage. Her income is healthy and I know she only puts $20/monthly into a 401K. That's a bit scary to me. How?

Why stop at $20? That's $240 annually. How will that help for retirement? Really. That means she doesn't have a big drop in her take-home pay due to retirement savings, which makes it even more remarkable to me that she didn't pay attention to her credit card use until she hit a balance of several thousand.

I admit I'm a bit obsessive about the debt-reduction, but I think it's appropriate; it was only a few years ago that I had a lot more debt than I do now and I don't want to return to that place, especially if we're talking consumer debt. My other goal is to buy a condo or townhouse.

While I'm not quite so fiscally responsible that I have created a strict budget to which I adhere, I'm focused on paying attention. In my case, it means using more coupons at the grocery store, but doesn't mean buying things I don't want/like/need because it's a good deal. I actually know someone who buys canned vegetables when they're on sale. Whether it's a vegetable she likes, or not! While it makes sense to me to stock up on things I like when they're on sale, it makes no sense to buy food I don't like.

Bringing breakfast and lunch to work every day does a lot for me; I save money and am able to have better nutrition. I also have a much better idea of where my money goes and how much of it is going where. I'm not opposed to going out for lunch or dinner, just opposed to doing so multiple times per week and at random. I'm sure that some week in the future I'll end up with too many lunches or dinners out, and that's okay too, as long as I don't fall into the habit of going out a lot each week.

I don't really need anything right now, except contact lenses; as I mentioned before, I can wait a few weeks for that. Next payday I order them.

Credit Meltdown Creates Opportunities

The credit meltdown may have created opportunities for attorneys to keep on working. There are many more lawsuits being filed and our pal Andrew Cuomo is getting involved with the Feds.

I expect additional shareholder lawsuits, along with more attorneys general weighing in; after all, the people looting the companies were the upper echelon of management, therefore presumably breached their fiduciary duty to the company in question.

It seems reasonable to tie bonuses to actual performance, rather than looting the company for whatever they want.

Meanwhile, perhaps there'll be more document review projects in our future.

Find the Perfect Credit Card

I don't know if BillShrink really does help find the perfect credit card, but it's at least a possibility. I have actually made three purchases on my shiny, new credit card, one of which has been paid off in its entirety, the other two of which will be paid on Friday.

They started with a comparison of mobile phone plans and have moved on to credit cards. No doubt if that works out well, they'll think of other products for which consumers would benefit by having easy comparisons available.

I didn't do anything like that. I went to my credit union and asked. My credit isn't as bad as I thought it was and the guy told me that the best way of improving it was by having continuing monthly payments on a credit card; in order to be reported to the credit bureau, one must have a monthly balance. My way of coping with that is by rationing purchases.

I recently had a conversation with a couple of colleagues about credit cards and while they said that having a balance wasn't a problem, they were concerned with the way the rules have changed; so many cards offer loyalty marketing programs which influence one to use the card whenever possible, but now, with the massive credit crunch, banks are focusing on what exactly one charges.

I bought tires and made two online purchases; credit cards have a built-in dispute process so you have some recourse if you order a product but don't receive it or there's a problem. Debit cards are without that protection since the payment comes straight from your bank account. My purchases are likely to be just fine. Especially since I'm paying the balance in full each month.

Problem areas include utility bills and groceries. If you use your credit card to pay for these items, your limit may be lowered or your interest raised as the theory is that you have cash flow problems or wouldn't be putting these sorts of things on your card. On one level that makes sense to me; that's exactly the trap I fell into when I was clerking and wasn't quite making enough money to support myself and my debt both. The people who pay their bill in full each month may get a pass on those, as they don't actually carry an increasing balance. Unlike me, since it seemed like a good idea at the time but snowballed out of control so I wasn't in a good place financially.

So please, do yourself a favor and don't fall into that trap. It's not an easy place to get out of.

Tips on Keeping Your Credit Line Intact

Here are some tips on keeping your credit line intact. Your location and spending habits are being scrutinized these days, and you can be penalized for living in a state with a high foreclosure rate. If your credit line is reduced, it affects your FICO score and nobody wants that!



My shiny new credit card still retains a zero balance. My rationale for getting a credit card is primarily for emergencies; since I want to put as much money as possible toward paying off my private loans, I don't always have a ton of ready cash in checking. I prefer to retain the savings that I have in the event of major disasters; you know, root canals and that kind of thing.



I go back and forth between using cash and my debit card; sometimes I work exclusively with cash, save for regularly scheduled monthly payments. Other times I have no cash and am too lazy to go to my bank. It only has a few cash machines, so I tend to get cash back when I go to the store, rather than paying a $2 fee every time at the cash machine. While $2 isn't very much, if you use a cash machine every week, that's over $100 in fees annually that I don't need to incur. At current rates that's two tanks of gas for my old compact car. With my typical driving patterns, that's gas for a month.