One last thought about the bailout:
This grand scheme was engineered by the hardworking people in the U.S. government. While technically they are the employees of the voters and taxpayers, they seem to have a track record of looking out for the people with the most money, or the people who essentially own a piece of them (via campaign contributions, kickbacks, business investments, nepotism, etc.).
You could be one of those people.
No, I'm not suggesting that you go out and offer bribes to your Congressperson. (You'd probably have to stand in line for that and who has time?) I am suggesting that you go out and buy yourself a piece of the Federal Government.
Remember savings bonds? Our moms and dads, or our aunts and uncles, or our grandparents, would buy savings bonds for birthday or Christmas presents. You'd see this funny looking piece of paper that you couldn't play with or even touch. And Mom would lock it away in a drawer somewhere. Then a long time later, she'd take it out, go away with it and come back with money for you. You might get to spend some of it yourself if you were lucky -- more likely Mom would decide what you "needed" and spend it on that.
Well, savings bonds are alive and well and in the company of a host of other products that allow you to invest in the U.S. Government. Check out Treasury Direct, where you can purchase Treasury Bills (aka T-Bills), Bonds, Notes, Treasury Inflation-Protected Securities (aka TIPS) and yes, good old-fashioned savings bonds. Investments range in length from 4 weeks to 30 years, so you can find something to fit with any investment strategy.
Why invest in the U.S. Government if you aren't very fond of its work lately? Well, all this bailout money has to come from somewhere. To cover part of it, the U.S. treasury is planning to issue even more debt in the hope that it will be purchased by foreign countries who want to invest in the U.S.
That's right, foreign countries.
A lot of people get pretty riled up about foreign investment in America. They start talking about outsourcing and downsizing and NAFTA and jobs being taken away from Americans, etc, etc. But remember, the savings rate in this country is something like 0%. So the government is not counting on the citizenry to cover all the costs. I say, why let the Chinese have all the fun? Let's buy up as much Treasury debt as we can lay hands on and then call Henry Paulson in for a little sit-down.
Showing posts with label bailout. Show all posts
Showing posts with label bailout. Show all posts
October 5, 2008
October 4, 2008
Bailing Ourselves Out, Part 3: Credit Cards
The $700 billion bailout bill has passed both the House and Senate and been signed by the President. But will it really help end the current financial crisis? I'm feeling pretty skeptical about that, and I'm hearing a lot of skepticism from others as well. While we wait to see what future this Emergency Economic Stabilization Act and its add-ons will carve out for America, let's all do something to help the overall situation. This post is my third in a series on ways regular, everyday people can address the causes and concerns of the financial crisis in their own lives.
Part 3: Cut down (or cut up) your credit cards.
Credit cards can be a wonderful tool for building your credit score and history, as well as helping you make important purchases with added consumer protections. Unfortunately, they can also be hugely destructive in the wrong hands, burying the cardholder in mountains of debt they can't afford to pay.
Part of the reason the financial world is such a mess right now is that over the last few years, it's become the norm in America to spend like there's no tomorrow. Most people spend what they earn instead of saving it, then spend even more than that by putting purchases on their credit cards (vacations, computers, flatscreen tvs, you name it) without thinking about whether they can really afford those items. Many people, myself included, have gotten credit cards intending to use them "for emergencies only" but ended up using them for frivolous spending.
If you have more than two or three credit cards, consider that you may have too many. If you are carrying balances on any or all of them that you cannot pay back at the end of the month, you definitely need to take a hard look at your situation. Credit cards are not magic -- the money has to be paid back, and the interest charges every month mean you'll only owe the company more.
Make a plan today to cut down on your credit card use. Make a list of your cards with their current balance, interest rate and credit limit. Then look at the list and decide on a plan of attack. Some people, like those who use Dave Ramsey's snowball method, pay off the card with the smallest balance first so they have a quick victory to encourage them to continue. Others go for the card with the highest interest rate, so they'll immediately pay a lower percentage of money for interest fees. You can also consider what the cards do for you. If you have one card with particularly good rewards, you might want to keep that one and get rid of any others. Or if you really want to have one card for emergencies, pick one with a limit high enough to cover any serious problem and get rid of the rest. (Of course, having an emergency fund is the best choice to plan for those situations, so if that's your motivation you should also start putting small amounts of money away every week or every month. That way, you'll eventually have emergency funds in place and won't need your credit card.)
Once you've targeted your first card to eliminate, make your minimum payments on your other cards and put all available cash toward the balance on the card you are eliminating. When you've paid the balance down to zero, cancel the card/close the account.
Closing a credit card account puts a small negative mark on your credit score. If you are planning to buy a house or car, or something else that will require financing in the next six months, don't close your paid-off credit card account. Just cut up the card so you can't use it for any additional purchases. After your mortgage or loan is in place, then you can close the credit card account.
And after you've set up a card payoff plan, cut down on your credit card spending. Don't make a plan to get out of the hole and then dig yourself back in again. Look carefully at the types of purchases you've been making on your card(s) and look for patterns. Do you tend to charge big-ticket items? Save up for them instead by setting aside small amounts on a weekly or monthly basis. Some places will even give discounts if you pay cash for large items.
If your charges tend to be recurring impulse buys at a few particular stores, avoid those stores! Yes, I mean it. Do not pass store, do not spend. And if you have a habit of charging your morning breakfast at Starbucks or expensive dinners out every night, scale back. Make breakfast or dinner at home a few times a week and give your cards (and your cash) a break.
We created this credit-driven, flash-driven, try-to-beat-the-Joneses culture in America. We need to be the ones who dismantle it and replace it with a healthier model that benefits everyone.
Part 3: Cut down (or cut up) your credit cards.
Credit cards can be a wonderful tool for building your credit score and history, as well as helping you make important purchases with added consumer protections. Unfortunately, they can also be hugely destructive in the wrong hands, burying the cardholder in mountains of debt they can't afford to pay.
Part of the reason the financial world is such a mess right now is that over the last few years, it's become the norm in America to spend like there's no tomorrow. Most people spend what they earn instead of saving it, then spend even more than that by putting purchases on their credit cards (vacations, computers, flatscreen tvs, you name it) without thinking about whether they can really afford those items. Many people, myself included, have gotten credit cards intending to use them "for emergencies only" but ended up using them for frivolous spending.
If you have more than two or three credit cards, consider that you may have too many. If you are carrying balances on any or all of them that you cannot pay back at the end of the month, you definitely need to take a hard look at your situation. Credit cards are not magic -- the money has to be paid back, and the interest charges every month mean you'll only owe the company more.
Make a plan today to cut down on your credit card use. Make a list of your cards with their current balance, interest rate and credit limit. Then look at the list and decide on a plan of attack. Some people, like those who use Dave Ramsey's snowball method, pay off the card with the smallest balance first so they have a quick victory to encourage them to continue. Others go for the card with the highest interest rate, so they'll immediately pay a lower percentage of money for interest fees. You can also consider what the cards do for you. If you have one card with particularly good rewards, you might want to keep that one and get rid of any others. Or if you really want to have one card for emergencies, pick one with a limit high enough to cover any serious problem and get rid of the rest. (Of course, having an emergency fund is the best choice to plan for those situations, so if that's your motivation you should also start putting small amounts of money away every week or every month. That way, you'll eventually have emergency funds in place and won't need your credit card.)
Once you've targeted your first card to eliminate, make your minimum payments on your other cards and put all available cash toward the balance on the card you are eliminating. When you've paid the balance down to zero, cancel the card/close the account.
Closing a credit card account puts a small negative mark on your credit score. If you are planning to buy a house or car, or something else that will require financing in the next six months, don't close your paid-off credit card account. Just cut up the card so you can't use it for any additional purchases. After your mortgage or loan is in place, then you can close the credit card account.
And after you've set up a card payoff plan, cut down on your credit card spending. Don't make a plan to get out of the hole and then dig yourself back in again. Look carefully at the types of purchases you've been making on your card(s) and look for patterns. Do you tend to charge big-ticket items? Save up for them instead by setting aside small amounts on a weekly or monthly basis. Some places will even give discounts if you pay cash for large items.
If your charges tend to be recurring impulse buys at a few particular stores, avoid those stores! Yes, I mean it. Do not pass store, do not spend. And if you have a habit of charging your morning breakfast at Starbucks or expensive dinners out every night, scale back. Make breakfast or dinner at home a few times a week and give your cards (and your cash) a break.
We created this credit-driven, flash-driven, try-to-beat-the-Joneses culture in America. We need to be the ones who dismantle it and replace it with a healthier model that benefits everyone.
October 3, 2008
Bailing Ourselves Out, Part 2: Loans
Today the House of Representatives votes on the $700 billion bailout. Whether or not they approve it today, odds are good that the government (and thus the taxpayers) will be on the hook for that money. This post is my second in a series discussing ways for ordinary Americans to address and repair some of the basic causes of the current financial crisis.
Part 2: Make your loan payments in full and on time.
You may be looking at the above sentence and wondering if you've read it correctly. After all, who doesn't make their loan payments in full and on time? The answer is, quite a few people. Mortgaged houses are being abandoned by owners who simply stop making payments and mail the keys to the bank. Car loans, student loans, and credit cards have all seen an increase in payment delinquencies recently. So, what's going on?
It's true that some adjustable-rate mortgages shifted to new rates with monthly payments so high, the homeowners simply couldn't afford to pay them. But that isn't the whole story. All over this country, people have gotten in over their heads in debt, be it measured in swollen credit card balances, expensive cars, or houses they really couldn't afford. There is some blame to be directed at bad lending practices for this. At the same time, the consumer also has to take some responsibility. We're the ones who sign up for the credit cards, walk into the car dealerships, and agree to make the offer on the house. But now it's time to really look at the mess we've created.
Paying late, missing payments or making partial payments on mortgages, cars, credit cards, consumer and student loans can all badly affect your credit. If you find yourself with more bills than you can afford to pay, look seriously at other spending that you can cut down to cover the gap. Do you really need premium cable? Or a new cell phone every year? How about that morning coffee at Starbucks? Most budgets have some fat that you can cut.
Consolidation might also help you by cutting down on the number of payments you're making. If you are juggling balances on multiple credit cards, keep making your minimum payments and target one particular card for elimination. You could choose the one with the highest interest rate, or smallest credit limit. Using balance transfers, move the balance from that card onto one or more of the others. Then close the target card. (Closing a credit card account does have a negative impact on your credit report, but so does missing scheduled payments.) If you have multiple student loans, you may be able to get a consolidation loan that allows you to combine them all into a single loan with one interest rate and payment. Several lenders have stopped offering these recently, so call yours or check their website to see if they offer consolidations.
Lastly, a word on mortgages. If you can afford to make your mortgage payments, and you are not planning on moving or selling your house within the next 2-5 years, stay put!!! There have been a lot of alarming news items about homeowners being "underwater" on their mortgages -- that is, they currently owe more on the mortgage than they would be able to sell the house for in the current market. It is partly this concern that is causing some people to sell their houses at a loss, or walk away from them. But unless you need to sell your house right now, or fairly soon, what you can get for it in the current market does not matter. In fact, if you're planning to live in your house for another ten or twenty years, the current real estate value means little. In the last year or two, home prices have been heading down. For four or five years previously, they were increasing. The real estate market has ups and downs like any market. And the longer you hold your property, the more likely you are to see the value go up.
We've seen several large banks disappear during this crisis, partly because they could not meet their obligations. Take a good, hard look at your finances and make sure you can meet yours. And before taking on any new loans or credit cards, think long and hard about whether you really need to make that purchase right now. We've developed a bad habit in this country -- mortgaging our futures.
Part 2: Make your loan payments in full and on time.
You may be looking at the above sentence and wondering if you've read it correctly. After all, who doesn't make their loan payments in full and on time? The answer is, quite a few people. Mortgaged houses are being abandoned by owners who simply stop making payments and mail the keys to the bank. Car loans, student loans, and credit cards have all seen an increase in payment delinquencies recently. So, what's going on?
It's true that some adjustable-rate mortgages shifted to new rates with monthly payments so high, the homeowners simply couldn't afford to pay them. But that isn't the whole story. All over this country, people have gotten in over their heads in debt, be it measured in swollen credit card balances, expensive cars, or houses they really couldn't afford. There is some blame to be directed at bad lending practices for this. At the same time, the consumer also has to take some responsibility. We're the ones who sign up for the credit cards, walk into the car dealerships, and agree to make the offer on the house. But now it's time to really look at the mess we've created.
Paying late, missing payments or making partial payments on mortgages, cars, credit cards, consumer and student loans can all badly affect your credit. If you find yourself with more bills than you can afford to pay, look seriously at other spending that you can cut down to cover the gap. Do you really need premium cable? Or a new cell phone every year? How about that morning coffee at Starbucks? Most budgets have some fat that you can cut.
Consolidation might also help you by cutting down on the number of payments you're making. If you are juggling balances on multiple credit cards, keep making your minimum payments and target one particular card for elimination. You could choose the one with the highest interest rate, or smallest credit limit. Using balance transfers, move the balance from that card onto one or more of the others. Then close the target card. (Closing a credit card account does have a negative impact on your credit report, but so does missing scheduled payments.) If you have multiple student loans, you may be able to get a consolidation loan that allows you to combine them all into a single loan with one interest rate and payment. Several lenders have stopped offering these recently, so call yours or check their website to see if they offer consolidations.
Lastly, a word on mortgages. If you can afford to make your mortgage payments, and you are not planning on moving or selling your house within the next 2-5 years, stay put!!! There have been a lot of alarming news items about homeowners being "underwater" on their mortgages -- that is, they currently owe more on the mortgage than they would be able to sell the house for in the current market. It is partly this concern that is causing some people to sell their houses at a loss, or walk away from them. But unless you need to sell your house right now, or fairly soon, what you can get for it in the current market does not matter. In fact, if you're planning to live in your house for another ten or twenty years, the current real estate value means little. In the last year or two, home prices have been heading down. For four or five years previously, they were increasing. The real estate market has ups and downs like any market. And the longer you hold your property, the more likely you are to see the value go up.
We've seen several large banks disappear during this crisis, partly because they could not meet their obligations. Take a good, hard look at your finances and make sure you can meet yours. And before taking on any new loans or credit cards, think long and hard about whether you really need to make that purchase right now. We've developed a bad habit in this country -- mortgaging our futures.
October 2, 2008
Bailing Ourselves Out, Part 1: Savings
While it's virtually guaranteed that the bailout bill will pass in some form or other, there is no guarantee that it will fix, end or even moderate the current economic crisis. Rather than wait for the Treasury Secretary to throw more money at the problem, I came up with a few ideas that can be easily carried out by you, me or anyone that will address some of the basic causes of this mess.
Part 1: Start a Savings Account.
I've seen several finance articles recently that mentioned that the personal savings rate in America is at or near zero percent. I'm sure it's not true that no one in this country is saving any money, but it seems quite likely that we aren't saving enough. And one of the big factors in this credit crisis is liquidity shortages -- simply put, banks haven't had as much cash on hand as they needed.
As I mentioned yesterday, I have a savings account for emergencies. I've actually had the account at ING Direct for some time now, but only in the past year have I made a real effort to keep a balance.
I set an initial goal for myself to have a cushion of $1,000. It took me almost a year to reach that goal, including one or two occasions where I emptied the fund to cover a bill or buy myself something. But I kept at it and now have a $1,400 balance. Do I sleep better at night? Absolutely.
If, like me, it's hard for you to put money aside and keep your hands off it, ING or another internet-based bank might be your best choice because the money isn't immediately available. Transfers take two business days, so you can't impulse buy a designer purse or car stereo. And most let you make deposits in small amounts, so even if you can only do $10 a week, you can start to put something away for a proverbial rainy day. Shop around to see where you can get the best interest rates on savings accounts in your area. Online banks tend to offer better rates than brick-and-mortar banks, but look at all of them. And don't forget local credit unions, as they sometimes offer great options for their members. You can also compare accounts from several banks at websites like Bankrate.com.
I know a few people who keep credit cards "for emergencies." I did the same thing with my first credit card. I promised myself it was only for emergencies. Then it was only for necessities. Pretty soon, I was swiping it to cover dinner at Taco Bell. Credit cards can be very useful, but when it comes to real emergencies they are no substitute for the reassurance of cold hard cash.
Try to start saving something now. Set a goal of having at least the amount of one full paycheck in your emergency account. If you can put aside money today, when credit everywhere is tight and everyone is cutting back, you'll have an advantage, regardless of what Wall Street is doing. And while everyone else is running for the exits and charging stuff on their "emergency" credit cards, you can enjoy knowing that you're on more solid financial ground.
Part 1: Start a Savings Account.
I've seen several finance articles recently that mentioned that the personal savings rate in America is at or near zero percent. I'm sure it's not true that no one in this country is saving any money, but it seems quite likely that we aren't saving enough. And one of the big factors in this credit crisis is liquidity shortages -- simply put, banks haven't had as much cash on hand as they needed.
As I mentioned yesterday, I have a savings account for emergencies. I've actually had the account at ING Direct for some time now, but only in the past year have I made a real effort to keep a balance.
I set an initial goal for myself to have a cushion of $1,000. It took me almost a year to reach that goal, including one or two occasions where I emptied the fund to cover a bill or buy myself something. But I kept at it and now have a $1,400 balance. Do I sleep better at night? Absolutely.
If, like me, it's hard for you to put money aside and keep your hands off it, ING or another internet-based bank might be your best choice because the money isn't immediately available. Transfers take two business days, so you can't impulse buy a designer purse or car stereo. And most let you make deposits in small amounts, so even if you can only do $10 a week, you can start to put something away for a proverbial rainy day. Shop around to see where you can get the best interest rates on savings accounts in your area. Online banks tend to offer better rates than brick-and-mortar banks, but look at all of them. And don't forget local credit unions, as they sometimes offer great options for their members. You can also compare accounts from several banks at websites like Bankrate.com.
I know a few people who keep credit cards "for emergencies." I did the same thing with my first credit card. I promised myself it was only for emergencies. Then it was only for necessities. Pretty soon, I was swiping it to cover dinner at Taco Bell. Credit cards can be very useful, but when it comes to real emergencies they are no substitute for the reassurance of cold hard cash.
Try to start saving something now. Set a goal of having at least the amount of one full paycheck in your emergency account. If you can put aside money today, when credit everywhere is tight and everyone is cutting back, you'll have an advantage, regardless of what Wall Street is doing. And while everyone else is running for the exits and charging stuff on their "emergency" credit cards, you can enjoy knowing that you're on more solid financial ground.
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