Archive for the 'Credit card debt' Category

Want Advice About Buying Your First Home? Start Saving!

Sunday, June 22nd, 2008

Many people are still very unrealistic about what it takes to get financing these days. Despite the unrelenting headlines some people still don’t get that there’s a credit crunch going on that’s not about to end anytime soon.

A friend of mine had the following experience while working with a young couple in their early 30s looking to buy their first home. Both had excellent jobs with strong income. Between them they were bringing in over six figures a year, and their rent was a meager $1400.00. When she heard that she was elated. She thought these two were going to be a shoe-in for a loan. The trouble came when she asked about a down-payment. They hadn’t saved any money at all and wanted 100% financing.

They’d both been working for at least 8 years making oodles of money but they hadn’t saved anything, aside from their 401Ks which, thankfully, they wouldn’t touch. They were also leasing expensive foreign cars and had huge credit card debts that were never paid off because they just kept buying more and more stuff every month

When she told them they were going to have to start saving money, you would have thought she’d thrown holy water on Linda Blair’s character from The Exorcist.

“You only need to save up about 3% to qualify for an FHA loan,” she said as gently as possible. They still didn’t like it one bit. After their heads stopped spinning around they said they’d go home and talk about it, but she confided that she was pretty sure she wouldn’t be hearing from them again. She said she didn’t think either one was willing to give up a latte, let alone their $1000.00 per month shopping habit to save for a house. It’s a shame too, because with their income they could have afforded a really nice house.

Creating Kindergarten Consumers

Wednesday, June 11th, 2008

Not long ago I came across a cable show about little girls competing in beauty pageants. I’d planned on turning in early, instead I was glued to the tube watching kindergarten aged girls in glitzy outfits, dancing and singing their hearts out. One of the show’s stars was a spunky 6-year-old, wearing a red cow-girl outfit, plastered in hair-spray and heavy eye make-up complete with a spray-tan, who proudly belted out a show tune unaffected by the fact that she could not sing.

What struck me about her was the bio the master of ceremonies gave when she was introduced and took the stage. Her hobbies were listed as: babysitting, t-ball and shopping. Aside from wondering who in the hell lets a 6-year-old baby-sit, my other immediate reaction was what 6-year-old says shopping is their hobby?

I’m sure that on her list, she didn’t mean shopping for toys either. This little girl was already developing a serious shopping addiction for clothes and earrings and bracelets to match her bejeweled pageant outfits, which her mother attested to later on in the show. My first thought was - someday that little girl will have whopping credit card debts and need a debt consolidation loan or cash-out refinance because of her lack of financial discipline.

I’ve refinanced way too many shoppers who just couldn’t control their spending. Do yourself a favor – don’t allow your kid to get hooked on shopping. It’s a disaster waiting to happen and not a habit you easily outgrow, especially once you have a wallet full of credit cards and a mailbox full of 0% offers.

How to Reduce Credit Card Debt

Thursday, June 5th, 2008

At one time most people used credit cards only for emergencies. There was also a time when banks used to cut up users’ cards after paying them off with a debt consolidation loan too. Neither of these happens any more.

Getting rid of your cards makes sense though. Why would you want to run up your balances again after all the trouble you went to refinance to pay them off? Banks would cut up your cards so that you’d learn to budget and live within your means without relying on credit. But that was before banks became the drug dealers of easy credit. Now you take out a home equity loan to pay off your credit cards and during the application process the bank strategically mails you a pre-approval for another credit card. Recently, the CBS Evening News reported that the average American carries 4 credit cards and debt of sixteen thousand dollars. I’ve seen more, but still sixteen thousand dollars on credit cards is huge.

Today a twenty thousand dollar limit on a Master Card or Visa isn’t uncommon nor is having more than a few with the same enormous credit lines. Banks aren’t stupid – they know that the minute you pay off your cards by borrowing money that it’s just a band-aid. They know you’ll use the cards again and again and that you’ll be back for another debt consolidation loan. So canceling your credit cards is against their interests. If you want to make the bank richer - go ahead charge them back up and call you local banker when you’re ready to take another chunk of your home equity out of your house. Banks are always willing to reduce your wealth and chain you to feeding that massive debt each month – no questions asked.

A lot of people say that they have no choice but to use their credit cards because their paychecks just don’t go far enough. I’m not buying this 100 percent. There are plenty of things we buy on credit that we can absolutely live without. If you’re serious about downsizing debt to create the freedom you desire in your life here are a few things you can do to avoid using credit cards.

1. Take the cards out of your wallet! Reducing your dependence on them won’t work unless you stop carrying them around with you.

2. Carry a debit card instead. You won’t be so easily tempted to spend frivolously when you know the money’s coming directly from your checking account.

3. Figure out what your monthly budget is and give yourself a cash allowance each week. Spend wisely so you don’t run out of cash.

4. Don’t spend your free time at a mall – ever. Find something else to do besides shopping.

5. Make a game out of seeing how many months can go buy without using credit cards.

I don’t know about you but the only bills I like opening are the ones with zero balances.