Posted: December 28th, 2009 | Author: Joe | Filed under: Credit, Debt, spending | Tags: Credit Cards, Debt, Economy, spending | No Comments »
According to a recent AP article, more shoppers are wary of using credit cards this year despite the passage of the Credit Card Accountability Responsibility and Disclosure Act of 2009.
Shoppers were so loath to use credit this holiday season that they were paying with cash, debit card and even cashing in frequent flyer miles and using free financing. They attribute this change in shopping behavior to a desire on the part of recession weary Americans to stick to a budget, and avoid rising interest rates.
That’s certainly a good thing.
What’s not a good thing is an increase in the use of layaway. That’s evidence that shoppers are still buying things they can’t afford to, and are living beyond their means. Maybe this is the first step in a transition from conspicuous consumption to the new frugality, but we must wait to see if that trend will seriously take hold once the economy recovers.
Some new habits, particularly using more cash, will likely linger, with unemployment expected to remain high for several years and credit lines less generous.
Among the new alternatives to the credit card that shoppers are using are:
- PayPal – usage is up 20% in the last quarter.
- 0% financing on store card purchases – Kmart is offering this for 6 months on purchases of $99 or more, down from $199 a year ago.
- Bill Me Later – free financing for 90 days, offered by a variety of stores. If purchases are not paid in the 90 period, there is a 20% finance charge.
Like layaway, the increased reliance on 0% financing belies a change in tactic, not a fundamental shift from consumption to frugality – shoppers are substituting store specific financing deals for credit card purchases in the hopes they can avoid the interest charge, but they are still living beyond their means.
For my part, I still use a credit card for all purchases I can, and pay off the balance every month. I treat each swipe of the card as cash, but get rewards for things I buy anyway.
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Posted: December 27th, 2009 | Author: Joe | Filed under: Economy | Tags: Debt, home buyer credit, Home Buying, Mortgages, tax credit | 5 Comments »
Many people who have been waiting to trade up to a bigger house have used the $6,500 homebuyer tax credit as a reason to finally make the move, but that may not be the best idea.
On the surface, it seems like a perfect time to buy a new home – Despite a recent rise, mortgage rates are still historically low, and you could qualify for a $6,500 tax credit.
You’d be crazy not to buy a bigger house, right?
Well, that’s the conventional wisdom, and sometimes conventional wisdom is little more than herd mentality.
In reality, the tax credit is little more than an artificial stimulus meant to prop up a deflating housing bubble. You can argue whether it’s the right thing to do for the country, but it’s probably not the right thing to do for your finances – unless you really need to buy a bigger or new house anyway.
In fact, making do with the limitations of your current home is one of the smartest ways of staying out of debt and saving money, says Deborah Knuckey, author of “Conscious Spending for Couples” and a real estate agent based in Bethesda, Md.
Essentially, the tax credit is a nice bonus if you were already going to buy a home, but it simply doesn’t offset the cost of buying a home, or upgrading to a bigger home.
People who trade up to more expensive homes can spend a whopping 10 percent of the value of the new home in transaction costs and taxes, not to mention moving costs, Knuckey says.
Moving from a $300,000 house to a $500,000 house will cost you $50,000, Knuckey says.
And then there’s the hidden costs many people don’t think about. Some of these costs are insurance, school and property taxes, new furnishings, and energy bills. And perhaps the biggest cost factor is the one almost no one every talks about: when you buy a new home, you’re starting the clock again on your mortgage payments.
This means that if you were 10 years in on your previous 30 year mortgage, buying a new home with a 30-year fixed rate mortgage will set you back to zero on the payment timeline, which means more of your money will go toward interest payments, and it will take you longer to actually own your home.
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Posted: December 26th, 2009 | Author: Joe | Filed under: Economy | Tags: mortgage debt, Mortgage Rates, news | 1 Comment »
After mortgage rates dropped to record lowsa few weeks back, they really had little room to keep falling. It should come as no surprise then that we now see rates on the rise again. According to Bankrate.com’s national survey of lenders, the average 30 year fixed rate jumped 9 basis points up to 5.13%. That rate is still very low by historic standards, and still lower than they were a year ago at 5.43%. The average rate for a 15-year fixed rate mortgage also rose, though by only 6 basis points up to 4.53%.
The look ahead.
Analysts are hoping that 2009 will become the year that residential real estate bottomed and began to turn around. Recent rebounding home sales have helped to support that view, but things may turn for the worse again in 2010. Fiserv, the financial analysis firm, predicts that home prices will drop another 11.3% nationwide my the middle of 2010, and Moody’s Economy.com issue a forecasting expecting a 5-10% drop.
The problem.
Several factors are seen as contributing to the potential protraction of the housing slump into 2010. One factor is that as the real estate market begins to pick up, a new rush of homeowners who have been waiting to put their homes on the market will do so, thus creating even more supply for the limited demand. Another factor is the next wave of foreclosures, that will also drag prices downward. And finally, there is the double whammy of high unemployment and the expiration of the home buyer tax credit that will further weaken demand.
The trend.
The upward trend in mortgage rates is expected to continue through 2010 even despite the above negative factors in the real estate market. Most of the reasoning for this is that the Federal Reserve is expected to stop its purchase of mortgage backed securities, which has been credited with keeping mortgage rates lower than they would be otherwise.
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Posted: December 25th, 2009 | Author: Joe | Filed under: Credit, Debt, Employment | Tags: Credit, Debt, Employment | 2 Comments »
Bankrate.com’s Steve Bucci recently answered a question from a reader about whether bad credit can hurt your job prospects.
The reader’s roommate defaulted on 2 payday loans while he was out of work (ouch!), and subsequently relocated to Washington, D.C. (debtor’s capital of the world!). He managed to get a job, but two months into it his background check came back and showed the defaults. His employer then let him go. I can’t imagine why they hired him before the background check was cleared, but that’s just me.
The reader wanted to know if this is legal and how he can clean up his mess.
The short answer is that the employer can absolutely terminate his employment for the past delinquencies – provided he was notified of that possibility. Since they did a background check on him, he was likely notified.
He made his mess, now he has to deal with the repercussions.
As for getting out of the mess, he has to get a less desirable job (that doesn’t do background checks!) and pay off the outstanding balances on his defaulted payday loans. It’s likely to be a long, tough road.
Let this be a reminder to all of us that:
- Despite recent government efforts to the contrary, we are responsibly for our actions.
- Payday loans are a bad, bad idea.
- If you have some black marks on your credit history and you are applying for a job that requires a background check, be up front and honest about it – and proactive. Explain your situation and show what steps you’re taking to correct the issues before the background check.
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