Credit Cards » Credit Card News » Consumer Borrowing Falls, Smart Spending is the Order of the Day
Date May 9, 2009

Consumer Borrowing Falls, Smart Spending is the Order of the Day

Consumer Borrowing Falls, Smart Spending is the Order of the DayThe economic recession, the rise of unemployment, and the fall of the property markets have hit the country quite hard. For the average American, the reality has been rising loan rates, the risk of losing homes, and the threat of unemployment. As a result, every American has had to rethink the way they spend their earnings.

Today, Americans around the country are moving away from their old, consumer-driven spending habits. The order of the day for most Americans is now spending smart. It seems that frivolous spending, a common practice just a few years ago, is now on the way out.

Paco Underhill, an expert in consumer psychology, has stated that the consumer mindset is undergoing a major change due to the recession. He was recently quoted saying, “Our retail culture is in a major transition. Conspicuous consumption is now bad manners. Too many of us have spread ourselves far beyond our means. We can’t do this anymore.”

“Our closets are full, our houses are too big, we have too many cars. It’s time to make some very wrenching changes,” he further elaborated.

It seems that American spenders are doing just that. A report released by the Federal Reserve last Thursday shows that consumer borrowing dropped to $11.1 billion this March. Reuters had earlier polled industry analysts who had expected consumer borrowing to drop to $3.5 billion for March. The annual rate of consumer credit fell to 5.2% this March. This totals $2.55 trillion. Not since December 1990 has consumer credit percentage dropped so low.

The drop in non-revolving credit was to the tune of $5.7 billion, which is equivalent to a 4.2% rate, to $1.6 trillion. Non-revolving credit encompasses closed-end loans, such as those taken out for holidays, cars, boats, and college educations. On the other hand, the drop in revolving credit in March was at $5.4 billion, which is at a rate of 6.8%, to $946 billion. Revolving credit is composed of borrowings from credit cards and charge cards.

The sales figures of major retailers for April are also quite telling. Discount stores and supermarkets are winning out against their more high-end competitors. From food to clothing purchases, most Americans are moving towards where the best value is. Consumers are beginning to recognize the importance of holding on to their dollars and are being very careful in their spending. As a result, previously scoffed at buying practices such as buying pre-owned items and “private label” store products are becoming more and more the norm.

The appeal of high priced, luxury branded goods is also beginning to wane.
The changes in buying behavior have its positive and negative effects. Some retailers, for example, are being hit by the change in consumer practices. Clearly, they will have to adapt to this new consumer behavior trend or risk losing everything.

Date May 8, 2009

Pull Yourself Out Of Debt

With rising credit interest rates and ever increasing credit fees, everyone desperately wants to get out and stay out of debt. Unfortunately, more than it has ever been before, this is something that is much easier said than done. Still, there is hope. With a bit of belt-tightening, some smart spending decisions and keeping an eye on the details, it is possible for you to live debt free, even with the current economic climate.

Pull Yourself Out Of DebtAccording to industry insiders, the average American family owns at least one credit card. Credit cards are very convenient when it comes to payment. They can even be lifesavers in situations where there is no cash immediately available. However, credit cards can be deceptively convenient when it comes to purchases. So much so that most credit card owners find themselves surprised by the amount that they have to pay after they’ve gone through a spending spree.
Sooner than they think, they find themselves deep in debt.

According to experts, if a person’s take home pay loses 20% to nonhousing debt, then he is overextended. Another indicator of overextension is when 30% of a person’s monthly income go directly to paying the rent or the house mortgage. Other indicators include not knowing the total amount of debt, paying only the minimum balance in credit card bills and borrowing in order to pay debts.

If you find out that you are overextended and unable to keep up with your debt payments, don’t panic. You can still get yourself out of debt, though it will require some effort.

The first step to get out of debt is to keep track of where the money is going. This is not as trivial as it sounds. Little purchases, bank fees and other small amounts that most people take for
granted often add up to a considerable amount at the end of the month. It is best if you keep a written record of the month’s expenses. This makes it easier to track where the month’s budget is going.

By keeping track of your expenses, it is then easier for you to find out where the money is going and whether some of it can be diverted to payoff your debts. This often mean that you will have to get creative. For instance, you might consider bringing lunch instead of buying lunch from the cafeteria or your favorite fastfood place. The main goal is to minimize your monthly spending. This way, you can free up money to pay off debts.

When paying of your debts, make sure to prioritize debts with higher interest rates. If at all possible, transfer your high rate debts to your low rate credit cards. Look for low rate cards and transfer to them. Try to minimize using your credit cards and, if you really have to, comparison shop. Also, limit your credit card purchases to necessities as much as possible.

Date May 8, 2009

20 Million Home Owners With Negative Equity, Study Shows

House OwnersRecently, real estate website Zillow.com released figures from a study they made which indicate that the figure of homeowners currently paying higher debt mortgages than the worth of their homes at 20%. That roughly estimates to 20 million U.S. home owners.

These homeowners are in the unenviable position of being “underwater” or having “negative equity” in terms of home mortgages. This means that, if these homeowners were to sell their homes, they would actually have to pay money for their property to be sold. This sad state of affairs is the result of the sharp drop in real estate prices that the country has been experiencing these past few months.

The extent of the damage varies. The most hit areas include Stockton, California with an estimated 51.1% of homeowners are facing negative equity. In Modesto, California, the numbers are lower, but not by much at 50.8%. One of the worst hit state in the country is Las Vegas with an estimated 67.2% of homeowners own properties that are hardly worth the mortgage that they owe.

Vice president in charge of data and analytics in Zillow, Stan Humphries stated that, “A combination of falling prices and low down payments has left many borrowers underwater. In some markets, more than half of all homes are in negative equity.”

Humphries further elaborated that homeowners with negative equity are finding themselves in a very risky situation. Without a reliable financial buffer, any unexpected emergencies involving money, such as medical bills or unemployment, can severely stress their finances. In extreme cases, these homeowners would be facing foreclosures.

The data used in the study conducted by Zillow.com came directly from their own home price estimates. These estimates are obtained by collecting records of sales and using the current price trends for the other homes in their target communities. The home price estimate figures are then compared to the initial loan balances of homeowners. This will then show whether the homeowner has a negative equity property.

Zillow.com’s analysis takes into account the mortgage balance of the homeowner upon purchase of the property and the changes in the price of the property since then. It does not take into account the possibility that homeowners may have already paid the principal amount.

Humphries stated that the analysis is actually quite conservative. According to him, the trend for homeowners have been to remove value from their properties by taking home equity loans and other credit lines against it rather than adding to its value through paying up the mortgage of the property.

Not all industry experts support Zillow’s findings, however and the real extent of the damage from the property market crisis is still up for debate.

Date April 19, 2009

Dialing for Lower Credit Card Interest Rates

Finance experts everywhere insist that you can often lower your credit card interest rates simply by calling and requesting a better interest rate or a modified payment agreement with lower monthly payments. While this may be possible for some people, many people who seem to need the slight financial break the most are finding it impossible to get a lower interest rate on their credit cards when they call and ask.

“I tried calling my credit card company for a lower interest rate. I was told they couldn’t do that and phone-and-creditthere was nothing they could do to help!” William Brewer of Oklahoma says.

If you try to call your credit card companies and the customer representative seems unwilling or claims to be unable to assist you – don’t give up so easily. Ask to speak to a supervisor, manager, or someone who IS authorized to consider the request for a lower interest rate or modified repayment terms. Remain polite, but be firm – the customer service representatives are likely reading from a script.

People who are most likely able to reduce their interest rates are people who are less likely to need it – those who haven’t missed any credit card payments and have a better than average credit score. Credit card lenders have an elaborate sharing system through their computers. They know what your FICO credit score is, they know whether you’ve paid your other accounts on time or late, and they know how much debt you’re currently carrying. The riskier you are, the more you would benefit from a lower interest rate to help get yourself back on track but the less likely a credit card company is to lower your interest rate when requested.

As the number of delinquencies and defaulted agreements increase, lenders are getting tougher and are unwilling to work with people. Unfortunately, raising interest rates on people who are already struggling to make their payments, or being unwilling to work out modified payment agreements in times of financial need doesn’t make it any easier (or possible, even) for some customers to make their payments and it seems the lenders are just shooting themselves in the foot by making it impossible for people to make payments.

If you do attempt to call your credit card companies to request a lower interest rate or modified payment agreement – do not mention the fear of losing your job as the reason for the request. That puts you in an immediate high-risk situation. If you’ve been making your payments on time previously, simply remind the company you’ve been a good customer and would like to remain their customer but are seeking the best interest rates – if they can’t lower your rate, mention you might transfer your balance to a competitor who can.