As the year draws to a close and we ring in the New Year what are your goals or hopes? Many of us are grateful to have a job, while others are hoping to just keep a home or find employment. 2009 was a very difficult year financially for too many Americans. The unemployment rate had skyrocketed to 9.3%, which is the highest recorded in over a quarter century.
There is no argument that we have had some trying times in our economy recently. However, our government and consumers are heading in the right direction to make positive changes in the future.
Here are the 3 most important topics of 2009:
Credit Card Reforms
Budgeting
Help for Homeowners
Credit Card Reforms
On May 22,2009 President Obama signed a bill known as the CARD act. CARD stands for Credit Card Accountability, Responsibility, and Disclosure. The CARD act will become fully effective by 2011, with some parts of it already going into effect.
CARD will eliminate some of the unfair practices, including but not limited to, unfair fee traps, fine print and increases in interest rates. These guidelines will force creditors to stop some of the practices that currently cost consumers over $15 billion each year.
There has been a lot of confusion as to when this bill will go into full effect. To clear any confusion on February 22, 2010 most of the bill will go into effect. Some of the significant parts that will not go into effect at that time are listed below.
August 20,2009
- 45 day notice for all changes and rate increases.
- Creditors must mail the statements 21 days prior to the due date.
August 22,2010
- Interest rate reduction consideration requirements.
- Interest rates and fees that are fair to consumers.
- Protection on gift cards.
Creditors Actions Prior to CARD Going into Effect
Cardholders lately may have noticed an increase in interest rates or minimum payments recently with no justification behind it. The reason is creditors are attempting to make a profit before being regulated. It is estimated at least 45% of all borrowers will receive some sort of increase on their credit cards. Often times the creditors will offer an "opt-out". This allows the consumer to close the card and keep the previous interest rate. It is fully recommended to take advantage of this option to save money. If you choose not to "opt-out", the higher interest rate will go into effect on past and previous purchases.
This is not a "bailout" for consumers. It will lend some protection, however creditors are in business to make as much money off you, the borrower, as possible.
In the beginning of the year we revealed some of the majors banks that were going to be increasing charges on their consumers. Bank of America, Discover and Chase have all increased default rates to over 27%. In addition to this some creditors have increased minimum payments on many cardholders.
First Premier Bank announced that they were introducing a card with a 79.99% interest rate. Yes you read it correctly the APR for the credit card will start at 79.99%, in addition to an annual fee of $75. This is the highest interest rate any expert has seen on a credit card, however may be the future rates. Due to the CARD act creditors must lower many of their fees, however there is no part of the law that puts a cap on an interest rate. Heed this warning and keep a close eye on interest rates on any credit card you take out from this point on.
Furthermore, numerous lenders have lowered credit limits on consumers, which in turn forces our foreclosure rates and default rates to increase drastically. The reason this is so detrimental to our economy is simple. As more and more Americans are jobless they depend on credit lines to afford daily essentials. The sad fact is credit lines are often people's lifelines through difficult financial times. When these lines are cut Americans are forced into difficult financial decisions such as defaulting and foreclosure.
Each year many of us make a resolution to manage our finances better. It sounds simple, but proves to be a hard goal to accomplish. Let's break it down for you so you can start the New Year off right financially.
The first thing you want to do is analyze your financial situation. Unfortunately, a lot of people just pay the bills monthly without realizing what is coming in or going out. Regardless of the facts becoming fully aware of your circumstances will help you manage your finances better.
Budgeting
Once you realize where things stand with your financial affairs you are in the position to start making sound decisions for the future. Budgeting may be a reality for many of us, especially in this economy. As we talked about in a previous newsletter budgeting does not have to be a nightmare.
The best way to save money, but not feel like you are being squeezed is the envelope system. This was explained in detail in the March newsletter but I will briefly review it below. It is simple and proved very successful. Below is a list of steps to try the envelope system. I urge anyone to try it.
01. Buy a pack of envelopes
02. Label them with all fixed expenses
03. Take three envelopes and label one with groceries, the second with miscellaneous, and third with savings.
Fixed expenses will not change on a monthly basis. The two envelopes that will be your key to savings will be groceries and miscellaneous. You will put the money that you spend weekly or monthly in each envelope. Each time you go grocery shopping or enjoy activities you will use the money in the envelopes that you have placed aside. At the end of the month there will be a surplus.
You are probably wondering how I am so convinced of this. Let me take a moment to explain why. You will unconsciously under spend since you know that this money must last you the week or month. When you have endless funds at your disposal you buy things that are not needed. If you go to the store with only a limited amount of money, you will tend to notice that you will buy only necessities. The extra money left over will go into the savings envelope. It is a proven way to save money without feeling like you are on a budget.
Help for Homeowners
On February 17,2009 President Obama signed the American Recovery and Reinvestment Law. This law included many different areas to improve our economy. One of the main purposes of this law is to help struggling homeowners stay in their homes. It is being referred to as the "Homeowner Affordability and Stability Plan". Below are some frequently asked questions about eligibility.
What is the objective of Homeowner Affordability and Stability Plan?
The objective is to offer borrowers a loan with an affordable payment. All loans refinanced will provide homeowners with a 15 or 30-year term fixed interest rate. In addition to this all loans will have no prepayment penalty. The rates will be determined of the market at the time of applying.
Will I qualify if I owe more than my home is worth?
Yes, unfortunately for many homeowners the grim reality is they owe more than the house is worth. As long as your first mortgage does not exceed $105% of the current market value you could qualify.
Does this law include all types of loans?
No, it is limited to loans held by Fannie Mae and Freddie Mac.
Do borrowers qualify if they have a home equity line of credit in addition to a first mortgage?
Yes, assuming that the amount owed on the first mortgage is less than 105% of the value. The lender of the second mortgage must agree, and you must be able to afford the new payment on the first mortgage.
If I refinance will my principal amount be reduced?
No but you will save money due to interest. The point to the bill is to get homeowners into an affordable and safe loan. The amount you borrowed will be repaid in full, however with the lower interest rate you should see a significant savings over the years.
What do I need to do to apply?
Contact your lender and have the following information ready to supply.
Proof of income such as pay stubs, tax returns or other necessary documents to show income.
If applicable provide any documentation about your home equity line of credit or second mortgage.
Payments of debts that you carry such as student loans, car loans and credit cards.
Is there help for homeowners facing foreclosure?
This law is providing lenders with incentives to help struggling homeowners. Lenders will be enticed to modify mortgages so borrowers can keep their homes at an affordable payment.
Do I have to be in default to have my loan modified?
No in certain circumstances you can get help while you are current. Some of the qualifying conditions include loss of income, increase in expenses and interest rate increases that made it impossible to repay.
How much will a loan modification cost me?
Loans modified through the Homeowner Affordability and Stability Plan will have no cost to the borrower.
My home is already scheduled for foreclosure is it too late?
No, contact your lender immediately to discuss your options. The lender will decide if you qualify.
Got a question? Then contact our Education Team on 561-883-2398 Ex.310
United conducts regular seminars on financial education, including "How to Budget", come along and join us - to reserve your seat contact our Education Team on 561-883-2398 Ex.310
Newsletter 12
Rev.1
December, 2009
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December, 2009 Topic
Year in Review
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