December 2008 Topic - Financial Overview of the Year 2008

01.  The Financial year of 2008
02.  Credit Overview
03.  Houses and Mortgages
04.  Saving Money

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1.The Financial year of 2008

This holiday season it is more evident than ever. The Consumer Reports Annual Holiday Poll stated that 37% of surveyed consumers admitted they settled on a spending limit, while 14% are making gifts themselves and 6% are not exchanging gifts at all. Many people surveyed said they would wait until after Christmas to do shopping to take advantage of sales and other deals.

These numbers should not be surprising if you look at the facts. Americans owe $950 million in credit card debt. A survey revealed that 12 million consumers were still in debt from the last holiday season. To make matters more complicated there is the mortgage crisis that has caused many problems for banks and consumers alike. The fact is the bailout is covering the banks not consumers. Therefore, in general consumers are watching every dollar they spend since they are well aware there will no rescue pack-age designed for their financial setbacks.

Unfortunately, these troubles sound too familiar. The next financial crisis that we are facing is credit card debt. The average household has over $8,000 in credit card debt and about 5 credit cards. The banks that are issuing these credit cards are in trouble, which is further weakening the U.S. economy. The $700 billion Bailout will not be a life line for banks that are issuing credit cards.

Last year JPMorgan Chase announced it was preparing for the upcoming financial is-sues with its customers. They started setting up payment plans for borrowers that were having financial problems. On the other hand, if the lender did not feel someone was the perfect "candidate" no help was offered. For the remainder of their clients, Chase is going to be charging a $10 monthly fee starting in January for consumers carrying a balance for more than 2 years. On top of that they will also raise minimum payments from 2% to 5%. Citigroup and American Express followed the lead and will raise interest rates for many customers 2 to 3 percentage points starting in the New Year. To add fuel to the fire countless credit card issuers will be lowering credit limits for customers. This will have a huge impact on someone's credit.

There are many things that impact someone's credit. A big part of your credit score is the amount that you owe. Creditors lowering your limit will have a negative effect on your credit score. A borrower who has a credit card with a $5,000 limit, yet only $1,000 charged on it is considered a good risk. The credit card companies are going to lower credit lines, therefore that person who had $5,000 credit limit now has a $1,200 limit. Are they still a good risk? No, because it is considered that their card is almost to the limit. Below is a chart that shows what else effects your credit score.



Despite rising unemployment and increasing delinquency rates, credit card companies are getting strict, especially on borrowers who carry a balance. Instead of helping the debtor they decided to increase interest rates to boost profits. This type of strategy will only end up hurting the economy in the long run.

The good news for the New Year is regulators are trying to change some of the credit card company policies. The Federal Reserve is pushing to allow a 21 day grace period before receiving a late fee. It is also trying to limit interest increases on past purchases. That will mean a lot to credit card borrowers. Currently a credit card company applies the payment to the debt at the lowest interest rate. This guideline would require the funds to be distributed equally so it will save the consumer a lot of money.

Now due to these guidelines getting closer to being passed the lenders are preparing themselves. 37% of major issuers have raised interest rates across the board. The dilemma that occurs is people are unable to make payments at the increased minimum payments and interest rates so they default. In turn this causes the credit card companies to take an even bigger loss of profit.

The question that remains on everyone's mind now is what can be done? As an everyday borrower we do not have much influence on what credit card companies do, how-ever you can protect yourselves in the new year. Always be vigilant about your finances. I understand most of us are in tough financial times and do depend on the plastic world for everyday expenses. I could be naive and tell you only spend what you have or don't rob Peter to pay Paul. However let's be honest with each other sometimes that is the only option. As a financial counselor and having seen and heard numerous situations where even I am stumped I will save that line for someone else. Let me talk to you as a mother, a daughter and a struggling American just trying to pay bills and get by.

Every one of us has wondered how we will save enough money to retire or send our child to college. It is a fear that most of us deal with in our lifetime. In all honesty generations to come will ask the same questions. I wish I could tell you that your child's children will never have a recession or a financial setback. In all reality no one knows. Each generation will be faced with different challenges and will conquer them just like past generations have for decades. All we can do is try to plan and budget the best way possible for us and for the future. Over the past year throughout the newsletters I have discussed financial topics that have hopefully answered some questions and helped many of you. In this newsletter I will touch on the most important topics that were covered last year and will still influence us greatly next year.

2.Credit Overview

I have stressed in a previous newsletter the importance of checking your credit. It is imperative that you pull your credit report at least once a year. The main reason for pulling your credit report is to be a step ahead of the lenders and identity theft. Everyone is entitled to a free credit report once a year. Take advantage of this opportunity; review your credit report and dispute information that is inaccurate. Below is a sample request for a credit report and a dispute letter.

Be sure to pull your credit report from all 3 credit bureaus. The 3 bureaus do not communicate with each other. If you have information that is inaccurate on one report and not another dispute it with all of them. It will save you a lot of time in the future. This way a couple months down the road if the bureau receives the inaccurate information your dispute letter will already be on file.

Any credit cards that you have open and do not use it is recommended to close them. It is important to keep open an emergency card for unexpected expenses. I am implying that you should not have a lot of open cards that you never plan on using. For instance, many of us are guilty of leaving department store cards open for the simple reason we forget to close them. The problem with this is that when a lender pulls your credit they will see it as debt against you. Even if you have a Macy's card with a $500 limit and a $0 balance it is looked at as $500 against you. Many of you wonder why. It is simple to the lender you could go out tomorrow and max the card out.

Another major reason to pull your credit is for Identity Theft. The majority of identity theft happens around the holidays because the credit card companies are not tracking many purchases. It is not unlikely for someone to spend more money than usual around this time. The thieves know this. Identity theft can happen to anyone and the sooner you realize you are a victim the easier it is to take care of.

Request for obtaining your credit report

Here's all the information you'll need to obtain your credit report : Request letter

MY NAME
MY ADDRESS
MY PHONE NUMBER

Send a copy to Each Credit Bureau: Experian, TransUnion and Equifax at the address provided above:

Today's Date Dear Sir/Madam,

Request for credit report, Can you please provide one FREE copy of my credit report?

Name:

Address:

Date of Birth
SS#

Yours truly,
MY SIGNATURE
MY NAME

Sample, Credit report dispute letter

Date
Your Name
Your Address
Your City, State, Zip Code

Complaint Department
Name of Credit Reporting Agency

Address
City, State, Zip Code
Dear Sir or Madam:

I am writing to dispute the following information in my file. The items I dispute are also encircled on the attached copy of the report I received. (Identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.)

This item is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why) . I am requesting that the item be deleted (or request another specific change) to correct the information.

Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records, court documents) supporting my position. Please reinvestigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.

Sincerely,
Your name
Enclosures: (List what you are enclosing)

3. Houses and Mortgages

This past year our real estate market had plummeted worse than anyone could have ever imagined. It has been referred to as the sub prime mortgage crisis many times. In 2006 over 1.25 million homes were foreclosed on. Yet, in 2008 we exceeded that number. As of December 5, 2008 a record of 1.35 million homes were in foreclosure. That is a 76% increase from one year ago. To make matters worse the number of homeowners that fell behind on mortgages has also hit a record of 6.99% from 5.59% last year.

To put the numbers clearly 1 in 10 Americans are either behind or in foreclosure. Florida and California have the highest delinquency rates in the nation. Unfortunately, due to the economy and job losses the numbers will probably increase drastically over the next year. Homeowners were given loans that they could not afford and now are paying the ultimate price.

Along with the foreclosure rate we are facing another housing crisis. The people who are falling behind are trying to sell their homes. It is causing a ripple effect. People cannot pay mortgages and other interested homeowners cannot obtain mortgages. We had what is referred to as a housing bubble. A housing bubble is an economic bubble that occurs in a real estate market. It is made up of rapid increases to the values of real estate until unsustainable levels are reached due to incomes, and other economic indicators of affordability. As a result home prices decrease and the conclusion is many homeowners hold negative equity.

The housing bubble in the U.S was due to the historically low interest rates. Our hope for the New Year is that with the bailout plan the lenders will get some relief. In return it will have a trickle effect on our housing market. In the mean time it is recommended to try to work out an affordable payment plan with your mortgage company to avoid foreclosure. Many lenders are willing to negotiate terms of mortgages and other lines of credits due to the crisis.

4. Saving Money

I cannot reiterate it enough stop using credit cards for daily purchases. Unfortunately we are living in a plastic world. Basically everywhere takes credit cards nowadays. The problem with this is that we overspend since we are not constantly reminded how much is coming out. The best thing you can do is use cash. It is easier to budget and know exactly how much is being spent. I do recommend using credit cards for certain expenses such as a new dishwasher that costs $800, however I urge you to pay it off before it off before interest accrues. Many of us are not going to have a lot of money on us to pay cash for expensive items, plus using credit allows you to free up cash and build your credit score. The major downfall to credit though is the obscene interest rates.

It is important to budget as often as possible. Too many of us do not know what we spend on a daily basis. Sure we remember the tank of gas or the electric bill that we paid, however it is the small purchases that we make that add up. Let's think about this for a moment. How often do you buy a pack of gum or a can of soda? Truth is you probably do not remember. It is the pennies a day that we are all guilty of spending. In our society we pay for convenience. Often times though the price is a lot higher than we ever imagined. Look below, you'll be amazed to see how pennies a day can add up over the year. In the new year try to budget as much as possible.

How to Save Pennies for a day

The Soda

1 can of soda = $0.65

1 can of soda per day x 5 days per week = $3.25

1 can of soda per day x 5 days per week x 50 workweeks = $162.50

Total soda savings: $162.50 a year

The Donut and Coffee

1 cup of coffee and a donut = $1.90

1 cup of coffee and a donut per day x 5 days per week = $9.50

1 cup of coffee and a donut per day x 5 days per week x 50 workweeks = $475.00

Total donut and coffee savings: $475.00 a year

Total saving per year $ 637.50

On behalf of United Financial we would like to wish everyone a Happy Holidays and a happy, healthy New Year!

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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, 2008