Is The U.S. In A Recession?

Posted: February 28, 2008
Filed Under: Ask Mark, Observations

While watching the evening news the past few weeks, there have been several stories about the “possibility” that the U.S. “might” be headed into a recession.

Might?

One of the top news stories today was from Associated Press writer, Jeannine Aversa, titled, “Economy Slows To Near Crawl”. Hmmm, that doesn’t sound good.
Earlier this week, another Associated Press writer, Alex Veiga, published an article titled, “U.S. Home Foreclosures Soar In January” stating that home foreclosures are up 57% as compared to the same time last year.
According to information just released by the Federal Deposit Insurance Corp, charge-offs at credit card banks in 2007 were $49.3 billion, up 62.5%, as compared to the 2006 charge-off total of $27.0 billion.
Yesterday oil hit an all-time high of $102 a barrel. On average, gas prices at the pump are up 33% as compared to this same time last year. Nationwide the current price for a gallon of gas is $3.15 compared to $2.37 last year.
A quick look at any financial news source shows the U.S. dollar at an all-time low compared to other currencies around the world.

Yet today President Bush told reporters at a news conference that “I don’t think we’re headed into a recession”.

Huh?

You don’t need to have graduated from the Harvard Business School to know that we already are in a recession. Hello! Maybe certain business leaders or people in the government don’t want to “scare” the American public by actually uttering the word r-r-r-recession. How sweet of them.

But come on, give us a little credit here. We in the American public know exactly what’s going on. We’re not stupid. Things are not going that well financially for a lot of Americans right now. All you have to do is take a look around.

And you know what? As much as I hate to say it, I think it’s probably going to get worse before it gets better. You don’t just snap your fingers and halt a juggernaut overnight. It took years (perhaps a couple decades) for us to get to where we are right now, and I believe it’s going to take a few years or longer to get this thing turned around.

Sorry to sound like Mr. Doom-and-Gloom, but you can’t ignore the facts.

But in a strange way this cloud could have a silver lining. I actually think something good can come of these challenging financial times.

With all the financial pressure and uncertainty, we’re all eventually going to be forced to make some new choices that will require all of us to …

Take a good hard look at the erroneous beliefs that created our current situation.
Have the courage to ditch the stuff that isn’t working and adopt new beliefs about how we interact with each other and our environment.
Try and remember who we are and what this human experience is really all about.

In a way, we’re going to have to re-invent ourselves.

From a financial perspective, we’ll going to need to reduce our debt burden and consume less and less. As we do that, things are going to settle down, and we’re going to start to experience freedom again by not having to work so many hours to support our previously stupid spending habits, and we’ll come to realize that we didn’t need half of the crap that we bought in the first place.

And maybe one day we’ll get back to the day where it’s socially acceptable to just sit on your back patio with your neighbors on a July evening and just listen to the baseball game … or play fetch with your dog … instead of checking your email 20 times a day from your iPhone.

Sign me up.

The Effect Of Difficult Economic Times And Its Impact On Debt Settlement

Posted: January 22, 2008
Filed Under: Ask Mark, Answers To FAQ

During the past couple weeks, numerous people (both clients and colleagues) have posed the following question to me:

With the U.S. and global financial markets presently experiencing a lot of stress and turmoil, how do you think that’s going to affect credit card companies’ willingness to settle for less than full balance on delinquent accounts?

At first glance you might be tempted to say, “Gee, in difficult economic times with so many people struggling financially and unable to pay their bills, credit card companies would probably be very eager to accept just about anything they could collect.” However, my experience actually suggests just the opposite.

What I’m saying is that when we are in a challenging or recessed economy, it is common for large financial institutions to actually be less willing to write off a substantial portion of the debt that you might owe just because profit margins aren’t what they used to be (when the economy was booming). In other words, when profit margins are down they just can’t be as generous in writing off large amounts of debt.

Now that’s not to say that you still can’t obtain settlements for less than full balance on delinquent accounts when we’re in a tough economy. Quite the contrary. It’s just that you might have to work a little harder because creditors might put up more resistance than usual because their coffers are not as full and there’s less margin for error. When the economy rebounds, it’ll more than likely return to business as usual.

Just my opinion and observation after working in this industry for over 12 years.

Credit Card Debt Statistics … The Numbers Might Surprise You

Posted: January 9, 2008
Filed Under: Observations

A few weeks ago I came across a fascinating article written by Associated Press writers, Rachel Konrad and Bob Porterfield titled, “Unpaid Credit Cards Bedevil Americans”. Here are a few highlights from their article that really caught my attention:

In October 2007, credit card debt that was at least 30 days late totaled $17.6 billion — up 26% from October 2006.
Some credit card companies, including Advanta, GE Money Bank and HSBC, are reporting a 50% increase in accounts that are at least 90 days past due when compared to the same time a year ago.
Capital One Financial Corp. reported that credit card delinquencies are highest in the same geographic regions where people are having trouble paying their mortgages, which include California and Florida.

If you’d like to read the full article, here’s the link >> Unpaid Credit Cards Bedevil Americans

If you’re looking for additional information on credit card debt statistics, here’s another link that might be of interest to you >> Credit Card Debt Statistics

Credit Card Debt & Personal Responsibility

Posted: December 27, 2007
Filed Under: Observations

Earlier this month I wrote an article about the practice of certain credit card companies jacking up interest rates to astronomical levels even though the cardholder has never been late on their monthly payment. In case you missed that article, you can check it out by clicking here

There’s a related matter that I wanted to touch on briefly, and that is the topic of personal responsibility.

It’s true that I believe some credit card companies have policies that are unscrupulous or questionable. However, it’s important to keep in mind that the credit card companies are not forcing you or anyone to use a credit card. It’s all voluntary.

When a person racks up too much debt and creates a challenging financial situation for themselves it’s tempting to look for someone else to blame for their financial predicament, and often the easiest target to go after is the credit card company.

But remember, the credit card companies do not force their cardholders to:

Buy flat-screen plasma TVs for every room in their house.
Take a 10-day vacation to Hawaii and stay at the Ritz-Carlton.
Buy a $10,000 diamond engagement ring when a beautiful $1,500 alternative with a few less diamonds will do just fine (and she’ll still love you just as much).

Bottom line, we’re just talking about being personally responsible for your actions. If you can’t afford it, don’t buy it. Don’t worry about keeping up with the Jones. Let the Jones — not you – get the ulcers from worrying about how they’re going to pay for everything.

Now don’t get me wrong, I am not defending the credit card companies and some of their questionable policies and tactics. I believe there are some things they can definitely improve upon.

And I’m not saying that all credit card purchases are reckless or frivolous, either. Unexpected events (like medical emergencies) do sometimes happen. All I’m saying is let’s not alter reality and place 100% of the blame on someone else when in fact we had a hand in creating the problem. That’s all I’m saying.

If you’re presently struggling with a lot of debt, I know what you’re going through. Been there, done that. Not fun. Most of have felt the financial pinch or maybe even an outright meltdown at some point in our lives. And yes, you’re going to have to address the situation sooner or later. But accepting responsibility for what has happened is almost always the first step toward resolving the matter.

If you’d like a little comic relief, check out this SNL video that pokes fun at credit card debt and personal responsibility >> click here to watch the video

Credit Cards & Unfair Interest Rate Increases

Posted: December 12, 2007
Filed Under: Observations

In the past couple of weeks it’s been in the news that the U.S. Senate is looking into the practices of certain credit card companies. The 2 senators leading this latest investigation are Carl Levin of Michigan and Norm Coleman of Minnesota.

Specifically, they’re investigating the practice of credit card companies raising the interest rate on a cardholder even though that cardholder is paying on time. In other words, one month a person’s interest rate on an outstanding credit card debt might be something manageable like 10%, 12% or 14% then all of a sudden the interest rate jumps up to 25% or 30% even though that person never missed a payment.

Having worked in this industry for over a decade, here’s what I see going on. The credit card companies are constantly monitoring a cardholder’s credit score, the most popular of which is called a FICO score. The moment a person’s FICO score drops, the credit card companies pounce on that opportunity to raise the person’s interest rate.

The credit card company’s argument is that “because a person’s FICO score went down, that person now represents a greater credit risk to the credit card company, therefore they have to raise that person’s interest rate to compensate for the greater credit risk the cardholder now poses”.

If you ask me, I think it’s kind of a sleazy way to justify jacking up someone’s interest rate. But unfortunately this type of thing has been going on for a few years now.

But you might be asking, “How can a person’s credit score go down if they’re paying on time?” Easy. The payment history is only one component of a FICO score.

Another major component of a FICO score is the amount that you owe. So as a person starts to rack up more debt, their increased debt total alone can cause a FICO score to drop — even if that person continues to make their payments on time.

Yes, credit card companies are in business to make a profit and I have no problem with that. But I also believe that any reasonable person would agree that if you pay at least the minimum amount listed on your monthly statement, you are fulfilling your monthly obligation and your credit card company should not be allowed to use obsure “reasons” to justify interest rate hikes. That’s all we’re talking about here.

We’ll continue to follow this story and as soon as there are any further developments we’ll post them here for you.

For more information on topics discussed in this article, please visit the following links:

http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

http://levin.senate.gov/newsroom/release.cfm?id=288169

http://www.msnbc.msn.com/id/22090817

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