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This weekend I stumbled across a new blog called “Recovering Spender” and reading about this young man’s struggle just grabbed my attention and compelled me to read the whole thing. We are all Evan’s in one form or another and should jump on the band wagin with him and fix our spending habits.
If you have track back Evan, get ads and an Amazion affiliate to help add a little passive income.
I’m poached his first post and reposted it here and would encourage you to continue reading through his struggles…
In The Beginning
I don’t know where to start - this is my first post after all. The present is probably best.
I am 33.
I will have a -250 dollar checking balance when my automatic credit card payment hits in a few days. This will be the second time I’ve been in the red in many years. The last time it happened, not more than 15 days ago, I got slammed with $270 in overdrafts.
I will not be paid until the 20th and panic is starting to set in. That paycheck will pay for the rest of the bills this month but then I have rent due on the 1st; if rent were to be cashed then I would be at -1550.
On the third of May I will be in the black. This luxury will last the duration of the month. That projection however does not account for food. On April first, after rent I will have around 280 dollars left.
I make 92.5k a year. I am divorced and am not in a relationship. My salary is not enough for the lifestyle I have been living and it has finally caught up with me.
I don’t have exact figures at the moment but I owe around 48k (13 in car and 35 in credit cards). These numbers are symptoms of an unhealthy relationship with money and I have decided to fix this.
This blog will attempt to:
1.Positively motivate others who can identify with my struggle with money and the attachments I cling to spending it. If I spend a thousand hours and change one person for the better then I would consider this project a great success.
2.Provide a space for me to journal my transformation on many fronts. I am determined and now I can be held accountable via this outlet. Some of the details I will share here would shock those who know me.
There will be more details once I have all my numbers put together. In the meantime I will update the functionally and look of this and continue to post developments in my immediate situation.One last thing: I am not a writer. This is not an excuse for spelling or Grammar errors. I will try my best to write clear and concise sentences but please be aware that I do not write for a living, have a somewhat weak vocabulary, and aside from technical documentation haven’t written much of anything since college.
It is my wish that those who want to get out of debt will. I count myself among those people.
Thank you.
if you carry $10,000 on a credit card with an 18 percent rate and make only the minimum payment (say, 1 percent of the balance plus interest), it will take 32 years to pay it off — for a grand total of $24,834. That does not count late fees or over-the-limit charges.So it is important to assess your options before you fall too far behind. This is probably best accomplished with a reputable credit counselor. But before you pick up the phone, familiarize yourself with the pros and cons of the various options.
DO IT YOURSELF If you have only a few thousand dollars in debt on one or two cards, you may try calling your card issuer and asking it about any repayment plan for people facing financial hardship. The company may be willing to work with you. But keep in mind that it is likely to reduce your credit limits to your current balance, experts said.
“Most people are very hesitant to call their creditors,” said Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. “But they are the first ones they should consult. They have programs for short-term financial hiccups.”
FIND A COUNSELOR If you are knee-deep in debt, or your debt is spread across multiple cards, consult with a financial counselor. A credit counselor can assess your entire financial picture and help determine the best course of action. It may be as simple as setting up a payment plan that you can handle on your own.
But you need to be careful when choosing a counselor. Stick with someone who is affiliated with one of the legitimate, nonprofit umbrella organizations like the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. Their fees should be reasonable (about $30 to $50 to set up, say, a debt management plan) and they should not turn you away if you cannot afford the nominal fee. They should also be willing to spend an hour with you, at the least.
DEBT MANAGEMENT PLAN A credit counseling agency should be able to determine whether this type of plan will work for you. Here is how they operate: the agency negotiates a lower interest rate and payment with the card companies, to a level you can afford. All late fees and over-the-limit fees stop. You then make a single payment to your counseling agency, which disburses the payment to all your creditors. The agency usually charges a fee of about $25 a month. Most plans last three to five years, at which point your existing debt will be paid off.
“A debt management plan doesn’t reduce the balance, but one of the big advantages is that the interest rates go down, usually significantly,” said Rick Phillips, vice president of debt management plan services at Consumer Credit Counseling Service of Greater Atlanta. He said most people who came to them were paying rates from 25 to 29 percent, which usually drop to 6 to 12 percent, or lower.
But these days, fewer people can afford traditional debt management plans. As a result, two credit counseling groups struck a deal with the top 10 credit card issuers this month to make the debt management plans more affordable. That may include lowering the minimum payment and the interest rate even further.
Participating in these plans will not necessarily hurt your credit score, but it is a gray area. It depends on how your creditor reports it to the credit rating agencies. Still, digging out of debt should be the priority; your credit score will eventually improve. Missing payments remain on your record for seven years.
DEBT SETTLEMENT So should debt settlement companies be avoided at all costs? They certainly should not be your first call.
“Sometimes, there are no good solutions, but of the solutions, debt settlement ends up being their best bet,” Gerri Detweiler, a credit adviser at Credit.com, said. “There is a segment of people who cannot afford to pay the full amount through a debt management, but they either don’t want to file for bankruptcy or they can’t file for bankruptcy.” (Credit.com refers prescreened consumers to debt settlement companies through its Web site; the settlement company pays Credit.com a fee each time a consumer fills out an application. Credit.com vets the companies to be sure they disclose all costs.)
But consumer advocates said that many people ended up dropping out of these plans because of the high fees. When you sign up, many firms require you to pay a sizable fee upfront. Or they may levy initial set-up and monthly fees, and charge a percentage of the amount they saved you. They typically advise you to stop paying your debts and tell you to put aside money each month in a separate account over a period of two or three years. That sum will eventually be used to negotiate a settlement, usually about 60 percent of what you owe. In the meantime, though, credit card companies continue to charge interest and late fees. The creditor may sue. And the phone will probably continue to ring incessantly. The companies can offer no guarantees — except that your credit score will drop.
“I wouldn’t rule out the possibility that there is a good company out there, but the basic business model is not a good one for consumers,” said Deanne Loonin, a lawyer at the National Consumer Law Center who has researched the companies. “A lot of creditors won’t even work with debt settlement companies.”
And here is another little-known fact: Any debt forgiven exceeding $600 is considered taxable income unless you can prove you are insolvent (your liabilities exceed your assets).
BANKRUPTCY For some people, at least, it pays to visit a bankruptcy lawyer, where the initial consultations should be free. A lawyer can advise you of your rights and walk you through the many implications of bankruptcy. “It’s not a bad idea if you’re under a lot of financial stress or you are afraid of losing your assets,” Ms. Detweiler said. It also pays to meet with a bankruptcy lawyer and a credit counselor before you consider debt settlement. “If you do it the other way around, you are very vulnerable to being led down the wrong path,” she said. “And what I find is that people hear what they want to hear.”
I was watching Good Morning America this morning, enjoying my morning cup of coffee, when the following statement caught my attention.
“Stopping a bank or mortgage company from foreclosing on your home may be as simple as these three words.”
I had to watch to find out and was very surprised to learn this tidbit of information. Perhaps it can help you or someone you know that was unaware of this technique. I visited the website that they provided and wanted to share this video from You Tube which describes the program. The three words, “Produce the Note”
Federal Reserve Board Chairman Ben Bernanke sees the bottoming out of the housing market slump and increasing spending by consumers as signs the U.S. economy will be on the mend later this year, although he forecasts the recovery will be gradual.
In testimony before the congressional Joint Economic Committee on Tuesday, Bernanke also warned another jolt to the banking system will stall any recovery.
“We continue to expect economic activity to bottom out, then to turn up later this year,” Bernanke said. “Key elements of this forecast are our assessments that the housing market is beginning to stabilize and that the sharp inventory liquidation that has been in progress will slow over the next few quarters.”
The forecast assumes a continued gradual repair of the country’s financial system, and a relapse there could cause a recovery to stall, he said.
While a recovery is now expected to begin, the Fed’s forecast cautions that the rate of growth is likely to remain below its longer-run potential for awhile. Businesses will likely put off hiring, meaning unemployment will remain high even after economic growth resumes.
Bernanke also believes inflation will remain low for some time.
A report Tuesday from the Institute for Supply Management showed U.S. service industries, which make up 90 percent of the economy, contracted at the slowest pace in six months in April, seen as another sign the recession is nearing an end.
What about the huge credit bubble that has yet to really rupture?
Clara is 93, a great-grandmother, and a child of the Great Depression. Her memory of hard times food is solid, and just might inspire you to turn cheap grocery fare into family-feeding meals.
Up front—if you loathe hearing old-timey stories, or like to make every weeknight’s meal out of a cookbook, these aren’t the videos for you. Clara’s stories, told as she prepares the meal, are alternately intriguing, saddening, or lightly eye-rolling. But the stuff she’s teaching you to make is surprisingly creative fare—some of it standards modified with a frugal flair, like egg drop soup, while other clips, like the “Poorman’s Feast” embedded below, are a hobo/late-night/budget-saving dream:
Cheak out Clara’s other recipe and depression tips here.
Clara’s DVD includes of all the episodes plus 3 bonus episodes and behind the scenes footage. The DVD has a run time of over 100 minutes. Buy it here.
Microfinance is a simple but powerful tool that enables the poor to pull themselves out of poverty. Most commonly, it involves making small loans to the working poor in developing countries. These loans are usually less than $200 and are made by local organizations called microfinance institutions. The loans are used by the working poor to establish or expand small businesses that generate additional income for the family. This extra income allows a poor family to buy food, access healthcare, educate their children, put aside savings and lay the foundation for a better future.
Can a $50 loan really make a significant impact on a person’s life?
Absolutely!
While $50 may seem small, it is important to remember that the working poor typically live on less than $2 a day. To them, a $50 loan is roughly equivalent to an entire months’ income. With that extra income, they can buy supplies or equipment that can help them start new businesses or earn more income from their existing businesses.
Even a small increase in income can make a difference in their lives. First and foremost, extra income can help a poor family meet basic needs: rice and vegetables for a daily meal, kerosene for cooking, or mosquito nets to prevent disease. Hopefully, receiving a first loan is often only the beginning of an ongoing process. Successful loan repayment allows borrowers to take out additional, and often larger, loans. This helps them expand their income even further over time.
A steady and increasing source of income, however small, reduces a poor family’s vulnerability to the vagaries of their precarious existence. They can often begin to save money for the first time, providing a financial safety net against unexpected problems. Savings also allow them to access new comforts and services that can improve their living conditions. For example, a mother might be able to afford to let her children go to school instead of sending them off to beg in the streets or work in the fields. Or it might allow a family to save enough to replace their plastic roof with one made of tin, or fix a long-broken window.
In this way, the small sum of $50 could be the difference for a poor woman between destitution and a secure future for herself and her family. It can empower her to do things that women in her society were never able to do, like serve in the local government, giving her a sense of pride, achievement and dignity. It can provide security and hope, allowing her to fulfill her dream that her children will live a better life than she could have ever imagined for herself.
Poached from Aparajita Saha-Bubna, Dow Jones Newswires
More cash-strapped borrowers are being pushed over the edge; personal bankruptcy filings in the first quarter shot up 35% from a year ago, according to a report published Wednesday by an equity research firm.
In the first quarter, 308,530 bankruptcies were filed, an increase of 6% compared with the last quarter of 2008, said the Fox-Pitt Kelton Cochran Caronia Waller report. In March alone, filings totaled 121,413, a nearly 41% increase from a year earlier, and a 23.5% increase from February.
The data, in conjunction with dismal unemployment figures for March, foreshadow deeper pain for mortgage lenders, credit-card issuers and auto- finance lenders, as consumers buckle under financial pressures brought on by the economic downturn.
Rising bankruptcy filings have “negative consequences,” said Christopher Wolfe, an analyst at Fitch Ratings.
U.S. employers shed 663,000 jobs in March, pushing the nation’s unemployment rate, at 8.5%, to its highest level since 1983.
Troubles among borrowers put pressure on already fragile companies, ranging from mortgage finance giants to credit card issuers.
For the mortgage sector, the continued rise in bankruptcies means a greater number of borrowers will fall behind on their home loans, fueling foreclosures and pressuring housing prices.
Mortgage finance giants Fannie Mae (FNM) and Freddie Mac (FRE), whose federal takeovers in September were triggered by mounting losses on home loans and thin capital reserves, have seen delinquency rates on mortgage payments overdue by 90 days or more touch record highs.
Last week, Fannie reported that for January, 2.77% of the single-family loans held in its $785 billion investment portfolio were delinquent. That’s a 0.35 percentage point increase from the month before, the largest such increase since the company started tallying the data in 1998. This is more than double the 1.06% rate a year earlier. Freddie’s level stands at 2.13%.
Higher bankruptcy filings also spell trouble for credit-card companies.
“We expect issuers to continue to report higher charge-off rates as the number of personal bankruptcy filings rises in 2009,” said Bill Carcache, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, in the report.
Credit card issuers are already struggling under the weight of rising delinquencies that have forced them to squirrel away capital to account for souring credit-card loans.
Discover Financial Services (DFS) expects credit card loan losses to be at or around 7.5% in the second quarter.
In January, JP Morgan Chase & Co. (JPM) said losses from defaults on card payments could reach 7% in early 2009, climbing to 8% through the end of the year. At the time, this guidance was up a full percentage point from the third quarter.
The bankruptcy data come at a time when lenders are bracing for larger losses if a proposed change in bankruptcy legislation, backed by the Obama administration, goes through.
The White House is calling for a controversial provision to allow bankruptcy judges to rework the terms of mortgages in court.
If the changes to bankruptcy legislation are beneficial to borrowers, “more people may take advantage” and file, said Fitch’s Wolfe.
A rise in bankruptcies will increase charge-offs, or, credit card loans deemed uncollectible, for plastic issuers. Historically, bankruptcies have accounted for roughly 30%-50% of credit-card charge-offs.
Hit hard by the slumping economy and surviving on fixed incomes, senior citizens have experienced the sharpest increase in bankruptcy filings.
Jose Abrahantes has been working for about half a century — in construction, landscaping, even as a janitor cleaning offices on the night shift. He figured he would eventually enjoy a relaxing retirement.
But at 66, with medical bills piling up after an emergency surgery, Abrahantes has filed for bankruptcy. Retirement isn’t even in the picture. Instead, he’s working part-time at a Publix bakery.
”I had no choice,” said Abrahantes, who rents a modest Little Havana apartment with his wife, Carmen. “If I’m making $8 an hour and trying to live off that, there’s no way I’m going to pay down all my bills.”
Abrahantes is one of a growing number of senior citizens doing what they once thought unthinkable — or, as Abrahantes put it, ”embarrassing and painful.” Hit hard by the slumping economy, unable to pay mounting bills from meager retirement savings, older Americans are filing for protection from their creditors in record numbers. Experts said many end up bankrupt because of medical bills they can’t afford to pay. Others simply can’t cover their living expenses with their Social Security and savings.
In 2007, Americans 55 and older accounted for 23 percent of the more than one million Americans who filed for bankruptcy, a threefold increase from 1991, according to a recent AARP study. They experienced the sharpest increase in bankruptcy filings of all age groups, jumping from 8.2 percent of all debtors. The numbers are especially stark for older seniors, with bankruptcy more than quadrupling for seniors ages 75 to 84.
Elizabeth Warren, a professor at Harvard Law School and the AARP study’s author, said these bankruptcy filings provide a snapshot of the financial vulnerability of older Americans who “now, more than ever, are confronting serious financial challenges.”
What’s more, advocates said seniors have been filing at even higher rates since 2007, the last year of the AARP study, because of a declining economy, increasing healthcare costs and a lack of retirement savings.
”It’s bad,” said Barbara Prager, executive director of Coast to Coast Legal Aid of South Florida, which serves people 60 and older in Broward. “We’re seeing a lot of seniors with medical debt and without the income to pay for it. And it’s coming at a time when it’s harder to find solutions.”
read the rest here.
Feb. 27 (Bloomberg) —
Brian Wickert, a mortgage banker in Butler, Wisconsin, prides himself on screening applicants carefully. That’s why he was stunned when a customer who sailed through four home loans tried to do a refinancing in January, only to be rejected by three national lenders.
The borrower’s credit standing and income were solid, said Wickert, 47, president of Accunet Mortgage. The problem was that, with home sales plummeting along with prices, the appraiser couldn’t find the required three comparable sales in six months within a one-mile radius.
“The business has gotten tougher than I’ve seen it,” Wickert said. “The person who has decided he wants to give himself his own personal economic stimulus package by refinancing at low rates is being stymied by the rules and the fees. Too many people are being excluded.”
Bankers around the country say one reason the housing market hasn’t stabilized is that while mortgage rates have come down, hurdles have gone up. Rising default rates and bank losses have made lenders more risk-averse, leading to higher fees, increased insurance rates and difficulties refinancing loans.
The average rate on a 30-year fixed mortgage dropped to 5.07 percent for the week ending Feb. 26 from 6.63 percent for the one ending July 24, according to data compiled by McLean, Virginia-based Freddie Mac. Meanwhile, the percent of mortgage applications that led to closings fell nationwide to 59 percent in the first half of 2008 from 66.3 percent in 2006, the most recent period for which data is available, the Mortgage Bankers Association reported.
‘Too Tight’
“Underwriting standards have changed from lax to too tight,” said Lawrence Yun, chief economist at the Chicago-based National Association of Realtors. “The pendulum is swinging too far the other way. We can’t stabilize the housing market if buyers can’t get reasonable mortgages.”
Help may be on the way. Under the terms of President Barack Obama’s housing plan announced Feb. 18, as many as 4 million homeowners on the verge of foreclosure will be eligible to have their loans modified to reduce monthly payments. Another 5 million, whose homes are worth less than the principal of their mortgages, also may be able to refinance.
The program, which takes effect March 4, only covers borrowers whose mortgages are owned or insured by Washington- based Fannie Mae or Freddie Mac — about 40 percent of the total, according to Inside Mortgage Finance, a Bethesda, Maryland-based newsletter. They must still prove they have a solid payment history and sufficient income to meet monthly payments, and the loan can’t be more than 105 percent of the appraised value of the home to qualify.
FICO Scores
Those not covered by the Obama plan will have to contend with lenders requiring higher FICO scores than in the past or charging upfront fees to borrowers with scores once considered excellent. San Francisco-based Wells Fargo & Co., the second- largest U.S. home lender, boosted the minimum score for Federal Housing Administration and Veteran Affairs loans it makes through brokers to 620 on Jan. 27 from 600.
“A score of 700 was once near perfect,” said Gwen Muse Evans, vice president of credit policy at Fannie Mae, the government-controlled company that helps set lending standards. “Today, a 700 performs more like a 660 did. We have updated our policy to take into account the drift in credit scores.”
Consumer credit scores, called FICOs after creator Fair Isaac Corp., range from 300 to 850. The average FICO score on mortgages bought by Freddie Mac and Fannie Mae rose to 747.5 in the fourth quarter of last year from 722.3 in 2005, according to Inside Mortgage Finance.
Higher Fees
Accunet’s Wickert said that a 660 FICO score would have qualified most borrowers for loans with no upfront fees in the past. Now, someone trying to borrow $200,000 with a 660 score would have to pay a 2.8 percent fee, or $5,600, he said. Even someone with a 719 score would have to pay $1,750 in cash.
Wickert said that if customers don’t want to pay the fees in cash, he can increase the interest rate, since the wholesale banks he sells his mortgages to would pay more for the higher rate over the life of the loan. Before the crisis, a quarter-of- a-percentage-point increase in the rate was sufficient to cover a 1 percent fee. Now, Wickert said, he needs to double that.
Robert Satnick, a mortgage broker in California’s San Fernando Valley, said he has a customer whose efforts to refinance a loan at a lower rate might cost her about $600 a month more because the value of her condominium has declined.
The owner has good income and a FICO score in the high 700s, he said. The dilemma is that the value of her home has dropped to about $400,000, the amount of her mortgage. As a result, banks will charge her an upfront fee of 1.75 percent on a 6 percent refinancing. She also has to buy private mortgage insurance, adding another $63 a month to her cost.
‘Out of Reach’
“This is now a great opportunity to buy or refinance,” said Satnick, 44. “But getting the mortgage has gotten so hard it’s putting those properties out of reach of a lot of people.”
Another strain on consumers is a planned increase by Fannie Mae of add-on fees called loan-level price adjustments, which lenders often pass on to borrowers. Someone with a 699 FICO score borrowing 80 percent of the value of a home used to pay 1 percent in price adjustments. As of April 1, Fannie Mae will raise that to 1.5 percent. For a borrower with a 659 score, the adjustment will climb to 3 percent from 2.25 percent.
“These are targeted pricing adjustments aimed at aligning price with risk for the highest risk products in the market today, including interest-only loans, cash-out refinancings, low credit scores, high loan-to-value loans and condos,” said Fannie Mae spokeswoman Amy Bonitatibus.
Staff Reductions
Another issue is that mortgage lenders have eliminated jobs, slowing down the approval process.
“We’re very thinly staffed because we don’t know how long this will last,” said Christopher M. George, president of CMG Mortgage in San Ramon, California, referring to the global financial crisis.
George said he has gone from almost 800 employees in 2006 to 250. Nationwide, employment in the mortgage industry declined to 280,000 in December from 505,000 at the peak in February 2006, according to data compiled by the Mortgage Bankers Association in Washington.
Even with a smaller staff, George said, his underwriters do more checking than in the past. Before the crisis, he said, CMG asked borrowers to fill out an Internal Revenue Service form that allowed the lender to confirm income information, though it rarely sent the form to the IRS. Now, George said, CMG sends the form in before the closing, scrutinizes appraisals and contacts banks to check on the account balances of the borrowers.
“Everything is checked, and that makes it harder for some people,” he said.
Refinancing Program
Fannie Mae, taken over by the government in September after losses on its mortgage holdings, says it is doing what it can to help borrowers and is urging mortgage bankers to do the same.
A new program called DU Refi Plus that takes effect April 4 is intended to make it easier for consumers to refinance their mortgages, even if the value of their homes has declined. Lower FICO scores will be accepted, the requirement for an appraisal or home inspection will be waived in some cases, and borrowers will be able to submit a single pay stub to confirm their salaries rather than more extensive documentation.
Fannie Mae says it still won’t be easy to make low mortgage rates more accessible.
“There needs to be some creativity to get back into the marketplace and get through this fear,” said Fannie Mae’s Evans. “The message we’re trying to promote is we can’t be afraid to lend. We want to get back to the mentality of looking at prudent ways to say ‘Yes.’”
Wickert, whose mortgage-approval rate has declined to 93 percent from 98 percent a year ago, said the issue requires a flexibility that only a few lenders are showing. The customer who was rejected by three banks got her mortgage approved by a fourth, which focused on her high income and credit score, not the appraisal rule, he said, adding weeks to the process.
“A lot of people are frustrated because the rates look good, but someone has raised the bar on them,” Wickert said.
