loans and credit

In spite of the recession that has weakened the economy over the past two years online shopping continues to increase. One recent survey showed a 13% year over year increase in online shopping and the trend is expected to continue. There are several benefits to shopping online, from convenience to selection to price. But there are also dangers and other factors to consider in the world of e-commerce, and many of these factors can help you to make sure you’re making wise purchasing decisions online.

– There Is No Such Thing As Free Shipping: It’s impossible to maintain profit margins for a company is willing to ship its products around the country for free. Free shipping simply means that there’s not a line item on the sales invoice for shipping. Online retailers make up for the cost of shipping in other ways. One of the most common ways that retailers use a free shipping policy to lure customers is to promise free shipping with any order that exceeds a minimum size. Shoppers end up spending much more than they normally would just to take advantage of free shipping.

– Don’t Believe Everything You Read: Becoming a successful online retailer is much more about building a positive perception of your business than it is about price, quality, or any other factor. Online retailers spend thousands of dollars on their “image,” from controlling their search statistics and Google rankings to the reviews that are written about their companies. Internet Marketing is about marketing and the tools used by retailers are becoming increasingly sophisticated.

– Online Security Isn’t Always Secure: One of the factors that scared people away from online shopping several years ago was the fear of their personal information being stolen. Online security has come a long way, but there are still holes that consumers need to be aware of. You should only provide your credit card information on sites that give you confidence that they are secure. There are very few reasons you should ever provide anyone with your social security number or bank account number.

– Prices Change Constantly:  Retailers are constantly searching for the price points that offer them the highest profit margins while still meeting their sales volume goals. Many online websites alter their prices multiple times every day, so shopping around and checking back often can often lead to the deals you’re looking for. Many sites also offer price alerts that will send you an e-mail if an item you’re looking for reaches a price that you’re looking for.

– New Customers Get The Best Deals: The hardest part of running a business is finding new customers and online retailers often offer outstanding deals to attract new business. Some smart shoppers establish new accounts with each new order to take advantage of deals offered to new customers. 

Savers have been doing a lot of complaining recently about the low interest rates they’re being offered for CD’s and money market accounts. A low interest rate environment is a risk for people holding a lot of cash, especially if inflation picks up like many economists are expecting. However, a low interest rate environment has advantages for borrowers and many individuals, companies, and government entities are taking advantage of a very attractive time to borrow. Here are some of the ways that low interest rates are providing opportunities for those in need of cash.

– Individuals: Millions of people have taken advantage of low interest rates by refinancing their mortgage loans. During the first several years of this decade, homeowners were using adjustable-rate mortgages (ARMs) to keep their monthly payment as low as possible. Many of these loans were interest only, with the borrower paying nothing toward principal for the first several years of the loan. The collapse of the housing market combined with the rates on ARMs increasing has led to refinancing activity like we have never seen before.

The Fed has done its part to keep interest rates on mortgages low in an attempt to revive the housing market and has indicated that they hope to keep mortgage rates low for the next several months. Interest rates have increased a little from their low point on 30 year fixed mortgages but they are still very low from a historic perspective. Individuals can qualify for these low rates by having strong credit, low debt, and stable, steady income.

– Businesses: Companies have to be careful about borrowing cash right now since sales revenues in most businesses have fallen substantially. Many companies are more worried about staying in business right now than they are about obtaining financing to grow. However, businesses hoping to expand are finding that they can borrow from banks at low rates and lock those rates in for the next several years.

Small businesses have the option of taking advantage of loans backed by the Small Business Administration that are designed to help business owners pay off the bills that have been mounting during the recession. Large companies have the option of borrowing from the bond market at low rates if they are a highly rated company. Borrowing money during a downturn can be risky for a business, but it can also give that company an advantage over competitors as the economy transitions into recovery.

 – Government: The Federal government is spending massive amounts of money right now in projects related to President Obama’s economic stimulus package. The money being spent isn’t coming from the nation’s savings account. Instead, it’s being borrowed and investors looking for safety are willing to loan money to the government for almost nothing. Treasury auctions are making billions of dollars available to Uncle Sam and its being spent almost as fast as it’s being received.

State governments are also taking advantage of the opportunity to borrow at low rates. New debt from state and local government is up 5% from a year ago and states that are still highly rated are getting great deals. Utah, for example, just borrowed a billion dollars for 15 years with an interest rate of 2.72%–a rate that would have seemed too good to be true a few years ago. Because of low rates, states are borrowing more cash than they originally budgeted for just to stockpile it for future projects.

The wave of foreclosures that has been growing for the past two years continues to swell and experts fear that the flood of foreclosed homes hitting the market during the coming months could derail the recovery in housing that appears to be underway. It is estimated that at current sales volumes, it would take over a year to sell the inventory of foreclosures in the US. Current estimates pin the number of foreclosures that will soon be on the market at 7 million units. The vast majority of foreclosures are in California, Nevada, Arizona, and Florida, but the foreclosure issue effects home values in every state.

There are a variety of methods being used to reduce the number of foreclosures hitting the market and to help struggling homeowners either stay in their homes or get out from under their homes that are currently underwater. Here are some of the methods being used to address the growing wave of foreclosures.

– Loan Modification: Many lenders, at the urging of the federal government, are working with borrowers to adjust their monthly mortgage payments by altering the terms of their mortgage loans. Loan modification programs have been underway for several months now but the progress has been slow. Lenders aren’t eager to work with struggling homeowners in spite of the fact that modifying loans is saving the homeowner in many cases from walking away from the home outright. Of the homeowners that are eligible for loan modification programs, only 12% have currently had their loans modified. Millions of homeowners are still on the brink of foreclosure, which will likely mean more short sales in the coming months.

– Short Sales: A short sale is the sale of a home for less than the amount owed on the mortgage. The lender in a short sale has to agree to accept the sale price as full repayment of the loan—something banks have been slow to agree to with the massive losses that they have already taken in their loan portfolios. Short sales are also notorious for having a very long selling cycle because banks take so long to approve proposed deals that many buyers simply walk away. The Treasury said this week that they expect short sales to be a better alternative than foreclosures and will lend support to lenders that accommodate short sales.

– Treasury Support: All of the programs that are being used to help struggling homeowners can’t work nearly as well without the backing and support of the government and the Treasury has made it clear that they will work with lenders that are willing to work with borrowers. Last week, the Treasury committed $10 billion to helping lenders in areas where prices are continuing to fall. The Treasury has also instituted other programs for lenders, including a $1000 payment for every short sale they process. This won’t make the lender whole, but the losses in a short sale to the lender should be smaller than the losses associated with a foreclosure. The program won’t eliminate foreclosures entirely, but it should provide incentive for at least some lenders to work more cooperatively with their struggling borrowers. 

Homeowners are paying a lot of attention to the housing market right now, and with good reason. For most people, their home is their biggest investment. As home values nationwide have fallen over the past few years, it has become apparent that real economic recovery can’t happen without at stabilization in the housing market. There are several issues that pertain to the housing market that are in the news on an almost daily basis. Here are four of those issues and some ideas on how they will impact home sales and housing prices.

 – First Time Homebuyer Credit: The $8000 tax credit that first time homebuyers are eligible to receive if they make a home purchase prior to December 1st has boosted sales, but what will happen to sales when the incentive expires? Most first time homeowners who were thinking of buying have already taken advantage of this offer and the program offers no help to existing homeowners that are underwater and struggling to make payments. Combined with the fact that we’re entering the slow season for home sales, this is likely to lead to fewer home sales over the next several months.

 – Sales Slip in August: Home prices were up 7.2% in July compared to June, offering hope that a rebound was underway in the housing market. July was the fourth straight month of increasing home sales. The August sales number was expected to show another slight uptick in sales, but it was instead a 2.7% decline in sales. This number tells us that we aren’t out of the woods yet in the housing market and confirms the notion that recovery in home sales and prices will be a long, slow process. A decline wasn’t shocking after the unexpectedly large July sales number but it certainly doesn’t signal a vibrant housing rebound, at least not yet.

– Foreclosures Are Still a Factor: A recent USA Today story reported that 7 million homes were either in foreclosure or delinquent on payments and expected to enter foreclosure. The heavy foreclosure inventory is dragging home prices lower and it’s a problem that won’t be solved anytime soon. At the current rate of home sales, it would take almost a year and a half to sell all 7 millions of these homes if there were no other homes on the market at all. What this means for homeowners thinking of selling is a longer sales cycle and more negative pressure on prices, which will probably show stability without notching noticeable increases over the coming months. Lenders are also a factor as they implement programs to help homeowners avoid foreclosure.

– Fed to Continue Supporting Low Mortgage Rates: The Fed is in a position to help keep mortgage rates low by buying loans from Fannie Mae and Freddie Mac in an effort to keep money flowing in the credit system. They had hoped that private investors would also step up to buy into these pools of mortgages but so far private investors have stayed out of the mortgage realm. The Fed announced that they will continue buying mortgage backed securities, just at a slower rate. Their total investment in supporting mortgages is expected to be $1.5 trillion. What this is likely to mean is that rates will creep up slightly in the short term but will stay near historic lows probably until at least the middle of 2010. 

The Fed concluded their two day meeting this week and, as usual, they released a few statements at the end of the meeting. Economists, analysts, and investors watch these announcements for two types of information. First, they listen for what the Fed is actually telling the public. The secondary pieces of information they watch for are the things they can learn from reading between the lines. Fed statements are worded very carefully and they fully understand the impact their words can have.

I know–what could be more boring than reading the minutes from a Federal Reserve meeting? But you can learn a lot about the health of the economy from these carefully-worded statements. The Fed statement released September 23^rd provided some insight as to how the Fed feels about the economy right now and how they plan to behave in the Future.

Recovery Is Underway, Growth Is Returning: There are several areas that demonstrate that we are probably heading out of the recession and back into economic growth. The Fed stated that, “economic activity has picked up following its severe downturn.” The housing market has shown signs of stabilizing with both prices and volume turning positive in recent months. The stock market has started a robust recovery as companies have reported earnings that are ahead of expectations. Most economists agree that GDP for the third quarter will turn positive.

Interest Rates Staying Low For a long time: It’s rare that the Fed gives too many hints about interest rate decisions, but in this statement they stated that “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” The reasons for this are mainly that the economy still needs to make credit as easy to obtain as possible and that inflation is not yet a major factor for the Fed to contend with.

Inflation Is Under Control: The Fed “expects that inflation will remain subdued for a long time.” The keywords there, “for a long time,” indicate that interest rates are likely to stay low for an extended period of time. The Fed uses higher interest rates as a tool to fight inflation, but they want to keep rates low as long as possible to accommodate growth. Most experts agree that inflation is coming, but the consensus opinion seems to be that we are at least a year or two away from inflation becoming a concern.

Mortgage Rates Could Move Up: The Fed has spent billions of dollars on agency debt and mortgage backed securities to keep mortgage rates as low as possible. The Fed is one of the main reasons so many people were able to refinance their mortgages at such great rates. In this statement, the Fed reiterated that they will continue to support mortgage lending, just at a slower pace than they have the last several months.

There Are Still Reasons For Concern: The Fed named ongoing job losses, slow income growth, lower wealth in housing, and tight credit conditions as ongoing areas of concern that they are watching closely. Business spending is another area worrying the Fed, especially since they realize that business spending isn’t likely to pick up until consumer spending warrants business investment.

Debt consolidation is becoming so popular, it’s practically the new American pastime. With the amount of debt soaring, more and more people are realizing that they’re in deeper than they’d like and are looking toward a consolidation loan for some relief. As the holidays approach and the costs of airline tickets and gifts loom, the number of debt consolidations is only going to go up. For some people, something that isn’t an option the rest of the year is an option during this season, because they want to make the time special for their friends and family. If you’re considering debt consolidation as a solution to your financial problems this holiday season, make sure it’s a good choice for you before you sign anything.

Your Credit Score is Good

Since a consolidating your debt involves taking out one loan that covers everything you currently owe, you’ll get a better interest rate if your credit score is good. If you have, thus far, been able to make the minimum monthly payments on your debt, you’re probably in good shape even if your payments haven’t been as effective as you’d like. On the other hand, if your credit is damaged, you might struggle to get a better interest rate on your debt consolidation loan than you currently have on your individual credit accounts.

Debt Relief Would Help

While debt consolidations might be useful to everyone who has multiple credit accounts based on the simplicity factor alone, it’s not worth the time and effort to search out the loan that’s right for you if it’s not going to help more than that. Consolidating your debt is most useful to you when you can make the minimum monthly payments requested of you but would be better off with a lower interest rate or a single, lower monthly payment. Debt consolidation is a particularly good choice when you are barely making ends meet. It’s also useful when you want to use extra money to pay ahead on your debt and not just barely make the minimum payment.

There’s Not Another Way to Consolidate

An official debt consolidation loan is not the only way to lower your monthly payments and/or lower your interest rate. In certain situations, it’s possible to take out a loan against your car or get a home-equity loan that will serve the same purpose. Before you jump on the debt consolidation bandwagon, make sure that one of these other options won’t work better in your circumstances. Be sure to compare the monthly payment and interest rate that one of these other options would give you in comparison to the debt consolidation loan.

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We often spend time and effort trying to find ways to reduce our dependence on credit cards to avoid the burden of credit card debt. Carrying balances on high interest credit cards can be one of the most difficult financial challenges to overcome, but losing access to valuable credit lines that you might need in the future can create challenges that are not easy to navigate too. In 2009, Discover cut credit lines for more than 3 million customers and they plan to reduce available credit for another 2 million customers this year.

Over the past year, most major card issuers have aggressively cut customer credit lines. Every line of credit that they cut reduces the chance of a customer using that credit and then failing to make payments. When credit lines are cut, warning has to be sent to the cardholder in writing but the card issuer is not required to provide you with any advance notice. Once a line of credit is gone, it can be difficult to replace, especially with credit card issuers continuing to worry about the economy. Here are some reasons to use your card enough to maintain your current credit line.

To Sustain a Healthy Credit Utilization Ratio: This ratio is one of the most important for lenders considering you for loans you might need in the future. By most accounts, 30% of your credit score is based on how much of your available credit you actually use. If you carry a $3000 balance on a credit card with a $9000 balance, you have a healthy credit utilization ratio of 33%. However, if that credit line gets cut to $6000, your credit utilization ratio jumps to 50% and can hurt your credit score. Spending enough to keep your credit lines intact can help to avoid a scenario like this.

To Have Access to Funds in an Emergency: The best kind of emergency fund is a risk free savings or money market account. However, for some people, their line of credit represents money that they can access at a moment’s notice if they need it and have no other options. Losing your available credit means losing access to money during a time when you really need it. And if you’re in really dire straits, such as after suffering a job loss or an accident that prevents you from working, getting a new credit line to replace the old one will be next to impossible.

To Avoid Clutter on Your Credit Report: The natural thing to do if you lose access to credit is to try to replace it, a challenge in today’s financial world. Every new loan and credit application gets recorded on your credit report and eventually, future creditors can be scared off just because of the appearance of desperation in obtaining lines of credit in the past.

As with many other financial topics, balance is important when determining the appropriate amount of spending to be charged to your credit cards. The key is to find a happy medium where you’re using your credit cards enough to keep credit lines intact and creditors happy without creating a scenario where you’re not able to make substantial payments against card balances.

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The highly publicized CARD act that passed earlier this summer as a result of credit card companies treating their customers in unfair and sometimes abusive ways have done a lot to streamline the rules governing the credit card industry. However, many cardholders seem to think that this new legislation completely handcuffs card issuers into never changing the rules, terms, or fees associated with a credit card and this simply is not the case. There are still several ways card issuers can alter terms and conditions surrounding customer credit cards. The answers can usually be found in the fine print, but here are several factors that can still be controlled by credit card companies.

– Card Companies Can Change Rewards Programs: Reward programs are a substantial cost for credit card companies and with more customers defaulting on their payments, some reward programs are going by the wayside. Chase, American Express, and Capital One have already announced changes that negatively impact their reward programs, and many companies will probably do the same in the coming months.

– Card Companies Can Demand a Larger Minimum Payment: The industry standard has been a minimum payment that is 2% of the outstanding balance, but now that many issuers of credit cards are struggling to collect payments, some companies, including Chase, have increased the minimum payment amount to 5% of the outstanding balance. Many issuers will help you with a customized payment plan if you’re having trouble making minimum payments.

– Card Companies Can Change Your Fixed Rate to a Variable Rate: One of the hooks that card companies have historically used to gather new customers has been to promise a low, fixed rate for the life of the credit line. The CARD act requires issuers to keep rates fixed for a year for new customers unless the customer fails to make a payment, but after that the company has the rate to make the interest rate variable.

– Card Companies Can Reduce Your Credit Line: It’s estimated that 58 million people had their credit limit cut between April 2008 and April 2009. Issuers are within their rights to change credit lines and as they try to rein in risk in a lagging economy, many cardholders are finding that their credit lines have been cut in half. This can have an impact on your credit score so it’s important to be aware of any changes to your available line of credit.

– Card Companies Can Close Your Account: This is basic risk management for credit card issuers. Fewer cardholders may mean less interest revenue and profit, but it also means fewer people failing to make payments. It’s a good idea to make at least one purchase with your credit card each month because inactivity is one of the leading reasons that an issuer will cancel open credit lines right now.

With the companies behind your credit cards facing new laws that curb their ability to make money like they used to, many card users are seeing their credit limits cut or their cards canceled outright. The most disturbing trend for some credit card customers, however, is the sharp rise in interest rates that some companies are imposing. If you use credit cards, make sure you read the fine print of your agreement with the company. If you find changes to your interest rate that you don’t like, consider negotiating a lower rate or looking somewhere else for a better card. Though this is a difficult economy for credit, you can usually find rates better than the exorbitant ones many cards are offering now.

Find Out Where You Stand

Before you make any moves, check your free credit reports and look at your credit score. This will give you a good indication of where you stand with the companies that hold your credit cards. Make sure you take the time to fix any mistakes that you find on your credit report, as this will raise your credit score and make you more desirable to the credit card companies. You will have a much better chance of negotiating a lower rate on your current cards or finding new cards that offer you a low rate if your credit is good.

Talk to Your Credit Card Company

Once you know where you stand regarding your credit, talk to your credit card company. Ask them about the reasoning behind the interest rate hike and let them know you’re disappointed and interested in pursuing other options, even if it means taking your business elsewhere. If they persist in only offering you the higher rate, gently remind them of your credit score and repayment history if these are good. While they still might not offer you the rates you want, you will have given them every chance to do so.

Know Where to Look

If your credit card company isn’t willing to negotiate your interest rate and having a lower one is important to you, you’ll want to look elsewhere for a better deal on a different card. While applying for a new card will take a few points from your credit score, getting a better interest rate can be worth it if you’re not looking to take out a significant loan in the next year or so. Check into credit cards offered by local banks and credit unions, as these generally have lower interest rates than the cards offered by large, national companies. You might have to take out an account to qualify, but the lower interest rate just might be worth it.

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Credit repair companies can be sneaky. They’ll promise to fix any problems on your credit report, leaving you with a squeaky clean credit history even if you’ve actually made some financial mistakes. But these promises, which sound too good to be true, usually are. In fact, a single plan that can repair any and all credit problems immediately simply does not exist. Here are some common ways that companies who claim to fix credit problems will claim to help, and how to avoid them.

1. Don’t Pay Before You See Results

If a credit repair company asks you for any money before they do anything, be wary. The more reputable of these types of companies will only ask for payment if they are successful in fixing your credit. Some of the most unscrupulous of these firms ask for a down payment or even full payment up front, then disappear with the money. To avoid this, make sure you know the terms of any contract you sign before you sign it, and don’t give these firms access to any of your bank accounts. In addition, check references on any credit firm you use, to make sure they have actually done what they say they have done.

2. Do Not Apply for an Employer Identification Number

Sometimes, a company claiming authority on credit repairs will tell you to apply for an Employer Identification Number (EIN) with the government. The company will tell you to use this in place of your own Social Security Number so that you can start over when it comes to your credit history. However, this practice breaks at least three federal laws about misrepresenting yourself, so this so-called solution can cause you more harm than good. If a company promises to fix credit problems like this, run away as fast as you can. While it might seem like a relief to start fresh, this tactic will only create more long-term problems for you.

3. Avoid Bombarding the Credit Agencies

Some credit repair companies will try to fix your credit problems by bombarding the credit agencies with paperwork disputing every claim on your credit report. They claim that the credit reporting agencies will have to remove every item that is not verified within 30 days. While this is actually a law, the companies can put items back on your credit report once they are verified. So credit repairs made in this fashion might make things better for a while, but if the financial mistakes are truly yours, they will reappear before very long. Avoid any company that claims to repair credit in this manner.

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