loans and credit

It might not rank as the most surprising of news, but a growing number of consumers are worried that they may one day need to take out a debt consolidation loan. A new survey by the Associated Press and GfK reports that 46 percent of consumers are suffering from debt-related stress. Of this number, half say that they are worried about their levels of debt either “a great deal” or “quite a bit.” Again, this isn’t exactly surprising. The national unemployment rate remained near 10 percent as of early June. Home values continue to fall. And many consumers have watched helplessly as their annual incomes have plummeted. Why wouldn’t these consumers worry that they may one day have to resort to a high-interest-rate debt consolidation loan?

A Not-So-Sunny Outlook

According to the survey, only 20 percent of consumers view the economy as being in good shape. That number is low. But it is up a bit. Just last year, only 15 percent of consumers said that the economy was doing well. It’s hard to be excited about today’s economy, though, even if it is in the middle of a recovery. The recovery is simply too sluggish. Not enough new jobs are being created. Homeowners aren’t seeing their residences increase in value. Workers aren’t receiving raises or bonuses. Bosses continue to force unpaid days off on their workers. It’s hard not to be pessimistic today.

Turning To Debt Consolidation

For many consumers, the solution to the difficult economy has been to charge more items than they normally would. This, of course, has caused their debt to rise. It’s true that consumer debt has mostly fallen since the end of last year. But that doesn’t mean that many consumers who are unemployed or underemployed haven’t boosted their debt levels. These consumers may soon be forced to consider debt consolidation. This isn’t a terrible thing; by consolidating their debt, consumers can ease their stress levels. But it’s not an ideal solution, either. Debt consolidation often comes with high interest rates and costly fees. It also harms consumer credit scores.

A Bit of Hope?

There is, thankfully, a bit of hope, too, in the Associated Press GfK survey. According to the numbers, 53 percent of respondents said that they are not overly worried about their debt. These consumers, who don’t have to fret about taking out a debt consolidation loan, are important to the overall health of the national economy. If they are confident enough, they’ll open their wallets and spend. And when consumers start spending freely again, our national economy’s recovery will kick into higher gear. This is something that we’re all hoping for.

Are you worried that you might be heading toward debt consolidation? Do you dread opening your credit card statement each month? Do you wonder if you’ll be able to pay your mortgage this month?

If so, you’re far from alone.

A new Associated Press-GfK poll found that 46 percent of respondents said that they are suffering from debt-related stress. Half of these people added that their stress was either a “great deal” or “quite a bit.”

If you want to be optimistic, you could look at the survey and say that 53 percent of respondents say that they are feeling little to no stress regarding their debt. That’s pretty good. You could even take it as a sign that people are starting to feel the effects of the economy’s slow recovery.

Still, those 46 percent of respondents who are feeling stressed about everything from having to take out debt consolidation loans to struggling to make their mortgage payments each month is a troubling statistic.

It’s little wonder, though, that these people are feeling gloomy regarding the economy. Unemployment is still far too high. It stood at 9.9 percent in late May. At the same time, many workers have seen their annual incomes shrink thanks to forced days off. Adding to the stress is the nation’s rising housing foreclosure rate. Many people are worried that they’ll soon lose their homes.

Overall, only 20 percent of respondents to the Associated Press-GfK poll ranked the economy as being good. That’s far from a majority. Of course, last year only 15 percent said the same thing about the economy, so things are looking up, slightly.

If you want a bit more good news, the poll also found that consumers are doing a better job of paring down their debt. The average amount owed on credit cards was $3,900, according to the poll. In the fall, the poll found that this number stood at $5,600.

What will it take to boost the number of respondents who feel positive about the economy and aren’t worried so much about debt consolidation, credit card bills, and their credit scores? We’ll need to see the nation’s unemployment rate fall, the number of housing foreclosures plummet, and the value of homes rise again.

That’s asking a lot. We’ll probably continue to see, then, a lot of people worried about the economy.

Demand for home mortgage loans appears to be falling; maybe that’s because a growing number of consumers today are more worried about debt consolidation than they are about buying a new home. After all, the national unemployment rate is showing few signs of falling. It’s hard for consumers to think about adding the burden of a monthly mortgage payment when they’re worried that they won’t have a job two weeks or a month from now. That’s why the news from the Mortgage Bankers Association that fewer consumers are applying for mortgage loans should not come as a surprise to anyone.

Home Buying Down?

The bankers association reported that for the week ended May14, mortgage loan applications fell 27 percent from one week earlier. This brought the number of new loan applications to its lowest point in 13 years. Over all, applications have fallen nearly 20 percent in the last month, according to the bankers. Real estate economists wonder if this is the rest of the demise of the first-time and move-up buyers housing tax credits, both of which expired at midnight on April 30. The first-time buyers credit provided buyers who were purchasing their first homes a credit of $8,000. The move-up buyers credit provided other buyers a credit of $6,500 when they bought a house. Real estate agents pointed to the credits as a big reason why housing sales were up during the latter half of 2009 and the first half of 2010. Now they worry that without it, sales will fall.

Bigger Reasons

It seems, though, as if there are bigger reasons why mortgage loan applications have fizzled. People are worried about their jobs. They’re worried about their mounting debt and whether it will send them toward a high-interest-rate debt consolidation loan. They also worry that everything from gas to groceries to milk seems to be getting more expensive while their bosses have put a freeze on pay raises. Others look at a dwindling yearly income, thanks to forced unpaid days off, and wonder how they’re going to pay the bills they already have. A new mortgage seems like an awfully big luxury to these people.

Positive Signs?

The recession is officially over, and there have been positive signs that the economic recovery is still proceeding. Problem is, it doesn’t feel like much of a recovery to many people. When you’re calling debt consolidation companies to judge their rates, you certainly don’t feel as if things are getting better. Real estate agents and mortgage loan officers, then, shouldn’t be surprised if demand for their services starts to wane again.

In some cases, getting personal loans can make or break a small business. However, unsecured loans are among the hardest to get, especially for small businesses desperate for funds. Typically, a personal loan is based solely on a business’s credit score. If a new business has no credit history or worse, bad credit, then getting that much needed loan can be downright difficult if not impossible. However, one company is looking to change the rules to help out small businesses.

Montana Capital Changes Requirements for Personal Loans

The recent changes in Montana Capital’s requirements for personal loans, cash advances, and business loans may be interpreted as good news for those in North Hollywood, California. In a press release sent out on May 17, 2010, Montana Capital laid out the new requirements for unsecured loans up to $25,000. The press release states that the bank is virtually dropping credit scores from its application process and that a bad credit history will not mean an automatic denial. Instead, a team of professionals will examine each case to determine approval. They are estimating an approval rate as high as 95%.

Bad Credit Past Doesn’t Mean Bad Credit Future

According to the press release, Montana Capital does not believe a bad credit history means that a business is a high risk. Since credit companies hold on to bad credit records for 10 years or more, when a business defaults on a loan it is hard to regain good credit. However, that does not mean that the business has not changed dramatically since the default. Montana Capital believes that instead of looking at a credit score that can reflect faults from years past, it should look at where the company is now. If the company is in a better financial position, then loaning the business money is not high risk at all.

No Credit History is Not an Automatic No

Similar to bad credit scores, businesses with no credit have a hard time being approved for personal loans. With no credit history to back them up, some banks do not want to approve the personal loan. This becomes a “Catch 22″ for many new businesses. They need a personal loan to establish credit history but they can’t get a loan because they have no credit history. Montana Capital wants to change that by giving out loans to business with no credit history. Whether or not other banks and lenders will follow along with this new strategy of lending has yet to be seen. If they do, then it will be a big boost for small businesses trying to make it their first year.

Personal loans, home loans, and credit card debt, which one should you default on to protect yourself? Twenty years ago, home loans would have not even been in the picture. If anything, people chose to default on credit cards, keeping personal and home loans intact. These loans had more of a stigma to them and you just didn’t default on your mortgage or your personal loan. However, this is changing rapidly.

Strategic Default on Home Loans

You read that right. More and more people are choosing to default on their mortgage while still paying other forms of debt. They keep paying all the other bills except for their mortgage. It has become so popular that banks are calling this a strategic default. Experian (credit score) and Oliver Wyman (International consulting firm) looked into the issue and estimated 18% of defaults above 60 days were strategic. This is up a whopping 128% from 2007. They are not the only ones finding this new trend. According to research done from Chicago Booth/Kellogg Scholl Financial Trust Index, strategic defaults increased from 22% in March 2008 to 31% in March 2009.

Why Default on Your Mortgage?

Why would anyone default on their mortgage instead on their personal loans or credit cards? It is pretty ingenious if not a bit unethical. Due to the previous huge over-inflation of home prices, more and more home owners are finding they are upside down with their mortgage. Since they owe more on the house than it is worth, they feel it makes more sense to default on that loan to get out of paying high interest rates on a loan that costs more than the value of the house. While others are taking years to get out from under the upside down mortgage, they strategically decide to default on this loan.

Strategic Defaults Effect Future Loans

We all know defaulting on your mortgage effects your credit score, making getting personal loans, credit cards and even secured loans more difficult. What people are not considering is how it will affect future mortgages. If the trend continues, then banks and brokers will have no choice but to take this possibility into consideration when issuing home loans. This will affect all of us whether we have defaulted or not. Banks will have to consider the possibility and will have to charge more. It could mean a higher down payment or higher interest rates. The only good part is that banks will have to consider the probability of a home loan going upside down. When they stop making loans that go upside down, no one will have to strategically default on their mortgage.

Homeowners relying on mortgage loan modifications to avoid debt consolidation may be out of luck. At least that’s the news from a recent New York Times story that says that completed mortgage loan modifications through the federal government’s Home Affordable Modification Program have hit a standstill. Last year, the federal government introduced the mortgage modification program as a way to provide relief to consumers struggling to pay their monthly mortgage payments. Lenders and banks, which were provided with financial incentives from the government, are being asked to work with these homeowners to somehow reduce their monthly payments. They can do this by lowering the interest rates on loans, extending loan terms or forgiving part of homeowners’ principal loan balance. Problem is, the number of successfully completed loan modifications has slowed to a trickle.

Dismal Statistics

The government reports that the program has helped 300,000 homeowners modify their mortgage loans to more affordable levels. Unfortunately, as the New York Times story reports, that’s only a small percentage of the estimated 4 million U.S. households in danger of foreclosure. This relatively low number of mortgage modifications may also lead a growing number of homeowners toward a future of debt consolidation loans.

Few Options

Mortgage payments are usually the largest monthly debts that homeowners face. If homeowners can reduce this monthly expense, they’ll ease their debt burden significantly. However, if they can’t – because mortgage companies aren’t responding quickly enough to loan modification requests – they have little choice but to take other measures. This includes debt consolidation loans, in which debt consolidation companies combine their clients’ monthly debts into one single payment. Debt consolidation will help consumers get their financial lives back on track, but it does come with some drawbacks. It will lower consumers’ credit scores, and debt consolidation companies often charge high interest rates.

Housing Crisis Fallout

The government started its Home Affordable Modification Program as a way to deal with the fallout of the housing crisis, in which homeowners saw their home values plummet seemingly overnight. As unemployment rose, more homeowners were unable to afford their mortgage payments. And with housing values down, many homeowners have been unable to refinance their existing loans to take advantage of lower interest rates. It’s a perfect storm. A recent survey from First American CoreLogic stated that nearly 25 percent of all U.S. homeowners are currently underwater on their mortgages, meaning that they owe more on their loans than what their homes are worth. This statistic goes a long way toward explaining why more homeowners may soon take a long look at debt consolidation loans.

Wonder why the debt consolidation and settlement industries have such bad reputations? Maybe it’s because they seem to prey on desperate people during challenging economic times. This might be why the Better Business Bureau has reported receiving more than 3,500 complaints from consumers about debt settlement companies since the recession began. The large number of these complaints – often from consumers who paid money to debt settlement companies only to not see their debt levels drop at all – has encouraged a growing number of states to enact new legislation to regulate the way these companies operate. Illinois is in line to become the next.

Debt Consolidation vs. Settlement

To be fair, there’s a big difference between debt consolidation and debt settlement, though consumers tend to lump these services into the same category. Debt settlement companies negotiate with their customers’ creditors, hoping to reduce the amount of debt that their clients eventually have to pay back. Debt consolidation companies pass out loans that combine their customers’ debts into one monthly payment, a payment that their clients can afford to make every 30 days. The debt settlement companies receive the greater number of clients. Customers often report that these companies have not been able to reduce their debt by as much as they promised. Sometimes, the companies charge clients and are then unable to reduce their debt at all.

New Illinois Law

In Illinois, legislators passed a bill that would prevent debt settlement firms from charging for their services until they actually negotiate lower debts for their clients. The amount that the companies do charge consumers can’t be more than 15 percent of what these consumers saved by going with the debt settlement company. Illinois state attorney general Lisa Madigan helped draft the new rules, which are awaiting a signature for Gov. Pat Quinn. She has long argued that some unethical debt settlement firms charge consumers hefty fees without following through on their promises. By forcing debt settlement companies to defer their payments until they actually provide a service, Madigan says, Illinois can end this practice.

Debt Consolidation A Better Option?

Consumers who face a large amount of debt will have to choose between debt settlement and debt consolidation. Debt consolidation certainly comes with its share of disadvantages: Debt consolidation loans usually come with high interest rates, and these loans will negatively impact consumers’ credit scores. On the other hand, debt consolidation loans are sure things. A debt settlement company may not be able to negotiate a good settlement for its clients. A debt consolidation loan, if consumers pay the installments on time, will always eventually eliminate consumers’ debt.

With the end of the year approaching, this is a great time to consider whether or not you have the ability and desire to give to charity this year. There are more needy people this year than in normal years and most organizations that provide aid to the needy are reporting that donations are way down this year compared to in past years. As a result, any giving you do this year could be more meaningful and beneficial to the organizations you support than in previous years.

To make sure you’re getting the most out of your giving and that the charities you support and maximizing their relationship with you, consider these tips before you write your donation checks this year.

– Find A Match: If you work for a large corporation, check to see if there is a matching program for donations. Some companies offer a year round matching program that you can take advantage of, but many have established programs especially for the holidays that provide employees with the opportunity to double the power of your donation. A matching program is a great way to build a sense of community with other people you work with if you’re able to pool your resources and work together to support a common cause.

– Focus Your Giving: If you have a sum of money to donate to a cause or causes that you support, one of the difficult choices you have to make is whether to give to one charity or to spread your donation among several organizations. You may want to support several charities, but the truth is that your dollars can probably go further by consolidating them and sending them to just one or two places. One of the biggest costs for charities is finding new donors and once you make a small donation to a charity, you’ll become someone that they spend time and money marketing to in hopes of future donations. Instead of giving cash to multiple charities, consider choosing some that benefit from your funds and others that benefit from your time.

– Keep Accurate Records: Charitable giving is a great way to benefit causes that you support, but it should also help you be reducing your tax bill. Without accurate record keeping though, it can be difficult to account for the giving you do. Many people give small donations throughout the year without tracking them and only report bigger donations on their taxes. One easy way to track donations is simply to create a spreadsheet that you can record your charitable giving on throughout the year.

– Be A Systematic Giver: The same principles that make people good savers can make people good givers. The bulk of donations are made at the end of the year but organizations need funding and financial support year round in order to continue operations. Consider setting up a direct deposit to one or two charities that are important to you.

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Investors over the last ten years have learned an important lesson about bubbles in different categories of investments-stay away! Bubbles can be thought of as a time of rising prices in a particular type of investment–think of technology stocks in the late 90’s or real estate just a few short years ago. A lot of money can be made investing as a bubble is growing, but many times investors get into the game too late or fail to get out while their investments are profitable.

Bubbles are driven on emotion. They usually begin with a rational basis for growth potential but grow into frenzy as more investors want to participate in the growth. Although some lessons have been learned during the last few bubbles that have burst, there are some new areas of growth that have the potential to become bubbles. 401K balances are a popular place to chase the hot sectors, but before you adjust your 401K holdings, consider the risks in these three “hot” asset classes.

– Commodities: Commodities are the materials that we use everyday and their prices are driven by a number of factors. As the dollar has weakened, prices of materials like precious metals and oil have increased dramatically. The price of an ounce of gold has surged 44% this year, while copper is up more than 50% in 2009. With commodity prices near record highs, money continues to pour into them daily. As an investor considering an investment in gold, think about the fact that you’re buying at a time when gold prices have never been higher. There certainly could be a place for gold or other exposure to commodities in a well-rounded portfolio, but have an exit strategy in place in case the rise in commodity prices turns out to be a bubble that could eventually burst.

– International Equity and Real Estate: There are really exciting developments happening in China, India, and other developing countries that will results in huge business and investment opportunities in the future. With billions of people working and living in these developing economies and the dollar getting weaker compared to other currencies, the growth potential is definitely intriguing for investors. However, the amount of money pouring into emerging market funds (over $50 billion in 2009 already) and ETF’s should make you reconsider before moving your entire 401K balance to the emerging market fund. The broad-based index for emerging markets is up 60% this year and index funds for particular developing countries are even higher. As an investor, you need to weigh the exciting growth potential for these types of funds against the flood of speculative investor money that has already poured into these countries.

– Short Term Bonds: With literally trillions of dollars in cash on the sidelines and interest rates paying people holding cash almost nothing, many investors are looking for the next-safest option for their cash that provides a little return. Short term, limited duration bond funds have become extremely popular this year as cash alternatives because they offer a decent yield (currently between 3% and 5% typically) and the perception of safety. As an investor, you have to be careful following the herd, even into a low-risk investment. As rates begin to improve and money starts to flow out of these funds, losses could be created that investors aren’t accustomed to in short term bond funds.

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Gold prices are at record highs and if you watch any late night cable TV, you’ve probably seen the commercials encouraging people who own gold to cash in while prices are high. There’s nothing wrong with treating the gold you own as an investment and cashing in if you think the time is right, but there are many gold dealers taking advantage of gold owners who don’t realize the true value of what they have.

Some gold buyers are getting away with scams in which they pay only 15 or 20 percent of the true value of the gold, taking advantage of people who are either uninformed or desperate for some quick cash. It’s reasonable for gold merchants to make a profit when they take gold off your hands, but the profits should be reasonable. Here are some ideas to help make sure you get a fair deal when selling gold.

– Get Educated: Not all gold is created equal. If you have actual gold coins, like the popular American Eagle coins that many investors prefer, then you know exactly how much gold you own. However, a 14-Karat gold necklace or ring is not made up of 100% gold. With 14-karat gold, the gold content is approximately 58.3 percent, so your expected return on that piece of jewelry should be adjusted based on the actual amount of gold in the piece of jewelry. Knowing what you own will help you to determine the value you should expect to receive in return.

– Use A Reputable Buyer: It’s easy to get a license to buy and sell gold and with the frenzy surrounding gold prices recently, gold merchants are popping up on every street corner. You’re more likely to get a fair price from someone who deals in gold full time and has a reputation to maintain than a plumber who trades gold on the side. You can also do a background check of your own with the Better Business Bureau to look for complaints against a gold merchant. Some of the best known companies that buy gold have a long list of customer complaints.

– Ship Gold Securely: One gold infomercial shows a happy gold seller dropping a bunch of jewelry into an envelope, sealing it, and sending it off to await payment. You wouldn’t send an envelope full of cash and if you can avoid sending an envelope full of gold, you should. Find a secure way to ship your gold with the option to insure the contents of the package and confirm delivery if you can’t find a local buyer.

– Don’t Throw Away Memories: Gold prices are high and some people are going to cash in, which is fine. As you decide whether or not you can part with your gold, the emotional value attached to items you may have inherited or received as a gift is important to consider as well. There will always be gold buyers and gold prices may continue to increase so don’t part with something that is special to you if you don’t have to–the opportunity to sell gold isn’t going anywhere!

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