This footage is a few months old, but it has such a great message about the future of the economy that I felt it needed to be viewed again. Our economy is in serious trouble and my goal for the next few months is to dig out every bit of footage where politicians are willing to speak up and bring to the table their own opinions on where they believe the economy is and where it is going. This is the best source of information when our own politicians are willing to express their thoughts openly about these issues.
One of the issues that’s mentioned in this video is our currency. The Dollars has been on its longest steady decline in decades and it shows no signs of stopping. Our currency is based on nothing, and it is losing the trust it once portrayed so well. There are a lot of fallacies in the handling of our money, starting with a common belief and false confidence that our currency is backed by gold. This is simply not true.
Our national debt is not repayable, that check will bounce. This is the message I get from listening to Congressman Ron Paul and it is very unsettling to think about it because it is always growing, yet we continue to print money that’s already completely debased.
A lot of us have been there, we never really thought about the consequences of accumulating credit card debt so early in life. As I mentioned before in the “Things you should never do with money” articles, we as consumers have a tough time rationalizing the necessity of some of the purchases we make. We tend to negotiate with ourselves and are somehow able to turn our wants into needs.
College students don’t have a lot to spend or live on, yet somehow they’re able to get high limit credit cards and this is when it all begins to go wrong for many of them. Even at this educational level student do not have the necessary money skills and often end up spending more than necessary. Student loans normally cover tuition and living expenses but that’s not all that college students need to finance. Money in college is scarce and it’s one of the most important resources to a college student’s social life.
In the first article of this series I pointed out some very basic yet often ignored personal trends on handling money. When it all adds up, which it will, you often wonder why and how you got to amount so much debt. Where did it all come from? and what material possessions do you have to prove that you spent it? These are the things you should never do with money and often ignore. These habits have led many into serious financial debt and even bankruptcy.
1. Don’t buy things out of impulse - Going back to the first article I mentioned how we as consumers are targeted everyday and the efforts by commercial entities to market their products are so sophisticated that even human psychology is employed to more effectively entice consumers. What ultimately happens then is that your impulses take over your better judgment and you make the purchase. How many times does this happen to you? Exercise discipline with your finances, minimize your shopping trips and train yourself to ignore the trends and temptations to keep up with them. Make a distinctive evaluation of the product you intend to buy and determine if it’s something you actually need. People have conditioned themselves to negotiate their wants into needs and it’s a habit that only leads to high credit card balances.
2. Ignoring your savings account - If you aren’t actively and systematically saving money in a savings account, then hopefully you’re doing it via your employer’s 401K plan and contributing the most you can in order to get a match contribution from your employer. If you aren’t doing either, then most likely you’re living the paycheck to paycheck routine. Why is this dangerous? Not saving money means you have nothing to fall back on if you were to have an emergency or if you were to lose your job. You may think you can rely on family members to help you, but that only transfers the burdens of your debt on to others. The worst part of not having a savings account is accumulating debt on top of not having any of your own money. It’s a bad habit and it doesn’t prepare you for anything.
3. Paying the minimum payments on credit cards - If you are actively using your credit cards for what you’re judging as necessities you may also be brewing a storm. Credit cards are so heavily marketed that people forget what they’re really for. They’re not so you can get the latest gadget now because you don’t have the cash, they’re not so you can finance your ski trips, they’re for emergencies! Oh yes the credit card company forgot to tell you that I’m sure. If you’re only making minimum payments on your cards, you’re more than likely doubling the total amount owed when it’s finally paid off. The problem with these habits is that sometimes you make yourself feel good by sending a larger payment one month and then think that you’ve caught up, and then you use the credit card again. These are bad decisions and you can find yourself in the kind of debt that often leads to bankruptcy. Pay down your balance, never mind what the credit card company says about the minimum payment, send larger payments and pay that balance down.
4. Lending money to friends and family - You may not want to hear this one because you’re probably very close to your family and your friends may even be like family to you. But lending money to your friends and family can get you in trouble as well. Ask what they need the money for to begin with, people get themselves in trouble financially for a lot of reasons if they are real need then you can certainly make an exception. But you should never support any kind of debt that involves gambling, leisure spending or just any other kind of activity that isn’t a necessity. Lending them all you have can hurt you and put you in a really tight spot financially. This one can be a challenge so careful not too let you feelings take over your better judgment.
5. Never co-sign a purchase contract with someone else - Your mom or dad may have done it for you in the past and you may think that this is ok to do if someone doesn’t have the credit. One thing that is often overlooked in this situation is that if the person who needs you to co-sign for them defaults on payments to whatever it is they’re financing, you are now responsible for those payments. The creditor will come after both of you or whoever can pay the bill. Should you fail to pay for your friend or family member, your credit will be hit with late payment or defaults damaging your credit history. It’s not uncommon that bankruptcy results from such situations for innocent parties who were only trying to help out. Creditors only care about collecting payments and if you’re name is on that contract you’re on the hook.
Although the efforts of the federal government to extend relief to lenders and homeowners was more than welcome, the actual results have so far only added to about a half million homeowners in the US being able to rework their loan terms and retain their homes in the first quarter of 2008. Over all the housing relief act has not kept up with the rate of foreclosures across the country.
Over 200,000 homes have already been lost to foreclosures in the first three months of this year. Some of the most affected areas are the states of Nevada, California and Arizona, where real estate prices sky rocketed during the real estate boom that started approximately in late 2000 lasting through 2005 and finally stabilizing in 2006 before beginning a solid decline. During this time investors quickly snatched single family homes and condos in these areas hoping to turn a profit when reselling the homes.
Many industry experts consider the current foreclosure situation an ongoing problem that will not see the bottom of its free fall for some time yet. Loan modifications and homeowner assistance are not benefiting all who could use the help. The State Foreclosure Prevention Working Group (SFPWG) reported their estimations to be that for every 10 homeowners who apply for loan modifications, only 3 are able to get somewhere with their lenders. Also the number of troubled borrowers is increasing each month, more defaults are occurring and neither lenders nor the federal government’s efforts to afford help has been keeping up with the rising numbers of defaults.
Along with the rising numbers of defaults and foreclosures is the number of vacant homes for sale across the country, which is at a record high compared to last year. The housing boom which lasted approximately five years, fueled the rate of new home construction across the west, particularly California. Because this was an unnatural rate of growth, and over valuing of real property, it was only a matter of time before a correction occurred.
Not only are these rescue efforts slow and limited, but the latest activity from Washington where Democrats had proposed a housing package has been met with strong opposition from the Bush administration. The package would provide $15 Billion dollars to buy and rehabilitate properties across the country. The White House opposes the package saying that it is excessive risk of tax payer money.
Also a second bill was approved by the Senate earlier this month that addresses a suite of benefits. Tax breaks would be provided for home builders and other businesses, a $7,000 tax credit for anyone who buys a foreclosed property, a program to counsel borrowers would take $150 million and local government would get $4 Billion to buy abandoned and foreclosed properties.
Because there are so many propositions and plans from many source, the housing relief act has not taken shape well enough and has moved very slowly in the direction it needed to when it was first conceived. It isn’t yet clear what the final action will be and what if any relief will being flowing down to home owners who need help. Also amendments to bankruptcy laws are in the works and we should be hearing news about those before the end of this year. So far it’s been rumored that the changes do not benefit the filers, but the creditors.
For more information on finding ways to modify your existing loan and other default and foreclosure options, review the post about free foreclosure help, in which I talk about a site that was launched not long ago with the only aim being to help homeowners in trouble.
Back in 2002 when I bought my condo, there were no obvious signs to me that what was going on in the mortgage market were the beginning stages of the current subprime crisis. I knew I was making the right decision to buy a place while I could still afford one and I saw how property values jumped significantly in the next two years. However, all along I had this feeling that this rapid growth of the market could not be normal and that it could not possibly benefit everyone. I also figured that at some point I would have to sell my condo and I would most likely want to sell it at fair market and maybe just a tad more.
Would someone really be willing to pay me double the price of what I paid for it a couple years ago? This really puzzled me, and even though I thought it would be great to make that much money, I couldn’t help to feel a little concerned for whoever ended up buying my condo. Would they finance with sub-prime or conventional loans? How will they manage such a large monthly payment? Will they continue to enjoy the market growth like I did?
It can’t grow forever, what goes up must in deed come down, and that’s what we’re witnessing here. It’s a nose dive of a decline for the housing market and it really is difficult to watch. The same thing goes for the stock market, there’s usually a period of aggressive growth that must eventually fix itself. I trade very moderately in the stock market so I keep up with it, but it’s definitely not a huge worry for me.
Though the housing market, which everyone is part of in one way or another, is now suffering from a subprime mortgage crisis, which in turn has an impact on the overall economic growth. As more mortgages default, there’s less confidence in buying homes, and we’re ending up with a surplus of homes across the country, causing a very dramatic decline in new home construction and prices of homes. All of this builds the downward pressure that weighs on the overall growth.
Interest rates on a number of subprime and ARM loans are due to go up through 2008. However, to the benefit of home owners who may be finding themselves on the brink of bankruptcy, the US treasury, backed by US legislators, is enabling the deferment of interest adjustments in order to begin working towards stimulating the economy and re-establishing confidence in consumers and financial markets.
To begin a resolution to the subprime crisis, one of the measures that can be taken in the future through legislation is to limit the numbers of different financial products that revolve around these types of loans and to force revisiting the metrics to qualify consumers for these types of loans. Salaries will need to keep up with inflation and unemployment needs to stay low. Finally, the housing market’s steady decline needs to be interrupted as soon as possible, but this won’t be possible without more aggressive efforts from the US treasury and the government.
Meanwhile, if you’re finding yourself in the same situation that millions of homeowners are in right now, where you’re not making your mortgage payment and considering bankruptcy. You need to know that there maybe alternatives available to you, banks and mortgage lenders are starting to resort to offering their customers loan modifications and or encouraging a short sale. Read more about loan modifications and other free resources here, it may be just what you need to save your home.
LLCs or Limited Liability Corporations are legal business entities that offer limited liability ownership to its members, meaning that the owners or members are not personally responsible for the debts that the business incurs. At least in theory that’s the case. An LLC that finds itself in a situation where it is not being profitable and debts are running high, can also find relief in filing bankruptcy. However, it is often common that when LLCs are first formed, the owners don’t realize that they may have made themselves liable for the debts of the business by making personal guarantees for the debt that funded the company.
Normally lenders will use the Tax Identification Number of the LLC to extend credit. LLCs are not always profitable, especially when they’re first starting out, and in order for a lender to accept applications and begin processing the requested credit the business either needs to be profitable for the lender to proceed without any additional guarantees, of course these policies will vary by lender. When that criteria is different, normally the lender will still proceed with approval if the owners of the LLC are willing to make personal guarantees for the loans or credit lines. Often this is not explained in great detail or is in small print on the paperwork you sign.
Should this be the case with you, and you see your business taking a turn for the worse, you need to consider this option carefully before you continue with declaring bankruptcy for your LLC. This is something that’s often overlooked during the formation of such business entities. Again lenders don’t always emphasize this point because as long as they have good backing for their money, they don’t care who’s on the hook. So if your LLC files for bankruptcy this will likely extend to you, meaning you may also have to file bankruptcy, otherwise since the liability falls on you, you’ll have to repay the debts yourself.
Be 100% certain that you’re not personally liable for the debt before you proceed, review the paperwork you signed when your loans or credit lines were processed and see if your social security number appears anywhere on the application or approved paperwork.
Only when you find out the structure of the loans or credit on your business, you can begin addressing the problem with a new perspective. If your business debt has a personal guarantee then you should consult a bankruptcy attorney for a better approach to the problem. Your attorney will be able to study the paperwork more efficiently. In a case like this you would not want to prepare and file you’re own bankruptcy petition, you will run into too many obstacles and doubts and may end up filing the wrong paperwork or submitting the wrong information, which again only you will be responsible for.
At the very least consult with a bankruptcy attorney if you feel your LLC is in trouble and you need to get the debt sorted out. Your best option in this situation would be to file bankruptcy chapter 11, you can repay the debts of your business under more manageable terms while your bringing your business back to a profitable state.
Sometime the decisions we make that can negatively impact our financial future are not always obvious, there are too many entities working against our better judgment when it comes to how we handle our own money. I’m talking about commercial entities and the popular trends we pay so much attention to, that contribute to the ever growing “want list“ that we often mistake for the “need list”. I’m gathering a list of general things called “things you should never do with money”, there are many, and this is the first in a series of several future posts. These are some of the things we tend to give into that eventually get us into trouble:
1. Don’t sign up for another credit card when you’re maxed out - This should be a red flag for any credit card company processing your application that you’re not living within your means and you spend more than you should. Will that stop them from processing your application? Probably not. As long as you have good credit and you make your payments on time, even if it’s only the minimum due, there’s no indication to them that you’re a risk. But is this a sound financial decision for you? If you’ve maxed out your current credit card, you need to stop and look back at the purchases you have made and honestly determine if these are needs or wants. If you get another credit card, what’s to stop your from maxing it out also and ending up with now two cards to pay off?
2. Don’t borrow against your home - Here’s another example of a really bad decision in which lenders are happy to help you dig your own hole. A “HELOC” (Home Equity Line of Credit) is, in my opinion, the worst product ever put out in the financial world. Why? Two reasons, these loans always carry adjustable rates and you’re only required to pay the interest. If you MUST borrow against your home, what you should be asking for is a Home Equity Loan, on which you do pay the principal balance every time you make a payment. With a HELOC you’re only required, and 99% of the time inclined, to pay only the interest of the loan. When do you actually pay the balance? If you max out that line of credit and your balance is $50,000 when will you be able to pay this balance in full? When you sell your house would be one way, but if you’re not selling your house or if market conditions end up putting you upside down, how will you come up with the money to pay this off when it is due in full?
3. Don’t borrow against your retirement account - Depending on your plan, sometimes there are few restrictions for borrowing or withdrawing money, and there’s usually a lot of flexibility for you to do so. Some 401K or savings plans will allow you to withdraw certain amounts of money and you don’t always have to prove hardship. Why do this if you’re not in real need? It’s all impulse. You’ll probably say to yourself “it’s my money anyways”. Well…. yes and no. It’s also the government’s money and that’s a huge liability. The money that’s in your 401k or savings plan is pre-tax money, meaning it gets deducted from your pay before taxes, so taxes will apply when that money is withdrawn. Not only that, but there’s usually a penalty associated with early withdrawals, so if you borrow $5000, the IRS will automatically take 20% or $1000, plus any penalties the savings plan may carry. So if you’re not in real need, don’t mess with this account.
4. Don’t invest in things you know nothing about - There are so many products out there about making money by starting your own business or making money online. Look, a lot of people make a decent living by running their own business and doing business online. But it’s not supposed to be easy and it’s not supposed to be fun as it is often emphasized. It is a lot of hard work. Sure it can be enjoyable and rewarding but fun and easy it is not. Many of these programs almost always over emphasize earning potential with exaggerated figures, but if you visit the advertised website you often find that the program is not at all described and you have nothing to go by other than to enter your personal info for someone to call you later. They will often sell you general information on how to start a business but won’t concisely explain the how to. They also offer coaching programs with phony guarantees, which are expensive so think carefully before signing up. You could end up spending a lot of money for something you could easily research on your own.
