In order to fix the financial mess we are in, we must look at how we as a nation got here. The changes we must all make are deep. We must examine the habits that we have exercised every day; maxing out credit cards, buying the expensive cars, spending more then we make, and living outside our means. This behavior cannot continue, as we have recently learned that the markets and our economy cannot support or sustain this way of life.
This sad reality check has proven that we as a country are a true debtor nation. From the government down to the individual, we have issues with borrowing way more then we ever should. Since the government borrows excessively on a regular basis, why can’t we place the blame on them? Well, that is one way to look at it; however, the financial responsibility of every individual is on the individual. Accountability is key here.
So what do we need to do? Well, borrowing money to buy something you truly cannot afford is no longer an option. Never again will Americans who cannot afford a true mortgage get a loan. This was ridiculous in the first place. But like our President said, in those days, reform was not a priority. Well, not reform is a priority. Every time you are about to make a purchase and pull out your credit card and NOT your debit card, you need to truly ask yourself, “is this something I need? Is the reason I am using the credit card because I cannot pay cash for the item?” If this is the case, then you should reconsider. Many Americans took into no fax payday loans and failed to pay them back.
As Americans, we have always enjoyed the spoils of the best and the nicest things. We have to realize the days of enjoying these things without consequence are over. It is inevitable that living outside an individual’s or a country’s means will come back to bite you. No one will continue to supply you with loans if you only take news loans to pay off the old ones.
It may have happened to you or to a close friend. Unexpectedly, for no apparent reason, the terms and payments on your credit cards has dramatically changed! You always paid your bills on time-you always paid more than the minimum payment and were a long time customer. Suddenly you go to the mailbox and find that your credit line has been cut in half, even as your interest rate doubles or triples! Recent surveys are saying this could be happening to as much as 30% of Americans with credit cards!
So what are your options if the credit card companies do this to you?
- Call the credit card company directly to see what options you have. If you have a solid payment history with this creditor, voice your disagreement regarding the reduced limit or rate change. Argue that you have always made your payments on time, emphasizing that you are a long-term customer
- If you are in good credit standing, you could have the luxury to shop around for a card with an even better interest rate. You have the ability to take advantage of the fact that banks are lending again. Balance transfer credit cards can provide time periods with low or 0% interest rates.
- People are either hesitant to borrow or have too bad of a credit situation to qualify for a new card. If you are unsure of where your credit stands, sign up for free credit monitoring. There are a few websites that compare credit cards based on credit score requirements. You can use the Federal Reserve website for more information about what to look for when credit card shopping.
- Do not close your current credit card accounts. Doing so can actually affect your credit score negatively, limiting your ability to borrow if your situation gets worse. You also have no idea if the cards you keep will one day change their terms and limits.
So how do you know if your credit card company will spontaneously change your terms and payments? Honestly, you don’t. While there is a law that governs consumers’ rights with credit cards, unfortunately, most of us sign a contract with the lender that gives them the right to make these changes to our credit lines and credit cards. Continue to monitor your monthly statements and online accounts to see if changes are coming. Aside from rate and term changes, pay attention to news of your bank being acquired by another.
We should take action to lessen our dependency on credit cards. We need to learn to live within our limits and buy only what we can afford. Altered payments and interest rates is the first sign that times are changing; as a result, our old spending habits have to change.
Obama has expressed the importance of our country coming together and making the effort to better the current financial and economic situation. He called in state governors and city mayors, vowing to hold them accountable for every dollar they receive from the federal government. He used his State of the Union address this past Tuesday to reiterate the importance of every individual moving forward; more importantly, he explained how his plan will work to help everyday Americans.
The message the White House has been sending this past month has been that today is the day that change has come. Tuesday’s speech was no different. We need to change our ways as people when it comes to spending, lending, and borrowing. More importantly, President Obama told congress that today was the day they have to stop putting off reform. In order to better understand the situation, we have to realize how we got to this point. Congress allowed banks to exercise past lending practices and to push bad loans Reform was put off. Discussions about Healthcare and Educational reform was put off for the next year and for the next administration
As the leader of this next administration, Obama has given us access to a website, recovery.gov, as a place to go and follow exactly where every tax dollar is being spent.
The importance of credit in our economy has never been so visible. Obama said if credit isn’t flowing, then the process of recovery we must go through twill not begin. If people cannot get loans then they cannot buy homes or cars. Aspiring students will not be able to apply for student loans. If credit is not freed, stores cannot stock their shelves and sales cannot be made. If lending is not opened up, then businesses cannot make payroll and people get laid off. So banks stop lending to individuals and each other and eventually credit dries up.
We need to put an end to this destructive cycle and restore confidence and lending. President Obama has laid out a three part plan to do this. The first part of the plan comes in the form of the new lending fund, the largest effort ever made to increase lending to the following people: auto loans for consumers, business loans for entrepreneurs, and education loans for students. The second part of Obama’s plan is a housing program to help responsible home owners lower their monthly payments and refinance their mortgage. The third part of the plan aims to restore money and confidence to the banking system.
From the top, this plan looks like an effort on all fronts to encourage lending, the true question is just how much will this cost us over time?