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Auto Loan Delinquency Increases

It shouldn’t come as a surprise but many are still concerned about the increase in auto loan delinquency during the third quarter of this year. More Americans were late in their loan repayment as job cuts and lay-offs continued. The auto delinquency rate is determined by the amount of people who fall behind 60 days or more on their repayments.

It edged up to 0.81 percent in the July-September quarter. This increase reflects both seasonal trends and the weak economy. It’s actually quite common for late payments to occur during this period because borrowers focus on other expenses. Many of them get back on track during the first and second quarters. But amid these worrying figures, there are some bright spots.

Washington DC, for example, experienced a significant rate decrease in delinquency. Other states such as North Dakota, South Dakota, Colorado, Louisiana, Maryland, and Vermont also saw a decrease as well. North and South Dakota typically have the lowest delinquency rates in the United States for all kinds of loans. It is the improvements see in states like Louisiana that can be seen as a sign of recovery. Year-on-year, the state’s auto delinquency rate plummeted by over 14 percent.

While it is too early to say for certain, some analysts believe that the some spots in the country are starting to recover faster than the others. The relatively small increase in delinquency compared to 2008 also reveals that these types of loans are quite difficult to get today because financial companies have raised their lending standards.

Meanwhile, consumers are also trying to cut spending and taking on fewer loans. The rate of auto delinquency followed the results of mortgage delinquency. On the other hand, credit card delinquency mellowed in the third quarter from the second.

Turning Frugal: Save Money by Spending Wisely

You can feel it in the air. Everyone is turning frugal. After decades of engaging in shameless consumerist attitude, people are suddenly becoming wiser with their money. The catastrophe that forced them into the situation might not be welcome, but the shift in consumer attitude will do a lot of good to society as a whole for the long-term.

There are still bills to pay and debts to get rid of though. In the meantime, it is important to save as much money as you can. It is inevitable that you still need to spend on certain things. Here, we compiled some blog posts that can help you spend less on your needs and wants:

April @ Get Rich Slowly uploaded an article titled “The Art of Improvising: Alternatives to Buying New”. Despite what the headline implies, this posts digs deeper into saving. Other than telling you to stop buying new stuff, the author also provided practical tips on how and where you can save. For example, she tells you to repair whenever possible, delaying spending, trading, or renting. Borrowing is also a good idea in some instances.

DeputyHeadmistress @ Frugal Hacks wrote an interesting post “When It Pays to Buy New”. Now, she is not specifically encouraging you spend money on new things; the point of the article is that it sometimes pays to buy something new. This is especially true if the product you’re interested in meets two factors: it frequently needs to be replaced and the company you’re buying from offers money-back replacement guarantee. If it doesn’t meet the latter condition, you should think twice.

The third blog we will feature for this week focuses on buying cheap books. Fiscal Geek has a post titled “24 Ways to Help You Buy Cheap Used Books”. It provides various links to websites that sells books at bargain prices. Even non-booklovers will find the post useful because it gives them an idea about how much, or how little, they should pay when buying stuff.

Debit Card Fees – Banks Look to Cash in

Banking institutions and credit unions have long promoted debit cards as a convenient alternative to credit cards. However, consumers are finding out that debit cards are not really as friendly as banks want people to believe. Peter Means, for example, used his debit card as a fallback. He thought it will help him spend his money more prudently.

Turns out that using debit cards did him more harm than good. The bank charged him seven separate $34 fees to cover his purchases when there was not enough money in his account. So even if Mr. Means did comparison shopping and selected the best deals, he still ends up on the losing end. In essence, he paid $6.75 at Lowe’s to get screws and was charged a $34 overdraft fee for it… he paid $4.14 for coffee at Starbucks and was charged another $34 and so on. In total, he spent $238 in overdraft charges for just one day’s worth of transactions.

The $34 fee stated above is marketed as an overdraft protection. But the fees it generates have become a significant source of income for banks especially at a time when consumers are using their credit cards less and are generally cutting back on spending. For this year alone, financial institutions are projected to derive as much as $27 billion because of overdraft fees on checking accounts (usually on checks and debit card purchases that exceed the balance).

It is a fact that banks are now making more money covering overdraft than they do from credit card penalty fees. The reason can be traced to several sources. For one, Americans use debit cards more often. And secondly, some banks manipulate a client’s transactions in a way that will let them incur more overdraft charges. The cascade of fees, as can be seen in the $34 example, can be very quick especially among consumers who can least afford it.

With the financial overhaul surrounding credit cards, banks have found a new way to generate their lost revenue. Debit has become a stealth type of credit. Three quarters of the country’s largest banks with the exception of ING Direct and Citigroup automatically cover ATM and debit overdraft.

Income Gap Shrinks Between the Rich and Poor in the US

With the deepest recession in the US economy since the Great Depression, the income gap between the well-off in the United States and the average American is becoming to shrink. Ideally, this gap should be closed by lifting up the bottom. But in the trend being seen today, it is shrinking because the top is being pulled down.

According to Ariell Reshef, an economist from the University of Virginia, “Based on experience, it looks like inequality will go down and change the long-term trend of America being a less egalitarian society.” Over the last three decades, individuals occupying top positions as chief executives, law-firm partners, Wall Street bankers, and savvy traders have amassed huge amounts of money. Meanwhile, the income of teachers, office managers, factory workers, and other individuals working in the middle grew slowly.

It is estimated that in 2007, the top 1 percent of US families controlled 23.5 percent of all personal income in the United States. The share of that 1 percent is shrinking fast. It is believed that their income will drop to between 15 to 19 percent of all personal income by 2010.

One significant development that can be seen is the drastic cut in pay for chief executives. In 2008, the median salary of executives listed in the S&P fell 15 percent. However, the effects of the economic crisis and the succeeding credit crunch will go deeper than that. Saving money, for example, has become an important part of an average America’s life.

Finance, for its part, has previously been seen as a lucrative job that attracts top talents. It will not be this way in the future because it will make up a smaller part of the overall economy. The behaviors of Americans will also change. Because borrowing is becoming harder, the focus of many would be debt relief to avoid high interest payments. In any case, there is no doubt that the developments in the last two years will be seen as a watershed for the country’s economic life and American’s lifestyles.

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