You see the news items about the chaos in the credit industry. Credit card issuers are raising interest rates regardless of payment history, lowering credit lines, and creating new ways to charge customers. Many of the popular credit card incentives of yesterday have disappeared or the value has been greatly reduced.
The only way out for many credit card holders is to pay down their balances as fast as possible and not incure any new charges. And they are doing that in droves. Which is a good thing for those who can. But many are trapped due to unemployment and a sluggish at best economy.
On one hand, this will surely come back to haunt the credit card companies. But they have such a huge member list that can’t readily escape and short term gains are hard to resist. The only reason so many banks and other credit card issuers are doing well is they are feeding on their current captive customers.
And the quest to shut down or eliminate non active accounts is unbelievable. People are using their credit cards less for a good reason, they are trying to save money. Many are finding out that their credit cards have been cancelled when they do go to use them. No notice (not required according to many agreements that credit card issuers have you sign) is given, you just find out when you go to use your credit card. Now there’s some great customer service.
Congress passed a bill this year that forces the credit card companies to be more proactive in communicating any interest changes and slapping new fees on current credit card holders. As with most federal laws, it won’t go into effect for about two years. It would appear that the credit card companies are now making hay while they can and doing everything they can to increase revenue now.
And the home loans are in worse shape than the credit card accounts. Although the government is trying to help the beleaguered homeowners who now have upside down loans (they owe more than their home is worth), the lenders are barely responding. Everyone I’ve spoken to who has tried the new programs to refinance have been put off, ignored, or flat out refused in their refinance requests.
The government programs have offered lenders incentives of a couple of thousand dollars if they help a homeowner refinance to bring their payments down so they can keep their homes. Not enough say the lenders, the numbers just don’t add up. The lenders have the time to let the market start improving so it’s all about the money.
It’s estimated by the end of this year; over 35 of all homeowners with mortgages will be underwater (the loan amount is above the value of the home). That will stagnate the real estate market even longer since many will not be in a position to sell with out taking a serious loss. Chances are that anyone who bought or refinanced in the last five years will be underwater with the 30 loss in equity the home market has suffered.
Welcome to the new credit world. It’s ugly, hard to navigate, and nothing is guaranteed anymore. Some people who have the income and the down payment are getting some great deals on real estate and that has helped. But the loan process these days is becoming more difficult to navigate for people with what was once considered good credit. The amount of scrutiny is tenfold and the process has become full of pitfalls and slow downs.
Not a pretty picture, and there doesn’t seem to be any easy way out of this mess. For those that still have a job and income, it’s time to pay down any credit line you can. For those that find themselves between a rock and a hard place, consider eliminating debt if it’s inconceivable to pay off. These are difficult times and will require some tough choices. There are many free credit counseling services from local communities, church organizations, or government agencies at all levels. They can help and often give you an unbiased opinion.
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